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Will High Fuel Costs Mar American Airlines' (AAL) Q3 Earnings?

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American Airlines Group (AAL - Free Report) is scheduled to report third-quarter 2021 results on Oct 21, before market open.

The Zacks Consensus Estimate for the company’s third-quarter loss has widened by approximately 39% in the past 60 days. However, the company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters.

Let’s see how things are shaping up for American Airlines this earnings season:

Factors to Note

Improvement in air-travel demand is expected to have driven passenger revenues in the soon-to-be-reported quarter. The Zacks Consensus Estimate for passenger revenues in the third quarter indicates a 22.7% jump from the second-quarter reported number.

The company’s bottom line is expected to have benefited from its efficient cost structure. The Zacks Consensus Estimate for operating cost per available seat mile, excluding fuel and special items, implies a 2.8% decline from the previous quarter’s reported number.

However, the bottom line is expected to reflect the effect from rising fuel costs owing to a spike in oil prices. The Zacks Consensus Estimate for average aircraft fuel price per gallon (including related taxes) suggests an 8.4% increase from the second-quarter reported figure. The company estimates the same to be approximately $2.08 for the third quarter compared with $1.91 reported in the previous quarter.

Since air-travel demand continues to be below the pre-pandemic levels despite improving, American Airlines expects total revenues for the third quarter to decline around 25% from the comparable period in 2019.

In response to the lower demand, the carrier has reduced its capacity. It predicts capacity, measured in available seat miles, to fall approximately 19.4% from the third-quarter 2019 level.

Earnings Whispers

The proven Zacks model does not conclusively predict an earnings beat for American Airlines this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, this is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: American Airlines has an earnings ESP of -5.23% as the Most Accurate Estimate is pegged at a loss of $1.13, while the Zacks Consensus Estimate is poised at a loss of $1.07. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Airlines carries a Zacks Rank #4 (Sell).

Highlights of Q2 Earnings

In the last-reported quarter, American Airlines delivered an earnings surprise of 6.1% with narrower-than-expected loss. Operating revenues skyrocketed 361.04% year over year and also surpassed the Zacks Consensus Estimate owing to significant increase in passenger revenues, thanks to improvement in travel demand.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide (CHRW - Free Report) , Knight-Swift Transportation Holdings (KNX - Free Report) and Ryder System (R - Free Report) , as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

C.H. Robinson has an Earnings ESP of +1.06% and a Zacks Rank #2. The company will report third-quarter 2021 results on Oct 26.

Knight-Swift has an Earnings ESP of +1.33% and a Zacks Rank #2. The company is scheduled to report third-quarter 2021 earnings numbers on Oct 20.

Ryder has an Earnings ESP of +4.73% and a Zacks Rank #1. The company will release third-quarter 2021 financial numbers on Oct 27.