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American Airlines (AAL) Stock Gains Despite Posting Q1 Loss

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American Airlines’ (AAL - Free Report) first-quarter 2022 loss (excluding 20 cents from non-recurring items) of $2.32 per share compared favorably with the Zacks Consensus Estimate of a loss of $2.43. Quarterly loss per share was also narrower than the year-ago loss of $4.32.

Operating revenues of $8,899 million skyrocketed 122.03% year over year and also surpassed the Zacks Consensus Estimate of $8,810.8 million. This massive year-over-year jump reflects improving air-travel demand. With the Omicron-related threat subsiding in the latter part of the quarter, American Airlines posted record sales in March. The month marked the first period wherein AAL’s total revenues could exceed the 2019 levels since the advent of the pandemic.

Driven by soaring demand as evidenced by the healthy scenario with respect to bookings, management expects AAL to report profit in the June quarter. The uptick in bookings is enabling the carrier to cover the surging fuel costs.

The top-line guidance was naturally very bullish. Total revenues in the first quarter of 2022 are anticipated to be roughly 6-8% higher than the level recorded in second-quarter 2019. Management expects total revenue per available seat mile (TRASM: a key measure of unit revenue) to be 14-16% higher than the second-quarter 2019 actuals.  The bright revenue guidance for the second quarter pleased investors, resulting in the stock gaining significantly in pre-market trading.

Other Aspects of Q1 Results

In the March quarter, passenger revenues, which accounted for the bulk of the top line (87.8%), increased to $7,818 million from a mere $3,179 million a year ago, driven by strong demand, mainly on the domestic front. Cargo revenues improved 15.4% to $364 million, driven by the carrier’s focus on its cargo unit in the coronavirus era. Cargo yield per ton mile rose 14.6% in the first quarter of 2022. Other revenues climbed 39.6%.

TRASM increased to 14.95 cents from 10.61 cents a year ago. Passenger revenue per available seat miles (PRASM) surged 56% to 13.13 cents, driven by buoyant air-travel demand. Consolidated yield increased 24.7%.

Reflecting the uptick in air-travel demand, consolidated traffic (measured in revenue passenger miles) rose to 44,290 million from a mere 22,464 million a year ago. To cater to this buoyant demand, capacity (measured in average seat miles) expanded to 59,533 million from 37,764 million. Consolidated load factor (percentage of seats filled by passengers) increased 14.9 percentage points to 74.4%. Improvement on the international front was also encouraging with load factor increasing 26 percentage points year over year to 66%.

Total operating costs (on a reported basis) almost doubled to $10,622 million with aircraft fuel expenses and related taxes skyrocketing to $2,502 million from $1,034 million a year ago. Average fuel price per gallon (including related taxes) climbed to $2.80 from $1.70 a year ago. However, consolidated operating costs per available seat mile (CASM: excluding fuel and special items) declined 18.7% to 13.38 cents. Fuel gallon consumption increased 47% to $894 million in first-quarter 2022. American Airlines, currently carrying a Zacks Rank #3 (Hold), exited the quarter with $15.5 billion of total available liquidity.

You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Remaining Outlook

American Airlines expects system capacity for the June quarter to decline in the 6-8% range from the figure reported in second-quarter 2019. Fuel cost per gallon in second-quarter 2022 is expected in the $3.59-$3.64 band. Fuel gallon consumption is expected to be $1,013 million. CASM excluding fuel and special items is expected to increase in the 8-10% range in the second quarter of 2022 from the number reported in second-quarter 2019.

Effective tax rate is anticipated to be 22%. Pre-tax margin (excluding net special items) is expected in the 3-5% range for the June quarter. Basic and diluted weighted average shares outstanding are likely to be approximately 650.3 million and 721.2 million, respectively, in the June quarter.

American Airlines expects 2022 capacity to decline 6-8% from the 2019 levels. CASM excluding fuel and special items is expected to increase between 8% and 10% from the 2019 actuals. AAL expects capex in 2022 and 2023 to be $2.6 billion and $3 billion, respectively.

A Peek Into Other Notable Airline Results

Let’s look at the first-quarter 2022 results of American Airlines’ rivals Delta Air Lines (DAL - Free Report) and United Airlines (UAL - Free Report) .

Delta’s first-quarter 2022 loss (excluding 25 cents from non-recurring items) of $1.23 per share was narrower than the Zacks Consensus Estimate of a loss of $1.28. With Omicron upsetting travel plans in the early half of the first quarter of 2022, the carrier incurred a loss after delivering earnings in the last two quarters of 2021.

However, with the threat of the Omicron variant subsiding, air-travel demand was exceptionally strong in March. Upbeat demand led to DAL earning a profit in the month with the adjusted operating margin reaching almost 10%.

United Airlines incurred a loss of $4.24 per share in the first quarter of 2022, wider than the Zacks Consensus Estimate of a loss of $4.19. Results were hurt by Omicron-induced softness in travel demand in the first half of the reported quarter. Operating revenues of $7,566 million also fell short of the Zacks Consensus Estimate of $7,657.2 million.

UAL expects to return to profitability in the second quarter with an operating margin (both on reported and adjusted basis) of 10%. TRASM is estimated to climb about 17% in the ongoing quarter from the comparable period’s level in 2019. United Airlines  is seeing a steady recovery in business-travel demand and expects an improvement in international demand.

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