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Fuel Costs Likely to Hurt American Airlines' (AAL) Q3 Earnings
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Expenses on fuel represent a significant input cost for an airline company. At American Airlines (AAL - Free Report) , fuel costs accounted for roughly 29% of the company’s total operating expenses incurred in 2022.
Oil price has been moving northward recently mainly due to Saudi Arabia and Russia extending voluntary supply cuts. The upward movement in oil prices is not a welcome development for AAL and is likely to hurt its bottom line.
Declining Fuel Costs Aid Q2 Earnings
In second-quarter 2023, oil price declined 6.6% in the April-June period. This boosted the bottom-line performance of airlines including AAL. In the second quarter, total operating costs (on a reported basis) declined 4.1% year over year to $11,892 million.
Aircraft fuel expenses and related taxes decreased to $2,723 million from $4,020 million a year ago. Average fuel price per gallon (including related taxes) declined to $2.62 from $4.03 a year ago.
Picture Changes in Q3
As mentioned above, oil price has been rising (up 28.5% in the July-September period) due to extension of production cut by Saudi Arabia and Russia through the end of the current year. The sharp hike in one of the primary input costs is likely to have dented AAL’s bottom-line performance in the third quarter.
In September, management stated, “fuel prices have increased considerably since the company’s initial third-quarter guidance issued on Jul 20, 2023”. American Airlines now expects fuel cost per gallon (including taxes) in the $2.90-$3.00 band (the earlier guidance was in the $2.55-$2.65 range). This metric is likely to have been high in the quarter under review due to the northward movement in oil prices, thus hurting this Fort Worth, TX-based carrier’s overall quarterly results, which will be announced on Oct 19.
Overall Top & Bottom-Line Projections
Due to high fuel costs, the Zacks Consensus Estimate for third-quarter bottom line is currently pegged at 26 cents per share. This indicates a 62.32% decline from third-quarter 2022 actuals. For quarterly sales, the consensus mark is pegged at $13.52 billion, suggesting a 0.42% increase from third-quarter 2022 levels.
The rise in this key input cost is likely to weigh on results of all airline players. AAL apart, this is likely to dent third-quarter results of fellow airline companies like Alaska Air Group (ALK - Free Report) , and SouthwestAirlines (LUV - Free Report) .
Alaska Air now expects the fuel cost per gallon in the $3.15-$3.25 band (the earlier guidance was in the $2.7-$2.8 range). Southwest Airlines now expects the fuel cost per gallon in the $2.7-$2.8 band (the earlier guidance was in the $2.55-$2.65 range). While Alaska Air will report results on Oct 19, Southwest Airlines will release the same on Oct 26.
ALK is currently carrying a Zacks Rank #3. LUV is currently carrying a Zacks Rank #5 (Strong Sell).
Image: Shutterstock
Fuel Costs Likely to Hurt American Airlines' (AAL) Q3 Earnings
Expenses on fuel represent a significant input cost for an airline company. At American Airlines (AAL - Free Report) , fuel costs accounted for roughly 29% of the company’s total operating expenses incurred in 2022.
Oil price has been moving northward recently mainly due to Saudi Arabia and Russia extending voluntary supply cuts. The upward movement in oil prices is not a welcome development for AAL and is likely to hurt its bottom line.
Declining Fuel Costs Aid Q2 Earnings
In second-quarter 2023, oil price declined 6.6% in the April-June period. This boosted the bottom-line performance of airlines including AAL. In the second quarter, total operating costs (on a reported basis) declined 4.1% year over year to $11,892 million.
Aircraft fuel expenses and related taxes decreased to $2,723 million from $4,020 million a year ago. Average fuel price per gallon (including related taxes) declined to $2.62 from $4.03 a year ago.
Picture Changes in Q3
As mentioned above, oil price has been rising (up 28.5% in the July-September period) due to extension of production cut by Saudi Arabia and Russia through the end of the current year. The sharp hike in one of the primary input costs is likely to have dented AAL’s bottom-line performance in the third quarter.
In September, management stated, “fuel prices have increased considerably since the company’s initial third-quarter guidance issued on Jul 20, 2023”. American Airlines now expects fuel cost per gallon (including taxes) in the $2.90-$3.00 band (the earlier guidance was in the $2.55-$2.65 range). This metric is likely to have been high in the quarter under review due to the northward movement in oil prices, thus hurting this Fort Worth, TX-based carrier’s overall quarterly results, which will be announced on Oct 19.
Overall Top & Bottom-Line Projections
Due to high fuel costs, the Zacks Consensus Estimate for third-quarter bottom line is currently pegged at 26 cents per share. This indicates a 62.32% decline from third-quarter 2022 actuals. For quarterly sales, the consensus mark is pegged at $13.52 billion, suggesting a 0.42% increase from third-quarter 2022 levels.
AAL is currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
High Fuel Cost: Bane for the Entire Industry
The rise in this key input cost is likely to weigh on results of all airline players. AAL apart, this is likely to dent third-quarter results of fellow airline companies like Alaska Air Group (ALK - Free Report) , and Southwest Airlines (LUV - Free Report) .
Alaska Air now expects the fuel cost per gallon in the $3.15-$3.25 band (the earlier guidance was in the $2.7-$2.8 range). Southwest Airlines now expects the fuel cost per gallon in the $2.7-$2.8 band (the earlier guidance was in the $2.55-$2.65 range). While Alaska Air will report results on Oct 19, Southwest Airlines will release the same on Oct 26.
ALK is currently carrying a Zacks Rank #3. LUV is currently carrying a Zacks Rank #5 (Strong Sell).
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