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American Airlines Gains on Bullish Q4 Unit Revenue View

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Shares of American Airlines Group (AAL - Free Report) have been on an uptrend in  recent times. The stock comfortably outperformed the Zacks-categorized Transportation-Airline industry over the last three months. The stock gained 32.83% compared with the industry which advanced 23.44% in the same timeframe.

Continuing its impressive performance, the stock gained 3.31% on Dec 10 to close the trading session at $49.64. The upsurge followed the bullish guidance unveiled by the company for the fourth quarter of 2016 with respect to total revenue per available seat mile (TRASM: a key measure of unit revenue). The metric is projected in the band of -1% to +1% in the fourth quarter. The view represents a marked improvement from the guidance issued last month when it expected the metric to decline in the band of 0.5–2.5%.

If American Airlines records TRASM growth in the fourth quarter, it will be the first carrier to do so in two years. The bullish guidance not only resulted in American Airlines’ shares appreciating, but also those of other U.S. carriers like United Continental Holdings (UAL - Free Report) , Delta Air Lines (DAL - Free Report) and SkyWest, Inc. (SKYW - Free Report) . Consequently, the NYSE ARCA Airline Index gained 1.52% to close Friday’s trading session at $113.34.

We note that SkyWest carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Airlines, which carries a Zacks Rank #3 (Hold), not only provided an improved view for TRASM, but the guidance for pre-tax margin excluding special items has also been raised on the basis of higher yields. Pre-tax margin for the fourth quarter is now expected in the band of 6–8% compared with the prior guidance 5–7%.

The bullish views were revealed by the company while unveiling its November traffic data. Consolidated traffic measured in revenue passenger miles (RPMs) declined 0.2% on a year-over-year basis to $16.82 billion. The downside was primarily attributable to the 1.8% decline in domestic traffic.

Consolidated capacity (available seat miles/ASMs) inched up 0.1% to 20.79 billion in the month mainly due to 39.5% growth in ASMs, in the transpacific market. However, the load factor or the percentage of seats filled by passengers decreased 30 basis points (bps) to 80.9% in Nov 2016. This was primarily because capacity expanded while traffic contracted, leading to empty planes. Cargo miles improved 9% in November.

In the first 11 months of 2016, American Airlines recorded 0.3% growth in RPMs to 205.3 billion, while ASMs climbed 1.9% to 250.8 billion, both on a year-over-year basis. Also, load factor declined 130 bps to 81.8%. Moreover, total passenger count (Enplanements) slipped 1.1% for the same period.

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