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American Airlines (AAL) Stock Falls on Bleak Q4 Guidance

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Shares of American Airlines Group (AAL - Free Report) tumbled on Jan 10 following a guidance revision for the fourth quarter of 2018. Detailed results will be unveiled by the company on Jan 24. In the last trading session, the stock closed at $32.04, down 4.1% from Jan 9’s closing price.

What is even worse is that the damage was not limited to American Airlines alone. Other key sector participants like United Continental Holdings (UAL - Free Report) and Southwest Airlines (LUV - Free Report) also felt the heat and declined yesterday.

What Did American Airlines Say?

American Airlines announced the damaging forecast at an Investor Update. Citing lower-than-expected year-over-year improvements in the domestic market, the airline behemoth revised its outlook for fourth-quarter 2018 total revenue per available seat mile (TRASM: a key measure of unit revenues), which compares unfavorably with the previous projection. This minutely watched metric is anticipated to inch up approximately 1.5% in the final quarter of 2018, which is at the lower end of the earlier expected 1.5-3.5% range.

However, with oil prices on a downtrend, this Zacks Rank #2 (Buy) carrier cut its fourth-quarter forecast for average fuel prices per gallon. The metric (inclusive of taxes) is now assumed between $2.22 and $2.27 (past view: $2.30-$2.35). The company continues to predict non-fuel unit costs between -1% and +1% (year over year). Additionally, American Airlines still envisions fourth-quarter adjusted pre-tax income in the band of 4.5-6.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Adding to the woes, this Fort Worth, TX-based carrier trimmed its earnings per share guidance for 2018. The metric is anticipated to be between $4.40 and $4.60, which again lags its former view of $4.50-$5 per share. The Zacks Consensus Estimate for 2018 earnings is pegged at $4.57 per share.

We note that American Airlines is the second major U.S. carrier to issue a downbeat TRASM outlook for the fourth quarter. Earlier in January, Delta Air Lines (DAL - Free Report) slashed its projection with respect to unit revenues (read more: Delta Stock Plummets on Q4 Unit Revenue View Cut).

Successive bearish views provided by two airline heavyweights hint at turbulence for airline players in the final quarter of 2018. Fourth-quarter 2018 earnings season for airlines will kick off with Delta Air Lines reporting on Jan15 before market open.

 

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