Shares of American Airlines (AAL - Free Report) shed more than 2% of their value on Jan 10, to close the trading session at $27.32. This downside resulted from the bearish unit revenue projection for fourth-quarter 2019, detailed results of which are scheduled to be released on Jan 23. However, at the same time, the carrier issued an improved view with respect to non-fuel unit costs.
American Airlines’ Revised Guidance
American Airlines stated in an investor update that it now expects fourth-quarter total revenue per available seat mile (TRASM: a key measure of unit revenues) to have been either flat or increased up to 1% from the year-ago figure compared with the earlier guidance of either flat or increase up to 2%. Higher completion factor and lower-than-expected yields in the pre-Thanksgiving period resulted in this bearish outlook of the company. Notably, TRASM is a measure of sales relative to capacity for a carrier.
On a more positive note, this Zacks Rank #3 (Hold) Fort Worth, TX-based carrier said that demand for air travel was strong which led to a better-than-expected revenue performance in December. The company now estimates fourth-quarter costs per available seat miles (excluding fuel and special items) to have increased in the 1-3% band on a year-over-year basis (earlier outlook: increase in the 2-4% range).
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The company attributed its decision to issue a favorable non-fuel unit cost guidance to primarily two factors — improved operational performance and higher completion factor. Additionally, fuel costs are now estimated between $2.04 and $2.09 per gallon compared with the earlier expectation in the $1.99-$2.04 range. Pre-tax margin, excluding special items, is still projected by the company to have been in the range of 5-7%.
American Airlines Compensated by Boeing
American Airlines, with 24 Boeing 737 MAX jets in its fleet, was also in the news recently when it inked a deal with the manufacturer of the planes — The Boeing Company (BA - Free Report) — pertaining to compensation for losses due to the grounding of the planes since March 2019. However, American Airlines does not expect the agreement to have “any material financial impact” on its fourth-quarter results.
American Airlines will share more than $30 million of the compensation with its employees. The payment is likely to be made this March, under its profit-sharing scheme. Notably, American Airlines is not the only U.S.-based carrier which will receive compensation from Boeing due to losses related to the Max grounding. Southwest Airlines (LUV - Free Report) , which enjoys the largest exposure to Boeing 737 MAX jets among U.S. carriers with 34 such jets in its fleet, also inked a deal with the plane manufacturer last month for partial compensation for losses due to the groundings. United Airlines (UAL - Free Report) is the other U.S.-based carrier to have Boeing 737 MAX jets in its fleet.
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