American Airlines Group’s (AAL - Free Report) shares jumped 16.4% at the close of business on Jun 12, following news that its cash burn rate has decreased significantly and that by the end of 2020, the carrier hopes to reduce the same to zero.
In a SEC filing, the company stated that it anticipates cash burn rate to fall to approximately $40 million per day in June from the high of $100 million per day in April. Previously, the carrier predicted the cash burn rate to be $50 million per day in June. The drastic improvement is due to significant reduction in costs and recent improvement in demand.
In order to preserve cash, the company reduced expenses on maintenance, marketing, salaries and benefits, and the like. Savings from these cost-cutting initiatives as well as those generated from lower capacity and fuel prices, reduced operating and capital expenditures by more than $13.5 billion for 2020.
With easing coronavirus-led restrictions, the carrier has been witnessing improvement in the demand scenario, especially on the domestic front. In May, the airline’s domestic passenger count totaled 85,000 per day, indicating more than 100% surge from April. As of Jun 8, the number improved further to 129,000 passengers. However, passenger numbers are significantly lower than year-ago levels. In April and May total capacity was down 75% and 80% from the year-ago levels respectively, while the same is expected to be down 75% in June.
Given the uptrend in demand, American Airlines, carrying a Zacks Rank #3 (Hold), is planning to operate 55% of its domestic schedule and around 20% of its international schedule next month. With this, the carrier’s July system-wide capacity would represent approximately 40% of its July 2019 schedule.
However, hurt by coronavirus-induced travel-demand woes, American Airlines anticipates second-quarter 2020 revenues to decline approximately 90% year over year. Capacity in the period is expected to be down approximately 75% year over year.
Last week, Delta Air Lines, Inc. (DAL - Free Report) made a similar prediction for its second-quarter revenues. With improving demand and substantial cost-savings, the Zacks Rank #4 (Sell) company also hopes to reduce its average daily cash outflow to zero by the end of this year.
Some better-ranked stocks in the broader Transportation sector are Scorpio Tankers Inc. (STNG - Free Report) and Teekay Tankers Ltd. (TNK - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.
The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised 35.6% upward in the past 60 days.
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