American Airlines (AAL) up 1.74% on bright third quarter revenue forecast – October 12, 2022

Shares of American airlines (AAL Free Report) gained 1.74% on Oct. 11, closing the trading session at $12.26 per share. The increase follows management’s decision to increase its revenue guidance for the third quarter of 2022. AAL will announce third quarter results on October 20.

Air travel demand has recovered from pandemic-induced lows. We expect upbeat demand for air travel, following the easing of COVID-related restrictions, to have helped American Airlines’ performance in the September quarter. Adherence to the Labor Day holiday period in the third quarter should have further boosted air traffic. Clearly, the decision to raise the revenue forecast comes as no surprise.

Revised guidelines

American Airlines, which currently holds a Zacks #3 (Hold) rank, expects total revenue to increase approximately 13% from actuals in Q3 2019 (previous forecast: 10-12% increase) . Total revenue per available seat mile (TRASM: a measure of unit revenue) is now expected to be 25% higher than the third quarter 2019 reading (previous estimate was 20-24%).

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Driven by buoyant demand, the pre-tax margin, excluding net special items, is expected to be around 4.5% versus the 2-4% range previously expected. The third quarter operating margin (excluding net exceptional items) is expected to be around 7%. The average fuel cost per gallon forecast is maintained in the range of $3.73 to $3.78. However, the indications for gallons of fuel consumed are reduced to 1,031 million from 1,040 million.

American Airlines now expects Q3 2022 capacity to decline 9.6% from actual Q3 2019 (previous forecast was around 8-10%). Due to low capacity, cost per available seat mile or CASM, excluding fuel and special items, is high and is expected to increase approximately 14% in Q3 2022 compared to Q3 actuals 2019 (previous forecast was 12-14%). ).

Upbeat passenger revenue likely to help airlines’ third-quarter results

Delta Airlines (DAL Free Report) will kick off the third quarter 2022 earnings season for airlines on October 13. Like AAL, we expect DAL’s results to reflect optimistic passenger revenues due to buoyant passenger volumes.

DAL expects September quarter revenue to grow in the 1-5% range over third quarter 2019 actuals. CASM, excluding fuel and special items, in third quarter 2022 is expected to increase 22% compared to the actual figures for the third quarter of 2019.

Like AAL, United Airlines (LAU Free Report) raised its revenue forecast for the third quarter of 2022. UAL is expected to report results on Oct. 18. Like AAL and DAL, we also expect UAL’s results to reflect optimistic passenger revenues due to buoyant passenger volumes.

UAL now expects operating revenue to grow 12% from the September 2019 quarter level (the previous forecast was 11%). United Airlines expects TRASM to increase by around 25% in Q3 2022 compared to Q3 2019 actuals (previous view: up in the 24-26% band). Adjusted operating margin is expected to be 10.5% in the September quarter.

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