American Airlines to report Q1 results this week. Here’s all you need to know

The airline industry is getting back on track after being hit by the pandemic a couple of years ago, as the removal of movement restrictions and market reopening keeps driving passenger traffic. After a successful holiday quarter, American Airlines Group Inc. (NASDAQ: AAL) is working to strengthen its financial position through measures like reducing debt and enhancing profitability.

The airline’s stock is yet to bounce back from the industry-wide selloff that followed the virus-induced travel restrictions. Rather, it continues near the multi-year lows, after a few short-lived recoveries.  As a result, AAL is one of the cheapest Wall Street stocks right now. The question is whether the low valuation offers a buying opportunity, or, not.

Recovery Mode

The constant improvement in passenger load factor and fleet expansion show that American Airlines is already on the recovery path. Also, the modest pullback in fuel prices in recent quarters is encouraging. The fact that the industry has almost come out of the crisis without any bankruptcies underscores the underlying strength, but it would take some time for it to regain momentum.

Outlook

On the positive side, travel demand is once again soaring and the uptrend continued so far this year. There is speculation that the aviation market would return to the pre-pandemic levels this year, but the choppy recovery and lingering COVID threat – emergence of new variants and new restrictions – call for caution. The benefits of revenue recovery might not reach the bottom line due to high fuel costs, with the Russia-Ukraine war adding to the price rise. When it comes to the balance sheet, the company’s $32-billion debt is a concern.

From American Airlines’ Q4 2022 earnings call:

“For 2023, we will continue to size the airline for the resources we have, with a focus on reliability and sustained profitability. We continue to expect to produce capacity that is 95% to 100% of 2019 levels. We’re up approximately 5% to 8% year-over-year. We are on track to hire over 2,000 mainline pilots in 2023 and we expect to achieve our run-rate level of training throughput in the back half of this year, allowing for further aircraft utilization improvement in 2024. We continue to expect regional pilot affordability to be constrained throughout this year and net.”

Operating results for the first quarter of 2023 will be published on April 27, at 7:00 am. The market will be closely following the event amid estimates that the company turned to earnings of 5 cents per share in the March quarter from a loss last year, extending the ongoing recovery. Experts’ consensus forecast is for a 37.2% increase in revenues to $12.21 billion.

Holiday Traffic

American Airlines generated profit in the past three quarters, more than two years after the bottom line slipped into negative territory following widespread flight groundings. In the final three months of 2022, operating revenues jumped 40% from last year to $13.2 billion, reflecting continued passenger traffic recovery. Meanwhile, cargo revenues declined.  Adjusted earnings were $1.17 per share, compared to a loss of $1.42 per share in Q4 2021. The results also topped expectations, as they did in the preceding quarter.

On Monday, AAL traded slightly above $13. It remained below the previous closing price and close to the levels seen at the beginning of the year.