American Airlines reports earnings decline for Q2 2018

American Airlines Group (AAL) beat profit estimates on an adjusted basis, however, revenue fell short of the Street’s view. Analysts had expected earnings of about $1.59 per share on revenue of $11.67 billion. The company reported revenues of $11.6 billion for the second quarter of 2018, an increase of 3.7% from the same period last year, driven by a strong demand for air travel.

Net income was $566 million or $1.22 per diluted share, down more than 30% from $864 million or $1.75 per diluted share last year. Adjusted net income was $757 million or $1.63 per share.

Passenger revenue per available seat mile (PRASM) grew in all geographic regions driven partly by a 6.2% increase in the Atlantic region. Cargo revenue grew 19.4% to $261 million due primarily to a 9.6% increase in volume and an 8.9% increase in cargo yield. Other revenue improved 8.1% to $708 million due to higher loyalty revenue.

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Total revenue per available seat mile (TRASM) rose by 2.1% versus Q2 2017 on a 1.6% increase in total available seat miles. American expects Q3 2018 TRASM to increase approx. 1-3% year-over-year.

Total cost per available seat mile (CASM) was up 8.5% from Q2 2017. Excluding fuel and special items, consolidated CASM was up 2.4% year-over-year.

American Airlines also announced changes to its Basic Economy fare rules. From September 5, the Basic Economy fares will include a personal item and a carry-on bag. These changes were made to increase competitiveness.

American Airlines reached an agreement with Airbus to defer delivery of 22 A321neos that were scheduled for delivery in 2019, 2020 and 2021 to extend deliveries and spread out the associated capital expenditures. These changes are expected to reduce planned capex by approx. $1.2 billion over the next three years.

The airlines declared a dividend of $0.10 per share, payable on August 21, 2018, to stockholders of record as of August 7, 2018.

Outlook

American Airlines expects adjusted diluted EPS for 2018 to be $4.50 to $5.00.

The company is lowering its capacity growth rate for Q3 2018 by approximately 0.6% and for Q4 2018 by around 1% from its previous guidance. Q3 2018 capacity is expected to be up about 3.3%, Q4 2018 capacity is expected to be up about 1.6%, and full-year 2018 capacity is anticipated to be up about 2.2% year-over-year.

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The company is lowering its non-fuel cost outlook for the third and fourth quarters of 2018, thanks to the success of the One Airline efficiency project. CASM, excluding fuel and special items, is expected to be up about 1% in Q3 2018, and around flat in Q4 2018. Full-year 2018 CASM-ex is expected to increase by approx. 1.5% year-over-year, which is 0.5 points lower than its previous guidance.

Shares of American Airlines which rose 2% on Wednesday, were trading in negative territory before the bell today.

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Related: American Airlines Group Inc. Earnings Call Transcript