American Airlines (AAL): The good and the bad from the Q2 earnings report

Shares of American Airlines Group Inc. (NASDAQ: AAL) were down over 2% on Friday. The stock has dropped 23% year-to-date and 35% over the past 12 months. The company reported its second quarter 2022 earnings results a day ago delivering its first profit since the start of the pandemic. However, rising costs still remain a concern for the airline. Here’s a look at the good and the bad from the earnings report:

Revenue growth

American reported total operating revenues of $13.4 billion in Q2 2022, which was up 79.5% year-over-year and ahead of expectations. Revenues grew 12.2% versus the same period in 2019, marking a record for the company. The company achieved this revenue while flying at 8.5% less capacity versus Q2 2019 and it believes there is further potential for revenue growth as international and business travel improves. American expects revenues for the third quarter of 2022 to be 10-12% higher than the same period in 2019 on 8-10% lower capacity.

Profitability

American delivered GAAP net income of $476 million, or $0.68 per share, in Q2. On an adjusted basis, the company delivered EPS of $0.76 per share, marking its first profit since the start of the pandemic more than two years ago. Although the bottom line number fell slightly short of market estimates, it was a meaningful improvement over last year’s loss of $1.69 per share. The bottom line growth in Q2 was fueled by a strong demand environment. The airline expects to be profitable in the third quarter of 2022 despite high fuel prices.

Improving travel trends

Domestic leisure travel remained strong, surpassing 2019 levels in the second quarter. International travel demand also witnessed a steady improvement during the quarter and this is expected to continue going forward. On its quarterly conference call, American said that system business revenue is now fully recovered compared to 2019.

Available seat miles (ASM) were up 21% YoY in Q2 while passenger load factor was 87%. Passenger revenue per ASM rose 54% while total revenue per ASM increased 48%. For the third quarter, American expects total revenue per ASM to be 20-24% higher versus the same period in 2019.

Higher costs

American continues to battle high costs and it is less likely to see any respite in the near future. In Q2, operating cost per ASM was up 45.3%. Total operating expenses increased 76.3% YoY to $12.4 billion. For the third quarter, American expects CASM, excluding fuel and net special items, to be up 12-14% from 2019. The Q3 guidance assumes fuel prices between $3.73-3.78 per gallon, which represents an increase of over 80% versus 2019.

For the full year of 2022, American expects CASM, excluding fuel and net special items, to be up 10-12% versus 2019. On its call, the company stated that the increase in unit cost was driven by lower planned capacity and other investments to support operations. American expects unit costs to improve as it increases asset utilization.

Click here to read the full transcript of American Airlines’ Q2 2022 earnings conference call