American Airlines’ quarterly profit crashes on fuel concerns

The world’s biggest airline American Airlines Group Inc. (AAL) reported a 45% plunge in first-quarter earnings due to higher fuel prices but came in ahead of Street expectations. The company also lowered its fiscal 2018 earnings outlook citing to rising fuel concerns. Following the report, the stock is down 4.53% in the premarket.

With revenues climbing by 5.9% to $10.4 billion, the airline behemoth saw a 45.2% dip in earnings to $186 million or $0.39 per share. Excluding one-time gains and costs, EPS decreased 8.5% to $0.75.

Revenue benefited from robust demand for air travel. Passenger revenue per available seat mile (PRASM) grew in all geographic regions, with notable strength in Latin America. Cargo revenue was up 18.8% due primarily to a 10.9% increase in volume and a 7.1% rise in cargo yield. Total revenue per available seat mile increased by 3.5% compared to last year’s 2.3% increase in total available seat miles.

Looking ahead into the second quarter of 2018, American Airlines expects total revenue per available seat mile to increase about 1.5-3.5% year-over-year, which reflects expected continued improvement in demand for both business and leisure travel. Pre-tax margin excluding special items is predicted to be 7.5-9.5% range. For fiscal 2018, the company lowered EPS excluding special items guidance to a range of $5.00-$6.00 from the previous estimate of $5.50-$6.50.

Lately, oil prices have been on an uptrend and were up about 8% in the March quarter. As fuel costs account for a significant chunk of expenditures, high oil prices do not bode well for companies in the airline space.

A 25.7% increase in consolidated fuel expenses drove operating expenses higher by 9.8%. If fuel prices remained unchanged from last year, then total expenses would have been $412 million lower.

American Airlines intended to retire older aircraft, including the Airbus A330-300, the Boeing 767 and certain Boeing 777-200s and replace these with its new recent order for 47 Boeing 787s. The company expects this to provide improved fuel efficiency, lower maintenance costs, greater range and enhanced customer experience.

The company returned $498 million to shareholders through share repurchases and dividends, bringing the total since mid-2014 to $11.9 billion. These repurchases have lowered the share count by 38% to 467.4 million shares as of March 31, 2018. The board of directors declared a dividend of $0.10 per share, to be paid on May 22, 2018, to stockholders of record as of May 8, 2018.

On operating statistics front, American Airlines had a 3.8% increase in revenue passenger miles or traffic for the first quarter of 2018 and a 2.3% rise in available seat miles or capacity. Passenger load factor rose 1.2 points to 80.4%. Fuel consumption rose 1.6%, and average aircraft fuel price including related taxes climbed 23.6%.

The company’s short-term investments as of March 31, 2018, rose 4.7% from December 31, 2017. Current assets increased 5.8%, while current liabilities grew 10.7%. American Airlines was able to lower long-term debt and capital leases. Stockholders’ deficit widened by 30.5%.