January 10, 2018 / 1:33 PM / 6 months ago

Airline stocks rise on American Airlines' upbeat forecast

(Reuters) - U.S. airline stocks rose after American Airlines Group Inc (AAL.O) on Wednesday became the second major airline this week to forecast higher unit revenue for the fourth quarter.

An American Airlines Boeing 767-300 aircraft takes off from Zurich Airport January 9, 2018. REUTERS/Arnd Wiegmann

Analysts said forecasts for the key performance metric from American Airlines, the No.1 U.S. airline, and smaller rival United Airlines confirm fares are trending higher due to rising fuel costs.

Non-fuel unit cost growth also seems to be reverting to historical levels, according to Cowen & Co analyst Helane Becker.

Shares of American Airlines were up 3 percent and United Airlines was 6.2 percent higher. The U.S. airline index .DJUSAR was up 2.5 percent.

American Airlines said it now expects its total revenue per available seat mile for the quarter to rise about 5-6 percent, compared with its prior guidance of 2.5-4.5 percent. The company also raised its pre-tax margin forecast to 6.5-7.0 percent, from 4.5-6.5 percent.

“The improvement in pre-tax margin is due to better than expected unit revenue in 4Q17,” Becker said.

United, the No.3 U.S. airline, said on Tuesday it now expects fourth-quarter passenger unit revenue to be about flat, compared with its previous guidance of down 2 percent to flat.

“We believe that many buysiders were already modeling for something in the -1 percent to flat neighborhood,” J.P. Morgan analyst Jamie Baker said.

“The beat was driven by a combination of stronger overall yields as well as better than expected close-in demand, ordinarily a proxy for business travel. Frankly, we’re not surprised,” Baker said in a note.

United, whose parent is United Continental Holdings (UAL.N), moved up its pre-tax margin guidance to 6-7 percent, from 3-4 percent.

Shares of Delta Air Lines (DAL.N) were up 2.4 percent. The company is scheduled to report fourth-quarter earnings on Thursday.

Reporting by Rachit Vats in Bengaluru; Editing by Arun Koyyur and Maju Samuel

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