October 25, 2018 / 11:44 AM / 9 months ago

American Airlines' profit margin forecast helps shares up

(Reuters) - American Airlines (AAL.O) shares rose 4 percent on Thursday after the company said its profit margin for the current quarter would be higher than most on Wall Street expected, helped by a dip in fuel costs from their recent spike.

An American Airlines Boeing 737-800 plane takes off from Los Angeles International airport (LAX) in Los Angeles, California, U.S. March 28, 2018. REUTERS/Mike Blake

The No. 1 U.S. carrier by passenger traffic maintained its full-year guidance and forecast an additional $1 billion in revenue next year as improvements in aircraft, onboard technology and food offerings take effect.

Its shares rose 4 percent to $31.54 in morning trading.

They are still down 35 percent in the past 12 months, as American has struggled to grow revenue at the rate of rivals Delta Air Lines Inc (DAL.N) and United Airlines (UAL.O).

The Fort Worth, Texas-based company said it is targeting a pre-tax margin, excluding special items, between 4.5 percent and 6.5 percent in the fourth quarter. That suggests earnings above Wall Street’s expectations, analysts said.

The carrier forecast unit revenue, a closely watched performance measure that compares sales to flight capacity, to rise between 1.5 percent to 3.5 percent in the fourth quarter.

“Unit revenue guidance has been consistently ahead of expectations this earnings season as the industry is seeing good demand and improved yields due in part to strong close-in bookings,” said Helane Becker, an analyst at Cowen.


In the third quarter, American’s profit halved, in line with Wall Street estimates, hurt by higher fuel costs and the impact of Hurricane Florence that forced it to cancel about 2,100 flights in September.

The company said it would cut capacity, cancel loss-making routes and delay taking delivery of new aircraft to cut costs, but stuck to its full-year profit forecast of $4.50 to $5.00 per share.

Its fuel cost rose 42 percent during the quarter. Worries about its impact on margins have hurt shares of American and rivals, including Delta and Southwest.

Hurricane Florence slammed North and South Carolina in mid-September, impacting several businesses and forcing airline, delivery, auto and steel companies to shut operations.

The company’s net income fell $341 million, or 74 cents per share, in third quarter ended Sept.30 compared with $661 million, or $1.36 per share, a year earlier.

On an adjusted basis, the airlines earned $1.13 per share, in line with analysts’ expectations. Operating revenue rose 3.7 percent to $11.64 billion.

Reporting by Rachit Vats in Bengaluru and Tracy Rucinski in Chicago; Editing by Arun Koyyur and Bill Rigby

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