Key Takeaways

  • Adjusted EPS of -$2.65 vs. the -$1.44 analysts expected.
  • Revenue down by more than analysts expected.
  • Load factor down to 73.9% as planes are more than 1/4 empty.

What Happened

No one was expecting anything good from American Airlines earnings this quarter. The entire airline industry has been pounded by the COVID-19 pandemic as people avoid travel, even in cases when travel isn't banned outright. American Airlines still failed to meet lowered expectations as it missed on earnings, revenue, and load factor. Its stock fell around 5% over the course of April 30, after it reported results in the morning.

(Below is Investopedia's original earnings preview, published 4/16/20.)

What to Look for

American Airlines Group Inc. (AAL) shares have plunged in the past two months by more than 60% to their lowest levels in about 8 years. The stock has stayed near its 2020 bottom even as the market has staged a small spring rally. The reason for that bearish performance is the drastic decline in passenger travel at American Airlines and other carriers due to the coronavirus pandemic, which is expected to hammer earnings and revenue.

Investors will be looking to see how bad the damage is when American Airlines reports earnings for Q1 2020, which is expected on April 24, 2020.  The company has yet to release a formal date. For Q1, analysts are expecting the company to post its first net loss in at least 16 quarters, including Q1, as measured by both net income and adjusted earnings per share (EPS). Also, analysts expect big declines in the airline's revenue and load factor.

Investors are likely to focus closely on a key metric in American Airlines' results: its load factor. Government-imposed travel restrictions are expected to have a significant negative impact on passenger volume, as measured by the airline's load factor, for this quarter and the foreseeable future.

The airline had been lagging the broader market for most of the past year, a gap that's widened with COVID-19. Its shares have posted a total return of -63.2% over the past 12 months compared to the S&P 500's total return of -4.0%. All figures are as of April 15, 2020.

One Year Total Return for S&P 500 and American Airlines
Source: TradingView.

The past year had already been a challenging one as American Airlines was among the airlines that had to cancel flights due to the grounding of the Boeing 737 Max. The aircraft has been grounded by regulators since mid-March 2019 for its involvement in two fatal crashes within a span of five months.  The number of 737 Max planes in American's fleet is 24.

Despite those troubles, the airline finished 2019 on a fairly positive note. The company reported Q4 2019 earnings that were slightly above analysts' expectations, and which marked the third straight quarter of rising profits. Adjusted EPS grew 18.8% on revenue growth of 3.4% compared to the same quarter a year ago. Third quarter results also came in above analysts' forecasts. Adjusted EPS grew 20.3%, the fastest growth in at least three years. Revenue increased by 3.1% compared to a year earlier. 

Within three weeks following American's Q4 2019 earnings report in January of 2020, its shares were up nearly 6%. But as it became evident that the coronavirus was beginning to spread uncontrollably, the shares crashed. Analysts are expecting the company to report a loss, posting adjusted EPS of -$1.44 compared to a profit of $0.52 a year earlier. Revenue is expected to fall 9.7%.

American Airlines Key Metrics
  Estimate for Q1 2020 (FY) Actual for Q1 2019 (FY) Actual for Q1 2018 (FY)
Adjusted Earnings Per Share ($) -1.44 0.52 0.76
Revenue ($B) 9.6 10.6 10.4
Load Factor (%) 77.7 82.2 80.4

Plunging airline travel due to government-imposed restrictions as well as individuals' voluntary decision not to travel will affect American Airlines' load factor, a key metric that investors will be closely watching. Load factor measures the percentage of available seats that are filled with paying passengers. A high load factor, as opposed to a low load factor, is associated with a high percentage of seats occupied by passengers. Because the costs of sending an aircraft into flight are relatively the same whether there are 50 people aboard or 100, airlines have a strong incentive to sell more tickets in order to fill as many seats as possible. Higher load factors mean an airline's fixed costs are spread across a greater number of passengers, making the airline more profitable.

Analysts are expecting American's load factor to fall about 4.5 percentage points to 77.7% in Q1 2020 compared to the same quarter in 2019. It would be the lowest reported load factor for the company in at least three years. The Q1 drop is even more dramatic when compared to the Q2 2019, which reported the highest quarterly load factor in the last three years: 86.6%. These numbers paint a grim picture for American Airlines' revenue, earnings and passenger volume. To simply survive the crash, American Airlines has sought government aid. Thus far, American Airlines has won $5.8 billion in payroll support from the U.S. Treasury.