American Airlines Q1 2021 Earnings Report Recap

Source: Estimates based on analysts’ consensus from Visible Alpha

American Airlines (AAL) Financial Results: Analysis

American Airlines Group Inc. (AAL) reported Q1 FY 2021 earnings that missed analyst predictions on several fronts. The airline posted adjusted losses per share $0.06 worse than consensus estimates. American Airlines' adjusted EPS number represents a significant widening of losses compared with adjusted losses per share of -$2.65 for Q1 FY 2020. Revenue came in slightly below analyst predictions at $4.0 billion for the quarter and was down by more than half year-over-year (YOY), a stark reflection of the lingering impact of the COVID-19 pandemic on the airline's business. The company gave no specific forward guidance for EPS in Q2 or the full year.

American Airlines Key Metric

American Airlines posted far worse-than-expected passenger load factor, a key measure of airline efficiency that shows the percentage of American Airlines' seating capacity that is being used. Investors look to load factor as a sign of an airline's profitability. The higher the load factor, the greater the percentage of available seats that are filled on American Airlines' flights. Given that the costs of flying planes are relatively fixed, with a greater number of passengers aboard those flights and thus a higher load factor, American Airlines can better distribute those costs.

Plunging Load Factor

During the COVID-19 pandemic, would-be travelers around the world have opted to stay home due to health concerns, government regulations, and a cultural shift toward working remotely from home. This has heavily impacted American Airlines' load factor, which dropped significantly to a low of 42.3% in Q2 FY 2020 before partially recovering in Q3 and Q4. Analysts predicted that this recovery trend would reverse for Q1 on a sequential basis, with load factor dropping slightly from 64.1% in Q4 FY 2020. Instead, the decline was far worse than estimated. American Airlines' Q1 FY 2021 load factor was 59.5%, down from 72.7% in the same quarter a year earlier.

Signs of Optimism

Chief Executive Officer (CEO) Doug Parker said the company was taking steps to bolster its balance sheet, despite reporting a fifth straight quarter of adjusted losses. The company raised $10 billion through a debt offering and used a portion of the proceeds to prepay in full a secured loan from the Treasury Department. It also anticipates improving its total available liquidity to about $19.5 billion in Q2.

American Airlines shares climbed by more than to 3% immediately following the earnings announcement, but it gave up nearly all of those gains by 11:16am New York time in daily trading. The company has posted a 1-year trailing total return of 104.6%, well above the S&P 500's total return of 49.1%

American Airlines Earnings Call Recap

In an April 22, 2021 interview with CNBC, Parker cited several positive developments. While American Airlines burned cash during the entire quarter, the CEO said that the airline became cash positive by the end of March. He said that this trend had continued into Q2. The company is adding domestic routes to its schedule in anticipation of a surge in demand in the summer as vaccination rates rise. The company is expecting overall flying capacity to be between 75% and 80% of pre-pandemic levels. In the company's Q1 press release, Parker said, “Looking forward, with the momentum underway from the first quarter, we see signs of continued recovery in demand.”

Next Earnings Report:

American Airlines' next earnings report is estimated to be released on July 29, 2021.