American Airlines Recovery May Have Stalled in Q1

American Airlines Group's (AAL) Covid-19 pandemic recovery likely stalled in the first quarter, with high fuel costs and interest expenses eating into rebounding revenue.

American expects to earn $0.01 to $0.05 per share for the recently completed quarter, according to an April 12 regulatory filing. That's up from a loss of $2.32 per share in last year's first quarter when airlines still hadn't shaken off the pandemic's full impact.

It's a regression, however, from the airline's recovery in the last three quarters of 2022 when diluted EPS ranged from $0.69 to $1.19 a share. American's shares fell 9% the day it updated its earnings guidance, giving up much of its 16% gain in the first quarter.

Since then, two other large U.S. carriers, Delta Air Lines (DAL) and United Airlines (UAL), have reported first-quarter results. Though United reported a loss, both airlines said they foresee strong demand ahead for the peak summer travel season, and investors will eye whether American anticipates the same.

American will report earnings before markets open Thursday.

First-Quarter Projections

Revenue at American likely increased 37% to $12.2 billion in the first quarter, according to estimates compiled by Visible Alpha. However, fuel costs probably rose 28%, wiping out a quarter of that revenue and feeding an estimated 12% increase in overall operating expenses.

Operating income likely totaled $403 million, a vast improvement from a $1.7 billion operating loss in last year's first quarter. But non-operating expenses equaling about the same amount likely resulted in little to no net income for the quarter.

The first quarter typically represents the weakest travel period for U.S. carriers. American's load factor in the quarter likely declined for the third straight quarter to 82.7% after rising to 86.9% in the second quarter of 2022. American's load factor was 74.4% in last year's first quarter.

Looking Ahead

Visible Alpha projects American's load factor will rebound to 85.8% in the second quarter, pushing revenue to $13.8 billion, up 3% from a year ago. Earnings are expected to total $724 million, which would mark a 52% increase from last year's second quarter.

Despite the expected travel upswing, American's guidance two weeks ago raised concern that current expectations for the months ahead remain too rosy.

Andrew Didora, an analyst with Bank of America, said in a research report earlier this month that a slowdown in March airline bookings has created more caution about second-quarter revenue.

"There are generally more off-peak leisure periods between now and Memorial Day," Didora wrote, "so we think there is a greater risk in the domestic, leisure-oriented airlines into 2Q23."