American Airlines (AAL) Q3 FY2021 Earnings Report Preview: What to Look For

Focus on AAL load factor

Key Takeaways

  • Analysts estimate adjusted EPS of -$1.01 vs. -$5.54 in Q3 FY 2020.
  • Load factor is expected to rise sharply YOY, but to remain below peak levels.
  • Revenue is expected to nearly triple amid a rebound in travel demand from last year's pandemic-depressed levels.

American Airlines Group Inc. (AAL), like the rest of the industry, has enjoyed a resurgence in travel demand in 2021 after it was decimated last year amid the worst phase of the COVID-19 pandemic. The vaccine rollout has largely reversed that trend and led to a speedy recovery in air travel. But American Airlines, nonetheless, has lost some momentum in recent months as the fast-spreading Delta variant has deterred some people from traveling.

Investors will be watching closely how rapidly American Airlines is recovering financially when the company reports earnings on Oct. 21, 2021 for Q3 FY 2021. Analysts estimate that the company will report a seventh straight quarter of adjusted losses per share, but the Q3 loss is expected to be by far the smallest one out of those seven periods. Revenue is expected to rise at a rapid pace as it rebounds from the depressed levels during the worst of the COVID-19 pandemic last year.

Investors will also be focusing on American Airlines' load factor, a key metric used by air carriers to gauge what percentage of paid-passenger seating capacity is being filled. Analysts expect the carrier's load factor to increase substantially compared to the year-ago quarter, when it was severely depressed due to the pandemic.

Shares of American Airlines have outperformed the broader market over the past year. However, the stock has retreated since reaching a recent peak in early June after rising for most of the first half of the year on optimism over the pickup in travel demand. American Airlines' shares have provided a total return of 63.4%, more than double the 28.4% total return of the S&P 500.

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

American Airlines Earnings History

American Airlines reported Q2 FY 2021 earnings that beat analysts' expectations. The company posted a much narrower adjusted loss per share than forecast. It was also the sixth straight quarter of adjusted losses per share, but the smallest out of those six. Revenue rose 361.0% year over year (YOY), ending a streak of five consecutive quarters of revenue declines as travel demand rebounded. The company highlighted the acceleration of its deleveraging process and said that it plans to pay down about $15 billion of debt by the end of 2025.

In Q1 FY 2021, American Airlines missed its earnings expectations. The company reported an adjusted loss per share for the fifth straight quarter. Revenue declined 52.9%, marking the fifth straight quarter of declines. The company said that it was seeing signs of recovery in demand following its collapse during the worst of the pandemic.

Analysts expect the air carrier's financial performance to continue improving in Q3 FY 2021. The company's adjusted loss per share is expected to narrow to $1.01, which would be the smallest adjusted loss per share out of any of its losses in the past seven quarters. Revenue is expected to rise 184.8% in Q3 FY 2021, which would be the second straight quarter of growth. For full-year FY 2021, analysts expect a sizable adjusted loss of $7.97, but still less than half the adjusted loss posted in FY 2020. Annual revenue is expected to rise 72.5%, a significant turnaround from the 62.1% decline posted last year.

American Airlines Key Stats
  Estimate for Q3 FY 2021 Q3 FY 2020 Q3 FY 2019
Adjusted Earnings Per Share ($) -1.01  -5.54 1.42
Revenue ($B) 9.0 3.2 11.9
Load Factor (%) 79.5 58.9 85.6

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on American Airlines' load factor, a key metric indicating the percentage of a carrier's available seats that are filled with paying passengers. A high load factor, as opposed to a low load factor, indicates that a high percentage of seats are 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 fill as many seats as possible by selling more tickets. Higher load factors mean an airline's fixed costs are spread across a greater number of passengers, making the airline more profitable. The pandemic has led to a reduction in air travel, leaving airlines with high fixed costs amid falling load factors and revenues, the combination of which is causing steep losses.

In the three years prior to the pandemic, American Airlines' annual load factor fell within a range between approximately 82%-85%. It fell to 64.1% in FY 2020 amid the pandemic. The company's quarterly load factor hit a low point in Q2 FY 2020, when it reached 42.3%. It then rose throughout the next two quarters, reaching 64.1% in the final quarter of FY 2020. It fell back to 59.5% in Q1 FY 2021 before rising to 77.0% in Q2 FY 2021. Analysts expect the airline's load factor to tick up to 79.5% in Q3 FY 2021. For full-year FY 2021, analysts are expecting an annual load factor of 75.2%.

Article Sources

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