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American Airlines Earnings Preview: Rebound Seen as Passenger Demand Swells

Focus on AAL load factor

Key Takeaways

  • Analysts estimate EPS of $0.53 vs. -$0.99 in Q3 FY 2021.
  • Load factor is expected to rise to the second-highest level in 20 quarters.
  • Revenue is predicted to rebound to its second-highest level in at least five years.

American Airlines Group Inc. (AAL), the world's largest carrier by passenger volume, probably swung to a profit in the third quarter from the same period a year ago as it flew the second-highest proportion of paying passengers in more than five years.

The Fort Worth, Texas-based company, which raised its quarterly revenue guidance this month, is likely to report earnings per share (EPS) of 53 cents, compared with a 99-cent loss in the prior period, according to an average estimate from Visible Alpha. The airline company reports earnings before the market opens on Oct. 20.

Easing COVID restrictions and increasing demand for business and leisure travel have supported the industry's recovery this year, although Delta Air Lines Inc. (DAL)'s earnings fell short of third-quarter analyst predictions. Investors will focus on American's load factor, a key measure to gauge the percentage of seats filled by paid passengers, amid expectations it's back to pre-pandemic levels.

Shares of American Airlines, down 27% in the past year compared with an 18% decline in the S&P 500 Index, staged a modest rally last week after the company boosted its guidance.

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

American Airlines Earnings History

Like other airlines, American was hit hard by the COVID-19 pandemic. It reported nine straight quarterly losses starting in the first three months of 2020 and its first three month profit in the second quarter of this year.

Revenue dropped for five consecutive quarters during the pandemic before beginning to recover last year. In the second quarter of this year, the air carrier's revenue rebounded to $13.4 billion, the highest in almost five years. Revenue is expected to total $13.3 billion in the third quarter.

American Airlines Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Earnings Per Share ($) 0.53 -0.99 -5.54
Revenue ($B) 13.3 9.0 3.2
Load Factor (%) 86.0 78.7 58.9

Source: Visible Alpha

The Key Metric

Load factors are key metrics because the cost of sending an aircraft into flight is relatively the same whether 50 or 100 paying passengers are aboard. That gives airlines an incentive 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.

American's load factor plunged along with the rest of the airline industry in early 2020, falling to as low as 42.3% in the second quarter from the mid-80s the year before. It jumped to 86.9% in the second quarter of this year, the highest in 16 quarters. American's load factor is expected to be 86.0% in the second quarter.

Article Sources
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  1. Visible Alpha. "Financial Data."

  2. American Airlines Group Inc. "Q3 2022 American Airlines Group Inc Earnings Conference Call."

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