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Why American Airlines (AAL) is Down Despite Q2 Earnings Beat
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American Airlines (AAL - Free Report) second-quarter 2024 earnings (excluding 8 cents from non-recurring items) of $1.09 per share beat the Zacks Consensus Estimate of $1.04. In the year-ago quarter, AAL reported earnings of $1.92 per share. The year-over-year bottom-line contraction was mainly due to high costs. Operating revenues of $14.33 billion fell short of the Zacks Consensus Estimate of $14.42 billion but increased 2% year over year.
The airline trimmed its earnings per share forecast for full-year 2024 citing pricing pressure with excess capacity characterizing certain markets. This phenomenon, which is hurting other large airline companies as well, has dampened American Airlines’ pricing power. AAL’s management now expects current-year adjusted earnings per share in the 70 cents-$1.30 range (earlier expectation was in the range of $2.25-$3.25 per share). The Zacks Consensus Estimate for current-year earnings is pegged at $1.72 per share at present.
The trimming of the earnings guidance for the current year, apart from the revenue miss and the massive year-over-year earnings decline (43.2%) in the second quarter, disappointed investors. As a result, the stock declined in pre-market trading.
American Airlines Group Inc. Price, Consensus and EPS Surprise
Passenger revenues, accounting for 92.1% of the top line, increased to $13.2 billion from $13 billion recorded a year ago. The metric fell short of our estimate of $13.3 billion. Cargo revenues decreased 1.3% to $195 million. The metric fell short of our estimate of $201.3 million. Other revenues jumped 6.4% to $937 million, which missed our expectation of $972 million.
Total revenue per available seat miles (a key measure of unit revenues: TRASM) decreased to 19.05 cents from 20.18 cents recorded a year ago. Passenger revenue per available seat miles (PRASM) decreased 5.8% to 17.54 cents. The actual PRASM figure was also lower than our expectation of 17.79 cents. Consolidated yield decreased 6.3% to 20.27 cents, short from our estimate of 21.21 cents.
Reflecting the increase in air travel demand, consolidated traffic (measured in revenue passenger miles) rose 8.5% year over year. To cater to this increased demand, capacity (measured in average seat miles) expanded by 8%. Consolidated load factor (percentage of seats filled by passengers) inched up 0.4 points to 86.6%. The actual figure for the load factor was higher than our expectation of 83.9%.
Total operating costs (on a reported basis) increased 8.9% year over year to $12.95 billion, with expenses on salaries, wages and benefits growing 8.7% to $3.95 billion. The labor deal, inked with its pilots last year, contributed to the increase. Expenses on aircraft fuel and taxes increased 12.4% to $3.06 billion. Average fuel price per gallon (including related taxes) increased to $2.70 from $2.62 a year ago.
Consolidated operating costs per available seat mile (excluding fuel and special items) declined 0.1% to 13.14 cents. The actual figure was less than our estimate of 13.20 cents. Fuel gallon consumption increased 8.8% to $1.13 billion in the second quarter of 2024.
American Airlines, currently carrying a Zacks Rank #5 (Strong Sell), reduced total debt by nearly $680 million in the June quarter. AAL is on track to reduce total debt from peak levels by $15 billion by 2025-end.
Management expects TRASM to be between 2.5% and 4.5%, lower than third-quarter 2023 actuals. System capacity is estimated to increase 2-4% from third-quarter 2023 levels. Cost per available seat miles (adjusted) is expected to increase 1-3% from third-quarter 2023 actuals.
Fuel cost per gallon is projected in the range of $2.55-$2.75. Fuel gallon consumption is expected to be between $1.13 billion and $1.15 billion. Adjusted operating margin is anticipated in the 2-4% range. The company envisions total non-operating expenses to be $365 million.
AAL projects the September quarter's earnings per share (excluding net special items) to be breakeven using a share count of 658.7 million. The Zacks Consensus Estimate is currently pegged at 54 cents.
Remaining Aspects of 2024 Outlook
TRASM is expected to be down in the 3-5% band from 2023 actuals. Management anticipates capacity to improve in the 5-6% range from the year-ago levels. Cost per available seat miles (adjusted) is expected to increase by 1-3% from the prior-year levels.
Fuel cost per gallon is projected in the range of $2.65-$2.75. Fuel gallon consumption is expected to be between $4.40 billion and $4.43 billion. Adjusted operating margin is anticipated in the 3.5-5.5% range. The company envisions total non-operating expenses to be $1.44 billion. The effective tax rate is expected to be 27%. AAL expects free cash flow to be $500 million.
Performances of Some Other Transportation Companies in Q2
Delta Air Lines (DAL - Free Report) has reported second-quarter 2024 earnings (excluding 35 cents from non-recurring items) of $2.36 per share, which marginally missed the Zacks Consensus Estimate of $2.37. Earnings decreased 11.9% on a year-over-year basis. Apart from high costs, the carrier blamed the discounting pressure at the low end of the market, which hurt its pricing power, for the disappointing performance.
Revenues of $16.65 billion surpassed the Zacks Consensus Estimate of $16.25 billion and increased 6.9% year over year, driven by upbeat air travel demand. Adjusted operating revenues (excluding third-party refinery sales) came in at $15.41 billion, up 5.4% year over year.
J.B. Hunt Transport Services (JBHT - Free Report) reported disappointing second-quarter 2024 results wherein both earnings and revenues lagged the Zacks Consensus Estimate.
JBHT’s earnings of $1.32 per share missed the Zacks Consensus Estimate of $1.51 and declined 27% year over year. JBHT’s total operating revenues of $2.93 billion missed the Zacks Consensus Estimate of $3.03 billion and fell 7% year over year. Total operating revenues, excluding fuel surcharge revenues, fell 6% year over year. The downfall was owing to a 5% decrease in gross revenue per load in Intermodal and a decline in load volume of 25% in Integrated Capacity Solutions (“ICS”), 9% in Truckload, and 9% in Dedicated Contract Services. These were partially offset by the 5% revenue growth of Final Mile Services, primarily driven by new contracts implemented in the past year, and a 5% increase in revenue per load in ICS.
United Airlines (UAL - Free Report) reported second-quarter 2024 earnings per share (excluding 18 cents from non-recurring items) of $4.14, which surpassed the Zacks Consensus Estimate of $3.97. However, earnings decreased 17.7% on a year-over-year basis.
Operating revenues of $14.98 billion missed the Zacks Consensus Estimate of $15.13 billion. The top line increased 5.7% year over year attributed to upbeat air-travel demand. This was driven by a 5.2% rise in passenger revenues (which accounted for 91.2% of the top line) to $13.68 billion. Almost 44,375 passengers traveled on UAL flights in the second quarter, up 5.8% year over year.
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Why American Airlines (AAL) is Down Despite Q2 Earnings Beat
American Airlines (AAL - Free Report) second-quarter 2024 earnings (excluding 8 cents from non-recurring items) of $1.09 per share beat the Zacks Consensus Estimate of $1.04. In the year-ago quarter, AAL reported earnings of $1.92 per share. The year-over-year bottom-line contraction was mainly due to high costs. Operating revenues of $14.33 billion fell short of the Zacks Consensus Estimate of $14.42 billion but increased 2% year over year.
The airline trimmed its earnings per share forecast for full-year 2024 citing pricing pressure with excess capacity characterizing certain markets. This phenomenon, which is hurting other large airline companies as well, has dampened American Airlines’ pricing power. AAL’s management now expects current-year adjusted earnings per share in the 70 cents-$1.30 range (earlier expectation was in the range of $2.25-$3.25 per share). The Zacks Consensus Estimate for current-year earnings is pegged at $1.72 per share at present.
The trimming of the earnings guidance for the current year, apart from the revenue miss and the massive year-over-year earnings decline (43.2%) in the second quarter, disappointed investors. As a result, the stock declined in pre-market trading.
American Airlines Group Inc. Price, Consensus and EPS Surprise
American Airlines Group Inc. price-consensus-eps-surprise-chart | American Airlines Group Inc. Quote
More on Q2 Earnings
Passenger revenues, accounting for 92.1% of the top line, increased to $13.2 billion from $13 billion recorded a year ago. The metric fell short of our estimate of $13.3 billion. Cargo revenues decreased 1.3% to $195 million. The metric fell short of our estimate of $201.3 million. Other revenues jumped 6.4% to $937 million, which missed our expectation of $972 million.
Total revenue per available seat miles (a key measure of unit revenues: TRASM) decreased to 19.05 cents from 20.18 cents recorded a year ago. Passenger revenue per available seat miles (PRASM) decreased 5.8% to 17.54 cents. The actual PRASM figure was also lower than our expectation of 17.79 cents. Consolidated yield decreased 6.3% to 20.27 cents, short from our estimate of 21.21 cents.
Reflecting the increase in air travel demand, consolidated traffic (measured in revenue passenger miles) rose 8.5% year over year. To cater to this increased demand, capacity (measured in average seat miles) expanded by 8%. Consolidated load factor (percentage of seats filled by passengers) inched up 0.4 points to 86.6%. The actual figure for the load factor was higher than our expectation of 83.9%.
Total operating costs (on a reported basis) increased 8.9% year over year to $12.95 billion, with expenses on salaries, wages and benefits growing 8.7% to $3.95 billion. The labor deal, inked with its pilots last year, contributed to the increase. Expenses on aircraft fuel and taxes increased 12.4% to $3.06 billion. Average fuel price per gallon (including related taxes) increased to $2.70 from $2.62 a year ago.
Consolidated operating costs per available seat mile (excluding fuel and special items) declined 0.1% to 13.14 cents. The actual figure was less than our estimate of 13.20 cents. Fuel gallon consumption increased 8.8% to $1.13 billion in the second quarter of 2024.
American Airlines, currently carrying a Zacks Rank #5 (Strong Sell), reduced total debt by nearly $680 million in the June quarter. AAL is on track to reduce total debt from peak levels by $15 billion by 2025-end.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Third-Quarter Outlook
Management expects TRASM to be between 2.5% and 4.5%, lower than third-quarter 2023 actuals. System capacity is estimated to increase 2-4% from third-quarter 2023 levels. Cost per available seat miles (adjusted) is expected to increase 1-3% from third-quarter 2023 actuals.
Fuel cost per gallon is projected in the range of $2.55-$2.75. Fuel gallon consumption is expected to be between $1.13 billion and $1.15 billion. Adjusted operating margin is anticipated in the 2-4% range. The company envisions total non-operating expenses to be $365 million.
AAL projects the September quarter's earnings per share (excluding net special items) to be breakeven using a share count of 658.7 million. The Zacks Consensus Estimate is currently pegged at 54 cents.
Remaining Aspects of 2024 Outlook
TRASM is expected to be down in the 3-5% band from 2023 actuals. Management anticipates capacity to improve in the 5-6% range from the year-ago levels. Cost per available seat miles (adjusted) is expected to increase by 1-3% from the prior-year levels.
Fuel cost per gallon is projected in the range of $2.65-$2.75. Fuel gallon consumption is expected to be between $4.40 billion and $4.43 billion. Adjusted operating margin is anticipated in the 3.5-5.5% range. The company envisions total non-operating expenses to be $1.44 billion. The effective tax rate is expected to be 27%. AAL expects free cash flow to be $500 million.
Performances of Some Other Transportation Companies in Q2
Delta Air Lines (DAL - Free Report) has reported second-quarter 2024 earnings (excluding 35 cents from non-recurring items) of $2.36 per share, which marginally missed the Zacks Consensus Estimate of $2.37. Earnings decreased 11.9% on a year-over-year basis. Apart from high costs, the carrier blamed the discounting pressure at the low end of the market, which hurt its pricing power, for the disappointing performance.
Revenues of $16.65 billion surpassed the Zacks Consensus Estimate of $16.25 billion and increased 6.9% year over year, driven by upbeat air travel demand. Adjusted operating revenues (excluding third-party refinery sales) came in at $15.41 billion, up 5.4% year over year.
J.B. Hunt Transport Services (JBHT - Free Report) reported disappointing second-quarter 2024 results wherein both earnings and revenues lagged the Zacks Consensus Estimate.
JBHT’s earnings of $1.32 per share missed the Zacks Consensus Estimate of $1.51 and declined 27% year over year. JBHT’s total operating revenues of $2.93 billion missed the Zacks Consensus Estimate of $3.03 billion and fell 7% year over year. Total operating revenues, excluding fuel surcharge revenues, fell 6% year over year. The downfall was owing to a 5% decrease in gross revenue per load in Intermodal and a decline in load volume of 25% in Integrated Capacity Solutions (“ICS”), 9% in Truckload, and 9% in Dedicated Contract Services. These were partially offset by the 5% revenue growth of Final Mile Services, primarily driven by new contracts implemented in the past year, and a 5% increase in revenue per load in ICS.
United Airlines (UAL - Free Report) reported second-quarter 2024 earnings per share (excluding 18 cents from non-recurring items) of $4.14, which surpassed the Zacks Consensus Estimate of $3.97. However, earnings decreased 17.7% on a year-over-year basis.
Operating revenues of $14.98 billion missed the Zacks Consensus Estimate of $15.13 billion. The top line increased 5.7% year over year attributed to upbeat air-travel demand. This was driven by a 5.2% rise in passenger revenues (which accounted for 91.2% of the top line) to $13.68 billion. Almost 44,375 passengers traveled on UAL flights in the second quarter, up 5.8% year over year.