What Matters Most to American Airlines Investors: Earnings or Its Corporate Culture?
American Airlines Group Inc. (NASDAQ: AAL) reported third-quarter 2017 earnings before markets opened Thursday. The airline posted adjusted diluted earnings per share (EPS) of $1.42 on revenues of $10.88 billion. In the same period a year ago, the company reported EPS of $1.40 on revenues of $10.59 billion. Third-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.32 and $10.88 billion in revenues.
On Wednesday, the NAACP issued a travel advisory warning African Americans of “disrespectful, discriminatory or unsafe conditions” if they are traveling on an American Airlines flight. Today’s earnings report makes no reference to the NAACP warning.
The impact of three hurricanes during the quarter caused the company to cancel more than 8,000 flights and reduced pretax earnings by an estimated $75 million. Adjusted EPS excludes $110 million in merger integration expenses and fleet restructuring expenses, partially offset by a net credit resulting from fair value adjustments to bankruptcy obligations.
In the third quarter, the company returned $411 million to shareholders through the payment of $49 million in quarterly dividends and the repurchase of $362 million of common stock (7.7 million shares). American said it has returned more than $11.1 billion to shareholders since initiating its capital return program in mid-2014.
Third-quarter revenue rose 2.7% year over year, which the company attributed to continued strong demand for air travel and improving yields. Total passenger revenue per available seat mile was 14.89 cents, up 1.1% compared with the third quarter of 2016. Consolidated passenger yield was 15.51 cents, up 1.6% year over year.
Board chair and chief executive Doug Parker said:
Despite the significant operational challenges posed by three hurricanes, our team delivered solid financial results. The hurricane response highlighted the humanity and professionalism of the American team, and our industry as a whole. … We are playing the long game at American to create value in an industry that has been fundamentally transformed.
American’s cost per available seat mile on its mainline flights increased by 3.5% to 12.37 cents. Excluding fuel and special charges, mainline costs rose 4.8% to 9.77 cents per available seat mile. Total fuel costs rose 16.1% year over year in the quarter.
Operating costs were up 5.3%, revenues rose 2.8%, and operating income fell by 13.9%. Even adding in the estimated $75 million lost due to the hurricanes, American’s operating income would have been about 8.7% lower than in the year-ago quarter.
American expects fourth-quarter passenger revenue per available seat mile to increase by about 2.5% to 4.5% and pretax margin, excluding special items, to fall in a range of 4.5% to 6.5%.
Consensus estimates call for fourth-quarter EPS of $0.60 and revenues of $10.21 billion. For the full year, analysts are looking for EPS of $4.57 and revenues of $41.84 billion.
American’s shares closed at $51.02 on Wednesday, in a 52-week range of $39.21 to $54.48. The stock traded up nearly 2% in Thursday’s premarket session at around $52.00. The 12-month price target was $56.39 before this morning’s announcement.