Yahoo Finance American Airlines: 2Q15 Revenues Miss Estimates, but Profits Soar
American Airlines Posts 2Q15 Earnings with Mixed Results
Revenue fall
American Airlines’ (AAL) 2Q15 revenues fell by 4.6% year-over-year to $10.83 billion due to weakness in the company’s key markets. Analysts had estimated that revenues would be ~$10.86 billion.
The quarter saw its mainline passenger revenues fall by 6.8% year-over-year primarily due to unfavorable economic conditions in Latin America. But AAL also increased capacity significantly in both domestic and international segments. As well, a strong US dollar created headwinds for the company. Cargo revenue slipped by 12.3% year-over-year due to lower international yields.
Fuel costs help save the day
American Airlines experienced a large decline in passenger unit revenues. Yet at the same time, it derived enormous fuel-cost benefits thanks to its no-fuel-hedging policy. Operating expenses declined by 11% year-over-year due to a 35% decline in fuel costs. The average aircraft fuel price per gallon for the quarter fell by a healthy 37% year-over-year to $1.90 per gallon.
EBITDA (earnings before interest, tax, depreciation, or amortization) grew by 32% year-over-year, and the company’s net income grew by a whopping 97% year-over-year to $1,704 million due to lower income tax provisions. Pretax margins also increased to record highs of 17.2%—albeit not as high as the 18% to 20% margin projected by AAL in April 2015. Weak passenger unit revenues in the quarter led to the decline.
PRASM (passenger revenue per available seat mile) declined by 6.9%, which is more than any other airline. Despite this, AAL was able to post 4.4% growth in its pretax margin thanks to fuel savings. Delta Air Lines (DAL)’s PRASM declined 4.6%, but it also recorded the highest fuel hedging losses in the industry, limiting its margin of growth to just 1.8%. United Continental’s (UAL) PRASM declined by 5.6%. But lower hedge losses than DAL helped it post a 3.8% margin of growth.
Traffic and capacity report
AAL saw marginal 0.4% year-over-year growth in traffic, as measured by revenue per mile. However, it grew capacity by 1.5% year-over-year due to capacity growth in certain domestic and international segments. Lower traffic growth accompanied by greater capacity growth led to a decline in the firm’s load factor, which stood at 83.4% for the quarter.
Investors can get exposure to airlines showing positive growth through the iShares Transportation Average ETF (IYT). These airlines include Southwest Airlines (LUV) and JetBlue Airways (JBLU). IYT invests ~16.85% of its portfolio in airline stocks. You can also invest in the SPDR S&P Transportation ETF (XTN).
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