What Can Investors Expect from American Airlines in 2Q15?

American Airlines' 1Q15: A Mixed Bag (Part 4 of 5)

(Continued from Part 3)

Analyst estimates

For 2Q15, analysts expect American Airlines (AAL) to clock sales of $11,171 million, compared with $11,355 million in 2Q14. Its operating profit and net profit are expected to increase by $2,386 million and $2,203 million, respectively. The company’s earnings per share (or EPS) are expected to increase to $3.23, compared with $1.49 in 2Q14.

American Airlines’ 2Q15 outlook

American Airlines expects 2Q15 to be more challenging than its recent quarters due to the continuing increase in capacity by its competitors across all regions. The company also expects a 2% impact from currency, a 0.5% impact from Venezuela, and a 0.7% impact from the decline in international surcharges. Let’s look at some of these parameters in detail.

Drop in fuel prices

American Airlines expects fuel prices to continue to drop, and its per-gallon fuel cost is expected to remain in the range of $1.84–$1.89 in 2Q15. The lower fuel costs should help to reduce the company’s operating expenses.

Increasing margins

American Airlines expects its 2Q15 pretax margin, excluding special charges, to be ~18%–20%, an increase of 600 basis points, compared with 2Q14. Its operating cash flow is also expected to improve, due to the drop in fuel prices.

Capital allocation will be made for completing integration, investing in aircraft, paying down high-cost debt, and making dividend payouts to its shareholders.

PRASM

The company expects a decline in its passenger revenue per available seat mile (or PRASM) across all the regions of the world, with the major decline occurring in the Latin American and Pacific regions. For 2Q15, the company’s PRASM is expected to decline by 4%–6% year-over-year.

Capital expenditures

American Airlines’ (AAL) capital expenditures (or capex) for 2Q15 is expected to be $1.4 billion. The total expenditure for 2015 is forecast to be around $5.4 billion. The estimated capex for AAL’s peers for 2015 are:

• United Airlines (UAL): $3,045 million

• JetBlue Airways (JBLU): $838.3 million

• Alaska Airlines (ALK): $701.7 million

• Spirit Airlines (SAVE): $479 million

The SPDR S&P Transportation ETF (XTN) and the iShares Transportation Average ETF (IYT) hold 11% and 38% in airline stocks, respectively.

Continue to Part 5

Browse this series on Market Realist:

• Part 1 - American Airlines’ 1Q15: Results and Reactions

• Part 2 - Analyzing American Airlines’ 1Q15 Performance

• Part 3 - American Airlines Increases Its Investor Returns