American Airlines Group lowered its full-year outlook again and put out a notably wide loss range for the December quarter. Management now expects an adjusted loss of $1.00 to $1.60 per share for the year, after forecasting in July a range from a 65 cent loss to a 65 cent profit. For the fourth quarter, the company guided to an adjusted loss of 50 cents to $1.10 per share, while analysts had penciled in a 49 cent loss. Following the update, the shares were down up to 4.4% during early New York hours.
The carrier reported a $1.9 billion increase in fuel costs and said fourth quarter fuel expenses will be about $2.8 billion higher than a year ago. If prices remain high, American cautioned it may further reduce flying, echoing peers that are prioritizing profits over market share. "Profitability for all carriers is under pressure," Chief Executive Officer Robert Isom told analysts.
Even as fares climb, Isom said travel demand remains strong, driven by higher spending at the front of the plane. "There's so much leisure premium that's driving that," he said.
"It's almost 65% of our premium business now. It's a sign that people want to take care of themselves." Premium revenue rose about 23% from a year earlier, while main cabin revenue increased 20%. That tracks with rivals: United reported a 17% gain in premium revenue in the third quarter, and Delta posted an 18% increase.
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At the close of the third quarter, American reported total available cash of $11.8 billion, while its debt topped $26 billion, while working to cut its borrowings and win back corporate travelers after an unpopular marketing strategy. Brian Mulberry of Zacks Investment Management, where he serves as chief market strategist, said, "They can raise fares to offset the costs or continue to drive capacity gains with competitive pricing at the cost of lower margins." "Investors will be concerned that sustained losses like this will make it harder to reduce their debt burden long term, leaving the stock price even more correlated to fuel prices in the future."
Following Spirit Aviation Holdings Inc.'s bankruptcy, Isom said American will keep an eye on potential opportunities while rivals work through the jet fuel market. "We'll keep our eyes open on any others that may have issues," he said.
American plans to outfit more than 1,000 mainline aircraft with Elon Musk's Starlink satellite internet, starting early next year. The airline plans to outfit all of its mainline aircraft - Airbus and Boeing narrow- and wide-bodies - with the high speed service. The expanded agreement more than doubles its May pledge, which covered installation of Starlink on over 500 Airbus planes. With Starlink, owned by SpaceX, becoming a key battleground for faster in flight Wi Fi, American joins United and Southwest Airlines in adopting the technology.
The bottom line: volatile fuel, a wider loss range, heavy debt, and premium demand pulling in more revenue now sit at the center of how investors will value American from here.
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