American Airlines: What Happened With AAL

Key points to remember

  • Adjusted EPS was -$3.86 versus analysts’ expectation of -$4.14.
  • Revenue exceeded analysts’ expectations.
  • The load factor was above the level estimated by analysts.
  • More workers were laid off to cut costs.

What happened

American Airlines reported an adjusted loss per share for the fourth quarter of fiscal 2020 that was narrower than analysts expected. Revenue beat expectations, but was still down significantly from the same three-month period a year ago. The airline’s load factor was also above analysts’ forecasts, but well below the average of recent years.

American Airlines said it must lay off more workers in the absence of an expansion of the CARES Act payroll support program. “Our fourth quarter financial results cap off the toughest year in our company’s history,” commented President and CEO Doug Parker.

(Below is the original Earnings Snapshot from Investopedia, published January 26, 2021.)

What to look for

American Airlines Group Inc. (AAL) and other US airlines predict that new COVID-19 testing rules for passengers on US-bound flights will help restore confidence in air travel. Starting Jan. 26, the Centers for Disease Control and Prevention will require all travelers on international flights to the United States to present proof of a negative test for COVID-19. Along with the massive U.S. vaccination program, these measures are expected to slowly spur a recovery in air travel from its 2020 lows.

Investors will focus on how American Airlines is doing amid the industry turmoil when the company reports its results on January 28, 2021 for the fourth quarter of fiscal 2020.Analysts expect the airline to report another large adjusted loss per share as revenue continues to dip.

But investors will also be keeping a close eye on American Airlines’ load factor, a key metric used by airlines to gauge the percentage of revenue passenger seat capacity that is filled. Analysts expect the company’s load factor to be down significantly year over year (YEAR), but up from the previous two quarters.

Shares of American Airlines have lagged the market sharply over the past year. The stock started the previous year strong, but failed to recover after the pandemic-induced crash that occurred between late February and late March 2020. The stock traded mostly sideways for most of last year, although it has started to increase slightly in the last 3 months. American Airlines shares have provided a -40.7% total return over the past 12 months, well below the S&P 500 total return of 18.9%.

Source: Trading View.

The stock fell in the week following its fiscal 2020 third-quarter earnings report. The airline reported an adjusted loss per share of $5.54, marking the third consecutive quarter of losses. Revenue fell 73.4% from the same quarter a year ago. Amid the reduction in air travel caused by the pandemic, the company noted that it cut spending and laid off thousands of workers during the quarter.

But the second quarter of fiscal 2020 was the real low point. American Airlines posted an adjusted loss of $7.82 per share as revenue fell 86.4% from the same three-month period a year ago. It’s the biggest loss and biggest drop in revenue in at least 15 quarters. President and CEO (CEO) Doug Parker called it “one of the toughest neighborhoods in American history”.

Analysts expect another loss and further decline in revenue in the fourth quarter of fiscal 2020. The company is expected to post an adjusted loss per share of $4.14 as revenue falls 66.4%. It would be the fourth consecutive quarter of losses and declining revenues. For the full fiscal year 2020, analysts expect an adjusted loss per share of $19.69 and a 62.9% drop in annual revenue, the worst annual performance in at least five years for the turnovers and results of American.

American Airlines Key Metrics
Estimate for the fourth quarter of 2020 (fiscal year) Q4 2019 (fiscal year) Q4 2018 (fiscal year)
Adjusted earnings per share ($) -$4.14 $1.15 $0.97
Revenue ($B) $3.8 $11.3 $10.9
Load factor (%) 62.4 83.8 81.4

Source: visible alpha

As mentioned above, investors will also focus on American Airlines load factor. Load factor measures the percentage of available seats occupied by paying passengers. A high load factor, as opposed to a low load factor, is associated with a high percentage of seats occupied by passengers. Since the costs of getting an aircraft airborne are relatively the same whether there are 50 people on board or 100, airlines have a strong incentive to sell more tickets in order to fill as many seats as possible. . Higher load factors mean that an airline’s fixed costs are spread over a larger number of passengers, making the airline more profitable. The reduction in air travel caused by the pandemic has left airlines with high fixed costs amid falling load factors and revenues, the combination of which is leading to steep losses.

In the four years to 2020, before air travel was decimated by the pandemic, American Airlines’ load factor averaged 82.5%. In each quarter, from the second quarter of fiscal 2017 to the fourth quarter of fiscal 2019, the airline’s load factor was above 80%, reaching a peak in the second quarter of fiscal 2019 of 86 .6%. But in the first quarter of fiscal 2020, that number fell to 72.7%, then to a recent low of 42.3% in the second quarter of fiscal 2020. The load factor recovered somewhat to 58.9% in the third quarter of fiscal 2020. Analysts expect the company’s load factor to be 62.4% in the fourth quarter of fiscal 2020, showing further recovery but still well below the quarter of the previous year and its average for the last four years.

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