American Airlines is having a very profitable quarter despite industry-wide issues that have hampered some of its rivals.
If you’ve been on a plane recently, you know that the cost of airfare is up from the pandemic doldrums when airlines were struggling to convince people to fly.
The consumer price index for flights was up 25% year over year in November, the largest recorded increase since the Federal Reserve of St. Louis began keeping score.
While increased demand can explain away some of the meteoric rise in prices, it does not explain why airline prices are easily outpacing inflation.
The other part of the equation is that airlines are operating with about 15% less capacity than they were in 2019 after grounding parts of their fleets during the pandemic, according to Trip.com.
“Unless the economy goes into a much more serious recession than I expect, you’re going to see that demand is going to outrun the supply of seats for all of ‘23,” finance expect Clark Howard said in November.
“Travel demand is actually higher than it was before, and there are a lot fewer seats to be sold to go in the air. So what happens is classic supply and demand economics at work: There’s intense demand, a shortage of supply, and something’s got to give and that’s the airfares have gone up a lot.”
Yet another reason for rising costs is the rising price of jet fuel.
Airlines, like most other industries, pass the extra cost of fuel onto passengers. Thanks to the war in Ukraine, increased demand, and higher oil prices in general, jet fuel prices have contributed immensely to the rising cost of your ticket.
Wall Street caught on to this Thursday, sending the stock price of American Airlines (AAL) – Get Free Report soaring more than 8% after the company guided for stronger results than it previously thought.
That optimism spread to the rest of the airline sector as well, sending the stocks of Delta Air Lines (DAL) – Get Free Report (2.85%), United Airlines (UAL) – Get Free Report (6.9%), and Southwest Airlines (LUV) – Get Free Report (2.5%) climbing Thursday afternoon as well.
American Airlines Benefits From Price Surge
The airline industry is still reeling from the latest kerfuffle that has left thousand of passengers scrambling for flights just weeks after Southwest Airlines had a meltdown during the busy winter holiday travel season.
But the chaos throughout the industry has not stopped American Airlines from posting a strong bottom line this quarter.
On Thursday, the company announced it’s expecting to earn between $1.12-$1.17 per share when it reports results next week. That’s up from prior guidance of a profit between $0.5-$0.7 cents per share.
Total revenue is expected to rise between 16-17% year over year, also ahead of previous guidance between 11-13% growth.
Adjusted operating margin is expected to be between 10.25-10.5%, ahead of expectations between 5.5-7.5%.
It expects to end the quarter with about $12 billion in total available liquidity.
What does this mean for the average U.S. flier? Potentially higher ticket prices.
American Airlines Makes Cuts
Axing routes to regional airports with little fanfare has been a key part of American’s profitability push.
Earlier this week, the airline, which is the largest U.S. carrier by employees, says that it “has made the difficult decision” to stop its services to Columbus, Ga.; Del Rio, Texas; and Long Beach, Calif., this spring.
Since the start of the pandemic, American has dropped service to a total of 19 U.S. cities.
