First Free Story (1 of 3)Join Skift Pro
American Airlines Group Inc.’s first-quarter profit topped analysts’ expectations as tumbling jet fuel prices helped reduce operating costs.
Earnings excluding some items dropped to $1.25 a share, exceeding the $1.19 average of analyst estimates compiled by Bloomberg. Results fell from a year earlier as American took provisions for future income taxes and a new profit-sharing plan, the carrier said in a statement Friday. Revenue declined to $9.44 billion, meeting analysts’ expectations.
With American’s results, each of the four largest U.S. carriers has reported first-quarter profits above expectations as prices for jet kerosene dipped to the lowest in more than 10 years and domestic travel demand remained strong. The quarter typically has been the weakest for the industry.
Yield, or average fare per mile, slipped 7.1 percent at American, which has vowed not to lose passengers to discount carriers such as Spirit Airlines Inc. and Frontier Airlines Holdings Inc. American paid 34 percent less for each gallon of jet kerosene, helping to make up for some of the fare discounting. The airline plans to unveil a “basic economy” product later this year to retain price-sensitive travelers by offering a discounted fare without services like an assigned seat.
Passenger revenue for each seat flown a mile, an industry benchmark, dropped 7.5 percent in the quarter. Some investors have shied away from airlines as the measure has declined over much of the past two years.
American addressed sagging international demand this month by trimming its 2016 expansion plans, including shaving overseas capacity growth to 2.5 percent from 6 percent. The move came after demand slowed because of terrorist attacks in Brussels and Paris, as well as struggling economies in South America. Capacity in the domestic market will rise 2.5 percent versus the 2 percent initially planned for this year.
Delta Air Lines Inc. and United Continental Holdings Inc. have said they’re ready to cut capacity if flagging fares don’t begin to turn around. Reducing available seats in some markets would better match demand, allowing airlines to boost ticket prices.
The shares rose 1.5 percent to $40.01 at 7:50 a.m. in New York before the start of regular trading.
©2016 Bloomberg L.P.
This article was written by Mary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network.