Support Skift’s Independent JournalismMake a Contribution Now
American Airlines Group Inc. expects to gain more sway over ticket prices this quarter, giving hope to an anxious industry that fares are stabilizing and will keep improving as next year begins.
Passenger revenue for each seat flown a mile will likely rise 2.5 percent to 4.5 percent in the last three months of the year because of better business and leisure travel, the world’s largest carrier said in an earnings statement Thursday. The figure, a gauge for pricing power, has now climbed for four straight periods at American even as hurricanes forced the cancellation of 8,000 flights in third quarter.
The outlook follows an increase of 1.1 percent from a year earlier in the three months through September.
Coming after a similar forecast from Delta Air Lines Inc., American’s outlook should help quell industry anxiety about a fare war that flared up earlier this year. United Continental Holdings Inc. caused concern this month when it said the battle had expanded to more markets and drove some so-called walk-up fares down to $10 around the industry. Such ticket prices, usually purchased for business travel, typically are among the most expensive.
“Worries of a broadly deteriorating competitive environment have subsided, with stronger-than-expected demand helping, heading into 2018,” Barclays analyst Brandon Oglenski said before American’s report.
An unexpected increase in average fare per mile helped offset $75 million in reduced earnings from three hurricanes that reduced travel in Texas, Florida and the Caribbean, the Fort Worth, Texas-based airline said earlier this month. That was the first time that the measurement, known as yield, had improved since the start of summer and boded well for prices toward year end.
American’s expansion of its basic-economy product throughout the continental U.S. last quarter allows the carrier to compete with ultra-discounters like Spirit Airlines Inc. on fewer seats than before. Basic economy offers a lower fare with no upgrades, no advance seat assignment and one carry-on bag that fits under the seat. About 50 percent of travelers considering basic economy end up buying a higher-priced ticket, American says.
Capacity will be up 1 percent this year, with domestic unchanged and international up 4 percent, American said. Pretax profit margin, excluding some items, will be 4.5 percent to 6.5 percent this quarter.
Third-quarter adjusted earnings fell to $1.42 a share. Analysts had predicted $1.40, according to the average of estimates compiled by Bloomberg. Revenue rose 2.7 percent to $10.9 billion, matching analysts’ expectations.
American climbed 2.1 percent to $52.10 in New York premarket trading. The shares gained 9.3 percent this year through Wednesday, while a Standard & Poor’s index of airline stocks advanced 2.1 percent.
©2017 Bloomberg L.P.