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Airlines

Higher Domestic Fares Boost American Airlines’ Outlook

  • Skift Take
    Those last-minute walkup fares on domestic trips are a bonanza for airlines such as American. The airline tightened capacity and raised some fares to offset soaring fuel prices.

    American Airlines Group Inc. revised a key measure of pricing power to the high end of its previous forecast last quarter even as disruptions from Hurricane Florence reduced pretax profit by $50 million.

    Revenue from each seat flown a mile rose about 2 percent to 3 percent from a year earlier, mainly because of higher fares on domestic tickets sold just before travel, the airline said in a statement Tuesday. American had said the gain could be as little as 1 percent. Florence forced the grounding of 2,100 flights as it moved through the Southeast, causing widespread flooding.

    Key Insights

    • American’s report indicates it is getting a firmer grip on airfares. Airlines have cut capacity — paring the number of flights and seats available — in the hopes that a tighter supply will give them power to raise ticket prices.
    • American and other U.S. airlines have been trying to offset a 38 percent jump in jet-fuel prices over the past 12 months, and the carrier said its average cost rose to as much as $2.33 a gallon last quarter.
    • The airline stuck with its forecast to earn $4.50 to $5 a share this year. American had cut its outlook twice this year.

    Market Reaction

    • American rose 1.4 percent to $36.40 in New York premarket trading. The shares had dropped 31 percent this year through Monday, easily the worst on a Standard & Poor’s index of the five biggest U.S. carriers as American cut its outlook and trailed rivals on profit margin and on-time performance.

    Report Details

    • American reiterated its expectation for pretax margin of 5 percent to 7 percent. Costs for each seat flown a mile, a measure off efficiency, will still be up about 1 percent in the third quarter, excluding fuel and other items.

    ©2018 Bloomberg L.P.

    This article was written by Mary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

    Photo Credit: American Airlines boosted its outlooks despite the adverse impact of Hurricane Florence. Bloomberg
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