American Airlines Group Inc. (AAL.O) dropped as the carrier cut its earnings forecast for this year, citing rising fuel costs and the worldwide grounding of the Boeing 737 Max.
-Parking the Max will reduce 2019 pretax profit by about US$350 million, the world’s largest airline said Friday as it reported quarterly results. American projected adjusted earnings of US$4 to US$6 a share, down from as much as US$7.50.
-Fuel expenses this year will be about US$650 million higher than forecast three months ago.
Key Insights
-The Max grounding, following two fatal crashes since October, wasn’t the only problem American had with its fleet. During the first quarter, it had to take 14 Boeing 737-800s out of service because of problems with the installation of overhead bins. The two issues forced American to cancel 2,140 flights during the period.
-American said it expects to maintain a grip over prices, forecasting that revenue from each seat mile flown will rise between 1 per cent and 3 per cent this quarter from a year earlier. The closely watched gauge of pricing power increased 0.5 per cent in the first quarter.
-American is banking on planned expansions at its three most profitable hubs through 2021, including this summer’s addition of 100 flights at Dallas-Fort Worth International. The flights “immediately have better-than-average profitability,” the carrier has said.
Market Reaction
-The stock slumped 3.6 per cent to US$32.22 before the start of regular trading in New York. American climbed 4 per cent this year through Thursday, trailing the 9.3 per cent advance of a Standard & Poor’s index of the five biggest U.S. carriers.
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