Shares of American Airlines AAL appreciated 1.09% on May 31, to close the trading session at $14.78 per share. A favorable outlook issued by management for second-quarter 2023 resulted in this uptick. The anticipated air-travel-demand swell during the upcoming summer season and low fuel costs contributed to the bright outlook.
Q2 Outlook
American Airlines, currently carrying a Zacks Rank #3 (Hold), now expects total revenue per available seat miles (a measure of unit revenue) to decline 1-3% from second-quarter 2022 actuals (earlier estimate was for a 2-4% decline).
Driven by upbeat demand, the adjusted operating margin is now anticipated in the 12.5-14.5% band (earlier guidance :11-13%). Average fuel cost per gallon is now expected in the range of $2.55-$2.65 (earlier guidance: $2.65-$2.75).
Non-fuel unit costs are still expected to increase 3.5-5.5% year over year. Our estimate hints at a 5.2% year-over-year increase. Available seat miles (a measure of capacity) are still estimated to increase 3.5-5.5% year over year. Our model predicts a 4.2% increase, year over year.
AAL lifted its second-quarter earnings per share (excluding net special items) view and now expects it in the $1.45-$1.65 range (earlier guidance: $1.20-$1.40). The Zacks Consensus Estimate is currently pegged at $1.29.
2023 Outlook Stays Intact
Management still expects available seat miles to increase 5-8% year over year. Our model estimates an increase of 6.1% year over year. Non-fuel unit costs are still expected to increase 2-5% year over year. Our estimate hints at a 3.4% year-over-year increase.
AAL still expects earnings per share (excluding net special items) in the $2.50-$3.50 range. The Zacks Consensus Estimate is currently pegged at $2.64.
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Airline industry are Copa Holdings CPA and Allegiant Travel Company ALGT . While Copa sports a Zacks Rank #1 (Strong Buy), Allegiant carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased 28.5% from first-quarter 2019 levels due to higher yields.
CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% from first-quarter 2019 levels on higher cargo volumes and yields.
Copa Holdings' fleet modernization and cost-management efforts are commendable. The Zacks Consensus Estimate for current-year earnings has been revised 21.3% upward over the past 60 days.
Allegiant is seeing a steady recovery in domestic and leisure air-travel demand. In first-quarter 2023, operating revenues grew 29.9% on a year-over-year basis. Passenger revenues, accounting for 93.7% of the top line, increased 31.3% on a year-over-year basis.
Allegiant's fleet-modernization efforts are encouraging. The Zacks Consensus Estimate for ALGT's current-year earnings has been revised upward by 47% in the past 60 days.
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