American Airlines (AAL) Stock Tumbles Post Bearish Q2 View

Shares of American Airlines AAL declined in excess of 6% in after-market trading on May 28, following management’s decision to trim its earnings per share outlook for second-quarter 2024. Due to soft air-travel demand, revenues are likely to take a hit. As a result, second-quarter total revenue per available seat miles is now expected to decline in the 5-6% band from the year-ago levels (a dip of 1-3% was expected previously). System capacity (measured in available seat miles) is still estimated to increase in the 7-9% band from second-quarter 2023 actuals.

The revenue weakness resulted in a lowered guidance for adjusted operating margin. The metric is now expected in the 8.5-10.5% range (earlier guidance was in the 9.5-11.5% range). Average fuel price per gallon is now envisioned in the $2.7-$2.8 band (earlier guidance was in the $2.75-$2.95 range).

The guidance for non-fuel unit costs has also been lowered. Management now projects cost per available seat miles (adjusted) to remain flat to up 1% from second-quarter 2023 actuals (earlier guidance was for a 1-3% increase from the year-earlier levels).

The top-line weakness has caused the company to reduce its earnings per share guidance. Adjusted earnings per share are now expected in the $1- $1.15 band (earlier guidance was in the $1.15-$1.45 range). The Zacks Consensus Estimate for June quarter earnings is currently pegged at $1.3.

Price Performance

Shares of American Airlines have declined 2.2% year to date compared with the Zacks Airline industry’s 16.8% appreciation.

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The unfavorable guidance is a further setback for the stock, currently carrying a Zacks Rank #3.

Airline Stocks to Consider

Investors interested in the airline industry may consider SkyWest SKYW and Copa Holdings CPA. SkyWest presently sports a Zacks Rank #1 (Strong Buy) while Copa Holdings carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest's fleet modernization efforts are commendable. Upbeat air-travel demand also supports the company. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 6.6% over the past 60 days. The stock has surged 138% in the past year.

SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.09%, on average.

Latin American carrier Copa Holdings is being aided by upbeat air-travel demand. We are also encouraged by Copa Holdings' initiatives to modernize its fleet.

Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2024 earnings being revised 3.3% upward. CPA surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters by an average of 20.2%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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