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Likely Coronavirus Impact on American Airlines (AAL) Q2 Earnings

American Airlines AAL is scheduled to report second-quarter 2020 results on Jul 23, before the market opens.

Coronavirus impact on the carrier’s operations is likely to have been greater in the second quarter than in the first, as air travel demand was significantly below year-ago levels in the entire April-June period, while the first-quarter impact was limited mostly to March.

Let’s delve deeper.

Factors at Play

American Airlines’ top line is expected to reflect significant decline in passenger revenues due to coronavirus-induced weak demand for air travel. The Zacks Consensus Estimate for second-quarter passenger revenues indicates a 91.7% fall from the year-ago reported number. The company expects revenues to have declined 90% year over year for the second quarter. The Zacks Consensus Estimate for the same suggests an 88.6% decrease from that reported in the second quarter of 2019.

American Airlines reduced capacity significantly in response to the suppressed demand. For the second quarter, it expects capacity to have reduced approximately 75% year over year. The Zacks Consensus Estimate for the same hints at a 75.5% decline from the year-ago reported capacity.

With fuel expenses comprising a major chunk of airline expenditures, low fuel prices are expected to aid the bottom line, thus mitigating the loss of revenues to some extent. The consensus mark for average fuel price per gallon (on a consolidated basis, including taxes) implies a 51.4% drop from the second-quarter 2019 reported figure.

American Airlines Group Inc. Price and EPS Surprise

 

American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote


Earnings Whispers

The proven Zacks model predicts an earnings beat for American Airlines in the second quarter of 2020. This is because the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: American Airlines has an Earnings ESP of +14.24% as the Most Accurate Estimate is pegged at a loss of $5.98 while the Zacks Consensus Estimate is pinned at a loss of $6.97. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Airlines carries a Zacks Rank #3.

Highlights of Q1 Earnings

In the last-reported quarter, the company delivered a negative earnings surprise of 22.7% with wider-than-expected loss. Operating revenues declined 19.6% year over year and also fell short of the Zacks Consensus Estimate. Results were hurt by coronavirus-led drop in air-travel demand, which caused 20.5% decline in passenger revenues.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider United Airlines UAL, Alaska Air Group, Inc. ALK and Air Lease Corporation AL as these stocks too possess the right combination of elements to beat on earnings this reporting cycle.

United Airlines has an Earnings ESP of +20.59% and a Zacks Rank of 3. The company will release second-quarter earnings on Jul 21.

Alaska Air has an Earnings ESP of +16.33% and a Zacks Rank #3. This company is set to release second-quarter financial numbers on Jul 23.

Air Lease has an Earnings ESP of +23.32% and a Zacks Rank #3. The company will announce second-quarter earnings numbers on Aug 6.

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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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