FORT WORTH -- American Airlines Group Inc. reported a second-quarter profit Friday that topped analyst estimates as lower fuel prices helped offset the effects of a lackluster global economy.
American -- the world's biggest airline and the last of the big four U.S. airlines to report results -- earned $950 million in the second quarter, beating Wall Street expectations.
Revenue fell 4.3 percent to $10.4 billion, the company said. That compared with $10.3 billion anticipated by analysts.
American expects revenue from each seat flown a mile, a key industry metric that reflects fares and demand, to fall 3.5 percent to 5.5 percent this quarter from a year earlier. So-called unit revenue has been down for more than a year, although airline President Scott Kirby said he expects the measure to improve.
"We're looking forward to getting back to growing" that benchmark financial gauge, he said.
Major U.S. airlines are enjoying boom times. Planes are full, and jet fuel is still much cheaper than it was last year. The four biggest U.S. carriers just reported a collective second-quarter profit of $3.9 billion.
And yet investors seem to be looking past the bottom line. They have become obsessed with fare prices -- falling now for more than a year -- that may foreshadow thinner profits in the future.
When the airlines held calls this month to discuss their second-quarter operations, investors pressed them to reduce flights and the supply of seats in order to drive up fares. They cheered when Delta Air Lines Inc. and United Continental Holdings Inc. said that they would trim growth plans in the fourth quarter -- sending shares of both higher.
And they hammered shares of Southwest Airlines Co., which announced no such pullback -- and showed "no sense of urgency," according to Wolfe Research analyst Hunter Keay. Shares plunged 11 percent, although a Southwest data system failure that stranded tens of thousands of its passengers the day before earnings came out may be partly to blame.
American Airlines quarterly profit fell 44 percent from a year ago (partly due to a tax provision), revenue per mile slipped by more than 6 percent on lower average fares, and American said that figure will fall again in the third quarter -- even if by a smaller percentage.
"It's difficult to believe we'd ever be excited" about American's forecast of 4.5 percent to 6.5 percent lower revenue per mile, but "we'll take it," said JP Morgan analyst Jamie Baker.
For the second quarter, American said that, excluding one-time costs, it earned $1.77 per share. That easily beat the expected per-share earnings of $1.68 coming from analysts, according to a poll by FactSet. Revenue fell 4 percent to $10.36 billion, but that also edged out Wall Street expectations for $10.32 billion.
American shares rose $1.40, or 4 percent, to close Friday at $36.36.
The airlines will face more pressure for measured growth if revenue trends don't improve this year.
Right now even business travelers, considered less stingy than vacationers, are enjoying a relative bargain. All airlines said pricing was weak for tickets bought on short notice -- often by corporate travelers.
"Corporate demand is strong," Kirby said during a conference call, "but we have a lot of low fares, so they are getting a deal right now."
Kirby said American will increase revenue by at least $1 billion a year once it starts offering both a bare-bones fare to compete with discounters such as Spirit Airlines, and a "premium economy" ticket for people wanting a better seat.
The company is also deferring costs, delaying the delivery of 22 Airbus planes.
American Airlines reached an agreement with Airbus Group SE to take A350 XWB aircraft from late 2018 through 2022, deferring each plane's arrival by an average of 26 months. American previously was to get the first A350 in spring 2018, according to a statement Friday.
The move will save American $500 million next year and $700 million in 2018 as some investors are questioning its use of debt to finance new planes. It also gives the Fort Worth-based carrier more flexibility in how to use its fleet, Kirby said Friday.
"All these aircraft were scheduled to be replacements for existing aircraft," he said during a conference call. "We can extend some of the leases longer to keep flying and keep the existing plans in place or, given a weak international environment, pull back on what our growth plans otherwise would have been."
Information for this article was contributed by Mary Schlangenstein of Bloomberg News and David Koenig of The Associated Press.
Business on 07/23/2016