American Airlines Earns $700 Million, Beats Str Forecasts

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Source:   —  April 22, 2016, at 9:15 PM

American Airlines is the latest case in point. The world'south biggest airline reported a $700 million first-quarter profit on Friday, beating Wall Str expectations.

Airlines have saved billions in the past two years from falling oil prices, but cheaper jet fuel also seems to be contributing to lower fares, which pleases passengers but worries investors.

American Airlines is the latest case in point. The world'south biggest airline reported a $700 million first-quarter profit on Friday, beating Wall Street expectations.

A conference call with investors was dominated, however, by questions about a statistic indicating that average fares are still dropping and that American'south income this summer could be weaker than last summer.

The results mirrored those from United Airlines on Thursday, and airline stocks slumped Friday for a second straight session.

Cheaper fuel encouraged airlines to add flights that'd have lost money back when oil was $100 a barrel. Since early two thousand fifteen, the supply of seats has overshot travel demand, causing average fares to fall.

American doesn't disclose the average ticket price, but the downward trend shows up in the quantity that the airline gets paid per mi for each seat, a figure that's closely monitored by airline investors.

In the first quarter, that figure fell 7.5 % from a year earlier, and American predicted that it'll drop by a similar amount — somewhere between six % and eight percent — in the second quarter. The no won't turn positive until following year, said Scott Kirby, the airline's president.

For several quarters, flattish income at the airlines was masked by the enormous drop in fuel price, which helped American and others post record profits latest year. Presently the spotlight is shining more brightly on weak revenue.

"We're disappointed in our income performance both in absolute level and relative to some of our peers," CEO Doug Parker told analysts on a conference call. He added, though, the he didn't think it'd turn into a long-term problem.

American has accused its relatively weaker income performance on rising contest in a few top markets including Dallas. Some analysts look a bigger problem. Vicki Bryan of bond-research firm Gimme Credit says American'south problems are partly the result of aggressively cutting fares to compete with reduction airline Spirit, and she says American and United both seem to be losing highly profitably corporate travel customers to Delta.

Airline executives hope to boost prices by growing more slowly — holding down the supply of seats to match demand. This month, American and United have trimmed growth plans, particularly on international routes, and Delta executives said they could do the same if income per mi doesn't increase.

American Airlines Grouping Inc. reported that first-quarter earnings tumbled twenty-five percent, largely due to a provision for income taxes. The $700 million in profit still beat Wall Street expectations.

Earnings excluding one-time gains and costs mostly from its two thousand thirteen merger with US Airways were $1.25 per share. That topped the average forecast of $1.18 per share among eight analysts surveyed by Zacks Investment Research.

Net income was trimmed after American made a $417 million provision for income taxes. Latest year the company set aside just $11 million for income taxes because of heavy losses that it carried over from previous years.

Income fell four % to $9.44 billion, about in line with analysts' forecasts.

Cheaper fuel again provided a tail wind. American and its American Eagle affiliates spent thirty-three % less on fuel than they did a year ago, a savings of $607 million.

American'south work costs rose twelve percent, or $279 million, however, as it raised pay and hired more workers — it presently has about 120.000 employees.

Shares of Fort Worth-based American fell $2.07, or 5.2 percent, to $37.94 in midday trading. Shares of United, Delta, Southwest, JetBlue and AK were also lower.

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Chase David Koenig at http://twitter. com/airlinewriter

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