Airline Investors Spooked by American's Guidance and Revenue Concerns Looming

American Airlines’ First Quarter Earnings Guidance Falls Short of Investor Expectations American Airlines released its first quarter earnings guidance on Wednesday, revealing that it expects higher earnings and costs than previously anticipated. However, the announcement still disappointed investors and some analysts. American Airlines stated that its earnings per share would range from one cent to six cents, whereas it had previously estimated breakeven EPS. Although the Visible Alpha consensus estimate was for three cents, Bank of America analyst Andrew Didora had predicted earnings per share of nine cents. The announcement caused American Airlines’ shares to drop by 9%, while Delta and United shares fell by 2% and 7%, respectively.

In addition to American Airlines’ lower-than-expected guidance, Didora had previously expressed concerns about the industry’s forward bookings. He noted that since March, airline bookings have slowed by 400 basis points. Diadora said, “We expect the focus of 1Q airlines earnings season to be on 2Q revenue guidance and commentary on the upcoming peak summer travel season,” adding that domestic net sales have decelerated by 550bps and international net sales have decelerated by 250bps since mid-March. He further warned that domestic, leisure-oriented airlines could be at greater risk in the second quarter of 2023 due to more off-peak leisure periods between now and Memorial Day.

Cowen analyst Helane Becker, however, had a different view of American Airlines’ guidance. In a note issued Wednesday morning, she cited “a better than expected first quarter” and stated that “revenues were in line with our forecast, but CASM ex was down a little more than we estimated.” American Airlines had guided to a TRASM (total revenue per available seat mile) increase of 25.5%, compared to the first quarter of 2022, with a CASM (cost per available seat mile) decrease of 1.5% excluding fuel. It had previously estimated a TRASM increase between 24% and 27%, with a CASM decrease of down 3% to flat.

United is expected to report earnings on April 19th, while America is expected to report on April 20th. Becker believes that the key that day will be forward guidance, which should be fairly robust, even with any accruals for labour contracts that they may discuss. She further believes that June quarter revenues will continue to be strong, in part because capacity is not back to 2019 levels while demand exceeds those levels. American Airlines reported that its first-quarter capacity totalled 65 billion available seat miles, up 9.2% from the first quarter of 2022.