American Airlines matches Wall Street forecast for 4Q profit

AP News
Posted: Jan 27, 2017 12:27 PM
American Airlines matches Wall Street forecast for 4Q profit

FORT WORTH, Texas (AP) — American Airlines' fourth-quarter profit fell but met Wall Street expectations, and a key measurement of revenue trends rose for the first time since late 2014, further evidence that airlines are finally starting to push average prices higher.

American executives echoed officials at other airlines in reporting that demand for travel has picked up since the November election.

With the new and presumably more business-friendly Trump administration now in Washington, American officials also said they would revive a previously rejected bid to work more closely with Australian carrier Qantas. The airlines want to work together on setting prices and schedules, which is forbidden without an exemption from antitrust laws. The Obama administration rejected immunity for the deal.

"We are hopeful that the Trump administration will give the Qantas joint venture a second and more favorable look," said Stephen Johnson, American's executive vice president.

Johnson added that American, Delta Air Lines and United Airlines are also asking the administration to re-examine whether Middle Eastern carriers Emirates, Qatar Airways and Etihad Airways are violating an open-skies treaty by receiving unfair subsidies from their governments. The Obama administration did not act on the U.S. carriers' complaints.

Analysts said American's revenue forecast for the first quarter was better than they had expected. Still, shares of American Airlines Group Inc. were down $2.40, or 4.8 percent, to $47.19 in midday trading.

At airports around the country, momentum is clearly swinging toward higher fares.

American predicted that total revenue for every seat flown one mile in the first quarter would be 2.5 percent to 4.5 percent higher than in early 2016. That is a more optimistic forecast than rivals have offered, although comparisons can be tricky — American includes some revenue, such as from credit-card deals, that other airlines don't include.

The same revenue figure rose 1.3 percent in the fourth quarter, the first such increase since the last quarter of 2014, American said.

That trend is not an accident. Airlines have been slowing their growth to tighten the supply of seats and drive up average fares. American said it would add only 1 percent to passenger-carrying capacity this year.

American is taking other steps to boost revenue. Next month it will start selling "basic economy" tickets designed to win over passengers from discount airlines like Spirit and Frontier. It also plans to offer "premium economy" tickets on international flights that would be better than a regular economy seat but less expensive than business class.

Fort Worth-based American, the world's largest airline, said that fourth-quarter net income fell to $289 million from $3.28 billion a year ago, when American recorded a $3 billion income tax-accounting benefit.

Excluding a non-cash tax set-aside and certain expenses for fleet changes and costs related to a 2013 merger, American said it would have earned 92 cents per share.

That matched the average forecast of nine analysts surveyed by Zacks Investment Research.

Revenue rose 2 percent to $9.79 billion, slightly higher than the analysts in the Zacks survey expected.

Operating expenses rose faster — more than 5 percent — chiefly on higher labor costs. Airline unions have been negotiating pay raises as the carriers have posted a string of profitable years.

American has hired thousands of new workers since its 2013 merger with US Airways. Executives said the pace of hiring is likely to slow. CEO Doug Parker said workers who leave might not be replaced and some might be offered early-retirement incentives, but there would be no mass layoffs.


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