American Airlines (AAL) is down 2% despite reporting solid fourth quarter results this morning.
Adjusted earnings of $0.95/share were $0.03 better than expected. Pre-tax profit fell 4% to $739 million due to higher employee and fuel costs.
Strong close-in demand and improving yields drove an 8.3% increase revenue, to $10.6 billion. Passenger yields grew in all geographic regions, including 11.0% growth in trans-Atlantic and 7.9% growth in Latin America. Fourth-quarter total revenue per available seat mile (RASM, or unit revenue) increased by 5.6% on a 2.5% increase in total available seat miles (capacity).
Earlier this month, American raised fourth quarter unit revenue guidance to +5-6% from +2.5-4.5%. American guided for first quarter unit revenue up 2-4%. On the call, management was upbeat about unit revenue trends for the year, saying demand remains strong. The company reaffirmed capacity and unit cost and guidance for the year. Management also offered adjusted EPS guidance for the year of $5.50-6.50 that was above estimates.
Investors seem to be concerned about a potential fare war after United raised capacity guidance yesterday. American said it looks to grow where it has a competitive advantage. American also noted that fares are too low relative to where fuel prices are, indicating that fares will go up if oil prices stay at current levels.
Alaska (ALK -3%), Southwest (LUV -2.5%) and Jet Blue (JBLU -2%) also reported this morning.
Airline stocks have extended yesterday's move to the downside. This is weighing on the transportation sector, which has lead the market higher since breaking out in November of last year.