American Airlines (AAL) +1.8% is leading airline stocks higher after raising its guidance for the second quarter this morning.
American raised its unit revenue outlook to 3-4% growth from its original projection for 1-3% growth. The company cited a higher than expected load factor, also known as capacity utilization, for the update. Capacity was lower than expected due to cancellations related to the grounding of Boeing's (BA) 737 MAX 8 aircraft as well as to headwinds from union mechanics under contract negotiations.
American canceled all 737 MAX flights through September 3, but it now seems that the grounding may last through year-end. Cancellations related to the 737 MAX negatively impacted pre-tax income by $185 mln. Excluding special items, the company raised pre-tax margin guidance to 8.5-9.5% from 7-9%, despite increasing its adjusted unit cost guidance excluding fuel costs.
American's second quarter results compare very favorably to first quarter results, when the company was forced to reduce its unit revenue outlook due to the government shutdown and the 737 Max grounding. American also lowered its fiscal 2019 earnings outlook due to higher oil prices.
American's strong outlook confirms the solid demand environment for domestic airlines after Delta (DAL) raised its outlook last week.
The stock was up more than 4% before finding resistance at its 200-day moving average this morning. AAL remains in a slight downward trending channel, underperforming peers.
The stock is down nearly 50% from the peak levels it reached in early 2018 while Delta is within 3% of an all-time high. American lags industry leader Delta in terms of unit revenue, operating profit, and overall consistency. Meanwhile, United's (UAL) stock is near its highs as strategic initiatives have resulted in improved operating and financial performance.
Still, at 6.3x, American's enterprise value to EBITDA margin (EV/EBITDA) trades at a slight premium to Delta's.
Delta will report first quarter results tomorrow morning, where third quarter guidance will be in focus after a strong preannouncement last week. American will likely report second quarter results and update its outlook toward the end of July.