American Airlines (AAL 36.58, -2.54, -6.49%) hit a twenty-one month low after
updating second quarter guidance this morning. The company lowered unit revenue
and unit cost guidance while reaffirming its pre-tax margin outlook for the
Unit revenue, or total revenue per available seat mile (TRASM), is now expected to grow 1-3% year/year, which is down from +1.5-3.5% prior guidance, due to lower than anticipated domestic yields. On the bright side, this represents the seventh consecutive quarter of positive unit revenue growth for American. Strong demand and pricing have been the notable tailwinds for the sector, so investors don't want to see any deterioration in this regard.
American lowered unit cost guidance (cost per available seat mile) excluding fuel to +1.5-3.5% from +2.5-4.5%. Pre-tax margin guidance for the quarter was maintained at 7.5-9.5%. With oil prices hitting new highs, non-fuel cost discipline is even more important. American raised its cost reduction target at in its Investor Day in June.
The airline sector has come under pressure recently in the face of higher oil prices (fuel costs) and uncertainty around global trade. Deutsche Bank downgraded the big three carriers (American, Delta and United) with international exposure on a lack of positive catalysts on July 3.
American will report second quarter results later this month, likely on July 26 or July 27, but the company has yet to formally announce a date.
Delta Air Lines (DAL) will report second quarter results tomorrow morning. Delta reaffirmed second quarter guidance last week after raising unit revenue and unit cost guidance in June. Investors will be focused on third quarter guidance and whether the carrier will cut capacity for the back half of the year in response to higher fuel prices.
Airlines this session: American (AAL -6%), Alaksa (ALK -5%), United (UAL -4%), Spirit (SAVE -4%), Delta (DAL -3%), Southwest (LUV -2%).