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After watching competitors Delta Air Lines (DAL) and United Airlines (UAL) fly by 4Q24 estimates while issuing bullish guidance for 1Q25, American Airlines' (AAL) shareholders are feeling the sting of a highly disappointing outlook from the underperforming carrier. As anticipated, AAL easily surpassed Q4 EPS and revenue expectations, thanks to one of the busiest holiday travel seasons on record and a more favorable supply and demand dynamic across the industry. However, the company's Q1 EPS forecast of $(0.40)-$(0.20) badly missed the mark, and its FY25 EPS guidance of $1.70-$2.70 was also below expectations at the midpoint of the range.

The company stated that its guidance was based on "present demand trends and the current fuel price forecast." Jet fuel prices have indeed risen in recent weeks -- crude oil is up by about 12% since early December -- but the demand environment is still quite strong, at least according to DAL and UAL. Therefore, this divergence in views is also likely tied to company-specific issues for AAL as it tries to recover from costly missteps in 2023.

• More specifically, rather than trying to grow and expand its corporate customer base, AAL leaned on its existing corporate accounts, looking to squeeze more profits out of those by scaling back on discounts. The move clearly backfired as DAL, UAL, and other airlines flew in the opposite direction, bolstering their offerings while adding new premium services. 
• In 2024, reinvigorating the stagnant corporate business has been a priority for CEO Robert Isom. Last quarter, AAL's corporate managed business grew by 6%, but Mr. Isom believes that the company can generate stronger growth than that.
• Higher than expected unit costs are another key factor underlying AAL's weak Q1 EPS guidance. For the quarter, the company is forecasting a high-single-digit increase in non-fuel costs, driven by further reductions in capacity. In comparison, DAL stated that its non-fuel unit costs will be up low-single-digits in Q1.
• On the positive side, the reduction in capacity continues to push fare prices, unit revenue (TRASM), and margins higher. Following a 2.3% decline in TRASM in Q3, unit revenue inflected positive in Q4, coming in at +2.0% to lead U.S. network carriers. Although domestic TRASM was still slightly lower yr/yr at -0.1%, AAL's international network experienced a sharp swing higher as Atlantic and Pacific saw TRASM increase by 11.5% and 5.3%, respectively.

The main takeaway is that AAL's underperformance relative to its peers is on full display today, resulting in a steep selloff for a stock that had climbed higher by about 70% since the beginning of October. To see the company not fully capitalizing on the robust travel demand trends is a frustrating situation for AAL's shareholder base. Hopefully the company was taking a very conservative approach with its EPS guidance but given its shaky execution over the past couple of years, investors aren't giving it the benefit of the doubt today.