American Airlines (NASDAQ:AAL) has reported strong earnings for the third quarter of 2023, with adjusted earnings per share (EPS) of 38 cents, surpassing the Zacks Consensus Estimate of 26 cents. This positive outcome was driven by increased revenues resulting from a robust air travel demand environment. In the same quarter of the previous year, AAL had reported earnings of 69 cents per share.
Operating revenues for the quarter reached $13,482 million, showing marginal growth year over year. However, this figure fell slightly short of the Zacks Consensus Estimate of $13,518.7 million. Passenger revenues, accounting for 92.1% of the total revenues, increased to $12,421 million from $12,396 million in the previous year. Nevertheless, this metric was slightly lower than the estimated $12,473.5 million.
Cargo revenues experienced a decline of 30.9%, reaching $193 million, while other revenues surged by 10.4% to $868 million, also exceeding the expected figure of $855.9 million.
Key Financial Metrics
- Total revenue per available seat mile (TRASM) decreased to 18.4 cents from 19.63 cents year over year.
- Passenger revenue per available seat mile (PRASM) decreased by 6.3% to 16.95 cents, slightly lower than the estimated 17.09 cents.
- Consolidated yield decreased by 4.8% to 20.18 cents.
In response to the increased demand for air travel, consolidated traffic (measured in revenue passenger miles) rose to 61,561 million, up from 58,499 million in the previous year. This growth prompted an expansion in capacity (measured in average seat miles) to 73,285 million, up from 68,567 million.
The consolidated load factor, representing the percentage of seats filled by passengers, declined by 1.3 points to 84%, but it still exceeded the anticipated figure of 83.4%.
Total operating costs, on a reported basis, increased by 9.4% year over year to $13,705 million. Expenses related to salaries, wages, and benefits also increased to $3,974 million, up from $3,384 million in the previous year. The average fuel price per gallon, including related taxes, decreased to $2.91 from $3.73 in the previous year. Consolidated operating costs per available seat mile, excluding fuel and special items, increased by 3.3% to 13.02 cents, slightly lower than the expected 13.16 cents. Fuel gallon consumption increased by 6.9% to $1,102 million in the third quarter of 2023.
Outlook: Management expects the fourth-quarter 2023 TRASM to be in the range of 5.5% to 7.5%, lower than the actuals for the fourth quarter of 2022. The system capacity for the December-end quarter is estimated to increase by 4.5-6.5% from fourth-quarter 2022 levels.
Fuel cost per gallon is projected to be in the range of $3.01-$3.11 for the fourth quarter of 2023. Fuel gallon consumption is expected to reach $1,050 million. The adjusted operating margin for the December-end quarter is anticipated to be in the range of 2-4%.
The company expects total non-operating expenses to reach $400 million for the fourth quarter. Cost per available seat miles (adjusted) is estimated to increase by 5-7%. American Airlines projects earnings per share for the December-end quarter (excluding net special items) to be approximately breakeven, using a share count of 658.9 million shares. The Zacks Consensus Estimate is pegged at 15 cents.
Management anticipates a 6.5% year-over-year improvement in capacity for 2023. Total revenue per available seat mile (TRASM) for the full year is expected to increase by approximately 1% compared to the 2022 actuals. The adjusted operating margin for 2023 is estimated to be in the range of 7%.
Cost per available seat miles (adjusted) is expected to increase by 3% in 2023. AAL anticipates a provision for income taxes at an effective rate of approximately 25% for the full year, which is expected to be largely non-cash.
The company has revised its outlook for 2023, now expecting adjusted earnings to fall in the range of $2.25 to $2.5 per share, a revision from the previous range of $3 to $3.75 per share. The Zacks Consensus Estimate of $2.31 falls below the mid-point of the newly guided range.
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