American Airlines Group Inc (NASDAQ:AAL) on Friday reported first-quarter profit above analysts' expectations and pleased investors with capacity cuts to match weakening international demand.
Continue Reading Below
American earned $932 million last quarter, nearly double its profit a year earlier. It earned $1.73 per diluted share excluding special items, compared with analysts' average estimate of $1.71, according to Thomson Reuters I/B/E/S.
American's shares traded up almost 4 percent, reflecting bolstered investor confidence in the carrier, the world's largest after it merged in 2013 with US Airways.
With foreign travelers' spending power hurt by the strong U.S. dollar and in some cases lower oil prices, American slashed more than 1,000 seats it had planned to add to international routes by postponing the delivery of four Boeing Co <BA.N> 787 aircraft to 2017 from 2016, with another 787 delivery delayed until 2018.
American expects that will cut 2016 capacity by 0.6 percent. It still forecasts 2015 capacity up about two percent compared with 2014, driven more by domestic than international growth.
Rivals Delta Air Lines Inc <DAL.N> and United Continental Holdings Inc <UAL.N> have also announced cuts for travel outside the peak summer season.
American's President Scott Kirby said growing capacity and competition with Southwest Airlines Co <LUV.N> have driven down airfare in Dallas, where the two carriers have major hubs.
Fort Worth, Texas-based American also expects passenger revenue per available seat mile, a unit that measures a plane's carrying capacity, will fall four to six percent this quarter, with the largest impact in the Pacific and Latin America.
United expects an equivalent decline, which is "likely to put pressure on Delta to deliver" the smaller, two to four-percent drop it forecast, JPMorgan analyst Jamie Baker said in a research note.
American estimates its pre-tax profit margin will be 18 to 20 percent this quarter without special items, higher than Delta or United's forecasts.
Cheap fuel has lowered U.S. airlines' expenses, although it has hurt demand from customers in oil-rich nations.
For the second quarter, unhedged American forecast it will pay between $1.84 and $1.89 per gallon of jet fuel, while United and Delta's forecasts are higher by 21 cents or more because of hedge losses.
Baker said American is poised to have better profit margins than United and Delta for the next several years, provided it does not face significant stumbling blocks integrating US Airways.
American announced a $0.10 dividend for May 18.
(Reporting By Jeffrey Dastin in New York Editing by W Simon)