The largest U.S. airline, American Airlines (AAL, Financial), posted its first quarter fiscal results for the year 2015 on this Friday and as expected by analysts and investors the airline was benefitted by the low oil prices that aided in reporting record first quarter profits. However, the management has taken a cautious stand while forecasting the second quarter earnings since currency whirlwinds are playing a negative role impacting the top-line of the airline and this trend is expected to continue into the near future. Let’s quickly get into the financial playbook of the U.S. airline to find out what major facts were shared during the earnings presentation.
Earnings meet expectations, though revenue misses the bus
American earned $932 million, or $1.30 a share, during the quarter compared to $480 million, or $0.65 a share a year earlier. Excluding special charges, the earnings came in at $1.2 billion, and beat the analysts’ estimates by $0.02 a share. The rise in the profits was mainly felt due to the 43% reduction in American’s fuel bill and the 7.1% cut in the operational costs.
However, due to the currency fluctuations, revenue for the quarter declined 1.7% to $9.8 billion. The unit revenue declined around 1.7% due to flat capacity. The management have highlighted that the strong dollar along with the imbalance between supply and demand dragged down revenue for the latest quarter and are expected to act as headwinds in the upcoming quarter as well.
The load factor (% of seats filled by passengers) was affected by weakness felt in the Atlantic and the Latin American region that contributed to the load factor decline to 79.9% from the comparable year-ago figure of 80.3%.
Share repurchases continue
The company continues to reward its shareholders with dividends and share repurchases. In the first quarter, the American returned $260 million to the shareholders by paying $70 million in the form of dividends and by buying back stock of worth $190 million. The company has also declared dividend of $0.10 a share which is payable on May 18, 2015 to its investors.
Hence, though the revenue was hit by headwinds during the quarter, the company believes in keeping its investors safe and happy even when in doldrums.
Future outlook is highly cautious
The American has stated that its unit-revenue which measures the amount of passenger revenue generated for each seat flown a mile, would bottom out in the coming quarter declining 4%-6% from the prior-year similar period. Similar decline in unit revenue has been reported by the number 2 carrier in the U.S., United Continental Holdings, on April 23 during its earnings release.
American’s President, Scott Kirby, stated during the earnings call that foreign currency would affect the unit-revenue decline by about 2 percentage points, the reduction of international fuel surcharge would cost about 0.7 point and that the economic situation at Venezuela would affect about 0.5 point. He quoted that this quarter through March denoted the fourth consecutive quarter when the company has trimmed its overall capacity from its earlier guidance, mainly with respect to international markets.
Parting thoughts
The fuel cost advantage could narrow down towards late 2015, hence the integration with U.S. Airways might aid American Airlines to maintain better margins compared to its rivals looking beyond the second quarter. As of now, the cheap oil factor is serving as an enabler driving the earnings in the positive direction. As the top brass are expecting drop in unit revenue in the second quarter, its best to stay tuned and wait for the second quarter numbers to assess the American’s performance in the presence of strong temporary headwinds.
