American Spurs Airline Rally as Business, Overseas Travel Revive

(Bloomberg) -- American Airlines Group Inc. surged, leading an industry rally after saying that corporate and international flying are coming back and that it will be profitable this quarter. 

The upbeat outlook came as American reported that first-quarter revenue rebounded to 84% of pre-pandemic levels as offices reopened and travel restrictions were lifted across the globe. Sales this quarter will exceed 2019 levels by as much as 8%, the Fort Worth, Texas-based company said Thursday as it posted a first-quarter loss that was less than analysts expected. 

American’s outlook built on rivals’ projections for a return to profits as lucrative corporate travel recovers from two years of lockdowns and restrictions. Carriers have tightened capacity to boost fares as they face higher fuel costs, but Delta Air Lines Inc. and United Airlines Holdings Inc. have said that hasn’t discouraged customers, who face the highest inflation in two generations.

“As an industry, there hasn’t been a great history of how inflation has turned into changes in demand,” Vasu Raja, American’s chief commercial officer, said in a conference call. “We’re so far encouraged by what we see right now in two ways: demand continues to grow, and grow at a meaningful pace.”

A second-quarter profit would end American’s string of nine consecutive losses. In contrast to United and Delta, the carrier decline to speculate if it would be in the black in the third and fourth.

American jumped 7.4% to $20.93 at 9:53 a.m. in New York to a five-month intraday high. Other airlines added to advances they’d logged after United issued an upbeat outlook late Wednesday.

“There will likely be a debate about the sustainability of American’s profit outlook past the spring and summer peaks,” MKM Partners analyst Conor Cunningham said in a note to investors. “But near term, it is hard to not be encouraged by the demand picture.”

Revenue from small and midsize companies as well as customers traveling for both business and leisure remain “very strong and is approaching a full recovery,” American said. “Corporate bookings are the highest they have been since the start of the pandemic. Demand for international travel has also picked up considerably.”

Nearly all U.S. carriers have reduced second-quarter capacity over the past several weeks, with some trimming flying into the third quarter, according to Cowen analyst Helane Becker. American plans for capacity to be down as much as 8% from 2019 levels both this quarter and for all of 2022. 

American posted an adjusted first-quarter loss of $2.32 a share, while analysts expected a $2.42 loss, based on the average of estimates compiled by Bloomberg. Revenue was $8.89 billion, while Wall Street anticipated $8.82 billion.

Signs of a recovery from the pandemic notwithstanding, 11 airlines are expected to report a combined pretax loss of $6.2 billion for the first quarter, according to Deutsche Bank analyst Michael Linenberg.

Higher fuel costs are threatening to eat into industry profits. Jet fuel traded at $4.42 a gallon late Wednesday in New York, more than twice what it was a year ago. Each 1 cent increase for a gallon of fuel boosts American’s annual spending by $40 million, according to a regulatory filing.

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