Andrew Labutka, Speculation Sunday (43 clicks)
Long only, medium-term horizon, undervalued, under researched, small & mid cap
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Update: American Airlines Q3 Profit Soars
Oct. 24, 2014 7:19 AM ET | About: American Airlines Group (AAL)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
American Airlines reported Q3 EPS of $1.66 on $11.1 billion in revenue.
After seeing the quarter, I am reiterating my buy rating on the stock.
As anticipated, lower fuel costs should continue to drive airline profitability.
American Airlines (NASDAQ:AAL) reported third quarter financial results Wednesday morning via press release. The airline reported a record quarterly profit of $1.2 billion as revenue grew 4.4% from the comparable year ago period to $11.1 billion. Adjusted EPS of $1.66 topped Wall Street's expectations by $.02 and represented a 59% increase from the combined total of American Airlines and US Airways a year ago. However, EPS was still well below the previous consensus target of $1.88 that analysts had expected when the quarter began.
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As anticipated in a previous article, lower fuel costs were a major driver of record profit for American Airlines. Average fuel prices during the quarter were $2.97 per gallon versus $3.03 a year ago, representing a decline of 1.9%. This more than offset a fuel consumption increase of 0.6%. Further fuel cost savings could be seen in the following quarter, as the price of Brent crude oil remains near its lows.
Available seat miles (ASM), a key industry metric, increased 2.1% in the quarter while revenue per available seat mile (RPASM) was up 1%. Domestic air travel was the largest driver of RPASM, reporting an increase of 5.7% year-over-year. This was partially offset by weakness in American's international segment, which reported a decrease in RPASM of 6.1% despite increasing ASM by 4.2%.
Additionally, fears that the current Ebola outbreak may decrease air travel appear to be subsiding after Delta Air Lines (NYSE:DAL) reported that the virus has yet to materially change traffic patterns.
Takeaway
American Airlines is continuing to reap the rewards of being in a consolidated industry that has, for the first time in its history, allowed airlines to become very profitable. I believe that higher ticket prices, along with lower fuel costs will continue to push the airline sector higher. Even with international growth still in question, American Airlines remains a cheap stock in an attractive industry. BUY
