American Airlines' stock bounces sharply, even after a big profit warning

By Steve Gelsi and Tomi Kilgore

Part of the airline's earnings pain was self inflicted, and customer responses to healing actions have been positive

American Airlines Group Inc. issued a big profit warning on Thursday, citing both company-specific and industry challenges, but the air carrier's stock bounced sharply to trade higher as actions taken to heal the self-inflicted wounds appear to be working.

And the company did beat second-quarter profit and load factor expectations, while revenue came up a bit shy.

"American has a fleet, network and product built to deliver results, but during the second quarter, we did not perform to our initial expectations due to our prior sales and distribution strategy and an imbalance of domestic supply and demand," said Chief Executive Robert Isom.

American said it now expects to break even in the current third quarter, on an adjusted basis, which is well below the latest FactSet consensus earnings estimate of 48 cents a share.

The company (AAL) said it has taken "swift and aggressive action" to reorient its sales and distribution strategy with a focus on the customer, while addressing feedback from customers.

"Our agency and corporate partners have made it clear they want additional support as they do business with American," Isom said in a post-earnings call with analysts, according to a FactSet transcript.

Also read: American Airlines' stock loses another bull due to 'missteps' by management.

The stock surged 6% in morning trading, reversing an earlier loss of as much as 4% at its intraday low of $9.76, the lowest price seen since May 2022. The stock was down even more - 9.6% - in premarket trading.

With the stock's bounce, American's market capitalization of $7.07 billion was now the second lowest among S&P 500 index SPX components, just above Etsy Inc.'s (ETSY) market cap of $7.06 billion.

Separately, Isom took a moment on the call to applaud how well American responded to the CrowdStrike outage last Friday that led to thousands of flights being grounded across the industry.

"By Friday evening, American's operation had recovered and was set up for a strong weekend," Isom said. "On Saturday, we ran a near 99% completion factor and were fully recovered - the best operational performance among U.S. network carriers over the weekend."

Back to earnings, the carrier said second-quarter net income fell to $717 million, or $1.01 a share, from $1.34 billion, or $1.88 a share, in the year-ago quarter.

Excluding nonrecurring items, such as investment losses and charges associated with debt refinancings adjusted profit of $1.09 a share beat the FactSet consensus estimate of $1.06 a share.

Revenue rose 2% to $14.33 billion, but fell short of the FactSet consensus of $14.38 billion.

Load factor increased to 86.6% from 86.2%, and topped expectations of 85.8%, as traffic grew 8.5% while capacity rose 8.0%.

CEO Isom explained that the softer domestic revenue environment resulted from excess industry capacity, which led to a higher level of discounting during the quarter than expected. Therefore, he said plans for capacity growth in the second half of the year have been pulled down, to about 3.5%.

Among other actions taken, Isom said new incentive based agreement were put in place at American's large travel-agent partners to win back its share of revenue in agency and business channels.

He added that American eliminated plans to differentiate how customers earn miles, based on where they book their travel, to remove "another significant obstacle" that affected booking behavior and business relationships.

"We're taking actions that will improve our performance, but a reset will take some time and we will continue to feel the impact of our prior sales and distribution strategy on revenue and earnings through the remainder of this year, which is reflected in our updated full-year guidance," Isom said.

For 2024, American Airlines slashed its guidance range for adjusted EPS to between 70 cents and $1.30 from between $2.25 and $3.25. The FactSet consensus for full-year EPS was $1.85 a share.

American's stock has still tumbled 21.6% year to date, while the U.S. Global Jets ETF JETS has slipped 0.5% this year and the S&P 500 has advanced 14%.

-Steve Gelsi -Tomi Kilgore

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07-25-24 1058ET

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