We Stand Pat on American After Revised Guidance
We're not changing our fair value estimate after management rolled back capacity expansion for the coming quarter and raised projections for other revenue.
Countering American’s higher revenue expectations during the quarter are higher average fuel prices. Fuel prices will now fall between $2.28 to $2.33, instead of $2.22 to $2.27, raising American’s fuel expense in our model by $50 million to $100 million. Separately, management maintained projections for costs per available seat mile excluding fuel and special items, showing flat to little growth over the prior-year third quarter. We don’t believe our full-year pretax margin is in jeopardy at over 6%.
To buttress cash flows in the high oil price environment, American will continue trimming capital spend among other measures. Non-aircraft capital expenditures and gross aircraft capital expenditures will finish lower than in third-quarter guidance. American now expects non-aircraft capital expenditures of $470 million (was roughly $500 million) and gross aircraft capital expenditures of $551 million (was $566 million).
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