Shares of American Airlines Group Inc. (AAL) declined 3.35% to close the Feb 9 trading session at $46.53, following the disclosure of lackluster traffic data for Jan 2015.
Revenue passenger miles (RPMs) came in at 16.8 billion for the month, down 2.8% year over year. Weakness in traffic in the Latin American and Atlantic divisions hurt results. Capacity declined 0.2% to 21.5 billion. Load factor (% of seats filled) came in at 78.2%, down 2.1% from the year-ago figure.
The carrier projects consolidated passenger revenue per available seat mile or PRASM (a measure of unit revenue) for the first quarter of 2015 to be approximately down in the band of 2% to 4%. The rise in oil prices has led the carrier to believe that fuel prices will be 10% higher in the first quarter compared to the previous projection.
Consequently, the carrier expects fuel price in the band of $1.81 to $1.86 per gallon (old guidance: $1.71 to $1.76). Pretax margin (excluding special items) for the first quarter of 2015 is now projected in the band of 12% to 14% (previous guidance: 13% to 15%). The weak forecast coupled with the below par traffic numbers for January clearly failed to please investors.
Who Else Faced the Brunt?
American Airlines Group was not the only carrier to be adversely affected by spiraling oil prices. Shares of Southwest Airlines Co. (LUV) too declined, albeit marginally, on Feb 9. We note that fuel costs account for a major chunk of an airline's operating expenses. Naturally, rise in oil prices does not spell good news for carriers.
The company stated, while revealing its January traffic numbers, that its PRASM for the month declined approximately 1% on a year-over-year basis. Load factor dropped 120 basis points to 75.1%. However, RPMs came in at 9.2 billion, up 8.6% year over year. Capacity of this low-cost carrier also increased 10.2% to 10.7 billion.
Shares of United Continental Holdings Inc (UAL), the parent company of United Airlines, too lost value following the upward movement in oil prices. The stock shed 4.45% on Feb 9, to close the trading session at $64.57. As a result of the rebound in oil prices, the carrier expects average fuel cost during the first quarter in the band of $2.10 to $2.15 per gallon (including the impact of fuel hedges), higher than the previous guidance range of $1.96 to $2.01 per gallon.
Zacks Rank
American Airlines Group carries a Zacks Rank #2 (Buy) while Southwest sports a Zacks Rank #1 (Strong Buy). Delta Air Lines (DAL) is another carrier sporting a Zacks Rank #1.
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