Shares of Fort Worth, TX-based American Airlines Group Inc. AAL gained 6.74% on Oct 9 to close the trading session at $42.42 following the announcement of impressive Sep 2015 traffic data.
Traffic – measured in revenue passenger miles (RPMs) – came in at 18.1 billion during the month, up 7.2% from 16.9 billion recorded a year ago. The improvement came on the back of strong growth in the metric both on the international (up 8.8%) as well as the domestic (up 6.3%) front.
On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) improved 3.7% to 21.85 billion. Since air traffic growth outpaced capacity growth, the load factor or percentage of seats filled by passengers increased to 82.7% from 80% in Sep 2014. The levels reached by all the three measures were the highest recorded ever for September.
The record traffic numbers unveiled by American Airlines for the month of September represent another positive for the carrier which is already enjoying massive savings owing to weak oil prices. American Airlines Group, which does not hedge fuel costs, expects to generate massive savings in 2015 on the back of soft oil prices. Including taxes, the company expects average fuel price per gallon (mainline) in the range of $1.65 to $1.70 as opposed to $1.90 in the second quarter of 2015.
American Airlines still forecasts a 6% to 8% drop in passenger revenue per available seat mile (PRASM: a measure of unit revenue) for the third quarter of 2015. Currency headwinds, coupled with lower fuel surcharges on international flights due to weak oil prices, have pressurized this key metric. Moreover, pre-tax margin (exclusive of special items) is likely to come in the band of 17% to 18% (old guidance: 16% to 18%).
The PRASM weakness is not unique to American Airlines. Other American carriers like United Continental Holdings UAL and Delta Air Lines DAL also expect PRASM to decline in the third quarter of 2015.
The company further said that that in the third quarter, it has repurchased 38.4 million shares for $1.56 billion. In the first nine months of the year, the carrier has bought back 59.5 million shares for $2.5 billion. We are impressed by the company’s efforts to reward shareholders through buybacks.
Zacks Rank
American Airlines currently carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Virgin America VA which sports a Zacks Rank #1 (Strong Buy).
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