Premier passenger carrier, American Airlines Group Inc. AAL posted a decline in traffic in the month of January. Traffic – measured in revenue passenger miles (RPMs) – was 17 billion, down 0.3% from the year-ago figure. The metric was hurt mainly due to a disappointing performance on the domestic front.
On a year-over-year basis, consolidated capacity (available seat miles/ASMs) expanded 1.2% to 21.68 billion. A 29.1% capacity expansion in the Pacific area contributed to the overall increase in the metric.
Load factor or percentage of seats filled by passengers decreased 110 basis points to 78.6% as capacity expanded, while traffic contracted leading to empty planes.
American Airlines, which carries a Zacks Rank #3 (Hold), still expects total revenue per available seat miles (TRASM: a key measure of unit revenues) for the first quarter of 2017 to grow in the band of 2.5–4.5% (year over year). The carrier still expects pre-tax margin – excluding special items – in the first quarter to be approximately in the range of 3–5%.
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Capacity Woes to Return?
Capacity-related woes had plagued stocks in the airline space not so long ago. Therefore, the January traffic reports of most carriers have highlighted that such fears might haunt the space once again. Apart from American Airlines, traffic updates from the likes of Delta Air Lines DAL, United Continental Holdings UAL and Alaska Air Group ALK have revealed a fall in load factor as capacity expansion outweighed traffic growth.
In fact, capacity related fears among investors had been re-ignited last month itself when American Airlines, on its fourth-quarter earnings call, hinted at increasing domestic capacity while reducing the same internationally in 2017.
Stock Lifted After Trump Promise
Despite posting unimpressive traffic numbers, shares of American Airlines appreciated on Jan 9, like its peers in the airline space. This was primarily because of the meeting of airline executives with President Donald Trump, which was attended by executives of leading carriers like Delta and United Continental Holdings.
American Airlines Group, Inc. Price
American Airlines Group, Inc. Price | American Airlines Group, Inc. Quote
The outcome of the interaction lifted airline stocks as President Trump promised to set right the obsolete US air traffic control system. He was also apparently critical of the current modernization efforts on which carriers spend a fortune.
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