American Airlines (AAL) Lifts Revenue Guidance On Resilient Demand, But Capacity Still An Issue
2:54 pm Tuesday, October 11th, 2022
Consumers may be spending much less on categories like clothes, furniture, and consumer electronics, but inflation and rising interest rates still aren’t deterring people from buying airline tickets, as illustrated by American Airlines’ (AAL) upwardly revised Q3 guidance. After originally guiding for revenue growth of 10-12% compared to 3Q19 in its Q2 earnings report, AAL is now forecasting growth of 13%, equating to revenue of about $13.46 bln. With Delta Air Lines (DAL) set to kick off Q3 earnings season for the airline industry on Thursday morning, AAL’s upbeat outlook is a bullish sign for the group.
About one month earlier, rival United Airlines (UAL) lifted its Q3 revenue growth guidance higher to 12% from 11%, stating that the demand environment remained strong exiting a robust summer travel season. Although the increase to UAL’s outlook was pretty modest, it calmed investors’ fears that macroeconomic headwinds are cooling down a hot market for air travel. The same can be said for AAL’s enhanced guidance today.
There are a few reasons why travel demand is holding up better than other areas.
A major shift in consumer spending patterns continues to play out in the wake of the pandemic. During the height of the pandemic when people were stuck at home, online shopping for categories such as consumer electronics, home decor, seasonal, athleisurewear, fitness, and at-home entertainment exploded. On the other end of the spectrum, spending on travel plummeted. However, over the past year or so, a complete reversal in spending behavior has played out as pent-up demand has ignited a surge in leisure travel activity.
The news isn’t completely positive, though. Staffing issues, both within the company and at various airports, continue to curtail capacity. During Q3, AAL’s available seat miles (ASMs), or capacity, was lower by nearly 10% compared to 2019 levels. With fewer flown miles to spread costs across, cost per available seat mile (CASM) is expected to up by about 14%, at the high end of AAL’s guidance of 12-14%.
Overall, the main takeaway is that AAL’s improved revenue guidance once again highlights the resiliency of air travel demand, which should set the stage for a solid earnings season for the airline industry.
