American Airlines reported a strong 2Q and raises 2023 guidance. Record revenue of $14.6 billion was up 4.7% from a year earlier in the second quarter, and earnings were $1.3 billion.
American’s CEO Robert Isom characterized the financial results as outstanding. “It was another fantastic quarter for American, driven by the hard work of our team to deliver a reliable operation for our customers and the continued strong demand for our product. Our operation is performing at historically strong levels, and we have worked to refresh our fleet and build a comprehensive global network, all of which helped to produce record revenues in the second quarter. The summer is well underway and the American Airlines team is firing on all cylinders.”
American has raised its earnings guidance for the remainder of 2023, however not as much as rivals Delta and United. That “modest” guidance resulted in American’s share price falling while its key competitors were rising. Much of the guidance improvement for American resulted from projected lower fuel costs, versus revenue increases for its competitors. While American has consistently performed above expectations, their guidance was lower than their key competitors.
Several uncertainties are clouding the otherwise bright horizon for American. First, pilots are now not expected to ratify a contract offer, as United’s contract has set a higher standard that is causing American pilots to demand parity. Second, flight attendants are in contract negotiations, with the union leadership authorizing a strike vote. Third, the Northeast Alliance with JetBlue is coming to a close as a result of the JetBlue-Spirit merger, with the impact yet unknown. Fourth, while American is growing its Miami hub, revenues from Latin America and domestic markets were lower than expectations, raising questions about future revenue growth.
The Bottom Line
While American’s results convincingly beat expectations, the modest guidance and uncertainties caused Wall Street to turn negative on the stock, while Delta and United continue to rise based on higher revenue growth. Is American Airlines being too modest, or will it fall short of competitors in the remainder of 2023? Stay tuned.