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How Will American Airlines (AAL) Fare This Earnings Season?

American Airlines AAL is scheduled to report first-quarter 2021 results on Apr 22, before market open.

The Zacks Consensus Estimate for first-quarter loss has widened by approximately 13% in the past 60 days. Moreover, the company has a dull earnings surprise history, having outperformed the Zacks Consensus Estimate in two of the last four quarters and missing estimates in the other two.

Let’s see how things are shaping up for this earnings season.

Factors to Note

With increased vaccinations and easing coronavirus-led restrictions, the airline witnessed an uptick in bookings in its domestic markets and short-haul international flights in March. As evidence, American Airlines’ seven-day moving average as of Mar 26 with respect to net bookings was roughly 90% of the level recorded in 2019. This improvement in bookings is likely to reflect on passenger revenues (accounts for bulk of the top line) in the first quarter. The Zacks Consensus Estimate for first-quarter passenger revenues indicates a 4.9% increase from fourth-quarter 2020’s reported figure. However, with air-travel demand continuing to be weak on a year-over-year basis, the consensus mark for passenger revenues shows a 56.4% decline from the year-ago quarter’s reported number. With travel demand significantly lagging the pre-coronavirus (2019) levels, American Airlines anticipates first-quarter total revenues to decline approximately 62% from first-quarter 2019. Additionally, the company estimates net loss of approximately $1.2 billion-$1.3 billion in the same period.

To match the low-demand scenario, American Airlines reduced its capacity significantly in the first quarter. The airline anticipates system capacity for the March quarter to nosedive 43.4% compared to first-quarter 2019. The Zacks Consensus Estimate for total capacity, measured in available seat miles, implies a 39.7% decline from first-quarter 2020’s reported levels.

The reduction in capacity is pushing up non-fuel unit costs (operating cost per available seat mile or CASM, excluding fuel), which in turn might have affected the bottom line. The Zacks Consensus Estimate for adjusted CASM, excluding fuel, suggests a 3.5% rise from the first-quarter 2020 reported figure.

Further, the company’s bottom line is expected to have been hurt by the increase in fuel expenses, thanks to the recent uptick in fuel prices. The Zacks Consensus Estimate for average fuel price per gallon (including related taxes) indicates a 36.2% jump from the sequential quarter’s reported figure. The same hints at a 5.5% decrease from that reported in the first quarter of 2020.

What Does the Zacks Model Unveil?

Our proven model does not conclusively predict an earnings beat for American Airlines this time around. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: American Airlines has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate is pegged at a loss of $4.35. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Airlines carries a Zacks Rank #3.

Highlights of Q4 Earnings

American Airlines incurred a loss (excluding 5 cents from non-recurring items) of $3.86 per share in the fourth quarter of 2020, comparing favorably with the Zacks Consensus Estimate of a loss of $3.92. Operating revenues of $4,027 million slumped 64.4% year over year but surpassed the Zacks Consensus Estimate of $3,859.2 million. Passenger revenues, which accounted for bulk of the top line (79.2%), plunged 69.2% year over year due to coronavirus-led weak air-travel demand.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Southwest Airlines Co. LUV, Herc Holdings HRI and JetBlue Airways Corporation JBLU as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

Southwest Airlines has an Earnings ESP of +1.07% and a Zacks Rank #3. The company will release first-quarter 2021 earnings on Apr 22.

Herc Holdings has an Earnings ESP of +18.81% and sports a Zacks Rank of 1, at present. The company will release first-quarter 2021 results on Apr 22.

JetBlue Airways has an Earnings ESP of +3.09% and a Zacks Rank #3. The company is set to release first-quarter 2021 earnings numbers on Apr 27.

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