What's in Store for American Airlines (AAL) in Q4 Earnings?
American Airlines AAL is scheduled to report fourth-quarter 2020 results on Jan 28, before the market opens.
The Zacks Consensus Estimate for fourth-quarter bottom line has narrowed from a loss of $3.97 per share to a loss of $3.89 per share in the past 60 days. The company has a dull earnings record. Its bottom line outpaced the Zacks Consensus Estimate in only one of the last four quarters (matching estimates in one of the remaining three and missing the same in the other two quarters). It has trailing four-quarter negative earnings surprise of 9.3%, on average.
Against this backdrop, let’s discuss the factors that might have impacted American Airlines’ performance in the December quarter.
American Airlines Group Inc. Price and EPS Surprise
American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote
Akin to the third quarter, American Airlines’ fourth-quarter performance is likely to have been dented by the coronavirus-induced weak passenger revenues as air-travel demand remains tepid. The spike in the coronavirus cases in some parts of the United States is likely to have affected the already bleak air-travel demand, thereby hurting passenger revenues further. Notably, the Zacks Consensus Estimate for passenger revenues indicates 68.1% plunge from the number reported in the year-ago quarter.
In order to mitigate the low-demand scenario, the carrier is trimming its capacity. The carrier anticipates system capacity for the December quarter to nosedive more than 50% year over year. Moreover, the Zacks Consensus Estimate for consolidated available seat miles (a measure of capacity) suggests a 52% decline from the number reported in the year-ago quarter. The Zacks Consensus Estimate for traffic (measured in revenue passenger miles) suggests a drop of 65% from the prior-year quarter’s reported figure.
With traffic declining faster than capacity cuts, load factor (% of seats filled by passengers) is likely to have tanked in the fourth quarter. The Zacks Consensus Estimate for American Airlines fourth-quarter 2020 passenger load factor is pegged at a dismal 61%, which suggests a significant decline from 84% reported in fourth-quarter 2019.
Also, the Zacks Consensus Estimate for fourth-quarter passenger revenues per available seat miles (PRASM: a key measure of unit revenues) is pegged at 9.68 cents, which calls for 34.2% reduction from the figure reported in the year-ago quarter.
However, lower fuel prices are likely to have had a positive impact on American Airlines’ bottom line. Notably, the Zacks Consensus Estimate for average fuel price per gallon (adjusted) suggests a 37.6% drop from the figure reported in the December quarter of 2019.
What Does the Zacks Model Unveil?
The proven Zacks model does not predict a bottom-line beat for American Airlines this time around. Notably, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive earnings surprise. However, this is not the case as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings ESP: American Airlines has an Earnings ESP of -0.91%. 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 (Hold), currently.
Highlights of Q3
American Airlines incurred a loss (excluding 83 cents from non-recurring items) of $5.54 per share, narrower than the Zacks Consensus Estimate of a loss of $5.62. Operating revenues of $3,173 million slumped 73.4% year over year but surpassed the Zacks Consensus Estimate of $2,800.8 million. Passenger revenues, which contributed 80.1% to the top line, plunged 76.9% to $2,540 million as well.
Stocks to Consider
Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide, Inc. CHRW, Knight-Swift Transportation Holdings Inc. KNX and Landstar System, Inc. LSTR as these stocks possess the right combination of elements to beat on earnings this reporting cycle.
C.H. Robinson has an Earnings ESP of +1.01% and is Zacks #3 Ranked, presently. The company will release fourth-quarter 2020 results on Jan 26.
Knight-Swift has an Earnings ESP of +1.10% and a Zacks Rank of 3 at present. The company will release fourth-quarter 2020 results on Jan 27.
Landstar System has an Earnings ESP of +0.57% and is currently a #3 Ranked player. The company will release fourth-quarter 2020 results on Jan 27.
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