Will demand in Q4 see American Airlines’ share price take off?

American Airlines [AAL] is tipped to report a 127.5% climb in year-over-year revenues and a 57.5% lift in earnings when it reports its fourth-quarter figures on 20 January, according to analysts at Zacks.

The world’s largest airline is expected to reveal revenues of $9.16bn and a quarterly earnings loss of $1.64 per share. The prospect of emerging from the pandemic overhang is lifting share price.

“We’re on a solid financial footing. The recovery is under way. Demand is coming back,” chief executive Doug Parker told CNBC in December.





A Thanksgiving boost for AAL stock

Zacks says that American Airlines will have benefitted from higher passenger revenues boosted by “robust Thanksgiving holiday demand”. It estimates that fourth-quarter passenger revenues are up 1.1% on the previous quarter. The airline operated 1,500 flights more than other carriers during the Thanksgiving week.

The airline’s EPS will have weathered cost hits such as flight cancellations caused by bad weather and Omicron-induced staff shortages. That resulted in the share price hitting a low on 16 December. Fuel prices have also been a headache, but American Airlines now expects these to come in at an average of $2.36 per gallon for the quarter, compared with previous expectations of up to $2.48.

Comparisons for American Airlines and other global carriers are not as kind against fourth-quarter results from 2019 before the Covid-19 pandemic hit, but AA is making progress against these as well, which is reflected in the gradual share price uptick since the start of 2022.

It forecasts that total revenues will fall by around 17% in the fourth quarter compared with the same period in 2019, which is an improvement on a previous estimate of a 20% decline.


Q3 Comparison

The expected fourth quarter performance marks a slowdown from Q3 figures, when revenues rose by more than 182.7% year-over-year to $8.9bn. Earnings per share came in higher, at a loss of $0.99 per share.

American Airlines was boosted during the period by a return to more normal patterns of travel following the worst ravages of the pandemic in 2020. It also hailed its own improvements to customer experience to tempt flyers back, such as new inflight menus and free access to live sports and news on its domestic narrow body aircraft. It’s share price hit a peak on 8 November as a result.

The airline announced new agreements with IndiGo, India’s leading airline, as well as the expansion of its partnership with GOL to build on its South American network and offer more long-haul routes.

“[This is the best] quarter since the pandemic began,” Parker said at the time of the announcement. “While the rise of the COVID-19 delta variant delayed some of our revenue recovery, it has not stopped our progress.”

“[This is the best] quarter since the pandemic began. While the rise of the COVID-19 delta variant delayed some of our revenue recovery, it has not stopped our progress” - American Airlines CEO Doug Parker



American’s share price should keep climbing in Q4

The American Airlines share price rose 12% in the two weeks after the Q3 earnings announcement on 21 October, but any momentum was soon lost after the emergence of the omicron variant. Its share price dropped 26% between 9 November and 16 December as investors fretted that airlines may be grounded once again in the battle against the virus.

However, once it became clear that omicron was a milder disease than previous Covid variants, its share price bounced back 12% to hit $18.49 at the close on 14 January.

Over the past 12 months the American Airlines share price has climbed 17% compared with the S&P 500, which has risen 23%.

If the carrier performs to or beats expectations, then its share price could keep climbing. If the omicron wave really is the beginning of the end of the pandemic, then that winning streak could continue into 2022.


Demand will depend on the pandemic easing

The level of demand for the airline from leisure travellers, as well as the future of business travel in the wake of virtual meetings will act as stock triggers. Commentary on fuel prices and other costs, new customer experience plans, aircraft purchases and partnership agreements could also boost share price. The impact of Parker’s retirement this March and the plans of new CEO Robert Isom will also be analysed.

Given all these moving parts, analysts remain uncertain about the future direction of the stock. According to Market Screener, analysts have a consensus ‘hold’ rating and an average target price of $19.05.

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