American Airlines (AAL) recently reported a remarkable performance in the second quarter, surpassing market expectations and solidifying analyst predictions of flourishing profits in the airline industry. The announcement came in the wake of United Airlines’ (UAL) late Wednesday earnings report, which showed a massive surge in earnings, and Delta Air Lines’ (DAL) stronger-than-forecast results from the previous week. As the earnings of American Airlines and United Airlines made mixed movements on Thursday, the broader industry continued to attract attention from investors.
American Airlines’ impressive second-quarter results revealed a profit growth of over 150%, bolstered by robust demand for air travel and favorable jet fuel prices. Following this, the company raised its full-year earnings guidance, further fueling optimism among investors. United Airlines, on the other hand, saw an astounding EPS increase of more than 250%, outperforming the market’s expectations.
Before the financial reports were released, Wall Street analysts had anticipated a more than 100% increase in quarterly earnings for both United and American Airlines. Delta’s financial report from the previous week indicated a promising resurgence in airline performance, approaching pre-pandemic levels, driven by strong demand for both international and domestic air travel. Delta reported a substantial 61% increase in international sales and an 8% increase in domestic sales. Delta’s CEO, Ed Bastian, emphasized the robust consumer demand for air travel in the current market.
Despite Delta’s strong financial performance, the company’s shares experienced a 3% drop for the week, as some investors opted to take profits following the earnings report. This marked the stock’s first decline in nine weeks. Similarly, the 19 stocks in IBD’s Transportation-Airline industry group also slipped during the week, marking only the second time this occurred in nine weeks. This potentially indicates a turning point or a temporary pause in the overall industry rally. Despite this, the airline industry has rallied by approximately 47% in 2023, making it the 13th best-performing industry out of the 197 tracked by IBD.
United Airlines’ stock experienced a notable increase of 3.2% to 56.58 on Thursday during market trade, while American Airlines’ stock declined by 6.2% to 17.44. United Airlines’ EPS breakout from a cup-with-handle base in late June showed promise, and its shares rallied 2.6% in premarket trade on Thursday. American Airlines’ stock also broke out from a cup-with-handle base, and shares were up nearly 9% from the 16.72 entry.
The financial results for United Airlines were highly encouraging, with adjusted earnings showing a staggering 252% leap over the prior year’s results, reaching $5.03 per share, and revenue exceeding the target at $14.18 billion. The airline experienced a 17.5% rise in fleet capacity during the second quarter of 2022, and it reported flying the highest volume of revenue passengers since before the pandemic. However, the total revenue per seat mile (TRASM) saw a slight dip of 0.4%.
In addition to the financial performance, United Airlines pilots also reached a tentative agreement with the company on a new labor contract after more than four years of negotiations. The proposed contract, valued at around $10 billion, includes pay increases of up to 40% over four years.
American Airlines’ financial results for the second quarter also showcased a robust performance, with revenue growing approximately 5% to $14.05 billion. The airline experienced a significant surge of 153% in profits, reaching $1.92 per share. As a result of its strong performance, American Airlines raised its full-year earnings guidance to $3.00-$3.75 per share, an upgrade from the previous forecast of $2.50-$3.50 per share. The company also expects EPS of 85 cents to 95 cents for the third quarter, based on current demand trends and fuel price forecasts. American Airlines’ Chief Executive, Robert Isom, expressed satisfaction with the airline’s historically strong performance.
Analysts noted that United Airlines and American Airlines are part of the Transportation-Airline industry group, with both stocks showing impressive Composite Ratings of 99 and 96, respectively. United Airlines’ stock boasts an 89 Relative Strength Rating (RS), while American Airlines’ stock has an 89 RS and an EPS Rating of 80.
The strong financial performances of both airlines come after a challenging period during the Covid pandemic, during which many airlines, including AAL, experienced consecutive quarterly losses. American Airlines saw a string of nine quarterly losses before finally turning profitable in the second quarter of 2022. Despite the recent gains, AAL and UAL stocks are closely monitored by investors, analysts, and industry experts as they navigate the changing landscape of the airline industry and its various challenges and opportunities.
As the airline industry continues to recover and adapt to the post-pandemic world, investor sentiment will remain pivotal in shaping the trajectory of airline stocks. Moreover, airlines will need to maintain a careful balance between meeting the strong demand for air travel and managing factors like fuel prices, capacity, and overall profitability. Analysts and market watchers will closely track quarterly earnings reports and operational developments to gauge the industry’s ongoing recovery and its ability to sustain growth.
