American Guidance Spooks Airline Investors And Revenue Concerns Loom

American Airlines first quarter guidance shows the carrier with higher earnings and higher costs than it had previously anticipated, but the guidance nevertheless disappointed investors and some analysts.

With a filing on Wednesday morning, American became the first carrier to provide a preview of first quarter earnings. Delta Air Lines
DAL
will report earnings on Thursday morning.

American said its earnings per share would be between one cent and six cents. It had previously estimated breakeven EPS. However, the consensus estimate was for a profit. On Tuesday, Bank of America
BAC
analyst Andrew Didora wrote that he expected EPS of nine cents while the Visible Alpha consensus estimate was three cents.

An hour after the opening bell, American shares traded at $13.19, down about 8%. Delta shares were down about 3% and United shares were down about 6%.

Even before American’s disappointing guidance, Didora expressed concern about the industry’s forward bookings. In his note on Tuesday, he said that since March, airline bookings have slowed by 400 basis points.

“We expect the focus of 1Q airlines earnings season to be on 2Q revenue guidance and commentary on the upcoming peak summer travel season,” Didora wrote. “We have become a bit more cautious on 2Q revenue.

“Domestic net sales have decelerated 550bps while international net sales have decelerated 250bps since mid-March,” he wrote. “There are generally more off-peak leisure periods between now and Memorial Day, so we think there is greater risk in the domestic, leisure-oriented airlines into 2Q23.”

However, in a note issued Wednesday morning, Cowen
COWN
analyst Helane Becker had a contrarian view of the American guidance, citing “A better than expected first quarter.” She said, “Revenues were in line with our forecast but CASM ex was down a little more than we estimated.”

American said TRASM or total revenue per available seat mile was up 25.5%, compared with the first quarter of 2022, while CASM or cost per available seat mile excluding fuel was down 1.5%.

United will report earnings on April 19m while American is expected to reported on April 20. “The key that day will be forward guidance, which should be fairly robust, even with any accruals for labor contracts that they may discuss, “Becker wrote. “We believe June quarter revenues will continue to be strong (TRASM in the March quarter is forecast to be up 25.5% vs our estimate of the same), in part because capacity is not back to 2019 levels while demand exceeds those levels.”

In its filing Wednesday, American said first quarter capacity totaled 65 billion available seat miles, up 9.2% from the first quarter of 2022.