Low Fuel Costs Power American Airlines Earnings, but Capacity May Become an Issue

On a GAAP basis, EPS came in at $2.49 and included one-time charges of $163 million for merger-related expenses and $38 million related to the closure of a joint venture. The airline also listed $66 million in net benefits that partially offset these charges.

The revenue shortfall compared with last year’s third quarter is attributed to a 2.9% increase in total available seat miles. Consolidated passenger revenue per available seat miles was 13.16 cents, down 6.8% versus the third quarter 2014. Consolidated passenger yield was 15.37 cents, down 9.2% year-over-year.

Operating expenses totaled $8.7 billion, down 11.9% year over year due primarily to a 43.5% decrease in consolidated fuel expense. Cost per available seat mile, excluding special items, rose 2.6% on American’s mainline flights and 1.7% on its regional flights.

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In the quarter, American paid $67 million in dividends and repurchased $1.56 billion in common stock. To date in 2015, the airline has returned $2.7 billion to shareholders. The company’s board has authorized a new $2 billion buyback plan through the end of 2016.

During the quarter, American took delivery of 16 new mainline and 15 new regional aircraft and retired 36 mainline and nine regional aircraft.

American did not offer guidance in its announcement, but the consensus analysts’ estimates for the fourth quarter call for EPS of $1.84 on revenues of $9.73 billion. For the full year, analysts are looking for EPS of $8.91 on revenues of $41.11 billion.

In July American deferred delivery of five new Boeing jets and 35 new Airbus planes. The deliveries were originally scheduled for 2016 through 2018 and have been delayed until 2017 to 2021. The deferrals were announced at the same time that American’s CEO said that the airline would compete “aggressively” with the low-cost carriers.

American’s shares closed at $45.99 on Thursday, in a 52-week range of $34.10 to $56.20. The stock traded up about 2.5% in Friday’s premarket to $47.16. The consensus price target from Thomson Reuters was around $52.77 before the earnings announcement.

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