July 9, 2014

American stock moves up as it says profit margin is improving

The Fort Worth-based carrier said passenger traffic increased by 1 percent in June and its projected second-quarter margin will exceed previous forecast.

Shares of American Airlines Group jumped more than 4 percent on Wednesday after the Fort Worth-based carrier told investors its profit margin would be better than originally expected for the second quarter.

In an update to investors, American said it estimates its pretax margin, excluding one-time accounting charges, to be between 12 and 13 percent, up from its previous guidance of 10 percent to 12 percent.

“ ‘Boom.’ ‘The lights are back on.’ These were just two of the initial investor reactions shared with us in immediate response to AAL’s pre-market guide-up,” J.P. Morgan analyst Jamie Baker wrote in a research note issued after American released its investor update.

Shares of American [ticker: AAL] rose $1.73 to close at $41.99 on the Nasdaq market.

American updated investors on its second-quarter earnings which it expects to report later this month.

The airline said it will have one-time accounting charges of about $600 million due to bankruptcy and merger items and from selling fuel hedging contracts. American said it no longer has any outstanding fuel hedging contracts as of June 30.

For the second quarter, American expects to pay an average of $3.01 and $3.06 per gallon of mainline jet fuel.

The carrier also told investors that its capacity is expected to be up about 3 percent partly from larger aircraft replacing smaller planes in its fleet and better aircraft utilization. International capacity will be up 6 percent, while domestic capacity will be up about 1 percent.

American said its passenger traffic increased by 1 percent in June as the airline increased its capacity by 3.2 percent.

As a result, its load factor — a measure of how full its planes were during the month — dropped 1.9 percentage points to 85 percent, compared with June 2013.

After the airline broke ground on a new operations center on Tuesday, American chief executive Doug Parker said demand for travel is strong.

“There are certain pockets of the industry where the capacity is greater than others, but demand globally is strong,” Parker said.

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