American Airlines benefited from cheap fuel and strong corporate travel sales, but lower fares and income taxes hurt the company’s second-quarter earnings.
The Fort Worth-based carrier reported Friday that its net income dropped 44 percent to $950 million as the carrier put aside half a billion dollars to pay income taxes. Revenues also declined 4.3 percent to $10.36 billion for the quarter, as American cited growing competition on domestic and international routes.
American has faced increased competition from Southwest Airlines in the Dallas-Fort Worth market in the past year, following the repeal of the Wright Amendment at Dallas Love Field. That has led both carriers to offer lower fares as they attempt to woo travelers to fly on their airplanes.
“Corporate demand is strong, but we have a lot of low fares in the market,” American President Scott Kirby said on a conference call with investors. “They’re getting a deal right now.”
Revenues were also hurt by foreign currency rates and the strength of the U.S. dollar. Kirby said about 4 percent of American’s revenues are sold in British pounds, and although there is uncertainty related to Britain’s exit from the European Union, American’s bookings on trans-Atlantic flights have improved since the Brexit vote.
The carrier’s fuel costs dropped 25.5 percent as the airline paid $1.41 per gallon for the quarter. It also cut its operating costs by 4.6 percent.
American also announced it is deferring the delivery of the 22 Airbus A350 aircraft it has on order. The carrier was supposed to receive its first A350 in the spring of 2017, but with the new agreement it will receive two A350s in late 2018 and then five A350s each year after that until 2022.
Excluding one-time accounting items, American said it earned $1.77 per share, beating Wall Street analysts’ estimates of $1.68, according to FactSet Research.
Shares of American (ticker: AAL) rose 4 percent to close at $36.36 on Friday as investors viewed the carrier’s unit revenue guidance positively.
“It’s difficult to believe we’d ever be excited about an implied -4.5 to -6.5 percent [revenue-per-available-seat-mile],” J.P. Morgan analyst Jamie Baker told investors in a note Friday. But he added that American has consistently delivered on its unit revenue guidance to investors, unlike Southwest and Delta Air Lines in recent quarters.
American also repurchased $1.7 billion in common stock and paid out $58 million in quarterly dividends to shareholders in the second quarter. It also plans to issue a 10-cents-per-share dividend in August.