U.S. Airlines Collectively Lower Profit Forecasts

American Airlines announced its first quarter earnings on Thursday and lowered its full-year profit outlook, stating that the additional fuel costs due to the war in Iran could reach as high as $4 billion, potentially ending the year with a loss.

The company lowered its full-year earnings per share forecast from the previous range of $1.10 to $2.70 to a loss of $0.40 to a profit of $1.10. Despite this, the first quarter results still beat expectations: the adjusted loss per share was $0.40, better than the analysts' expected $0.46; operating revenue increased by 11% year-over-year to $13.91 billion, also exceeding expectations. After the news was announced, the stock fell by 0.8% in pre-market trading, with a total decline of 25% for the year, significantly underperforming the Bloomberg Global Airlines Index.

American Airlines is not the only one to lower its expectations. United Airlines warned on Wednesday that it will take time for price increases to offset the rise in fuel costs; Southwest Airlines and Delta Air Lines, on the other hand, directly refused to update their full-year profit guidance.

On the debt front, American Airlines' total debt at the end of the first quarter fell to $34.7 billion, breaking below $35 billion for the first time in over a decade, a significant reduction from over $50 billion at the peak of the pandemic.

There is also new development on the merger and acquisition front. American Airlines and Alaska Airlines are discussing strategic cooperation such as revenue sharing, but are not considering a full merger at this time. Regarding the previously reported discussions of a merger with United Airlines, CEO Isom stated clearly in an interview with CNBC after the earnings report: "Merging the two largest global airlines has never worked from the start." He also expressed that the company is not interested in acquiring Spirit Airlines, which is on the verge of bankruptcy, "Our business models are not compatible."