American Airlines (AAL) reported better-than-expected results in the third quarter. The airline reported adjusted earnings of $0.30 per share, compared to $0.38 per share in the same period last year. This exceeded analysts’ expectations of $0.16 per share.
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Furthermore, the company’s revenues increased by 1.2% year-over-year to $13.6 billion,above consensus estimates of $13.5 billion.
What Is Driving AAL’s Improved Q3 Results and Outlook?
American Airlines’ improved Q3 results and its outlook were driven by its stronger pricing power and steps it took to correct its sales strategy that had caused a loss of corporate clients.
Initially, AAL’s decision to cut perks and discounts tied to its contracts with corporate travel agencies and clients had backfired badly. This move damaged its reputation and gave competitors a clear advantage in attracting business travelers. However, in the third quarter, the company renegotiated its contracts with travel agencies, and many corporate customers have since reinstated the airline’s benefits program for their employees.
At the same time, the airline’s pricing power improved in the airline industry. Earlier, many carriers offered discounted seats in the U.S. during the summer to fill planes, which had hurt their bottom line. However, now the airline industry has collectively reduced excess capacity in the domestic market. This resulted in airlines better matching supply with demand, strengthening their pricing power.
AAL Raises FY24 Outlook
Looking ahead, AAL raised its FY24 adjusted earnings forecast to be in the range of $1.35 to $1.60 per share, compared to its prior forecast between $0.70 and $1.30 per share. In the fourth quarter, AAL has projected adjusted earnings in the range of $0.25 to $0.50 per share. For reference, analysts are expecting the company to report earnings in Q4 and FY24 of $0.36 and $1.31 per share, respectively.
Is AAL a Good Stock to Buy?
Analysts remain cautiously optimistic about AAL stock, with a Moderate Buy consensus rating based on four Buys, six Holds, and one Sell. Over the past year, AAL has increased by more than 10%, and the average AAL price target of $12.65 implies a downside potential of 1.4% from current levels. These analyst ratings are likely to change following AAL’s results today.
