Airline stocks shares fall on American's so-so 1Q outlook

FORT WORTH, Texas -- Airline stocks tumbled Wednesday after American Airlines issued a lackluster outlook that appeared to amplify fears that Travel demand, which has surged for the past year, could finally be slowing in the face of inflation and economic uncertainty.

American said it expects to report a small profit for the first quarter, but one that could easily be below Wall Street expectations.

American indicated that demand is still about as strong as it predicted in January, but the stay-the-course update came as analysts cautioned investors about a slowdown in travel bookings.

Bank of America analyst Andrew Didora said this week that his bank's data shows that airline bookings have slowed by 4% since mid-March, “and we have become a bit more cautious" about revenue in the April-through-June period. He lowered second-quarter revenue estimates for the big airlines by up to 2%.

JPMorgan analyst Jamie Baker said the slowing is primarily in bookings for Travel within the United States, which were running 40% over 2022 levels in late January but flat by early April. They could fall below year-ago levels from here, he wrote.

Baker said, however, that international bookings are still up significantly over last year. He suggested the geographic breakdown in travel is returning to a normal pattern after tilting more than usual toward domestic trips last year.

COVID-19 restrictions may have convinced many Americans to stay stateside last year. United Airlines and others are expanding their international schedules this summer, expecting more overseas trips.

Delta Air Lines will be the first major U.S. airline to report first-quarter results on Thursday, but American's update might have provided a glimpse of what is to come.

American said in a regulatory filing that it expects to earn between a penny and 5 cents per share for the quarter that just ended. That is better than American's January forecast of a break-even quarter, but analysts had expected an adjusted profit of 5 cents per share, according to a FactSet survey.

Just the day before, Didora, the Bank of America analyst, said he expected American to report a profit of 9 cents per share. Raymond James analyst Savanthi Syth said she had expected better from American because it benefits more than others from strong demand for Travel within the U.S. and nearby destinations in Latin America.

Cowen analyst Helane Becker said, however, that American's update was better than she expected and that second-quarter revenue should remain strong because demand is solid while the supply of airline seats is still below 2019 levels.

Airlines say demand for travel remains strong despite inflation and economic uncertainty, which helps them charge more. American said revenue for each mile flown by passengers — a stand-in for fares and fees — will be 25.5% higher than a year ago.

However, airlines face rising costs for labor heading into the critical summer travel season. And jet fuel prices, which have dropped since January, could surge because of OPEC's surprising decision to cut oil production.

American said in a regulatory filing that it operated more flights than expected in the first quarter, which led to about 2% more fuel consumption than previously forecast. American paid close to $3.30 per gallon in the quarter.

Shares of Fort Worth-based American Airlines Group Inc. closed down 9.2%. United Airlines Holdings Inc., which warned last month that it would lose money in the first quarter, fell 6.5%, while Delta, Southwest, Alaska and JetBlue were all off by between 1.4% and 3.7%.