American Airlines recently unveiled its earnings outlook for the first quarter of 2025, which significantly underperformed market expectations. As a result, the airline’s stock plummeted over 7% in early trading. The company projects an adjusted loss per share between 20 to 40 cents, contrasting sharply with the analysts’ consensus, which estimated a loss of only 4 cents per share according to LSEG. This forecast reflects the challenges American Airlines faces in navigating changing demand trends and fluctuating fuel costs.
The airline’s situation poses significant questions about its operational strategy moving forward. Analysts and investors alike are left wondering whether the company’s current business model can withstand competitive pressures, especially considering how rivals like United and Delta have stated more optimistic earnings forecasts recently.
American also anticipates a rise in unit costs—excluding fuel—in the low single digits during the first quarter of 2024. This projected increase can be attributed to several factors: a decrease in overall capacity (which could shrink up to 2% compared to last year), a greater proportion of smaller regional flights servicing routes, and the implementation of new labor agreements.
Such rising costs pose a challenge for American, especially in a highly competitive airline market. With airlines like Delta and United actively adapting to market demands, American must evaluate how effectively it can implement cost control measures while also maintaining service quality. This mirrors a broader concern across the aviation industry, where efficiency and profitability are critical for survival.
Learning from Past Strategies
Part of American Airlines’ challenges seems tied to its previous focus on direct bookings over travel agency partnerships. This approach, aimed at maximizing profits, ultimately proved detrimental, leading to a predicted revenue loss of $1.5 billion for 2024. Learning from this miscalculation, American has reassessed its strategies, ultimately moving away from this unsuccessful model and instead pursuing a more sustainable approach that embraces partnerships with travel agencies.
American’s re-alignment may reflect a cautious optimism within the company. Despite the earlier setbacks, the airline secured a new co-branded credit card agreement with Citi, significantly boosting compensation from its existing partnerships with Citi and Barclays, which rose by 17% from the previous year. This showcases the potential for revenue generation through ancillary services, highlighting the airline’s intent to diversify and strengthen its financial base.
Despite the disheartening first-quarter projections, American Airlines remains optimistic about its financial trajectory. The airline anticipates a revenue increase of between 3% to 5% in the first quarter of 2024 when juxtaposed with the same period last year, and seeks an even more ambitious growth rate of up to 7.5% for the entire calendar year.
CEO Robert Isom expressed confidence in the airline’s operational strengths, citing the robustness of its network, the loyalty of its customer base, co-branded credit card revenue models, and operational reliability. This upbeat outlook is essential, especially in light of the competitive landscape, which demands reliability and performance from airlines to capture consumer trust.
It’s also worth noting that American Airlines reported a strong performance in the fourth quarter, beating Wall Street expectations. Adjusted earnings per share were reported at 86 cents, surpassing the anticipated 64 cents, while the airline earned a reported profit of $590 million on revenues of $13.66 billion—an increase from $19 million the previous year. This surge was fueled by an upturn in both domestic and international revenues, particularly in trans-Pacific routes.
While the promising fourth quarter provides some measure of reassurance, it remains essential for American Airlines to maintain momentum into the first quarter of 2025. The results of this quarter will be indicative not only of its recovery trajectory but also of its ability to adapt and thrive amidst the volatile dynamics of the airline industry.
Insum, American Airlines’ mixed earnings outlook sends a clear message: adaptability and strategic foresight are paramount for navigating the complex and often tumultuous landscape of the aviation industry.