FILE PHOTO: An American Airlines Boeing 737 MAX 8 flight from Los Angeles taxis after landing at Reagan National Airport shortly after an announcement was made by the FAA that the planes were being grounded by the United States over safety issues in Washington, U.S. March 13, 2019. REUTERS/Joshua Roberts/File Photo
April 26, 2019
By Sanjana Shivdas and Tracy Rucinski
(Reuters) – American Airlines Group Inc cut its 2019 profit forecast on Friday, saying it expected to take a $350 million hit from the grounding of Boeing’s 737 MAX planes, a situation that cuts revenue while many costs remain in place.
Shares of American Airlines, which has removed its twenty-four 737 MAX aircraft from its flight schedule through Aug. 19 and canceled 1,200 flights in the first quarter, were down 3.9 percent in premarket trading.
The MAX jets, which were grounded worldwide in March following two fatal crashes on other airlines, only represent about 2 percent of American’s flight capacity this summer, when it will be canceling about 115 daily flights.
It said the financial impact is disproportionate as most of the revenue during its busy summer travel season is lost while the vast majority of the costs remain in place.
As a result, Fort Worth, Texas-based American said it now expects its 2019 adjusted profit of $4.00 per share to $6.00 per share, from a previous forecast of between $5.50 per share and $7.50 per share.
Analysts on average expect 2019 earnings of $5.63 per share, according to Refinitiv data.
American, the No. 1 U.S. airline by passenger traffic, also said it expects fuel expenses for the year to be about $650 million higher than its earlier forecast, citing a recent run-up in oil prices.
The airline reported first-quarter net income of $185 million, or 41 cents per share, compared with $159 million, or 34 cents per share, a year earlier.
Excluding items, the airline earned 52 cents per share, compared with the average analyst estimate of 51 cents per share.
Between the MAX and American’s grounding of another 14 aircraft of a different model for now-completed work on faulty overhead bins, American said, first quarter pre-tax income was hit by about $80 million.
Total operating revenue rose 1.8 percent to $10.58 billion, marginally missing estimates of $10.60 billion, according to Refinitiv data.
Still, Chief Executive Doug Parker said demand remained strong heading into the summer. American expects unit revenue, a closely watched performance measure that compares sales with flight capacity, to rise between 1 percent and 3 percent in the second quarter.
(Reporting by Sanjana Shivdas in Bengaluru and Tracy Rucinski in Chicago; Editing by James Emmanuel and Steve Orlofsky)
