American Airlines (NASDAQ: AAL) will report its Q2 2023 results on Thursday, July 20. We expect the company’s revenues to come in at $13.6 billion, slightly below the consensus estimate of $13.7 billion. This would mark year-over-year growth of about 1%. Earnings are likely to come in at about $1.52 on a per-share and adjusted basis, slightly below the $1.54 consensus estimate. See our interactive dashboard analysis on American Airlines Earnings Preview for more details on how American Airlines’ revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive American Airlines’ results?
The company will likely continue to benefit from the robust travel demand. It should see a continued rise in total available seat miles, and the passenger load factor will likely remain strong. However, it will be a tough comparison with the prior-year quarter, which saw a record travel demand. The average ticket price has also cooled this year while overall capacity has expanded. Looking at Q1 2023, American Airlines’ revenues were up 37%, led by a 42% rise in Passenger revenue. While the ASMs were up 9% in Q1, passenger revenue per available seat mile surged 30% to 17.08 cents.
Looking at the bottom line, American Airlines reported a $0.05 earnings per share on an adjusted basis in Q1, compared to a $2.32 loss per share in the prior-year quarter. The company’s average fuel price per gallon stood at $3.28 in Q1, and it should be lower in Q2 vs. its prior-year figure of $4.03. The average U.S. Gulf Coast Kerosene Jet fuel price per gallon fell from $3.90 (end of June last year) to $2.20 now. Now that fuel prices have cooled compared to last year, the company will likely see its operating margin expand. After seeing a sharp decline from 6.7% in 2019 to -60.1% in 2020 due to the impact of the pandemic, American Airlines operating margin has gradually recovered to 3.3% in 2022. Our American Airlines Operating Income Comparison dashboard has more details.
Looking at AAL’s stock price, we believe that it is fully valued. We estimate American Airlines’ valuation to be $18 per share, aligning with its current price of $19. Our forecast is based on a 6x P/E multiple for AAL and expected earnings of $2.90 on a per-share and adjusted basis for the full-year 2023. The company has guided for adjusted EPS to be in the range of $2.50 to $3.50 for the full-year 2023.
American Airlines has high debt levels, which increased from $24.3 billion in 2019 to $38.1 billion in 2022, while its total cash increased from around $4.0 billion to $13.4 billion over the same period, primarily due to additional debt raised, as heavy negative operating cash flows in 2020 of $6.5 billion almost completely wiped out positive operating cash flows in 2019, 2021, and 2022. The high debt burden is a near-term risk that the company faces. As of Q1 2023, the total debt for AAL stood at $35.1 billion. Given that interest rates remain elevated, the company’s cost to serve its debt will likely remain high in the near term, weighing on its overall bottom-line growth.
While American Airlines stock looks fully valued, check out how other American Airlines Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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