American Airlines (NASDAQ: AAL) delivered record quarterly revenue in its second quarter, yet slashed its full-year earnings outlook, sending mixed signals to Wall Street.
Second-quarter revenue reached $16.7 billion, up 16.3% year over year, marking the highest quarterly revenue figure in the airline’s history.
On a GAAP basis, the company posted net income of $71 million, or $0.11 per diluted share, for the quarter.
Adjusted net income came in at $99 million, or $0.15 per share, offering a slightly rosier picture of the underlying business performance.
Despite the record revenue, management cut its full-year adjusted earnings guidance to a range spanning a loss of $0.65 per share to a profit of $0.65 per share.
The previous guidance range ran from a loss of $0.40 to a profit of $1.10, meaning the midpoint of the new range sits squarely at zero.
Aircraft fuel expense was the primary culprit, rising more than $2.2 billion in the second quarter, an increase of 83.3% year over year, with the average price paid hitting $4.05 per gallon.
That $2.2 billion fuel cost increase represents more than 13% of the quarter’s entire revenue, a staggering shift that effectively wiped out what would have otherwise been a strong profit result.
Investors initially punished the stock, sending shares down roughly 8% to close at $13.56 on the day of the report, before buyers rushed back in the following session.
Shares recovered sharply the next trading day, climbing 6.8% to $14.48, erasing much of the prior session’s decline in a single day of trading.
The rebound appears tied to forward-looking optimism, as management guided for third-quarter revenue growth of 16% to 19% year over year, an acceleration from the second quarter’s pace.
The company also noted it offset nearly 50% of the fuel headwind during the second quarter through higher fares, suggesting some meaningful pricing power in a recovering travel market.
Management’s third-quarter outlook assumes an average fuel price of $3.75 per gallon, down from the $4.05 paid in the second quarter, hinting at some easing of the cost burden ahead.
However, the third-quarter adjusted earnings forecast still projects a loss at every point in its range, spanning a loss of $0.70 to a loss of $0.10 per share.
A loss in what is traditionally the airline industry’s strongest quarter of the year would place significant pressure on the fourth quarter to salvage the full-year result.
At $14.48, shares trade approximately 23% below their 52-week high of $18.79, and the stock prices at roughly nine times the earnings analysts expect over the coming year.
The challenge with that valuation is that the earnings denominator management itself describes could land anywhere between a loss and a profit, making a price-to-earnings multiple difficult to rely on.
The bull case rests on fuel prices continuing to ease while revenue sustains its mid-teens growth trajectory, a combination that could flip the earnings math quickly for a carrier operating on thin margins.
The bear case, however, is that fuel remains largely outside American’s control, and any further spike would once again overwhelm what is otherwise a historically strong revenue environment for the airline.
