American Airlines (AAL) took in 19% more revenue last quarter. It still expects to lose money this quarter. The reason sits in the wing tanks. Jet fuel should average about $4.70 a gallon in the fourth quarter, nearly double a year earlier. The Journal's Connor Hart reported the numbers on Friday, Oct. 23.
The sales side looks healthy. Third-quarter revenue rose 19% to $16.34 billion, ahead of estimates. Demand was strong in premium seats, the main cabin, at home and abroad. Fourth-quarter revenue should climb 19.5% to 22.5%. The cost side doesn't look healthy at all. Fuel expense jumped 68% to $4.6 billion last quarter, at an average of $3.85 a gallon. At $4.70, American expects fuel to cost about $2.8 billion more this quarter.
So the airline expects an adjusted loss of 50 cents to $1.10 a share for the quarter. Analysts had figured on 52 cents. For the full year it now sees an adjusted loss of $1 to $1.60 a share. The war in the Middle East has kept jet fuel high all year, and American has cut its outlook several times. Chief Executive Robert Isom told analysts that "we now expect our growth rate in 2027 to decelerate considerably."
Higher fares, emptier seats
Airlines have raised prices to cover the fuel. American's planes were a bit emptier, too. They flew 83.4% full last quarter, down from 86% a year ago. Capacity grew 4.2% while traffic rose only 1%. The net loss came to $269 million, or 41 cents a share, against $114 million a year earlier. The adjusted loss of 28 cents still beat the 36 cents analysts expected. Shares rose 3% to $12.60 on Thursday, Oct. 22. Fourth-quarter capacity is expected to grow 5.5% to 6.5%, so there are more seats to fill at the higher fares.
Our read
This is Cash Flow, M5, and the line is holiday travel. An airline paying nearly twice as much for fuel tries to pass the bill to the person in the middle seat. Fares are up, and the planes were less full last quarter. There's an Investments and Risk lesson too, IN04. Airline profits swing with oil, and this quarter's the proof. Revenue rose 19% and the company still lost money. We don't own American Airlines in any model book, and we keep airlines small when we hold them at all.
Your check this week is the holiday itinerary. If you fly for Thanksgiving or the December holidays, price the ticket now and open the points balance in the airline or card app. Points can save the most cash in a year when fares are high. Then move the fare, whatever it comes to, into the travel line of the holiday budget so it doesn't land on the card in January. You pack the umbrella on a sunny morning when the forecast says rain by noon. If travel keeps squeezing the budget, we're glad to look at that line with you at a review.