American Airlines rides travel boom to $1.3 billion profit

(AP Photo/Jenny Kane, file)

Boosted by strong ticket sales and a huge drop in the price of jet fuel, American Airlines reported a $1.34 billion profit for the second quarter and raised its profit expectations for the year.

The Fort Worth-based airline’s revenue rose 5% to a quarterly record of $14.06 billion. International travel in particular is picking up, and that is helping American, United Airlines and Delta Air Lines.

Thanks to lower fuel prices, American’s spending at the pump plunged 32%, saving the carrier about $1.3 billion compared with a year earlier. That was partly offset, however, by labor costs that are rising and will soon increase much more rapidly.

Analysts were disappointed in American’s forecast that third-quarter revenue per seat will decline as the airline adds more flights, which could renew concern about consumer demand.

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American’s shares fell 6.2% in morning trading.

American recently agreed with union negotiators on a new labor contract that would raise pilot pay by more than 41% over four years. The two sides are now renegotiating after pilots at United got a better deal.

CEO Robert Isom said American will match the United contract terms.

The Allied Pilots Association, which represents crews at American, valued the previous deal at $8.3 billion over four years, and improving it to match United will likely bring its cost to about $9.5 billion.

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Separately, American’s flight attendants want immediate raises of 35% followed by annual raises of 6%.

“Over time we are going to run a profitable business,” Isom said on a call with analysts and reporters. “Ultimately it will take more revenue to pay for higher costs.”

Isom declined to say directly how much fares might have to rise. He said the airline also expects to generate more revenue from sources such as its frequent-flyer program, which includes a lucrative credit card deal with Barclays.

On the travel front, American has reduced its cancellations compared with a miserable summer last year. The airline credits technology that lets planners adjust flight schedules based on factors including weather forecasts at major airports, crew schedules and passenger numbers on each flight.

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American said third-quarter earnings would be 85 cents to 95 cents per share, in line with expectations. The airline now expects to earn between $3 and $3.75 per share for the year, up from a previous forecast of $2.50 to $3.50. Analysts have been projecting $3.12 per share, according to a FactSet survey.

For the second quarter, excluding one-time items, American earned $1.92 per share, beating the analysts’ consensus of $1.59 per share. Revenue also beat Wall Street’s forecast of $13.74 billion.

Isom called it a “fantastic quarter” and said the airline will focus on profitability and improving its balance sheet, which saw an expansion of debt during the pandemic.