American Airlines Group Inc. said fares would remain under pressure this year from stepped-up competition in the United States and a strong dollar that’s hurting demand abroad.
A rebound in a closely followed revenue yardstick will probably be delayed “by a quarter or two” compared with an earlier forecast that it would turn positive in the second half of the year as crude prices stay near a 12-year low, Scott Kirby, the airline’s president, said Friday on a conference call.
That’s providing little prospect of speedy relief from declines in revenue collected for each seat flown a mile. The drop in so-called unit revenue during the last year has caused concern among investors because it’s a sign of weakness in fares.
“Stocks are trading on unit revenue expectations, not on earnings,” Michael Derchin, a CRT Capital Group analyst, said. “It’s the one thing the market seems to be very, very focused on.”
American fell 1.6 percent to $37.50 at 11:40 a.m. in New York. It was the second-biggest decliner among members of the Bloomberg U.S. Airlines Index.
Fourth-quarter sales dropped 5.2 percent to $9.63 billion, the airline said in a statement Friday. That fell short of the $9.65 billion average of 10 analyst estimates compiled by Bloomberg. American’s average fare per mile tumbled 8.9 percent.
The drop in oil and strong domestic travel also helped the carrier report a fourth-quarter adjusted profit of $2 a share that exceeded the $1.97 average estimate from analysts.
The carrier doesn’t expect “meaningful” changes in pricing in the Dallas market where discounters Southwest Airlines and Spirit Airlines added capacity last year, Kirby said. American said unit revenue across its system would fall 6 percent to 8 percent in the first three months of 2016 from a year earlier, with smaller declines in the second quarter and beyond.
“American intends to always compete aggressively on price,” he said.
The world’s largest airline benefited more than rivals from the fall in jet-fuel prices because it didn’t lock in rates in advance. That practice, known as hedging, forced carriers including Delta Air Lines and Southwest to pay above market rates for fuel as the average spot price in New York dropped 50 percent in the fourth quarter from a year earlier.
Fourth-quarter adjusted profit advanced to $1.29 billion from $1.1 billion a year earlier. The latest figure excluded a $3 billion noncash benefit related to the reversal of a tax valuation allowance, a $592 million charge to write off Venezuelan currency held by the airline and $450 million of merger-related costs.
American is the largest U.S. carrier to Latin America, and Kirby said economic slowing in Brazil and Venezuela hasn’t bottomed out. The airline has cut capacity to both countries.
The Brazilian currency has plummeted 35 percent against the dollar during the last year as a recession has wracked Latin America’s largest economy.
“We’ve been in Brazil for a long time,” Kirby said. “We’re not going to just abandon the country over a rough patch we expect to eventually improve. It’s going to be rough for awhile.”