American Airlines Analyst Cuts Estimates On Weaker Cargo Revenue, MAX Fleet Grounding

American Airlines Group Inc AAL provided a first-quarter guidance update Tuesday that was neutral to slightly positive, according to Raymond James.

The Analyst

Savanthi Syth maintains an Outperform rating on American Airlines with an unchanged $44 price target.

The Thesis

While the airline’s revenue per available seat mile is tracking at the lower end of its prior guidance range, passenger revenue performance seems encouraging in light of the Boeing Co BA MAX grounding and the elimination of 14 Boeing 737-800s from the fleet due to overhead bin issues, Syth said in a Tuesday note. 

The company’s improving cost per available seat mile-ex performance is helping offset weaker cargo revenue and fuel pressure, the analyst said. 

The MAX fleet grounding could continue through June, Syth said. Although the findings related to the Ethiopian crash are still preliminary, regulators may require MAX pilots to undergo some computer-based training and for the proposed MCAS software updates to be rigorously tested, she said. 

Although American Airlines’ exposure is limited to only 24 MAX aircrafts — representing around 2 percent of its scheduled available seat miles in the first and second quarters — the company was expecting an additional 16 jets to be delivered steadily from March to the end of the year, the analyst said. 

Raymond James lowered its first-quarter EPS estimate for American Airlines from 55 cents to 50 cents, representing a 33-percent year-on-year decline. The EPS estimate for 2019 was reduced to $5.67, reflecting the impact of the extended MAX grounding and softer projected cargo revenue in the first half of the year.

Price Action 

American Airlines shares were trading up by 0.15 percent to $33.36 at the time of publication Wednesday. 

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