American Airlines (AAL) shares surged higher Wednesday after the biggest U.S. carrier boosted a key profit metric for its second quarter earnings.
American said total revenue per available seat mile, or TRASM, would rise by between 3% and 4% this quarter, compared to last year, while noting that it will cancel all flights using Boeing's (BA - Get Report) grounded 737 MAX jet until at least September 3. That will cost the company around $185 million in pre-tax income, the company said, but fatter profit margins and higher ticket prices look to offset that impact to its bottom line.
"The company now expects its second quarter total revenue per available seat mile (TRASM) to be up approximately 3.0 to 4.0 percent year-over-year vs. its previous guidance of up approximately 1.0 to 3.0 percent," American Airlines said in a statement filed to the Securities and Exchange Commission. "This increase is due primarily to higher than expected load factor across the system. Cargo revenues are lower than previous guidance due to weaker than anticipated demand across Asian and European markets."
American Airlines shares were marked 2.7% higher following the investor update to change hands at $33.22 each, a move that would nudge the stock into positive territory for the year. Delta Airlines (DAL - Get Report) , which reports second quarter earnings Thursday, was marked 0.4% higher at $59.19 each while Southwest Airlines (LUV - Get Report) edged 0.5% to $51.95 each.
Last month, analysts at JP Morgan suggested U.S. airlines have been raising domestic ticket prices, a move that would add to support from falling fuel costs.
The International Air Transport Association, a business lobby, indicated that jet fuel prices have fallen more than 11.4% from a month ago, and are down 14.6% from the same period last year.
However, the U.S. Energy Information Administration said earlier this week that it expects jet fuel costs to rise by around 10 cents per gallon next year, while International Maritime Organization rules, which require air carriers -- as well as maritime vessels -- to use fuels with a lower sulfur content, are expected to add upward pressure on the airlines sector's key cost base.
"Our current estimate for 2019 fuel expense is approximately $650 million higher than it was when we spoke on this call just three months ago," American Airlines CEO Dough Parker told investors on the company's first quarter earnings conference call.
"But despite these challenges, we're still - anticipate our 2019 EPS to increase approximately 10% versus 2018," he added. "And as we look to 2020 and beyond we anticipate our free cash flow for production will increase significantly, as our historic fleet replacement program winds down."