American Airlines Boosts Guidance as Ticket Prices Gain and Capacity Falls

American Airlines (AAL)  issued new unit revenue guidance that shows the world's largest airline moving closer to flat revenue per available seat mile.

In late morning trading, American shares were up 4 cents at $41.74. Year to date, shares have declined 1.4%.

In its October traffic report issued Wednesday, American said it expects fourth-quarter total revenue per available seat mile to decline between negative 0.5% and negative 2.5%, an improvement from prior guidance toward a decline between negative 1% and negative 3%.

TRASM is a broader measure of unit revenue than the more common metric, PRASM, which primarily includes ticket revenue. TRASM includes on-board sales of food and drinks and other ancillaries.

For the airline industry, October was the 19 th consecutive month of domestic PRASM declines and the 29 th consecutive month of international PRASM declines. Additionally, American boosted its guidance for pretax margin excluding special items to between 5% and 7%, up from prior guidance of 4% to 6%, "due primarily to improving yields and lower estimated fuel prices resulting from the recent decline in crude oil prices." Yield measures average fare paid per mile.

American's year-over-year capacity rose 36% in the Pacific but declined 1.4% in the Atlantic, 1.7% in the domestic market and 8.6% in Latin America.

In a note issued Wednesday, Raymond James analyst Savanthi Syth wrote that "it was our opinion that American's previous RASM guidance was conservative and, thus, our RASM estimate remains at the higher end of the revised guidance while our pre-tax margin (based on $53 Brent) is now at the mid-point.

"Yield improvement is across all entities and appears to be the result of moderating industry capacity as well as internal initiatives," Syth said. "Specifically, American seems to be overcoming the initial learning curve following the changing of its yield management system last year. "

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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