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American Airlines (AAL) Up on Raised Q2 TRASM Guidance

Shares of Fort Worth, TX-based American Airlines Group AAL have rallied on Jul 12, following an upward revision of the guidance for a key unit revenue metric for the second quarter of 2017. The stock closed the trading session at $53.80, 4.24% higher than the Jul 11 closing price. In fact, this upbeat guidance was issued by the company while releasing its June traffic data.

Also, the carrier posted an increase in air traffic in the month of June. Traffic – measured in revenue passenger miles (RPMs) – was 21 billion, up 0.8% from the year-ago figure.

Consolidated capacity (available seat miles/ASMs) was up 1.1% to 24.9 billion on a year-over-year basis. But load factor or percentage of seats filled by passengers decreased 20 basis points (bps) to 84.7% as capacity expansion outweighed traffic growth.

In the first half of 2017, American Airlines recorded a 0.4% increase in RPMs to 110.5 billion, while ASMs inched up 0.2% to 136.1 billion, both on a year-over-year basis. Load factor climbed 10 bps year over year to 81.2%.

On the contrary, total passenger count (Enplanements) fell 0.7% in the first six months of 2017 compared with the year-ago period.

Q2 Guidance

The carrier expects total revenue per available seat mile (TRASM) for the second quarter to grow in the band of 5–6% (old guidance had hinted at growth in the range of 3.5–5.5%). The raised guidance is primarily based on higher yields. It now expects pre-tax margin, excluding special items, in the range of 13–14% (previous guidance: 12% to 14%).

For the second quarter, cost per available seat mile (CASM: excluding fuel and special items) is anticipated to increase approximately 7% primarily due to expenses pertaining to salary and benefits to employees. In addition, average fuel cost per gallon (mainline) is projected in the band of $1.6 to $1.65 per gallon.

Notably, American Airlines is not the only carrier to reveal bullish unit revenue guidance for the to-be-reported quarter. In fact, the likes of Delta Air Lines DAL and United Continental Holdings UAL did the same while revealing their respective June traffic numbers.

Price Performance

Shares of American Airlines have rallied 24.4%, outperforming the Zacks categorized Transportation-Airline industry’s gain of 12.9% in the last three months.

Furthermore, the company’s upbeat TRASM guidance for the second quarter adds to the optimism in the stock.

Zacks Rank & A Key Pick

American Airlines sports a Zacks Rank #1 (Strong Buy). Investors interested in the airline space may also consider Ryanair Holdings RYAAY, which carries the same bullish rank as American Airlines.  You can see the complete list of today’s Zacks #1 Rank stocks here

We note that shares of Ryanair Holdings have gained 34.6% on a year-to-date basis.

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