American Airlines Earnings Nearly Double, but Strong Dollar Drags on Sales -- Update

By Susan Carey 

American Airlines Group Inc. posted record first-quarter profit on Friday, but the largest U.S. airline by traffic warned that the strong dollar and a creeping imbalance between supply and demand are expected to drag down a key measure of revenue in the current quarter.

Like big rivals that already have reported, American said unit-revenue, which measures the amount of passenger revenue generated for each seat flown a mile, will bottom out in the June quarter, falling 4% to 6% from the prior-year period. United Continental Holdings Inc., the No. 2 carrier, on Thursday warned it expects an identical decline. No. 3 Delta Air Lines Inc. last week predicted its second-quarter unit revenue will dip by 2% to 4%.

Scott Kirby, American's president, said on an earnings call that foreign currency effects will account for two percentage points of the unit-revenue decline, the reduction of international fuel surcharges will cost 0.7 point, and the economic situation in Venezuela 0.5 point. Mr. Kirby said American for the fourth-consecutive quarter through the March period has trimmed its overall capacity from earlier guidance, mostly in international markets.

"While demand is still growing, it's not growing as fast as supply," he said.

Nevertheless, American sounded upbeat. The product of a late 2013 merger of the old American and US Airways Group Inc., the combined company is proceeding smoothly with its integration and plans to tackle the technologically complex switch to a single reservations system late this year. It recently combined frequent-flier plans with hardly a hitch.

Doug Parker, the chief executive, said consolidation and capacity discipline have transformed the industry so that the level of earnings is much higher, volatility is diminished and the issues airlines worry about are less dramatic than in past years that were marked by wild swings in profitability and market-share wars.

"We'll prove it in the next downturn," he said on the call.

American earned $932 million, or $1.30 a share, compared with year-earlier profit of $480 million, or 65 cents a share. Excluding $311 million in special charges, profit was $1.2 billion, beating analysts' estimate by two cents a share, triple the year-ago results excluding one-time credits. Revenue declined 1.7% to $9.8 billion, but costs were also down 7.1%, helped by a 43% reduction in American's fuel bill. Unit revenue declined 1.7% on nearly flat capacity.

For the second quarter, a seasonally stronger period, American plans to boost its capacity by 2.1%, a bit less than the gains foreseen by United and Delta. The company didn't break out the growth by domestic and international, but said it saw "softness" in Latin American markets in the just-ended quarter. Mr. Kirby, the president, said Argentina "appears to be recovering," but American is encountering large unit-revenue declines in Brazil.

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