American cuts guidance

Lauren Eldershaw
By Lauren Eldershaw April 10, 2019 11:04

American cuts guidance

American Airlines has reduced its first quarter guidance in the wake of the grounding of its MAX fleet and the government shutdown. The airline now expects its first quarter total revenue per available seat mile (TRASM) to be approximately flat to up 1.0 percent year-over-year vs. its previous guidance of flat to up 2.0 percent.

On March 7, 2019, American announced the unplanned removal of 14 737-800 aircraft from service for remediation work following the installation of new aircraft interiors, resulting in the cancellation of approximately 940 flights in the first quarter. Work on three of the aircraft was completed in March and the other aircraft will be returned to service throughout April with all aircraft expected to be back in service by the end of the month.

In addition, on March 13, 2019, the Federal Aviation Administration (FAA) grounded all U.S.-registered Boeing 737 MAX aircraft. The American Airlines fleet currently includes 24 Boeing MAX 8 aircraft with an additional 76 aircraft on order from Boeing. The company states that it is complying with the FAA directive and as a result cancelled approximately 1,200 flights in the first quarter.

The company has announced further flight cancellations through June 5, 2019 assuming that its 737 MAX 8 aircraft will not be available through that date. American states that the financial costs of this disruption in future periods cannot be forecasted at this time and will be dependent upon a number of factors, including the period of time the aircraft are unavailable and the circumstances of any reintroduction of the aircraft to service.

American expects its total pre-tax net special items in the first quarter to be approximately $70 million. Net special items principally include fleet restructuring expenses, merger integration expenses and mark-to-market adjustments for equity investments.

The company now expects first quarter consolidated CASM excluding fuel and special items to be up approximately 3.0 percent1 year-over-year. This decrease from previous guidance is due to lower than anticipated salaries and benefits expense. The company expects to pay an average of between $2.02 and $2.07 per gallon of mainline jet fuel (including taxes) in the first quarter.

The company now expects its first quarter pre-tax margin excluding special items to be approximately 2.0 to 4.0 percent. While the company’s CASM (excluding fuel and special items) improvement was greater than the reduction in TRASM guidance, pre-tax margin estimates are lower due to the increase in fuel prices.

As of March 31, 2019, the company had approximately $7.2 billion in total available liquidity, comprised of unrestricted cash and investments of $4.4 billion and $2.8 billion in undrawn revolver capacity. The company also had a restricted cash position of $156 million.

Lauren Eldershaw
By Lauren Eldershaw April 10, 2019 11:04