An Improving Outlook: American Revises First Quarter Guidance

American Airlines is seeing the recovery materialize. The last few weeks have been a boon for the carrier, with bookings strengthening and load factors increasing. With only a couple of days left in the quarter, American Airlines is revising its first-quarter forecast to be more positive than before. However, the airline is cautiously optimistic about the future.

American Boeing 787
American Airlines has revised its first-quarter capacity upwards as bookings reach 90% of 2019 levels. Photo: Vincenzo Pace | Simple Flying

Bookings are up

The recovery has been materializing, and American Airlines is seeing bookings go up. As of March 26th, the airline’s seven-day moving average of net bookings hit approximately a whopping 90% of the levels it saw at this time in 2019.

This impressive jump in bookings has also translated to some higher load factors. The domestic load factor for the same seven-day moving average hit approximately 80%. This is one of the highest load factors for a seven-day average American has seen since the start of the pandemic.

American A321
As the pandemic outlook turns positive and people can start seeing the light at the end of the tunnel, bookings have gone up. Photo: Vincenzo Pace | Simple Flying

The carrier attributed the strength in bookings and higher load factor to recent improvements in the pandemic. As case counts and hospitalization rates declined through the first quarter and vaccine distribution increased, the airline saw more people willing to book.

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Capacity revisions

American Airlines has also revised its first-quarter system capacity. Measured in available seat miles (ASMs), the carrier expects capacity to be down now about 40 to 45% versus the first quarter of 2019. This compares to the previous guidance of around 45% compared to the first quarter of 2019.

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More people are traveling again, leading March to set passenger records. Photo: Getty Images

Most airlines have been forthcoming about guidance for capacity in each quarter. However, in a sign of strengthening demand and a growth outlook, American has not provided guidance for second-quarter capacity yet.

An improving first quarter

At the start of 2021, things were very much in flux. Between sky-high case counts, a sluggish rollout of vaccinations, and upcoming new testing requirements for entering the US from abroad, there was a softness in bookings.

This led many airlines, including American, to temper their expectations in the first quarter of 2021. However, by February, it started to become much clearer that things were starting to look up. As the pace of vaccinations increased, restrictions for entry came down in many states, full-service dining reopened across more of the US, and people felt confident in taking a trip, bookings started to increase.

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Long-haul international demand is still weak. Photo: Vincenzo Pace | Simple Flying

In fact, since March 11th, the TSA has consistently recorded over one million passengers going through a security checkpoint each day. Buoyed by the spring break holidays, March has been the best month in a long time for airlines, and the anticipation of a summer surge is high.

Anticipating a better summer

While American did not release figures for what it expects in the second quarter of 2021, the company did say it was expecting to reactivate most of its aircraft ahead of the summer.

This would lead to second-quarter capacity being higher than the first quarter. However, second-quarter capacity should still be down from 2019-levels. The reason for that is, even though American is bringing more planes back into service, it is flying fewer planes than it had at the start of March in 2020.

American 767
As American retired aircraft, such as the Boeing 767, without immediately replacing them, its fleet count is smaller than 2019-levels, so unless it moves toward a more robust utilization pattern, its capacity should still be down in the second quarter compared to the same quarter of 2019. Photo: Vincenzo Pace | Simple Flying

While American can still get to 2019-capacity levels with 10% fewer aircraft (a reduction of over 100 planes), that requires a robust utilization, which American has not quite reached the point of justifying. International long-haul travel demand remains weak or else barred for many travelers, leading the airline to focus more on the domestic market for now.

There will be overcapacity this summer in many markets. American is bolstering its schedules in places where it knows people want to go. However, that overcapacity will not be uniform across the board, so some passengers who especially have to connect and do not have a low-cost alternative may see higher fares. For a carrier like American, this means more revenue and a chance to break into profitability.

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American’s team is betting on several new routes and expanded services this summer to fill up its planes. Photo: Getty Images

American is still very optimistic. The carrier has released a “Green Flag Plan” that will guide it through the recovery. Also, with enhanced liquidity from recent AAdvantage-backed financing, American has paid off its government loan and is, according to CEO Doug Parker, for the first time since the crisis began not actively seeking to bolster its cash reserves as it expects to have over $17 billion in total available liquidity in the first quarter.

Nevertheless, American is expecting the recent booking strengths to continue through the end of the first quarter and into the second quarter. However, there could still be some volatility as booking trends can change quickly.

What do you make of American’s updated first-quarter guidance? Let us know in the comments!