Airline stocks across the US have generally been performing strongly so far this year. However, at the opening of the US stock market today, American Airlines shares had fallen by 8%. With revenues still high, what has caused the drop?

Firstly, American Airlines advised in its provisional Q1 results that this quarter's share earnings will be in the region of $0.01 to $0.05 per share - significantly lower than the previously forecasted $0.07 per share. According to Andrew Didora, an analyst at Bank of America, the fall is also down to concern over the carrier's forward bookings for the weeks ahead. He said, “We have become a bit more cautious on Q2 revenue."

However, not everybody agrees with the negative outlook. Helane Becker, Cowen Analyst, was more optimistic, particularly in light of a strong Q1 performance. She said, “Revenues were in line with our forecast, but CASM was down a little more than we estimated.”

CASM = cost per available seat mile. This measures the cost for the airline to operate each available seat mile. Generally speaking, the lower the CASM, the more efficient and profitable the airline.

Strong revenue performance

In what has been seen by many as good news, American Airlines reported a 1.5% decrease in its CASM for Q1, while its available seat miles increased by 9.2% compared to the same period last year, reaching 65 billion available seat miles.

Demand for air travel remains strong, despite the country battling rising inflation and economic uncertainty. Highlighting how this had led to increased revenues for American Airlines in Q1, Becker went on to say,

“We believe June quarter revenues will continue to be strong (TRASM in the March quarter is forecast to be up 25.5% vs our estimate of the same), in part because capacity is not back to 2019 levels while demand exceeds those levels.”

TRASM = total revenue per available seat mile.

It is all to play for in the months ahead

Despite Didora expressing concern over US airlines' booking levels over the coming months, the period between Easter and Memorial Day (May 29th, 2023) is traditionally a quieter time for air travel. The real test will be when the peak summer season hits from Memorial Day through Labor Day.

Both American Airlines and United Airlines are expected to release their full Q1 financial figures next week. American Airlines recently unveiled its $15 billion debt-cutting strategy, but if it is to meet its forecast of $1.86 earnings per share over the course of the full year, the carrier now has some catching up to do, and investors and analysts alike will be keeping a close eye on the results.

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What do you think of the analysts' predictions? Do you see US airline share prices holding strong, or falling? Share your thoughts by commenting below.

Sources: Forbes