American Airlines Group reported record profits even as it said the opportunities to raise ticket prices will be limited this year due to continuing U.S. fare wars and a strong dollar that’s damping demand abroad.
The world’s largest airline benefited from a 50 percent drop in the average spot price of jet fuel in the fourth quarter, helping it beat profit estimates.
Yet the inability to raise fares means it will take until 2017 for a key revenue yardstick to post year-over-year gains, American President Scott Kirby said Friday on a conference call. His previous forecast was for an improvement later this year in revenue collected for each seat flown a mile. Fares move in tandem with oil prices, Kirby said, which are near 12-year lows.
“When oil prices go up, you’ll see fares start to go up,” Kirby said.
Shares reversed losses in earlier trading to advance 2.2 percent to $38.99 at the close in New York.
American is bullish on its outlook, and will continue buying back stock at the current low price, Chief Executive Officer Doug Parker said. The airline repurchased $1.1 billion last quarter, or 25.6 million shares.
The airline’s adjusted profit of $2 a share exceeded the $1.97 average of 15 analyst estimates compiled by Bloomberg. Fourth-quarter sales dropped 5.2 percent to $9.63 billion, the airline said in a statement Friday. That fell short of the $9.65 billion average estimate.
The carrier doesn’t expect “meaningful” changes in pricing in the Dallas market, even as significant capacity additions last year by discounters Southwest Airlines and Spirit Airlines slow down, Kirby said. Fare wars also have affected industry pricing in Chicago, Houston and Orlando. American first vowed last May not to lose passengers to deeply discounted fares.
“American intends to always compete aggressively on price,” Kirby said Friday.
The world’s largest airline benefited more than rivals from the fall in jet-fuel prices because it didn’t lock in rates in advance. That practice, known as hedging, forced carriers including Delta Air Lines and Southwest to pay above market rates for fuel.
American’s adjusted profit advanced to $1.29 billion from $1.1 billion a year earlier. The latest figure excluded a $3 billion non-cash benefit related to the reversal of a tax valuation allowance, a $592 million charge to write off Venezuelan currency held by the airline and $450 million of merger-related costs.
The Brazilian currency has plummeted 35 percent against the dollar in the last year amid a recession, and Kirby said economic slowing there and in Venezuela hasn’t bottomed out. American is the largest U.S. carrier to Latin America, and previously trimmed capacity to both countries.
“We’ve been in Brazil for a long time,” Kirby said. “We’re not going to just abandon the country over a rough patch we expect to eventually improve. It’s going to be rough for a while.”