American Airlines provided an update regarding its Q3 2023 guidance, warning investors that it expects operating profit to be half of what was previously expected.
In a Securities and Exchange Commission (SEC) filing the airline said the price of fuel has “increased considerably since the Company’s initial third-quarter guidance issued on July 20, 2023”.
“The Company now expects to pay an average of between $2.90 and $3.00 per gallon of jet fuel in the third quarter,” the filing continued, with the airline adding that capacity, measured in Available Seat Miles (ASM), could be “at the high end of its initial guidance”.
In July 2023, the carrier said that ASM would grow by between 5% and 7% compared to Q3 2022. Now, the guidance is for ASM to grow between 6% and 7%
Meanwhile, Q3 2023 revenue should remain flat, with the Total Revenue Per Available Seat Mile (TRASM) guidance, compared to the same quarter the previous year, lowered by 0.5 points. TRASM is now expected to be between 5.5% and 6.5% lower than in Q3 2022.
American Airlines also noted that Cost Per Available Seat Mile excluding fuel (CASM-ex) “is now expected to be at the better end of the Company’s previous guidance range provided on August 22, 2023”, with the CASM-ex expected to grow between 4% and 5% compared to Q3 2022.
As a result, the operating profit guidance has been halved, dropping from between 8% and 10% to between 4% and 5%.
“As previously disclosed, the ratification of a new collective bargaining agreement by the mainline pilots represented by the Allied Pilots Association [APA] resulted in retroactive pay expense of approximately $230 million to be recognized in the third quarter,” the airline said.
The retroactive payment to its pilots will affect American Airlines’ operating margin by 1.7%, with the remaining adjustment stemming from higher fuel prices in Q3 2023.