American Airlines’ Profit Forecast Falls Short of Expectations
The airline industry is bracing for a turbulent year ahead, and American Airlines is no exception. On Thursday, the carrier’s shares plummeted 8% after it forecasted a lower-than-expected profit for 2025. The culprit? Higher costs stemming from expensive labor contracts signed last year.
Labor Costs Take Center Stage
American Airlines’ CFO, Devon May, attributed the cost growth to higher salaries and benefits, which will increase non-fuel unit costs by mid-single digits year over year. This is largely due to the new five-year deal with 28,000 flight attendants, offering wage increases of up to 20.5% along with retroactive pay. Additionally, the airline signed a two-year contract extension with a worker group including aircraft maintenance technicians, cleaners, and planners.
A Challenging Year Ahead
The airline’s forecasted adjusted earnings per share for 2025 range from $1.70 to $2.70, falling short of analysts’ average estimates of $2.42. This is a stark contrast to its rivals, Delta Air Lines and United Airlines, which are benefiting from improved pricing and strong winter demand.
Mending Relationships and Rebuilding Revenue
American Airlines spent much of 2024 rebuilding relationships with corporate travelers after a botched sales strategy hurt its revenue and image. The airline’s shares lagged behind its competitors, with Delta jumping nearly 50% and United surging 138% last year, compared to American’s gains of about 30%.
Rising Fuel Prices Add to the Challenge
Jet fuel prices have climbed sharply in the past month, tracking a rise in global crude benchmarks driven by broader sanctions targeting Russian oil revenue and growing optimism about stronger demand from China. This will only add to American Airlines’ cost woes.
First-Quarter Loss Expected
The company expects a current-quarter adjusted loss per share of 20 cents to 40 cents, compared with estimates for a loss of 4 cents. However, some analysts believe the carrier’s guidance looks conservative, considering its strong performance in the fourth quarter.
Fourth-Quarter Performance
American Airlines reported an adjusted profit of 86 cents per share, beating expectations of 64 cents, due to improved pricing. Total operating revenue rose 4.6% to about $13.66 billion, above estimates of $13.39 billion. Despite this, the airline’s shares took a hit due to its disappointing profit forecast.
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