On Thursday, American Airlines stock plummeted by 9% after the company announced that its third-quarter earnings fell short of Wall Street’s expectations and revised its 2025 financial forecast to be significantly lower than initial predictions.
CEO Robert Isom attributed the performance decline to weak consumer demand, a continued softness in business travel demand since the beginning of the summer, and operational issues caused by a series of storms. In an interview with CNBC’s “Squawk Box,” Isom stated, “July has been a challenging month for us… due to weak domestic consumer demand.” This summer, which is typically a peak travel season for airlines, has seen a lack of demand in the economy class, leading carriers to lower prices for promotion.
Isom mentioned that the demand for the upcoming months seems to be improving, and American Airlines is adjusting its capacity growth. Amidst an overall weakness in travel demand, Delta Air Lines and United Airlines, the two largest airlines in the U.S., have been able to maintain profits by focusing on premium services like first class and business class. However, the middle and lower-income groups have been impacted by uncertain economic prospects and rising prices, leading to industry experts acknowledging that premium services have become a key driver of profitability.
Earlier this month, both Delta Air Lines and United Airlines mentioned that travel demand is gradually stabilizing, but their expectations for 2025 remain below the initial outlook.
On Thursday, American Airlines predicted adjusted earnings per share for 2025 to be between a loss of 20 cents and a profit of 80 cents, lower than the previously forecasted $1.70 to $2.70 per share adjusted in January. The company, along with other airlines, adjusted its 2025 financial outlook in April due to tariff adjustments and weak domestic demand.
The company forecasted an adjusted loss per share of 10 cents to 60 cents for the third quarter, while analysts at the London Stock Exchange Group predicted a loss of 7 cents.
American Airlines stated in its financial report that the projected lows would only occur in the event of “unprecedented macroeconomic weakness,” and the forecasted highs would arise with continued improvements in the domestic travel market.
Despite many American travelers flying to popular destinations like Japan and Italy this year, domestic airline demand has remained weak. An indicator of pricing power, American Airlines’ Passenger Revenue per Available Seat Mile (PRASM) for domestic flights decreased by over 6% in the second quarter, while international flight passenger revenue rose by nearly 3%.
The following is a comparison compiled by the London Stock Exchange Group of American Airlines’ second-quarter performance and Wall Street expectations:
– Earnings per share: Adjusted earnings per share of 95 cents, beating the expected 78 cents per share
– Revenue: $14.39 billion, exceeding the anticipated $14.3 billion
For the three months ending on June 30, American Airlines saw a year-over-year revenue increase of 0.4% to $14.39 billion, surpassing expectations. However, net profit dropped by 16.5% to $599 million, translating to an earnings per share of 91 cents. Adjusted net profit, excluding one-time items, stood at $628 million, or 95 cents per share, significantly surpassing analysts’ forecast of 78 cents.