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American Airlines Slides 6% on Raised Q3 Fuel Costs View


American Airlines Group Inc. AAL has revised its outlook for the third quarter of 2018. Following the altered guidance, shares the company declined more than 6% to a 52-week low of $33.41 on Oct 9. The stock closed the trading session a little higher at $33.55, the lowest since August 2016.

Q3 TRASM View Upbeat, Fuel Costs View Bearish

The company anticipates total revenue per available seat mile (TRASM) to increase approximately 2-3%. Previous guidance had projected the metric to rise 1-3% year over year. The upside, despite adversities from Hurricane Florence, has been attributed to stronger domestic yields.

Hurricane Florence caused approximately 2,100 flight cancellations this September, dampening revenues by nearly $55 million, TRASM by 50 basis points and pre-tax income to the tune of $50 million.

With fuel prices shooting up continually, the company has raised guidance pertaining to the same. Average fuel price per gallon is now expected to be between $2.28 and $2.33 compared with $2.22 and $2.27 expected earlier.

The carrier continues to expect unit costs (excluding fuel and special items) to increase in the range of 0-2% year over year. Additionally, pre-tax margin is estimated in the 5-7% band, unchanged from the previous forecast.

With the overall guidance otherwise upbeat, the sharp drop in share price is perhaps due to the raised fuel costs view.

Amid struggles, especially pertaining to escalating fuel prices, shares of the company have declined more than 35% so far this year.

Zacks Rank & Key Picks

American Airlines carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Southwest Airlines Co. LUV, United Continental Holdings, Inc. UAL and Canadian Pacific Railway Limited CP, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Southwest Airlines, United Continental and Canadian Pacific have rallied more than 11%, 25% and 24%, respectively, in the past six months.

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