AMR issues guidance, analysts await BA/Iberia effect

AMR disappointed analysts on Tuesday when it reported weaker-than-expected unit revenue growth is expected for the third quarter. However, none were surprised at the report citing weak economic reports during the quarter.

However, they echoed American officials in suggesting it is on the verge of reaping rewards from its joint venture with British Airways and Iberia as well as its cornerstone strategy. American said the joint venture will yield USD500 million in revenues and savings annually. Still, its performance is far worse than its peers because it avoided bankruptcy with they did not. AMR said the wage gap between it and its peers is about USD600 million.

Unit revenues up

AMR said it would finish the third quarter with mainline and consolidated unit revenues each up between 9.8%-10.8% versus the 2009 September quarter. It also said cargo and other revenues would increase between 6.6%-7.6% compared with 3Q-2010.

The company said its cost per ASM for mainline operations in the quarter would finish at about USD 12.24 cents. In July the company experienced CASM at USD 12.00 cents while August it was slightly higher at 12.09. It expects September CASM to be 12.60 and to finish the year with CASM at 12.54 cents.

Consolidated CASM for July was 12.57 cents versus 12.60 in August, which will rise to 13.27 in September. Thus it will finish the quarter with consolidated CASM at 12.80 cents and expects to end the year at 13.15.

AMR said it will finish the third quarter with cash and short-term investments of USD4.8 billion.

The report prompted analysts to trim their third-quarter-earnings estimates for the carrier ranging from a low of 28 cents down from 53 cents from Avondale Partners’ Bob McAdoo to 50 cents from 60 cents from Deutsche Bank’s Michael Linenberg.

"Assuming an improving economy and continued capacity discipline, we do not see significant downside to AMR shares, but AMR needs to achieve earnings of at least $1.00 per share to justify the current stock price, a feat we do not expect to occur until 2012 or 2013,” said McAdoo. "With its older fleet, USD7.5 billion underfunded retiree liabilities, and leveraged balance sheet, AMR has substantial share dilution risk, and AMR appears to be making little progress resolving sticky labour negotiations."

The largest drop in 3Q estimates came from Soleil Securities’ which reduced its estimate from 74 cents to 33 cents.

"Overall, we are projecting a 6.5% operating margin for AMR for the [September quarter],” said JP Morgan Chase Analyst Jamie Baker in his analysis. “This is significantly better than last year's negative 2.5% operating margin (ex-special items), but still roughly half of what we are estimating for other major airlines such as Delta and UAL.

Dahlman Rose Analyst Helane Becker and Bank of America Merrill Lynch Glenn Engel both increased their estimates to 26 and 40 cents, from 21 and 20 cents, respectively. All expect per share losses for the year.

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