By Susan Carey
American Airlines Group Inc. posted record first-quarter profit
on Friday, but the largest U.S. airline by traffic warned that the
strong dollar and a creeping imbalance between supply and demand
are expected to drag down a key measure of revenue in the current
quarter.
Like big rivals that already have reported, American said
unit-revenue, which measures the amount of passenger revenue
generated for each seat flown a mile, will bottom out in the June
quarter, falling 4% to 6% from the prior-year period. United
Continental Holdings Inc., the No. 2 carrier, on Thursday warned it
expects an identical decline. No. 3 Delta Air Lines Inc. last week
predicted its second-quarter unit revenue will dip by 2% to 4%.
Scott Kirby, American's president, said on an earnings call that
foreign currency effects will account for two percentage points of
the unit-revenue decline, the reduction of international fuel
surcharges will cost 0.7 point, and the economic situation in
Venezuela 0.5 point. Mr. Kirby said American for the
fourth-consecutive quarter through the March period has trimmed its
overall capacity from earlier guidance, mostly in international
markets.
"While demand is still growing, it's not growing as fast as
supply," he said.
Nevertheless, American sounded upbeat. The product of a late
2013 merger of the old American and US Airways Group Inc., the
combined company is proceeding smoothly with its integration and
plans to tackle the technologically complex switch to a single
reservations system late this year. It recently combined
frequent-flier plans with hardly a hitch.
Doug Parker, the chief executive, said consolidation and
capacity discipline have transformed the industry so that the level
of earnings is much higher, volatility is diminished and the issues
airlines worry about are less dramatic than in past years that were
marked by wild swings in profitability and market-share wars.
"We'll prove it in the next downturn," he said on the call.
American earned $932 million, or $1.30 a share, compared with
year-earlier profit of $480 million, or 65 cents a share. Excluding
$311 million in special charges, profit was $1.2 billion, beating
analysts' estimate by two cents a share, triple the year-ago
results excluding one-time credits. Revenue declined 1.7% to $9.8
billion, but costs were also down 7.1%, helped by a 43% reduction
in American's fuel bill. Unit revenue declined 1.7% on nearly flat
capacity.
For the second quarter, a seasonally stronger period, American
plans to boost its capacity by 2.1%, a bit less than the gains
foreseen by United and Delta. The company didn't break out the
growth by domestic and international, but said it saw "softness" in
Latin American markets in the just-ended quarter. Mr. Kirby, the
president, said Argentina "appears to be recovering," but American
is encountering large unit-revenue declines in Brazil.
Write to Susan Carey at susan.carey@wsj.com