Amer­i­can Air­lines ex­pects fuel sav­ings, cur­rency head­wind in 2015

The Financial Daily - - INTERNATIONAL -

NEW YORK: Amer­i­can Air­lines Group Inc on Tues­day fore­cast bil­lions of dol­lars in sav­ings this year from tum­bling fuel costs, but said a key mea­sure of rev­enue will likely de­cline this quar­ter, in part from cur­rency head­winds that are pinch­ing for­eign trav­el­ers' pock­ets.

The world's largest car­rier by pas­sen­ger traf­fic said its 2015 costs will drop by $5 bil­lion be­cause of the oil glut, which has driven down global oil prices by more than 57 per­cent since June.

While clos­ing costly fuel hedges has pre­vented its peers from ben­e­fit­ing from the full price de­cline, Amer­i­can has no hedges in place and ex­pects its fuel price to be an in­dus­trylead­ing $1.71 to $1.76 per gal­lon in 2015.

It fore­cast a strong 13 per­cent to 15 per­cent pre­tax mar­gin for the first quar­ter.

Yet Amer­i­can's out­look on unit rev­enue dis­ap­pointed Wall Street, send­ing its shares down 3.4 per­cent in mid-af­ter­noon trad­ing.

The car­rier ex­pects a 2 to 4 per­cent de­cline in unit rev­enue for the first quar­ter year-over-year, while com­peti­tors such as United Air­lines have said their unit rev­enue will be be­tween neg­a­tive 1 per­cent and 1 per­cent.

Unit rev­enue "is be­ing pres­sured in a num­ber of mar­kets where ca­pac­ity is grow­ing faster than de­mand," Amer­i­can Air­lines Pres­i­dent Scott Kirby said dur­ing the com­pany's quar­terly call. To­tal sys­tem ca­pac­ity in 2015 is ex­pected to grow be­tween 2 and 3 per­cent, the air­line re­ported.

But cur­rency head­winds have hurt unit rev­enue too, Kirby said.

The de­pre­ci­a­tion of for­eign cur­ren­cies has low- ered rev­enue in coun­tries where Amer­i­can sells tick­ets in the lo­cal ten­der, he said, adding that where its prices are listed in U.S. dol­lars, such as in Brazil, the cost of travel to the United States be­comes more pro­hib­i­tive to for­eign­ers.

"A 25 per­cent de­pre­ci­a­tion in the Brazil­ian cur­rency is ob­vi­ously go­ing to have an elas­tic­ity ef­fect," Kirby said. "The cur­rency im­pact is prob­a­bly some­thing a lit­tle less than 1 per­cent on (unit rev­enue)."

U.S. cit­i­zens ac­count for about 50 per­cent of Amer­i­can's sales to and from Europe, a ma­jor­ity of its sales to and from China, but less than 30 per­cent of its sales to and from South Amer­ica, a re­gion where cur­ren­cies have steadily weak­ened against the dol­lar.

But Kirby noted a stronger dol­lar could en­cour­age more U.S. cit­i­zens to travel abroad, help­ing make it "an earn­ings pos­i­tive" over­all.

Ex­clud­ing spe­cial items, Amer­i­can earned $1.52 per di­luted share last quar­ter, top­ping an­a­lysts' es­ti­mates, and said it will pay a div­i­dend of 10 cents per share in Fe­bru­ary. -Reuters

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