American Airlines expects fuel savings, currency headwind in 2015
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