Key Takeaways

  • Analysts estimate adjusted EPS of -$4.14 vs. $1.15 in Q4 2019.
  • Passenger load factor is expected to fall YOY.
  • Revenue has fallen dramatically amid the pandemic-induced reduction in air travel.

American Airlines Group Inc. (AAL) and other U.S. airlines predict that new COVID-19 testing rules for flight passengers to the U.S. will help to restore confidence in air travel. Beginning on January 26, the Centers for Disease Control and Prevention will mandate all travelers on international flights destined for the U.S. to show proof of a negative test for COVID-19. Along with the massive U.S. vaccination program, these steps are expected to slowly spur a recovery in air travel from its 2020 lows.

Investors will focus on how American Airlines is faring amid the industry’s turmoil when the company reports earnings on January 28, 2021 for Q4 FY 2020. Analysts are expecting the airline to report another sizable adjusted loss per share as revenue continues to plunge.

But investors also will be closely watching American Airlines’ load factor, a key metric used by airlines to gauge what percentage of paid passenger seating capacity is being filled. Analysts expect the company’s load factor to be down significantly on a year-over-year (YOY) basis, but up compared to the previous two quarters.

Shares of American Airlines have severely lagged the broader market over the past year. The stock started the prior year strong, but failed to recover following the pandemic-induced crash that took place between late February and late March 2020. The stock traded essentially sideways for most of the past year, though it has started to edge up in the past 3 months. American Airlines’ shares have provided a total return of -40.7% over the past 12 months, well below the S&P 500’s total return of 18.9%.

Source: TradingView.

The stock fell during the week following its Q3 FY 2020 earnings report. The airline reported an adjusted loss per share of $5.54, marking the third consecutive quarter of losses. Revenue sank 73.4% compared to the same quarter a year ago. Amid the reduction in air travel caused by the pandemic, the company noted that it reduced expenses and furloughed thousands of workers during the quarter.

But Q2 FY 2020 was the real low point. American Airlines posted an adjusted loss of $7.82 per share as revenue plunged 86.4% compared to the same three-month period a year ago. It marked the biggest loss and largest drop in revenue in at least 15 quarters. Chairman and Chief Executive Officer (CEO) Doug Parker called it “one of the most challenging quarters in American’s history.”

Analysts are forecasting another loss and further revenue declines in Q4 FY 2020. The company is expected to report an adjusted loss per share of $4.14 as revenue falls 66.4%. It would mark the fourth consecutive quarter of losses and declining revenues. For full-year FY 2020, analysts expect an adjusted loss per share of $19.69 and a 62.9% drop in annual revenue, the worst annual performance in at least five years for American’s top and bottom lines.

American Airlines Key Metrics
  Estimate for Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Adjusted Earnings Per Share ($) -$4.14 $1.15 $0.97
Revenue ($B) $3.8 $11.3 $10.9
Load Factor (%) 62.4 83.8 81.4

Source: Visible Alpha

As mentioned above, investors also will be focused on American Airlines’ load factor. Load factor measures the percentage of available seats that are filled with paying passengers. A high load factor, as opposed to a low load factor, is associated with a high percentage of seats occupied by passengers. Because the costs of sending an aircraft into flight are relatively the same whether there are 50 people aboard or 100, airlines have a strong incentive to sell more tickets in order to fill as many seats as possible. Higher load factors mean an airline’s fixed costs are spread across a greater number of passengers, making the airline more profitable. The reduction in air travel caused by the pandemic have left airlines with high fixed costs amid falling load factors and revenues, the combination of which is causing steep losses.

In the four years prior to 2020, before air travel was decimated by the pandemic, American Airlines’ load factor averaged 82.5%. In every quarter from Q2 FY 2017 to Q4 FY 2019, the airline’s load factor was above 80%, reaching a peak in Q2 FY 2019 of 86.6%. But in the first quarter of FY 2020, that number fell to 72.7% and then to a recent low of 42.3% in Q2 FY 2020. The load factor recovered somewhat to 58.9% in Q3 FY 2020. Analysts expect the company’s load factor to be 62.4% in Q4 FY 2020, showing further recovery but still well below the year-ago quarter and its average over the past four years.