Skip to Content
Stock Analyst Update

We Stand Pat on American After Revised Guidance

We're not changing our fair value estimate after management rolled back capacity expansion for the coming quarter and raised projections for other revenue.


 American (AAL) shares traded off after the carrier issued revised guidance for its third quarter. We don’t expect to update our $44 fair value estimate, and with our very high uncertainty rating, shares remain fairly valued. Management rolled back capacity expansion for the coming quarter, lowering available seat miles from 75.5 billion to 75 billion, still higher than the year-ago period by nearly 3%. American also raised projections for other revenue, which includes loyalty program revenue and contracted services, to $740 million from $690 million. Under the carrier’s revised guidance, higher total revenue per available seat mile, or TRASM, has a higher mid-point at 2.5%, instead of the previous guidance of 2%, thanks to higher domestic yields in the quarter. After accounting for these changes, we see no reason to update our full-year TRASM forecast as American’s revised guidance still places our 2018 TRASM projection of 15.71 cents within reach.

Countering American’s higher revenue expectations during the quarter are higher average fuel prices. Fuel prices will now fall between $2.28 to $2.33, instead of $2.22 to $2.27, raising American’s fuel expense in our model by $50 million to $100 million. Separately, management maintained projections for costs per available seat mile excluding fuel and special items, showing flat to little growth over the prior-year third quarter. We don’t believe our full-year pretax margin is in jeopardy at over 6%.

To buttress cash flows in the high oil price environment, American will continue trimming capital spend among other measures. Non-aircraft capital expenditures and gross aircraft capital expenditures will finish lower than in third-quarter guidance. American now expects non-aircraft capital expenditures of $470 million (was roughly $500 million) and gross aircraft capital expenditures of $551 million (was $566 million).

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Danny Goode does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.