What's going on?
American Airlines had warned of turbulence ahead – but after lowering the altitude of its forecasts, the world’s largest airline climbed to a better-than-expected fourth-quarter report on Thursday.
What does this mean?
Only two weeks ago American said its revenue hadn’t grown as much as hoped last quarter. But the company’s full update on Thursday showed it managed to trim more fat than expected, in part by shedding duplicate costs remaining from a 2013 merger with US Airways. This helped American exceed its recently lowered profit expectations – and offer a 2019 forecast that also exceeded investors’ predictions.
American’s low-cost rivals were out with updates on Thursday too. JetBlue Airways reported a better fourth quarter than expected. So did Southwest Airlines: it also offered a higher-than-expected forecast for 2019, but cautioned that a prolonged government shutdown simply wouldn’t fly if it’s to meet its targets…
Why should I care?
For markets: An airshow that feels more like a rollercoaster ride.
After American’s earlier warning, investors sold off several airline stocks: if the country’s largest carrier was struggling to grow, so too might smaller competitors. Ryanair, the budget Irish airline, also sounded the alarm last week. But following the largely positive updates on Thursday, airline stocks are on the up again: buyers cleared American’s, Southwest’s, and JetBlue’s stocks to take off by 5% (tweet this).
The bigger picture: Norwegian Air loses cabin pressure.
International Airlines Group (IAG) – owner of British Airways – jettisoned its potential acquisition of low-cost competitor Norwegian Air on Thursday after the latter denied boarding to two IAG takeover offers. IAG responded by saying it would sell its current 4% stake in Norwegian – and other investors rushed the emergency exit, pushing Norwegian’s shares down 20%. With the takeover plan stowed, investors perhaps weren’t keen on an airline whose profit is so subject to the whims of oil prices: Norwegian makes scant use of futures contracts to lock in its fuel costs ahead of departure.