American Airlines Q4 FY2021 Earnings Preview: Key Insights and What to Expect

Focus on American Airlines’ Load Factor Recovery

Highlights to Watch

• Analysts forecast an adjusted EPS of -$1.45, a notable improvement from -$3.86 in Q4 FY2020.
• Load factor is projected to increase year-over-year, signaling a stronger demand for flights.
• Revenue is expected to more than double compared to the previous year, driven by the resurgence in travel after pandemic lows.

American Airlines Group Inc. (AAL) has experienced a steady revenue recovery over recent quarters, striving to overcome the severe impact COVID-19 had on travel demand. Despite progress, a full turnaround remains distant as new COVID variants continue to challenge the airline’s operations. The Omicron variant caused widespread disruptions during the holiday season, leading to numerous flight cancellations due to crew shortages.

Investors will closely monitor American Airlines’ Q4 FY2021 earnings report on January 20, 2022, to gauge the airline’s recovery trajectory. Although analysts anticipate the company will report its eighth consecutive adjusted loss per share, revenue growth is expected to continue for the third straight quarter.

Another critical focus is the airline’s load factor, a vital indicator measuring the percentage of available seats filled with paying passengers. Analysts predict an increase compared to the same quarter last year, reflecting the ongoing rebound in travel demand.

Over the past year, American Airlines’ stock has underperformed the broader market. While it showed strength until mid-November, concerns about the Omicron variant caused significant declines. Over the 12 months ending January 18, 2022, AAL shares returned 12.1%, trailing the S&P 500’s 20.5% gain.

American Airlines Earnings Performance Overview

In Q3 FY2021, American Airlines surpassed earnings expectations while meeting revenue forecasts. The airline posted its seventh consecutive adjusted loss per share, though the loss was over five times smaller than the previous year. Revenue surged 182.7% year-over-year, marking a second consecutive quarter of growth after five quarters of decline. The Delta variant’s spread delayed some recovery progress during this period.

During Q2 FY2021, American Airlines exceeded consensus estimates on both earnings and revenue, despite reporting its sixth straight adjusted loss per share. Revenue soared 361.0% year-over-year, ending a streak of declining revenue. The airline also announced plans to reduce debt by approximately $15 billion by 2025, accelerating its deleveraging efforts.

For Q4 FY2021, analysts expect another adjusted loss per share, marking the eighth consecutive quarter of losses, with revenue projected to grow 131.3% year-over-year—the third consecutive quarter of revenue increase. Despite this growth, total revenue remains below pre-pandemic levels. For the full fiscal year 2021, adjusted loss per share is expected to improve significantly to $8.42 from $19.66 in 2020, with annual revenue rising 71.9%, though still below pre-pandemic figures after a 62.1% drop the previous year.

Source: Visible Alpha

Understanding the Crucial Load Factor Metric

Investors will pay close attention to American Airlines’ load factor, which measures the percentage of available seats occupied by paying passengers. A high load factor indicates efficient seat utilization, which is critical for profitability since flight costs remain relatively constant regardless of passenger count. Airlines benefit from maximizing seat occupancy to spread fixed costs over more passengers, enhancing margins. The pandemic caused a sharp decline in air travel, resulting in lower load factors and revenues but unchanged fixed costs, leading to substantial losses.

Prior to the pandemic, American Airlines’ annual load factor ranged between approximately 82% and 85%. This figure dropped to 64.1% in FY2020 due to COVID-19, with the lowest quarterly load factor hitting 42.3% in Q2 FY2020. The load factor improved gradually in subsequent quarters, reaching 64.1% by Q4 FY2020, then slightly dropping to 59.5% in Q1 FY2021 before climbing to 77.0% in Q2 and 78.7% in Q3. Analysts forecast a further increase to 79.6% for Q4 FY2021 and an annual load factor of 75.1% for FY2021. Although these figures represent significant recovery, they remain below pre-pandemic levels.

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