American Airlines Group (AAL) easily surpassed earnings expectations for the fourth quarter and provided upbeat guidance about 2024. Investors are jumping on board, sending shares of American up nearly 11% as of 1 p.m. ET Thursday.
Packed plane and strong profits in the fourth quarter
U.S. travelers have been packing airlines and airports since the end of the pandemic, and American saw no sign of a slowdown in the last three months of 2023. American earned $0.29 per share in the fourth quarter on revenue of $13.06 billion, topping Wall Street's $0.10 per share in earnings on sales of $13.02 billion estimated.
The company generated nearly $53 billion in revenue for the year, a record, recording full-year free cash flow of $1.8 billion. American also reduced its debt by $3.2 billion in 2023 and is now more than 75% of the way toward its 2025 debt reduction goal.
"The American Airlines team produced an exceptionally strong performance in 2023," CEO Robert Isom said in a statement. "We are delivering on our commitments and remain well positioned for the future, supported by the strength of our network and travel rewards program, our young and simplified fleet, our operational reliability, and our outstanding team."
American expects demand will hold up heading into 2024. The airline is projecting a loss of between $0.15 and $0.35 per share in the current quarter, which is the slowest time of the year for the industry, but expects to post a full-year profit of between $2.25 and $3.25 per share. That implies upside to the $2.25-per-share consensus estimate heading into earnings.
Is American a buy after a strong earnings report?
Investors need to be aware the airline industry is notoriously cyclical, meaning that if the economy slows from here, it is likely to eat into demand.
That said, American is also aware of the nature of the industry, and it is hard to ignore the company's optimism. Management has done a good job bringing costs under control and flying a more reliable schedule -- factors that will help American weather whatever macro storm clouds might lie ahead.
Shares of American are more than 50% below where they traded prior to the pandemic. Should the company continue to execute like it did in the fourth quarter, there is room for this stock to gain altitude from here.
