American Airlines Group Inc. Earnings: How Will the Newly Merged Airline Fare?

American Airlines Group (NASDAQ: AAL  ) will release its quarterly report on Tuesday, and investors are anxious to see the airline's results after its recent merger with US Airways. Even as Delta Air Lines (NYSE: DAL  ) has posted impressive earnings results, American Airlines shareholders want to know whether the newly combined entity will continue to have the same competitive difficulties that it and United Continental (NYSE: UAL  ) have faced in trying to hold back Delta's impressive growth lately.

American was in bankruptcy for so long that many investors had written off the company entirely, having filed in late 2011. Yet even after the long and arduous process that at times threatened to break down entirely, American succeeded in getting approval of its merger plans. The big key now is whether the new American can compete better against Delta, United, Southwest (NYSE: LUV  ) as well as the many smaller carriers that have sought to get in on the suddenly profitable airline industry. Let's take an early look at what's been happening with American over the past quarter and what we're likely to see in its report.


Source: American.

Stats on American Airlines Group

Analyst EPS Estimate

$0.55

Change From Year-Ago EPS

(20%)*

Revenue Estimate

$9.90 billion

Change From Year-Ago Revenue

67%*

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.
*Reflects comparison with pre-merger AMR results; does not adjust prior-year numbers to include US Airways results.

Can American Airlines earnings fly higher?
Analysts have gotten a lot more excited about American earnings in recent months, with fourth-quarter estimates almost tripling and an 18% rise in full-year 2014 forecasts reflecting the favorable resolution of the American-US Airways merger. The stock has also soared, jumping 43% since late October.

This will be the first quarter that American and US Airways will report earnings as a combined entity, but we've already gotten some early signs of success about the combined entity's results. During December, passenger revenue per available seat mile metrics came in very strong, with the US Airways division posting a 12% gain from year-ago levels and American Airlines weighing in with a 9% jump. American improved its load factors to a larger extent, but overall, the combined group grew revenue passenger miles by 5.7%. Even though the new American leads United and Delta in revenue passenger miles and available seat miles, it trails both of its competitors in terms of load factors.

It's important to remember that even with the merger complete, American and US Airways will continue to operate as separate entities for a long time. The two divisions have started working on integrating frequent flyer programs, and they expect to join the same OneWorld airline alliance at the end of the first quarter, allowing them to start code-sharing flights in order to expand each other's available flight options. Yet tasks like labor integration, painting aircraft, and unifying interior decorations will take far longer to complete. United spent nearly three years on integrating the United and Continental workforces, and Northwest flew its last flight two full years after the Delta merger became official.

Meanwhile, though, American should benefit from the same excellent conditions that have helped its peers' earnings soar. Delta saw its net income jump by more than $1 billion during the fourth quarter, with low fuel costs and cost controls helping to boost bottom-line growth. The combination of a recovering economy and better-managed capacity as well as a declining number of major-airline options has brought the airline industry back to solid profitability.

In the American Airlines Group earnings report, watch to see how well early efforts to begin the long and complicated integration process are going. With the industry still enjoying excellent conditions, American needs to make the best of the good times as long as they last in order to reap the full benefits of its merger with US Airways.

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