Shares of American Airlines (NASDAQ:AAL), a carrier with an average of nearly 6,700 flights per day to nearly 350 destinations in over 50 countries, were up 7% as of 11:28 a.m. EDT on Thursday after the company released third-quarter results.
Healthy air-travel demand helped drive a 5.4% gain in total operating revenue, to a record $11.6 billion. Passenger revenue per available seat mile increased 1.8% thanks to a 2.2% increase in passenger yields. Adjusted earnings per share checked in at $1.13, and both the top and bottom lines just slightly beat analysts' estimates. Despite topping estimates, its pre-tax income (excluding special items) declined 41% to $688 million due to higher fuel costs and the impact of Hurricane Florence, which caused roughly 2,100 flight cancellations during September. In fact, higher fuel prices increased expenses by roughly $750 million, compared with the prior year.
In a press release, CEO Doug Parker said: "Strong demand for American's service led to record revenue in the third quarter and our eighth consecutive quarter of unit revenue growth. Our team continues to do an outstanding job of taking care of our customers, including during difficult situations such as Hurricanes Florence and Michael."
The good news for investors is that the carrier forecast unit revenue, a key metric comparing sales to flight capacity, is expected to rise between 1.5% to 3.5% during the fourth quarter, and adjusted pre-tax margins are expected to check in between 4.5% and 6.5%, which would peg earnings above analysts' estimates. That guidance gives investors confidence that American's move to adapt to higher costs through lower planned capacity growth and cancellations of unprofitable flights is paying off.
Furthermore, if management can deliver revenue growth through expanded product segmentation and high-margin growth prospects in highly profitable hubs, as the company believes it can, it suggests a solid 2019 could be on the way. For a company that's traded lower throughout 2018, the third-quarter results and optimism going forward were enough to push the stock 7% higher Thursday.