On Thursday, American Airlines Group (NASDAQ:AAL) reported a record profit for Q3, which includes the busy summer travel season. In fact, American Airlines has reported record earnings for each quarter of 2014.

American Airlines has benefited from its merger with US Airways. Source: American Airlines.

American Airlines is benefiting from two key developments: 1) gaining scale through its merger with US Airways, and 2) a favorable supply demand balance within the U.S. airline industry. As long as it can avoid major integration snafus, American Airlines should be able to continue posting record earnings into 2015.

The results

For Q3, American Airlines generated $11.14 billion in revenue, up 4.4% year over year. Adjusted EPS came in at $1.66. That was up 59% from the combined total at American Airlines and US Airways in Q3 2013.

This EPS performance was slightly better than the average analyst estimate of $1.63. However, estimates had fallen significantly during the quarter after American Airlines cut its unit revenue guidance in early September. Near the beginning of Q3, analysts had (on average) expected EPS of $1.88.

American Airlines posted adjusted EPS of $1.66 last quarter. Source: American Airlines.

American's margin growth was driven by a 1% increase in passenger unit revenue and a 2.4% increase in total unit revenue, alongside a 0.3% decrease in unit costs, excluding special items.

Great is just par for the course

American Airlines' Q3 profit was very strong compared to what airlines were earning just a year or two ago. However, "great" results are increasingly just par for the course. For example, in Q2, American Airlines' profit grew more than 100% year over year, and EPS reached $1.98.

Moreover, every single major airline in the U.S. has reported a record profit for Q3. In this context, it may be more useful to compare American's performance to that of its key competitors. Delta Air Lines -- American's top rival -- posted a 14.6% adjusted pre-tax margin in Q3, which was significantly better than American's 11% adjusted pre-tax margin.

Looking ahead

Historically, the airline industry has been highly cyclical, so results in any given year may not be representative of long-term trends. The key question for investors is whether American Airlines and its peers can sustain the strong earnings growth they have posted in 2014.

American Airlines is facing tougher competition in several markets from the likes of Southwest Airlines.

American Airlines will confront some unique challenges in this regard. It's facing a significant increase in competition across many key markets. Southwest Airlines is dramatically boosting capacity at Love Field in Dallas, thanks to the expiration of the Wright Amendment, which could draw traffic away from American's large hub at Dallas-Fort Worth International Airport.

American Airlines also faces a notable increase in competition from low-cost carriers on its routes to Latin America. Lastly, competition is heating up on a number of key business routes where American Airlines has strong market share -- including New York-London, New York-Los Angeles, and New York-San Francisco.

In light of this rising competition, investors should pay close attention to management's commentary on unit revenue trends on American's Q3 earnings call this afternoon. Fortunately, any weakness in unit revenue should be more than offset by the recent drop in fuel prices. Because of its no-hedging policy, American Airlines sees an immediate benefit when jet fuel prices fall.

The bottom line

American Airlines has posted strong earnings growth each quarter this year. If jet fuel prices remain near recent levels, American Airlines should continue to post strong earnings growth for at least a few more quarters.

However, American is facing stepped-up competition in a number of key markets, which may offset some of the benefit from cheaper fuel. Moreover, jet fuel prices can be quite volatile, so it would be unwise to expect a long-term tailwind from fuel costs. American's ability to continue growing unit revenue in spite of higher competition will determine its long-term success.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.