American Airlines' May Traffic Displays Moderate Growth

Premier passenger carrier American Airlines Group Inc. (NASDAQ:AAL) posted modest air traffic growth in the month of May. Traffic – measured in revenue passenger miles (RPMs) – was 19.4 billion, up 0.5% from 19.3 billion recorded last May.

On a year-over-year basis, consolidated capacity (available seat miles/ASMs) inched up 1.7% to 23.74 billion. However, the load factor or percentage of seats filled by passengers decreased to 81.9% from 82.8% in May 2015 as capacity expansion outweighed traffic growth.

In the first five months of 2016, American Airlines recorded 1.9% growth in RPMs to 89.24 billion, while ASMs inched up 2.7% to 111.22 billion, both on a year-over-year basis. Also, the load factor declined 70 basis points year over year to 80.2%. Moreover, total passenger count (Enplanements) in May decreased 0.1% and increased 0.4% in the first five months of 2016.

We believe that the company’s route expansion plans, introduction of ancillary products and customer service enhancement bode well for the future. Further, the company has been reaping considerable benefits from its joint ventures and code share agreements.

Guidance Reiterated

American Airlines reiterated its forecast of a 6–8% decline in PRASM (passenger revenue per available seat mile) for the second quarter of 2016. The company also continues to expect a pre-tax margin of 14% to 16% for the second quarter.

The decrease in PRASM is most likely the result of higher capacity growth amid a bleak demand environment. Low fuel prices have resulted in high fare competitiveness alongside boosting margins.

Thus, American Airlines will need to maintain a capacity and demand balance.

Improved Loyalty Program and Wi-Fi Service

American Airlines recently announced changes to its award-winning AAdvantage customer loyalty program. The company will start to award miles based on the price of tickets instead of distance. The redesigned program will become effective as of Aug 1, 2016.

In order to improve the Wireless services available to its customers, American Airlines recently selected ViaSat Inc. (NASDAQ:VSAT) to provide Wi-Fi on its Boeing (NYSE:BA) 737 MAX fleet. The award-winning company is expected to provide a much faster, optimized and high quality Internet service to American Airlines’ passengers.

Zacks Rank & Stocks to Consider

American Airlines currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline industry include SkyWest Inc. (NASDAQ:SKYW) with a Zacks Rank #1 (Strong Buy) and Cathay Pacific Airways Limited (OTC:CPCAY) with a Zacks Rank #2 (Buy).