American Airlines (AAL) June Traffic Up, Guidance Revised

American Airlines Group Inc. (NASDAQ:AAL) , based in Fort Worth TX, reported a modest growth in air traffic in the month of June. Traffic measured in revenue passenger miles (RPMs) – was 20.9 billion, up 2.2% from 20.4 billion recorded in last June.

On a year-over-year basis, consolidated capacity (available seat miles/ASMs) inched up 2.8% to 24.6 billion. However, the load factor or the percentage of seats filled by passengers decreased to 84.9% from 85.4% in Jun 2015, as capacity expansion exceeded traffic growth.

In the first six months of 2016, American Airlines on a year-over-year basis recorded 1.9% growth in RPMs to 110.1 billion, while ASMs inched up 2.7% to 135.8 billion. Also, the load factor declined 60 basis points year-over-year to 81.1%. Moreover, total passenger count (Enplanements) remained increased 1% in June and increased 0.5% in the first six months of 2016.

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

Guidance Trimmed

American Airlines anticipates its PRASM (passenger revenue per available seat mile: a key measure of unit revenue) to decline in the band of 6%-7% for the second quarter of 2016. The company continues to expect a pre-tax margin of 14-16% for the second quarter.

The decrease in PRASM is most likely due to the of higher capacity growth amid a drab demand environment. The carrier’s totally capacity is expected to rise by 2% from the year ago level (down 0.5 points from previous guidance). Fuel price (mainline: inclusive of taxes) is projected in the band of $1.39 to $1.44 per gallon for the second quarter.

Improved Loyalty Program and Wi-Fi Service

American Airlines recently announced changes to its award-winning AAdvantage customer loyalty program. The company will begin 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 services 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 #5 (Strong Sell). Better-ranked stocks in the same space include GOL Linhas (NYSE:GOL) and Air France-KLM SA (OTC:AFLYY) . Both companies carry a Zacks Rank #2 (Strong Buy).