American Airlines posted lower second-quarter profits and cut its earnings outlook for 2018 after fuel costs surged during what CEO Doug Parker called the carrier’s “most challenging quarter” since it merged with US Airways five years ago.
American, the world’s largest airline by traffic, and its competitors have been grappling with a more than 50 percent rise in fuel during the past year, which has crimped their bottom lines. American expects to earn an adjusted per-share profit of between $4.50 and $5 a share in 2018, down from an earlier full-year estimate of $5 to $6 it forecast in April.
The airline said it plans to defer some aircraft deliveries and slow its growth in the second half of the year to reduce costs. American’s stock is down 24 percent in 2018, more than its closest competitors, but it was up 3.8 percent Thursday as investors welcomed the cost–cutting plan.
Strong travel demand helped grow revenues nearly 4 percent to $11.64 billion from a year ago, which was slightly below Wall Street’s expectations of close to $11.7 billion. American earlier this month lowered its revenue forecast for the three months ended in June, citing weakness in the domestic market. Net income fell more than 34 percent from the year-earlier period to $566 million, or $1.22 a share.
After adjusting for one-time items, the airline earned $1.63 a share, above the estimated $1.59 analysts polled by Thomson Reuters expected.
Like other carriers, American has been grappling with strong demand for travel but higher costs to fuel its planes. It said its fuel bill rose more than 41 percent in the quarter. Another challenge in the quarter was a computer problem at PSA Airlines, a regional subsidiary of American, led to the cancellation of more than 2,000 flights in June.
American is trimming its growth plan for the second half of the year after costs rose, a move that was widely expected by analysts. In the third quarter, it plans to grow capacity, or the number of seats and the distance it flies them, by 3.3 percent and 1.6 percent in the fourth quarter, down 1 percentage point from its previous growth estimate.
American is deferring the delivery of 22 Airbus Air321neo aircraft it planned to start receiving next year through 2021, which it said will reduce aircraft capital expenditures by $1.2 billion over the next three years.
The airline is also changing its no-frills basic economy product to allow those passengers to bring a carry-on bag on board, starting in September.
Correction: American’s second-quarter net income was $566 million. A previous version of this story misstated the number.
Originally published at CNBC