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Latest News - January 2015

January 12, 2015
Proposed pilot contract would raise American's 2015 labor costs by $650 million

A proposed contract with pilots would increase American Airlines Group Inc.’s 2015 labor costs by $650 million if approved by pilots, American told investors Monday.  In addition, retroactive pay raises to Dec. 2 would add $50 million to American’s 2014 expenses, the Fort Worth-based company said.

However, if pilots don’t approve the “joint collective bargaining agreement,” no increase in pilot labor costs are expected, the company said. The Allied Pilots Association told members Monday that two weeks of voting will begin Friday and conclude at 9 a.m. Jan. 30.  American also said its new flight attendant contract will add $200 million in costs in 2015, $80 million more than was disclosed in previous guidance.

American provided the information in an update to investors in advance of the release of fourth quarter and full year 2014 earnings later this month.  The company’s shares closed down $2.44 or 4.7 percent to $49.58 as investors reacted to its projections that revenue will be in a range slightly lower than previously projected.

The company estimated that passenger unit revenue — revenue per available seat mile flown — would be flat to down 2 percent. That was lower than its previous guidance range of down 1 percent to up 1 percent.  Cowen and Co. analyst Helane Becker suggested that the lower unit revenues were the result of “continued weakness in the international segment.” American’s passenger loads were down 3.3 percentage points in fourth quarter 2014 compared to a year earlier, she wrote.

J.P. Morgan analyst Jamie Baker called American’s guidance “slightly soft,” and cut his earnings estimate for American based on the update.  While American’s projected earnings appear in line with analysts’ consensus, “initial investor feedback … suggests disappointment may weigh on shares today,” he warned.

But analyst Bob McAdoo of Imperial Capital said he didn’t think that Wall Street estimates for American’s 2015 earnings have taken into account the sharp drop in jet fuel prices.  “In the coming weeks, with help from new management guidance, we expect analysts to revise fuel price assumptions, driving estimates higher,” McAdoo wrote in a Monday report.

He raised his estimate from $10.65 a share to $13.05 a share, or from about $7.7 billion to about $9.5 billion. The recent drop in fuel prices will save American about $2.4 billion in fuel costs beyond his previous estimates, McAdoo stated.  American also released its December traffic numbers Monday. It said that traffic declined 0.9 percent on a 3.3 percent increase in capacity compared to December 2013. Its load factor, or percentage of seats filled, declined 3.4 points to 80.9 percent.




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