American Airlines Group Inc. (AAL) reported first-quarter earnings that surpassed Wall Street expectations on Thursday, driven by record revenue and strong travel demand. However, the carrier slashed its full-year 2026 profit forecast, citing a staggering $4 billion increase in jet fuel expenses as prices hover near $4 per gallon.
The Fort Worth, Texas-based airline now expects full-year adjusted earnings per share to range from a loss of 40 cents to a profit of $1.10, a dramatic reduction from its previous guidance of $1.70 to $2.70 per share issued in January. The revised outlook reflects the significant headwind from fuel costs, which have surged due to geopolitical tensions and supply constraints.
Record Revenue and Narrower-Than-Expected Loss
For the first quarter, American Airlines reported revenue of $13.91 billion, a 10.8% increase year-over-year and a record for the period. The adjusted loss per share came in at 40 cents, narrower than the 47-cent loss analysts had anticipated. The results were bolstered by a 3.9% rise in traffic and a slight improvement in load factor to 81.3%, even as the company absorbed an estimated $320 million hit from winter storms.
CEO Robert Isom highlighted the strong revenue performance, stating, "American delivered record revenue in the first quarter, and we're on track for another record in the second quarter." Premium cabin sales continued to outpace main cabin performance, contributing to the top-line beat.
Fuel Cost Shock and Industry-Wide Pressure
The fuel cost shock is not isolated to American Airlines. United Airlines recently trimmed its profit outlook, Delta Air Lines scrapped expansion plans for the quarter, and Southwest Airlines opted to hold off on updating its annual guidance. The industry is grappling with jet fuel prices that have climbed sharply, eroding margins despite robust demand.
American Airlines' second-quarter guidance reflects the uncertainty, with adjusted earnings per share projected between a loss of 20 cents and a gain of 20 cents, straddling the consensus estimate of a 9-cent loss. The guidance assumes fuel costs of around $4 per gallon.
The company is banking on higher fares and additional revenue streams to offset the fuel surge, but the margin for error is slim. American ended the quarter with $34.7 billion in total debt, its lowest since mid-2015, but still a substantial burden. Liquidity stood at $10.8 billion, providing a buffer against further shocks.
Market Reaction and Outlook
Shares of American Airlines fell 28 cents in premarket trading to $11.50, reflecting investor caution. The broader market context is challenging, with fuel prices steering the narrative for U.S. airlines rather than demand. Should oil prices remain elevated or fare increases begin to dampen travel demand, the lower end of American's projections could materialize quickly.
Analysts note that the airline's ability to manage costs and maintain pricing power will be critical in the coming quarters. The company's record revenue provides a strong foundation, but the fuel cost headwind underscores the volatility inherent in the airline industry.
