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American Airlines' third-quarter profit plunges 48% as fuel costs sting

Key Points
  • American Airlines' third-quarter profit falls more than 48 percent as it faced higher fuel costs.
  • But the carrier maintains its earnings forecast of $4.50 to $5 per share for 2018, above the $3.90 to $4.46 a share expected by analysts polled by Refinitiv.
An American Airlines Boeing 737-800 plane takes off from Los Angeles International airport.
Mike Blake | Reuters

American Airlines' third-quarter profit fell more than 48 percent from a year earlier as higher fuel costs ate into the largest airline's bottom line, despite high travel demand.

But the carrier on Thursday maintained its earnings forecast of $4.50 to $5 per share for 2018, above the $3.90 to $4.46 a share expected by analysts polled by Refinitiv.

The airline said it expects to grow revenue for each seat it flies per mile, a key industry metric, by as much as 3.5 percent in the last three months of the year, according to its third-quarter earnings report.

American's shares were up more than 9 percent in afternoon trade.

American's net income for the three months ended Sept. 30 came in at $341 million, or 74 cents a share, down 48 percent from $661, or $1.36 a share, from the same quarter last year. It generated record revenues of $11.56 billion, which just missed analysts' estimates and were up 5.4 percent up from $10.97 billion the previous year.

Fuel costs, which surged 42 percent from a year ago, ate into its profit.

"Strong demand for American's service led to record revenue in the third quarter and our eighth consecutive quarter of unit revenue growth," CEO Doug Parker said in a statement. "Unfortunately, higher fuel prices increased our expenses by approximately $750 million versus the third quarter of 2017, which led to a decline in earnings."

American posted per-share earnings of $1.13 on an adjusted basis, in line with Wall Street's expectations.

Despite Thursday's rally American Airlines' shares are down more than 36 percent this year, more than any other U.S. airline, ramping up pressure on Parker to convince investors that the airline can grow its bottom line as costs climb.

American has struggled to grow its bottom line and offset higher fuel costs, something its competitors United and Delta said they have largely been able to do thanks to demand for higher-priced fares. American's senior vice president of revenue management Don Casey told analysts on the company's earnings call on Thursday that it is working on ways to better upsell coach passengers to more spacious and expensive seats, even after they've booked a trip.

Parker told CNBC's Phil LeBeau in an interview on Thursday that he expects the stock price to recover. 

"Our industry still feels underappreciated by the Street," he said. "That's ours to fix. The industry hasn't been one where people expect real rates of returns. I think we built a business that can do that now but we need to prove it over cycles."

Southwest Airlines, which also reported its third-quarter earnings before the markets opened Thursday, reported profits that came in above analysts' expectations. But the carrier's shares were down by more than 8 percent in afternoon trading after the carrier said its expenses rose more than 7 percent, excluding fuel costs. It also said expenses, excluding fuel and profit-sharing, would rise in the fourth quarter by as much as 1 percent from a year earlier and 3 percent next year.

American Airlines CEO says cost of fuel has driven the company's earnings down