Shares in American Airlines and United Airlines rose more than 3% Friday after the carriers boosted their revenue and profit outlook for the fourth quarter.
American, the world’s largest airline, said it expects unit revenue to range between a decline of 1% percent and an increase of 1%, compared with its previous forecast of a decline of 2.5% to 0.5%.
Unit revenue compares sales to how many seats an airline flies and how far it flies them. “The outlook would make American the first U.S. network carrier to push the key metric into positive territory after two years of expansion, fare cuts and a stronger dollar dragged it lower,” Investor’s Business Daily said.
American also said its fourth quarter pre-tax margin had improved to between 6% and 8% from prior guidance of 5% to 7%. It cited improving yields — a measure of an airline’s ability to charge travelers more for flights — for the enhanced revenue and profit expectations.
United, meanwhile, is now forecasting fourth-quarter unit revenue to decline 3% to 4.% and pre-tax margin to be between 7.5% and 8.5%, reflecting stronger-than-expected bookings during the second half of the quarter.
In trading Friday, American shares were up 3.3% at $49.64 , while United’s stock also rose 3.3%, to $75.17.
As IBD reports, American’s forecast is the “latest good news for the airline industry, which in recent weeks has signaled greater operational discipline as fuel costs, which combined with labor make up an airline’s biggest expenses, trend higher.”
“A possible uptick in travel after the election, the prospect that President-elect Trump could roll back regulations on businesses, and investments from Warren Buffett’s Berkshire Hathaway haven’t hurt either,” it added.
Berkshire Hathaway announced in November that it is investing more than $1 billion in American, Delta, United, and Southwest Airlines. “The unit revenue news should provide more momentum for U.S. airline stocks,” Air Transport World said. “Perhaps that Buffett fellow is on to something.”
On a less rosy note, the International Air Transport Association has forecast that airline industry profits will fall next year as oil prices rise.