American Airlines third-quarter profit beats Street, shares fall

(Reuters) - No. 1 U.S. airline American Airlines Group Inc AAL.O reported a better-than-expected quarterly profit on Thursday on higher demand for business and leisure travel, but shares fell nearly 5 percent on factors including higher operating expenses.

FILE PHOTO - An American Airlines Boeing 757 aircraft takes off at the Charles de Gaulle airport in Roissy, France, August 9, 2016. REUTERS/Jacky Naegelen/File Photo

CEO Doug Parker said on an earnings call that the airline would work with a U.S. civil rights group that called on Tuesday for black travelers to avoid American because of what the group called a pattern of racially biased incidents.

“Discrimination, exclusion and unconscious biases are enormous problems that no one has mastered,” Parker said.

For the current quarter, American said it expects revenue per available seat mile, a closely watched metric that compares sales to flight capacity, to rise between 2.5 percent and 4.5 percent from a year ago.

American’s solid third-quarter report came even as operations were hit by severe hurricanes. Still, shares closed down 4.72 percent at $48.61.

The airline’s third-quarter operating expenses swelled by 5.3 percent to $9.6 billion, a sore spot for investors. Increasing costs for fuel and labor have caused expenses to spike across the industry.

Earlier this year, American said it offered an unexpected mid-contract pay increase to its pilots and flight attendants, which will cost an additional $230 million for 2017 and $350 million for 2018 and 2019.

On the earnings call, Parker said American has reached out to the National Association for the Advancement of Colored People (NAACP). He said he expected to work together “in the very near term” with the group that issued the high-profile travel advisory.

The airline’s pretax margin, excluding special items, is forecast between 4.5 percent and 6.5 percent for the current quarter.

Earlier this month, rival Delta Air Lines Inc DAL.N also reported a better-than-expected profit as disruptions caused by Atlantic hurricanes cost less than investors had feared.

American said it canceled nearly 8,000 flights due to the hurricanes, reducing pretax earnings by about $75 million.

“Despite the significant operational challenges posed by three hurricanes, our team delivered solid financial results,” Parker said in a statement.

Net income fell by 15 percent to $624 million, or $1.28 per share, from $737 million, or $1.40 per share, a year earlier.

On an adjusted basis, American earned $1.42 per share.

Operating revenue rose to $10.88 billion from $10.59 billion.

Analysts, on average, expected quarterly profit of $1.40 per share on revenue of $10.88 billion, according to Thomson Reuters I/B/E/S.

Reporting by Ankit Ajmera in Bengaluru and Alana Wise in New York; Editing by Bernard Orr, Jeffrey Benkoe, Jonathan Oatis and David Gregorio