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What’s going on?

American Airlines announced better-than-expected results on Thursday, as the aviation industry finally wakes up to the brighter tomorrow it’s been waiting for.

What does this mean?

American Airlines has shaken off Omicron with aplomb, reporting that March was its first profitable month since last July, as well as the first month where revenue came in above pre-pandemic levels. Last quarter’s revenue, then, came in more than twice as high as it was the same time last year. This was partly down to the fact that business travel bookings – some of the company’s most profitable flights – hit their highest level since Covid arrived, while international travel demand had picked up considerably by the end of the quarter too. American Airlines is now predicting it’ll return to profit this quarter, which was all investors needed to hear: they initially sent its stock up 11%.

Why should I care?

For markets: Airline stocks are flying high.

American Airlines’ promising forecast isn’t a one-off: both United Airlines and Delta Air Lines have said in the past week that they’re expecting to return to profit this year. It’s an encouraging sign that the entire industry could finally be making a comeback after two years of restrictions and brushes with bankruptcy. That might be why an index tracking some of the worlds’ biggest airlines and plane manufacturers is up 15% in the past two weeks.

The bigger picture: Fail to prepare, prepare to fail.

Demand might finally be coming back, but there could be another bump in the runway in the form of blistering fuel costs. Case in point: American Airlines’ fuel costs were 65% higher last quarter than they were the year before. In fact, every 1 cent increase in price per gallon is estimated to increase its annual costs by $40 million. And while some airlines lock down the price of fuel months in advance, American Airlines – along with Delta and United – hasn’t, suggesting its profit could end up falling short.

Originally Posted April 21, 2022 – Morning People

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