American Air sees long road ahead to growing unit revenue

By Jeffrey Dastin

(Reuters) - American Airlines Group Inc (NASDAQ: AAL) on Friday dashed Wall Street's hope that it could turn around a key revenue measure this year, plunging shares of the world's largest airline by 5 percent.

American said it sees more turbulence ahead from a surge in rivals' flights across the Atlantic and from lower prices on trips booked at the last minute.

A closely watched measure - passenger revenue divided by American's plane seats and mileage - is expected to fall between 6 percent and 8 percent in the second quarter, the airline said.

Moves to stop the measure's months-long decline would not have a major impact until 2017, American President Scott Kirby said on an analyst call.

The company has lowered its international growth plans to boost unit revenue and later this year will start selling cheap fares with more restrictions to battle U.S. budget carriers.

"Unilaterally reducing capacity wouldn't get us (passenger unit revenue) positive on its own," Kirby said, noting that American is implementing a new demand forecasting system and tweaking its pricing strategy, among other actions.

Not every initiative has improved results.

For about three months this year, American and other carriers stopped selling special connecting fares that undercut prices on rivals' nonstop flights, according to Kirby. That began to hurt revenue so airlines have added the fares back into the market.

JPMorgan analyst Jamie Baker called the revenue forecast disappointing in a research note. American forecast a pre-tax profit margin between 14 percent and 16 percent for the second quarter, whereas investors were looking for guidance closer to 16 percent, Baker said.

Rivals' shares fell after the news, as investors cast doubts about a stronger forecast last week from Delta Air Lines Inc (NYSE: DAL), which said unit revenue would stop falling this year. Delta fell 1 percent in morning trade, while United Continental Holdings Inc (NYSE: UAL) fell 3 percent.

The forecast also overshadowed American's announcement to buy back another $2 billion of its shares by the end of 2017. American said its share count dropped nearly a quarter since the end of 2013, raising the value of investors' stakes.

The airline said income fell about 25 percent to $700 million in the first quarter from a year ago, in part because it recorded additional non-cash taxes. Excluding special items, it earned $1.25 per share, above analysts' average estimate of $1.19 per share, according to Thomson Reuters I/B/E/S.

(Reporting by Jeffrey Dastin in New York; Editing by Bernadette Baum and Bill Trott)

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