American leads airlines higher as travel outlook brightens

American Airlines Group Inc. jumped after signaling that a U.S. travel industry rebound is bolstering its financial results more quickly than expected.

Cash generation averaged about $1 million a day during the second quarter, a first for the carrier since the start of the pandemic when it was burning about $100 million daily, American said late Tuesday. Sales will be down about 38% from the level two years earlier, compared with the previous prediction of a 40% drop, according to a regulatory filing.

“We are clearly moving in the right direction,” Chief Executive Officer Doug Parker and President Robert Isom said in a message to employees. “Our revenue and expense performance in the quarter came in better than expectations, and this was achieved while bringing the operation back up to full capacity and safely transporting a record number of travelers.”

American also said it would post a “slight” pretax profit when it reports earnings next week. That comes with a big asterisk since results will be buoyed by about $1.4 billion from the federal airline bailout. But American’s outlook and a Wednesday earnings report from Delta Air Lines Inc. showed that air travel is roaring back thanks to vaccination campaigns, lighter government restrictions and pent-up consumer demand.

“Domestic leisure traffic has fully recovered, and there are green shoots for business and international,” Conor Cunningham, an analyst with MKM Partners, said in a note to clients after Delta’s report.

American jumped 4% to $20.83 at 11:17 a.m. in New York, topping the S&P 500. The shares had gained 72% in the 12 months through Tuesday, the most on a Standard & Poor’s index of major U.S. carriers. Delta fell 1.6% to $40.69.

Airlines are bracing for a crucial test as they try to return to profitability without relying on billions of dollars in government aid to weather the pandemic.

On an adjusted basis, which excludes federal assistance, American is expected to report a loss of $2.24 a share, according to the average of analyst estimates compiled by Bloomberg.

In the second quarter, Delta’s adjusted loss narrowed to $1.07 a share, better than the $1.42 average loss expected by Wall Street. Adjusted revenue of $6.35 billion slightly surpassed analyst estimates. Sales were several times the level a year earlier, in the depths of the pandemic, but still about half what the figure was in 2019.

Delta predicted an earnings rebound in the second half as U.S. business traffic starts to revive this fall, following surprisingly strong summer demand for leisure trips. Corporate travel is poised to recover to 60% of 2019 levels by September, up from 40% in June and 20% in March, Chief Executive Officer Ed Bastian said in an interview.

“It’s accelerating just like we saw in the U.S. with consumers,” Bastian said in an interview. “Then when international markets are open, particularly European markets to the U.S., that’s another big piece of demand.”