American Airlines Sees Strong Demand as Rivals Cite Weakness

Jul 08, 2014 4:18 pm ET

(Updates with closing share prices in sixth paragraph.)

July 8 (Bloomberg) -- American Airlines Group Inc. sees good worldwide travel demand and no “material pockets of weakness,” a brighter outlook than at European carriers that have cut earnings forecasts.

“Demand globally is strong,” Chief Executive Officer Doug Parker said today as American broke ground on an operations center near its headquarters in Fort Worth, Texas. While some airlines have added seating on trans-Atlantic routes, “capacity has been increasing in response to demand,” he said, not being piled on recklessly to chase market share.

His views contrasted with those of Europe’s two biggest airlines, Air France-KLM Group and Deutsche Lufthansa AG, which have both pared profit projections as excess capacity on long- range routes erodes fares. U.S. airlines rallied from near their intraday lows after Parker spoke.

Parker’s comments probably calmed investors after Air France-KLM’s warning today and one last month from Lufthansa, said Michael Derchin, a CRT Capital Group analyst in Stamford, Connecticut. Compared with European airlines, the U.S. industry is more consolidated and faces less direct competition from Middle Eastern carriers, Derchin said.

“To take something that Air France says or Lufthansa says and extrapolate from that what’s going on with the U.S. airlines is just wrong,” Derchin said.

American rose 0.4 percent, reversing a decline of as much as 5.5 percent, to $40.26 at the close in New York. United Continental Holdings Inc. gained 2.4 percent, the most in the Bloomberg U.S. Airlines Index, to $39.54.

Air France-KLM reduced its full-year forecast today for earnings before interest, tax, depreciation and amortization, singling out overcapacity on North American and Asian routes, poor demand for freight and the fallout from a dispute with Venezuela over currency controls.

Lufthansa lowered its profit projection last month, blaming a surge in capacity among Persian Gulf airlines, a group that includes Emirates.

--With assistance from Andrea Rothman in Toulouse and Michael Sasso in Atlanta.