American Airlines Group reports fourth quarter and full year 2018 profit

American Airlines Group Inc. today reported its fourth-quarter and full-year 2018 results, including these highlights:

  • Reported a fourth-quarter 2018 pre-tax profit of $387 million, or $634 million excluding net special items1, and a fourth-quarter net profit of $319 million, or $481 million excluding net special items1,3
  • Reported a full-year 2018 pre-tax profit of $1.9 billion, or $2.8 billion excluding net special items2, and a full-year net profit of $1.4 billion, or $2.1 billion excluding net special items2,3
  • Fourth-quarter earnings were $0.69 per diluted share, or $1.04 per diluted share excluding net special items. Full-year 2018 earnings were $3.03 per diluted share, or $4.55 per diluted share excluding net special items.
  • Accrued $175 million for the company’s profit sharing program in 2018, including $40 million in the fourth quarter
  • Returned $986 million to shareholders in the form of dividends and share repurchases in 2018

“We thank our team for taking care of our customers during the busy holiday travel period. Their efforts led to significant improvements in key operational metrics and great customer service. We also completed a number of important merger integration projects that will serve us well in the future,” Chairman and CEO Doug Parker said.

“We enter 2019 with great momentum. We are intent upon running the most reliable operation in our post-merger history, pursuing high margin growth opportunities at our most profitable hubs, and executing on a number of valuable revenue and cost saving initiatives. We expect our total revenue per available seat mile to grow faster than our network competitors, and to deliver strong pre-tax earnings growth in 2019. At the midpoint of our guidance, 2019 diluted earnings per share excluding special items would increase approximately 40 percent versus 2018.”

Fourth-Quarter Revenue and Expenses

Pre-tax earnings excluding net special items for the fourth quarter of 2018 were $634 million, an $88 million decrease from the fourth quarter of 2017, driven by higher fuel prices.

Continued strength in passenger demand and record passenger yield drove a 3.1 percent year-over-year increase in fourth-quarter 2018 total revenue, to a record $10.9 billion. Driven by a 2.4 percent increase in passenger yield, passenger revenue per available seat mile (PRASM) grew 1.4 percent to 14.59 cents. Cargo revenue was up 3.0 percent to $264 million due to a 9.1 percent increase in yield. Other revenue was up 6.3 percent to $712 million due primarily to higher loyalty revenue. Fourth-quarter total revenue per available seat mile (TRASM) increased by 1.7 percent compared to the fourth quarter of 2017 on a 1.4 percent increase in total available seat miles.

Total fourth-quarter 2018 operating expenses were $10.4 billion, up 4.2 percent year-over-year, driven by a 19.6 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the fourth quarter of 2017, total fourth-quarter 2018 expenses would have been approximately $367 million lower. Total fourth-quarter 2018 cost per available seat mile (CASM) was 15.21 cents, up 2.7 percent from fourth quarter 2017. Excluding fuel and special items, consolidated fourth-quarter CASM was 11.32 cents, down 0.2 percent year-over-year.

Strategic Objectives

American’s long-term success is guided and measured by strategic objectives that ensure a healthy, competitive company for the long term: to create a world-class customer experience, make culture a competitive advantage, and build American Airlines to thrive forever by thinking forward and ensuring a strong financial foundation.

Create a World-Class Customer Experience

American has invested more than $25 billion in its team, product and fleet over the past five years – the largest investment of any carrier in commercial aviation history in such a short time. American continues to make large strides in delivering a world-class experience for its customers. In 2018, American:

  • Activated free live TV, now on 270 aircraft. American continues to be the only U.S. carrier to offer live TV on international flights
  • Expanded high-speed Wi-Fi, now on 570 aircraft, allowing customers to stream movies and TV shows. The rest of American’s long-term narrowbody aircraft will receive high-speed Wi-Fi in 2019
  • Launched service on 86 new routes including 14 new destinations, such as Reykjavik, Iceland; Budapest, Hungary; and Prague, Czech Republic. In 2019, American will become the only U.S. carrier to travel nonstop to Bologna, Italy and Dubrovnik, Croatia
  • Continued to deliver on its product segmentation strategy, expanding Basic Economy to Europe and adding Premium Economy to 103 aircraft. American offers Premium Economy on more aircraft than any other U.S. airline
  • Ordered 47 new Boeing 787s to replace retiring aircraft and keep American’s fleet the youngest among U.S. network airlines
  • Continued to offer a great premium experience on the ground and in the air, including renovating Admirals Club lounges in Miami and Dallas-Fort Worth. In 2019, American will open newly-renovated Admirals Club lounges in Boston, Charlotte and Pittsburgh, as well as a new, world-class premium Flagship Lounge and Flagship First Dining in Dallas-Fort Worth

Make Culture a Competitive Advantage

Taking care of team members translates into better customer care. American’s culture reflects its emphasis on providing the right tools, training and care for its frontline team members. In 2018, American:

  • Started the year by awarding team members $1,000 each as a result of the 2017 Tax Cuts and Jobs Act
  • Gave team members the opportunity to travel across American’s global network with two free round-trip tickets for the airline being named Air Transport World’s 2017 Airline of the Year
  • Completed flight attendant operational integration, allowing flight attendants to fully intermix across the entire fleet. This integration creates improved scheduling options for flight attendants and the airline, and provides greater flexibility and service recovery during irregular operations
  • Supported the victims of the deadly California wildfires, as American team members conducted one of the airline’s largest disaster relief efforts by assembling 20,000 American Red Cross hygiene kits at its Phoenix cargo facility
  • Donated more than $35 million in cash and travel value across the globe in support of military and veteran’s initiatives, health research, disaster response and children’s well-being
  • Awarded $11 million in cash and recognition points through programs that recognize team members for good work supporting customers and colleagues

Build American Airlines to Thrive Forever

American is building a company that we expect to be consistently profitable today and in the future, making decisions to ensure it is financially strong and forward-thinking. In 2018, American:

  • Returned $986 million to shareholders in the form of dividends and share repurchases in 2018
  • Reported the best year ever at American Airlines Cargo, with a record $1 billion in revenue and 2 billion pounds of freight delivered
  • Ended 2018 with approximately $7.6 billion in total available liquidity, comprised of unrestricted cash and investments of $4.8 billion and $2.8 billion in undrawn revolver capacity. The company also had a restricted cash position of $154 million
  • Instituted the One Airline initiative, producing more than $300 million of cost savings in 2018. The One Airline initiative is designed to drive efficiencies and improve margins through simplifying the operation, improving staffing processes, centralizing internal workflows, and optimizing technology resources
  • Invested $3.7 billion in new aircraft, facilities upgrades for customers and team members, continued integration, and fleet modifications including the narrowbody retrofit program, high-speed Wi-Fi and Premium Economy
  • Broke ground on a $1.6 billion modernization project at Terminals 4 and 5 at Los Angeles International Airport, in partnership with Los Angeles World Airports
  • Unveiled the first new section of Terminal B at LaGuardia. The new concourse includes world-class technology, innovation, and best-in-class amenities. American now occupies three of the 11 gates in the new concourse
  • Was named No. 69, ahead of all other commercial airlines, on The Wall Street Journal’s Management Top 250 list
  • Launched a one-step facial recognition program at Los Angeles Terminal 4, which offers an easier airport experience for customers on select international departures

2019 Focus

In 2019, American is focused on growing revenue, implementing cost improvements and running the most reliable operation in its post-merger history.

  • Extensive revenue initiatives – American expects to achieve $1 billion of revenue improvements in 2019 as it benefits from network optimization, merchandising and product segmentation. American leads the industry in Premium Economy, with the product on more aircraft than any other U.S. carrier. Premium Economy will be expanded to American’s full long-term widebody fleet by mid-2019. American will also add a total of 19 new gates at its Dallas-Fort Worth and Charlotte hubs, creating significant new revenue opportunities
  • Significant cost improvements – American’s 2019 initiatives are expected to produce more than $300 million of cost savings compared to 2018 by eliminating post-merger cost redundancies, leveraging technology efficiencies, and implementing changes to network strategy
  • Improve operational reliability – The airline is intensely focused on operational reliability, with efforts specifically targeting on-time departures, turn times and aircraft out of service

Quarterly Dividend

American declared a dividend of $0.10 per share to be paid on Feb. 20, 2019, to stockholders of record as of Feb. 6, 2019.

Guidance and Investor Update

American expects its first-quarter 2019 TRASM to be flat to up approximately 2.0 percent year-over-year. The company also expects its first-quarter 2019 pre-tax margin excluding net special items to be between 2.5 and 4.5 percent.4 Based on today’s guidance, American expects its 2019 diluted earnings per share excluding net special items to be between $5.50 and $7.50.4

Notes

See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of all GAAP to non-GAAP financial information.

  1. In the fourth quarter, the company recognized $247 million in net special items before the effect of income taxes. Fourth-quarter operating special items of $230 million principally included $146 million of fleet restructuring expenses, $81 million of merger integration expenses and $37 million in severance costs associated with reductions in headcount of management and support staff team members. These charges were offset in part by a $37 million net credit resulting from mark-to-market adjustments on bankruptcy obligations. The company also recognized nonoperating special items of $17 million primarily related to mark-to-market net unrealized losses associated with certain equity investments.
  2. For the full year 2018, the company recognized $906 million in net special items before the effect of income taxes. Total operating special items totaled a net charge of $793 million, which principally included $422 million of fleet restructuring expenses, $268 million of merger integration expenses, $58 million in severance costs as described above, a $45 million litigation settlement, and a $26 million non-cash charge to write off the company’s Brazil route authority intangible asset as a result of the U.S.-Brazil open skies agreement. These charges were offset in part by a $76 million net credit resulting from mark-to-market adjustments on bankruptcy obligations. The company also recognized nonoperating special items of $113 million primarily related to mark-to-market net unrealized losses associated with certain equity investments.
  3. The 2018 fourth quarter income tax special credit of $22 million is the result of the reversal of the valuation allowance previously recognized in the 2018 first quarter related to the company’s estimated refund for Alternative Minimum Tax credits, which is no longer subject to sequestration. The 2018 full year income tax special charge of $18 million is related to an international income tax matter.
  4. American is unable to reconcile certain forward-looking projections to GAAP, as the nature or amount of special items cannot be determined at this time.

American Airlines Boeing 737-8 MAX 8 N308RD (msn 44446) MIA (Andy Cripps). Image: 945356.

Copyright Photo: American Airlines Boeing 737-8 MAX 8 N308RD (msn 44446) MIA (Andy Cripps). Image: 945356.

American Airlines aircraft slide show (Boeing):

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