Category Archives: American Airlines Group

American loses $2.2 billion in the first quarter

American Airlines Group Inc. today reported its first-quarter 2020 financial results, including:

  • First-quarter net loss of $2.2 billion, or ($5.26) per share. Excluding net special items1, first-quarter net loss of $1.1 billion, or ($2.65) per share.
  • Ended first quarter with $6.8 billion of available liquidity and expects to end second quarter with approximately $11 billion of liquidity.

“Never before has our airline, or our industry, faced such a significant challenge,” said American Airlines Chairman and CEO Doug Parker. “True to fashion, the American Airlines team has done a phenomenal job taking care of our customers and each other during such difficult and often heartbreaking times. We are incredibly proud of their selflessness and dedication to others.

“We have moved quickly and aggressively to reduce our costs and bolster our liquidity,” Parker continued. “We are particularly grateful for the $5.8 billion in financial assistance American will receive through the Payroll Support Program, and we appreciate the bipartisan congressional and U.S. Department of the Treasury and Department of Transportation support to protect airline jobs and ensure a strong and competitive U.S. airline industry.

“We have a lot of difficult work ahead of us. And while there is still uncertainty in what’s to come, we are confident that through the dedication of the American Airlines team and our swift actions, we will get through this for our team, our customers and our shareholders.”

COVID-19 response

In response to the precipitous drop-off in demand, American has acted quickly to take care of its team members, customers and communities; reduce costs; and improve its liquidity position.

Taking care of team members, customers and communities

Caring for team members, customers and the communities American serves remains at the heart of the airline’s actions in the first quarter.

To ensure the safety of team members and customers, American:

  • Enhanced its cleaning procedures through expanded fogging and the use of an EPA-approved disinfectant in high-touch areas.
  • Purchased face masks for frontline team members and made them required for flight attendants starting May 1.
  • Began distributing sanitizing wipes or gels and face masks to customers. This will expand to all flights as supplies and operational conditions allow.
  • Temporarily relaxed its seating policies and adjusted airport procedures to encourage social distancing.
  • Reduced onboard food and beverage service to limit contact.

To provide customers additional peace of mind, American:

  • Extended waivers for travel occurring through the end of September 2020, enabling customers to change plans and travel through December 2021, and waived change fees for customers who purchase new tickets by May 31, 2020, for future travel.
  • Introduced flexible travel waivers and name changes for corporate customers.
  • Made it easier for top-tier customers to earn AAdvantage® elite status this year.
  • Extended 2020 AAdvantage status into early 2022 for all members.
  • Extended all paid Admirals Club memberships by six months.

To support the communities it serves, American:

  • Launched the company’s first cargo-only flights since 1984 to transport critical goods between the U.S. and Europe, Asia and Latin America. American is currently able to transport more than 6.5 million pounds of critical goods weekly on its cargo-only flights.
  • Donated more than 100 tons of food to food banks in the company’s hub cities.
  • Raised, with customer participation, approximately $3 million for the American Red Cross to support workers on the front lines of the COVID-19 pandemic.
  • Donated thousands of supply kits to patients and health care workers and care packages to U.S. military members in quarantine.

Rightsizing the airline and its cost structure

American estimates a reduction of more than $12 billion in its 2020 operating and capital expenditures, achieved through lower fuel expense and a series of actions. The company:

  • Reduced system capacity by approximately 80% in both April and May, and 70% in June, including schedule changes announced today.
  • Accelerated the retirement of four aircraft types, consisting of 20 Embraer E190s, 34 Boeing 757s, 17 Boeing 767s and nine Airbus A330-300s, along with a number of older regional aircraft. These changes remove operating complexity and bring forward cost savings and efficiencies associated with operating fewer aircraft types.
  • Suspended all nonessential hiring, paused noncontractual pay increases, reduced executive and board compensation, and implemented voluntary leave and early retirement programs to reduce labor costs. In total, nearly 39,000 team members have opted for an early retirement, a reduced work schedule or a partially paid leave.
  • Deferred marketing expenditures and reduced contractor, event and training expenses.
  • Consolidated its footprint at its airport facilities.

Maximizing liquidity

To bolster liquidity, the company:

  • Ended the first quarter with $6.8 billion of available liquidity, including approximately $2 billion raised during the quarter.
  • Obtained the right to access $10.6 billion in financial assistance through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
  • Recently had its unencumbered assets appraised and believes the value of those assets is in excess of $10 billion, excluding the value of the AAdvantage program. The company expects to pledge a portion of its assets as collateral for future financings, including the approximately $4.75 billion secured loan American has applied for under the CARES Act.
  • Suspended its capital return program, including share repurchases and the payment of future dividends, in accordance with the CARES Act.
  • Does not have any large non-aircraft debt maturities for more than 24 months, outside of the recently arranged $1 billion, 364-day delayed draw term loan facility.

American’s average estimated second-quarter 2020 cash burn rate is expected to be approximately $70 million per day. As the company’s cost initiatives gain traction, its estimated daily cash burn rate is expected to decline over time to approximately $50 million per day for the month of June. Based on its current forecast, the company expects to have approximately $11 billion of liquidity at the end of the second quarter.

Conference call and webcast details

The company will conduct a live audio webcast of its earnings call today at 7:30 a.m. CDT, which will be available to the public on a listen-only basis at aa.com/investorrelations. An archive of the webcast will be available on the website through May 31.

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 first quarter of 2020, the company recognized $1.4 billion in net special items before the effect of income taxes. The 2020 first quarter mainline operating special items, net principally included $744 million of fleet impairment charges, which consisted of a $676 million non-cash write-down of aircraft and spare parts and $68 million in write-offs of right-of-use assets and lease return costs associated with the company’s mainline fleet, principally Boeing 757, Boeing 767, Airbus A330-300, and Embraer E190 aircraft, which are being retired earlier than previously planned as a result of the decline in demand for travel due to COVID-19. The company also recognized $218 million of one-time labor contract expenses resulting from the ratification of a new contract with its maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases, and $205 million of salary and medical costs associated with certain team members who opted in to a voluntary early retirement program.

First quarter 2020 regional operating special items, net included an $88 million non-cash write-down of regional aircraft, principally certain Embraer E140 and Bombardier CRJ200 aircraft, which are being retired earlier than previously planned as a result of the decline in demand for travel due to COVID-19.

In addition, the company recognized $217 million in nonoperating net special items in the first quarter of 2020, which principally included mark-to-market net unrealized losses associated with certain equity investments and treasury rate lock derivative instruments.

American Airlines announces summer schedule changes to match reduced customer demand related to COVID-19

American Airlines Group Inc. will make further capacity cuts this summer to address record low customer demand. The airline will:

  • Suspend more than 60% of international capacity for the peak summer travel season versus the same period last year.
  • Delay the launch of new routes, including service from Philadelphia (PHL) to Casablanca (CMN), Chicago (ORD) to Krakow (KRK) and Seattle (SEA) to Bangalore (BLR) to 2021.
  • Delay the launch of new winter seasonal service from Los Angeles (LAX) to Christchurch (CHC) and from Dallas-Fort Worth (DFW) to Auckland (AKL) to winter 2021.
  • Suspend 25 total summer seasonal flights until summer 2021.

Summer and winter capacity will be reduced

American will suspend more than 60% of its total international capacity this summer compared to the same peak period in 2019, which includes an 80% reduction in Pacific capacity, 65% reduction in Atlantic capacity and 48% reduction in Latin America capacity. These changes are due to significantly decreased customer demand as well as government travel restrictions — both related to the coronavirus (COVID-19) pandemic. The reduced summer schedule, as well as the previously announced domestic schedule reductions for May, will be reflected on aa.com starting Sunday, April 5.

The airline previously announced that new service to AKL from DFW, CHC from LAX and BLR from SEA would all begin in October 2020, but American will now begin operating those routes in winter 2021. The resumption of existing service to AKL from LAX — which was originally slated to resume in early October 2020 — will now resume at the end of October 2020.

American will further extend the start date of new routes. Service to London (LHR) from Boston (BOS) will now launch in October 2020 and service to Tel Aviv (TLV) from DFW will begin in September 2021. Service to CMN from PHL and KRK from ORD will not launch this year, as well as 23 existing summer seasonal routes.

A full list of changes to the international summer schedule is below. There are no further changes at this time.

Updated Asia Pacific schedules:

Origin Destination Schedule change
DFW Auckland (AKL) Inaugural flight moves to winter 2021
DFW Hong Kong (HKG) Service resumes July 7
DFW Tokyo-Haneda (HND) Inaugural flight moves to July 7
DFW Seoul (ICN) Service resumes July 7
DFW Beijing (PEK) Service resumes Oct. 25
DFW Shanghai (PVG) Service resumes Oct. 25
LAX AKL Seasonal service resumes Oct. 25
LAX Christchurch (CHC) Inaugural flight moves to winter 2021
LAX HKG Service resumes Oct. 25
LAX HND Service resumes July 7; twice-daily service resumes October 25
LAX PEK Service resumes Oct. 25
LAX PVG Service resumes Oct. 25
LAX Sydney (SYD) Service resumes Oct. 23

Updated Europe and Africa schedules

The following routes will begin operating later this year

Origin Destination Schedule change
BOS London (LHR) Inaugural flight moves to October 25
CLT LHR Service resumes July 7; twice-daily service resumes October 2020
CLT Frankfurt (FRA) Service resumes Oct. 25
CLT Munich (MUC) Service resumes July 7
DFW Amsterdam (AMS) Service resumes June 4
DFW Munich (MUC) Service resumes July 7
DFW Dublin (DUB) Service resumes July 7
DFW Frankfurt (FRA) Service resumes June 4
JFK Barcelona (BCN) Service resumes Oct. 25
JFK Paris (CDG) Service resumes July 7
JFK LHR Service resumes June 4
JFK Madrid (MAD) Service resumes July 7
JFK Milan (MXP) Service resumes Oct. 25
LAX LHR Service resumes June 4
MIA BCN Service resumes Oct. 25
MIA CDG Service resumes Oct. 25
MIA MAD Service resumes July 7
MIA Milan (MXP) Service resumes Oct. 25
ORD Athens (ATH) Service resumes June 4
ORD BCN Service resumes July 7
ORD DUB Service resumes June 4
ORD LHR Service resumes June 4
PHL AMS Service resumes Oct. 7
PHL BCN Service resumes Oct. 25
PHL CDG Service resumes Oct. 25
PHL DUB Service resumes Oct. 7
PHL Rome (FCO) Service resumes Oct. 25
PHL LHR Service resumes June 4
PHL MAD Service resumes July 7
PHL Manchester (MAN) Service resumes Oct. 25
PHL Zurich (ZRH) Service resumes July 7
PHX LHR Service resumes Oct. 7
RDU LHR Service resumes June 4

The following routes will not operate this summer season

Origin Destination
CLT BCN
CLT CDG
CLT DUB
CLT FCO
CLT MAD
DFW FCO
DFW MUC
JFK FCO
ORD Budapest (BUD)
ORD CDG
ORD FCO
ORD Krakow (KRK)
ORD Prague (PRG)
ORD Venice (VCE)
PHL ATH
PHL BUD
PHL Casablanca (CMN)
PHL Dubrovnik (DBV)
PHL Edinburgh (EDI)
PHL Reykjavík (KEF)
PHL Lisbon (LIS)
PHL PRG
PHL Shannon (SNN)
PHL Berlin (TXL)
PHL VCE

Updated Latin America schedules:

Origin Destination Schedule change
DFW Buenos Aires (EZE) Service resumes Oct. 25
DFW São Paulo (GRU) Service resumes July 7
DFW Lima (LIM) Service resumes July 7
DFW Santiago (SCL) Service resumes Oct. 25
JFK EZE Service resumes June 4
JFK Rio de Janeiro (GIG) Service resumes Dec. 17
JFK GRU Service resumes June 4
LAX EZE Service resumes Oct. 25
LAX GRU Service resumes Oct. 25
MIA Brasilia (BSB) Service resumes Oct. 25
MIA EZE Service resumes May 7; twice-daily service resumes Oct. 25
MIA GIG Service resumes June 4
MIA GRU Service resumes May 7; twice-daily service resumes Oct. 25
MIA SCL Service resumes May 7

American Airlines aircraft photo gallery (Boeing):

American Airlines Group reports fourth quarter and full-year 2019 profit

American Airlines Group Inc. today reported its fourth-quarter and full-year 2019 financial results, including these highlights:

  • Fourth-quarter 2019 earnings were $0.95 per diluted share. Excluding net special items1, earnings were $1.15 per diluted share, up 19% year over year.
  • Full-year 2019 earnings were $3.79 per diluted share. Excluding net special items2, earnings were $4.90 per diluted share, up 8% year over year.
  • Accrued $213 million for the company’s profit-sharing program in 2019, including $74 million in the fourth quarter.
  • Returned $1.3 billion to shareholders in the form of dividends and share repurchases in 2019.

“During the fourth quarter, we made important progress to address the issues that impacted our business in 2019, and, thanks to our incredible team, we ended the year with our strongest operational quarter on record,” said American Airlines Chairman and CEO Doug Parker.

“While our results for the quarter reflect this progress, we know there is more work to be done. Looking to 2020, we are focused on three key areas. First, we will continue to deliver operational excellence and build on our strong fourth-quarter results. Our team has done a tremendous job, and we will keep driving improvement in key operational metrics in the year ahead. Second, we will deliver those results while growing where we have a competitive advantage in our most profitable hubs. And third, these initiatives combined with our capital plan will enable us to drive significant free cash flow in 2020 and beyond.”

Fourth-Quarter Revenue and Expenses

Pre-tax earnings were $571 million in the fourth quarter of 2019. Pre-tax earnings excluding net special items for the fourth quarter of 2019 were $679 million, a $90 million increase from the fourth quarter of 2018, or 15.1% year-over-year increase from the same period last year.

GAAP Non-GAAP1 GAAP Non-GAAP2
4Q19 4Q18 4Q19 4Q18 FY19 FY18 FY19 FY18
Operating income ($ mil) 729 571 876 749 3,065 2,656 3,706 3,449
Pre-tax income ($ mil) 571 394 679 589 2,256 1,884 2,900 2,790
Pre-tax margin 5.0% 3.6% 6.0% 5.4% 4.9% 4.2% 6.3% 6.3%
Net income ($ mil) 414 325 502 448 1,686 1,412 2,179 2,117
Earnings per diluted share $0.95 $0.70 $1.15 $0.97 $3.79 $3.03 $4.90 $4.55

Continued strength in passenger demand and a record passenger load factor drove a 3.4% year-over-year increase in fourth-quarter 2019 total revenue to a record $11.3 billion. Driven by a 2.4% increase in passenger load factor, passenger revenue per available seat mile (PRASM) grew 0.9% to 14.72 cents, a record for the fourth quarter. Cargo revenue was down 18.3% to $216 million due primarily to a 15.6% decline in cargo volume. Other revenue was up 5.4% to $750 million due primarily to higher loyalty revenue. Fourth-quarter total revenue per available seat mile (TRASM) increased by 0.5% compared to the fourth quarter of 2018 on a 2.9% increase in total available seat miles.

Total fourth-quarter 2019 operating expenses were $10.6 billion, up 2.1% year over year, driven primarily by higher salaries and benefits, maintenance, and regional expenses. Total fourth-quarter 2019 cost per available seat mile (CASM) was 15.06 cents, down 0.8% from fourth-quarter 2018. Excluding fuel and net special items, consolidated fourth-quarter CASM was 11.59 cents, up 2% year over year.1

2020 Priorities

In 2020, American is focused on operational excellence, efficient and profitable growth, and generating significant free cash flow.

  • Operational excellence: Running a reliable operation is a significant driver of customers’ likelihood to recommend and American’s goal to become customers’ airline of choice.
  • Efficient and profitable growth: Grow in high-revenue markets that produce at or above average unit revenues, largely due to new gates in Dallas-Fort Worth and Charlotte, North Carolina.
  • Generating significant free cash flow3: Use free cash flow to naturally de-lever the company’s balance sheet and return capital to American’s shareholders.

Operational Excellence

Over the past several months, American’s operational performance has shown significant improvement, including the company’s best-ever performance for both the holiday peak travel period and the entire fourth quarter of 2019. American achieved record results for combined mainline and regional on-time departures, on-time arrivals and completion factor.

“We are very pleased with the trajectory of our operation and are well on our way to delivering operational excellence,” said American Airlines President Robert Isom. “As we look ahead to 2020, we will continue to strengthen our operation and expect to see continued improvements in our reliability metrics.”

Efficient and Profitable Growth

American is committed to growing its network efficiently and profitably. In 2019, the company added 15 new gates at Dallas Fort Worth International Airport. This growth resulted in a 21% increase in city pairs served and strong unit revenue. The company also added four new gates at Charlotte Douglas International Airport, with plans for three additional gates beginning in 2020. In addition, the company expects to upgauge 14 gates at Ronald Reagan Washington National Airport with dual-class regional jets when the new regional concourse opens in 2021.

Significant Free Cash Flow, Share Repurchases and Dividends

With American’s historic fleet renewal program winding down, the company’s level of capital investment is expected to decline. The company is committed to generating significant free cash flow for its shareholders in 2020 and beyond and presently expects to generate approximately $6 billion in free cash flow3 over the next two years.

In the fourth quarter of 2019, American returned $285 million to shareholders through the repurchase of 9.9 million shares of common stock and also paid $44 million in dividends. As of Dec. 31, 2019, the company had $565 million remaining of its existing $2 billion share repurchase authorization.4 In aggregate, American has returned more than $13.5 billion to shareholders over the past five years through share repurchases and dividends, including $1.3 billion in 2019.

American declared a dividend of $0.10 per share to be paid Feb. 19, 2020, to stockholders of record as of Feb. 5, 2020.

Fleet Update

On March 13, 2019, a directive from the Federal Aviation Administration grounded all U.S.-registered Boeing 737 MAX aircraft. American’s fleet currently includes 24 MAX aircraft with an additional 76 aircraft on order. As a result of this directive, American canceled approximately 10,000 flights in the fourth quarter of 2019.

The company has removed all MAX flying from its flight schedule through June 3, 2020, and will continue to asses this timeline.

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 of 2019, the company recognized $108 million in net special items before the effect of income taxes. The 2019 fourth quarter mainline operating special items, net principally included $85 million of merger integration expenses and $39 million of fleet restructuring expenses. These were partially offset by nonoperating net special items of $39 million primarily related to mark-to-market net unrealized gains associated with certain equity and other investments.
2 For the full year 2019, the company recognized $644 million in net special items before the effect of income taxes. Total operating special items totaled a net charge of $641 million, which principally included $271 million of fleet restructuring expenses, a $213 million non-cash impairment charge principally related to the planned retirement of the company’s Embraer E190 fleet, and $191 million of merger integration expenses, offset in part by a $53 million credit to reduce certain litigation reserves. The company also recognized $3 million of nonoperating net special items.
3 Free cash flow is defined as operating cash flow minus total capital expenditures plus proceeds from sale-leaseback transactions.
4 Share repurchases under the company’s repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases that may be made from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The company is not obligated to repurchase any specific number of shares and its repurchase of AAG common stock may be limited, suspended or discontinued at any time at its discretion and without prior notice.
5 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 and Japan Airlines to add direct flights between Tokyo and Las Vegas in support of CES 2020

American Airlines Boeing 777-223 ER N774AN (msn 29581) LAX (Michael B. Ing). Image: 947034.

American Airlines and Pacific Joint Business partner Japan Airlines (JAL) for the second year are adding direct flights between Tokyo (NRT) and Las Vegas (LAS) to support the high demand for CES® 2020. American is also adding nonstop flights from Austin, Texas (AUS), and San Jose, California (SJC), and upgauging existing flights from Philadelphia (PHL) and Dallas-Fort Worth (DFW) to LAS surrounding the main event, which runs January 4–12, 2020.

Tokyo demand

“As CES continues to grow each year, we will continue to deliver on our promise to strengthen the value of our global network,” said Vasu Raja, American’s Vice President of Network and Schedule Planning.

This will be the second year that American is providing direct access to LAS from NRT in support of CES. The flight will be operated on a Boeing 777-200 aircraft, featuring 36 fully lie-flat, all-aisle access Flagship Business seats that provide customers access to The Club at LAS to freshen up upon arrival or relax before departing.

Flight times between NRT and LAS will provide a seamless connection onto JAL’s network to and from Southeast Asia, including Singapore; Bangkok; Jakarta, Indonesia; and Manila, Philippines.

Domestic demand

American is also adding direct flights from major tech cities Austin and San Jose for the first time, offering additional service to fly next-generation innovators to the conference. Both flights will be operated on a Boeing 737-800 with optimal schedules and convenience for CES attendees.

“Whether it’s customers taking advantage of the direct flight from Austin or connecting on a lie-flat product all the way from South America to Las Vegas, we want to make sure the world’s best innovators have options on the world’s largest carrier,” Raja said.

In addition to the new direct service in January, two flights from American’s hubs — PHL and DFW — will be upgauged to an Airbus A330 and a 777-200, respectively, for an 18% increase in seats domestically. As American’s largest trans-Atlantic hub, PHL will provide more seats for customers connecting from Europe.

Tickets will be available for purchase on July 22.

New Service to LAS (all times are local):

Direct service:

Flight Number Depart Arrive First Departure Last Departure Departure Time Arrival Time Operating days Aircraft
AA186 NRT LAS Jan. 4 Jan. 12 6:20 p.m. 11:35 a.m. Mon., Wed., Thur., Sat. 777-200
AA187 LAS NRT Jan. 4 Jan. 12 11:15 a.m. 4:15 p.m. (next day) Mon., Wed., Sat. 777-200
Flight Number Depart Arrive First Departure Last Departure Departure Time Arrival Time Operating days Aircraft
AA186 NRT LAS Jan. 4 Jan. 12 6:05 p.m. 11:20 a.m. Tues., Fri., Sun. 777-200
AA187 LAS NRT Jan. 4 Jan. 12 10:30 a.m. 3:30 p.m. (next day) Tues., Thurs., Fri., Sun 777-200
Flight Number Depart Arrive First Departure Last Departure Departure Time Arrival Time Aircraft
AA1465 SJC LAS Jan. 6 Jan. 6 2:13 p.m. 3:43 p.m. 737-800
AA1465 LAS SJC Jan. 10 Jan. 10 6:55 p.m. 8:25 p.m. 737-800
Flight Number Depart Arrive First Departure Last Departure Departure Time Arrival Time Aircraft
AA1534 AUS LAS Jan. 6 Jan. 6 5:30 p.m. 6:40 p.m. 737-800
AA1534 LAS AUS Jan. 10 Jan. 10 5:25 p.m. 10:10 p.m. 737-800

Upgauged service:

Flight Number Depart Arrive First Departure Last Departure Departure Time Arrival Time Aircraft
AA589 PHL LAS Jan. 4 Jan. 6 5:50 p.m. 8:18 p.m. A330
AA749 LAS PHL Jan. 9 Jan. 11 8:05 a.m. 3:53 p.m. A330
Flight Number Depart Arrive First Departure Last Departure Departure Time Arrival Time Aircraft
AA2238 DFW LAS Jan. 4 Jan. 12 7:10 a.m. 8 a.m. 777-200
AA749 LAS DFW Jan. 4 Jan. 12 2 p.m. 6:50 p.m. 777-200

Top Copyright Photo: American Airlines Boeing 777-223 ER N774AN (msn 29581) LAX (Michael B. Ing). Image: 947034.

American Airlines aircraft slide show:

American Airlines Group reports first quarter 2019 profit, details MAX 8 impact

American Airlines Boeing 737-8 MAX 8 N303RE (msn 44447) FLL (Andy Cripps). Image: 945355.

American Airlines Group Inc. today reported its first quarter 2019 results, including these highlights:

  • Reported a first-quarter 2019 pre-tax profit of $245 million, or $314 million excluding net special items1, and a first-quarter net profit of $185 million, or $237 million excluding net special items1
  • First-quarter earnings were $0.41 per diluted share, or $0.52 per diluted share excluding net special items1
  • Reported record first-quarter revenue of $10.6 billion. Also reported record first-quarter total revenue per available seat mile (TRASM) — the 10th consecutive quarter of TRASM growth
  • Returned $646 million to shareholders in the form of dividends and share repurchases in the first quarter

“We want to thank our 130,000 team members for the outstanding job they did to take care of our customers, despite the challenges with our fleet during the quarter. Their hard work led American to record revenue performance under difficult operating conditions,” said Chairman and CEO Doug Parker.

“As we progress toward the busy summer travel period, demand for our product remains strong. However, our near-term earnings forecast has been affected by the grounding of our Boeing 737 MAX fleet, which we have removed from scheduled flying through Aug. 19. We presently estimate the grounding of the 737 MAX will impact our 2019 pre-tax earnings by approximately $350 million. With the recent run-up in oil prices, fuel expenses for the year are also expected to be approximately $650 million higher than we forecast just three months ago.

“Even with these challenges, we expect our 2019 earnings per diluted share excluding net special items2 to grow approximately 10% versus 2018,” Parker continued. “As we look forward to 2020 and beyond, we anticipate that our free cash flow production will increase significantly as our historic fleet replacement program winds down. We are very bullish on our future and focused on creating value for our shareholders.”

First-Quarter Revenue and Expenses

Pre-tax earnings excluding net special items for the first quarter of 2019 were $314 million, a $149 million decrease from the first quarter of 2018.

GAAP Non-GAAP1
1Q19 1Q18   1Q19 1Q18
Operating income ($ mil) 375 396 513 621
Pre-tax income ($ mil) 245 238 314 463
Pre-tax margin 2.3% 2.3% 3.0% 4.4%
Net income (loss) ($ mil) 185 159 237 353
Earnings (loss) per diluted share $ 0.41 $ 0.34 $ 0.52 $ 0.74

Strong passenger demand drove a 1.8% year-over-year increase in first-quarter 2019 total revenue, to a first-quarter record $10.6 billion. Driven by a record first-quarter total passenger load factor of 82.2%, passenger revenue per available seat mile (PRASM) grew 0.6% to 14.49 cents. Cargo revenue decreased 4% to $218 million due in part to a 9.1% decrease in cargo ton miles. Other revenue was up 1.9% to $708 million due primarily to higher loyalty revenue. First-quarter TRASM increased by 0.5% to a record 15.87 cents on a 1.3% increase in total available seat miles. This marks the 10th consecutive quarter of TRASM growth for American.

Total first-quarter 2019 operating expenses were $10.2 billion, up 2% year-over-year. Total operating cost per available seat mile (CASM) was 15.31 cents in the first quarter of 2019, up 0.7% from first-quarter 2018. Excluding fuel and special items, first-quarter CASM was 11.88 cents, up 2.7% year-over-year, driven primarily by a higher volume of heavy maintenance checks.

Fleet Update

On March 7, the company announced the unplanned removal of 14 737-800 aircraft from service for remediation work following the installation of new aircraft interiors. This resulted in the cancellation of approximately 940 flights in the first quarter. Work on these aircraft has been completed and all aircraft have been returned to service.

In addition, on March 13, the Federal Aviation Administration (FAA) grounded all U.S.-registered 737 MAX aircraft. The American fleet currently includes 24 737 MAX 8 aircraft with an additional 76 aircraft on order. As a result, American canceled approximately 1,200 flights in the first quarter.

In aggregate, the company estimates that these grounded aircraft and associated flight cancellations impacted its first quarter pre-tax income by approximately $80 million.

The company has removed all 737 MAX flying from its flight schedule through Aug. 19, which is approximately 115 flights per day. These flights represent approximately 2% of American’s total capacity each day this summer. Although these aircraft represent a small portion of the company’s total fleet, its financial impact is disproportionate as most of the revenue from the cancellations is lost while the vast majority of the costs remain in place. In total, the company presently expects the 737 MAX cancellations, which are assumed to extend through Aug. 19, to impact its 2019 pre-tax earnings by approximately $350 million.

Strategic Objectives

American’s success is guided by three strategic objectives: Make culture a competitive advantage, create a world-class customer experience and build American Airlines to thrive forever.

Make Culture a Competitive Advantage

Taking care of team members translates into better customer care. We continue to invest in improved tools, training and support for team members and in the first quarter, American:

  • Opened a new 191,000-square-foot hangar in Chicago (ORD), reopened Tulsa Hangar 2 Dock 2D following its modification to accommodate larger aircraft and announced plans to hire 250 new aviation maintenance technicians (AMTs) this summer.
  • Hosted more than 5,000 leaders at the airline’s Annual Leadership Conference in Dallas. Team members who oversee people spent a full day learning about American’s mission to care for people on life’s journey.
  • Accrued $20 million for the company’s profit-sharing program.
  • Honored 100 team members at the company’s Annual Chairman’s Award celebration in Dallas earlier this month.
  • Raised $1.4 million for the Cystic Fibrosis Foundation.
  • Received recognition as a leader among U.S. companies in LGBTQ workplace policies for the 17th year in a row through the airline’s highest rating from the Human Rights Campaign in the 2019 Corporate Equality Index.

Create a World-Class Customer Experience

American has invested more than $28 billion in its people, product and fleet over the past five years — the largest investment of any carrier in commercial aviation history over this period. In the first quarter, American:

  • Took delivery of 15 new aircraft, including its first two Airbus A321neos, a fuel-efficient aircraft that has power at every seat, larger overhead bins and free wireless entertainment to each customer’s own device, including free live television.
  • Partnered with Apple Music to offer complimentary Wi-Fi access for customers to stream from their personal Apple Music accounts. Customers with Apple Music subscriptions can access their playlists for free onboard any domestic flight equipped with ViaSat satellite Wi-Fi.
  • Introduced new partnerships with Blade, offering helicopter transfers in Los Angeles (LAX) and New York (JFK), and The Private Suite at LAX, offering off-terminal entrance and private screening service.
  • Opened a newly renovated Terminal B in Boston (BOS) and a newly renovated Admirals Club in Concourse B in Charlotte (CLT).
  • Provided AAdvantage members more ways to earn miles with its enhanced relationship with Hyatt Hotels. Through this relationship, elite members in both the AAdvantage and World of Hyatt loyalty programs will be rewarded with more ways to earn points, miles and status on qualifying American flights and stays at Hyatt Hotels.

Build American Airlines to Thrive Forever

With a nearly 100-year legacy, American is building a company that we expect to be consistently profitable today and in the future. This long-term initiative was furthered during the quarter as American:

  • Returned $646 million to shareholders through the repurchase of 16.7 million shares and the payment of $46 million in dividends. The company has $1.1 billion remaining of its existing $2 billion share repurchase authorization3.
  • Expanded the codeshare and began offering reciprocal frequent flyer benefits with China Southern Airlines.
  • Submitted an application to the U.S. Department of Transportation (DOT) that proposes additional service to Tokyo Haneda (HND) from LAX, Dallas-Fort Worth (DFW) and Las Vegas (LAS). These slots would provide American’s customers better access to downtown Tokyo and to the domestic network of its Pacific Joint Business partner, Japan Airlines.
  • Announced a planned co-location with British Airways at Terminal 8 at JFK giving customers a unified experience. American and British Airways will invest $344 million in Terminal 8 over the next three years to prepare for the co-location expected in 2022.
  • Resubmitted an application to the DOT seeking approval of its joint business agreement with LATAM Airlines Group.

Quarterly Dividend

American declared a dividend of $0.10 per share to be paid on May 22, to stockholders of record as of May 8.

Guidance and Investor Update

American expects its second-quarter 2019 TRASM to be up 1% to 3% year over year. The company also expects its second-quarter 2019 pre-tax margin excluding net special items to be between 7% and 9%2. Based on today’s guidance, American now expects its 2019 diluted earnings per share excluding net special items to be between $4.00 and $6.002.

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 first quarter, the company recognized $69 million in net special items before the effect of income taxes. First-quarter operating special items, consisting of $138 million in net charges, principally included $83 million of fleet restructuring expenses and $37 million of merger integration expenses. The company also recognized nonoperating special items, consisting of $69 million in net credits, principally related to mark-to-market net unrealized gains associated with certain equity investments.
  2. 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.
  3. Share repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The company is not obligated to repurchase any specific number of shares or continue a dividend in any amount or for any fixed period, and either may be suspended or discontinued at any time at the company’s discretion and without prior notice.

Top Copyright Photo (all others by the airline): American Airlines Boeing 737-8 MAX 8 N303RE (msn 44447) FLL (Andy Cripps). Image: 945355.

American aircraft slide show:

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):

Embraer and American Airlines sign a new contract for 15 E175s, total now 104

American Eagle (2nd)-Envoy Embraer ERJ 170-200LR (ERJ 175) N223NN (msn 17000529) YYZ (TMK Photography). Image: 937819.

Embraer and American Airlines Inc. signed a firm order for 15 E175 jets in a 76-seat configuration. The contract has a value of $705 million, based on current list prices, and will be included in Embraer’s 2018 fourth-quarter backlog. Deliveries will take place in 2020.

Combined with the airline’s previous orders for the E175, this new contract results in a total of 104 E175 jets for American Airlines since 2013. The most recent order took place in May 2018 for 15 aircraft.

American Airlines selected Envoy, a wholly owned subsidiary of American Airlines Group, to operate the 15 aircraft, which will be configured with a total of 76 seats, being 12 in First Class and 64 in Main Cabin, including Main Cabin Extra seats.

Including this new contract, Embraer has sold more than 435 E175s to airlines in North America since January 2013, earning more than 80% of all orders in this 76-seat jet segment.

Embraer is the world’s leading manufacturer of commercial jets up to 150 seats. The Company has 100 customers from all over the world operating the ERJ and E-Jet families of aircraft. For the E-Jets program alone, Embraer has logged more than 1,800 orders and 1,400 deliveries, redefining the traditional concept of regional aircraft.

Top Copyright Photo (all others by Envoy): American Eagle (2nd)-Envoy Embraer ERJ 170-200LR (ERJ 175) N223NN (msn 17000529) YYZ (TMK Photography). Image: 937819.

American Eagle-Envoy aircraft slide show:

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American Airlines Group reports third quarter 2018 profit

American Airlines Boeing 787-9 Dreamliner N830AN (msn 40650) LAX (Michael B. Ing). Image: 944058.

American Airlines Group Inc. (American Airlines) today reported its third-quarter results, including these highlights:

  • Reported a third-quarter 2018 pretax profit of $456 million, or $688 million excluding net special items1, and a third-quarter net profit of $341 million, or $523 million excluding net special items
  • Third-quarter 2018 earnings were $0.74 per diluted share, or $1.13 per diluted share excluding net special items
  • Returned $46 million to shareholders in the form of dividends during the third quarter

“Strong demand for American’s service led to record revenue in the third quarter and our eighth consecutive quarter of unit revenue growth. Our team continues to do an outstanding job of taking care of our customers, including during difficult situations such as Hurricanes Florence and Michael,” said Chairman and CEO Doug Parker. “Unfortunately, higher fuel prices increased our expenses by approximately $750 million versus the third quarter of 2017, which led to a decline in earnings.

“We have moved quickly to adapt to the higher cost environment with lower planned capacity growth, the cancellation of unprofitable flying, deferral of new aircraft deliveries and continued aggressive cost management. We have significant revenue growth opportunities through initiatives such as expanded product segmentation, harmonization of aircraft configurations and high-margin growth prospects in our most profitable hubs. We are confident these actions will return American to both revenue outperformance and earnings growth in 2019 and beyond, and we remain very bullish on the future of American Airlines.”

Third-Quarter Revenue and Expenses

Pretax earnings excluding net special items for the third quarter of 2018 were $688 million, a $485 million decrease from the third quarter of 2017, driven by higher fuel prices. In addition, the company’s third-quarter pretax earnings were negatively impacted by Hurricane Florence by approximately $50 million.

GAAP Non-GAAP1
3Q18
3Q17
3Q18
3Q17
Total operating revenues ($ mil) $  11,559 $  10,965 $  11,559 $  10,965
Total operating expenses ($ mil) 10,910 9,709  10,693 9,602
Operating income ($ mil)   649   1,256   866   1,363
Pre-tax income ($ mil)   456   1,063   688   1,173
Pre-tax margin 3.9 % 9.7 % 6.0 % 10.7 %
Net income ($ mil)   341   661   523   729
Earnings per diluted share $   0.74 $   1.36 $   1.13 $   1.50

 

Strong demand for air travel drove a 5.4 percent year-over-year increase in third-quarter 2018 total revenue, to a record $11.6 billion. Passenger revenue per available seat mile (PRASM) grew 1.8 percent, driven by a 2.2 percent increase in passenger yields. Cargo revenue was up 16.4 percent to $260 million due to a 12.1 percent increase in yield and a 3.8 percent increase in volume. Other revenue was up 14.5 percent to $738 million due primarily to higher loyalty revenue. Third-quarter total revenue per available seat mile (TRASM) increased by 2.6 percent compared to the third quarter 2017 on a 2.7 percent increase in total available seat miles.

The improvement in revenue was offset by the significant increase in fuel prices. Total third-quarter 2018 operating expenses were $10.9 billion, up 12.4 percent year-over-year, driven by a 42.6 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the third quarter of 2017, total third-quarter 2018 expenses would have been approximately $750 million lower. Total third-quarter 2018 cost per available seat mile (CASM) was 14.54 cents, up 9.4 percent from third quarter 2017. Excluding fuel and special items, consolidated third-quarter CASM was 10.60 cents, up 0.8 percent year-over-year.

Strategic Objectives

American is focused on four strategic objectives to ensure a healthy, competitive company for the long-term that includes world-class service, a focus on its team, revenue and cost initiatives, and innovative thinking. The company continued to deliver on these objectives in the third quarter.

Create a World-Class Customer Experience

Delivering a world-class customer experience includes operating reliably, building a strong network, continually raising the bar on product offerings and making it easy for customers to do business with American. During the third quarter, American:

  • Expanded the world’s largest network to even more destinations. American announced planned service to Berlin (TXL); Bologna, Italy (BLQ); and Dubrovnik, Croatia (DBV). American will be the only airline to serve Bologna and Dubrovnik from North America.
  • Made significant improvements in onboard technology by:
    • Activating live TV on domestic aircraft, with 12 free channels available in all cabins. Live TV is rolling out throughout the airline’s domestic mainline fleet in 2019. American already offers live TV on its long-haul international flights, the only U.S. airline to do so.
    • With 380 aircraft complete, just over half of American’s domestic mainline aircraft now offer high-speed Wi-Fi. The entire long-term mainline fleet will be complete by mid-2019.
  • Continued updating food offerings to reflect evolving consumer tastes. American entered into an exclusive partnership with Zoës Kitchen to offer healthy choices beginning Dec. 1 and added a vegan option on transcontinental flights.
  • Received APEX recognition as a Five Star Global Airline. The Airline Passenger Experience Association, which bases its awards on anonymous passenger feedback on overall flight experience, awarded American its highest rating for in-seat comfort, cabin service, food and beverage, entertainment and Wi-Fi connectivity.

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. During the third quarter, American:

  • Fully integrated the best flight attendant team in the business. With its largest and most complex integration project to-date now complete, flight attendants are now able 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.
  • Accrued $43 million in profit sharing during the third quarter and $135 million for the first nine months of 2018.
  • Reopened the newly redesigned CR Smith Museum to showcase the men and women who make American run and to encourage young people to aspire to careers in aviation. The museum’s interactive displays include an MD-80 cockpit, an Airline Command Center where visitors make operational decisions and a baggage loader where visitors can try their hand at loading bags in record time.
  • Supported relief partner efforts after recent hurricanes. The American Red Cross and the North Carolina Community Foundation Disaster Relief Fund received $300,000 each as American and its customers stepped forward to ease the burdens of Carolinians impacted by Hurricane Florence. In addition, team members in Miami and Chicago have planned large-scale assembly projects that will send 5,000 hygiene comfort kits and 75,000 pounds of food to areas impacted by the recent natural disasters.
  • Celebrated being an inclusive and diverse employer by honoring four team members with the 10th annual Earl G. Graves Award for Leadership in Diversity & Inclusion. American also awarded Morgan State University in Baltimore a $10,000 education grant as part of the 10th anniversary commemoration. For the third year in a row, the airline was named among the 2018 DEI Best Places to Work for Disability Inclusion and received the top score of 100 on the 2018 Disability Equality Index.
  • Supported the Stand Up To Cancer telecast with 94 team members, all of whom have been personally impacted by cancer. These team members from around the world came together at our Los Angeles maintenance hangar to film a music video that aired during the telecast, which raised $123.6 million.

Ensure Long-Term Financial Strength

Long-term strength is realized by capturing merger efficiencies, improving unit revenue performance, and increasing margin performance. During the third quarter, American:

  • Returned $46 million in dividends to shareholders and declared a dividend of $0.10 per share on Oct. 25, 2018, to be paid on Nov. 20, 2018, to stockholders of record as of Nov. 6, 2018.
  • Updated the youngest fleet of the network airlines with more aircraft deliveries, including three new more efficient Boeing 787-9 aircraft (top) and four new Boeing 737 MAX 8s.
  • Lowered planned capital expenditures in 2019, 2020, and 2021 by $1.2 billion, by deferring delivery of 22 Airbus A321neos.
  • Evolved its segmentation strategy by:
    • Removing the carry-on bag restriction from domestic and short-haul international Basic Economy fare rules. This action makes the airline’s Basic Economy product more competitive and enables the airline to offer it on more flights.
    • Continuing the installation of Premium Economy, now on 92 widebody aircraft with expected completion by mid-2019. Main Cabin customers continue to select this highly differentiated product and the company expects to drive more value from this product with new revenue management and merchandising initiatives in 2019.

Think Forward, Lead Forward

Along with executing the day-to-day operation, the airline has a focus on moving new products to market more quickly and embracing technological advancements. In the third quarter, American:

  • Enabled the world’s largest mobile and online payment platform, Alipay, on aa.com in China. Alipay is the preferred method of payment for more than half of consumers in China and has more than 870 million users worldwide.
  • Opened up new ways to earn miles with its Citi AAdvantage MileUp card, a new no-annual-fee credit card for consumers to turn everyday spending into travel.
  • Enhanced aviation security for team members and customers by partnering with the Transportation Security Administration to add a state-of-the-art computed tomography scanner at John F. Kennedy International Airport’s Terminal 8 security checkpoint.
  • Furthered the airline’s commitment to reduce environmental waste by beginning to replace plastic straws and stir sticks with biodegradable, eco-friendly alternatives.

Guidance and Investor Update

American expects its fourth-quarter 2018 TRASM to increase approximately 1.5 to 3.5 percent year-over-year. The company also expects its fourth-quarter 2018 pretax margin excluding special items to be between 4.5 and 6.5 percent.2 Based on today’s guidance, American continues to expect its 2018 diluted earnings per share excluding net special items to be between $4.50 and $5.00.2

Notes

  1. In the third quarter, the company recognized $232 million in net special items before the effect of income taxes. Third-quarter operating special items of $217 million principally included $109 million of fleet restructuring expenses and $68 million of merger integration expenses. The company also recognized nonoperating special items of $15 million primarily related to mark-to-market net unrealized losses associated with certain of the company’s equity investments. 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.
  2. 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.

Top Copyright Photo: American Airlines Boeing 787-9 Dreamliner N830AN (msn 40650) LAX (Michael B. Ing). Image: 944058.

American aircraft slide show:

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American Airlines Group reports second quarter 2018 profit

American Airlines Boeing 787-8 Dreamliner N812AA (msn 40630) LAX (Michael B. Ing). Image: 941138.

American Airlines Group Inc. (NASDAQ: AAL) today reported its second-quarter results, including these highlights:

  • Reported a second-quarter 2018 pre-tax profit of $769 million, or $1.0 billion excluding net special items1, and a second-quarter net profit of $566 million, or $757 million excluding net special items
  • Second-quarter 2018 earnings were $1.22 per diluted share, or $1.63 per diluted share excluding net special items
  • Returned $396 million to shareholders, including the repurchase of 8.2 million shares and dividend payments of $46 million
  • Announced changes to Basic Economy so that beginning on September 5, it will include both a personal item and a carry-on bag like other Main Cabin fares
  • Announced deferral of 22 Airbus A321neo deliveries from 2019, 2020 and 2021, lowering aircraft capital expenditures for those years

“This was perhaps the most challenging quarter for the American team since our merger with US Airways in 2013,” said American’s Chairman and CEO Doug Parker. “We had an operational disruption at our PSA Airlines subsidiary that was extremely trying for our customers and our team members; higher fuel prices increased our expenses by more than $700 million versus last year; and our revenues, while increasing, have begun to trail the rate of increase at our largest competitors for the first time since early 2016. Because fuel expenses are expected to increase by more than $2 billion this year, we expect 2018 earnings to be lower than last year.

“These near-term challenges do not dampen our long-term excitement about the future of American Airlines. We are taking aggressive action now to return American to prior profitability levels even at these much higher fuel prices. We are deferring aircraft deliveries and capital expenditures, lowering our 2018 capacity growth and reducing non fuel-related expenses. In addition, we anticipate that our 2019 capacity growth will be lower than our competitors and will be focused in our top-performing hubs at Dallas-Fort Worth and Charlotte. We are confident these actions will return American to both revenue outperformance and earnings growth in 2019 and beyond. As a result, we are very bullish on the future of American Airlines.”

Second-Quarter Revenue and Expenses

Pre-tax earnings excluding net special items for the second quarter of 2018 were $1.0 billion, a $593 million decrease from the second quarter of 2017, driven by higher fuel prices.

 

GAAP Non-GAAP 1
2Q18
2Q17
2Q18
2Q17
Total operating revenues ($ mil) $ 11,643 $ 11,227 $ 11,643 $ 11,227
Total operating expenses ($ mil)   10,615   9,628   10,463   9,425
Operating income ($ mil) 1,028 1,599 1,180 1,802
Pre-tax income ($ mil) 769 1,389 1,001 1,594
Pre-tax margin 6.6 % 12.4 % 8.6 % 14.2 %
Net income ($ mil) 566 864 757 1,005
Earnings per diluted share $ 1.22 $ 1.75 $ 1.63 $ 2.04

Continued strong demand for air travel drove a 3.7 percent year-over-year increase in second-quarter 2018 total revenue, to a record $11.6 billion. Passenger revenue per available seat mile (PRASM) grew in all geographic regions driven in part by a 6.2 percent increase in the Atlantic region. Cargo revenue was up 19.4 percent to $261 million due primarily to a 9.6 percent increase in volume and an 8.9 percent increase in cargo yield. Other revenue was up 8.1 percent to $708 million due to higher loyalty revenue. Second-quarter total revenue per available seat mile (TRASM) increased by 2.1 percent compared to the second quarter 2017 on a 1.6 percent increase in total available seat miles. This marks the seventh consecutive quarter of positive unit revenue growth and the third quarter in a row where all geographic regions showed PRASM growth on a year-over-year basis.

Despite record revenue, the improvement was outpaced by significantly higher year-over-year fuel prices. Total second-quarter 2018 operating expenses were $10.6 billion, up 10.3 percent year-over-year, driven by a 39.6 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the second quarter of 2017, total second quarter 2018 expenses would have been $700 million lower. Total second-quarter 2018 cost per available seat mile (CASM) was 14.56 cents, up 8.5 percent from second-quarter 2017. Excluding fuel and special items, consolidated second-quarter CASM was 10.83 cents, up 2.4 percent year-over-year.

Basic Economy

To make Basic Economy more competitive, American is removing the carry-on bag restriction that is currently part of its domestic and short-haul international Basic Economy fare rules. This change will be effective September 5, for tickets purchased or flown that day. Until then, current Basic Economy fare rules will continue to apply, including the allowance for only one personal item.

“Basic Economy is working well in the markets where we offer it, and we continue to see more than 60 percent of customers buy up to Main Cabin when offered a choice,” said President Robert Isom. “Removing the bag restriction will make Basic Economy more competitive, allowing us to offer this low-fare product to more customers.”

Strategic Objectives

American Airlines is focused on four strategic objectives: Create a World-Class Customer Experience, Make Culture a Competitive Advantage, Ensure Long-Term Financial Strength, and Think Forward, Lead Forward. The company made progress on each of these long-term objectives during the second quarter.

Create a World-Class Customer Experience

American is committed to delivering a world-class customer experience by creating value and building trust with customers, driving operational excellence, and strengthening its network, especially where the company has a competitive advantage. During the second quarter, American:

  • Was honored by the Freddie Awards for Best Elite Program in the Americas. This marks the seventh award in that category for American’s AAdvantage program. Introduced in 1988, the Freddies honor both airline and hotel loyalty programs and are based entirely on votes by travelers around the world
  • Added 43 new routes, including seven new stations. This included new seasonal service between Philadelphia and Prague, Czech Republic (PRG), and Budapest, Hungary (BUD), between Chicago and Venice, Italy (VCE) and between Dallas-Fort Worth and Reykjavik-Keflavik, Iceland (KEF)
  • Finished satellite Wi-Fi installation on the company’s widebody and international Boeing 757 fleet. American now has international Wi-Fi on all 150 widebody aircraft and 24 international Boeing 757s. Installation of high-speed satellite-based Wi-Fi continues on domestic mainline narrowbody aircraft, bringing the living room experience to more of the fleet
  • Expanded Basic Economy throughout the trans-Atlantic network, giving customers a new option for the lowest fares on American and its Atlantic joint business partners
  • Began accepting credit cards for on-board purchases on American Eagle flights. This is part of a larger effort to make the customer experience consistent across regional and mainline flights, including adding Wi-Fi and meal service on more regional aircraft

Make Culture a Competitive Advantage

American is creating an environment that cares for frontline team members, provides competitive pay, and equips its team with the right tools to support its customers. During the second quarter, American:

  • Accrued $63 million for the 2018 profit sharing program, bringing the year-to-date total to $92 million
  • Rolled out implicit bias training, with web-based instruction taking place now and in-person training ready by the end of the year. This is part of ongoing work that includes engaging an independent firm to assess American’s policies and procedures to ensure the company is working toward the inclusive environment customers and team members deserve
  • Held “Elevate, One Connected Team” training sessions for almost 32,000 team members during the first half of the year. Also completed “Inspire like a Leader” training for 2,000 of the company’s managers, a two-day course that equips leaders with the tools to listen better and inspire and motivate their teams
  • Awarded more than $3.4 million through recognition programs that reward team members for excellent customer service, operational performance and helping their coworkers
  • Celebrated National Aviation Maintenance Technician Day on May 24 and Flight Attendant Appreciation Day on May 31
  • Awarded more than $925,000 in 2018 scholarships to 345 children of team members through the American Airlines Education Foundation

Ensure Long-Term Financial Strength

American is focused on capturing the efficiencies created by the merger, delivering on its earnings potential, and creating value for its owners. In the second quarter, American:

  • Returned $396 million to shareholders through share repurchases and dividends, bringing the total since mid-2014 to $12.3 billion. These repurchases have reduced the share count by 39 percent to 460.5 million shares as of June 30, 2018. As of that date, the company had $1.7 billion remaining of its current $2.0 billion share repurchase authorization2
  • Completed a number of financial transactions, including paying off $500 million of unsecured notes and re-pricing and extending the company’s $1.8 billion South American credit facility
  • Took delivery of one new Boeing 787-9 Dreamliner and four 737 MAX 8s
  • On July 26, 2018, declared a dividend of $0.10 per share, to be paid on August 21, 2018, to stockholders of record as of August 7, 2018

Think Forward, Lead Forward

American is committed to re-establishing itself as an industry leader by creating an action-oriented culture that moves quickly to bring products to market, embraces technological change, and quickly seizes upon new opportunities for its network and product. In the second quarter, American:

  • Completed the migration of the last of 20 applications that have been moved to the cloud over the past year, including portions of aa.com – one of American’s most mission-critical systems. Cloud technology allows for more rapid procurement of infrastructure as well as system development, which allows greater speed and flexibility in meeting business objectives. American’s Dynamic Rebooking system, which gives customers multiple alternative options in the event of a flight cancellation, continues rapid enhancement cycles as a result of its cloud technology foundation
  • Ordered 15 new Bombardier CRJ900s and 15 new Embraer E175s. These comfortable 76-seat aircraft allow American to put the right aircraft in the right markets and deliver a customer experience that is consistent with the mainline
  • Partnered with three leading flight schools and Discover Student Loans to create the American Airlines Cadet Academy. The Cadet Academy is designed to assist prospective pilots with a defined career path that eliminates the complexity and uncertainty traditionally associated with flight training certification by providing a path to an aviation career and financing to achieve it

Guidance and Investor Update

American recently reached an agreement with Airbus to defer delivery of 22 A321neos that were previously scheduled for delivery in 2019, 2020 and 2021 to extend deliveries and spread out the associated capital expenditures. These changes are expected to reduce planned capex by approximately $1.2 billion over the next three years. The company’s first A321neo is still scheduled for delivery in early 2019. Other changes to the fleet plan, including the impact of the company’s previously announced order of large regional jets, are detailed in the company’s investor update filed with the Securities Exchange Commission (SEC) this morning.

As American continues to optimize its network, the company is lowering its third-quarter capacity growth rate by approximately 0.6 percentage points and its fourth-quarter capacity growth by approximately 1.0 percentage point from its previous guidance. The company now expects its third-quarter capacity to be up approximately 3.3 percent, fourth-quarter capacity to be up approximately 1.6 percent, and full-year capacity to be up approximately 2.2 percent year-over-year.

Due to the success of the One Airline efficiency project that was outlined at its media and investor day, American is lowering its third- and fourth-quarter non-fuel cost outlook. The company now anticipates that its cost per available seat mile excluding fuel and special items (CASM-ex) will be up approximately 1.0 percent in the third quarter, and approximately flat in the fourth quarter. As a result, full year 2018 CASM-ex is expected to increase by approximately 1.5 percent year-over-year, which is 0.5 points lower than its previous guidance.

American expects its third-quarter 2018 TRASM to increase approximately 1.0 to 3.0 percent year-over-year. The company also expects its third-quarter 2018 pre-tax margin excluding special items to be between 5.0 and 7.0 percent.3 Based on today’s guidance, American now expects its 2018 diluted earnings per share excluding net special items to be between $4.50 and $5.00.3

Notes

  1. In the second quarter, the company recognized $232 million in net special items before the effect of income taxes. Second quarter special items principally included $83 million of fleet restructuring expenses, $60 million of merger integration expenses, a $26 million non-cash charge to write-off the company’s Brazil route authority intangible asset as a result of ratification of the U.S.-Brazil Open Skies agreement, offset in part by a $57 million net credit resulting from mark-to-market adjustments on bankruptcy obligations. The company also recognized nonoperating special items totaling $80 million. These special items principally consisted of $66 million of mark-to-market unrealized losses primarily on the company’s equity investment in China Southern Airlines, and $14 million of costs associated with debt refinancings and extinguishments. 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.
  2. Share repurchases under the buyback program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the company to repurchase any specific number of shares or continue a dividend for any fixed period, and may be suspended at any time at the company’s discretion.
  3. 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.

Top Copyright Photo: American Airlines Boeing 787-8 Dreamliner N812AA (msn 40630) LAX (Michael B. Ing). Image: 941138.

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