Category Archives: American Airlines Group

American to start Miami – Greenville/Spartanburg service

American Eagle (2nd)-Envoy Embraer ERJ 145LR (EMB-145LR) N644AE (msn 145204) MIA (Bruce Drum). Image: 104675.

American Airlines will start American Eagle service connecting the Miami hub with Greenville/Spartanburg, SC. The route will commence on December 19, 2018 and will be by Envoy Air Embraer 145 regional jets according to Airline Route.

Copyright Photo: American Eagle (2nd)-Envoy Embraer ERJ 145LR (EMB-145LR) N644AE (msn 145204) MIA (Bruce Drum). Image: 104675.

American Eagle-Envoy Air aircraft slide show:

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American Airlines Group reports its first quarter results

American Airlines Boeing 737-800 WL N315PE (msn 31261) MIA (Jay Selman). Image: 403713.

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

  • Reported a first-quarter 2018 pre-tax profit of $273 million, or $468 million excluding net special items1, and a first-quarter net profit of $186 million, or $357 million excluding net special items
  • First-quarter 2018 earnings were $0.39 per diluted share, or $0.75 per diluted share excluding net special items
  • 2017 earnings were $3.90 per diluted share, or $4.88 per diluted share excluding net special items. Fourth-quarter earnings were $0.54 per diluted share, or $0.95 per diluted share excluding net special items
  • Returned $498 million to shareholders, including the repurchase of 8.4 million shares and dividend payments of $48 million. Announced a new $2.0 billion share repurchase authorization2 to be completed by December 31, 2020

“American’s team members continue to deliver solid results, including record first quarter revenue performance. Higher fuel prices led to a decline in year-over-year earnings, but we are excited about the future,” said Chairman and CEO Doug Parker. “With the youngest fleet in the industry among our large network peer competitors, a significantly improved product, and a team of 130,000 who demonstrate extraordinary care for our customers, we are well positioned for long-term success.”

First-Quarter Revenue and Expenses

Pre-tax earnings excluding net special items for the first quarter of 2018 were $468 million, a $193 million decrease from the first quarter of 2017.

GAAP Non-GAAP 1
1Q18
1Q17
1Q18
1Q17
Total operating revenues ($ mil) $  10,401 $   9,820 $  10,401 $   9,820
Total operating expenses ($ mil)   9,970   9,083   9,775   8,962
Operating income ($ mil)   431   737   626   858
Pre-tax income ($ mil)   273   535   468   661
Pre-tax margin 2.6 % 5.4 % 4.5 % 6.7 %
Net income ($ mil)   186   340   357   414
Earnings per diluted share $   0.39 $   0.67 $   0.75 $   0.82

 

Robust demand for air travel drove a 5.9 percent year-over-year increase in first-quarter 2018 total revenue, to a first quarter record $10.4 billion. Passenger revenue per available seat mile (PRASM) grew in all geographic regions, with notable strength in Latin America. Cargo revenue was up 18.8 percent to $227 million due primarily to a 10.9 percent increase in volume and a 7.1 percent increase in cargo yield. Other revenue was up 10.0 percent to $694 million. First-quarter total revenue per available seat mile increased by 3.5 percent compared to the first quarter 2017 on a 2.3 percent increase in total available seat miles. This marks the sixth consecutive quarter of positive unit revenue growth and the second quarter in a row where all geographic regions showed PRASM growth on a year-over-year basis.

Total first-quarter 2018 operating expenses were $10.0 billion, up 9.8 percent year-over-year driven by a 25.7 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the first quarter 2017, total expenses would have been $412 million lower. Total first-quarter 2018 cost per available seat mile (CASM) was 15.15 cents, up 7.3 percent from first-quarter 2017. Excluding fuel and special items, total first-quarter CASM was 11.57 cents, up 2.8 percent year-over-year.

“We made significant progress on several key initiatives during the first quarter, including fleet simplification and adding more travel options for customers by expanding Basic Economy,” said President Robert Isom.

“Our recently announced order for 47 Boeing 787s enables the retirement of older aircraft, including the Airbus A330-300, the Boeing 767, and certain Boeing 777-200s. These replacement aircraft will provide improved fuel efficiency, lower maintenance costs, greater range, and an enhanced customer experience.

“In April, we launched trans-Atlantic Basic Economy together with our Atlantic partners. Basic Economy is now rolled out in the U.S. and certain markets in Mexico and the Caribbean. We continue to look for more opportunities to launch this popular travel option for our customers,” Isom said.

Strategic Objectives

American Airlines is focused on four long-term strategic objectives: Create a World-Class Customer Experience, Make Culture a Competitive Advantage, Ensure Long-Term Financial Strength, and Think Forward, Lead Forward.

Create a World-Class Customer Experience

American is committed to delivering a world-class product 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 first quarter, American:

  • Filed an application along with Qantas to the U.S. Department of Transportation seeking approval to form a joint business to better serve customers flying between North America and Australia and New Zealand. The proposed joint business will significantly improve service and stimulate demand, and is expected to unlock more than $300 million annually in consumer benefits that are not achievable through any other form of cooperation
  • Enhanced the travel experience between New York LaGuardia and Chicago for business customers by adding that route to the company’s shuttle portfolio. The shuttle is highly valued by top business customers and offers an hourly schedule and dedicated gates and check-in areas
  • Expanded Basic Economy to its first trans-Atlantic routes on April 11, including Dallas/Fort Worth-London Heathrow, giving customers a new option for American’s lowest fares in partnership with American’s Atlantic joint business partners
  • Introduced new wine sommelier Bobby Stuckey to lead American’s wine program, selecting premium wines for customers to enjoy in Admirals Club lounges, Flagship Lounges, Flagship First Dining and in flight
  • Introduced new meals on certain Pacific flights. Japan Airlines’ Chef Jun Kurogi has designed a traditional Japanese meal in premium cabins on flights from Tokyo, and Chef Sean Connolly has designed dishes for premium cabins on flights from Auckland and Sydney

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 first quarter, American:

  • Hosted 7,000 American Airlines leaders at its Annual Leadership Conference in Dallas. Team members who oversee people spent a full day learning about American’s four strategic objectives and how to implement them in partnership with their teams
  • Honored 103 team members at the company’s Annual Chairman’s Award celebration in Dallas earlier this month. The Chairman’s Award is the airline’s highest recognition, and recipients this year were recognized for accomplishments including making complicated maintenance tasks easier and safer, caring for colleagues during personal tragedies, and making customers feel like family
  • Accrued $29 million for the company’s 2018 profit sharing program during the quarter
  • Completed the transition to a new cloud-based HR information system which provides seamless integration of team member data and hiring, onboarding, compensation and performance-related tasks. In April, American also implemented a new payroll system for U.S.-based management and support staff, with the remaining team members to transition on a phased basis

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 first quarter, American:

  • Returned $498 million to shareholders through share repurchases and dividends, bringing the total since mid-2014 to $11.9 billion. These repurchases have reduced the share count by 38 percent to 467.4 million shares as of March 31, 2018
  • In April, announced an order for 47 new Boeing 787 widebody aircraft consisting of 22 787-8s scheduled to begin arriving in 2020 and 25 787-9s scheduled to begin arriving in 2023. The 787-8s will replace American’s Boeing 767-300s, while later 787-9 deliveries will replace Airbus A330-300s and older 777-200 widebody aircraft. In addition, American deferred 40 737 MAX aircraft and 3 Airbus A321neo aircraft. These changes better align future aircraft deliveries with planned aircraft retirements and reduce planned capital expenditures by approximately $200 million in 2019 and $800 million in 2020
  • On April 26, 2018 declared a dividend of $0.10 per share, to be paid on May 22, 2018, to stockholders of record as of May 8, 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 first quarter, American:

  • Reached a new lease agreement with the city of Chicago that clears the way for an $8.5 billion redevelopment plan at O’Hare that includes more gates, a better structure for connecting travelers, and a better overall customer experience that will help close the competitive gate gap there
  • Reached an agreement earlier this month to get access to 15 additional gates in DFW Terminal E. This allows the company to significantly grow departures at its largest hub to more than 900 per day, enabling more customers to access our global network
  • Completed all customer-facing renovations in Terminal B, where American’s regional operation at Dallas/Fort Worth is located
  • In April, opened five new gates at Chicago O’Hare Terminal 3, permitting American to provide improved service to its customers at this key competitive hub

Guidance and Investor Update

American expects its second-quarter 2018 TRASM to increase approximately 1.5 to 3.5 percent year-over-year, which reflects expected continued strength in demand for both business and leisure travel. The company also expects its second-quarter 2018 pre-tax margin excluding special items to be between 7.5 and 9.5 percent.3 Due to higher fuel prices included in the guidance provided today, American now expects its 2018 diluted earnings per share excluding net special items to be between $5.00 and $6.00.3

Notes

  1. In the first quarter, the company recognized $195 million in net special items before the effect of income taxes. First quarter special items principally included $82 million of fleet restructuring expenses and $59 million of merger integration expenses. 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.

Copyright Photo: American Airlines Boeing 737-800 WL N315PE (msn 31261) MIA (Jay Selman). Image: 403713.

American Airlines aircraft slide show (Boeing):

American Airlines Group reports fourth quarter and full year 2017 profit

American's second Boeing 787-9, delivered on October 5, 2016

American Airlines Group Inc. on January 25, 2018 reported its fourth quarter and full year 2017 results, including these highlights:

  • Reported a full year 2017 pre-tax profit of $3.1 billion, or $3.8 billion excluding net special items1, and a full year net profit of $1.9 billion, or $2.4 billion excluding net special items
  • Reported a fourth-quarter 2017 pre-tax profit of $425 million, or $739 million excluding net special items, and a fourth-quarter net profit of $258 million, or $455 million excluding net special items
  • 2017 earnings were $3.90 per diluted share, or $4.88 per diluted share excluding net special items. Fourth-quarter earnings were $0.54 per diluted share, or $0.95 per diluted share excluding net special items
  • Accrued $241 million for the company’s profit sharing program in 2017, including $46 million in the fourth quarter
  • Returned $1.7 billion to shareholders in 2017, including the repurchase of 33.9 million shares and dividend payments of $198 million

Pre-tax earnings excluding net special items for the fourth quarter of 2017 were $739 million, a $34 million decrease from the fourth quarter of 2016. For the full year 2017, pre-tax earnings excluding net special items were $3.8 billion, a decrease of $1.2 billion from 2016.

“2017 was a remarkable year for American Airlines. We made enormous progress as a company as we continued to make significant investments in our team members, product and operation, and those investments are beginning to pay off,” said Chairman and CEO Doug Parker. “Our operation continues to deliver record-setting performance for the company, and the credit goes to our team members who are simply the best in the business.

“We enter 2018 with strong momentum. Demand for American’s reliable, friendly service remains strong, our network is expanding, and the products we are bringing to market are resonating with customers.”

Fourth-Quarter and Full Year 2017 Revenue and Expenses

Strong close-in demand and improving yields drove an 8.3 percent year-over-year increase in fourth-quarter total revenue, to $10.6 billion. Passenger yields grew in all geographic regions, including 11.0 percent growth in trans-Atlantic and 7.9 percent growth in Latin America. Cargo revenue was up 19.7 percent to $232 million due to higher volumes and a 6.7 percent increase in cargo yield. Other revenue was up 8.1 percent to $1.3 billion. Fourth-quarter total revenue per available seat mile increased by 5.6 percent compared to 2016 on a 2.5 percent increase in total available seat miles.

Total fourth-quarter operating expenses were $9.9 billion, up 9.8 percent year-over-year due primarily to a 23.5 percent increase in consolidated fuel expense and a 7.0 percent increase in salaries and benefits resulting from the company’s investments in its team members. Total fourth-quarter cost per available seat mile (CASM) was 14.71 cents, up 7.1 percent from fourth-quarter 2016. Excluding fuel and special items, total fourth-quarter CASM was 11.25 cents, up 3.8 percent year-over-year.

Strategic Objectives

The company continues to focus on four long-term strategic objectives: Create a World-Class Customer Experience, Make Culture a Competitive Advantage, Ensure Long-Term Financial Strength, and Think Forward, Lead Forward.

Create a World-Class Customer Experience

American began 2017 by being named Air Transport World’s Airline of the Year in recognition of its successful integration and significant investment in its product and people. This is a recognition American had not received since 1988. Also in 2017, American:

  • Recorded its best on-time departure and arrival performance since 2003, and its best baggage handling performance since DOT began reporting in 1994
  • Launched new products to meet customer demand, including the expansion of American’s best-in-class lounges by opening Flagship First Dining, a new exclusive experience for customers in First Class on international and A321T transcontinental flights. American now offers Flagship First Dining in Miami, Los Angeles, and New York- JFK. Importantly, American is the only U.S. airline that offers international First Class
  • Operated the youngest fleet among its peers and invested $4.1 billion in new aircraft, including its first Boeing 737 MAX. By the end of 2018, the company expects to induct a total of 20 new MAX aircraft, which will replace older, less fuel efficient aircraft
  • Introduced new streaming-capable satellite-based internet access on the 737 MAX, which will be rolled out across most of the domestic mainline fleet
  • Introduced Basic Economy, a product to compete with ultra low-cost carriers. This product is now offered nationwide and to leisure markets in Mexico and most of the Caribbean
  • Rolled out Premium Economy, which offers a wider seat, more legroom, an amenity kit, and enhanced meal choices on international flights. Currently 64 widebody aircraft offer this product. American expects to offer Premium Economy on most of its widebody fleet by the spring of 2019
  • Expanded the airline’s global footprint by launching Los Angeles-to-Beijing service; and announcing service from Philadelphia to Prague, Czech Republic, and Budapest, Hungary; Dallas-Fort Worth to Reykjavik-Keflavik, Iceland; and Chicago-O’Hare to Venice, Italy, which will start this summer
  • Completed delivery of the last Boeing 737-800 and Airbus A321CEO aircraft
  • Painted the last aircraft in American’s new livery

“Customers are responding positively to the options American offers, from international First Class to Basic Economy,” said American Airlines President Robert Isom. “We are far ahead of our U.S. competitors in offering Premium Economy on our international flights, which comes just as we begin to prepare for the busy summer travel season. Importantly, this highly-differentiated product makes American’s international service consistent with its partners across the Atlantic and the Pacific, so customers can book their international Premium Economy trips seamlessly.

“American’s customers are noticing these significant product and network improvements. 2017 survey scores measuring our customers’ likelihood to recommend American were the highest they’ve been in company history,” Isom said.

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 2017, American:

  • Awarded each team member with two complimentary round-trip tickets across American’s global network to commemorate being named Air Transport Worlds 2017 Airline of the Year
  • After hurricanes hit the Caribbean and Florida, American Airlines team members worked together to help the people of San Juan, Puerto Rico and other affected parts of the region. American and its team members have delivered more than 2.5 million pounds of relief supplies and raised almost $2 million for the American Red Cross, in addition to other relief work
  • Invested more than $300 million in facilities and equipment including renovations to team member spaces, mobile devices for pilots and flight attendants, and the ongoing One Campus One Team initiative at the airline’s global support center in Fort Worth
  • Ensured team member pay remained competitive through initiatives such as a mid-contract salary increase for pilots and flight attendants and continued step increases from a mid-contract pay increase for mechanics and fleet service workers
  • Introduced a best-in-industry maternity and adoption benefit program to all team members including union-represented team members
  • Launched the company’s first team member survey in over a decade
  • Provided customer service skills training to 35,000 team members through Elevate the Everyday Experience training, and launched training for leaders that emphasizes supporting team members who directly serve customers
  • Announced that work on its CFM56-5B engines, which power much of American’s Airbus narrowbody fleet, would move in-house to its world-class maintenance team located in Tulsa, Oklahoma beginning later this year
  • Just this month, shared benefits of the recent Tax Cuts and Jobs Act by issuing $1,000 payments to all non-officer team members at American and its wholly-owned regional carriers. While American does not yet pay federal cash income taxes, the new tax law will reduce the company’s future tax bill and allow more investments in equipment and facilities

Ensure Long-Term Financial Strength

American has taken significant steps forward to ensure its long-term competitiveness in the global aviation industry. In the four full years since the merger closed, the company’s cumulative pre-tax earnings excluding net special items were $19.4 billion. American is focused on capturing the efficiencies created by the merger, delivering on its earnings potential, and creating value for its owners. In 2017, American:

  • Returned $1.7 billion to shareholders through share repurchases and dividends, bringing the total since mid-2014 to $11.4 billion. These repurchases have reduced the share count by 37 percent to 475.5 million shares at the end of 2017. As of December 31, 2017, the company had approximately $450 million remaining of its current $2.0 billion share repurchase authority2
  • Announced, at American’s Media & Investor Day last fall, $3.9 billion in revenue and cost initiatives expected to be realized by the end of 2021. These projects are on track and are expected to improve the customer experience, drive revenue improvements, and deliver cost efficiencies
  • Completed several innovative and landmark transactions in 2017 that provided efficient financing for the company. These transactions included repricing approximately $5 billion in term loans at industry-leading rates, extending and increasing its revolving credit facility, and setting a new benchmark rate for subordinated aircraft debt in the EETC market
  • On January 25, 2018, declared a dividend of $0.10 per share, to be paid on February 20, 2018, to stockholders of record as of February 6, 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 2017, American:

  • Announced a $200 million equity stake in China Southern Airlines, leading to a growing codeshare with the largest airline in China
  • Executed an amended and restated trans-Atlantic Joint Business Agreement that extends the term of the agreement with the company’s partners
  • Adopted next-generation technology such as cloud hosting and machine learning to speed time to value
  • Announced a commitment for more than $1.6 billion for improvements of LAX Terminals 4 and 5, setting the stage for American to receive additional gate space, strengthen its Pacific gateway and to be the pre-eminent airline for Los Angeles
  • Built a five-gate expansion at Chicago O’Hare Terminal 3, which is expected to open in April, giving American a new advantage at this key competitive hub

Parker summarized: “As an airline, we will always operate in a just-in-time environment, however, we recognize we must lead for the long term. This means we must be more nimble in our problem solving and in how we innovate and develop the right products, technology, and network both for customers of today and the future. Ultimately, all of this work will produce a company built for the long term, led by a team that thinks long-term, sees the potential of future opportunities, and brings innovative concepts to market quickly and efficiently.”

Guidance and Investor Update

American expects its first-quarter 2018 TRASM to increase approximately 2.0 to 4.0 percent year-over-year, which reflects expected continued improvement in demand for both business and leisure travel. The company also expects its first-quarter 2018 pre-tax margin excluding special items to be between 2.0 and 4.0 percent.3 In addition, based on the guidance issued today and current business conditions, American presently expects its 2018 diluted earnings per share excluding net special items to be between $5.50 and $6.50. 3

 

Notes

  1. In the fourth quarter, the company recognized $314 million in net special items before the effect of income taxes. Mainline special items principally consisted of a $123 million charge for the $1,000 cash bonus and associated payroll taxes granted to employees in recognition of recent tax reform, $81 million of merger integration expenses, $58 million of fleet restructuring expenses, and a $20 million net charge resulting from fair value adjustments to bankruptcy obligations. Regional special items of $23 million principally consisted of a charge related to the $1,000 cash bonus and associated payroll taxes discussed above for employees at the company’s regional subsidiaries. The company also recognized a nonoperating special charge of $11 million and an income tax net special benefit of $7 million. 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.

Copyright Photo: American Airlines Boeing 787-9 Dreamliner N821AN (msn 40640) LAX (Michael B. Ing). Image: 935286.

American Airlines aircraft slide show (Boeing):

 

American Airlines to distribute $1,000 to each team member

In a letter to team members, CEO Doug Parker and President Robert Isom are pleased to announce that in light of the new tax structure and in recognition of our outstanding team members, American will distribute $1,000 to each team member (excluding Officers) at our mainline and wholly owned regional carriers. Read the letter below:

 


Dear Fellow Team Members,

It’s been another amazing year for American Airlines, for our country, and for the world at large. What a privilege it is for all of us at American whose jobs are all about transporting people to the most important moments in their lives. The importance of our purpose is especially felt this time of year.

Recent tax reform has received much publicity. While the company does not yet pay cash taxes due to our enormous losses in the past, there is no doubt that our country’s new tax structure will have positive long-term benefits for American. We will be able to invest even more in aircraft and facilities, and we will be able to do so with even greater confidence about the future. As we analyze those potential future benefits, our leadership team, backed by our Board of Directors, considered how a portion of that positive impact might be directly shared with the very people who produce the profits at American—all of you.

We are pleased to announce that in light of this new tax structure and in recognition of our outstanding team members, American will distribute $1,000 to each team member (excluding Officers) at our mainline and wholly owned regional carriers. These distributions will total approximately $130 million and will be made in the first quarter of 2018.

This is not an action we take lightly when balanced against the returns our shareholders/owners demand and deserve. But we believe it is the right thing to do for our team, which ultimately benefits our shareholders too. This is one more proof point that working at American is to be part of a team that recognizes taking care of those who take care of our customers is the cornerstone of our competitive advantage. In short, it doesn’t feel right to receive the positive impacts of this historic tax reform without making sure, in the clearest most direct way possible, that those benefits are shared with the very people who matter the most to our customers and shareholders.

The engine of American Airlines is our team, and the energy and enthusiasm each of you choose to bring to your jobs every day defines the American Airlines experience for our customers. Let’s keep making sure each and every customer is thankful they choose American throughout the year ahead. That attitude will give American a competitive advantage others will find hard to replicate. We are incredibly proud and humble to work with all of you—here’s to a successful and happy 2018.

 

Doug Parker

 

American Airlines Group reports its third quarter 2017 results

American's second Boeing 787-9, delivered on October 5, 2016

American Airlines Group Inc. on October 26, 2017 reported its third quarter 2017 results, including these highlights:

  • Recorded a third-quarter 2017 pre-tax profit of $1.0 billion, or $1.1 billion excluding net special items,1 and net profit of $624 million, or $692 million excluding net special items
  • Reported third-quarter earnings of $1.28 per diluted share, or $1.42 per diluted share excluding net special items
  • Reported a 2.7 percent increase in total revenue, to $10.9 billion, and a 1.1 percent increase in total revenue per available seat mile (TRASM) for the third quarter
  • Returned $411 million to stockholders in the third quarter through the repurchase of 7.7 million shares for $362 million and dividend payments of $49 million

Pre-tax earnings excluding net special items for the third quarter of 2017 were $1.1 billion, a $369 million decrease from the third quarter of 2016. During the third quarter, the company’s operations were affected by Hurricanes Harvey, Irma and Maria, causing more than 8,000 flight cancellations, and reducing pre-tax earnings by an estimated $75 million.

“Despite the significant operational challenges posed by three hurricanes, our team delivered solid financial results,” said Chairman and CEO Doug Parker. “The hurricane response highlighted the humanity and professionalism of the American team, and our industry as a whole.”

“We especially want to acknowledge the burden placed on our team members in Puerto Rico and throughout the Caribbean. The generous spirit of the American Airlines team was on full display as team members in Miami, Chicago and elsewhere packed meals and care packages for our colleagues and our customers in Puerto Rico. We also capped fares for customers traveling to and from the regions hit by these storms,” Parker said.

Revenue and Expenses

GAAP Non-GAAP1
3Q17 3Q16 3Q17 3Q16
Total operating revenues ($ mil) $   10,878 $   10,594 $   10,878 $   10,594
Total operating expenses ($ mil)   9,646   9,163   9,539   8,869
Operating income ($ mil)   1,232   1,431   1,339   1,725
Pre-tax income ($ mil)   1,004   1,189   1,114   1,483
Pre-tax margin 9.2 % 11.2 % 10.2 % 14.0 %
Net income ($ mil)   624   737   692   933
Earnings per diluted share $   1.28 $   1.40 $   1.42 $   1.76

Continued strong demand for air travel and improving yields drove a 2.7 percent year-over-year increase in total revenue, to $10.9 billion. For the first time since the second quarter of 2014, yield grew in every geographic region, with notable strength in Latin America. Cargo revenue was up 17.0 percent to $200 million due to a 19.2 percent increase in cargo ton miles. Other revenue was up 2.2 percent to $1.3 billion. Third-quarter TRASM increased by 1.1 percent on a 1.6 percent increase in total available seat miles.

Total third-quarter operating expenses were $9.6 billion, up 5.3 percent year-over-year due primarily to a 13.3 percent increase in consolidated fuel expense and an 8.0 percent increase in salaries and benefits resulting from the company’s investments in its team members. Total third-quarter cost per available seat mile (CASM) was 13.20 cents, up 3.6 percent. Excluding fuel and special items, total CASM was 10.43 cents, up 4.5 percent.

“We are playing the long game at American to create value in an industry that has been fundamentally transformed,” said Parker.

Strategic Objectives

At American’s Media & Investor Day last month, the company laid out four long-term strategic objectives: Build a World-Class Product, Drive Efficiencies, Make Culture a Competitive Advantage, and Think Forward, Lead Forward.

Build a World-Class Product

American continues to make significant investments in the premium travel experience. In August, the company opened a new Admirals Club lounge in Terminal 5 at Los Angeles International Airport, and in September, the company opened a new Flagship Lounge at Chicago O’Hare International Airport. American plans to open new Flagship Lounges with Flagship First Dining in Miami and Los Angeles later this quarter.

Demand for American’s highly-differentiated Premium Economy travel experience remains high. Offered on international flights, Premium Economy comes with a wider seat, more legroom, an amenity kit, and enhanced meal choices. American is pleased with the customer adoption of this product as it generates an average premium of more than $400 each way over Main Cabin fares. The company’s fleet now has Premium Economy seats on 27 of its widebody aircraft, with plans to retrofit most of its remaining widebodies by the end of 2018.

In early September, American expanded its Basic Economy product throughout the continental United States. Basic Economy allows American to compete with ultra-low cost carriers while still offering a better product. Initial results of this new product’s rollout continue to be consistent with management’s expectations, with approximately half of American Airlines customers buying up to Main Cabin when given the option between that and Basic Economy.

“Continued product differentiation and a comprehensive network are just two of the ways American is setting itself apart. And we know we can do more. We have identified nearly $3 billion of revenue opportunities through 2021, including product segmentation, co-branded partnerships, and harmonizing our seating configurations across the fleet,” said American Airlines President Robert Isom.

Drive Efficiencies

As part of the company’s ongoing fleet renewal program, during the third quarter, American invested more than $900 million in 13 new mainline aircraft and three regional aircraft, including taking delivery of its first Boeing 737 MAX aircraft. These new, larger and more fuel efficient aircraft continue American’s fleet transformation and will replace aircraft that are expected to leave the fleet. In total, the company has invested more than $18 billion in new aircraft since the merger, giving it the youngest fleet of its network peers.

“We are focused on driving efficiencies and maximizing value for our investors. As we plan for the future, we have identified more than 400 efficiency-related projects which we estimate will provide $1 billion of benefit over the next four years. Examples include fuel initiatives, flight and route planning, improved schedule seasonality, and using our airport assets more productively,” said Chief Financial Officer Derek Kerr.

Make Culture a Competitive Advantage

Making culture a competitive advantage starts with leadership that cares for frontline team members. During the quarter, American expanded its Lead the Experience leadership training beyond corporate officers, and will expand this training further next year. In addition, American continues to roll out service training to frontline team members and anticipates 35,000 airport and reservation team members will have received this training by the end of this year, with plans to roll this training out further in 2018. Earlier this week, the company launched its first employee survey in well over a decade, which will provide more information to support frontline team members.

“We are building an environment where our leaders enthusiastically embrace the responsibility of caring for and inspiring our frontline team members. This environment includes a new technology platform for all team member data, development and training for our leaders, and investments in our team,” said Elise Eberwein, Executive Vice President of People and Communications.

Think Forward, Lead Forward

American has expanded the use of self-service technology during irregular operations, which enables customers to rebook on alternative flights and arrange for delivery of delayed bags from the convenience of a mobile device. This new technology gives customers more accurate, real-time information and options that work for them during difficult weather situations. This automation also frees up time for the company’s customer service team members to solve more complex issues.

“With the pace at which the world moves today, we know our technology solutions have to come faster, and they have to be adaptable across a variety of devices, including on-board handhelds, tablets, desktops and personal mobile devices. We are bringing more of our systems into the cloud environment, which enables us to deliver more, and finish projects faster,” said Maya Leibman, Chief Information Officer. “All of our work comes back to making it easier for our team members to do their jobs, and making it easier for our customers to fly with American, and we are making significant improvements in both of these areas.”

Hurricane Response

American Airlines team members have worked together to help the people of San Juan, Puerto Rico and other affected parts of the Caribbean. American was the first commercial airline to restore service to San Juan after Hurricane Maria. American and its team members have delivered more than 2.5 million pounds of relief supplies and raised almost $2 million for the American Red Cross. In addition, team members in Chicago, New York, Fort Worth and Miami volunteered to pack more than 100,000 meals for hurricane victims, as well as 2,000 kits for military men and women currently serving in San Juan.

Over recent weeks, Tech Ops team members sent and served 600 hot meals for colleagues in San Juan. American Airlines team members have contributed more than $350,000, which American has matched, to the American Airlines Family Fund during the recent hurricane season. The Family Fund provides monetary relief to team members facing catastrophic and life-altering emergencies.

Capital Investments and Shareholder Returns

Since mid-2014, American has returned more than $11.1 billion to stockholders primarily through share repurchases and dividends, and reduced its share count by 37 percent to 480.0 million shares. As of September 30, 2017, the company had approximately $677 million remaining of its $2.0 billion share repurchase authority.2

The company declared a dividend of $0.10 per share, to be paid on November 27, 2017, to stockholders of record as of November 13, 2017.

Guidance and Investor Update

American expects its fourth-quarter TRASM to increase approximately 2.5 to 4.5 percent year-over-year, which reflects continued improvement in demand for both business and leisure travel. The company also expects its fourth-quarter pre-tax margin excluding special items to be between 4.5 and 6.5 percent.3

 

Notes

  1. In the third quarter, the company recognized $110 million in net special items before the effect of income taxes, principally consisting of merger integration expenses and fleet restructuring expenses, offset in part by a net credit resulting from fair value adjustments to bankruptcy obligations. 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.

Copyright Photo: American Airlines Boeing 787-9 Dreamliner N821AN (msn 40640) LAX (Michael B. Ing). Image: 935286.

American’s Doug Parker and Robert Isom issue a letter to the employees on pay

Fellow Team Members:

Today, we are excited to make an announcement that reinforces our commitment to building a foundation of trust at American.

When we merged, we committed that American Airlines team members would be compensated in line with their peers at other airlines. Committing to “pay in line with our peers” is difficult to define in an industry like ours with complex contracts and work rules. American generally has contractual work rules and scope clauses that require us to employ more team members than our competitors, and those add costs to the airline. But we also know that base pay rates are a very visible and meaningful indicator of relative compensation, so we set out to meet our commitment by setting American’s base pay rates at the top of the industry.

With each joint collective bargaining agreement (JCBA) reached, our team has had the highest pay rates in the industry at the time of the signing. For groups who have not reached a joint contract yet, like those represented by the TWU-IAM Association, we implemented pay increases providing the highest average hourly pay rates in the business, even though the other terms of the JCBA have not been resolved yet. These actions have increased the average pay per represented team member by more than 39 percent in the three years since our merger closed.

But as our industry has rapidly evolved and pay increases at other airlines have accelerated, some of our colleagues have fallen behind their peers at other airlines in base pay rates. And, unless their current contracts are modified, they’ll remain far behind for more than two years. Two groups specifically fall into this category today: Our pilots and flight attendants both ratified new five-year contracts in late 2014/early 2015, well in advance of some significant pay increases at our two largest competitors. Today our pilot hourly pay rates are approximately 8 percent lower than the industry’s highest rates, and our flight attendants’ hourly pay rates are approximately 4 percent lower. Absent any action, these gaps would remain at similar levels until those contracts become amendable in December 2019 for flight attendants and January 2020 for pilots.

This doesn’t feel right for the new American, and it doesn’t feel consistent with our commitment. As one of our pilots said after a recent town hall, “We all understood that we would be leapfrogged by other carriers mid-contract, but no one expected this. It is just too much for too long.”

We agree. While the commitment was met when the contract was signed, we never anticipated this large of a gap for this long a period, and we don’t like that it exists, contract or not. Therefore we intend to work with the unions to adjust the hourly base pay rates of all American pilots and flight attendants to levels that are equal to the highest rates currently in place at either Delta or United. We cannot unilaterally implement these increases – APA and APFA must agree to any contractual changes. Because we are not requesting other contractual changes, we do not expect disagreement. If they agree, these changes could be effective as soon as the May crew bid period.

The rest of our contract team members are not affected at this time, either because your pay rates remain at or near industry-leading levels, as they were at the time your JCBAs were reached, or in the case of the TWU-IAM Association, we are still negotiating a JCBA. Specifically for those negotiations, in recent weeks we’ve had productive executive sessions in Washington, D.C., with the assistance of a federal facilitator. And when those talks conclude, our contractual base pay rates will be industry-leading. Regarding our non-contract team members, we assess the market annually and attempt to ensure our compensation is always in line with our competitors, including airlines and other large companies.

But make no mistake: This is a program for everyone at American and these adjustments reflect a real philosophical change that is an important trait of the new American. As we move forward, if we see sizable discrepancies in pay rates between our team members and other major airlines and our contracts are still years away from their amendable dates, we will work to address those discrepancies. Today’s news is not about buying trust because we all know trust cannot be purchased.

Today’s news is about doing the right thing and doing so not because we are contractually required to or because we are locked in a contentious contractual battle. We must continue moving past the days of discontent as we build a new American where team members trust each other and work together with our customers’ care in mind.

We also know pay does not build culture – we have made great progress there but have more work ahead and we must continue to work together to improve the lives of our frontline team members. That work will continue. Today’s action is an important step along that path and we are pleased to be part of an organization that has the courage to take steps like this. We thank the American Airlines Board of Directors and our investors for their long- term focus and their appreciation of the value of supporting our team.

Most importantly, thanks to each of you for all you do for American. Our customers are counting on us to validate the trust they place in us each time they step onboard one of our aircraft. Thanks to the greatest, most professional team in the business, they are always in good hands. It is an honor to work with and for each of you.

Doug Parker Robert Isom Chairman and CEO President

American’s Envoy Air, Piedmont and PSA offer a $15,000 signing bonus for new pilots

American Eagle (2nd)-PSA Airlines (2nd) Bombardier CRJ900 (CL-600-2D24) N576NN (msn 15367) CLT (Jay Selman). Image: 403064.

The three regional airline subsidiaries of American Airlines Group are all offering a $15,000 signing bonus for new pilots:

Envoy Air issued this statement:

Envoy Air Inc., a wholly owned subsidiary of American Airlines Group (AAL), now offers new hire pilots a $15,000 bonus when they join the company.

Through its industry-leading flow-through agreement with American Airlines, Envoy offers pilots a guaranteed path to American Airlines without having to interview again – or compete with the thousands of pilots who apply to American every year. Envoy pilots currently make up half of every American Airlines new hire class – in fact, nearly two thirds of American new hires since 2010 started their career at Envoy.

Piedmont Airlines (2nd) issued this statement:

Piedmont Airlines, a wholly owned subsidiary of the American Airlines Group Inc. (AAL), will pay a $15,000 signing bonus to all new hire pilots, effective immediately. Piedmont employees will also collect $5,000 for every pilot they refer to the airlines.

Pilots who come to Piedmont enjoy a generous benefits package including excellent health care and 401(k) with company match. Piedmont provides hotel rooms for commuting pilots and industry-leading flight benefits on American Airlines.

Piedmont employees can earn some cash, too. Employees who refer a pilot to the company will collect $5,000 if their pilot is hired, passes training and stays with the company for six months. “It’s a great opportunity for all of our employees to participate in our recruiting efforts,” Hogg said. “Any employee can recommend a friend or family member pilot through our Human Resources department and get rewarded with a bonus for doing so. It now means we have 7,000 people recruiting for Piedmont Airlines, and that’s exciting.”

Piedmont plans to hire more than 200 pilots in 2016. Piedmont will hold pilot information sessions and on-site interviews at Philadelphia International Airport on June 17; in Newark, N.J. (Newark Airport Marriott) on June 23 and in New York City (JFK Courtyard Marriott) on June 24. Details are available online at Piedmont-airlines.com.

PSA Airlines (2nd) issued this statement:

PSA Airlines has announced an important enhancement to its pilot recruiting platform by rolling out a $15,000 sign-on bonus for all new-hire pilots. This valuable improvement enriches PSA’s existing top-notch employment opportunities which already offer the highest quality of life in the regional industry and the only true seniority-based pilot flow through program to American Airlines (AAL).

In addition to today’s expanded pilot bonus program, PSA will also be enhancing the value of its employee referral program for pilots by increasing the payout from $1,000 to $5,000 for eligible participants and aims to further reward current employees as ambassadors for the company to attract the best and brightest future aviators. Employee referrals are an important part of pilot recruitment and with this increase, PSA will be materially compensating its workforce for helping identify and onboard future pilot colleagues.

The long-term stability, unmatched career opportunities and quality of life at PSA is something few regional carriers can match. With a young and efficient fleet – including more than 50 brand-new large regional jets, a sustainable cost advantage versus competitors and the experience as a reliable provider of service, PSA is an airline that will remain a vitally important regional provider for American.

PSA is building on the success of its sustained pilot recruitment initiatives, including these two enhanced programs announced today. Earlier this year, the airline implemented an industry-leading Cadet Program which helps the most promising future pilots make a smooth transition from the classroom at top colleges, universities and flight schools to the cockpit and offers various levels of support as the Cadet’s certifications, training and experience evolves.

Copyright Photo: American Eagle (2nd)-PSA Airlines (2nd) Bombardier CRJ900 (CL-600-2D24) N576NN (msn 15367) CLT (Jay Selman). Image: 403064.

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