Category Archives: American Airlines Group

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.

American Airlines aircraft slide show:

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:

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):