Transport Airlines

American Airlines fourth quarter dragged down by Sandy and operational woes

@denschaal

Jan 16, 2013 5:49 am

Skift Take

American’s restructuring is indeed making it a leaner and meaner airline, and it’s all pointing to the unveiling of a new American Airlines later in 2013.

— Dennis Schaal

Report: Social Media Customer Service in the Travel Industry

Excluding special items and the reorganization, AMR Corp., the parent company of American Airlines, notched a fourth quarter net loss of $88 million, and Superstorm Sandy and the pilots and mechanics disruptions took their toll.

Still, that fourth quarter 2012 loss was a bit of an improvement over the fourth quarter of 2011 loss, which came in at $121 million.

All of this occurs, as AMR Corp. states it has done most of the heavy lifting in its bankruptcy reorganization.

“The fourth quarter of 2012 was negatively impacted by Hurricane Sandy and the early November snow storm in the Northeast and, separately, by the residual headwind on fourth quarter bookings from the operational disruptions experienced in late September and early October,” the airline stated. “The cumulative impact from these events is estimated to have reduced net profits by $142 million.”

Total operating revenue during the quarter fell 0.3% to $5.9 billion, the airline reported.

Including a $350 million positive impact of reorganization and special items, however, the airline’s fourth quarter net income gets into the black at $262 million.

Importantly, AMR Corp. states that it “has completed the majority of its financial restructuring, including reducing debt, negotiating aircraft leases and facilities agreements, grounding older airplanes, rationalizing the regional fleet, and renegotiating supplier relationships.”

The airline says it is on pace to achieve its targeted restructuring-related cost savings by the end of 2013.

For full-year 2012, American posted record revenue of $24.9 billion, although the net loss was $1.9 billion.

Among its accomplishments, the airline states it wrangled labor cost reductions of 17% across all labor groups, incuding unions and management in 2012.

In addition to reworking the financial terms on 400 mainline and regional aircraft, American says it “evaluated and/or renegotiated” more than 9,000 vendor and supplier contracts.

“Throughout 2012, we have executed on all aspects of our business plan — streamlining our organizational structure, increasing unit revenues, reducing unit costs, and restructuring our balance sheet,” says Bella Goren, AMR’s Chief Financial Officer. “The strong financial foundation we are building gives us the ability to deliver returns to our financial stakeholders and make investments that create enhanced value for our customers and our people.”

As is its customer since it filed for Chapter 11 bankruptcy protection on November 29, 2011, AMR Corp. did not conduct a conference call with financial analysts to discuss its financial results.

Hence there was no further word on whether it plans to emerge from bankruptcy with a merger partner or as a Lone Ranger.

And, below is a letter that American CEO Tom Horton emailed to employees today:

A Message from Chairman and CEO Tom Horton

Dear American Team:

Today we released our results for the fourth quarter and full-year 2012, which demonstrate what we accomplished over the past year, setting the stage for our emergence as a new American Airlines – a premier global carrier.

Having reached the vast majority of our restructuring milestones already, we can now focus on the new American becoming reality. With the financial capacity to make the investments to compete with the best in the world, we will also create new opportunities for our people. As you know, we are completing our evaluation of whether a merger is the right step for American at this time. Whatever the decision, customers, investors, and our people will benefit from the new American’s exceptional strengths:

An expanded global network that, in conjunction with our oneworld partnerships, will be the most attractive network to our best customers, including our corporate customers.
New aircraft and updated products and services that will help to elevate American to a position of industry leadership.

Our people, equipped with modern tools and technology to best serve our customers, and set to share in our company’s financial success.

A highly competitive cost structure, greater operational flexibility, and a solid balance sheet that will be a platform for superior financial results and growth.

Our much-improved performance for the quarter and full year underscore the inherent strengths of our business. This included the highest annual revenue and load factors in the company’s history. We also outpaced the industry in unit revenue growth in 2012, which is a testament to our network strength and new product investments.

Importantly, our operating margins – a key measure of our profitability – have improved significantly. With record passenger yield, the company’s full-year operating profit, excluding special items, was $494 million, a $749 million improvement over 2011. As encouraging as this progress is, the improvement will accelerate as the full effect of our restructuring changes are felt in 2013 and beyond.

This stronger financial foundation allows us to invest in our future – in renewing our fleet, enhancing our products, growing our airline and creating opportunities for our people. In 2012, we made great progress with our fleet transformation, and we remain on track to have the youngest, most fuel-efficient fleet among our U.S. peers. In the fourth quarter, we reached a key milestone when the number of 737-800s in our fleet surpassed the number of MD-80s.

Later this month, we will become the first U.S. airline to launch the Boeing 777-300ER, which offers a state-of-the-art customer experience, with amenities like lie-flat beds in first and business class and international wifi, and unmatched operating economics. In 2013, we’ll take delivery of 59 new mainline aircraft – a remarkable number. With all of these changes, our company will very quickly begin to look and feel very different – both inside and out. We will be sharing more information about the new look and feel very soon.

Over the past months, we launched an array of new products and services to markedly improve the customer experience. In May, we unveiled the redesigned interior for our international widebody aircraft. In July, we announced we would become the first domestic carrier to offer three-class service and fully lie-flat first and business class seats on transcontinental flights. We introduced Main Cabin Extra to give customers more leg room. We have installed wifi on almost all of our domestic fleet. And with the introduction of new travel options on aa.com, our customers now have more fare choices, as well as select new combinations of the products and services they value most. Together, these changes will create an easier, more connected travel experience.

These enhancements are especially powerful when overlaid on a network that customers, particularly high-value customers, already find attractive. In 2012, we announced new service from our leading U.S. hubs, including expansion in international markets with strong growth prospects like Seoul, South Korea and Bogota, Colombia, and bolstering our industry-leading position in Brazil. Our joint businesses with British Airways and Iberia across the Atlantic and with Japan Airlines across the Pacific continue to mature and were key drivers of our revenue improvements. We also embarked on expanded codeshare agreements with LATAM in Latin America. And it was a great year for oneworld, whose growing strength in key markets with the additions of airberlin and members-elect Malaysia and Qatar Airways will give our customers even greater options around the world.

Last year was one of the most important years in the storied history of our airline, and we have a lot to be proud of. None of these developments or results would have been possible without the energy and commitment of this incredible team. And through all of the challenges and hard work, you continued to put customers at the center of everything we do. Above all else, this is what will put American back on top.

Thanks for all that you do!

Sincerely,

Tom

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