Skift Take

American Airlines has a long way to go to catch Delta in operational and financial performance but we'll find out in the next two years, now that many of the merger hurdles are behind American, whether Doug Parker is the right guy to do it.

American Airlines Group CEO Doug Parker has a message for Delta Air Lines: We’re coming.

Parker, speaking during American’s fourth quarter and full-year earnings call Friday, acknowledged that it was an anomaly that American notched higher profit margins than Delta in 2015 because Delta took “a couple of billion dollars” losses on fuel hedges.

For example, in the fourth quarter Delta’s fuel hedge loss was $340 million.

Otherwise, Delta’s margins would be higher than American’s, Parker conceded. But on the issue of profit margins, Parker of American said about Delta: “We’ll catch them.”

“We’re going to catch them out there yet, but we will,” Parker said referring to Delta. “Their margins are higher than ours because — our margins were higher this year because they hedged fuel and we didn’t. That cost them a lot of money, and indeed cost them a lot of profit sharing. And our — but if you adjust for that their margins are higher. We know that and like I said they’re five years ahead and we’ll catch them.”

American Airlines Group president Scott Kirby said American had a higher profit margin than any network carrier in 2015.

Delta Performance Versus American’s

Delta CEO Richard Anderson boasted during its own fourth quarter and full-year earnings call January 19 that “Delta is the top-performing airline in the world” and expects ratings agencies to hand Delta an investment-grade rating, a coveted achievement for an airline, in 2016.

In its November rankings, the U.S. Department of Transportation found that Delta was third in on-time performance, at 85.6 percent, among U.S. airlines for the 12 months ending September 2015 while American Airlines Group stood at seventh at 78.4 percent. Only Hawaiian (first) and Alaska (second) turned in better on-time performances than Delta.

Similarly, Delta performed better than American on mishandled bags from January to September 2015, according to the DOT. Delta had the third-lowest number of passengers, 2.16, making mishandled bags reports per 1,000 passengers while American was 10th at 4.06. Only the much-smaller Virgin America (1) and JetBlue (2) beat Delta.

On the operational performance issue, Parker said he can’t stress enough how difficult it is to run two airlines — the merged American Airlines and US Airways — than Delta’s standalone efforts. For example, Parker pointed to the complexities of handling baggage for connecting flights on codeshares.

“They [Delta] are five years ahead of us,” Parker said. “They had their merger in 2008.”

American’s performance, considering the “flawless” execution of several merger milestones, including the reservations system migration, can be compared favorably with anyone’s, Parker said.

“You will see us further improve in 2016,” Parker said.

On the question of profit margins and investment-grade ratings, Parker emphasized that American has chosen to invest in the airline, including making fleet investments that other network carriers haven’t begun.

American may not get an investment-grade rating anytime soon because it has chosen to borrow for new aircraft at today’s low-interest rates rather than pay for them in cash.

In its earnings release, Parker boasted: “American Airlines enters 2016 well-positioned for the future. With the youngest aircraft fleet among our major competitors, more than $2 billion of product investments underway, and the best aviation professionals in the business, we are well on our way to restoring American as the greatest airline in the world.”

The latter remains to be seen.


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Tags: american airlines, delt air lines, delta air lines, earnings

Photo credit: All American Airlines pilot have an electronic flight bag accessible through a 1.35-pound iPad. American Airlines

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