American Airlines Earnings Hurt by Too Many Empty Seats and Pricey Labor

American Airlines saw its third quarter performance suffer in the wake of extra capacity competition as well as increased labor expenses.

The world’s largest carrier reported a 30 percent drop in pre-tax profit to $1.2 billion with revenues also taking a hit, sliding by 1 percent to $10.6 billion.

On a conference call with analysts, CEO Doug Parker said the decline was driven by falling unit revenues and rising unit costs.

Overall net income declined by 56 percent to $737 million on the back of a $452 million income tax provision.

Operating expenses rose by 5 percent to $9.2 billion, mainly because of a 15 percent increase in salaries and benefits.

Despite the tough quarter, American is able to boast the youngest fleet of the four biggest U.S. carriers and during the quarter invested $1 billion in new aircraft, adding 12 new mainline and nine new regional jets, while removing 49 aircraft from the fleet.

“American’s fleet is now more than 40 percent younger than our large network peers and that gap is widening,” said Doug Parker, Chairman and CEO.

American is preparing to introduce a new basic economy fare, which it hopes will help it take on low-cost competitors. Delta has already successfully rolled out its own version, but Robert Isom, American’s President, insists the carrier won’t be rushed

“We’re on track, we’re prepared to launch at the end of this year but right now our game-plan is going to be to hold off on that and to go and to start to roll out in January,” he said.

While American hit a number of integration milestones, including putting 15,000 pilots and its mainline fleet into a single scheduling system, it suffered from what Isom described as “operational and commercial challenges.”

These included inclement weather at hubs and problems with its Los Angeles airport schedule.