Skift Take

While American Airlines' second quarter results were good, they weren't quite good enough for investors after Delta and United set a high bar.

American Airlines is performing well, and it expects the strength to continue. The Fort Worth-based Oneworld carrier said on Thursday it generated $14.4 billion in revenue for the second quarter. Net profit reached nearly $1.4 billion.

Strong ticket sales contributed to the airline earning its highest quarterly revenue in the company’s history. Profits were also boosted by a 35% decline in average jet fuel prices.

Because of the strong results, the airline lifted its earnings outlook for 2023: It now expects $3 to $3.75 per share, up from its previous forecast of $2.50 to $3.50.

“Our operation is performing at historically strong levels, and we have worked to refresh our fleet and build a comprehensive global network, all of which helped to produce record revenues in the second quarter,” said American’s CEO Robert Isom.

American has also seen a recent upgrade in its credit rating. Reducing debt is a top priority, and an upgraded score supports its goal of BB credit metrics by the end of 2025.

Its operating profit margin was 15% – solid, but below the 17% of Delta and United. That’s in large part because American’s network is domestic-orientated, and international routes have the strongest demand.

Pilot Wages

Last week, United Airlines pilots reached agreement on a contract valued at $10 billion that would increase pilot wages by 40% over four years. The contract was a topic of conversation throughout the conference call, and American executives were clear about their plan moving forward.

“We’re working with the Allied Pilots Association (APA) and our pilots. Our intent is to match the wages,” said Isom.

The APA valued American’s previous wage deal at $8.3 billion over four years. It is likely to cost around $9.5 billion to match United.

American expects the tentative agreement to be approved in August.

The Northeast Alliance Partnership

On July 21st, American Airlines and JetBlue Airways will end their Northeast Alliance partnership after a judge ruled that the deal violated antitrust laws.

American Chief Commercial Officer Vasu Raja was not worried about the partnership ending and said there are two reasons why the airline will continue its success without JetBlue.

“Previously, we didn’t match the demand. The majority of demand in New York was for short-haul, day-trip business markets. Our slot portfolio better matched midcontinental, transcontinental, and transatlantic markets,” he said.

The change in business travel demand has meant the New York customer has transformed since before the pandemic. Secondly, American said it’s reduced expenses in New York drastically.

“Our expense base, especially in New York Kennedy, changed through co-locating partners and fleet changes,” said Raja. “We don’t expect any material changes to our financial outlook”.

The Sunbelt Region

The airline has identified that more Americans are moving to the Sunbelt region. Therefore, the company is prioritizing those hubs and communities.

Fort Worth, Charlotte, Miami, and Phoenix were all mentioned as key cities that have allowed the airline to position themselves well for the future.

“Our strong regional network provides service to smaller towns and connects them with our hubs across the country. As a result, we’re able to offer customers the most comprehensive network of any U.S. carrier,” said Isom.

The location of these hubs has meant that American is dealing with exceedingly hot weather, especially over summer.

“The heat that we’re facing this year in the country, these are records. It is something that impacts certainly our aircraft, any machinery,” he said.

The airline has had to adapt operations, including air conditioning aircraft quicker, preventative maintenance work, and adding more breaks for crew working outside.

“We’re employing all those practices that we put in place. We just have to use them more often and longer throughout the year.”


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Tags: airlines, american airlines, dallas/fort worth international airport, delta air lines, financials, pilot pay, profits, revenue, secondquarter, united airlines

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