American Airlines executives point to positive material changes as the year progresses from its loss-making first quarter as reasons why it remains optimistic of meeting its full-year financial targets.
The Oneworld carrier slipped to a net loss of $312 million – or $226 million before one-off items – in the first quarter. That compares to a $10 million profit at the same stage last year. That was delivered on revenues up 3% to a new first quarter high of $12.6 billion.
American says its first quarter performance was within its originally guided range – even with higher than expected fuel costs. ”We remain on track to deliver our full year earnings per share guidance,” said American Airlines chief executive Robert Isom, speaking on a first-quarter earning calls on 25 April.
”We don’t like reporting a loss, that’s a challenge for us,” he says.
”But it’s also an opportunity. As we look forward, we are encouraged by what we see as industry dynamics, and also by those things we have identified in the first quarter that we can go and address. We are going to do that and we are going to stick to our longer-term game plan.”
American Airlines’ chief commercial officer Vasu Raja cites three key factors in the first quarter.
“Competitive capacity grew the most in our market strengths, in the domestic and short-haul network,” he says. ”We see industry capacity starting to change as we go into the summer, and certainly into the fall. That reduction is coming most heavily in the narrowbody system, which uniquely favours us.”
Secondly, Raja says the airline “flew too much” in the first quarter. ”About 60% of our growth ASMs were in off-peak times of the day, or days of the week. As we go in the third quarter, we are taking a much more careful look at our off-peak flights. So we will produce less flying in the troughs.”
“The third thing is Q1 marks the end of a year of transition of our distribution strategy, in which we were really focused in creating the right long-term customer proposition,” Raja says, noting it can now focus more optimisation and drive revenue and profit.
”All three of those conditions start to change as we go forward. This is not just us guessing, you actually start to see it in Q1,” he says, pointing to its guidance that unit revenues will turn positive in the third quarter.
RAISING CAPACITY
The carrier lifted capacity 8.5% in the first quarter and expects similar in the current quarter.
“The first half of this year we have been building back our capacity, we were probably the last [US major] to get back to our 2019 capacity production,” says chief financial officer Devon May. ”We came in ahead of our capacity guide due to the strong operation in the first quarter and we are guiding for 8% in the second quarter.
”But capacity production does come down pretty materially as we look to the third and fourth quarter,” he adds, estimating growth in the 4-5% range. “Full-year is still in-line with mid-single digit, probably something north of 5% for the year.”
Much of the increased capacity is delivered through improved utilisation of its regional jet fleet.
May says in the first quarter the airline operated the equivalent of 465 fully utilised regional jets. “We expect that number to grow by about 20-25 regional jets each quarter as we move through the year. So by the time we get to the fourth quarter we expect to have about 535 fully-utilised regional jets. It’s going to be helpful to unit revenue.”
Vasu adds: ”As we get more regional supportability as the year progresses, you can already see in our published summer and Q3 schedule, we are driving a lot more connectivity into all of our hubs.
”As we are now in place we can optimise so many of the things that are unique to us, we will see an increasing amount of P&L benefit.”
Isom also believes American with its in-house MRO capabilities and existing fleet is relatively well positioned to overcome supply chain and aircraft delivery issues in order to tap strong demand.
”We have the vast majority of the assets we need to fly our schedule,” he says, citing its best-ever first quarter flight completion rate. ”We are probably less dependent than anyone on outside services to run our airline.”
