American Airlines joins the other US Big Two by reporting record-high revenues in Q3, outpacing 2019 levels by thirteen percent despite a 9.6 percent lower capacity. It is even the highest quarterly revenue in the history of the airline. American Airlines bullish about Q4 and 2023.
Q3 revenues were $13.462 billion compared to $8.969 billion in the same quarter of 2021. Passenger revenues covered $12.396 billion (2021: $7.957 billion), while cargo revenues dropped to $279 million ($332 million). Other revenues totaled $787 million ($680 million).
Compared to 2021, domestic revenues grew 34.2 percent to $8.786 billion, with unit revenues up by 29 percent versus Q1 this year. Capacity was 94 percent at an 85.9 percent load factor. International revenues more than tripled to $3.6 billion. Short-haul international saw the highest capacity at 128 percent versus 2019 and unit revenues were up 34 percent over Q1 2022. Long haul international capacity was 74 percent, but unit revenues were up 55 percentage points over Q1. On average, American flew at ninety percent capacity in Q3 compared to 2019. American says it flew a schedule 25 percent larger than its nearest competitor.
Short-haul is more prominent
American sees continued recovery of both leisure and corporate travel and of combinations of both, especially on the domestic and short-haul international network. “That, as well as a return of long-haul international travel, leaves us very bullish of overall demand, even in an uncertain environment”, CEO Robert Isom said in the investor’s call. What has changed at American since 2019 is the split between short-haul and long-haul: this used to be 70/30 percent but had now shifted to close to 80/20 percent, with fewer fleet types, and more dynamic. Despite the lower share, long-haul profitability is better than pre-pandemic thank to higher net yield values from both leisure and corporate.
Expenses increased to $12.5 billion ($8.4 billion), with fuel costs and related taxes up by 97.1 percent to $3.8 billion. Regional operating expenses were up by 35.1 percent to $1.1 billion. This translates into an operating profit of $930 million compared to $595 million in Q3 2021 or $476 million in Q2. The net profit for the quarter was $483 million or $478 million excluding special items versus $169 million last year.
January-September, American reported a $-676 million net loss ($-1.061 billion), an operating profit of $225 million ($-279 million), and total revenues of $35.8 billion ($20.5 billion).
At the end of September, American had $14.3 billion in liquidity and targets around $10-12 billion in the medium term, using any access liquidity for deleverage initiatives to reduce debt. It has $34.2 billion in long-term debt after repaying $380 million in scheduled debt and finance lease payments. The target remains to reduce total debt to $15 billion by the end of 2025, amongst others by paying down $11 billion in prepayable debt. In December 2023, the maturity of $1.2 billion of debt is coming up.
Isom said that American reached operational reliability levels of 2019 in Q3, despite the weather, ATC, and staffing challenges. Hurricane Ian resulted in over 1.500 flight cancelations in the final four days of September, costing the airline some $40 million in revenues. So far, October has delivered record on-time arrival rates and completion factors that Isom hopes will carry the momentum in the coming months.
In its guidance for Q4 and the full year, American expects to operate at -5 to -7 percent capacity of 2019 in the final quarter or at -8 to -10 for the full year. Q3 revenues should be up 11 to 13 percent and an operating margin of 5-7 percent excluding special items. Total revenues per available seat mile (TRASM) should be up by eighteen to twenty percent.
For 2023, American Chief Financial Officer Derek Kerr expects a robust year: “We currently see no demand slowing as we move into the new year. But as always, we will keep a close eye on the macro-economic environment and will adjust plans as necessary.” Taking aircraft delivery delays and pilot shortages of its regional airlines into account as well as taking a buffer into account, the carrier thinks it will operate at 95 percent capacity compared to 2019 which will produce strong profitability and free cash flow, and reliable operations.
Fleet
In September, American Airlines unveiled its new premium Flagship Suites that will be first available on the Boeing 777-300ER in 2024 (replacing First Class), followed by the new 787-9s and the Airbus A321XLR which should be delivered in 2024 and 2025 respectively. This will grow premium seat capacity by 46 percent in 2026.
The carrier has taken delivery of four 787-9s since August and expects to take another five during the remainder of this year and four in HY1 2023. During the quarter, it also received three A321neo’s and reactivated three MAX 8s from long-term storage. Another eight A321neo’s and three Embraer E175s are on the delivery schedule. Boeing has now scheduled the delivery of nineteen MAX in 2023, which is down from 27 in the previous schedule. This reduces capital expenditure on the fleet to $1.6 billion.
American is recruiting some 2.000 pilots, the highest level in its history, which should secure it is adequately staffed. It will take some a couple of years, however, to have them all trained to the right level of flying hours.
