American Airlines improved its quarter-by-quarter results by posting a $169 million net profit for Q3, up from $19 million in the second quarter. However, excluding special items, the net loss was $641 million, it reported on October 21. American’s ‘best quarter’ still red without special items.
Special items for American’s mainline operations include $992 million in payroll support or $4.2 billion during the January-September period. Regional operations benefitted from $128 million in PSP or $539 million for the nine-month period. These benefits were partially offset by salary and medical costs and by costs associated with a regional pilot retention program. Without special items, the pre-tax net loss was $833 million compared to $3.635 billion for Q3 last year. The net profit of $169 million compares to a $2.399 billion loss.
During the third quarter, the operating profit was $595 million compared to a $2.871 billion loss last year. American operated at an average 80.6 percent capacity or 19.4 percent lower than 2019. Domestic capacity was down only 4.7 percent but international at 45.9 percent. While CEO Doug Parker described the quarter as American’s best since the pandemic, the carrier like its US competitors suffered from the delayed recovery from the Delta variant. Yet, total revenues were up to $8.969 billion from $3.173 billion in 2020, with passenger revenues at $7.957 billion (2020: $2.540 billion) and cargo at $332 million ($207 million). AA flew 48 million passengers, more than any other US carrier.
‘Delta’ hasn’t stopped American’s progress
The Delta variant hasn’t stopped American’s progress, Parker stressed. The airline is expecting robust demand during peak travel periods in Q4, with an average capacity of 87-89 percent of 2019 levels. While domestic and short-haul international travel has fully recovered, the return of corporate travel depends on businesses lifting travel restrictions. American’s ‘traffic light’ shows the recovery of international long-haul still at yellow unless restrictions are relaxed after wider vaccine distribution. The reopening of the US and Europe are encouraging signs, but still American expects Q4 revenues to be 20 percent below 2019 and its pre-tax margin excluding net special items to be -16 to -18 percent. Like Delta and United, American warns of the unknown effects of rising fuel costs. Its forecast for Q4 is based on $2.43 to $2.48 per gallon, higher than what its rivals expect.
While down by $3.0 billion on Q2, American’s liquidity position remains strong. By the end of September, it had $17.9 billion in liquidity, including $14.5 billion in unrestricted cash and short-term investments, $2.8 billion from a revolving credit facility, and $570 million in undrawn short-term and other facilities. It raised some $4.3 billion through secured senior notes, common stock, and aircraft sale and leasebacks while repaying some $4.4 billion in revolving facilities and loans. Prepayable debt totals $13 billion, which accounts for one-third of all debt. American confirms its target to reduce its debt by $15 billion by 2025.
American continues its fleet harmonization and will focus its mainline fleet around the Boeing MAX, Airbus A321neo, Boeing 777, and 787. 57 Percent of the fleet will be not older than ten years, which means they need for replacement is less urgent compared to its competitors. This translates into a lower capital expenditure of $2.6 billion for 2022 and 2023 after a year of no investments in 2021.