13 Quick, Lesser-Noticed Things Revealed On Today’s American Airlines Earnings Call

American Airlines CEO Doug Parker opened the call by thanking “the entire America West Airlines team.” Oops. The airline is often criticized for being America West operating under the American Airlines brand, and that doesn’t help. Parker took over America West days before 9/11, got a government bailout, went on to acquire US Airways and then merge it into the larger American with legacy US Airways executives at the helm.

Following that miscue, which he later said CIO Maya Leibman pointed out to him, he offered that “Black Lives Matter” before getting into quarter’s results and the airline’s plans for dealing with and emerging from the pandemic. 13 things – aside from the actual financial results – stood out to me that help to understand where the airline is going.

  1. Break-even is a long way off. While United Airlines has previously said they could be cash positive or at least breaking even by the end of the year, American hopes to turn cash positive “in 2021.”

  2. They don’t see layering on debt as a big deal. Mirroring previous internal comments I’ve reported on Doug Parker doesn’t see $500 million in interest expense as a huge liability, which he breaks down between 300 million from new liquidity and 200 million from aircraft debt, “management head count saves that.” Of course offering bigger employee buy outs could be done for that amount, likely turning cash positive within two years, but that $500 million is viewed as too expensive even though it would ultimately become revenue accretive.

  3. Don’t expect travel to recover soon even accounting for knowing that travel doesn’t seem to be recovering, the airline reported “net bookings down 75% – 80%” which they flagged as “a marked difference from where we were in June and even in May.”

    Senior Vice President Vasu Raja reported that “business bookings are going to be very different” acknowledging that “bigger companies won’t resume economic life” (by which he means travel) and there’s “uncertainty around smaller companies” too so the airline will have to “adapt .. to the changing customer base.” How bad is business travel? Corporate bookings didn’t grow at all April to June, while small business bookings went from 1% to 3% of where they’d been previously.

  4. Business isn’t worst in the cities you think it is though the travel pullback is largely attributed to a resurgence in Covid-19 cases, American reports that “Sun Belt bookings still outpace the rest of the system.” Everywhere else is worse!

  5. Their credit card deal expires in 2022. Analyst Joe DeNardi asked whether conversations renewing credit card deals have started with Citi and Barclays. I’ve previously written that discussions on re-upping were already happening before the pandemic. Airline President Robert Isom says they’ll achieve “economics [that] will be equal to or better than they are today.” He isn’t seeing a big increase in money from card issuers this time around.

  6. The airline made money on CARES Act payroll support. American says they received 76% of payroll from the Treasury Department. Of course they were never going to lay off 76% of employees. Now they’re looking at perhaps 30%.

    Unions are asking for the federal government to provide a straight extension of payroll support funds, which would be an even bigger cash influx this time straight to equity and debt holders because there are already fewer employees left at the airline.

  7. JetBlue and Alaska partnerships are about consolidation. Vasu Raja says 22% – 23% of airline capacity was on the West Coast, producing below industry average revenue, and offered that ‘so many airlines can’t compete for diminishing premium customer business’ as one explanation for the partnerships, linking up with JetBlue and Alaska. Raja is describing partnerships as consolidation, sharing the revenue from premium passengers among fewer airlines.

    Raja claims that when you exclude the places they perform badly, they perform perfectly well – a 10% – 12% premium against the industry ‘excluding West Coast + NY/Boston’. In the Northeast and on the West Coast American has had a 10% revenue per seat mile deficit. He describes them as “too small to win, too big to exit” New York and recognizes a massive customer base they need to attract revenue from.

    By the way he’s making an implicit argument against further government subsidies for the airlines, because if there’s not enough business to go around for the airlines continuing to prop them all up means more losses for everyone, which will delay the businesses from recovering, paying back creditors, becoming profitable again and investing in growth and customer experience.

  8. Seattle is now an American Airlines hub in much the same way they consider London Heathrow to be a hub. Raja says that with their Alaska Airlines partnership they will continue to build “our Seattle hub.”

  9. The JetBlue deal should mean replacing small regional jets with mainline flying. The Jetblue partnership is ‘pretty broad’ with ‘extensive codesharing back and forth, frequent flyer benefits,” and corporate deal-sharing. Expect some slot deals between the two airlines that allow American to replace 50 seat regional jets in New York and Boston with more mainline flights.

  10. They’re jealous of the creative funding deal United Airlines pulled together to borrow against MileagePlus. United Airlines raised $5 billion against MileagePlus while American Airlines intends to use their AAdvantage program as collateral against a CARES Act subsidized loan.

    They say that if the Treasury Department deal falls through they could copy United’s more innovative transaction, but it would take time because unlike the MileagePlus program AAdvantage isn’t set up as a separate company. There was also discussion of whether the government transaction could preclude a forward mileage sale (presumably raising around a billion dollars by pre-selling miles to their credit card partners).

  11. There’s no clear vision for American Airlines’ future. Analyst Hunter Keay asked Doug Parker for his ‘3 year vision for American Airlines.’ Parker stumbled, suggesting that’s “not the easiest thing to do” and then offered getting through this crisis and back to generating cash and noting the crisis gives the airline the opportunity to shut down the airline and “start it from scratch.”

    But what does starting it from scratch mean? Re-envisioning it, with a bold vision? No, just reducing employee headcount, getting older aircraft retired, and cutting routes that didn’t make money. The vision is make money and cuts, it’s not about who or what they want the business to be (“relative to our competitors, our relative performance will be improved.”).

  12. American doesn’t see a problem cancelling flights after selling them to customers. Expect August schedule reductions even during August. They can pull down capacity at the last minute as circumstances change on the group, which doesn’t offer much certainty for the customer.

  13. They’ll keep taking new Boeing 737 MAXs even though they have plenty of planes they aren’t flying. There are 30 Boeing 737 MAXs between those currently built and that are scheduled to be taken this year as long as they’re financed. American is not pushing back new aircraft deliveries the way United reported they are doing with Boeing.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. […] After the seat what’s next most important? I’d posit that it isn’t meal or the alcohol. It’s not the lounge on the ground before departure and it isn’t the contents of an amenity kit. It isn’t the inflight entertainment, you really can bring your own (seat power is a must but I include that in the seat). American Airlines CEO Doug Parker says Covid is an opportunity to start his airline from scratch. […]

Comments

  1. “Raja claims that when you exclude the places they perform badly, they perform perfectly well”.

    That cracks me up. “But dad, if you exclude all the Cs, Ds, and Fs, this report card is perfectly fine.”

  2. Despite having status at times with US Airways and later AA, and having a sizable number of miles in the AA account, any flying I do (very limited) will only be done on Southwest and Delta. As long as those airlines provide better spacing, they will get my business. Cost is secondary to me.

    And I wasn’t a low end customer for AA. Most of my flights the last couple of years were paid tickets up front. Last year I moved my business to Delta despite moving from non-stops to 1 connections due to AA’s unreliable operations. It was eye opening for someone like me who had not flown Delta in decades (mostly captive to Southwest, US Airways, AA and some united flights).

    There isn’t anything this airline is doing that will cause me to fly them anytime soon. For now it will be Southwest (since Delta flights for me all require a connection).

    Tough times for airlines but AA isn’t getting any sympathy from me. And geez, after being AA for how many years he can’t recall his own company’s name? 7 years? Makes you wonder how often he calls it America West in private.

  3. Were I to be an AA shareholder, which I am not, I would be quite put out that Mr. Parker can enunciate that “Black Lives Matter” (does he imply that others don’t?) but cannot speak to a 3-year outlook for his airline. Can he not even speak to two best/worst case scenarios???
    I’d stipulate that Mr. Parker is probably a nice guy — but, sadly, we know where they generally finish. I have developed quite a dislike for Mr. Bastion over at Delta, but by Jove, he’s doing a vastly better job than Mr. Parker just now. Mr. Parker, it seems to me, is a man devoted to majoring in minor things.
    Much as I generally support AA on this blog, despite @Gary’s attempts to besmirch AA at every opportunity, it is clearly time for a change at AA, and that change shouldn’t just stop at Mr. Parker. It is a shame that Akbar Al Baker can’t acquire AA. For a fact, AA’s customers would be treated to a better experience.

  4. Hope that #12 bites them in the ass.

    Especially with their onerous one way cancellation policy (unless they are going to qo month to month with saver fares).

    SW, DL and AS will probably get the lion share of my business, because of this.

    Its this Shareholder first, the customer comes in a close second to last it seems.

  5. A lot here that one can be critical of here, for sure, but contrary to other commenters I actually have no issue with the stated lack of a three-year vision. Long-term planning amidst a crisis is rather tough to do, and not particularly useful. How many of us, circa mid-March, personally had things planned for the spring and summer? We saw how that turned out.

    Right now the airline is still in the acute phase of a crisis scenario and it should be managed as such. Scenario planning? OK, I mean, I guess one could bracket the outcomes between “Things go back to 2019 levels in 12 months” and “We all die of a horrible, mutated form of this virus”. But again, that’s not particularly helpful.

    Regarding the critique of a lack of vision, I again give them some slack. Right now there’s no clear way to even guess at where they’ll be allowed to fly to, when they’ll be allowed to fly, and who will be flying. That doesn’t invite strategic thinking. So they’re doing what one would advise them to do – control the controllables. Retiring old jets, cutting fat, etc. are in their control. Strategic thinking can really only happen once they get some some sort of reasonable grasp of what the landscape might look like going forward.

    I’m not an apologist, but I think that continuing to manage this tactically, rather than strategically, until the crisis phase abates, is the right approach (now whether they’ve been executing on that approach well, that’s a different discussion of course!).

  6. The only way I’ll ever fly American is if I get a girlfriend who lives in an American fortress hub city. Given that the only such cities are DFW, PHL and MIA, and there are very few girls of my type in any of these three cities, I’m not likely ever fly American.

  7. “the entire America West Airlines team.”
    Unbelievable. 7 years as American’s CEO and 15 years after America West name was retired, Mr Parker still doesn’t get running American is nothing like running America West. As much as I disapprove of Jeff Smisek as United’s CEO, Mr Smisek still did a much better job at United than Mr Parker has done at American.

    “There’s no clear vision for American Airlines’ future.”
    I don’t think lack of clear vision is a problem now. We’re still in the midst of a pandemic and no idea when it will pass. Who knows what will happen in the next 3 months, let alone next 3 years. All airlines, not just AA, are just focusing on surviving the pandemic and having to adjust on the fly.

  8. With all the problems Parker has , it is incredible he leads off a key financial review with a nonsensical and self serving political statement that supports for an avowed terrorist organization (just take a minute to read their documents) and then goes on to admit AA has no plan for the next three years. Best case is this is a segway into the political arena since he has failed so miserably in the management of a one great and proud airline.

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