I wrote last fall about how American Airlines was losing money flying passengers and also covered earlier in the year how all of their profit was accounted for by the AAdvantage frequent flyer program. American Airlines makes money selling frequent flyer miles to banks.
This was notable because it underscored just how badly the passenger operation was performing financially. The success of the frequent flyer program was hiding the losses of the airline business. However the airline’s financials made it possible to separate out these different components of their business.
It’s notable then that American finally made money from flying passengers in the second quarter. The last several quarters American has reported that their costs were greater than passenger revenue + cargo revenue. Their entire profit was accounted for by selling frequent flyer miles to banks. However in the second quarter American made money flying.
- Passenger revenue per available seat mile: 15.22 cents
- Cost per available seat mile: 14.94 cents
- Available seat miles: 72,322,000,000
![](http://i617.photobucket.com/albums/tt254/viewfromthewing/Mobile%20Uploads/20161216_163029_zpscazwfk9b.jpg"></p>
<p>American Airlines, then, made $202.5 million flying passengers during the quarter, out of $882 million total pretax income. Add in $211 million in cargo revenue (with cost accounted for above) and we can say that flying accounted for nearly half the airline’s profit in Q2.</p>
<p>At the same time Aemrican’s strategic choices and operational challenge represent risks to their frequent flyer income stream.</p>
<p><UL><LI>The airline has largely abandoned competing in the New York market, and is weak in the Bay Area, two very important markets for credit card spend. Without sufficient flights in these markets the AAdvantage program isn’t relevant to consumers. </p>
<p><LI>Poor operational performance makes the airline and thus its cobrand less attractive to high spend customers.</ul>
<p>Even when the airline makes money flying, “the credit card program” as American’s executives often call it is crucial to their bottom line. And though it’s hardly the <I>only thing</i> they need to do in order to make that program attractive, they do need to offer sufficient reliable service for customers to want to carry and use their cards.</p>
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Gary, AA just removed all of their Phoenix-Vancouver flights from December through the end of the schedule. Looks like they may be abandoning that route altogether 🙁
I find that interesting considering the number of flights that AA has cancelled. The MAX grounding was at the beginning of Q2, massive DFW cancellation in early June for weather, mechanic issues as well… If they can make money under those conditions, why do they lose money when things are operating normally?
Yup, if they hadn’t cancelled so many flights they wouldn’t have improved.
Making money is easier when you cancel 10% of your flights and then route those passengers though to their destination via a another airport.
100% of the revenue and 90% of the costs. While a $6 dollar food voucher does have a hit to the bottom line, it can be absorbed
They increased revenue passenger miles from 60 billion to 62 billion (+3%). Does that just mean people are hoarding their AA miles or have already spent balances down? At the same time ASMs were down 1% (737 MAX grounding?) and load factors were up.
I imagine it’s a question of how many people they pissed off and sent to other airlines with their poor operational performance whether or not they can maintain their higher revenues for another quarter…
Eventually even losers end up with some money, if they don’t die first.
Given the oligopolistic nature of AA’s market and the Obama economy on overdrive with Trump’s corporate welfare king mandate, AA’s making money from its flying business at this point is only impressive in how long it took for AA to get to this point.
Annualized:
$800 million core profit on core revenue of $44 billion.
1.8% gross profit. Geniuses.
DCJOE it was 1.2 bil pre tax at 12 bil revenues not 44 bill. The pre tax margin was about 10%.
That was just one quarter. Even a broken clock is right two times per day. Can AA consistently make money flying planes?
So the labor troubles are good for the bottom line? It suddenly makes sense that AA is being so unreasonable with their people on the negotiations front. Parker stumbled onto a great system: hose the mechanics, then when they get mad and cause problems because they were Bonvoyed so badly, blame them for everything while making more money from everyone else’s misery. It’s perfect for Parker’s personality.
Has anyone looked at AA’s prices to go ANYWHERE? They are very high and prohibitive to regular people paying cash/credit cards….and if they have miles, it is now virtually impossible to find a flight that has only one stop where before that was possible. Also, they have virtually eliminated Business Class using miles by not making flights available in that section so that your only choice to use miles is First Class which is DOUBLE business class Everything appears to be a finger to the regular customer who cannot afford high prices. And…..why is it that AA prices seem to escalate during the summer when normal regular families are traveling? I would appreciate if someone would respond to my concerns.
It seems American needs to reconsider a number of its routes. If it makes money running less planes and canceling/suspending some routes why not make it permanent. It has to see how the reduced routes translates into its ffp and credit card sign ups and usage. They can see where they get the most business from business travelers who spend a lot. Some routes might be best to cancel if it’s just a small amount of business travelers.
Piggybacking on Jack roberts comment, I think AA should cancel 50% to 60% of its routes and give up the slots to other airlines like Jet Blue and Alaska.
LOL, AA sucks