9 Takeaways About The Future Of American Airlines

American Airlines held its third quarter earnings call this morning. There were several news items included today beyond just the airline’s financial performance. And there was a greater-than-normal amount of ‘color’ on the airline’s strategy going forward.

  1. There aren’t many assets left to burn. American reports higher pro forma numbers for unencumbered assets than the market will probably actually provide them funds against. American will sell $1 billion more in stock ‘at the market’ though the timing of this hasn’t been announced.

  2. They’ve got pro forma $15.6 billion in liquidity – that includes $7.5 billion in CARES Act subsidized loans. Excluding government support they’re down to $8 billion, the level JP Morgan Chase says American would need to file Chapter 11 (with nearly all their assets of value specifically pledged they may have to fund their own reorganization). Of course they’re pledging AAdvantage to the government, rather than the market as United and Delta have done.

  3. American has been burning more cash than competitors – they say $44 million a day in the third quarter, compared to United’s reported $25 million a day. On CNBC this morning Doug Parker said they’ve cut costs as much as they can and improvement has to be driven by revenue. That isn’t really true of course since they continue to spend money retrofitting their domestic fleet of planes to squeeze in more seats and remove seat back video screens. That continues – the airline reports that 40% of 2021 capital expenses will be retrofitting planes.

  4. The airline is retiring all of its Airbus A330s, so will operate an all-Boeing widebody fleet. Boeing has the better widebody product, while Airbus currently has the better narrowbody one (although may be willing to sell 737 MAXs for less…). American says this means only 737s (-800 and MAX), A320 ‘family’, Boeing 777s (-200s and -300ERs), and 787s (-8 and -9) in their fleet. It’s more complicated than the ‘only four aircraft types’ they’re promoting. Even the A321s have more than a single configuration, and not all of their Airbus narrowbodies are certified for overwater. President Robert Isom reports about 23 different fleets.

  5. American says they’re going to be more efficient than before, but will still be cost-uncompetitive. They point to 30% management reduction, retired planes – but as their daily cash burn shows their costs are still higher than competitors, and since they didn’t successfully get senior unionized employee to take early retirements the way other carriers did they will have higher per-trip employee costs (with everyone at or near the top of the pay scale) and they’ll have higher debt payments.

  6. Vasu Raja reports American has a 30% revenue premium to the industry at largest hubs. It seems odd to say that they generate a revenue premium if you ignore where they perform badly. And dropping capacity at their underperforming hubs will reduce both the premium they can earn elsewhere and the ability to generate credit card revenue in those markets. Their solution is partnerships like Alaska and JetBlue but it remains a bet that those will seamlessly replace American’s own flying and still generate interest in their co-brand card, which is crucial for revenue.

  7. South America network should be restored by the New Year. Vasu Raja made that broad claim on the earnings call. In a question and answer with employees posted to the airline’s intranet on Monday he caveated the return of South America as if flying remains on trend then by December they’d have “most of our South American flights flying again.”

  8. Major priority is to work ‘more closely’ with co-brand partners to drive increased card spend, and revenue hasn’t dropped ‘as much’ as airline revenue during the pandemic. They don’t offer the specifics or the positives that Delta does about its co-brand performance.

  9. Thanksgiving and Christmas holidays should mean far more air travel. People are returning to life despite Covid case growth, and past holidays have spiked. More than half of flights for Thanksgiving are being yield managed – holding back seats for sale at higher prices.

American has real challenges ahead of them, with more debt and higher costs. As demand recovers they’ve got a couple of strikes against them compared to their competitors. They also have great opportunities in their airline partnerships and domestic-heavy emphasis compared to United and Delta. This is going to be incredible to watch.

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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Comments

  1. As much as #10 should happen, I somehow have a feeling he will end up with a raise for “navigating the airline through the pandemic.”

  2. I never understood why the A330s felt like orphans in the post-merger fleet. They have amazing cargo capacity and should have been ideal for South American flying in the northern winter, especially since they filled a similar mission during the northern summer flying routes like PHL-FCO. MIA-EZE or MIA-LIM, filled to the gills with cargo and a dense back cabin.

  3. The Company does not need assets to pledge for debtor-in-possession financing. There is the ability for a judge to approve a priming DIP loan which would just take a senior claim on the assets to the existing loans. In all likelyhood, the existing creditors would put the DIP themselves in order to avoid being primed.

  4. Gary you are a fool. Americans cash burn factors many other expenses that others don’t include in their cash burn numbers.

  5. Has anyone been able to find a source to that JPMorgan claim regarding Chapter 11? I’m calling fake news…..

  6. A330 is a great airplane. Sad to see them leave AA’s fleet. Like others have noted, the airlines are all hanging on tax slave bailout money to keep their fake free enterprise system going. No such screaming heard in the MSM about the local independent business needing a bailout. TBTF wins every time. America is headed for a corporatocracy. Might as well get it over with and fold all U.S. carriers in the Aeroflot of America – your new AA.

  7. @Balanced – cash burn numbers aren’t apples-to-apples but American’s cash burn was higher in the 3rd quarter than competitors after adjusting for this. Call me a ‘fool’ if you’d like, but American admits this. In fact Doug Parker acknowledged it explicitly in a question from an employee during State of the Airline following the earnings call.

  8. If some hubs are underperforming, then why don’t they cut them. I sure hope Los Angeles and Phoenix aren’t underperforming. I really hope there aren’t any underperforming hubs

  9. Great recap-thanks Gary.

    AA’s overarching problem is management that gives customers almost no reason to choose AA. Having no sustainable, competitive advantage is a tough place to start, and Parker et al aren’t even looking for one.

    As for boosting credit card usage, why would one want to use those C grade cards? And the overly harsh booting of customers last year for using mailers may have chopped millions of miles off AA’s liabilities, But now those customers are in large measure flying elsewhere, How was that a win for AA?

  10. “they didn’t successfully get senior unionized employee to take early retirements the way other carriers did.”
    Other carriers offered guaranteed health and retirement, American never tried. Too many unknowns after an early out.

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