In an employee question and answer session with pilots, posted to the American Airlines intranet on Monday, CEO Doug Parker laid out an overview of his airline and the industry.
He began explaining that American Airlines revenue was down 85% in the second quarter of 2020 (rounded to nearest 5%). He offers that “in good years” American makes ~ 10% margins (though he neglects to note that most of that comes from their credit card deals, rather not flying). And he projects:
- For the 3rd quarter, which they are about to announce, revenue will be down ~ 75% (rounded)
- The 4th quarter will be down ~ 65%, with capacity still down more than 50%
American may fly more and still not earn as much money because they’re doing lower revenue flying. With a bit of a chuckle, Parker offers that today’s passengers are “somewhat different from our normal clientele.” Then he backtracks a bit, “we love all our customers of course!”
Today’s airline customers, though, aren’t business travelers. They are “leisure customers traveling to leisure destinations.” I’ve made this same point several times a bit more bluntly: that all airline passengers are Spirit Airlines passengers now.
The airline previously shared that fewer passengers than normal are even members of the AAdvantage frequent flyer program, that business travel has recovered perhaps to just 15% of last year’s levels, and that most customers are buying the cheapest tickets available (and fares are down). As a result American does better on traffic than on revenue.
However he thinks that if American can get “back to 85% of 2019,” then they’ll “be wanting to fly all of our airplanes.” At that point they’ll at least cover the marginal cost of flying for the aircraft that remain in American’s fleet.
And he sees American making a profit at lower revenue in the past, having “become a lot more efficient,” and on this score he cites “30% less management” after layoffs.
Ultimately he believes “this is going to pass, it’s going to be a slow recovery, it’s going to be a difficult recovery but we’re well-prepared for it… it’s entirely demand driven, our company isn’t broken.” Notably then he believes they’re well prepared, and that the crisis will pass, even without the additional bailout he’s lobbied so hard for in Washington.