At the J.P. Morgan Industrials Conference this morning American Airlines CEO Doug Parker started by talking about coronavirus and cuts that the airline is making. Cuts to their schedule, though, are somewhat lighter than those at United and Delta.
Parker pivoted to talk about the airline’s operational performance, and growth plans including from new gates coming online in Charlotte and upgauging regional jets next year at Washington National airport.
My reaction to his focus on growth and opportunities, such as through partnerships with Gol, Alaska, Qatar, seemed to me tone deaf to the times. (Indeed the first question Parker got was why they weren’t able to cut schedules as much as other airlines.)
I think though that American just has a real difference in perspective. Parker said they are “not breaking out the distress playbook..that’s not where we are.” I hope he’s right of course.
I was surprised that American isn’t delaying capital spending on its Oasis project to add seats to their domestic narrowbody fleet. They don’t appear to need an extra 12 seats per plane right now. Of course now is a good time to have aircraft out of service, and airline President Robert Isom mentioned the possibility of accelerating the retirement of the Boeing 757 fleet.
While we’re not seeing fare sales, Parker suggested that by leaving the lowest fares open and more available they’ve been able to stimulate additional ticket sales into summer.
And they emphasize their strong cash position. American touts more than $7 billion on hand, which is about $2 billion more than Delta. However they have $2 billion minimum cash required as a debt covenant. Their cash position then isn’t really all that much better than Delta’s, and they don’t have the same level of unencumbered assets that Delta has.
There are places they can go for money, of course, such as pre-selling miles to their credit card partners the way airlines did during the Great Recession. American, like Delta, says they aren’t having those conversations at this point.
The question is how bad things get and how long this lasts. I’m surprised not to see greater cuts to American’s European route network. We haven’t seen cuts to Madrid, which in my view probably had too much capacity to begin with.
What do you mean by this?:
‘There are places they can go for money, of course, such as pre-selling miles to their credit card partners the way airlines did during the Great Recession. American, like Delta, says they aren’t having those conversations at this point.’
CLT is an under appreciated asset – southerners more likely to travel now than coastal
Interest rates are cheap and a lot of banks notified corporate clients they are available to help in the crisis. Barclays just said to UK corporate clients that they can extend loan repayments by 12 months and make special adjustments to payback period. Since many AA aircraft are financed and the airlines are in strong financial positions they can work out less cash payments if they need to with banks. Airlines could also probably tap fed assisted repo markets with cheap rates as well.