American Airlines is dropping out of the S&P 500 before market open on Monday, September 23rd. It will move down to the S&P MidCap 400.
That’s not S&P’s judgment about the airline’s performance and prospects… but it is the market’s judgment. It’s based on the value of the company.
- The airline’s market cap is currently about $7 billion.
- United’s – which had been almost as vulnerable to bankruptcy during the pandemic and which has been taking on huge commitments for new aircraft orders – is worth over twice as much at $15 billion.
- Delta’s market cap is $27 billion.
Even the much smaller Alaska Airlines is worth nearly $5 billion, by the way.
The last CEO publicly bet on shares hitting $60 – the leader with 3 DUIs bet wine – and shares now hover around $10, around the lows from the start of the pandemic despite receiving far more in government subsidies than the airline is worth today and despite travel’s recovery.
American blames their underperformance on walking away from managed travel and punishing travel agencies. They say the strategy is costing them about $1.5 billion in annual revenue. That may be on the high side, and it’s revenue, not profit. They did nearly $53 billion in revenue last year.
This doesn’t explain their problems in either absolute or relative performance. They let go the architect of the strategy and while there were missteps he also seems a scapegoat. Recovering all of this revenue doesn’t turn around the airline. In fact, AAL stock is lower today than after they announced Vasu Raja’s departure.
Ultimately they lack leadership and a culture that pays attention to the product. They focus on basic on-time statistics but don’t really invest in improvements. And they leave it at those table stakes.
What’s truly amazing is that the company’s board has abided this.
Well said, thanks Gary !
American has flailed since they attempted an out-of-court restructuring post 9/11 and never got costs down as far as airlines like United – which had the longest and most expensive bankruptcy in US airline history or future merger partners US. Add in that every other legacy except AA filed for chapter 11 before AA and AA’s inability to get costs down not only allowed competitors to grow in AA strongholds but also opened the door for opportunistic raiders like Doug Parker who isn’t much different than Carl Icahn or Elliott – personal enrichment at the expense of the company and its employees.
Product always falls at companies that can’t generate comparable profits to its peers.
It is also worth noting that AAL is the only large jet US airline that has no stockholder equity.
it is equally notable how much lower UAL’s market cap is than DAL’s and the percentage of UAL market cap to DAL has remained pretty much the same for years. DAL and LUV used to have similar market caps but DAL is in a class by itself. Ryanair has a higher market cap than any other US airline than DAL.
btw, JBLU’s market cap is just over $1 billion, aided by its nice investor update this week that shows their turnaround plan is working.
Lower fuel and interest rates when the Fed acts will help all airlines
Good. When I buy a S&P 500 ETF, it will no longer have any of the money invested in American Airlines.
Delta has 27 billion, because they don’t invest in aircraft and are still flying around 40yr old crappy planes!
@Tim Dunn – it isn’t just that they failed to get costs down in bankruptcy, Parker came in and halted the process.
The decision not to declare bankruptcy was admirable on Arpey’s part. Not wiping out shareholders is what a CEO ought to do. But he resisted it even when it was clearly inevitable. Ironically if he’d waited months longer the price of fuel would have dropped and Parker couldn’t have swooped in so cheap.
as usual, the people that can’t handle the truth are out in full force.
-DL’s fleet is younger than UA’s
-DL’s fleet fuel efficiency including regional jets is 6-7% better than both AA and UA. DL realized over a decade ago that mainline aircraft were more efficient than even large regional jets. DL previously intended to retire the 717 but is now keeping them until the end of the decade because there are no new generation regional jets and the 717 has fuel and labor efficiency better than large regional jets.
– DL spends far less than AA or UA does per seat mile on maintenance because it figured out that its own maintenance costs are offset by selling maintenance services to other airlines and securing engine maintenance contracts for the vast majority of in-service new generation engines
– half of DL’s domestic fleet (over 400 aircraft) has a fleet age of less than 6 years.
– DL is now turning its attention to widebody fleet replacement and growth, is retiring 767s this year and that will continue through the decade, and DL will receive 14 new widebodies this year (most of which were received after the summer season began, limiting the ability to add new routes this summer) and 11 more new widebodies next year before the A350-1000s enter service in 2026. DL is the only US airline that has a new generation large widebody on order while AA and UA will be using their 777–300ERs for 10 or more years after DL puts the A350-1000 in service.
– DL has the lowest amount of long-term debt among the big 3.
None of which changes that DAL is worth 3.8 times what AAL is worth and 1.8X what UAL is worth. Although UAL surpassed LUV in market cap, LUV is now worth a couple billion more than UAL but DAL is still worth 1.5X what UAL is worth.
And AAL is still no longer an S&P 500 company. It got demoted.
4 steps to quell the angst
1. Bring back AAirpass ASAP
2. Undertake sales initiatives to re-engage with travel agents and corporate travel managers
3. Understand and define the “product”-
It’s not the schedule – pay attention to premium services and premium class travelers
4. FIX their woefully uncompetitive Million Miler Program
Yet , they seem to consistently and constantly engage in analysis paralysis.
Dropping from S&P 500 should be a warning that the present course is untenable . Ideally , it should prompt a meeting of the Board .
Maxie,
numbers 2 and 3 are the real issue. AA has not generated revenue in line with its costs, let alone enough to pay down the debt it accumulated over the past 15 years spent on massive fleet renewal and buybacks.
UA is right now generating sufficient cash and profits to stay above that line while DL has been doing it for over a decade.
The reason for AA’s revenue performance is product related – which is heavily tied to AA’s inability to find peace w/ labor.
Add in that AA has become so much less relevant in the 3 biggest travel markets in the country – NYC, Chicago and Los Angeles and AA’s losses in those 3 markets have only helped DL and UA – and it is far from clear that AA can regain the size necessary to compete as a true global carrier, esp. given AA’s smaller international network size.
Insult to injury is that AA’s labor costs are much more aligned with DL and UA’s than with lower cost carriers including WN which are closer matches to the relevance of AA’s network and product.
The US maybe really does not need 3 truly global carriers; AA might play the in-between role between DL and UA on the top end and AA, B6 and WN as heavily domestic airlines with varying degrees of size and network differences to AA.
until AA can address its financial and revenue underperformance which is related to its network and product, AAL will likely trade at a discount to UA and WN and even moreso to DL
@Tim Dunn – While Delta has done an impressive job turning its maintenance operation into a profit center, this is not the full picture:
“DL spends far less than AA or UA does per seat mile on maintenance because it figured out that its own maintenance costs are offset by selling maintenance services to other airlines and securing engine maintenance contracts for the vast majority of in-service new generation engines”
AA also outsources far less of its maintenance than competitors, contributing to higher costs.
It isn’t just that Delta figured out how to sell maintenance services (as well as maintain its fleet of older jets so that they perform more reliably than American with newer jets), but also that AA has failed to get its own costs in line. They had a plan to do this five years ago but completely capitulated to TWU-IAM (even failing to get legacy US Airways mechanics into the unified health plan).
AA should be at least 3X the value of Alaska Air. This is an incredibly sad day. The AA board needs to be revamped and they need to fire Robert Isom. These people are managers, not leaders. The U.S. needs a 3rd large Domestic+International airline.
@Gary Leff
AA outsources way less in multiple areas such as ground services. Outside of hubs and major cities, Delta will outsource ground handling. It used to be in house under DGS and Regional Elite which then merged. A few years later they degraded benefits at DGS to the point people quit and then when the sold DGS, benefits tanked even more including revocation of any existing flight benefits. Internally, Delta also leans heavily on ready reserve staff who are fired if they don’t answer the phone more than 3x. Let’s also keep in mind Delta hoards their profit sharing for mainline employees even though wholly owned subsidiaries contribute to that profit. The grass isn’t greener on the other side, just a different shade
@Tim Dunn
Schill out
@Mitch “Delta also leans heavily on ready reserve staff who are fired if they don’t answer the phone more than 3x.”
Flight attendant reserve ratios at American doubled under current American Airlines management…
American needs a new Board of Directors so they can hire capable management for a change. The current Board just keeps handing the keys to the airline to people who are supremely qualified to run a ULCC and are completely unqualified to run a quality large airline.
Feel free to provide updated data on outsourcing but AA’s maintenance outsourcing ratio has definitely gone up. It was low because of the lower percentage of airframe overhauls that AA had to do because of its younger fleet – but their fleet is aging at the same rate as DL and UA’s (and everyone else) but AA is taking delivery of fewer new mainline aircraft and retiring fewer than DL. AA has decided to let its fleet age because they are not getting the benefits of a younger fleet esp. relative to the much higher ownership costs they have compared to DL.u
AA outsources other services from mainline; they just happen to do a lot more to their wholly owned regional carriers because flying a much higher number of regional jets is part of the strategy AA has to let lower paid workers do work instead of mainline workers.
There might be a case for Endeavor employees to be paid DL profit sharing but it won’t make near as big of a difference for them given their lower salaries – in line w/ other regional carriers – or reduce the huge positive gap that DL employees have in profit sharing over AA and UA employees.
Gary,
AA had the Rolls-Royce MRO contract for previous generation engines but gave it up because they didn’t want to order the RR powered 787 or new generation Airbus widebodies which are the only places that new RR engines are found now.
AA also chose the LEAP engine on their A321NEOs for commonality w/ their MAXs, a decision that UA did not make while DL has the GTF contract on the NEOs, A220s and E2Jets and also has won the MRO contract for the LEAP on MAX aircraft – but not for LEAPs on NEOs. DL simply has made the determination that having engine maintenance contracts in order to keep its own costs down and, at the same time, get high margin revenue from other overhauling and maintaining other airlines’ engines.
DL maintenance costs are lower because they can rehire retired mechanics as contractors and not have to provide benefits, something AA and UA’s unions will not allow.
nobody is schilling by stating those clear facts which have to do with costs… and the bigger issue for AA is its revenue underperformance
@Gary Leff.
I was more talking about ground services in that sentence since that is my only experience with DL as an ex-employee.
There is no spin to this. It’s just brutal. For now, AA still has enough cash flow to stave off Bankruptcy but they won’t have any breathing room with any disruptive event in the future.
ULCC mentality manager must be inmediately removed from being iun charge of premium products!!!
Ineffective management team. Doug Parker and Robert Isom have ruined the American Airline name. Until Isom is gone a long with the rest of US Air management AA will continue to fail
@Tim
Get your own blog, blowhard…or better yet, get a life.
@Gary
Why do you indulge him?
I’ve expressed my opinion before, but I’ve cut-andrun.
1) I’ve sold all my American Airline stock last week.
2) While I will likely still be EP next year, I’ve qualified for BA Gold until 2026.
Short of @Maxie Dean’s suggestion of bringing back AAirPass, I don’t see myself spending (in 2025) for any intent to earn Loyalty Points.
Gary could only wish he had more people like me that could interact w/ the topic instead of worrying about someone else saying something or not wanting to hear/read the truth – both of which describe you.
None of which changes that AAL has been booted out of the S&P500 because it has underperformed for so long it is not worth what other airlines of its size are worth – and that is not likely to change anytime soon
AAL mgmt and board seems happy for American to just barely hold on
Bankruptcy looms larger and larger. Isom, Byrnes, the entire c-suite, and the BOD need to be sh*tcanned.
The airline is wildly mismanaged. Why did Isom receive over 30 million in bonus? Why was Vasu Raja given the golden parachute he was given?
The company needs to wipe out half or more of its middle management team. They walk around with clipboards doing whatever they can to justify their existence while ignoring the employees who are trying to do the best they can with the resources they (don’t) have. This management team is so out of touch it’s pathetic. Isom needs to go.
Is tim at 30 paragraphs on a Saturday morning?
Hard truths: your mom doesn’t want you in her basement anymore
And her last name isn’t Dunn 😉
@Taylor – Changing middle management is just shuffling deck chairs on the Titanic. The changes need to be much farther up. The board of directors just keep nodding like bobble heads at whatever the current CEO says. That means they need to go. A new CEO with experience at providing what customers actually want is a desperate need as well. The rest can be worked out since there would be capable leadership instead of inept management.
How can every single flight be oversold, go out full and AA is still poor? Only one place to put the blame – management and the BOD. Fire the entire Upper Management and get a new BOD. This ship is sinking and it’s not because of the hourly workers.
sad little Max proves once again he can’t stand the reality which everyone else sees except him so he lashes at the people that point that out to him.
Hey Max,
you do realize that the two N. Texas headquartered airlines are the underperformers in the industry but AAL stock has done worse than LUV for every standard time period over the past year.
Why AAL isn’t being the target of people like Elliott or Icahn is truly a mystery
Tim
Your mom is calling you.
Turns out you do have Saturday plans
35 paragraphs monitoring all this now?
And n texas hq companies…
So?
How can someone be so tragic?
You truly aren’t smart enough to realize that criticizing how much time I participate in aviation social media means you have to do the same. What a pathetic hypocrite.
You clearly are too thin-skinned to accept the legitimate criticism of AA that it is due and yet I also have noted positives about what AA is doing.
You are incapable of hearing anything negative about AA or positive about DL so you lash out incessantly at me.
Grow up.
AA has been a business disaster for 25 years. Everyone w/ a modicum of intelligence and business knowledge can see it.
oh, and to add to the list of financial underperformance – AAL has long had one of the highest ratios of short interest in the stock – meaning people who bet the stock will get worse. AAL stock is now at 18.5% short interest.
All of the other big 4 are at 5% or below. JBLU is about at the same as AAL, SAVE is over 30%.
everyone can see that AAL is a financial dumpster fire – and maybe more than just financial
“Why AAL isn’t being the target of people like Elliott or Icahn is truly a mystery”
There is no mystery. Both Elliott and Icahn want to make money. Raiders have determined that they cannot make money on buying American Airlines stock at the current price point. If AAL goes down significantly, a raider may be tempted to buy it. They have to consider that their purchase may be wiped out in a bankruptcy vs how much they could make and the possibilities of each.
Tim, when is the data regarding UA vs DL fleet age pulled from?
I’m curious how much it has changed in the last two years.
In the last couple of years, UA has taken delivery of approximately 250 brand new planes while retiring approximately 50 planes that are 30 years old.
I’m assuming that is resulting in a significant reduction in the average age of UA’s fleet.
AAL has enormous potential; a raider could make far more money on AAL than on LUV or JBLU.
The problem is that AAL is so complex and so much of their problems are so deeply rooted but there is no reason why AAL shouldn’t do better.
The fact that AA mgmt and the board is content to be flying just 2500 feet above ground level is very sad to watch.
At some point, there is no hope of return but I’m not sure we are there yet
“What’s truly amazing is that the company’s board has abided this.”
Unfortunately, it’s actually quite predictable. As a hard-core capitalist, a fundamental problem with corporate boards in the U.S. is that they have steadily forgotten their mission and instead often simply seem to go along with whatever the CEO wants.
I wrote about this a number of years ago when the head of the APA was literally bragging about removing Horton and getting Parker on board. Except for the various unions, practically everyone and their grandma knew Parker and his team were NOT the solution to AA’s problems. This was long time coming. Bankruptcy is also not out of the equation.
FALSE: “AAL has been booted out of the S&P500 because it has underperformed”.
AAL was moved from the S&P500 LargeCap to the S&P400 MidCap because of its market cap. American Airlines is more representative of a mid-cap than a large-cap.
I guess American Airlines is pretty much Screwed
I guess AA company is pretty much screwed
This airline is overly managed. You dont need so many supervisors if your employees are proud and happy. Focus on the product and frontline employees to improve service. Rebuild the relationship with corporate travel and agencies. Improve your onboard service. Stop service those pretzels and give passengers more choice. Get more seatback entertainment. Place a premium on first class upgrades. Seems everyone these days upgrades and it waters down the product. Make first class like it was in to 90s. Better food, and service. This airline needs better leaders.
If anyone wants to know what’s going on – come talk to senior employees at the hubs above AND below the wing.
They really to need to analyze compensation across the network. They pay aircraft dispatchers a ridiculous amount of money and pay them for hours not worked. Come schedule a tour at the IOC and see how hard they work as they have their feet up on the desk and are watching Netflix. $200-$400k a year is the average salary for these folks yet they are the biggest complainers and disgruntled work group.
Well what you expect US Airways took over and implemented their loser mentality and destroyed what was left of AA employee morale is at all time low and you have a bunch of Airheads and little kids trying to run an Airline their debt is incredibly big and soon or later Chapter 11 will take place and they will have to restructure the right way or they will be liquidated just that simple.
AA needs to fire it’s board of directors. These guys know nothing about running an airline. They may be managers but not airline leaders and that’s why the airline is failing.
How do you have the largest fleet of aircrafts and yet still fail to compete?
Deltas fleet is much older than AA. 757, 767, 717. 737-200. These planes are all almost 30yrs old and delta has plenty of them. Even the A330 are old as dirt
Bill,
first, UA’s fleet is older than DL’s. DL’s A330CEO fleet is younger than AA’s 777-200ER fleet. DL’s 717s are younger than AA’s 320s.
Second, fleet age doesn’t have never as much to do with cost as a lot of people make it out to be.
DL has better fleet fuel efficiency – about 7% – lower than DL and UA because DL has 200+ fewer regional jets (there is no such thing as a new generation engine powered regional jet in the US fleet in contrast to MAXs and NEOs). DL also got rid of its 777s during the pandemic; the 777-200ER is the least fuel efficient widebody per seat in the US airline fleet – the A330CEO burns about 15% less fuel per seat and flies similar missions with a similar number of seats as the 777-200ERs for AA and UA.
DL also pays less per seat mile for maintenance because of DL’s better combination of outsourcing and insourcing maintenance expenses – DL sends its heavy airframe overhauls out but does hundreds of engine overhauls for other airlines every year which adds efficiency to DL’s maintenance operations.
and the problem for AA is that they took on huge amounts of debt to buy those new aircraft and the extra interest expense adds to the cost of those aircraft; DL, UA and WN are right now currently paying for new aircraft w/ internally generated cash. Even in the best of times for the industry in the 2010s, AA was taking on debt because of stock buybacks and huge aircraft purchases which is why AA”s debt went up so much.
Now AA is not generating enough cash to materially reduce their debt.
As of the quarter ending 30JUN24, American Airlines long term debt stands at 27.636 Billion, due to the pandemic bailout. This is why “corporate raiders” like Icahn have no interest in AA. Has nothing to do with market cap or profitability.
AA is also a victim of worshiping at the DEI throne and wasting money on positions and programs that took workers off the line for “training”. During Covid they reduced some of the most experienced people who bit the incentive apple and left a weaker group behind. Despite the internal platitudes of being the best, and customer number one, they executed policy and programs that were counter productive to claimed goals with mid management riding front line supervisors and station managers like tortured race horses and making the customer the obstacle to on time, baggage and related internal goals. They need more employees with Joe Petrone work ethic and less DEI automatons.