American Airlines lost $312 million in the first quarter, which is historically the toughest quarter for an airline. Delta made money, and United only lost money because of the grounding of the Boeing 737 MAX 9. Still, American Airlines is initially trading up on these results because of projections for the quarter ahead.
At the same time, American reported its “best-ever first-quarter completion factor” (not cancelling flights).
- For years, CEO Robert Isom has been saying that they needed operational reliability and that would make them profitable.
- While the saying is usually that an empty coach seat next to you makes the food taste better and service seem friendlier, his usual telling is that on-time departures do this.
- The lesson continues to be that reliability is a baseline condition. An airline won’t make money without it. But it is not enough. And a high cost airline needs to earn a revenue premium to make money, but this airline is not pursuing a premium strategy like Delta and now United.
The $312 million loss was despite $1.1 billion in non-passenger revenue, the largest component of which is credit card revenue: $187 million from cargo and $925 million from “the AAdvantage affinity card program and other partners and airport lounges.” In his prepared remarks, CEO Robert Isom highlighted growth in co-brand revenue. Their loss on flying planes though was substantial.
Notably, Isom talked up AAdvantage a lot more than he ever has in the past. It’s a key part of their strategy now: connecting passengers throughout the Sun Belt, relying on partners for international connectivity, and rewarding customers for sticking with the carrier through their frequency program.
AAdvantage is the tool they’re currently using to drive third party agencies to move to a lower cost distribution platform and sell more than just tickets for American. Agencies that don’t do this will start issuing tickets that no longer earn AAdvantage miles.
Vasu Raja says many agency customers are leaving agencies and booking direct. They are seeing 7% lower distribution expense. He says agencies are signing onto their plan, in part because it will make the agency more attractive (when still able to award miles). He didn’t answer a question about how they’re modeling the amount of travel they’ll lose versus revenue from more upsells.
- Other airlines are reporting managed corporate contract travel growing significantly
- American focuses on unmanaged, small business travel in their messaging – that’s growing – but they concede corporate travel isn’t growing like Delta and United report. Robert Isom admitted that competitors get a benefit from changes they’ve made.
- But they defend the position to do less in the managed travel space. And at the same time you wouldn’t expect them to do as well here anyway because recovery in managed travel is in places like New York and San Francisco where American is weaker to begin with.
A key point that Raja made – which he’s made in the past – is that corporate travel customers get discounts, sit in premium cabins, but aren’t always profitable. He’s explained this previously as being able to fill planes without discounting when people book direct, so he didn’t see a tradeoff – that works until any downturn perhaps, when they aren’t fully filling planes. Raja does say that the majority of agencies will be preferred agencies, which helps explain why American pushed off the deadline for whether agencies qualify for their tickets to earn miles to July 11.
Some other notes,
- Robert Isom noted Delta pay rates, will increase offer to flight attendants – but employees shouldn’t get too excited because CFO Devon May described this as “a little bit of an increase” in costs for the airline but not so much that is changes their cost guidance.
- Vasu Raja says that the Gol bankruptcy doesn’t harm their Latin (Brazil) position.
- They view regional jets as an advantage. it helps them fly to smaller markets and connect passengers through Dallas and Charlotte where they don’t have increased costs when they grow, and which they view as low cost hubs.
- They’re continuing to appeal the loss of the Northeast Alliance with JetBlue, though they say it isn’t to repair a partnership but for the precedent. Recall that the ruling creates barriers to new partnerships as well. But a renewed partnership along the lines of what American has with Alaska, that the judge in the case said would pass muster, would still seem to benefit both sides.
- Isom carefully criticized new Department of Transportation consumer rules, implying that there’s a tradeoff with safety (presumably that imposing costs on the airline for weather delays, such as through refunds, might cause an airline to push flights that are more marginal). There are real problems with the new DOT rules, and I have noted this awkward incentive in the past, but empirically that hasn’t been an issue where consumer protections are stronger.
- News of new credit card deals will come this year. Growth in active card accounts is up close to 10% year-over-year and spend growing at 4%. They say this is growing more than it used to, but inflation is higher too.
American was genuinely upbeat on this call, but they remain in a tougher position than Delta and United. They have a clear thesis on schedule, reliability and loyalty and not product. There’s probably a niche there, ceding the ‘premium story’ to other airlines. But it may be a story that would work better with a lower cost structure.
Sorry but I still remember Doug saying “ the airline would never loose money again “
Record first-quarter revenue of approximately $12.6 billion.
First-quarter net loss of $312 million, or ($0.48) per diluted share. Excluding net special items1, first-quarter net loss of $226 million, or ($0.34) per diluted share.
Achieved best-ever first-quarter completion factor.
Generated operating cash flow of $2.2 billion and free cash flow2 of $1.4 billion in the first quarter.
Reduced total debt3 by nearly $950 million in the first quarter. The company is now more than 80% of the way to its 2025 total debt reduction goal.
here’s the real numbers GARY ! they’re are fine !
“And a high cost airline needs to earn a revenue premium to make money, but this airline is not pursuing a premium strategy like Delta and now United.”
Hey Gary, I guess I’ll bite a tad on this. I agree that AA doesn’t talk about the premium traveler to the degree DL & UA do but… AA does talk about it but not to the same marketing degree that DL & UA. I’ll make the case that actions speak louder than words…
We’re still talking about a carrier that:
1. Was the first to have Premium Lounges and keep them. It’s not like AA can announce a new premium lounge like Delta and get “premium” strategy credit for it when they already have them and have for a decade.
2. Already is a part of the Alliance with the best premium lounge benefits for those with status.
3. New 789s are coming with a very premium-heavy configuration
4. The 77Ws are being reconfigured for heavy-J
5. While I know most focus on the Oasis and Kodiak project as taking out seatback video, but it also made the carrier the first of the US3 to have high speed wifi across the fleet and increased First class on the entire A321 fleet from 16 to 20
6. Some of the A319s are getting 4 more first class seats now
7. While the regional strategy they’ve laid out is what it is, it’s also another evidence of increase in premium since any flier is far more likely per the odds to get First on a regional jet than the odds on a mainline jet (as a % of total seats). Some may view that bit differently, but it does increase the amount of % availability of First seats across the network vs doing that same capacity increase on narrowbody aircraft like United and, to a lesser extent, Delta are focused.
8. Even on mileage programs, to date, AA flight availability is pretty high on AA and partners at reasonable levels unlike DL & Increasingly UA. That could change but it does make their mileage program incrementally more premium to your average user.
I get it… but I do have to say actions speak louder than words sometimes. And A LOT of AA’s actions are oriented toward premium right now.
Just my 8 cents
And still no adjustments to the woefully uncompetitive Million Miler program . So , my credit card and airfare spend goes elsewhere.
Max Power,
One correction to #4. All of the A319s, not just some, will get 4 more FC seats as well as larger overhead buns
@MaxPower the lounge project began under previous management and was part of JV negotiations
American does some premium things! Flagship First Dining, for instance. But they’re quite clear that they do not aim towards the business traveler, that their business is focused on the domestic sun belt connecting passenger. They’re adding A319 first class, which isn’t a very premium offering – they had fewer than you’d expect and can sell these seats but America West had a first class cabin too!
They did a good job with high speed wifi and charge more for it than anyone else, but Delta and JetBlue have high speed wifi too and do not even charge for it.
I don’t think you can call E-175s a premium passenger strategy. And you can’t really fly them in much less of a premium config due to pilot scope.
Saying AA has a better mileage program is consistent with the airline’s articulated strategy.
Noted that AA continues to appeal the Northeast Alliance on a precedence basis. Looks like AA wants to use other airlines to fill in voids at competitor hubs without expanding capacity. Have a feeling B6, AS, & HA are waiting in the wings for a call. Even SY could do some wet leasing work.
Same reasoning with their regional partners. Let the little guy fill in the small towns and act as an additional frequency at key AA hubs. Again, coverage without expanding capacity.
If leveraged correctly, could add money to the top and bottom line.
Agree with MaxPower. There are a lot of pluses for the premium market on AA.
I’m one who really needs that regional connectivity and it is a game changer for a business traveler who flies a lot but not between major cities
American’s top brass like to tout operational reliability, but it isn’t so. Have taken 8 roundtrips on AA in the past 2 months (LHR, LAX, DCA, DFW, SFO, MIA). Every single one of those flights was delayed on average 2.5 to 3 hours, except for my LAX flights. Each time, it was maintenance.
American is working hard to lose my business.
Hey Ryan,
I believe it’s still only 32? Sorry, Gary. I think you did an article on this as well, but this is the one that popped up on google with my terms. https://onemileatatime.com/news/american-a319-more-first-class-seats-tighter-cabin/
“These changes are only coming to the 32 A319s that were initially delivered to American”
Gary, thanks for the reply and thoughts. No sincere disagreement, just some unsolicited incremental thoughts on my end as it pertains to AA and premium.
I know what you mean about the lounges and all but, in fairness, they’ve had 10 years to renegotiate with BA about the lounges if they wanted. It’s not like that’s happening.
American Airlines focus is on their shareholders, cost cutting, and offering an inferior product by choice. Way to go AA! Settling for mediocre is catching up to the airline. Mediocre to awful I must say.
Agree with shoeguy, AA is undependable. You cannotrely on them to get you where you are going.
AA seems to think their delays are the passenger’s problem. No apologies even when the delay is their “controllable” issue.
Most of AA’s soft product is lcc domestically and almost acceptable internationally.
As an AA 4 Million Miler, loyalty has its limits. AA constantly tests it.
If Robert Isom, the CEO, and Director of American Airlines, earned $31.4 million in 2023, which is about $7.85 million every 90 days, if he stopped his pay for 90 days, American Airlines would have lost only $304,150,000 in the first quarter. [For math nerds: $312,000,000 American Airlines first-quarter loss minus $7,850,000 90 days of Robert Isom salary and benefits = $304,150,000 revised American Airlines first-quarter loss.]
@ Gary — AA, DL, and UA will al eventually go bankrupt again. Back to the trough for more giveaways…
I must say that while incremental revenue streams can and should always be additive to the bottom line, if you consistently are unable to make money from your core competency, i.e., flying aircraft full of people, there’s a bigger problem.
Basing financial success on a credit program is fraught with risk as I see it. First, it’s at significant risk from government intervention, and second, at some point there will just be too many card holders at which point the program’s value as seen by the consumer will collapse. The best proxy for this might be Amex’s Centurion Clubs, which are just best avoided.
One thing that seems to be lost on all the US-based major airlines, and for sure AA, is that it is way easier to sell to your existing customers than trying to find new ones — who are probably buying at the marginal price. I haven’t seen any effort to build on existing relationships by AA, but then, as I have observed before, it does seem that they are determined to win the race to the bottom.
I agree with @MaxPower about “premium” US airlines. I’ve flown about 10,000 miles on each of the big 3 airlines in the past 6 months and the onboard product and service in both cabins are extremely similar. Delta used to seem slightly “fancier” on board, but they’ve now diminished their product to match their competitors. If you have lounge access, I still think DL’s lounges are slightly nicer, but the gap is diminishing, and very dependent on the specific airport you’re flying out of. Nobody should choose a major US airline on the basis of “quality”: schedule and price (including your ability to achieve material loyalty perks) should rule your
decision. Which I think explains AA’s strategy if you’re not super-focused on immaterial flourishes.
Easiest way to increase profit: AA must offer to passengers before boarding to upgrade by paying with cash/cards or with award miles. I seen empty seats in higher cabins class on many flights. AA allow to waste revenue right here. not sure why thus us not so obvious as extra option to reduce loss?
They certainly won’t keep me loyal charging 500 k one way for an international award booking
That was previously 80k and 110 k
AA premium offering has been put on the back burner. But I also think we need to remember AA has been working at reducing their substantial debt burden for years now and in order to achieve this, you need to prioritize. A lot of the debt was from fleet renewal prior to the pandemic. During the pandemic, AA was the most leveraged airline and many predicted their demise. Down from a peak of over $48 billion in 2021, the remaining net figure now stands at $33.4 billion. They set a goal to pay down $15 billion by EOY 2025 and it looks like they are going to hit that target. Many continue to pile on with the naysayers and place Delta and United in a far loftier position but fail to account for the significant contribution of their far superior co-branded credit card agreements with both Chase and American Express to the bottom line. Not even Delta would be making money without Amex. Delta also doesn’t have to negotiate with any workgroups besides their ALPA pilots and they know it and will do anything to keep it that way. United and Delta both are in the early stages of an extensive fleet renewal and one would think if the big 3 all received their new planes at the same time, the debts would be equal. With a lot of tailwinds, I think AA is in a good spot with great things on the horizon.
Shoe guy
As a retired airline mechanic. They took the time needed to fix your airplane. They are machines they will break. Those mechanics did a nice job . Because your safe and sound and complain about them doing there job to get you from point a to point b safe. You should of said thank you