George W. Bush used to talk about the soft bigotry of low expectations. All I could think when American Airlines CEO went into his carrier’s fourth quarter earnings call oddly triumphant is that former Texas Governor Bush must have had the Texas-based airline in mind.
- They boast about ‘record revenue’ which would be almost impossible not to see after 20% inflation since the pandemic.
- They earned $590 million for the quarter, which isn’t losing money, but it’s only half of what their major competitors United and Delta earned.
Former CEO Doug Parker declared in September 2017 that the airline would ‘never lose money again’. At the time he laid out an expectation that the carrier would always earn $3 billion to $7 billion annually. Adjusted for inflation that’s now $3.5 billion to $8.5 billion. Yet for the full year they did not earn even $1 billion. Against $54.2 billion in revenue, $846 million is a paltry 1.6%.
Falling short several billion dollars in profits, they touted success in cutting costs $100 million more than they’d planned. That’s called re-arranging deck chairs.
This is better than losing money. It’s better than Spirit Airlines – which Isom used to say was his north star. But their 2025 forecasts don’t show business improving aggressively. They project losing money in the current quarter.
American Airlines stock opened down ~ 7.5%, while United and Delta opened roughly flat.
American Loses Money Flying People In Their Planes
Most of the money American is earning comes from Citibank and Barclays. Operating cost per seat mile was greater than passenger revenue per seat mile in both the fourth quarter and for the full year. This means they lose money moving passengers. The profit they earn comes from selling miles to banks.
Yet the numbers aren’t quite as big as they tout. They claim $6.1 billion cash from AAdvantage, up 17% year-over-year, but a significant portion of that growth comes from a signing bonus on their new 10-year credit card partnership. That’s non-recurring and will be amortized over the life of the deal.
And even American’s credit card has lost ground – what ultimately matters isn’t just deal terms but how much consumer spending happens on the card. Six years ago, American airlines cards saw more spend than any other airline’s co-brands. At their last investor day they conceded they had dropped to third (so behind Delta and United).
American Airlines Can Compete With The Best In The Industry, But Leadership Needs To Shift Focus
There’s a lot to look forward to from American in 2025 from new business class widebody suites; the arrival of the Airbus A321XLR; Philadelphia Flagship Lounge that should be nicer than the rest of American’s business lounges; more first class seats on Airbus A319 and A320 narrowbodies; and high speed wifi on 2-cabin regional jets.
Credit: American Airlines
Flagship Suite Preferred Seat, Credit: American Airlines
American needs a Chief Commercial Officer and a unified head of AAdvantage, rather than a split team with one group focused on passenger customers and a different team focused on selling points. AAdvantage is the shining star of American Airlines, and a real competitive advantage and yet it’s actually under-marketed (beyond executives repeating the mantra that it’s better).
There isn’t someone doing much of a job of owning the vision and communication to customers about the value they can get out of the program through greater engagement, and driving continued improvement at a senior enough level to make big things happen quickly.
Their new Citi cobrand agreement may be great, but it will be underexploited. Revamp of the premium Executive card made that product worse for consumers, and while the small business card comes with access to their small business program and extra credit for tickets towards earning status, the way card spend interacts with the program has been confusing and the program itself is hugely devalued by about two-thirds.
And they need to stop playing small ball, more interested in ‘not spending a dollar more than they need to’ and investing in the kind of product that customers want to pay a premium for – in other words, doing more than just talking up ‘premium seats’ but delivering on a premium experience. And doing more than giving away the store to managed corporate business to bribe them back after chasing them away.
Presumably all US based airlines make little profit on their actual core business. Without credit card revenue they’d all be in financial trouble. However, DL and UA seem to have a more robust and lucrative International operation versus AA. The only air passengers that make any money for the airlines today are the ones buying International premium.
AA doesn’t have the planes to expand Internationally and they seem reluctant to do anything to improve the domestic coach experience beyond being a step above Frontier and Spirit. Ditto operational reliability.
And yet they keep degrading their inflight product. The new service standard of not having a second beverage service in Y on most longer domestic flights just stinks of cheapness.
Great opportunity for them to layoff crew, and use the excess funds to do stock buybacks. Rinse and repeat.
And, please, keep picking fights with corporate travel platforms and other OTAs. Brilliant.
Their new motto should be: ‘Bring your own devices. Deal with it.’
Right now AA does not have the right planes, the right leadership, and (mostly) the right workforce. Before they had AA brand and very strong AAdvantage program. Not anymore. Tell me one aspect AA is better than competition?
American has spent years making their customers want to go to another airline. It worked for me, once did at least 6 flights per year with American, now zero.
The board are incompetent, they all need to go. Then the new board needs to fire the leadership as they are also incompetent. Only then can things start to turn around.
Amazing that Isom’s reported salary ($34m) is 4% of AA profits. His pay should be closer $340k and even that is being generous given his performance
They’ve been terrible for years, treating customers badly, reducing seat sizes, charging for everything. I literally live at their hub and do everything I can to avoid flying American. It adds an hour to my commute but I’ll drive to Love Field and take Southwest if I can, because Southwest’s service is so much better than American. If Southwest had international code share I’d likely never fly American again.
Time to raise prices and get rid of free upgrades!
“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself in a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.” — Theodore Roosevelt
Wow. Really well stated article, thanks Gary. As for the part about Cash Flow (“They claim $6.1 million cash from AAdvantage, up 17% year-over-year, but a significant portion of that growth comes from a signing bonus on their new 10-year credit card partnership. That’s non-recurring and will be amortized over the life of the deal”), that’s borderline fraud. The SEC may wish to have a word. In sum, what several others have pointed out is spot on: This is a failure of leadership, the CEO and the Board has to go.
Jetblue should enter OneWorld, team with Alaska Airlines, and kick American out.
It’s so sad to hear how much people hate American and its product. I’m a flight attendant for AA and I would do nonstop inflight service for those who wanted it, and I want to provide the best I can for our passengers. Our management is to blame for most of our problems. They barely give us any supplies, the quality is low, the seats and lack of seatback IFE suck. I want to be proud of what we provide people. Every customer needs to speak up and demand we get rid of Isom, the BOD and all of the current upper management team. Otherwise, nothing will ever change.
I avoid AA like the plague. They used to suck and I thought I’d give them another try last year and it confirmed they suck more than ever!
@TexasTJ – the language they use about it is accurate, i’m just pointing out that the number shouldn’t be used when comparing like-to-like with (say) Delta’s #s
Anonymous AA FA,
AMEN!
I have been with American for decades but I find myself in International Programs now where I can book a seat in business class on miles/points between 29k to 90k on average on a nicer plane
@ American that 57k business class award typically means you are booking BA with a 700 plus dollar extortion fee
American flights in business/first seem to be 250 to 400 k each way so I’ve switched to other programs
Even booking BA makes more sense than booking most anything on America and just paying the high fees
Also to many games with married segments and the like.Sadly I’ve moved on
So that means not buying revenue seats or using their partner credit cards as its a rip off
@dwondermeant
‘American that 57k business class award typically means you are booking BA with a 700 plus dollar extortion fee’
tbh, I think it’s BA that extracts the fee. If you get AA for a leg, the fee is much lower. And even Alaska has a fee when you book award via BA.
I do agree that AA redemption rates on its own metal have jumped up dramatically. And with Qatar and Etihad flights being rarely available, AA isn’t what it was even 1 year ago.
You are very deceiving on you part about CASM vs PRASM making it seem like AA was the only one in this boat when DL was worse off and UA just barely above water. While AA was 17.34 vs 17.52. DL was way worse at 17.79 vs 19.22 and United eeked out a penny at 16.95 vs 16.85. TRASM vs CASM was in the black for all three airlines. And lets not forget the company owned up to the cost of the failed sales strategy back when Vasu was let go (in the neighborhood of $1.5B lost revenue for the year). Adjusting for this lost revenue would have AA only $1.3B behind in total operating revenue. I will be the first to admit AA needs to move on from hyper-focusing on being the most cost-efficient airline in the industry to dual focusing on that plus improving revenue, especially since the $15B debt pay down was completed a year ahead of schedule. Even Isom said on the earnings call he wasn’t happy with our lack of margin growth. Lets get to work then.
When airlines sell miles or points, they are selling travel, no matter how they account for it.
“Six years ago, American airlines cards saw more spend than any other airline’s co-brands. At their last investor day they conceded they had dropped to third (so behind Delta and United).”
Gee, maybe Corporate Security shutting down all those churners 5 years ago wasn’t the best idea after all…
Part of the AA problem was how they recently treated their business customers with their propriety web requirements. What an insane way to alienate your premium PAX and corresponding travel departments.
It will take a lot of kissing up to climb out of that Rabbit Hole.