In the fall I walked through American Airlines financials to show that the airline is losing money flying but earning an overall profit thanks to selling frequent flyer miles to banks.
American Airlines released their first quarter earnings and here’s how things break down:
- Passenger revenue was 14.49 cents per available seat mile, while total cost was 15.31 cents per available seat mile.
- That’s $7.02 billion in passenger revenue. Add in $218 million in cargo revenue, for $7.24 billion in ‘flying revenue’ against $7.42 billion in expense. That’s a $180 million loss for the quarter.
However the airline reported a $245 million pre-tax profit thanks to selling miles to banks. For the quarter their “[o]ther revenue was up 1.9% to $708 million due primarily to higher loyalty revenue.”
American points out that they wouldn’t be able to earn their credit card revenue if they weren’t flying planes. That may or may not be true — LifeMiles sells miles successfully (even referring to flown miles as ‘bad miles’ and sold miles as ‘good miles’) to people who never set foot on Avianca aircraft.
Nonetheless it’s beside the point. They are a successful frequent flyer program. They are not a successful airline. And that means they underperform financially even more than is initially obvious, and the reason why is illuminated.
Surprisingly not a single financial analyst on the airline’s earnings calls asks about this. They ask about capacity trends, fuel costs, pricing power, but not the primary driver of profit for the business — nor why the rest of the business does not make money.