What I Learned From American Airlines Fourth Quarter Earnings

American Airlines has been performing better both operationally and financially. They made money in 2022, reporting $127 million in net income for the year. They didn’t melt down over the holidays like Southwest did – or like Delta did, which people forget because of how it was overshadowed by Southwest.

The airline’s 2022 results are an improvement, though they’re making less money than Delta or United, but their results are also a bit overclaimed. American notes “Record fourth-quarter revenue of $13.2 billion, which represents a 16.6% increase over the same period in 2019” of course inflation since 2019 is… 16%.

When considering whether revenue is ‘substantially better than’ or ‘substantially similar to’ 2019, it’s important to consider inflation even if matching 2019 revenue – after what it’s taken to get there – is itself an achievement.

Digging into the airline’s SEC 8-K filing AAdvantage enrollments up 59% against 2019, they don’t give actual numbers here but they still do not do a good job signing up members. You can’t even join the program while buying a ticket on the American Airlines website!

However partnerships are what’s driving growth: During the airline’s earnings call Vasu Raja noted that New York and Los Angeles are their biggest markets for AAdvantage program signups.

Given the importance of the loyalty program to American – in many quarters it produces the entirety of the airline’s profit, and they borrowed $10 billion against it – they should be disclosing a lot more. And they used to.

For the fourth quarter American Airlines appears to have earned money flying, excluding revenue from its frequent flyer program (and even, I think, excluding revenue recognized for award redemptions from its frequent flyer program from passenger revenue).

They reported fourth quarter passenger revenue per seat mile of 18.39 cents, against operating cost per seat mile of 17.90 cents.

For the full year, however, American Airlines was profitable but they lost money flying – profits were generated by selling miles to banks. They reported passenger revenue per seat mile of 17.13 cents against operating cost per seat mile of 18.20 cents. That’s why it’s so dangerous for them to risk the cash cow with cost cuts.

Answering an analyst question during the call, Raja explained American Airlines models airline revenue returning to 1% of GDP. Five years ago United Airlines CEO Scott Kirby complained that “in the last 30 years airline revenue as a percentage or GDP has gone to about .6 from about 1.2%.” The conclusion Kirby drew was that airfares should double, “we are under pricing our product by 50%.” Raja’s general take, along with Kirby’s earlier one, seem like a huge stretch. I’m not as optimistic on revenue.

He did offer a couple of useful data points for understanding consumer behavior though. Same day trips used to be 3-4% of the airline’s passenger load but is now down to 1%, and they are planning that as the new norm.

In other words that the 75% recovery of corporate travel, and limits on old style trips as a result of work from home and blended return to office, means that consultants traveling to client sites for Monday – Thursday and doing same-day fly outs when you’re working from home and the person you’re going to see may not be in office that same day are more limited as a result of coordination issues.

Consistent with previous reports, he also shared that 70% of people shopping lowest fare at AA.com wind up buying something more expensive than that. I recently was emailed an upsell to first class offer, that I’d previously seen in my reservation online, that I’d actually almost consider – $200 for Austin – Chicago – DC. That’s pricing I’ve purchased at in the past, and much lower than the fare differential when I booked coach in the first place.

American is years behind Delta and United in post-purchase monetization, but they’re moving in that direction. And that’s bad for upgrades, which are majority dead at Delta already. But since Delta says they’re converting 1 in 8 new SkyMiles members into co-brand credit card customers, surely the lowest hanging fruit that I’ve been writing about for years is just making it easier for people to join AAdvantage? They might have an even easier time of it if they don’t devalue awards this year.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Companies don’t really make money until they pay all of their bills including interest payments.
    Since you, Gary, have accurately noted that there is little cost in actually producing airline miles, it is not very accurately to argue that AAL or any other airline makes money on an operating basis – excluding non-operating costs which include interest payments. While there are some non-operating costs which don’t have to do with actually running the airline, interest expense for airlines is largely related to capex which was spent to support airline operations including aircraft.
    AA is reducing its debt and its interest expense will follow but B6 has tried to exclude interest expense to argue that it made money at various points while UA is increasingly doing the same thing even as it interest expense soars and will far surpass AA’s as part of United’s massive fleet expenditures.

    AA is on the right track as I said they would be and they along w/ other airlines are benefitting from continued customer doubt about WN’s reliability. When multiple airlines say that winter demand including now is strong and WN says it is not for them, there are clear lingering issues from WN’s meltdown

    As for what was a meltdown and what is not, feel free to give us a definition of what is just weather-related cancellations and where the line begins for a meltdown but a big part of the reason why AA had so much lower cancellations during December is because they have gutted their presence in the northern and western parts of the US where much of the winter weather problems for the airline industry has happened. When WN and UA have hubs in DEN, AS and DL have hubs in SEA (and AS, not DL cancelled a higher percentage of its flights due to SEA weather and the actual runway brief) closures, then there is a clear distinction between “normal” weather cancellations and a meltdown. Feel free to provide us with your definition and the associated statistics to back up your view, Gary.
    Many thanks for doing data driven analysis and not just creating baitclick.

  2. @Tim Dunn – where cancellations are weather related that doesn’t mean an airline operation hasn’t melted down, it just hasn’t melted down for ‘controllable’ reasons. Sure, some of American’s performance over the holidays was luck! But it was still better than they’d have done in the recent past while they were getting lucky.

  3. Gary,
    no, whether a delay or cancellation is “controllable” isn’t the determination of whether an airline suffers a meltdown but whether the airline cancels/delays a disproportionately larger amount of flights than their competitors that suffered the same weather in similar hubs AND did not recover at the same speed.
    AA didn’t have luck; they simply have no hubs from the Pacific Northwest across the Mountain states and into the upper Great Lakes. Airlines that actually do have hubs suffered higher cancellations than AA but recovered as fast.
    Southwest is the only airline that the vast majority of the world sees as having suffered a meltdown and the earnings statements all reflect that.
    American and Delta made almost identical amounts of net income but Delta generated the largest amount of total revenue. The former flew alot more passengers to get to that point while Delta cashed in on its refinery, its superior revenue relationship with Amex and its maintenance operations to fly less but still earn as much money as American.
    American is gaining more AAdvantage members because they are flying more – the only way they can get their unit costs down.
    As Delta aggressively rebuilds its network – as they are doing in 2023, Delta is expected to post much higher margins than any other airline, passing Southwest in margin percentage because Delta won’t lose any of its non-airline passenger revenue but will dramatically add to its passenger revenue line to a greater degree than any other airline.
    The addition of all of the new longhaul international capacity plus dozens of additional domestic aircraft will give Delta the passenger revenue growth that other airlines recorded in 2022.

    and the spring and summer thunderstorms in Texas will kick up and AA’s DFW hub will “meltdown” at least a time or two. In that respect, AA’s luck will run out

  4. and, Gary, the most significant item is that AA is taking delivery of very few aircraft in 2023 at all and only 4 787s of what they previously planned to be much more.

    AA is in balance sheet repayment mode and in becoming more and more of a domestic airline.

    Given that Southwest is such a mess right now, AA’s strategy couldn’t be better time.

    It is no surprise that DL and UA are knocking themselves silly trying to grow their international networks given that AA is increasingly being marginalized in the international market.

    UA is now becoming the replacement for AA with massive debt.

  5. Gary and Tim – thank you both for really interesting and informative posts for those of us who are not nearly as familiar with the business as the two of you.

  6. Tim Dunn – this is correct, American’s focus is domestic and flying to (to a great extent JV) partner hubs. LAX is no longer a Pacific gateway, it’s a domestic station. JFK is growing internationally, while PHL retrenches, and CLT/ORD/PHX are largely domestic (with limited Europe, Caribbean for CLT). MIA is heavy latin, and DFW has enough connectivity that they can retrench from coastal hubs and operate some international from there.

    AA can’t really light cash on fire, they don’t have the balance sheet to do it. United has made a risky gamble, but I also don’t know the terms of their deals with Boeing, what the costs would be to indefinitely defer deliveries for instance if they aren’t needed. So I don’t think we can *quite* talk about their future debt, we can merely make reasonable assumptions not speak with certainty.

    In many ways the comparative advantage at Delta has been in techops, keeping older planes flying and indeed flying more efficiently than competitors’ newer planes, and even leveraging the capability to earn outsourcing revenue (and making that revenue part of related deals). That’s enabled the reliability, the brand halo, and revenue premium that also makes possible the performance of their Amex deal.

    That, and that in a 50-50 deal Delta execs take the hyphen… they aggressively charge for things (customers), cut advantageous deals with suppliers (if you want us to buy your engines you will steer maintenance work), and Amex (that deal isn’t close to 50-50 for Amex). But without the reliability they don’t have the leverage to get everything else done.

    They are still better than peers in this regard, but haven’t been better by the same wide margin as in the past and – as I’ve been saying for the past year – it will be interesting to see how that plays out.

  7. @Tim Dunn “AA didn’t have luck; they simply have no hubs from the Pacific Northwest” you’re twisting my words here, either intentionally or because you aren’t following? Their luck was in *where weather hit*.

    “American is gaining more AAdvantage members because they are flying more – the only way they can get their unit costs down.” They didn’t operate at greater capacity than 2019, yet signed up more members, it’s not ‘more flying’ it’s greater relevance in partner markets.

  8. Gary,
    if you are saying that AA’s luck is related to geography of their hubs relative to where bad weather was in Dec 2022, then we are on the same page.

    As for Delta Tech Ops, United now has an older fleet than Delta so Tech Ops clearly allows DL to keep some fleets going that AA and UA decide to get rid of. We’ll see how quickly UA gets rid of the 757/767 fleets but AA, IMHO, got rid of them prematurely. DL will keep parts of both fleets going until 2030.

    There really isn’t any mystery about how much debt and interest expense UA will rack up; they are already getting in the same ballpark w/ interest expense as AA and AA is paying down. The real surprise is how few new aircraft AA is taking delivery of which means they will have plenty of cash to pay down debt. Given how young AA’s fleet is, they have the luxury of putting off some fleet spending; UA doesn’t have that luxury and already has far more fleet spending scheduled than AA and UA combined. UA’s aircraft ownership/lease costs will soar. They simply can’t generate enough cash to pay for an average of $7 billion worth of new aircraft per year.

    It’s a tough narrative to break but AA will be more financially stable than UA.

    As for AA’s network, they are still just moving traffic between their hubs and not growing their hub footprint. DFW is a great hub financially but it is geographically limited; connecting international traffic over DFW only works for part of the country for each geographic region.
    AA’s inability to compete for international traffic in the NE and west coast will bite them as they fight for contracts with DL and UA which have better nationwide hub performance and geography.

    and, yes, Delta aggressively negotiates but they do it from a position of strength. Other airlines could do the same if they were as strong as Delta but they clearly are not.

    As I have repeatedly noted, the benefit for AA, DL and UA right now is how strong they are relative to the low cost US carriers and to foreign carriers.

  9. UA has more fleet spending than AA and DL combined….

    and if Delta and Latam really try to and succeed in growing MIA, AA’s position in S. Florida could be dented, although the sheer amount of growth in the Florida economy might not only offset any AA losses but also give DL plenty of reason to come out swinging hard. Either way, if DL succeeds at duplicating the one network advantage that AA has – MIA to Latin America – it bodes poorly for AA’s overall network competitiveness long-term

  10. Gary, were there any insights into how Loyalty Points is performing revenue-wise vs. previous structure of earning status by spending on flying? I’d have to imagine they saw a substantial increase in revenues from LP sales to credit card companies and other third parties?

  11. As an AA employee I would like to know where my profit sharing is? Anyone? The average worker only gets the shaft!

  12. > New York and Los Angeles are their biggest markets for AAdvantage program signups

    Wait … The highest (absolute) number of frequent flyer program signups comes from the two largest metro areas in the USA? Who would have thought!!! This is the type of insightful reporting we all expect!

  13. AA refuses to refund two tickets I bought for people back in November. My sister was critically ill in Oregon. She had no family there to be with her. I paid for tickets for my niece in Alabama to go be with with her mom, my sister. When they boarded the plane, one of them became sick and they had to get off the plane. AA won’t refund two tickets at $742 each. I can use that money, not a credit for future flights as my husband and I are unable to travel. Why can’t a huge airline be compassionate and refund me?

  14. @Jake – That’s obviously not a surprise. That sentence is loaded with subtext. It’s a poignant/noteworthy observation as American has no idea what to do with these two cities.

  15. Luke,
    Gary has provided great content in this article as well as in the general overhaul of his site. I believe the greatest honor to give Gary is to respond intelligently to his content.
    Response and interaction is a sign of a healthy dialogue which Gary clearly wants by keeping the replies open.
    You two are willing to join the conversation in adding color to the conversation which Gary engages in very well.
    The added bonus is that much of the low quality responses have been blocked or removed.

    I think Gary should be commended for his rework of his site and I wish him all the success.

    As for the comment about profit sharing, AA employees should push for a formula as good as DL or WN’s as part of their labor negotations.
    The most important part of what AA has done is get rid of the bottom performing 5% of their flying and shift that capacity to the top 5% of its markets – and the swing in profits is very noticeable.

    It takes a long time for mindsets to change but I believe AA will replace UA as the 2nd strongest US legacy airline based on multiple metrics and could become a real financial parallel to DL. WN Is wounded financially right now and will recover but their performance for 2023 will be weighed down for the year as a whole by their recovery from the meltdown.

  16. @ Tim Dunn

    AA didn’t have a lot of New aircraft coming in , because we got them first the youngest fleet in the industry. we got all new planes within the past 5 yrs. DL just started buying for Christ sakes you still fly the 717.

  17. Tim j,
    Delta flies the 717 because it is the right size to replace regional jets which Delta has 250 less of than AA or UA.
    and the Delta 717 fleet is younger than American’s A320 fleet – so, if fleet age matters, then the 717 is not the aircraft you should be hammering away at.
    Delta has a fleet of 300 A321s and B737-900s that is well under 10 years old – younger than AA’s
    fleet age – so Delta has been spending on domestic fleet replacement.

    And Delta does not have the oldest fleet in the US right now – that title has belonged to United for several years and, based on deliveries for both DL and UA, the title can’t possibly swing against DL for at least another 2 years at the earliest even with UA’s aggressive fleet spending, much of whch they say is going to expansion rather than replacement.

    And Delta’s international fleet is way more fuel efficient than American or United’s – and more fuel efficient than many other large global airlines.

    Fuel efficiency matters the most on widebody/long haul flights. The difference in fuel efficiency between the A320 and A320NEO families as well as the 737 and MAX families for comparable sized models is about 10-12%. The difference in fuel efficiency when replacing 777s with new generation widebodies such as the 787-9 or the A330NEO or A350 is more than 20%. Airlines have to spend money on aircraft in order to keep their fleet from aging. Delta has intentionally chosen to focus a higher percentage of its fleet spending on widebody aircraft.

    The measure of successful fleet decisions comes from having to spend the least amount on fuel and maintenance for comparable amounts of capacity plus debt and interest charges; if you look at DL’s spending on those elements compared to AA and UA, DL handedly wins.
    The reason why AA is slowing its fleet spending is because it realized it has the assets to perform much better financially than it does and its “youngest fleet” bragging statement has NOT translated into a financial benefit – and they intend to change that.

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