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.