American Airlines’ flawless merger ignored by Wall Street. 2016 should provide stronger performance

Premium Analysis

Few would counter the conclusion that, so far, the merger between American Airlines and US Airways has been nearly flawless. In late 2015 the company executed the most successful passenger systems cutover in the recent history of US consolidation. With a unified customer interface, American is now in a position to start exploiting some revenue synergies inherent in the merger.

In parallel with meticulously planning the complex technology transition to a single system, American has worked since the close of its merger three years ago to slash nearly USD3.6 billion in debt. Between 2014 and Sep-2015 the company paid USD350 million in dividends, and repurchased nearly USD4.5 billion in stock. Its top line profits for the first nine months of 2015 jumped 89% to USD4.3 billion. But American’s stock in 2015 traded at a discount for much of the year, as investors became spooked over the company’s efforts to match fares of ultra low cost competitors.

One of American’s top priorities for 2016 is to continue to improve its operational performance and to close the gaps with Delta, which has become an industry leader in many operational metrics. Operational performance is set to become an even more distinguishing factor in the consolidated US market place, and the battle lines between full service airlines and ULCCs could become more pronounced in 2016.

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