Management at American Airlines has relentlessly stressed that the US airline industry has gone through a fundamental structural change, and the historical boom and bust cycles of the past should no longer be applied to the future. But recently, markets have been spooked by creeping capacity and the ensuing revenue pressure that has created.
American’s own planned system capacity growth of 1.4% for 2017 is reasonable expansion, yet its valuation has been pressured by overall industry growth and, in part, by its decision to institute mid-contract pay increases for employees.
Despite this pressure, American remains bullish about its financial performance in the future. The company’s executives have boldly declared American may never lose money again, an assertion driven by estimates of posting USD2.9 billion in incremental revenue during the next four years.
Both American and rival United have outlined ambitious financial targets, with American focusing on consistent pretax profits and United aiming to close margin gaps with Delta. But as United has discovered during 2017, declaring lofty ambitions can have a downside.
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