American Airlines Group Reports Second-Quarter Profit

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28-Jul-2017 American Airlines Group Inc. (NASDAQ:AAL) today reported its second-quarter 2017 results, including these highlights:

  • Recorded a second-quarter 2017 pre-tax profit of $1.3 billion, or $1.5 billion excluding net special items,1 and net profit of $803 million, or $944 million excluding net special items
  • Reported second-quarter earnings of $1.63 per diluted share. Diluted earnings per share excluding net special items were $1.92, up 8.5 percent versus 2016
  • Reported a 7.2 percent increase in total revenue, to $11.1 billion, and a 5.7 percent increase in total revenue per available seat mile (TRASM)
  • Returned $500 million to stockholders in the second quarter through the repurchase of 10.0 million shares for $450 million and dividends of $50 million

"We are making important long-term investments in our product and our team at American Airlines. Our strong revenue growth is a credit to our more than 120,000 team members and evidence that these investments are working," said Doug Parker, Chairman and CEO. "Looking forward, we are enthusiastic about our prospects for the second half of 2017, as well as 2018 and beyond."

2Q17 2Q16 2Q17 2Q16
Total operating revenues ($ mil) $ 11,105 $ 10,363 $ 11,105 $ 10,363
Total operating expenses ($ mil) 9,570 8,612 9,367 8,547
Operating income ($ mil) 1,535 1,751 1,738 1,816
Pre-tax income ($ mil) 1,291 1,493 1,496 1,594
Pre-tax margin 11.6 % 14.4 % 13.5 % 15.4 %
Net income ($ mil) 803 950 944 1,001
Earnings per diluted share $ 1.63 $ 1.68 $ 1.92 $ 1.77

Revenue and Expenses

Strong passenger demand and improving yields drove a 7.2 percent year-over-year increase in total revenue, to $11.1 billion. Notable areas of passenger yield strength were in the Domestic, Central American and South American, and Caribbean regions. Cargo revenue was up 13.1 percent to $196 million due to a 15.1 percent increase in cargo ton miles. Other revenue was up 11.1 percent to $1.3 billion primarily due to the new co-branded credit card agreements that became effective in the third quarter of 2016. Second-quarter TRASM increased by 5.7 percent, on a 1.4 percent increase in total available seat miles.

Total second-quarter operating expenses were $9.6 billion, up 11.1 percent year-over-year due primarily to a 15.4 percent increase in consolidated fuel expense and a 12.5 percent increase in salaries and benefits resulting from the company's recent investments in its team members. Total second-quarter cost per available seat mile (CASM) was 13.34 cents, up 9.6 percent. Excluding fuel and special items, total CASM was 10.49 cents, up 6.8 percent.

Commercial Initiatives

American has now expanded Basic Economy into 78 markets, including into Canada. Early results continue to be in-line with initial expectations, with approximately half of American Airlines customers buying up to Main Cabin when given the option between that and Basic Economy. The company expects to roll out Basic Economy across the rest of its domestic network by the end of September.

With an average premium of more than $400, customer adoption of the company's new Premium Economy product has been strong. These seats are now being installed on American's Boeing 777-200 aircraft. The company expects to retrofit most of its other widebody aircraft with this highly-differentiated seating choice for international customers by the end of 2018.

As part of its $200 million investment in the luxury travel experience, American debuted its Flagship First Dining experience and newly-renovated Flagship Lounge at New York John F. Kennedy International Airport. In addition, access to Flagship Lounges has been expanded to include Business Class customers traveling on qualifying international and transcontinental flights. Additional Flagship Lounge renovations and Flagship First Dining locations are planned at other hubs.

American Airlines President Robert Isom said, "Our investments in our product and our team are beginning to pay real dividends as we give customers more reasons to fly on American. When combined with new revenue management tools and sales initiatives targeting high yielding corporate customers, we believe our revenue growth potential is strong.

"We expect third-quarter TRASM to increase approximately 0.5 to 2.5 percent year-over-year, which reflects continued improvement in customer demand for corporate and leisure travel. We expect third-quarter pre-tax margin excluding special items to be between 10.0 and 12.0 percent.2 We also expect our fourth-quarter TRASM growth to exceed the third quarter's growth rate," Isom said.

Capital Investments, Fleet, and Shareholder Returns

American plans to invest $4.1 billion in new aircraft this year as it continues to renew its fleet. During the quarter, the company invested $1.1 billion in aircraft as it took delivery of 16 mainline aircraft and 4 regional aircraft. These new deliveries will replace aircraft that are expected to leave the fleet. In addition, the company expects to invest $1.6 billion in non-aircraft capital expenditures in 2017 focused on integrating the airline, product enhancements, and operational improvements.

Since mid-2014, the company has returned more than $10.7 billion to stockholders primarily through share repurchases and dividends, and reduced the share count by 35 percent to 487.7 million shares. As of June 30, the company had approximately $1.0 billion remaining of its $2.0 billion share repurchase authority.3

The company declared a dividend of $0.10 per share, to be paid on August 28, 2017, to stockholders of record as of August 14, 2017.

Refer to full documentation in the attachments box below.

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