American Airlines posted a 2018 third-quarter net profit of $341 million, down 48% from $661 million in the 2017 3Q.
The Dallas/Fort Worth-based airline spent $750 million or 42.6% more on fuel in the quarter compared to a year ago. Its operating profit (excluding special items) dropped from, $1.17 billion to $688 million, a reduction of $485 million. The operating margin contracted from 10.7% to 6% as revenues increased by 5.4%.
The airline increased capacity 2.7% in the quarter, as demand (in revenue passenger miles) rose 2.3%. The yield improved 2.2%. 2018 system capacity growth is to come in at around 2%, significantly below the 3% American expected to reach at the beginning of the year. American now expects to spend 33% or $2.5 billion more on fuel in 2018 than it did last year.
Capacity planning for 2019 has not yet been finalized, but CFO Derek Kerr said the airline continues “to expect our ASM growth in 2019 to be in line with or below estimated GDP growth and amongst the lowest in the industry.” Any growth will be primarily incremental flying from Dallas/Fort Worth.
According to American chairman and CEO Doug Parker, the airline has not been able to recover as much of the fuel price increase as Chicago-based United Airlines and Atlanta-based Delta Air Lines “because our revenues have not gone up as much as those of our competitors.”
American has also had a difficult summer operationally. “In summer, we fell short of our targets,” the company’s president Robert Isom said. “We know that we must do better.” The carrier initiated “immediate short-term action” and has launched a comprehensive review of operations to ensure further improvements can be made and stick.
“The good news is that we are extremely bullish about the future of American and for good reason,” Parker said. He cited revenue initiatives that would drive up to $1 billion in additional sales in 2019. “This is value that will happen as we simply execute against known projects such as project segmentation, fleet reconfiguration and international network restructuring.” In addition, the company expects $300 million in cost improvements as a result of the 1 airline project.
One of the most important internal efficiency projects has been the move to one scheduling system for the 27,000 flights attendants that was completed this month. Since then, cabin crew is no longer limited to fly on the two legacy airlines (American and US Airways).
Parker also pointed out that for now American has the lowest growth plans in the industry for 2019, but “the best growth prospects.” Fifteen additional gates are opening in early 2019 in Dallas/Fort Worth, “our largest and most profitable hub.” New routes there will “immediately generate higher than average profitability versus the marginal profitability that airline growth usually generates.”
In 2020, American will add seven gates in Charlotte, which will allow it to add 75 daily departures. A year later, the new regional terminal at Reagan National Airport opens, allowing American to operate 76-seat regional jets at 14 gates instead of the 50-seaters today…
