“This was perhaps the most challenging quarter for the American team since our merger with US Airways in 2013,” said American’s Chairman and CEO Doug Parker. “We had an operational disruption at our PSA Airlines subsidiary that was extremely trying for our customers and our team members; higher fuel prices increased our expenses by more than $700 million versus last year; and our revenues, while increasing, have begun to trail the rate of increase at our largest competitors for the first time since early 2016. Because fuel expenses are expected to increase by more than $2 billion this year, we expect 2018 earnings to be lower than last year.
“These near-term challenges do not dampen our long-term excitement about the future of American Airlines. We are taking aggressive action now to return American to prior profitability levels even at these much higher fuel prices. We are deferring aircraft deliveries and capital expenditures, lowering our 2018 capacity growth and reducing non fuel-related expenses. In addition, we anticipate that our 2019 capacity growth will be lower than our competitors and will be focused in our top-performing hubs at Dallas-Fort Worth and Charlotte. We are confident these actions will return American to both revenue outperformance and earnings growth in 2019 and beyond. As a result, we are very bullish on the future of American Airlines.”
Second-Quarter Revenue and Expenses
Pre-tax earnings excluding net special items for the second quarter of 2018 were $1.0 billion, a $593 million decrease from the second quarter of 2017, driven by higher fuel prices.
Continued strong demand for air travel drove a 3.7 percent year-over-year increase in second-quarter 2018 total revenue, to a record $11.6 billion. Passenger revenue per available seat mile (PRASM) grew in all geographic regions driven in part by a 6.2 percent increase in the Atlantic region. Cargo revenue was up 19.4 percent to $261 million due primarily to a 9.6 percent increase in volume and an 8.9 percent increase in cargo yield. Other revenue was up 8.1 percent to $708 million due to higher loyalty revenue. Second-quarter total revenue per available seat mile (TRASM) increased by 2.1 percent compared to the second quarter 2017 on a 1.6 percent increase in total available seat miles. This marks the seventh consecutive quarter of positive unit revenue growth and the third quarter in a row where all geographic regions showed PRASM growth on a year-over-year basis.
Despite record revenue, the improvement was outpaced by significantly higher year-over-year fuel prices. Total second-quarter 2018 operating expenses were $10.6 billion, up 10.3 percent year-over-year, driven by a 39.6 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the second quarter of 2017, total second quarter 2018 expenses would have been $700 million lower. Total second-quarter 2018 cost per available seat mile (CASM) was 14.56 cents, up 8.5 percent from second-quarter 2017. Excluding fuel and special items, consolidated second-quarter CASM was 10.83 cents, up 2.4 percent year-over-year.
Basic Economy
To make Basic Economy more competitive, American is removing the carry-on bag restriction that is currently part of its domestic and short-haul international Basic Economy fare rules. This change will be effective September 5, for tickets purchased or flown that day. Until then, current Basic Economy fare rules will continue to apply, including the allowance for only one personal item.
“Basic Economy is working well in the markets where we offer it, and we continue to see more than 60 percent of customers buy up to Main Cabin when offered a choice,” said President Robert Isom. “Removing the bag restriction will make Basic Economy more competitive, allowing us to offer this low-fare product to more customers”…
