Highlights from American Airlines 2016 4th Quarter Earnings Call

Last week American Airlines had their 2016 4th Quarter Earnings Call, here is a summary of what was discussed:

Overview

  • 4th Quarter pre-tax earnings (excluding special charges) of $773 million
  • Full year pre-tax earnings (excluding special charges) of $5.1 billion
    • Second-best year in American Airlines history, second only to 2015
  • Total revenue per available seat mile up 1.3% in the fourth-quarter
  • $314 million for profit sharing,first American Airlines profit-sharing payment since 2000 due to a program implemented starting in 2016
  • Named Airline of the Year by Air Transport World for 2017, first time American Airlines has won this award since 1988
  • Business improved broadly across all hubs with DFW and Los Angeles leading
  • International Operations:
    • Atlantic: worst performing international entity due to capacity increases from low-cost carriers and negative foreign-exchange impact
      • Highly exposed to the pound – half of transatlantic capacity in the UK
    • Pacific: down 4.9% on capacity increases of 39%
      • Growing into the new services from Los Angeles to Hong Kong, Canada, Sydney and Auckland
  • Basic Economy and Premium Economy to provide additional segmentation and get a “product and price to customers at every stage of the demand curve.”

2017 Plans:

  • Capacity planned to be up approximately 1%
    • Domestic capacity expected to be flat with 3% fewer departures offsetting a 3% increase in gauge
    • International capacity up 4%, primarily due to the completion of the 777-200 retrofit program and three new Pacific markets that were added in 2016
  • Close to finalizing the majority of the American and US Airways integration
  • Expected delivery of 57 mainline aircraft and 12 regional aircraft, totaling approximately $4.1 billion
  • Final year of big capital expenditures for aircraft, expected to be lower in 2018 and beyond
  • Investing $1.5 billion in non-aircraft improvement, including continued integration work and improving product and operations
  • Will begin selling Basic Economy in February
  • Begun roll out of Premium Economy product on widebody fleet
  • Basic and Premium Economy combined are worth more than $1 billion in incremental revenue
  • Three major projects left from the merger of American and US Airways:
    • Getting flight attendants into a common system
    • Putting in a state-of-the-art HR and payroll system
    • Integrate tech ops organization

Basic Economy:

  • Starting with 10 different markets in the first half of 2017
  • Full domestic network roll-out expected by end of 2017 or early 2018
  • American thinks Basic Economy will help them compete with low-cost carriers and defend their hubs
  • Basic Economy is not changeable, not upgradable, has reduced elite qualifying miles, and no seat selection – effective barriers for business customers
  • Targeted towards customers buying the lowest priced tickets in distribution models that only show the lowest fares
  • American thinks business customers are going to be interested in paying a bit more for the economy class offered today
  • Since Basic Economy was announced, American has discussed this with “appropriate customers” and, according to American, they aren’t interested
  • The Main Cabin and Basic Economy share the same inventory, and will always have both available
    • Basic Economy will match ultra low-cost carrier pricing
    • Basic Economy will exist on all of the flights operated in each market
  • The key is trying to figure out what the price premium can be for the main cabin product compared to Basic Economy

Infographic on Basic Economy

Premium Economy:

  • Starting with the international fleet and with the new 787-9s
  • Soon after will be re-configuring the existing wide-body fleet to allow for Premium Economy throughout the international network

Long-haul interior improvements

  • In the final stages of the conversion of 777-200s to have lie flat seats for all international widebody service – also increased density on these aircraft

New president

  • Hopeful that the Trump administration will give the Qantas JV application a second and more favorable look
  • Have an industry effort underway, United and Delta and American together are advocating that the United States government take another look at the Open Skies agreement with the Gulf countries
  • Looking forward to having the opportunity to speak with the new administration, the new State Department, and the new DOT

Will you consider an American Basic Economy fare with the restrictions proposed?

 

 

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