American Airlines’ cargo revenue falls 16% in Q1

American Airlines Group today reported a record $12.6 billion in operating revenue for the first quarter of 2024, an increase of 3.1% compared with Q1 2023. The carrier’s cargo revenue fell 16% year over year to $187 million. [caption id="attachment_95375" align="alignright" width="300"] (Courtesy/American Airlines)[/caption] THE BIG PICTURE: High capacity and low demand continue to have an impact on American Airlines’ cargo revenue. Capacity increases have been attributed to increased belly space due to recovering passenger operations post-pandemic. “Our network was uniquely impacted by increased industry capacity in the first quarter, but we see that moderating in the quarters ahead,” American Airlines Chief Executive Robert Isom said on today’s earnings call. Throughout 2023, major carriers reported YoY air cargo revenue loss in the double digits. The increased capacity and decreased demand are being attributed to normalization from the highs of 2022. The industry appears to be reaching normal now. American’s 16% YoY loss in cargo revenue in Q1 is an improvement from its 27% YoY loss in cargo revenue in Q4 2023. United Airlines ’ Q1 cargo revenue loss was 1.8% YoY, an improvement from its Q4 2023 cargo revenue loss of 14.8% YoY, and Delta Air Lines ’ Q1 cargo revenue loss was 15% YoY, an improvement from its Q4 2023 cargo revenue loss of 24% YoY. BY THE NUMBERS: American reported a Q1 net los s of $312 million, or $0.48 per diluted share. The carrier’s net income the prior year was $10 million. Also in Q1: American saw 484 million cargo ton miles, up 14.7% YoY; Cargo yield per ton mile was 38.64 cents, down 26.7% YoY; Adjusted EBITDA margin was 7.6%; and Adjusted operating margin was 0.6%. WHAT THEY’RE SAYING: American Airlines executives partially attribute the carrier’s low YoY revenue increase to the new pilot agreement, which the carrier’ s pilots, represented by the Allied Pilots Association , ratified in August 2023. The four-year agreement will deliver more than $9 billion of compensation and quality-of-life benefits to American’s 15,000 pilots, according to an Aug. 21, 2023, release from the carrier. “The first quarter of 2023 did not include the cost impact of our new pilot agreement, which resulted in a year-over-year headwind,” Chief Financial Officer Devon May said on the call. Nevertheless, American Airlines reduced total debt by nearly $950 million in Q1, bringing the company more than 80% of the way to its 2025 total debt reduction goal, according to the earnings report. “Our relatively low capital requirements and free cash flow production have allowed us to make significant progress toward strengthening the balance sheet,” May said. “We have now reduced total debt by $12.3 billion from peak levels in 2021. Net debt is now at $33.4 billion, nearly $2 billion lower than pre-pandemic levels.” STATE OF PLAY: American posted its best Q1 completion factor, according to Isom. “We delivered these results despite air traffic control challenges during the quarter and significant weather events across our network,” he said. “Our strong completion factor performance enabled American to achieve eight combined mainline and regional zero cancellation days in the first quarter.” FLASHBACK: American ranked 29th on Air Cargo Next ’s Freight 50 list of top air cargo carriers, flying 2.9 billion cargo tonne kilometers in 2022. NOTEWORTHY: The carrier expects to take delivery of 22 mainline aircraft, down from an earlier estimate of 29 aircraft, May said. “While Boeing delivery delays have impacted mainline capacity production, they have been largely offset by improvements in our regional aircraft utilization,” he said. “Aircraft delivery delays are impacting the entire industry, but they are not having the same impact on American as other carriers since we are not as dependent on new aircraft deliveries as most of our peers.” FUTURE LOOK: The carrier expects its adjusted earnings per diluted share to be between $1.15 and $1.45 in Q2 and between $2.25 and $3.25 in full-year 2024, according to the earnings report. MARKET REACTION: Shares of American Airlines Group ( NASDAQ: AAL ) were up 1.51% from market open to $14.13 as of market close today. The company has a market capitalization of $9.25 billion.

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