Consultant Insight: American Airlines keeps it simple

With combination carriers facing renewed difficulties from the rise in COVID-19 omicron infections, American Airlines is opting to keep its operations simple. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] American Airlines reported $9.4 billion in Q4 revenue, its highest for any quarter since the start of the pandemic, and a sequential increase of $458 million. While that marks a positive direction, compared with Q4 2019, revenue is down 17%. “For fleet, we have dramatically simplified,” American Airlines President Robert Isom told analysts during the company’s fourth-quarter earnings call on Thursday. “We now operate just four fleet types. That gives us operating flexibility, reliability and efficiency. We have extracted $1.3 billion of efficiencies, and we’re operating an economic fleet that will provide CASM-X [cost per available seat mile excluding net special items and fuel] tailwinds as capacity is restored. Based on our current assumptions, we expect all of this to result in a return to profitability later this year and continued deleveraging as we pay down $15 billion of debt by the end of 2025.” According to Isom, cargo revenues continued to shine through with record revenues of $1.3 billion for 2021, up 30% from its previous record. However, like many combination carriers, profitability remains elusive. American Airlines’ Q4 net loss was $931 million, and for 2021, it was $2 billion. Meanwhile, capacity is slowly returning to the air cargo market. American Airlines CFO Derek Kerr told analysts that the company plans to have “full-year capacity recovered to approximately 95% of 2019” by the end of this year, subject to the future demand environment. But, profitably adding capacity is a struggle as passenger airlines face a number of issues, including rising costs, COVID-19 variants, and the need for more employees. Costs such as rising fuel prices are a concern. According to the Energy Information Administration, U.S. jet fuel consumption is forecasted to grow from 1.4 million barrels per day (b/d) in 2021 to 1.6 million b/d in 2022. The rise in market demand has resulted in a subsequent rise in jet fuel prices. Platts World Index for jet fuel prices finds that for the week ending Jan. 14, the index increased 5.6% from the prior week, up 18.7% from one month ago and up 70% from a year ago. However, as demand increases, so does the need for workers. To that end, American plans to hire 18,000 workers in 2022. Still, financial and capacity growth is not expected until March at the earliest. “COVID-impacted demand and elevated fuel prices will continue to put pressure on our near-term margins,” Kerr told analysts. The carrier expects to be down between 8% to 10% from Q1 2019 and total revenue to be down approximately 20% to 22% from Q1 2019. “While we expect to be unprofitable on a pre-tax basis in January and February, we anticipate a material improvement and a return to profitability in March as demand returns,” Kerr said. Isom told analysts that the return of international travel is directly linked to travel restrictions around the globe. But, as the restrictions fall off, “we expect international travel to pick up considerably.” Its return will also likely include the easing of cargo rates and available capacity. Air cargo rates have been unusually high throughout the pandemic, and, of course, capacity has remained tight as well. Despite American Airlines and other passenger-focused combination carriers facing a number of cost pressures and other headwinds, they will continue to take two steps forward and one — or perhaps an occasional three — steps backward on their quest to “right their ships” by simplifying operations, making them more resilient in a number of ways.

Consultant Insight: American Airlines keeps it simple

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