- Adjusted Pre-Tax Profit: $1 billion for the second quarter.
- Record Quarterly Revenue: $14.3 billion.
- Adjusted Earnings Per Diluted Share: $1.9.
- Net Income (Excluding Net Special Items): $774 million.
- Unit Revenue: Down 5.6% year-over-year.
- Domestic Pricing: Down 6.4% year-over-year.
- Transatlantic Unit Revenue: Up year-over-year on 6.3% higher capacity.
- Revenue from Large Managed Corporations: Up approximately 3% year-over-year.
- Premium Revenue: Increased 9% year-over-year.
- Loyalty Revenues: Up approximately 8% year-over-year.
- Free Cash Flow: Approximately $850 million in the second quarter.
- Total Available Liquidity: $11.7 billion.
- Total Debt Reduction: Approximately $680 million in the second quarter; $13 billion reduced from peak levels in mid-2021.
- Adjusted EBITDA Margin: 15.7%.
- Adjusted Operating Margin: 9.7%.
- Unit Cost (Excluding Net Special Items and Fuel): Down 0.1% year-over-year.
- 2024 Aircraft CapEx: Approximately $2 billion.
- Total CapEx for 2024: Approximately $2.9 billion.
- Third Quarter Capacity Growth: Approximately 3%.
- Third Quarter Revenue Guidance: Down 2.5% to 4.5% year-over-year.
- Full Year Revenue Guidance: Down 3% to 5% versus 2023.
- Third Quarter CASMx: Expected to be up approximately 1% to 3% year-over-year.
- Full Year CASMx: Expected to be up approximately 1% to 3%.
- Third Quarter Fuel Price Forecast: Between $2.55 and $2.75 per gallon.
- Third Quarter Adjusted Operating Margin: Between 2% and 4%.
- Full Year Operating Margin: Between 3.5% and 5.5%.
- Full Year Adjusted Earnings Per Diluted Share: Approximately $1.
- Full Year Free Cash Flow: Approximately $500 million.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Airlines Group Inc (AAL, Financial) reported an adjusted pre-tax profit of $1 billion for the second quarter, driven by record quarterly revenue of $14.3 billion.
- Premium revenue increased by 9% year-over-year, with strong demand for premium products and high paid load factors in premium cabins.
- The AAdvantage loyalty program continues to grow, with loyalty revenues up approximately 8% year-over-year and significant increases in co-branded credit card spending.
- Operational resilience was demonstrated despite severe weather conditions and a global CrowdStrike outage, with the airline recovering swiftly and maintaining high completion factors.
- The company reached a tentative agreement on a new contract with the Association of Professional Flight Attendants, promising immediate financial and quality of life improvements for flight attendants.
Negative Points
- Domestic revenue performance was weaker than expected due to an imbalance in supply and demand, leading to higher discounting activity.
- The previous sales and distribution strategy negatively impacted revenue and earnings, with an estimated $750 million impact in the first six months of the year.
- Unit revenue was down 5.6% year-over-year in the second quarter, with domestic pricing down 6.4% year-over-year.
- The company lowered its full-year operating margin guidance to between 3.5% and 5.5%, reflecting ongoing challenges in the domestic market and the impact of the previous sales strategy.
- Capacity growth plans were adjusted downwards, with third-quarter capacity expected to be lower than in the same period in 2019, indicating a cautious approach to aligning growth with demand.
Q & A Highlights
Q: As we look into the fourth quarter, is it that the corporate disruption or your sales and distribution strategy and the impact that it's had on the corporates that it's going to take a lot longer or embedded in that? Are there other factors like maybe more moderate demand sluggishness, whether it's US or international, that revenue forecast has seen a bit anaemic in the fourth quarter?
A: The forecast we produce is based on what we see in the marketplace today. We all know that there's a supply and demand imbalance, and we're taking swift action to make sure that we are reducing our planned capacity growth in the back half of the year. But it's still a murky environment from that perspective. A lot of our problem is caused by our sales and distribution strategy that we put in place in 2023. We think that it's had about three-quarters of $1 billion impact in the first six months of the year. We've more or less assumed that is going to be what happens in the back half. But I'll say this though it doesn't take into account what we're going to be doing to try to win back our share. We don't know how long it's going to be; it's going to take. You've heard about some of the things that we've done. We've seen modest improvements in terms of capturing share in the indirect channel based on just making sure that we're fully available within the effect.
Q: Have you identified someone or is there a search to actually bring on a Commercial Officer, a Chief Commercial Officer and are in your sales side of the business plans to not only rebuild it but bring back some of Mike and Alison Taylor make it, someone within a more senior position and a bigger operation?
A: We know we have to get done and I've asked Steve to take over the commercial team and he's doing just that. As I said in my comments, he is our most seasoned and experienced and accomplished executive. His whole career has been dedicated to addressing and solving really complex problems. He knows our company. He knows the business really well and he knows our people. He's reorganized his team. He's done an immediate dive into what we needed to take it to take care of right away. We're doing that. We're moving incredibly quickly and Steve's going to take care of this until we get the job done.
Q: Why aren't we being more aggressive in reducing capacity? Should we potentially be shrinking capacity right now? And then I guess we're not so maybe can you talk a little about the capacity plans for 2025?
A: In terms of capacity, again, reason for adjusting capacity supply and demand imbalance, and it's led to pricing weakness. From that perspective, we've taken action as quickly as we can and from that perspective, you'll see that our total growth in our total capacity in the third quarter is now planned to be actually a little bit less than we where we were in the third quarter of 2019. The capacity adjustments that we've made, Devon can help me with this. In August is we pulled down to 1% growth. As we take a look at into the fourth quarter and then beyond, we're going to react to the marketplace and making sure that we're competitive. But at the same time, you're doing what's right for profitability. So as we take a look at into 2025, we're going to be very diligent in assessing and making sure that we're certainly not outgrowing demand.
Q: If you can just snap your fingers, what do you think American's optimal domestic to international balance would be?
A: There's no perfect world. And in terms of snapping fingers, we all know that we're the product of years and years of building our network and our system. I really like where we are from a network perspective. One of the things everybody needs to be mindful of is that regional differences in terms of growth and profitability are going to happen every year and there's just differences in terms of international demand versus domestic. When you take a look at our network and where we're strongest, it fits very well with where both population growth and economic demand is forecast now and long into the future. The basis for international (technical difficulty) our domestic network and our ability to fly into our partners' hubs and into secondary cities in Europe and Asia and South America, it's built on the strength of our North American network, and we're really pleased with what we've built over time.
Q: Do you think that alters your hoped for improvements in loyalty returns?
A: I think it is a flawed assumption. Look at loyalty revenue has been one of the bright spots in terms of our revenue performance year-over-year. And I think Devon help me out the royalty revenues grew by 88% year-over-year. We think that we can do a lot better than and it's based on not only what I see in our loyalty program and how attractive it is to our customers, but also by our partners. Citi is certainly at the forefront of that. They absolutely want to get involved in more and deeper ways. We're going to take AAdvantage of that and the opportunity for us, yes, it's actually making up some of the ground versus where other network peers are and have great comps. We're going to be doing and able to do that because I know that in terms of the negotiations that we're pursuing, that it's going to be a better deal in the long run and produce results that I think will be very positive.
Q: Just kind of wondering on the on the cost side, the execution has been better and wondering how what's driving that. And as you kind of build back here, sales force. Do you see any changes there or do you expect to kind of continue outperforming on the cost side?
A: We are really proud of our cost performance over the past several years. We have been industry leaders in our unit cost performance, and it's just been a focus across the board. It starts with a really strong operation, but we've been talking a lot about how we are reengineering the business for efficiency and leaning into technology to drive better productivity and a better experience for our team members and customers. So we're continuing on that. I feel we're progressing really well. I do expect some amount of cost pressure as we rebuild the sales staff. There's going to be some cost pressure as commissions go up, but I think we're managing cost better than anybody. And as we get into 2025, we'll have the same focus that we've had for the past several years.
Q: You mentioned that you're starting to win back some share from the -- on the business side. I'm just curious on how you're doing that. Is there a cost headwind associated with it? And just I'm just trying to understand the margin profile as it's kind of won back from others out there?
A: The actions we've taken so far have been really straightforward, and that is making sure that Americans content and product is available to any channel that wants to access it catch on. And that's just that alone
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
