American Airlines posts $545 million loss for third quarter as revenue flat

20 October 2023 , 10:56

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The poor results are in stark contrast to American's two main rivals, United Airlines and Delta Air Line. (Image: Getty Images)

American Airlines has reported a loss of $545 million in the third quarter due to increased labour costs, while its competitors are thriving. The airline's revenue remained stagnant compared to last summer, but costs rose significantly, particularly due to a new contract with its pilots.

The company has now reduced its full-year earnings forecast to between $2.25 and $2.50 per share, down from an earlier prediction of $3 to $3.75 per share.

Wall Street had already lowered expectations for the airline's profits as jet fuel prices continue to rise. Analysts were predicting a full-year profit of $2.34 per share even before American's revised forecast.

This is in stark contrast to American's two main rivals, United Airlines and Delta Air Lines, both of which reported increased revenue and a profit of $1.1 billion for the quarter, covering much of the peak holiday travel season.

Travel demand has surged post-pandemic. Last year, Americans were keen on domestic travel; this year, a significant portion of that demand has shifted to international flights.

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With its revenue remaining flat compared to last year, it seems American is reconsidering its strategy for developing new routes, which often take time to become profitable - if they ever do.

CEO Robert Isom of American Airlines admitted on a call with analysts: "We know there are things that we could have done differently over the past summer that we're going to make sure that we are addressing in terms of where we are flying and how we are doing it," He added that the airline will have "very little tolerance" for developmental routes, stating: "We're going to fly where we make money."

Despite a third-quarter loss, executives remain optimistic about strong travel demand and expect holiday bookings to surpass last year's figures. The loss was attributed to $983 million in charges for contract-ratification bonuses paid to pilots in August.

American Airlines Group Inc., based in Fort Worth, reported earnings excluding special items at 38 cents per share, beating analysts' expectations of 25 cents per share. However, revenue of $13.48 billion fell slightly short of Wall Street forecasts and remained flat compared to last summer.

In contrast, United and Delta reported revenue gains of 12% and 11%. American's chief financial officer, Devon May, explained this as a matter of timing, saying that American grew more quickly last year, but this year, United and Delta "were catching up" and added more flights that boosted revenue.

Labour costs at American rose by 17%, an increase of nearly $600 million, which was roughly offset by lower fuel prices than a year ago.

American Airlines predicts that fuel prices will rise to between $3.01 and $3.11 per gallon in the last quarter of this year, up from $2.91 in the previous quarter. Despite these prices being lower than last year, there are concerns that this could add to the financial strain on the industry.

United Airlines gave a weaker than expected forecast for the end of the year due to rising fuel costs, which led to a drop in shares for major carriers. They also mentioned the suspension of flights to Tel Aviv due to the conflict between Israel and Hamas.

American Airlines, which took on new debt during the pandemic, managed to pay off $1.4 billion in debt during the last quarter. The company's shares closed up less than 1% on Thursday after a 5% loss on Wednesday, bringing them close to a three-year low.

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