With lower costs for jet fuel providing a strong tailwind, American Airlines Group soared to a record first-quarter profit of $932 million on Friday, almost double its previous record of $480 million set just a year ago.
The report from the Fort Worth-based airline continues a streak that began immediately after its merger with US Airways in December 2013, making its trip through bankruptcy seem like a distant memory.
“We have a lot of work ahead, but the results today give us confidence that we are on the right track and we are looking forward to the remainder of 2015,” said American Chief Executive Officer Doug Parker on a conference call with investors on Friday morning.
The big profit came even as American’s revenues dropped 1.7 percent to $9.82 billion for the quarter because of competitive capacity growth and economic softness in Latin America. American has had to compete with Southwest Airlines’ expansion at Dallas Love Field, where it has added direct flights since the expiration of the Wright Amendment restrictions last fall.
The carrier cut capacity by 1.7 percent in the quarter and its load factor declined 0.3 percentage points to 80.3 percent. Unit revenues also declined 2 percent in the quarter.
But American said it paid an average of $1.86 per gallon for jet fuel in the period, down 40 percent from the $3.10 per gallon paid in the first quarter last year. The company said it spent $1.9 billion for fuel in the first quarter, $1.4 billion less than a year ago.
For all of 2015, American expects to save $4.35 billion in fuel costs.
Excluding one-time accounting items, American said its net profit was $1.2 billion, or $1.73 per share, beating Wall Street analysts’ estimates of $1.71 per share. Shares of American (ticker: AAL) rose $1.26, closing at $52.71 on Friday.
American also announced that it has amended its delivery agreement with Boeing to defer four 787 aircraft deliveries from 2016 to 2017 and one 787 aircraft from 2017 to 2018.
The delay is not related to production issues with the new lie-flat seats being installed on the Dreamliners for its business class, the company said. Earlier this year, Boeing parked two of American’s 787 aircraft in the desert as it waited for the delivery of the new seats.
“While [international] demand is still growing, it’s not growing as fast as supply,” said American President Scott Kirby.
Wall Street analysts expect American to announce additional international capacity cuts later this spring as its competitors, United Airlines and Delta Air Lines, have already begun trimming their international schedules.
“American continues to decrease capacity to weak international markets, but is still the largest U.S. airline in the region so it is more affected than its peer group by weak demand,” Helane Becker, an analyst with Cowen & Co, wrote in a research note to investors. “We expect further capacity cuts will be announced in early May for [the second half of 2015], as management continues to adjust its schedule.”
American is also facing stiff domestic competition from Southwest Airlines and its new service out of Dallas Love Field. Southwest’s Dallas expansion has softened revenues on markets out of DFW, American executives said.
However, the carrier has no plans to cut capacity at DFW, Kirby said. With the lower fares, there are more customers buying tickets. So on many of these routes, Kirby said the airline is moving to larger aircraft.
Asked if he thought the lower fares on routes out of North Texas were promotional or permanent, Kirby said he thinks this may be the new normal for fares in the area.
“I tend to think we’re near the clearing price where we’re pricing to the demand that there is today,” Kirby said.
Andrea Ahles, 817-390-7631
Fuel cost per gallon