Sky Talk

American Airlines third-quarter profit drops as planes are less full

Profits at American Airlines dropped by half in the third quarter as the Fort Worth-based airline struggled with planes that weren’t as full amid increased competition from rivals.

The Fort Worth-based carrier reported net income of $737 million, down 56 percent from the $1.7 billion profit reported in the third quarter of 2015. American also logged a $452 million provision for income taxes in the third quarter after a reversal of its tax valuation allowance at the end of 2015.

Revenues declined 1.1 percent to $10.59 billion as the airline carried 2.7 percent fewer passengers in the quarter. The airline cited more capacity from other airlines, a weak global economy and foreign currency weakness as contributing factors.

Still, CEO Doug Parker said American is positioned to succeed after spending two years integrating the American and US Airways systems and workforces together.

“We are producing near-record profits despite a soft economic environment and we’re using those profits to improve customer service through important investments in both our product and our team,” Parker told analysts and investors in a conference call Thursday. The carrier has spent billions on new aircraft, renovations to its Admirals Club lounges and pay raises for most of its workers.

Parker also noted last month’s smooth transition of former US Airways pilots into the flight operating system used by legacy American pilots. As the carrier completes the integration of US Airways, American will look to reduce operational redundancies in 2017 and trim its workforce in some areas.

“Because we’re running two airlines, we have more people than we need when we get down to one,” Parker said. “But we will manage that over time through attrition.”

Parker said he is not planning layoffs at American and declined to disclose how many jobs could be affected. He said the company plans to offer buyouts and possibly early retirement offers to reduce its headcount, likely in 2018.

Excluding one-time accounting items, American reported net income of $1.76 per share, which beat Wall Street estimates of $1.69 per share, according to FactSet Research.

Although American saved $200 million on jet fuel, paying an average of $1.48 per gallon, the carrier’s salaries and wages for its workers jumped 15.3 percent as American reached new labor agreements that gave raises to mechanics, ground workers and other employees.

Jamie Baker, an analyst with JPMorgan, seemed unimpressed with American’s pretax profit margins, asking Parker if he expected to continue to have the lowest margins in the industry. Parker said margins are down because the company has increased pay for most of its workers, adding that the carrier expects to improve its revenues and costs in 2017.

Shares of American (ticker: AAL) declined slightly, dropping 4 cents to close at $40.59 a share.

The carrier said it plans to slow its network growth in 2017, adding about 1 percent more capacity. Domestic capacity will be flat while international will increase 3.5 percent as the carrier adds routes to Asia, Europe and Latin America.

Andrea Ahles: 817-390-7631, @Sky_Talk