About half of American Airlines customers are choosing higher fares over a no-frills cheaper ticket option, boosting revenues at the Fort Worth-based carrier. But wage increases doled out to workers over the last year are eating into profits.
The airline has expanded its basic economy fares — cheap tickets with no seat assignments that also require you to pay for a carry-on bag — to 78 markets, including Canada. Plans are to offer the fares across its entire domestic network by the end of September. The fares have been as low as $80 one-way to Florida from DFW Airport.
American said Friday it is able to “upsell” customers to a regular main cabin fare for an average of $23 a ticket, with some regular fares $40 more than the basic economy fare.
Overall, American said revenues increased 7.2 percent to $11.1 billion in the second quarter due to strong passenger demand. The company said customers have also been willing to pay an average of $400 more for the company’s new premium economy tickets, which offer wider seats and nicer meals on international flights. American plans to retrofit most of its wide-body planes used on international routes with premium economy seats by the end of 2018.
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“We’re running American for the long haul and we’re extremely bullish about the future prospects for our team members, our customers and our investors,” chief executive Doug Parker said on a conference call with Wall Street analysts. “Today’s results provide validation that we’re on the right course and we’re even more excited about what lies ahead.”
Profits dropped 15 percent to $803 million for the quarter as the carrier spent 15 percent more on jet fuel and 12 percent more on salaries. American gave its pilots and flight attendants pay raises an average of 8 percent and 5 percent, respectively, during the quarter.
The company is also in contract negotiations with its mechanics and ground workers, who received double-digit pay raises last year. Earlier this week, the mechanics and ground workers unions held a protest at Dallas/Fort Worth Airport, saying they were concerned about outsourcing of their jobs as part of American’s contract proposal.
“American does more work in-house than any other airline and nothing in our proposal seeks to change the amount of work done by our aircraft mechanics,” Parker said. He added he is confident that management and the union will get a contract deal completed, but he would not commit to a specific timeline.
Excluding one-time accounting items, American reported net income of $1.92 per share, beating Wall Street analysts’ earnings estimates of $1.85, according to FactSet Research.
“We believe these strong results out of American, could help calm some investor fears about pricing in the domestic market,” Cowen and Co. analyst Helane Becker wrote in a research note Friday morning.
Shares of American [ticker: AAL] closed up 49 cents, at $50.49 on Friday.