American Airlines reported record fourth quarter profits, boosted by lower fuel costs and more passengers on its planes.
Although planes were full, passengers paid less to fly on American, leading to lower revenues during the busy holiday period.
“There’s lots of low fares in the market,” American president Scott Kirby told investors on a conference call Friday morning. “Consumers are having a field day in this environment particularly with low oil prices where there’s low fares.”
The Fort Worth-based carrier posted net income of $3.3 billion, primarily due to a $3 billion non-cash accounting credit related to the reversal of American’s tax valuation allowance. Without one-time accounting charges, American reported a fourth quarter net income of $1.3 billion.
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It’s hard to imagine that just two years ago American Airlines was emerging from bankruptcy, but we were.
Doug Parker, American Airlines CEO
Revenues at the airline dropped 5.2 percent to $9.6 billion as American continues to aggressively discount airfares to compete with low-cost carriers on several domestic routes. American carried 2.5 percent more passengers in the busy holiday quarter, but unit revenues dropped 6 percent.
American said its yield - the amount passengers pay per mile, dropped 8.9 percent in the quarter, an indicator that fares were lower. International yields were down 14.6 percent while domestic flight yields were down 8.2 percent.
For the full year, American posted $7.6 billion in profit with revenues of $41 billion. American chief executive Doug Parker said 2015 was the most profitable year in the company’s history.
“It’s hard to imagine that just two years ago American Airlines was emerging from bankruptcy but we were,” Parker said on the call.
$1.20 to $1.25 per gallon Average cost of jet fuel American expects to pay in 2016.
The airline saved $908 million in fuel costs as its jet fuel expenses dropped 40 percent to $1.3 billion for the quarter. The company said it anticipates paying between $1.20 and $1.25 per gallon of jet fuel in 2016, which will give the airline another $2 billion in fuel savings.
Other one-time accounting charges included $450 million in charges related to its merger with US Airways and a $592 million charge to write-off the value of Venezuelan bolivars. Excluding one-time charges, American’s net income was $2.00 per share, beating Wall Street analysts’ estimates of $1.97 per share, according to FactSet Research.
But investors and Wall Street analysts were not impressed with American’s estimates that unit revenues are expected to decrease 6 to 8 percent in the first quarter.
“We are increasingly concerned by a business plan at American that seems un-phased and unaltered despite continued [revenue per available seat mile] malaise and paltry fuel retention metrics,” J.P. Morgan analyst Jamie Baker said in a research note to investors. “We would welcome any increased management vigor in tackling these issues, in hopes of addressing its languishing share price.”
Shares of American [ticker: AAL] were down almost two percent, trading around $37.47 a share in mid-morning trading.
American is currently in contract talks with its mechanics and ground workers unions. Kirby said the contracts are complicated but that both parties are focused on getting new joint contracts for American and former US Airways workers completed.
“We feel optimistic that we’ll get the big contracts with the TWU and IAM done this year,” Kirby said. “The talks are going fine so far.”
The carrier already has joint contracts for its pilots, flight attendants, gate agents and customer service representatives, all which included significant pay raise but did not have profit-sharing plans.
American said the airline has not seen any “measurable impact” on travel cancellations due to the Zika virus currently spreading through South America.
“In all international locations we have procedures to keep aircraft clean,” said American chief operating officer Robert Isom, adding the airline is prepared to handle the mosquito-transmitted disease. “We are in close contact with the [Centers for Disease Control] on any type of changes that would require adjustments to our programs.”
American also announced it plans to push back the delivery of two of its Airbus A350-900 deliveries from 2017 to 2020. The carrier will still be Airbus’ A350 launch partner in North America with four A350s expected to be delivered next year.
The company said it plans to take delivery of 55 new mainline aircraft and 49 regional aircraft in 2016 and retire 92 mainline and 29 regional aircraft.