Sky Talk

This and that from American Airlines earnings call with investors


American Airlines executives responded to criticism from Wall Street analysts that it is not appropriately managing its cash and returning it to investors.

Chief executive Doug Parker noted that investors appear disappointed that earnings aren’t higher during this low-fuel price environment and worried that airlines, like American, might be adding too much capacity.

“The fares are down because fuel prices are down and you’re paying your employees more. It feels a lot, to me anyway, like focusing on the trees instead of the forest. And the reality is we are producing record profits,” Parker said on a conference call with analysts and investors on Friday morning. “This is a business now that is so much dramatically different than anybody has ever seen before that they still can’t figure it out.”

Here’s a few issues that American executives touched on during the call.

Share repurchase plan

American repurchased $1.1 billion in common stock during the fourth quarter and paid out $72 million in quarterly dividends.

“We continue to believe they’re a really good value,” Parker said of the company’s stock. “The market cap doesn’t seem to be anywhere close to what the airline is generating in cash so we’ll use the excess cash to repurchase shares.”

The carrier ended the year with $6.9 billion in cash and short-term investments.

Basic economy and premium economy products

Late last year, American announced it was going to segment its cabin with a basic economy, economy with extra leg room and then a premium economy product. American president Scott Kirby said the first phase of the rollout will come in the second half of 2016.

“We’ll have more to come as we get better details around what the attributes of that product will be and exact timing,” Kirby said. “It is something that we’re really excited about and I think it’s transformative may be too strong of a word, but it’s at least significant.”

DFW is second best performer among hubs

American is still posting solid unit revenues at its DFW hub even with increased competition from Southwest Airlines at Dallas Love Field.

“We saw the strongest year-over-year [unit revenue] performance at Charlotte and the second strongest domestic performance was in DFW and that’s in spite of all the capacity that’s been added here,” Kirby said.

Capacity has grown about 5 percent in the DFW market which is much higher than the 2 percent increase across the U.S., Kirby said. He added that after August, the capacity growth will slow dramatically as Love Field doesn’t have any more room for additional flights.

Weakness in South America

Unit revenues on American’s flights to South America continue to decline as economies of Brazil and Venezuela struggle.

“We still don’t realistically expect any improvement in South America until the Brazilian economy turns around,” Kirby said.

However, American’s exposure to revenue declines in that part of its international network has lessened. Kirby said Brazil used to represent six percent of American’s total revenues two years ago. Now, it has shrunk to only two percent of the airline’s total revenues.