American Airlines: Bad weather, grounded planes have capped profits — despite record revenue

American Airlines said its profit potential was hampered by poor weather in June and will continue to be going forward as a pilot shortage has kept dozens of aircraft on the ground. Despite that, the Texas-based carrier still reported its highest quarterly revenue ever in the second quarter.

And, like its competitors, American forecast a current-quarter profit amid continuing strong demand, though margins remain low. "We’ve resourced this airline to fly a larger airline,” CEO Robert Isom said on the carrier’s earnings call Thursday. “We can utilize our assets harder than we have.”

Derek Kerr, the company's chief financial officer, said the airline’s cost structure is built for an additional 150 aircraft. However, he said, American has 100 regional aircraft as well as 40 to 50 mainline aircraft sitting on the ground, a result of operating reductions as well as pilot shortages. “When the resources come and we put those aircraft back up in the air, that is where the margin comes,” Kerr said on the earnings call. “We are built from a cost perspective to fly those aircraft today and we’re not.

“The important thing for us is to get utilization and more aircraft back in the air,” Kerr said.

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In June, Isom said, American experienced severe weather at its hubs on 27 out of 30 days. As a result, he said, capacity was a percentage point or less than it would have been otherwise.

“June and the second quarter would have been better had we seen more normal weather,” he said, adding that operations have improved substantially in July.

Kerr said American expects to take delivery of nine Boeing 787s this year and four in the first quarter of 2023. If nine are delivered this year, that will add a percentage point to American capacity, he said.

Staffing challenge: American Airlines parks 100 regional jets due to pilot shortage, CEO says

Second-quarter revenue was $13.4 billion, up 12% from the same quarter in 2019, although capacity was 8.5% lower. Excluding items, American reported second-quarter net income of $533 million or 76 cents per share, in line with consensus. In midmorning trading, American shares were down.

Like other carriers, American has been affected by capacity restraints at London's Heathrow Airport. Nate Gatten, chief government affairs officer, said, “We’re very disappointed in the circumstances: We’re told by the airport at the very last minute that they have to reduce capacities.” That provides “few options for rebooking,” he said. “It’s quite disappointing and frustrating on many levels.”

The restraints will likely continue through the summer travel season, Gatten said.

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Based on current trends, the company expects its third-quarter total revenue to be 10% to 12% higher versus the third quarter of 2019 on 8% to 10% lower capacity. “Based on these demand trends and the current fuel price forecast, the company expects to be profitable in the third quarter,” American said. Cowen analyst Helane Becker said the capacity guidance is about one percentage point lower than it had been.

American said second-quarter capacity was 8.5% lower than it was in the second quarter of 2019. Nevertheless, the carrier said it “flew a schedule that was more than 25% larger than its closest competitor as measured by total departures.” American and its regional partners operated more than 500,000 flights in the quarter.

Asked on CNBC whether airlines should have received more than $50 billion in federal assistance, Isom responded, “American has made really good use of the payroll support program. It saved the industry. We’re enabling commerce; we’re enabling travel. [It was] not only beneficial to our company, it was incredibly important to our country as well.”

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Isom said that after difficult operations in June, “we've gotten things back on track." For the second quarter, the carrier said, its on-time departure rate, on-time arrival rate and completion factor were all better than in the second quarter of 2019.

Asked about ticket prices during the CNBC interview, Isom cited “limited supply” and advised customers to “book now.” He said leisure travel is back, as is small- and medium-size business travel.

“Where small- and medium-size business goes, the large businesses are sure to follow,” he said. In its earnings release, American said, “There remains significant revenue potential going forward to the extent business and international travel improve further.”