Skip to content

American Airlines in cost-cutting mode after $8.9 billion loss for 2020

Jan. 28, 2021
4 min read
American Airlines in cost-cutting mode after $8.9 billion loss for 2020
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

American Airlines said Thursday it has taken $1.3 billion out of its annual costs, signaling the potential for a strong return from the coronavirus crisis – just not as strong as its surging stock price may indicate.

American shares rose Thursday after gaining 7% Wednesday, when the broad market declined. That came as American got caught in the middle of the phenomenon of small investors buying stocks that hedge funds bet against.

American is the favorite short sale among airline stocks, likely as a result of relatively high debt and unfounded bankruptcy rumors. Shares rose as much as 50% in pre-market trading on Thursday, but were up just 5% at midday.

Want more airline-specific news? Sign up for TPG's free new biweekly Aviation newsletter!

American said the current quarter outlook remains glum, but “we’re prepared to withstand the ongoing crisis, irrespective of how long the recovery takes,” CEO Doug Parker said Thursday on the fourth-quarter earnings call.

The carrier said it lost $2.2 billion in the fourth quarter and $8.9 billion for the full year.

Parker demurred on the question of where American stands on the question of COVID-19 testing for domestic flights, a policy that has been floated by the Biden administration. “No one has talked with us about doing that,” he said, suggesting that such a requirement could potentially reduce demand.

Parker also declined to discuss the stock market performance, but he and CFO Derek Kerr repeatedly noted the cost reduction.

What's next? US ‘actively looking’ at negative COVID-19 test mandate for domestic flights

Sign up for our daily newsletter

American will be more efficient, after taking the opportunity to “shut down the largest airline in the world and rebuild around our strengths,” Parker said.

The carrier will permanently retire 150 aircraft, grouped in five aircraft types, leaving just four aircraft types with an average age of 11.2 years, lowest among the three network carriers, Kerr said.

Flying bigger airplanes and reducing spare aircraft due to fewer aircraft types means, “We could reach 2019 capacity with 10% fewer aircraft,” he said.

The $1.3 billion cost reduction also includes $500 million annually due to a one-third reduction of management employees. One new policy, Kerr said, will be “single agent boarding at airports.”

As for the first quarter, Kerr cited “tremendously high uncertainty with bookings, " adding: “The first quarter demand environment (looks) to be very much like the fourth.” First-quarter earnings will be lower than fourth-quarter earnings, he said. Compared with 2019, capacity is down 45%; revenues are likely to be down 60% to 65%.

Fleet shakeup: American Airlines retires its last Airbus A330, goes all-Boeing for wide-body jets

Cash burn will continue to be $30 million daily and American will end the quarter with $15 billion in liquidity.

On the revenue side, President Robert Isom said, American will continue to push traffic through Charlotte (CLT) and Dallas/Fort Worth (DFW), its “best performing hubs.”

Additionally, the planned July opening of a new concourse at Washington National (DCA), traditionally one of American’s most profitable hubs, means the carrier can eliminate 50-seat regional jets at DCA, instead flying bigger airplanes with coach and first-class cabins.

Also, American is moving to implement partnerships with JetBlue and Alaska, increasing its presence in New York and Boston and on the West Coast. Isom said the JetBlue partnership will enable the removal of 50-seat regional jets from Kennedy Airport, as well as the start of JFK-Tel Aviv service in May and JFK-Athens a month later.

So long, Gate 35X: Take a peek inside American’s new concourse at its Washington DC hub

The Alaska partnership, he said, will enable the start this year of planned —but so far delayed — routes from Seattle to Bangalore, London and Shanghai.

Looking ahead, American can “produce industry leading revenues on lower expenses, broader network and a smaller fleet,” Isom said.

Parker noted that cooperation with American’s labor unions has been high. He said that management meets every two weeks with union leaders. “We sit side by side,” he said.

Featured image by (Photo by Zach Griff/The Points Guy)
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Top offers from our partners

How we chose these cards

Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
See all best card offers

TPG featured card

Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards

2 - 10X points
10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day

Intro offer

75,000 bonus miles
Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

Annual Fee

$395

Recommended Credit

740-850
Excellent
Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023
Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day
  • Intro Offer
    Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

    75,000 bonus miles
  • Annual Fee

    $395
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    740-850
    Excellent

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023