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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
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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.

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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

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)
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