Financial Performance

American Airlines Profit Falls on Higher Costs

Labor and fuel expenses weighed on the Q4 bottom line but American posted a 5.5% gain in revenue per available seat mile.
Matthew HellerJanuary 25, 2018

American Airlines’ fourth-quarter profit fell 11% as higher labor and fuel costs cut into its margins but a key revenue metric jumped more than 5%, reflecting strong global demand.

The world’s largest airline reported Thursday that net income for the last quarter of 2017 dropped too $258 million, or 54 cents per share, from $289 million, or 56 cents a share, a year earlier.

Operating expenses jumped 9.8% to $9.91 billion, with labor costs up 7.0% and fuel costs up 23.3%. American awarded its pilots and flight attendants a mid-contract pay increase last year that is set to cost $350 million a year in both 2018 and in 2019.

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But on an adjusted basis, American earned 95 cents a share, topping analysts’ consensus forecast for 92 cents. Revenue came in at $10.6 billion, in line with expectations.

The airline showed strength in the key metric of passenger revenue per available seat mile, which increased 5.5% over the same period of 2016. It expects first-quarter revenue-per-seat mile to increase by 2% to 4 % over the first three months of 2017.

“We enter 2018 with strong momentum,” CEO Doug Parker said in a news release. “Demand for American’s reliable, friendly service remains strong, our network is expanding, and the products we are bringing to market are resonating with customers.”

As CNBC reports, American and its rivals have been seeking to grow revenue and profits amid margin-crimping cost increases by segmenting their aircraft cabins into smaller classes of service, including no-frills basic economy and premium economy, which offers a larger seat, more leg room and an amenities kit for a higher fare.

The airline expects premium economy to be installed on most of its widebody fleet by the spring of 2019.

“Management will likely need to calm some fears about domestic competition, but it’s not like they are a stranger to competition,” Cowen & Co. said in a note. “American competes with Southwest Airlines in Dallas and Spirit Airlines in Chicago, and has more than held its own. We expect that will continue.”