American Airlines Group Reports First-Quarter Profit

FORT WORTH, Texas, April 27, 2017 (GLOBE NEWSWIRE) -- American Airlines Group Inc. (NASDAQ:AAL) today reported its first-quarter 2017 results, including these highlights:

• Recorded a first-quarter 2017 pre-tax profit of $365 million, or $491 million excluding net special items,¹ and net profit of $234 million, or $308 million excluding net special items
• Reported first-quarter earnings of $0.46 per diluted share, or $0.61 per diluted share excluding net special items
• Deferred the first delivery of Airbus A350 XWBs from 2018 to 2020, delaying capital expenditures and providing additional widebody capacity flexibility
• Announced an unprecedented step to increase hourly base pay for the airline’s crewmembers outside of contract negotiations, bringing those workgroups’ base pay levels to the top of the industry, consistent with other American Airlines workgroups

“We are excited about the long-term prospects for American Airlines, and our first-quarter results only serve to reinforce our enthusiasm. We successfully launched several important commercial initiatives, including Basic Economy and Premium Economy, which are designed to provide more choice for our customers. We expanded our global presence with our planned investment in China Southern Airlines. We continued to make significant investments in our product, including taking delivery of 22 new aircraft. These new deliveries widen our already significant advantage in average fleet age versus our large competitors,” said Doug Parker, Chairman and CEO.

“Investing in our product, however, is not enough to retain our customers’ loyalty if we are not investing in our team. As a service business, it is our team who will differentiate American from the competition. Recently we reiterated a commitment we made when we merged our airlines over three years ago – that team members would be paid as much as their industry peers. This commitment will be realized by adjusting the base pay levels for our flight attendants and pilots outside of contract negotiations.

“The American team did an amazing job of taking care of our customers during the quarter. This commitment was demonstrated in the improvement in our operating reliability, improved mishandled baggage rates, and improved on-time performance. All of this work is being recognized by others, too, as American was named Air Transport World’s Airline of the Year for 2017 and Full Service Airline Brand of the Year by the Harris Poll.

“The future is very bright and we are well on our way to validating the trust placed in us by our team members, our customers and our investors. Today’s results are an affirmation that we are on the proper path to that long-term objective,” Parker said.

Revenue and Expenses

• Reported a 2.0 percent increase in total revenue, to $9.6 billion. First-quarter total revenue per available seat mile rose 3.1 percent year-over-year
• Accrued approximately $31 million for the company’s profit sharing plan

Strong demand and improving yields drove a 2.0 percent increase in total revenue, to $9.6 billion. Other revenue was up 9.3 percent primarily due to the new co-branded credit card agreements that became effective in the third quarter of 2016. Total revenue per available seat mile increased by 3.1 percent, on a 1.1 percent decline in total available seat miles.

Total first-quarter operating expenses were $9.0 billion, up 11.4 percent year-over-year due primarily to a 37.8 percent increase in consolidated fuel expense. Total first-quarter cost per available seat mile excluding fuel and special items was 11.16 cents, up 7.6 percent year-over-year, due primarily to a 6.5 percent increase in salaries and benefits expense and other investments to improve the operation.

Commercial Initiatives

• Launched Basic Economy for sale on 10 routes, for travel that began March 1. We also began selling Premium Economy seats on select international routes, for travel beginning May 4
• Entered into an arrangement with Scandinavian Airlines to obtain two slot pairs at London’s Heathrow Airport, strengthening American’s presence at a key international gateway for American and joint business partner British Airways
• Simplified the boarding process, using intuitive group numbers to streamline and speed up the boarding process and improve the experience for customers

We are continuing to expand Basic Economy and Premium Economy as we add new options to offer the right fare for each customer. Each new 787-9 delivery includes Premium Economy, a new class of service between the Main Cabin and Business Class on international flights. We expect to have 14 of these aircraft by the end of 2017. In addition, a retrofit program to add Premium Economy to most of our other widebody aircraft begins later this year and will be completed by the end of 2018.

“While it’s still early, the initial results from our new Basic and Premium Economy products are encouraging. Approximately 50 percent of customers who are presented with a choice for Basic Economy end up choosing a Main Cabin fare, showing that they understand their options and are choosing the ticket that’s the right fit for their travel,” said Robert Isom, American Airlines President.

“We also moved quickly on the opportunity to add two new slot pairs at Heathrow, which we will use to improve service to and from one of the world's most important business markets,” Isom said.

“We expect second-quarter TRASM to rise approximately 3.0 to 5.0 percent, which reflects improving customer demand in both corporate and leisure travel. We also expect second-quarter pre-tax margin excluding special items to be between 11.0 and 13.0 percent,”² Isom said.

People Accomplishments

• Distributed its first annual profit-sharing payment as a combined airline for 2016
• Contributed $279 million to the company’s defined benefit plan in April
• Began offering 10 weeks of maternity pay and reimbursements for $4,000 in adoption expenses regardless of workgroup or representation status

In addition, the company yesterday disclosed on form 8-K with the Securities Exchange Commission that it has offered a mid-contract hourly base pay rate adjustment for its flight attendants and pilots of an average of approximately five percent and an average of eight percent, respectively.

Capital Investments, Fleet, and Shareholder Return

• Returned $563 million to stockholders through repurchases of 11.7 million shares for $512 million and dividends of $51 million in the first quarter
• Declared a dividend of $0.10 per share, to be paid on May 30, 2017, to stockholders of record as of May 16, 2017

American plans to invest $4.1 billion in new aircraft this year, as it continues to renew its fleet. During the quarter, the company invested $1.2 billion as it took delivery of 17 mainline aircraft and five regional aircraft. These new deliveries will replace aircraft that are expected to leave the fleet. In addition, the company expects to invest $1.6 billion in non-aircraft capital expenditures in 2017 focused on integrating the airline, product enhancements, and operational improvements.

To provide widebody capacity flexibility, the company reached an agreement with Airbus to defer delivery of the A350 XWB. Under the new delivery schedule, American expects to receive its first A350 aircraft in late 2020 instead of 2018 as previously planned. American now expects to receive 22 A350s from 2020 through 2024, with an average deferral of two years. In addition, the company reached an agreement with Boeing to defer the delivery of two 787-9 aircraft from the second quarter of 2018 to the first quarter of 2019.

These changes as well as the impact of changes to net pre-delivery payments reduce the company’s planned capital expenditures by $500 million in 2018 and $300 million in 2019 and in 2020.

Since mid-2014, the company has returned more than $10.2 billion to stockholders primarily through share repurchases and dividends, and reduced the share count by 34 percent to 495.7 million shares. As of March 31, the company had approximately $1.5 billion remaining of its $2.0 billion share repurchase authority.³

Investor Update

For additional financial forecasting detail, please refer to the company’s investor relations update, filed with the Securities and Exchange Commission on Form 8-K. This filing will be available at aa.com/investorrelations.

Conference Call / Webcast Details

The company will conduct a live audio webcast of its earnings call today at 7:30 a.m. CT, which will be available to the public on a listen-only basis at aa.com/investorrelations. An archive of the webcast will be available on the website through May 27.

Notes

1. In the first quarter, the company recognized $126 million in net special items before the effect of income taxes, principally consisting of merger integration expenses relating to information technology, professional fees, rebranding of aircraft and airport facilities and training, as well as fleet restructuring expenses driven by the merger. See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of all GAAP to non-GAAP financial information.
2. American is unable to reconcile certain forward-looking projections to GAAP as the nature or amount of special items cannot be determined at this time.
3. Share repurchases under the buyback program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the company to repurchase any specific number of shares or continue a dividend for any fixed period, and may be suspended at any time at the company's discretion.

About American Airlines Group

American Airlines and American Eagle offer an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries. American has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. American is a founding member of the oneworld^® alliance, whose members serve more than 1,000 destinations with about 14,250 daily flights to over 150 countries. Shares of American Airlines Group Inc. trade on Nasdaq under the ticker symbol AAL. In 2015, its stock joined the S&P 500 index. Connect with American on Twitter @AmericanAir and at Facebook.com/AmericanAirlines.

Cautionary Statement Regarding Forward-Looking Statements and Information

Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Securities Act of 1933, as amended (the Securities Act), the Securities Exchange Act of 1934, as amended (the Exchange Act), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about our plans, objectives, expectations, intentions, estimates and strategies for the future, and other statements that are not historical facts. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (especially in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A. Risk Factors), and in our other filings with the Securities and Exchange Commission (the SEC), and other risks and uncertainties listed from time to time in our other filings with the SEC. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements other than as required by law. Any forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements.