American Airlines has announced today that it will curtail plans to upgrade its headquarters in Dallas, Fort Worth. The airline had planned to make nearly half a billion dollars in changes to the sprawling facility. However, COVID-19 developments and intense cash burn have forced the carrier to put its plans on hold.
American cuts funding for its HQ upgrades
In a rush of spending before the COVID-19 pandemic, American Airlines had been eager to develop improvements to its headquarters in Fort Worth. It was planning a new conference room and training center as well as a $250m hotel complete with restaurants and a new operations center.
It had big aspirations. American had hoped that it would be able to use the facilities to train its cabin crews and host more exuberant corporate events. That’s still the plan; however, American Airlines has now been forced to put its expansion plans on hold.
With an average daily cash burn of $70m, it’s clear that the airline cannot continue to fund the project while plagued by a slump in travel demand. It’s been cutting expenditure where it can and plans to reduce its costs by $700m by the end of the year through cutting non-aircraft spending.
American will reinvest in the project when it can
American Airlines remains unswayed in its decision to upgrade the HQ. It’s clear that some of the renovations, like the new conference center, are much needed given the current dated facilities. What’s more, investments in a new flight kitchen at Dallas Fort Worth and a new Parts Distribution Center are also much needed. American plans to use the new kitchen to combat overcrowding at the current facility. Likewise, the parts center will help American’s efficiency.
Though the project is on hold, American intends to restart it when it can. An American Airlines spokesperson told The Dallas Morning News,
“We will continue to evaluate this project, as we do all capital investments within this current environment.”
American Airlines’ current focus is on how it can reduce costs and plan for the future. In a recent earnings call held on April 30th, Doug Parker Chairman and CEO of American Airlines said that while the CARES package had helped, it did not fix the airline’s revenue generation.
Doug Parker said,
“We’ve enacted a comprehensive cash conservation plan to eliminate all unnecessary operating and capital expenditures. We expect this will reduce our daily cash burn rate […] to approximately $50 million a day for the month of June. As a result of all that, we expect to end this quarter with approximately $11 billion of liquidity and a significant amount of unencumbered assets still in place. And that forecast assumes little to no increase in demand for air travel throughout the quarter.”
When will the project continue?
Despite what looks like a dismal forecast for American Airlines, there is hope that the project will continue soon. With a reduced cash burn, American is also looking to ramp up its load factor over the coming months. For the month so far, its international scheduled capacity and domestic capacity load factor is 58%.
Besides this, the airline will also fly 55% of its domestic capacity next month in July. This network improvement will see American Airlines operating 40% of its July 2019 schedule in July 2020. Bankruptcy is not an option for American, and neither is a total collapse of the market.
Accordingly, we could be seeing the airline restarting some of its upgrades sooner than thought. Despite that, it is expected to be a while before capacity returns to normal. American Airlines has also been explicit in addressing the issue of its size. It will need to reevaluate how large the airline remains from summer 2021 onwards. That will then dictate how much of the upgrades go ahead.
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