American Airlines Is Coming Back With Improving Financial Fortunes

American Airlines has published an investor report indicating that the carrier’s fortunes are starting to improve. The second quarter was a shining spot for the airline after a year like no other, and the airline is getting back to generating instead of burning cash, and preparing to come out of the crisis.

American Airlines
American Airlines has seen an impressive financial turnaround in the second quarter. Photo: Vincenzo Pace | Simple Flying

American Airlines sees improving financials

One of the biggest signs that American Airlines is coming back is that it is generating cash again. The airline noted that, in the second quarter, it expects its average daily cash build to be approximately $1 million per day. This is the first time since the beginning of the crisis in March of last year that American has had a quarter with average daily cash generation over cash burn.

In terms of revenue, compared to the second quarter of 2019, American Airlines expects its total revenue to be down approximately 37.5%. This is better than the prior guidance of 40% and represents increasing strength in bookings.

American Airlines ended the second quarter with approximately $21.3 billion in total available liquidity. This came out about $1.3 billion higher than previously anticipated, largely because of improvements in revenue production, forward bookings, and other areas.

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A bright spot for American Airlines was seeing higher-than-expected revenue. Photo: Getty Images

A key unit metric in the industry is cost per available seat mile (CASM). American Airlines expects its CASM for the second quarter to be up between 11% and 12% compared to the second quarter of 2019. This compares favorably to the previous guidance of up between 13% and 17%.

American cited its effectiveness of cost efficiency measures put in place as the reason this metric improved. CASM is still up because American’s higher fixed overhead costs are still present, while its capacity measured in available seat miles (ASMs) is still down.

Last but not least, the question comes of net profit or loss. American Airlines now expects to report second-quarter financials of anywhere between a net loss of $35 million and a net profit of $25 million. June was the first profitable month for American, excluding net special items, since December 2019.

Full details on American’s financial performance from the quarter will come out later this month when the airline reports its second-quarter financials.

American Airlines
American Airlines has boosted domestic widebody flying. Photo: Getty Images

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Capacity in the second quarter

American Airlines flew 54.6 billion total available seat miles. This was down 24.6% from the second quarter of 2019. The airline previously forecast that capacity would be down 20 to 25% compared to the same quarter in 2019. Hence, the airline came out a little closer to the lower end of its forecast capacity for the quarter.

However, one of the biggest sources of satisfaction for the airline was its completion factor and on-time arrivals rate. Its completion factor was 98.6%, while its on-time arrivals rate came out at 82.1%. This was the best-ever performance on both metrics in a second quarter.

This is a notable achievement, especially considering that American Airlines had to pull down some scheduled flying and faced cancellations over crew, weather, and other issues during the month. June was difficult for the airline, yet it still managed to mark high notches in its operations. The airline has spent the last few years working to improve its operational reliability, and the current metrics show that the airline continues to work in that department.

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Even in international markets, American Airlines brought back more flying as countries reopened for American tourists. Photo: Vincenzo Pace | Simple Flying

What this all means

American Airlines is coming back. The airline’s financials are starting to improve after one of the worst years the carrier has ever faced. However, this should not come as too much of a surprise.

For one, Americans have come roaring back in the second quarter. With the summer season in full swing, American Airlines has increased its capacity to leisure destinations and continued to rebuild its schedule and hubs after the complete devastation in air travel from 2020. Plus, on key domestic routes, the airline has deployed its spare widebodies.

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The question now is what American Airlines is planning for the post-crisis world. Photo: Getty Images

With American Airlines starting to come back, the next question is what it does from here on out. United Airlines has charted its post-crisis strategy forward, taking an approach where it brings back seatback entertainment, retrofits its narrowbodies, and has ordered a massive 270 additional aircraft.

Delta Air Lines, already sitting on a sizable order book, also announced it would be taking on 36 more aircraft within the next year to backfill its aggressive aircraft retirements. At the same time, Delta is also turning its attention back to New York and Boston, where it is working to augment its position in both markets.

While American has added a steady stream of new routes during the crisis, including new flying to Israel, and has significantly increased its position in major cities like Boston, New York, Miami, and Austin, it has some work left to do in other parts of the country.

An aircraft order could be in American’s future. The airline does not have a significant backlog of narrowbody aircraft. The carrier only had 59 Boeing 737 MAx aircraft left for delivery as of March 31st. As of the same date, the carrier also had 89 Airbus A321neos left on order – 50 of which are for the Airbus A321XLR. The airline has a healthy backlog of Boeing 787 Dreamliners.

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American Airlines has stuck with the 737 MAX and so far plans to fly 100 of the MAX 8s when deliveries are complete. Photo: American Airlines

A new aircraft order could help American Airlines retire older aircraft like the Airbus A320s or A319s and some of the older Boeing 737-800s. American Airlines has continued to push for having a younger fleet to take advantage of the fuel savings next-generation aircraft offer.

However, one consideration regarding an aircraft order would be the carrier’s debt. As of March 31st, the airline had just under $40 billion of long-term debt. Net of current maturities, the airline had roughly $37 billion in long-term debt.

One option could be to pre-pay some of that debt and start to deleverage the balance sheet. This could set up the airline to be in a better financial position to finance a new aircraft purchase or invest in airport facilities or improve aircraft. Nevertheless, the airline has finally turned away from survival mode and bolstering cash reserves to now generating revenue and flying passengers again.

What do you make of American’s improving second quarter? Let us know in the comments!