American Airlines Expects Pre-Tax Loss Of Up To $1.2 Billion

American Airlines released an investor update covering the fourth quarter of 2021. While the recovery has continued, American expects its revenue to still be down compared to 2019, with an expected net loss of up to $1.2 billion. This comes out to a pretax margin of between approximately -12% and -13%. While the recovery continues, American has yet to return to profitability. With its fourth-quarter earnings call scheduled for next week, the airline will likely provide more details about how it expects the recovery and its financial performance to turn out.

American Airlines Expects Pre-Tax Loss Of Up To $1.2 Billion
American Airlines is not out of the woods yet financially, though as the recovery. Photo: Getty Images

American releases financial guidance

American Airlines has offered some guidance regarding its fourth-quarter financial performance. It expects total revenue to be down approximately 17% versus the same quarter of 2019, which is slightly better than the carrier’s previous guidance of down 20%. Total revenue is expected to amount to roughly $9.4 billion.

American expects its fourth-quarter cost per available seat mile (CASM), which is a common metric of understanding unit costs, to be up between 13% and 14% over the fourth quarter of 2019. This is a revision upward from 8-10% and primarily comes from the airline’s reduction in capacity, the fourth quarter holiday operational incentive program, and a write-down of excess spare parts inventory. Fuel, one of the airline’s largest cost buckets, came at approximately $2.36 per gallon of jet fuel. American utilized roughly 931 million gallons of fuel during the quarter.

American Airlines, Profit, Profitable Airline
American navigated some challenges in the fourth quarter, including an increase in sick crews. Photo: Getty Images

When everything shakes out, American expects its pretax margin to be between -12% and -13%. This is better than its previous guidance of -16% to -18%, excluding net special items. This comes out to an expected pretax loss of between $1.17 billion and $1.24 billion. This comes due to roughly $10.2 billion in operating expenses, including fuel and net special items.

American’s fourth quarter

The fourth quarter, running from October through December, included two holiday periods that were, by all accounts, successful for the airline. Holiday traffic was strong, and American offered an operational incentive program to keep its flight schedule intact, though it also had to manage some operational challenges, including rough weather and an increase in staffing shortages associated with the global health crisis.

American’s fourth-quarter capacity, using available seat miles (ASMs), was down roughly 13% compared to the same quarter of 2019. This was at the lower end of its prior guidance of down 11% to 13% versus the same quarter of 2019. American did not yet release details about its load factor or the total number of passengers it flew during the quarter.

American 787 Dreamliner Getty
Long-haul international travel is making a slower return as some international markets, like Japan and China, remain question marks. Photo: Getty Images

American ended the quarter with approximately $15.8 billion in total available liquidity. American typically does not carry as much liquidity but chose to do so as a result of the crisis and the relatively choppy return of demand.

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Room to go in the recovery

While the airline recovery continued in 2021, it has not been uniform in every sector. For example, leisure travel has been leading the way, though leisure travelers are typically more price-sensitive and lower-yield travelers. Larger business and international corporate travel have been slower to return.

While restrictions on travel from major markets like Europe and Brazil came down in November, the discovery of a new variant and a rise in case counts in many major geographies led to some slowdown in bookings. The real test will be to see how American performs in 2022, especially considering that this summer is largely expected to be one of the best between the US and Europe the industry has seen. As business travel and yields also rebound, American should start to see a benefit in its financial performance.