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Swadian
Posts: 562
Joined: Sun Sep 11, 2016 4:56 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 7:13 pm

FriscoHeavy wrote:
MSPNWA wrote:
FriscoHeavy wrote:
No, it's not a 'positive' for their earnings. Yes, it may seem as such for a while, but at some point, S*** hits the fan and it's a very bad thing. 'Gas Guzzler' is very relative. There is no way that having big payments on new planes is cheaper than paid for 10-15 year old planes. I'm not talking about keeping a 30 year old plane around. You come out so much further ahead with less debt. There is less risk, you are more nimble and those without or less debt are going to be in a much strong financial position. Those drowning in debt are always playing defense and at the mercy of the next economic cycle, increase in fuel prices, etc.

Let's be clear, the 4% difference of butts-in-seats isn't their problem. Well, it wouldn't be if they didn't have all that debt.

Look, I want AA to succeed and do very well. I fly them almost exclusively, but debt will eventually deal a crushing blow.


AA's current issue is the revenue side. A higher-cost, lower-debt fleet does not help the revenue equation. In fact it will likely make it worse. The only solution when things turn red is to shrink, and that's the downward spiral with no end. A more efficient fleet swings the operating profit line in the right direction, and that's what AA needs to work through the revenue problem.

AA's debt comes at the advantage of lower costs in the short-run and lower capital expenditures in the long-run. It's not automatically a disadvantage. It's quite possibly an advantage. I'd recommend avoiding the simplistic view of "debt is bad".


It's not a simplistic view. Debt is not a 'good' thing, no matter how you spin. Yes, it will work for a while and in good times, works well. You don't have to have as much revenue to do well when you aren't playing kissy-face with the banks and paying them HUGE sums of money every month. At ~$225 Million in interest alone this quarter, that's a Billion dollars a year up in smoke. That covers a lot of butts in seats.

You go leverage yourself to death and see how that works out when you lose your job, can't get a new one, interest rates go up, you have a health issue and can't work, etc. There is a huge element of risk carrying debt like this and you can't see that by just looking at the numbers on the surface. Meanwhile, myself and companies and don't carry that debt (risk), will do remarkably well in difficult times.


AA's problems probably come from a combination of debt and revenue. On the one hand, those S80 and 763 really need to be replaced. On the other hand, AA retired some perfectly good 752 and A320, replacing them with 738s that are barely more efficient. I think AA won't be making more replacement orders until the existing debt mess is over with, and will squeeze every bit of life out of those recently-refurbished 77E. I'm sure the 763 and A333 will still go as their replacements have already been ordered.

AA says they'll replace the oldest 77E when the 789 order is finished, but I think the 77E will end up being widebody S80 soldiering on to the 2030s (the newest one is a 2006 after all). AA simply can't handle more debt to replace them.

HPAEAA wrote:
UpNAWAy wrote:
That is right I forgot about the B787-8s, they are going to be 20J, 28PE, 186Y. So in that fleet the PE room is coming from both J & Y. So in that fleet you will have 48 Premium seats (20J+28PE)) and Y is 186 down from 198. The B787-9 are remaining at their current config which is 30J, 21PE, 234Y.

But they overall theme posted here so often is that they are devaluing the high end and going after more low in is absolutely false. They are fragmenting the cabin to increase RASM not reduce it.


So a couple of observations:
1. DL and UA are also adding premium economy but not reducing the J cabin during the modifications. It's interesting to me that AA sees this as a need to bifurcate their Premium offerings to hit multiple price point rather than a further differentiation of the Y cabin as other carriers do.
2. On many of the 787 routes these were previously flown by 772s in TPAC & 767s on TATL, in the case of TPAC, the J cabin has been reduced from over 40 seats to 20 (following the PE introduction) which is a pretty big cut and from 28 to 20 on the 763 route TATL, now the current management didn't set the original configurations however they did decide to reduce the cabin further form 28 to 20 with the introduction of Premium economy (~ a 30% further cut). This coupled with a lot of the domestic reductions in first class (AA 752s had 24 First seats while the A321 has 16, the MD80s had 16 F while the 319s have 8) & you have to wonder how much emphasis AA will be placing on premium flying going forward...

Does anyone know a source for Premium vs Coach ASMs? I'd be interested to see the over all breakdown over time...


Yes, but the newer A321neo is going back up to 20F and less and less corporate contracts are paying for J whereas most still pay for W. AA also still has the 77E and 789 with sizeable J cabins, and the 77W with a whopping 52J. Keep in mind that while some 77E flights went down to 788 (mostly poor-load China), some others went up to 77W, and the A321neo will be flying some former 738 or S80 routes, not just 752 routes (AA will have 319 A321, compared to 142 752 at its highest).
 
Bobloblaw
Posts: 2406
Joined: Fri Jan 13, 2012 1:15 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 7:22 pm

N757ST wrote:
225 million dollar a quarter expense to service their 22+ billion dollar debt load. Ouch.


AA went heavily into debt to buy new planes. With rising rates and falling fuel, they are going to hurt.
 
tphuang
Posts: 5440
Joined: Tue Mar 14, 2017 2:04 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 7:48 pm

dfdubflyer wrote:
Everyone step back from the brink on dire predictions about basic economy and debt.

You can chalk almost all of this up to Parker and Kerr refusing to hedge fuel. They had a bad experience at America West over a decade ago and when spot prices were low three years ago they looked like geniuses (while Southwest was left paying $25 more a gallon or billions to unwind bad hedges). Now, when spot prices have risen back up and they have no hedges to protect their they’re far more exposed than Delta, United or Southwest.

Add back the change in fuel they left themselves exposed to, and they’re solidly middle of the pack with a comparable margin to the other two.


Actually that was last quarter. This quarter the price of fuel didn't go up that much. WN actually paid right in the middle of DL and UA. For some reason, DL always pays less. Maybe it's related to their refinery? Anyhow, AA didn't pay much more than other carriers for fuel.
 
MSPNWA
Posts: 3698
Joined: Thu Apr 23, 2009 2:48 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 7:48 pm

FriscoHeavy wrote:
It's not a simplistic view. Debt is not a 'good' thing, no matter how you spin. Yes, it will work for a while and in good times, works well. You don't have to have as much revenue to do well when you aren't playing kissy-face with the banks and paying them HUGE sums of money every month. At ~$225 Million in interest alone this quarter, that's a Billion dollars a year up in smoke. That covers a lot of butts in seats.

You go leverage yourself to death and see how that works out when you lose your job, can't get a new one, interest rates go up, you have a health issue and can't work, etc. There is a huge element of risk carrying debt like this and you can't see that by just looking at the numbers on the surface. Meanwhile, myself and companies and don't carry that debt (risk), will do remarkably well in difficult times.


Yes, it is simplistic. Debt can absolutely be a "good" thing when used wisely. It can be used to increase earnings now and later and place a company in a better financial position. Saying otherwise is against financial principles. You're talking apples and oranges comparing business debt with personal debt, and it's pointless to say that AA could have $0 interest expense. It's not as if AA recently had a choice between ~$22B and $0B.

Here's a hypothetical. Let's say a few years ago that AA decided to hang onto more MD-80s, A320s, and 752s instead. Operating income would be down. Net profit may be up or down. Debt would be lower, but their capital expenditure position would be worse as more aircraft face replacement versus today. Where is the dividing line between a good idea or bad idea? Tough to say. But considering the circumstances - inefficient aircraft being replaced, debt being at very favorable rates, and a positive economic environment for airlines - good chance it was the positive side.

You know what seems to happen when you defer needed aircraft replacement? The expense comes to roost right when you can't afford it. That's the scenario AA was themselves at risk for if they didn't aggressively replace their fleet starting about 10 years ago. And it's a risk other airlines still take in favor of short-term profits.
 
PlanesNTrains
Posts: 9524
Joined: Tue Feb 01, 2005 4:19 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 8:01 pm

There’s a lot to be said to having a young fleet with predictable reliability and reasonable maintenance costs. Debt may not be all-good but it’s also not all-bad. If rates are low you can accomplish a lot for relatively low interest costs. Of course, low- or no-debt is better, all things being equal, but all things are never equal.
-Dave


MAX’d out on MAX threads. If you are starting a thread, and it’s about the MAX - stop. There’s already a thread that covers it.
 
panamair
Posts: 4347
Joined: Fri Oct 12, 2001 2:24 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 8:13 pm

dfdubflyer wrote:
You can chalk almost all of this up to Parker and Kerr refusing to hedge fuel. They had a bad experience at America West over a decade ago and when spot prices were low three years ago they looked like geniuses (while Southwest was left paying $25 more a gallon or billions to unwind bad hedges). Now, when spot prices have risen back up and they have no hedges to protect their they’re far more exposed than Delta, United or Southwest. .


Delta and United have no fuel hedges either.

https://www.wsj.com/articles/delta-hit- ... 1531396327

".....Delta and other airlines have retreated from using derivatives to hedge against future fuel-price swings. The company said in June that it didn’t plan to start hedging again..."
 
dfdubflyer
Posts: 193
Joined: Mon Oct 15, 2012 4:01 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 8:29 pm

panamair wrote:
dfdubflyer wrote:
You can chalk almost all of this up to Parker and Kerr refusing to hedge fuel. They had a bad experience at America West over a decade ago and when spot prices were low three years ago they looked like geniuses (while Southwest was left paying $25 more a gallon or billions to unwind bad hedges). Now, when spot prices have risen back up and they have no hedges to protect their they’re far more exposed than Delta, United or Southwest. .


Delta and United have no fuel hedges either.

https://www.wsj.com/articles/delta-hit- ... 1531396327

".....Delta and other airlines have retreated from using derivatives to hedge against future fuel-price swings. The company said in June that it didn’t plan to start hedging again..."


Delta has drawn down their portfolio but absolutely still hedges a portion of their fuel. Moreover, their entire investment in Trainer was - in effect - a hedge.

You are correct, though, on United. My mistake. It appears based on a read of their K filed earlier this year that they've drawn down their hedge portfolio for now. (They haven't fired all the people capable of executing such a portfolio unlike American)
 
Wacker1000
Posts: 237
Joined: Tue Jan 07, 2014 6:36 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 10:14 pm

gen2stew wrote:
Time to DITCH DOUG and the TOOLS from TEMPE


Ironically Doug and company were doing just fine before. Maybe it is time to start LAAying off some of the dead weight that don't know how to run a profitable and on time airline?
 
9w748capt
Posts: 1759
Joined: Sat Feb 02, 2008 10:27 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 10:25 pm

Wacker1000 wrote:
gen2stew wrote:
Time to DITCH DOUG and the TOOLS from TEMPE


Ironically Doug and company were doing just fine before. Maybe it is time to start LAAying off some of the dead weight that don't know how to run a profitable and on time airline?


No doubt Dougie was doing great before - running what was basically a ULCC in US. He's great at that - he just has literally no idea how to appeal to the premium customer (or any customer). It's quite telling how much better WN is doing in comparison. Clearly folks are paying a premium to fly WN and not AA out of places like DAL and MDW.
 
Miamiairport
Posts: 733
Joined: Tue Apr 10, 2018 8:14 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 10:57 pm

Debt aside their operating margins are horrible compared to DL and UA. Something is not working right from a margin standpoint.
 
LupineChemist
Posts: 836
Joined: Wed Oct 07, 2015 9:03 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:08 pm

With rising rates and fuel, their debt may be an advantage for the future. They'll have locked in low rates for more fuel efficient aircraft. Competitors will eventually need to replace as well and have to finance at higher rates.

The hedging point is also pretty good. AA is way more vulnerable to fuel swings. Still doesn't explain all of it but they aren't in a terrible position for the long term even if there is a lot of work to do.
 
MIflyer12
Posts: 8475
Joined: Mon Feb 18, 2013 11:58 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:11 pm

dfdubflyer wrote:
panamair wrote:
dfdubflyer wrote:
You can chalk almost all of this up to Parker and Kerr refusing to hedge fuel. They had a bad experience at America West over a decade ago and when spot prices were low three years ago they looked like geniuses (while Southwest was left paying $25 more a gallon or billions to unwind bad hedges). Now, when spot prices have risen back up and they have no hedges to protect their they’re far more exposed than Delta, United or Southwest. .


Delta and United have no fuel hedges either.

https://www.wsj.com/articles/delta-hit- ... 1531396327

".....Delta and other airlines have retreated from using derivatives to hedge against future fuel-price swings. The company said in June that it didn’t plan to start hedging again..."


Delta has drawn down their portfolio but absolutely still hedges a portion of their fuel. Moreover, their entire investment in Trainer was - in effect - a hedge.

You are correct, though, on United. My mistake. It appears based on a read of their K filed earlier this year that they've drawn down their hedge portfolio for now. (They haven't fired all the people capable of executing such a portfolio unlike American)


Reuters reported in January that DL, UA and AA (and Emirates) had no plans to start fuel hedging. https://www.reuters.com/article/us-avia ... SKBN1FB29H

Bloomberg repeated it in 2/2018. https://www.bloomberg.com/news/articles ... uel-prices

WSJ repeated it in July. https://www.wsj.com/articles/delta-hit- ... 1531396327

AA's underperformance to DL and UA can't be attributed to fuel hedges.
 
HPRamper
Posts: 5044
Joined: Sat May 14, 2005 4:22 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:13 pm

9w748capt wrote:
Wacker1000 wrote:
gen2stew wrote:
Time to DITCH DOUG and the TOOLS from TEMPE


Ironically Doug and company were doing just fine before. Maybe it is time to start LAAying off some of the dead weight that don't know how to run a profitable and on time airline?


No doubt Dougie was doing great before - running what was basically a ULCC in US. He's great at that - he just has literally no idea how to appeal to the premium customer (or any customer). It's quite telling how much better WN is doing in comparison. Clearly folks are paying a premium to fly WN and not AA out of places like DAL and MDW.

US was nowhere near a ULCC, let's tone down the hyperbole. Did it fall between what PMUS was and what HP used to be? Sure. But the thing about PMAA is that they were also hemorrhaging money. I always have to laugh a little when people bemoan some former airline and how they really knew how to treat the passengers. Seems those airlines are always the ones that couldn't make any money and ended up getting bought out or merging for survival.
I hear it about VX too. Same deal really.
 
DeltaPrince
Posts: 36
Joined: Tue Oct 09, 2018 10:05 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:13 pm

Doug Parker has run his course. Fire him and the amateurs from Tempe and bring some people in who really know how to operate a quality, world-class airline.
 
HPRamper
Posts: 5044
Joined: Sat May 14, 2005 4:22 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:16 pm

Miamiairport wrote:
Debt aside their operating margins are horrible compared to DL and UA. Something is not working right from a margin standpoint.

Makes me wonder if they are getting killed in a specific region...systemwide there shouldn't be so much disparity.
 
usflyer msp
Posts: 3884
Joined: Tue May 23, 2000 11:50 am

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:35 pm

HPRamper wrote:
Miamiairport wrote:
Debt aside their operating margins are horrible compared to DL and UA. Something is not working right from a margin standpoint.

Makes me wonder if they are getting killed in a specific region...systemwide there shouldn't be so much disparity.


DL/B6 both stated that Latin America is weak is weak right now. Im thinking that AA's big exposure there explains part of the margin difference.
 
tphuang
Posts: 5440
Joined: Tue Mar 14, 2017 2:04 pm

Re: AA post Q3 2018 earnings

Thu Oct 25, 2018 11:53 pm

usflyer msp wrote:
HPRamper wrote:
Miamiairport wrote:
Debt aside their operating margins are horrible compared to DL and UA. Something is not working right from a margin standpoint.

Makes me wonder if they are getting killed in a specific region...systemwide there shouldn't be so much disparity.


DL/B6 both stated that Latin America is weak is weak right now. Im thinking that AA's big exposure there explains part of the margin difference.

Right, weak Latin American market hurts aa the most. I certainly don’t think that’s their only problem but it is a big factor.

They adjusted by exiting pap out of fll and jfk. Looks like puj is gone too. That aa Caribbean network out of jfk is going to be completely wiped out soon.
 
tonytifao
Posts: 800
Joined: Wed Mar 02, 2005 10:22 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 2:18 am

I did move about $20k yearly business from AA to UA :) That might explain some of it :D
 
sagechan
Posts: 352
Joined: Sat Jul 04, 2015 6:14 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 3:01 am

AA's debt maintainance is a short term issue, but they are also past the biggest jump in capital costs of which occurred during a period of very low rates. I think we'd need to see where AA's margin weaknesses are versus UA and DL to get a better understanding if it's entirely a systemic weakness or major losses in an underperforming area. Also they have publiclymentioned the losses in ORD-Asia and those cuts have not yet taken place.

Only 1 fleet and 1 subfleet have lost J seats. The high J 772s were standardized which should be a net gain in utilization and reliability. The 788 was relatively premium heavy and was reduced to modestly premium light. Domestically the A319a were reduced to 8 but the A321s & neos will be i creased to 20. Giving an 8/12/16/20 F mix option.
717, 733, 734, 738, 739, 744, 752, 763, 772, 77W, 789, A319, A320, A321, A332, A333, A359, MD88, CRJ, CR7, CR9, DH1, DH2, DH3, S340, ER4, E170, E175, E190/CO, NW, US, AC, NH, AA, UA, DL, WN, WS, SK, VY, LA, QF, AR, AV, MH, KA, AS
 
HPAEAA
Posts: 1142
Joined: Mon May 08, 2006 7:24 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 4:20 am

sagechan wrote:
Only 1 fleet and 1 subfleet have lost J seats. The high J 772s were standardized which should be a net gain in utilization and reliability. The 788 was relatively premium heavy and was reduced to modestly premium light. Domestically the A319a were reduced to 8 but the A321s & neos will be i creased to 20. Giving an 8/12/16/20 F mix option.

I don’t quite follow your logic here, the 772, 788, 332 are all seeing J class reductions of 30% or more, yes, the 789 was the the first clean slate aircraft with J class so it’s true J was never reduced but that’s a pretty big chunk of the Long haul fleet which has been removed, note the new a333 hasn’t Been released yet & the 763 is being Replaced by mostly 788 which has 20 j seats. Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....
1.4mm and counting...
 
grbauc
Posts: 1469
Joined: Sat Mar 28, 2015 9:05 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 5:30 am

UpNAWAy wrote:
FriscoHeavy wrote:
Simply put, AA needs to get debt under control. That is the kryptonite of every person or company and while you may be able to get away with it for a little while while things are good, but as long as you have debt, you will always be susceptible to being bitten in the ass. It only works while it works and new planes with a huge balance, don't outperform older, paid for planes.

If you play with a snake (debt in this case) long enough, you will get bitten.



Parker specifically said they are paying debt down as its due and not replacing it, but they are not replacing it early as the terms are too favorable.



I also think has some others that Parker has done it all it time for new fresh faces.

I also agree with UpNAWAy that people just seem to make stuff up. Its a fan boy club and not a aviation site here. Not sure where Comm is and some of the other great posters but I find this site not the great place it use to be.
 
ckfred
Posts: 5188
Joined: Wed Apr 25, 2001 12:50 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 5:39 am

The question of how much debt is too much has to be reviewed in light of the interest rates on the debt. Right now, I'm carrying far more credit card debt that typical. But, we bought some furniture with 0% interest for 4 years. Needless to say, I'm paying the minimum payment each month. At the end of 4 years, the balance will be $0. While the balance probably has some effect on my FICO score, the money that isn't going towards balance reduction is earning interest (and increasing interest as the Fed increases rates).

So, I would assume that question for AA becomes one of the merits of reducing debt quickly versus paying it down slowly at what are probably very low rates. It certainly isn't unheard of for a lender to offer an incentive to pay down additional debt, so that the lender can loan those funds at higher interest rates. When U.S. mortgages were north of 12% in the early 1980s, my parents mortgage lender was offering all sorts of incentives, in order to get them to pay off their loan with a 4.25% interest rate from 1964.

What I would be curious to know is how much the free ticket program is costing. Because AA got an "airline of the year" award in 2017, every employee got a free round-trip ticket for two, in Y, to anywhere that AA flies. A friend of mine did an open-jaws ticket of ORD-LHR, with a CDG-ORD return last month.
 
panam330
Posts: 2168
Joined: Sun Mar 14, 2004 11:58 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 5:52 am

HPAEAA wrote:
Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....

Fortunately, all existing 321s are currently scheduled to go to 20F/176Y as part of the Oasis program.

"According to David Seymour, American’s Senior Vice President of Integrated Operations, when they take the A321neo starting in January “that will actually serve as the platform to get certification for our refurbishment and standardization of the 321s..so we can go common configuration.” That effort will start in February."

Source: https://viewfromthewing.boardingarea.com/2018/09/27/american-will-add-a-5th-row-of-first-class-to-airbus-a321s-and-more-coach-seats/
 
Prost
Posts: 2585
Joined: Wed Oct 03, 2012 6:23 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 6:02 am

UpNAWAy wrote:
Prost wrote:
It sounds as though they’ll be deferring some planes and cutting some routes. AA has a more modern fleet than DL, yet seem to lean on fuel expenses as the reason for the decreased profit.

UAL seems to have found a path to better profitability, I hope AA finds their path as well.



Derek Kerr just said no changes for the next three years regarding current aircraft orders. Where does it sound like routes will be getting reduced?


https://www.investors.com/research/ibd- ... -earnings/

This article has the following quote:

CEO Doug Parker said American is adjusting to higher costs with lower planned capacity growth, canceling unprofitable flights, deferrals of new aircraft deliveries, and continued aggressive cost management.


But no specifics.
 
HPAEAA
Posts: 1142
Joined: Mon May 08, 2006 7:24 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 10:58 am

panam330 wrote:
HPAEAA wrote:
Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....

Fortunately, all existing 321s are currently scheduled to go to 20F/176Y as part of the Oasis program.

"According to David Seymour, American’s Senior Vice President of Integrated Operations, when they take the A321neo starting in January “that will actually serve as the platform to get certification for our refurbishment and standardization of the 321s..so we can go common configuration.” That effort will start in February."

Source: https://viewfromthewing.boardingarea.com/2018/09/27/american-will-add-a-5th-row-of-first-class-to-airbus-a321s-and-more-coach-seats/


Thanks, I hadn’t seen that article & quote before, agree good news!
1.4mm and counting...
 
AAplat4life
Posts: 326
Joined: Thu Jun 23, 2011 11:14 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 11:08 am

Mr. Parker might have calmed the market yesterday after a few weeks of the the stock suffering a big drop, admittedly in a down market overall. This can only last so long. AA’s earnings performance was simply abysmal in what should have been its most profitable quarter compared to its competitors. It’s hard to believe that it will do better over the next few quarters by cutting ORD routes to Asia (which others are able to make work) or by implementing some other, unspecified plan. AA needs to recalibrate its game plan, and it simply does not have the senior management to do it.
 
tphuang
Posts: 5440
Joined: Tue Mar 14, 2017 2:04 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 1:24 pm

A little more on RASM from different regions from earnings call. Looks like Latin America was definitely weak for them this quarter. The RASM guidance for Q4 isn't gret

As we had anticipated, our Latin America performance was a little challenging during the quarter due to macro concerns in Argentina, political uncertainty in Brazil, and a soft pricing environment in Mexico. The remainder of our Latin America network is performing well with notable strength in the Caribbean and Central America. Overall, revenue for the region still grew by 2.3%, albeit on 4% higher capacity, 2.6 percentage point lower loads, and an encouraging 1.5% higher yield.

Unit revenue grew in the Pacific for the fourth consecutive quarter with PRASM up 2.4% year-over-year. Premium cabin performance remains strong with Japanese and Korean markets showing the best performance year-over-year.

Looking forward we see continued strength in bookings as the demand for our product remains strong. Despite a very tough fourth quarter comparison, we expect a year-over year system TRASM to be up 1.5% to 3.5% in the December ending quarter. This will be our ninth consecutive quarter of positive unit revenue growth. As we approach the end of our integration. We have the opportunity to pursue a number of initiatives that in many cases have already been implemented by our competitors and have been in our plan for a long time. In 2019, we'll increase revenues by $1 billion, thanks to optimizing our basic economy product, expanding the use of premium economy seats, further refining our suite of revenue management tools, continuing our fleet harmonization project and many more items.


American Airlines Group Inc (AAL) Q3 2018 Earnings Conference Call Transcript
AAL earnings call for the period ending September 30, 2018.
Motley Fool Transcribers
(MFTranscribers)
Oct 25, 2018 at 7:40PM
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

American Airlines Group Inc (NASDAQ:AAL)
Q3 2018 Earnings Conference Call
Oct. 25, 2018, 7:30 a.m. ET
Contents:

Prepared Remarks
Questions and Answers
Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the American Airlines Third Quarter 2018 Earnings Call. Today's conference call is being recorded. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions)

And I would like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens.

Daniel Cravens -- Managing Director of Investor Relations

Thanks, and good morning, everyone, and welcome to the American Airlines Group Third Quarter 2018 Earnings Conference Call. Joining us on the call this morning is Doug Parker, Chairman and CEO; Robert Isom, President and Derek Kerr, our Chief Financial Officer. Also in the room for our question-and-answer session are several of our senior executives including Maya Leibman, Chief Information Officer; Steve Johnson, our EVP of Corporate Affairs; Elise Eberwein, our EVP of People and Communications; and Don Casey, our Senior Vice President of Revenue Management.

Like we normally do, Doug will start the call with an overview of our financial results. Derek will then walk us through the details on the third quarter and provide some additional information on guidance for the fourth quarter. Robert will then follow with commentary on the operational performance and revenue environment, and then after we hear from those comments we'll open the call for analysts questions, and lastly questions from the media. To get in as many questions as possible please limit yourself to one question and a follow up.

Before we begin we must state that today's call does contain forward-looking statements, including statements concerning future revenues and cost, forecasts of capacity, traffic, load factor, fleet plans and fuel prices. These statements represent our predictions and expectations as to future

events, but there are numerous risks and uncertainties that could cause actual results to differ from those projected. Information about some of

these risks and uncertainties can be found in our earnings press release issued this morning and our Form 10-Q for the quarter ended September 30, 2018, that was also issued this morning.

In addition, we will be discussing certain non-GAAP financial measures this morning, such as pre-tax profit and CASM, excluding unusual items. A

reconciliation of those numbers to the GAAP financial measures is included in the earnings release, and that can be found on our website. A webcast of this will be archived on the website as well. And the information that we're giving you on the call is as of today's date and we undertake no obligation to update the information subsequently.

Thanks again for joining us, and at this point I'll turn the call over to our Chairman and CEO, Doug Parker.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Dan. Thanks who ever joined us. Today we reported third quarter 2018 pre-tax profit of $688 million excluding net special items. Those results include our highest ever revenue performance, thanks to our 130,000 hardworking team members, but unfortunately a rise in fuel prices outpaced that increase in revenues. Higher jet fuel prices alone increased our quarterly expenses by over $750 million versus the same quarter last year. And therefore, our pre-tax earnings excluding specials for the quarter were $485 million lower than the third quarter of 2017. The declining earnings has been met with the declining stock price, which neither we nor our investors are happy about. The good news is we're extremely bullish on the future of American and for good reason. This disconnect between the stock price and our view of the future seems to us like a buying opportunity and we're happy to be here to talk to you all about it.

So look, there are five reasons that we're so bullish. First, we had extensive revenue initiatives under way, that are expected to bring more than $1 billion in revenue improvements to American in 2019 versus 2018. Importantly, the drivers of this value are not share shift because of a better product like new airplanes or industry leading Wi-Fi or world class clubs and lounges, though we certainly believe some upside exist in that regard. This is value that will happen as we simply execute against known projects such as project segmentation, fleet reconfiguration and international network restructuring.

Second, we also expect about $300 million in cost improvements in 2019 versus this year. That's the result of our One Airline Project, which has been expanded and accelerated in light of higher fuel costs and Derek will discuss that further.

Third, we have the opportunity to grow where we have a real competitive advantage. We have what we believe will be the lowest growth plans in the industry for 2019, but we also have what we believe are the best growth prospects. We have 15 gates opening at our largest and most profitable hub in Dallas/Fort Worth in early 2019. We have routes in and out of Dallas/Fort Worth that will immediately generate higher than average profitability versus the marginal profitability that airline growth usually generates.

Fourth, we are dedicated to improving our operating reliability. And we've been steadily improving the operating reliability of American according to plan in each year since our merger in late 2013. But that trend changed in the summer of 2018, we backed a little bit. As Robert will discuss we've rededicated ourselves to producing the best operational reliability since the merger in -- since our merger in 2019 (ph) and that's our top corporate priority. The works already begun, showing some great results. So this is an even more upside for 2019.

And then fifth, we are nearing the end of our major post merger capital expenditure requirements. Our capital expenditures at American have averaged $5.3 billion per year in the five years since the merger. That over $25 billion is by far the most any carriers has invested in its fleet, product and team in the history of commercial aviation. And the result is a valuable set of assets that will serve our shareholders well for decades to come. And we're going to spend a little under $5 billion in 2019 as we have one more aircraft order to fund. But after that we're largely done with the backlog and our CapEx drops precipitously to approximately $3 billion in 2020, $2 billion in 2021 and we expect it will remain in the $2 billion to $3 billion range thereafter. So because of all those items, we're excited about our near and long term future. We're confident that American will return to revenue outperformance and earnings growth in 2019 and beyond.

Now it sounds like we're extremely optimistic is because we are, but please don't mistake confidence for indifference. We're extremely focused on results and execution and completing the hard work necessary to deliver this value. We just happen to be confident it will happen, because we know we have the right plan in place and the right people to deliver it.

We look forward to proving that over time and with that I'll turn it over Derek and Robert.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Great. Thanks, Doug, and good morning, everyone. Before I begin I'd like to recognize and thank our team who have had to contend with some very challenging weather conditions during the quarter. Their hard work and willingness to go above and beyond on behalf of our passengers in some very difficult circumstances is appreciated by us all.

We filed our third quarter earnings press release in 10-Q this morning, while this was another profitable quarter for American Airlines. Earnings were lower due primarily to a 38% increase in average fuel cost per gallon. Excluding net special items, we reported a net profit of $523 million in 2018 versus our 2017 net profit of $729 million, which included a negative impact to pre-tax earnings from Hurricane Florence for approximately $50 million.

Our diluted earnings per share excluding net special items in the third quarter of 2018 was a $1.13 per share, and excluding special items, our third quarter pre-tax profit was $688 million with a pre-tax margin of 6%. Our total operating revenues were 5.4% to $11.6 billion, the highest third quarter revenue in American Airlines history. On a unit revenue basis total revenue per ASM was up 2.6% and this was the eighth consecutive quarter in which we achieved positive unit revenue growth. Passenger revenues were $10. 6 billion, a 4.6% improvement driven in part by a 2.2% improvement in yields.

The third quarter saw another excellent performance by our cargo organization. For the third quarter cargo revenue was $260 million, a 16.4% improvement year-over-year driven primarily by a 12.1% improvement in yields. Other revenues were up 14.5% driven primarily by continued strength in our loyalty program. Total operating expenses were $10.9 billion up 12.4%. The primary driver of this increase was the higher fuel price I mentioned earlier, which drove approximately $750 million of year-over-year incremental expense. As a result consolidated cost per ASM was up 9.4% year-over-year.

In this increasing fuel cost environment we continue to make the reduction of non-fuel costs a priority. When we initially provided guidance in our third quarter of 2018 back in January we projected that fuel would be up -- would be at approximately $2.10 a gallon and that CASM excluding fuel and special items would increase by approximately 1.5% on ASM growth of close to 4%. As fuel costs increased throughout the year, we worked to eliminate non-essential costs from the organization, while at the same time optimizing our network and focusing on reducing unprofitable capacity. As a result of these efforts, our third quarter consolidated CASM excluding fuel and special items was up only 0.8% year-over-year on an over 100 basis point reduction in system capacity growth to 2.7%.

Turning to the balance sheet, we ended the quarter with approximately $7.4 billion in total available liquidity. During the quarter, our treasury team completed several transactions including a $500 million upsize of our London Heathrow term loan, as well as securing financing for certain 2019 aircraft deliveries. We now have financing for all mainline aircraft deliveries through June of 2019. In addition, the Company made a $156 million contribution to its defined benefit plans. For the year we have made $467 million in pension contributions. One benefit of the rising interest rate environment is that it reduces our pension liability, which all else being equal, will lower future pension funding obligations and improve our free cash position in the medium to long term.

As of today we estimate our GAAP liability has reduced by $2 billion from the start of the year and our 2019 cash contribution has reduced by about $110 million to $780 million based on year-to-date asset performance. We have lowered our adjusted debt including pensions by $743 million since the beginning of the year, now that our fleet renewal program is winding down, we continue to believe that our 2018 year end adjusted debt will be lower than at the end of the third quarter and we expect that over the next few years this trend will continue as we naturally delever the Company. We did not repurchase any stock during the third quarter leaving our available authorization for stock buybacks unchanged at $1.65 billion. The fact that we did not repurchase any stock is not due to a change in our belief that the stock is undervalued.

As we have consistently said our priorities for our use of cash are; number one, to meet our outstanding obligations when due; two, to make an appropriate investments in the business. And finally to opportunistically return any excess liquidity to shareholders. Though, we define excess liquidity is anything above the very high level of $7 billion. As fuel prices rose earlier this year, we began to forecast the year end cash balance near that $7 billion target level. So we stopped repurchasing our shares. We are extremely bullish on AAL and would be aggressive buyers at these levels, but maintaining $7 billion of target liquidity is a key component of our capital allocation strategy and we won't violate it to repurchase shares irrespective of our bullishness.

We filed our Investor Update this morning, which includes our guidance for the remainder of the year. Consistent with our previous guidance given on the last earnings call, we continue to expect our full year system capacity growth will be just over 2%, down significantly from our expectations of approximately 3% at the beginning of 2018. Despite this reduction we continue to believe that our fourth quarter year-over-year CASM ex fuel and special items will be flat, and our full year 2018 CASM will be up approximately 1.5%, down 50 basis points from our expectations in January of 2018. Given the run up of fuel over the past few months, we continue to expect higher fuel expense in the fourth quarter of 2018 based on a few forward curve as of October 24, we are forecasting an increase in consolidated fuel expense of 33% or $2.5 billion for the full-year 2018. For the full year we now anticipate our fuel price to be between $2.22 to $2.27 per gallon.

We also guided to a fourth quarter 2018 TRASM increase of 1.5% to 3.5% to which Robert will provide more details on in his remarks. With our combined revenue and cost guidance, we expect our fourth quarter of 2018 pre-tax margin excluding net special items to be between 4.5% and 6.5% and our full year 2018 earnings per share excluding net special items guidance to be between 4.5% and 5%.

We are still in the process of developing our plan for 2019, with fuel prices remaining high, we are once again reviewing our capacity plans as we are in the middle of our budgeting process. We continue to expect our ASM growth in 2019 to be in line with or below estimated GDP growth and among the lowest in the industry. Our capacity growth in 2019 will come primarily from our unique opportunity to add incremental flying to Dallas/Fort Worth, our most profitable hub, as well as our fleet modernization project to add existing seats to our narrow-body aircraft, which allows us to grow capacity in extremely efficient way.

In addition to this margin accretive growth, we are confident of successful execution on our business plan, which we continue to believe will include an incremental $1.3 billion in revenue and cost opportunities for 2019. Given this level of capacity and the incremental cost opportunities we continue to expect that our CASM growth in 2019 will be in the 1% to 2% range that we previously guided, and we'll have a better read once we finish our 2019 planning process by year end.

In terms of capital expenditures for 2019, we continue to expect that we will spend $2.9 billion on aircraft CapEx, as we take delivery of new large RJs that replace 50 seaters along with narrow-body aircraft to replace our MD-80 fleet that we will retire after next summer. We now believe our non-aircraft CapEx will be $1.7 billion in 2019, $100 million lower than previous guidance. After 2019 most of our integration projects will be complete. At that time our obligations reduce considerably and we estimate that total CapEx will be $2.9 billion in 2020 and 2.2 billion in 2021, thus allowing us to generate significant free cash flow. During 2018, we have adjusted to higher costs by reducing capacity growth, slowing non-fuel CASM growth by pulling forward some of our One Airline cost initiatives and lowering our capital expenditures by deferring aircraft.

Going forward we will continue to focus on growing network profitability, executing on our revenue opportunities and further at lowering costs throughout the airline. We have an exciting long term vision for American Airlines and we're pleased with big success of our efforts in 2018. We will continue on this path as strengthening our business in the short term will allow us to take full advantage of the opportunities available to us in the medium and long term.

In conclusion I would like to once again thank our entire team for their hard work, for a challenging quarter and with that I'll turn it over to Robert.

Robert Isom -- President

Thanks, Derek, and good morning everybody. In October, we successfully completed our largest integration project to date, moving all 27,000 American flight attendants into one scheduling system. The benefits and efficiencies we'll gain are wide reaching. Our flight attendants are no longer limited to flying on their legacy carriers aircraft and we'll have the flexibility to move to different bases. For our customers, we will be able to recover more quickly falling irregular operations. And it removes a friction point from how we schedule our aircraft and crews, giving us more operational flexibility and the ability to optimize our network and drive efficiencies. This was a massive four-year effort by our team who invested more than $6.2 million hours to ensure our success. I want to thank all of our team members who work behind the scenes to prepare us and on the front line who have seen an enormous amount of change.

Progress on integration is one reason our operation is set to improve. Since the merger and up through this past winter, American had been making steady progress in improving core operating reliability, while also achieving important merger milestones. However, this past summer, we fell short of our targets that we had set for ourselves. While there are factors like inclement weather and unexpected increases in workload associated with some aircraft types that contributed to our under performance, we know that we must do better, and we will. To that end, our immediate focus is on making sure that our fleet is ready to go each morning and that we resource our team to turn aircraft on time throughout the day.

We have taken immediate short-term action and launched a comprehensive review of our planning processes to ensure that we are ready to deliver better service during peak scheduled periods like the summer and year end holidays. Our efforts are already paying dividends, as evidenced by two successive zero cancellation mainline operations this past week and we are also operating a greater than 99% mainline completion factor so far in October. Despite difficult operating conditions in DFW and also dealing with Hurricane Michael. On that note I have to point out what an incredible job our teams across the system did to recover from both Michael and Hurricane Florence in September. In both instances, our teams were well-prepared and the greatest testament to how quickly we got back the operation back and running, the testament to that is how quickly we got the operation back up and running especially out on the East Coast.

On the product side, we've talked a lot about the $25 billion we have invested since our merger in people, facilities, product, laying the foundation for a more efficient reliable airline and we're not done yet. We continue to make significant investments in our product and we'll continue to grow our Flagship First Dining, our Flagship First Lounges with the DFW opening in the first quarter of 2019. We are also investing more in our Admirals Club Network with refreshed projects in Boston, Charlotte B and also in Pittsburgh in the first half of 2019.

We have significantly enhanced connectivity on board by adding high speed Wi-Fi and EmPower, Seat Power. Half of our long term domestic mainline fleet now has high speed Wi-Fi and installations will be complete by next summer. We are adding live TV to our domestic mainline fleet, a product our international customers have been enjoying since 2016. These transformational investments in our products, which touch every point of the customer's journey will drive higher revenues and improve customer perception. We continue to play to our strengths when it comes to our network, adding high quality, high margin growth and redeployment opportunities at our most profitable hubs.

Our 2018 domestic network additions to Dallas/Fort Worth and Charlotte produced margins far above our system average. And in 2019 we will continue to capitalize on that strength by adding 15 gates and 100 departures per day at DFW. In 2020, we will add seven new gates at Charlotte, enabling another 75 daily departures. In 2021, the new regional terminal will open at Reagan National, allowing us to upgrade to 76 regional jet -- 76 seat regional jet at 14 gates, which today as a practical matter are limited to 50-seat regional jets.

Our sales team has been executing well on its strategies. In the third quarter, we saw corporate revenue growth outpacing topline revenue on improved average ticket values. We have a healthy pipeline of new corporate accounts and made a number of advancements for customers including our integration with SAP Concur TripLink, so that our corporate customers can now book travel through aa.com, while still receiving their company's negotiated rates.

We also launched a partnership with Alibaba to accept Alipay on aa.com, China. Alipay is China's most popular form of payment. American is uniquely positioned with the largest airline loyalty program in the world. AAdvantage is a key asset for us and our customers. Adding $4.2 billion in revenue for the first nine months of 2018. We have a valuable co-brand model with great partners in Citi, Barclays and MasterCard. In the third quarter, we saw a strong year-over-year acquisition growth with lower than expected attrition and continued growth in card spend. We are excited about the enhanced benefits we announced to our Citi AAdvantage Platinum Select card in May. And the introduction of a no fee co-brand card in July, the AAdvantage MileUp card. These recent additions to our portfolio build on our already strong value proposition to customers, helping to ensure that an AAdvantage Co-brand card is the primary card for even more travelers. Looking to 2019, we'll continue to find new ways to provide choice and value to our customers in our loyalty and co-brand programs.

Our segmentation strategy is performing well. Premium economy is now installed on 92 aircraft, and customer adoption of this highly differentiated product has been strong. We also continue to be encouraged with the average fare differential, which is double the coach fare, as customers continue to buy up for main cabin. Installations remain on track and will be complete by next summer. As we look into 2019, we will further monetize this product with new revenue management and merchandising capabilities.

In September, we made basic economy more competitive by removing the carry-on bag restriction, allowing us to offer basic economy to more markets more often. The early results are very positive and have exceeded our initial expectations with approximately three times more customers, now buying up to a higher fare for our main cabin product. Basic economy is offered across the entire domestic network, as well as most of the Atlantic, Caribbean, Mexico, and Central America.

Our third quarter revenue was up 5.4% year-over-year to $11.6 billion setting a record for any third quarter. As Derek mentioned, we saw double digit growth in our cargo and other revenues, driven in part by continued strength in co-brand credit card acquisitions and cardholder spend.

TRASM improved 2.6% year-over-year, above the midpoint of our initial guidance and marks the eighth consecutive quarter of positive unit revenue growth. We saw sequential improvements during the quarter and domestic yields and that momentum has continued into the fourth quarter. We also realized strong performance in our international business, particularly across the Atlantic. There, we saw double digit growth in passenger revenue, and a 7.7% year-over-year increase in unit revenue. The solid improvement was driven by strong yield performance in our premium cabin, and the continued benefits of our segmentation strategy led by the premium economy and basic economy products.

As we had anticipated, our Latin America performance was a little challenging during the quarter due to macro concerns in Argentina, political uncertainty in Brazil, and a soft pricing environment in Mexico. The remainder of our Latin America network is performing well with notable strength in the Caribbean and Central America. Overall, revenue for the region still grew by 2.3%, albeit on 4% higher capacity, 2.6 percentage point lower loads, and an encouraging 1.5% higher yield.

Unit revenue grew in the Pacific for the fourth consecutive quarter with PRASM up 2.4% year-over-year. Premium cabin performance remains strong with Japanese and Korean markets showing the best performance year-over-year.

Looking forward we see continued strength in bookings as the demand for our product remains strong. Despite a very tough fourth quarter comparison, we expect a year-over year system TRASM to be up 1.5% to 3.5% in the December ending quarter. This will be our ninth consecutive quarter of positive unit revenue growth. As we approach the end of our integration. We have the opportunity to pursue a number of initiatives that in many cases have already been implemented by our competitors and have been in our plan for a long time. In 2019, we'll increase revenues by $1 billion, thanks to optimizing our basic economy product, expanding the use of premium economy seats, further refining our suite of revenue management tools, continuing our fleet harmonization project and many more items.

We also expect to become more efficient, with more than $300 million of cost initiatives in line of sight, and the hub optimization at DFW I mentioned. That will be beneficial to margins and profitability relative to the competition. We're very excited about the future.


And DFW/CLT/DCA is much higher margined than their other hubs.
Jamie Baker -- J.P. Morgan -- Analyst

And Doug, in a presentation you did last fall, and I guess it's this fall. I think it was it in a length, when you cited that your aggregate margin performance in, I think it was Charlotte, Dallas and Washington, and what that implied for your other hubs was comparatively poor, kind of round numbers and implied that Chicago, Phoenix, Miami were a little bit less than half as profitable as the best ones. I certainly have my views as to what the drivers are for that potential disparity against this all back of the envelope, but I am curious to hear what you think the drivers might be and whether there are any solutions for those weaker hubs?

Doug Parker -- Chairman & Chief Executive Officer

First let me clarify, because also on those numbers we include LAX and New York, right. So you shouldn't assume that that's Miami, Chicago and Phoenix.

But nonetheless, fair point I think, as you look like this. What I can tell you is, a year later -- every year I've been -- that it's often the case, you have some parts of the system that do better than others, but they all contribute to the system. And indeed that's certainly the case with operations like JFK and like our like LA and New York operation, and indeed our Miami operation right now certainly is underperforming on a financial basis given the economics of the region. So, but Chicago, Phoenix are solid and those others will be solid over time, where they contribute to the rest of the system, because of what they provide us and our ability to serve the corporate traveler. So we're -- while let me say and we're really happy with the route network as it exist today, Expect no changes and particularly helped with the fact that we have the ability now to grow in those that are the most important -- well, not most important, I shouldn't say, but those that have the highest revenue -- the highest profit generation capabilities, DFW, Charlotte and DCA, and we've done a nice job, I think, of filling up of the rest of the other to a critical mass.

JFK/LAX/MIA are all under performing.
 
ldvaviation
Posts: 1259
Joined: Sun Dec 21, 2008 7:21 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 3:06 pm

tphuang wrote:
JFK/LAX/MIA are all under performing.


Parker did not say that...
 
PlanesNTrains
Posts: 9524
Joined: Tue Feb 01, 2005 4:19 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 3:17 pm

ldvaviation wrote:
tphuang wrote:
JFK/LAX/MIA are all under performing.


Parker did not say that...


It could certainly be inferred.
-Dave


MAX’d out on MAX threads. If you are starting a thread, and it’s about the MAX - stop. There’s already a thread that covers it.
 
TWFlyGuy
Posts: 428
Joined: Mon Apr 17, 2017 5:10 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 3:26 pm

tphuang wrote:
JFK/LAX/MIA are all under performing.


So the more competitive hubs are not as profitable as the ones with less competition.
 
TWFlyGuy
Posts: 428
Joined: Mon Apr 17, 2017 5:10 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 3:59 pm

I was really surprised there weren't more questions / commentary about the additional gates in CLT. They mentioned what the DFW gates will add but not as much CLT which I think presents a bigger opportunity as well as a threat from a competitive perspective with the added A gates.
 
tphuang
Posts: 5440
Joined: Tue Mar 14, 2017 2:04 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 4:00 pm

ldvaviation wrote:
tphuang wrote:
JFK/LAX/MIA are all under performing.


Parker did not say that...

Sorry, this is just how I interpreted this part of his statement.
"And indeed that's certainly the case with operations like JFK and like our like LA and New York operation, and indeed our Miami operation right now certainly is underperforming on a financial basis given the economics of the region. "
 
sagechan
Posts: 352
Joined: Sat Jul 04, 2015 6:14 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 4:44 pm

HPAEAA wrote:
sagechan wrote:
Only 1 fleet and 1 subfleet have lost J seats. The high J 772s were standardized which should be a net gain in utilization and reliability. The 788 was relatively premium heavy and was reduced to modestly premium light. Domestically the A319a were reduced to 8 but the A321s & neos will be i creased to 20. Giving an 8/12/16/20 F mix option.

I don’t quite follow your logic here, the 772, 788, 332 are all seeing J class reductions of 30% or more, yes, the 789 was the the first clean slate aircraft with J class so it’s true J was never reduced but that’s a pretty big chunk of the Long haul fleet which has been removed, note the new a333 hasn’t Been released yet & the 763 is being Replaced by mostly 788 which has 20 j seats. Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....


It's been reported but not confirmed that the A321neos will have 20F as well. There has been no change in A332 J seats it was 20 and are still 20. The A333 hasn't yet been slated for a conversion due to retirement that I've heard. Plus I acknowledged the 788 & 772 hi J reductions. I'm talking fleet changes not fleet subs as the 767 retires, so I didn't even mention that (and why I excluded 767s in my comment)

The 77w, low J 772s and A332 lost no J seats in adding PE. Im not qualifying the decision as good or bad, just pointing out that most PE refurbs were not at J seat expense. We'd have to know % of paid J to really know whether it's right sizing J on the reductions or if there is reason to think that? PE may be a higher margin product as AA has hinted at.
717, 733, 734, 738, 739, 744, 752, 763, 772, 77W, 789, A319, A320, A321, A332, A333, A359, MD88, CRJ, CR7, CR9, DH1, DH2, DH3, S340, ER4, E170, E175, E190/CO, NW, US, AC, NH, AA, UA, DL, WN, WS, SK, VY, LA, QF, AR, AV, MH, KA, AS
 
Brickell305
Posts: 1094
Joined: Sat Jun 24, 2017 2:07 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 5:45 pm

So basically when the US management team took over at AA, the only legacy AA hub they were able to find success with was the second largest hub in the world?
 
JonNYC
Posts: 97
Joined: Tue Mar 27, 2018 1:26 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 7:14 pm

sagechan wrote:
...It's been reported but not confirmed that the A321neos will have 20F as well. T

it's 100% confirmed that they will.
 
sagechan
Posts: 352
Joined: Sat Jul 04, 2015 6:14 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 7:20 pm

JonNYC wrote:
sagechan wrote:
...It's been reported but not confirmed that the A321neos will have 20F as well. T

it's 100% confirmed that they will.


Has there been a press release or official statement? I've seen your comments and a few other, but don't recall seeing anything official or even internal to front line, though I've been busy with other things and haven't followed closely.
717, 733, 734, 738, 739, 744, 752, 763, 772, 77W, 789, A319, A320, A321, A332, A333, A359, MD88, CRJ, CR7, CR9, DH1, DH2, DH3, S340, ER4, E170, E175, E190/CO, NW, US, AC, NH, AA, UA, DL, WN, WS, SK, VY, LA, QF, AR, AV, MH, KA, AS
 
JonNYC
Posts: 97
Joined: Tue Mar 27, 2018 1:26 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 7:38 pm

sagechan wrote:
JonNYC wrote:
sagechan wrote:
...It's been reported but not confirmed that the A321neos will have 20F as well. T

it's 100% confirmed that they will.


Has there been a press release or official statement? I've seen your comments and a few other, but don't recall seeing anything official or even internal to front line, though I've been busy with other things and haven't followed closely.

Honestly I don't know myself (if there has been) but I've seen the L.O.P.A. for it, 20F.
 
Swadian
Posts: 562
Joined: Sun Sep 11, 2016 4:56 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 8:00 pm

MSPNWA wrote:
FriscoHeavy wrote:
It's not a simplistic view. Debt is not a 'good' thing, no matter how you spin. Yes, it will work for a while and in good times, works well. You don't have to have as much revenue to do well when you aren't playing kissy-face with the banks and paying them HUGE sums of money every month. At ~$225 Million in interest alone this quarter, that's a Billion dollars a year up in smoke. That covers a lot of butts in seats.

You go leverage yourself to death and see how that works out when you lose your job, can't get a new one, interest rates go up, you have a health issue and can't work, etc. There is a huge element of risk carrying debt like this and you can't see that by just looking at the numbers on the surface. Meanwhile, myself and companies and don't carry that debt (risk), will do remarkably well in difficult times.


Yes, it is simplistic. Debt can absolutely be a "good" thing when used wisely. It can be used to increase earnings now and later and place a company in a better financial position. Saying otherwise is against financial principles. You're talking apples and oranges comparing business debt with personal debt, and it's pointless to say that AA could have $0 interest expense. It's not as if AA recently had a choice between ~$22B and $0B.

Here's a hypothetical. Let's say a few years ago that AA decided to hang onto more MD-80s, A320s, and 752s instead. Operating income would be down. Net profit may be up or down. Debt would be lower, but their capital expenditure position would be worse as more aircraft face replacement versus today. Where is the dividing line between a good idea or bad idea? Tough to say. But considering the circumstances - inefficient aircraft being replaced, debt being at very favorable rates, and a positive economic environment for airlines - good chance it was the positive side.

You know what seems to happen when you defer needed aircraft replacement? The expense comes to roost right when you can't afford it. That's the scenario AA was themselves at risk for if they didn't aggressively replace their fleet starting about 10 years ago. And it's a risk other airlines still take in favor of short-term profits.


AA "needed" to replace the MD80 and 763. AA does not "need" to replace the 752 or A320. The A321neo order was necessary, but I'm not so sure about that 738 MAX order especially since those 738 MAX are driving away premium customers with their poor product. AA should've replaced the 763 with more 788 earlier and installed PTVs in the A321neo. Boeing probably wouldn't mind if AA had ditched the 738 MAX order for more 788s, but it's too late now.

tphuang wrote:
usflyer msp wrote:
HPRamper wrote:
Makes me wonder if they are getting killed in a specific region...systemwide there shouldn't be so much disparity.


DL/B6 both stated that Latin America is weak is weak right now. Im thinking that AA's big exposure there explains part of the margin difference.

Right, weak Latin American market hurts aa the most. I certainly don’t think that’s their only problem but it is a big factor.

They adjusted by exiting pap out of fll and jfk. Looks like puj is gone too. That aa Caribbean network out of jfk is going to be completely wiped out soon.


Ditching a lot of JFK flying couldn't have helped. JFK-ZRH did poorly because it used an obsolete 763. Moving the flight to PHL didn't help. What AA should've done was put a 77E on the JFK-ZRH, and possibly opened a separate PHL-ZRH (possibly 3x weekly) with an A332.

HPAEAA wrote:
sagechan wrote:
Only 1 fleet and 1 subfleet have lost J seats. The high J 772s were standardized which should be a net gain in utilization and reliability. The 788 was relatively premium heavy and was reduced to modestly premium light. Domestically the A319a were reduced to 8 but the A321s & neos will be i creased to 20. Giving an 8/12/16/20 F mix option.

I don’t quite follow your logic here, the 772, 788, 332 are all seeing J class reductions of 30% or more, yes, the 789 was the the first clean slate aircraft with J class so it’s true J was never reduced but that’s a pretty big chunk of the Long haul fleet which has been removed, note the new a333 hasn’t Been released yet & the 763 is being Replaced by mostly 788 which has 20 j seats. Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....


The 77E did get a reduction but some of their routes were replaced by 77W with an increase to 52J. Remember, 77E was LAA's largest plane.
The 788 is getting a reduction but most are flying to low-yield China, Eastern Europe, or Deep LATAM where PE is probably more profitable.
The A332 always had 20J. There has been no reduction.
The A333 is being retired. AA will not be retrofitting them.
The A321 is no reduction because they always had 16F, and the other primary domestic plane, the 738, also has no reduction. The A320 also had no reduction, only A319 got reduced.

ckfred wrote:
The question of how much debt is too much has to be reviewed in light of the interest rates on the debt. Right now, I'm carrying far more credit card debt that typical. But, we bought some furniture with 0% interest for 4 years. Needless to say, I'm paying the minimum payment each month. At the end of 4 years, the balance will be $0. While the balance probably has some effect on my FICO score, the money that isn't going towards balance reduction is earning interest (and increasing interest as the Fed increases rates).

So, I would assume that question for AA becomes one of the merits of reducing debt quickly versus paying it down slowly at what are probably very low rates. It certainly isn't unheard of for a lender to offer an incentive to pay down additional debt, so that the lender can loan those funds at higher interest rates. When U.S. mortgages were north of 12% in the early 1980s, my parents mortgage lender was offering all sorts of incentives, in order to get them to pay off their loan with a 4.25% interest rate from 1964.

What I would be curious to know is how much the free ticket program is costing. Because AA got an "airline of the year" award in 2017, every employee got a free round-trip ticket for two, in Y, to anywhere that AA flies. A friend of mine did an open-jaws ticket of ORD-LHR, with a CDG-ORD return last month.


Since AA load factor is not 100%, those free tickets probably aren't the issue.

panam330 wrote:
HPAEAA wrote:
Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....

Fortunately, all existing 321s are currently scheduled to go to 20F/176Y as part of the Oasis program.

"According to David Seymour, American’s Senior Vice President of Integrated Operations, when they take the A321neo starting in January “that will actually serve as the platform to get certification for our refurbishment and standardization of the 321s..so we can go common configuration.” That effort will start in February."

Source: https://viewfromthewing.boardingarea.com/2018/09/27/american-will-add-a-5th-row-of-first-class-to-airbus-a321s-and-more-coach-seats/


I thought the A321neo was only getting 20F/176Y due to ACF. So aren't the other A321s being standardized at 16F/174Y?

TWFlyGuy wrote:
tphuang wrote:
JFK/LAX/MIA are all under performing.


So the more competitive hubs are not as profitable as the ones with less competition.


But it seems that ORD and PHX are still profitable despite heavy competition, and if ORD didn't have the losers to China, they probably would be one of the most profitable.

Brickell305 wrote:
So basically when the US management team took over at AA, the only legacy AA hub they were able to find success with was the second largest hub in the world?


It seems they are doing all right with ORD as well.
JonNYC wrote:
sagechan wrote:
...It's been reported but not confirmed that the A321neos will have 20F as well. T

it's 100% confirmed that they will.


So what about the A321ceo?
 
peanuts
Posts: 980
Joined: Thu Dec 24, 2009 1:17 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 8:30 pm

Now would be a perfect time for DL to start a focus city in MIA!!! :lol:
 
HPRamper
Posts: 5044
Joined: Sat May 14, 2005 4:22 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 9:48 pm

Brickell305 wrote:
So basically when the US management team took over at AA, the only legacy AA hub they were able to find success with was the second largest hub in the world?

Simply put, they are less profitable at airports where they don't command pricing power. JFK/LAX are uber competitive. DFW, CLT are fortresses. MIA isn't so hot because of trifecta of civil unrest, financial problems and weather disasters in LATAM and Caribbean. Remember it wasn't long ago AA was printing money at MIA.
 
tphuang
Posts: 5440
Joined: Tue Mar 14, 2017 2:04 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 10:05 pm

I am mostly surprised that they don’t make more at mia considering their market share there. Their yields at mia are significantly higher than lcc at fll.
 
Miamiairport
Posts: 733
Joined: Tue Apr 10, 2018 8:14 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 10:09 pm

Agreed on the SA problems and the introduction of LCCs from SA including to FLL.
 
PlanesNTrains
Posts: 9524
Joined: Tue Feb 01, 2005 4:19 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 10:10 pm

AA likely got a screaming deal on the 737 MAX 8. I doubt it was a mistake purchasing them even if they stuffed them full of seats.
-Dave


MAX’d out on MAX threads. If you are starting a thread, and it’s about the MAX - stop. There’s already a thread that covers it.
 
dmorbust
Posts: 148
Joined: Thu Feb 21, 2013 11:50 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 10:32 pm

So will DL surpass AA this year as the largest airline in the world in terms of revenue?
How about passenger numbers?
 
Cubsrule
Posts: 14617
Joined: Sat May 15, 2004 12:13 pm

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 10:44 pm

TWFlyGuy wrote:
I was really surprised there weren't more questions / commentary about the additional gates in CLT. They mentioned what the DFW gates will add but not as much CLT which I think presents a bigger opportunity as well as a threat from a competitive perspective with the added A gates.


CLT is such an operational mess that I would assume that some not insignificant portion of new gates at CLT would be used to spreading out the operation rather than growth. Moving all or a significant portion of the CR9s to contact gates on A, for instance, would dramatically improve both the passenger experience and the chronic taxi congestion on E.
I can't decide whether I miss the tulip or the bowling shoe more
 
User avatar
Erebus
Posts: 1167
Joined: Tue Oct 20, 2015 2:40 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 11:03 pm

dmorbust wrote:
So will DL surpass AA this year as the largest airline in the world in terms of revenue?
How about passenger numbers?


As far as passenger numbers go, unlikely this year. Just for comparison of previous years, see here.
 
910A
Posts: 1891
Joined: Sat Apr 04, 2015 2:11 am

Re: AA post Q3 2018 earnings

Fri Oct 26, 2018 11:52 pm

Since AA has a lot of resources invested in Brazil, it should be interesting to see what happens if Brazil's voters elect Boisoanro this weekend, bringing back a iron fisted dictatorship. I suspect the Brazil traffic will suffer.
 
sagechan
Posts: 352
Joined: Sat Jul 04, 2015 6:14 pm

Re: AA post Q3 2018 earnings

Sat Oct 27, 2018 2:54 am

HPAEAA wrote:
sagechan wrote:
Only 1 fleet and 1 subfleet have lost J seats. The high J 772s were standardized which should be a net gain in utilization and reliability. The 788 was relatively premium heavy and was reduced to modestly premium light. Domestically the A319a were reduced to 8 but the A321s & neos will be i creased to 20. Giving an 8/12/16/20 F mix option.

I don’t quite follow your logic here, the 772, 788, 332 are all seeing J class reductions of 30% or more, yes, the 789 was the the first clean slate aircraft with J class so it’s true J was never reduced but that’s a pretty big chunk of the Long haul fleet which has been removed, note the new a333 hasn’t Been released yet & the 763 is being Replaced by mostly 788 which has 20 j seats. Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....


The 77E did get a reduction but some of their routes were replaced by 77W with an increase to 52J. Remember, 77E was LAA's largest plane.
The 788 is getting a reduction but most are flying to low-yield China, Eastern Europe, or Deep LATAM where PE is probably more profitable.
The A332 always had 20J. There has been no reduction.
The A333 is being retired. AA will not be retrofitting them.
The A321 is no reduction because they always had 16F, and the other primary domestic plane, the 738, also has no reduction. The A320 also had no reduction, only A319 got reduced.


I was only referring to the PE conversions not the prior convertions from a few years ago. I believe the ceos are supposed to be 20/170
717, 733, 734, 738, 739, 744, 752, 763, 772, 77W, 789, A319, A320, A321, A332, A333, A359, MD88, CRJ, CR7, CR9, DH1, DH2, DH3, S340, ER4, E170, E175, E190/CO, NW, US, AC, NH, AA, UA, DL, WN, WS, SK, VY, LA, QF, AR, AV, MH, KA, AS
 
Swadian
Posts: 562
Joined: Sun Sep 11, 2016 4:56 am

Re: AA post Q3 2018 earnings

Sat Oct 27, 2018 6:35 am

sagechan wrote:
HPAEAA wrote:
sagechan wrote:
Only 1 fleet and 1 subfleet have lost J seats. The high J 772s were standardized which should be a net gain in utilization and reliability. The 788 was relatively premium heavy and was reduced to modestly premium light. Domestically the A319a were reduced to 8 but the A321s & neos will be i creased to 20. Giving an 8/12/16/20 F mix option.

I don’t quite follow your logic here, the 772, 788, 332 are all seeing J class reductions of 30% or more, yes, the 789 was the the first clean slate aircraft with J class so it’s true J was never reduced but that’s a pretty big chunk of the Long haul fleet which has been removed, note the new a333 hasn’t Been released yet & the 763 is being Replaced by mostly 788 which has 20 j seats. Domestically, I believe only the A321NEO will have 20 seats, the remaining 219 321s will have 16 seats....


The 77E did get a reduction but some of their routes were replaced by 77W with an increase to 52J. Remember, 77E was LAA's largest plane.
The 788 is getting a reduction but most are flying to low-yield China, Eastern Europe, or Deep LATAM where PE is probably more profitable.
The A332 always had 20J. There has been no reduction.
The A333 is being retired. AA will not be retrofitting them.
The A321 is no reduction because they always had 16F, and the other primary domestic plane, the 738, also has no reduction. The A320 also had no reduction, only A319 got reduced.


I was only referring to the PE conversions not the prior convertions from a few years ago. I believe the ceos are supposed to be 20/170


The A321ceos are supposed to be 20F/170Y? Well, that's good news if I've heard it. Actually, that's still less than DL's 192 seats or DL's 199-seat 752.
 
TWFlyGuy
Posts: 428
Joined: Mon Apr 17, 2017 5:10 pm

Re: AA post Q3 2018 earnings

Mon Oct 29, 2018 1:44 pm

Cubsrule wrote:
TWFlyGuy wrote:
I was really surprised there weren't more questions / commentary about the additional gates in CLT. They mentioned what the DFW gates will add but not as much CLT which I think presents a bigger opportunity as well as a threat from a competitive perspective with the added A gates.


CLT is such an operational mess that I would assume that some not insignificant portion of new gates at CLT would be used to spreading out the operation rather than growth. Moving all or a significant portion of the CR9s to contact gates on A, for instance, would dramatically improve both the passenger experience and the chronic taxi congestion on E.


I think it would be better if they could dedicate those to high volume business flights, especially competitive ones. Many of which are AA hubs as well. So you move ATL, ORD, DFW, LGA, EWR, maybe MIA. Would be good to say to those biz pax you have fast easy access.

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