New Planes And Low Fuel Continue To Headline American Airlines Earnings
Lots of bits and pieces to digest from this morning’s 2015 4th quarter earnings conference call for American Airlines. New airplanes and low fuel continue to be headlines. In no specific order:
- American Airlines plans to pay $1.20-$1.25/gallon for fuel in 2016 which would yield $2B in fuel savings in 2016. That’s massive. And yet, Scott Kirby and Doug Parker continue to emphasize that they believe they can be more profitable when fuel prices go up.
- Despite record results, AA is getting killed in Latin America. PRASM (Passenger Revenue per Available Seat Mile) is down 10% in the Pacific, which pales in comparison to the 17% drop in Latin America due mostly to Brazil and Venezuela.
- The airline took delivery of 75 new mainline aircraft and 52 new regional aircraft in 2015.
- In 2016, they expect 55 new mainline aircraft and 49 new regional aircraft. Based on gauge, most of the regional aircraft are replacing smaller aircraft.
- American Airlines will retire almost 150 planes, assumedly a lot of MD-80s.
- American Airlines doesn’t expect to release new “Basic Economy” and “Premium Economy” products until at least mid-2016.
American Airlines made over $6 Billion in 2015. That’s a massive year for an airline that was in bankruptcy just a few years ago, something they exited from strongly. While the entire picture isn’t rosy, the airline is making record profits, buying lots of new airplanes with greater fuel efficiency and (hopefully) wrapping up new contracts in 2016 for employees. If you’re a fan of the behind-the-scenes part of the airline industry, I listed some more bits from the call on InsideFlyer.
What Does That Mean For Customers?
Fuel prices are likely to stay low in 2016 which means prices should stay low as well. That’s due mostly to the competition from low-cost carriers. The airline continues to emphasize that they believe they can make more money when fuel prices go up. That likely won’t happen in 2016, which means continued low prices for customers.
The other “merger synergies” they expect are from:
- Route swaps (putting the right plane on the right route)
- Network connectivity
- Frequent flier program synergies
Those are all things that don’t impact customers from a cost standpoint (assuming they’re talking about merging AAdvantage and Dividend Miles and not the changes to the combined program announced for 2016).
With markets like Brazil and Venezuela down as significantly as they are, this could be a great time to visit those countries (be sure to pay attention to Zika virus updates).
All in all, I expect many of the changes American Airlines will go through in 2016 to be invisible to most customers. We’ll see things like the new route announcements in Los Angeles (LAX-HKG should happen at some point). We’ll also continue to see lots of new planes with newer technology, which certainly is good for customers, especially given that (so far) American’s seats are much more comfortable than new UA slimline seats.
Don’t get me wrong. There will be plenty of things to “see”. But, AA made the comment last quarter that the vast majority of customers only fly the airline once a year. That means most people won’t notice the behind-the-scenes stuff they do to complete the merger and move forward to more profitability.
I think the bottom line for customers is that 2016 won’t see too many changes we don’t already know about. The airline itself is continuing to go through sizable changes internally, but I wouldn’t expect large (positive or negative) impact to the flying public in the next 6 months to a year.
Does it make sense for them to retire the Mad Dogs with fuel so cheap? Granted, I can’t wait for those dinosaurs go be retired (they seem to chase me everywhere I go) but aren’t they all paid for? Or are they being retired already for regulatory reasons or the maintenance cost far exceeds the cost savings from having them paid off?
FTG, first off I really don’t mind the Mad Dogs. Though I don’t sit in coach often on AA, I like the 2-3 seating. I’m not aware of the maintenance costs on the MD-80, though they are more likely to have problems. That being said, the belief is that AA got an unbelievably sick deal from Airbus and Boeing to buy 319s and 737 of the old config (as opposed to Max and Neo). So, while fully paid planes are cheaper than new ones, this is a good long-term strategy for AA, other than the fact that I don’t agree with the heavier reliance on Airbus.