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American Airlines rides travel boom to US$1.3b profit in the 2nd quarter as fuel prices drop

American Airlines reported a US$1.34 billion profit for the second quarter, boosted by strong ticket sales and a huge drop in the price of jet fuel, and the airline raised its profit expectations for the year.

Revenue rose five per cent to a quarterly record of US$14.06 billion. International travel in particular is picking up, and that is helping American, United Airlines and Delta Air Lines.

Thanks to lower fuel prices, the carrier’s spending at the pump plunged 32 per cent, saving the American about US$1.3 billion compared with a year earlier.

That was partly offset, however, by labour costs that are rising and will soon increase much more rapidly.

Analysts were disappointed in American’s forecast that third-quarter revenue per seat will decline about six per cent as the airline adds more flights, which could renew concern about the durability of strong consumer demand.

American’s shares were down six per cent in afternoon trading.

American recently agreed with union negotiators on a new labour contract that would raise pilot pay by more than 41 per cent over four years. A ratification vote among pilots is scheduled to start Monday, but both sides are now renegotiating after pilots at United got a better deal.

CEO Robert Isom said American will match the United contract terms.

The Allied Pilots Association, which represents crews at American, valued the previous deal at US$8.3 billion over four years, and improving it to match United will likely bring its cost to about US$9.5 billion.

Separately, American’s flight attendants want immediate raises of 35 per cent followed by annual raises of 6 per cent.

“Over time we are going to run a profitable business,” Isom said on a call with analysts and reporters. “Ultimately it will take more revenue to pay for higher costs.”

Isom declined to say directly how much fares might have to rise. He said the airline also expects to generate more revenue from sources such as its frequent-flyer program, which includes a lucrative credit card deal with Barclays.

Other airlines face the same pressure.

“Airlines are doing a lot to reduce their costs,” said Chris Raite, an analyst for business-research firm Third Bridge Group. “You don’t check in with a human anymore – it’s all kiosks. They are doing a lot more direct booking.”

Those and other tools are helpful, Raite said, “but the overall cost structures from a labour perspective are driving fares us.”

Some industry officials believe that higher wages will help big carriers like American, United and Delta by driving up costs at their low-cost and discount competitors, whose business model is based on keeping costs as low as possible. Wages for pilots in particular have been rising rapidly at smaller airlines to counter labour shortages that left them unable to operate all their flights.

On the travel front, American has reduced its cancellations compared with a miserable summer last year. The airline credits technology that lets planners adjust flight schedules based on factors including weather forecasts at major airports, crew schedules and passenger numbers on each flight.

American said third-quarter earnings would be 85 cents to 95 cents per share, in line with expectations. The airline now expects to earn between US$3 and US$3.75 per share for the year, up from a previous forecast of US$2.50 to US$3.50. Analysts have been projecting US$3.12 per share, according to a FactSet survey.

For the second quarter, excluding one-time items, American earned US$1.92 per share, beating the analysts’ consensus of US$1.59 per share. Revenue also beat Wall Street’s forecast of US$13.74 billion.

Isom called it a “fantastic quarter” for Fort Worth, Texas-based American, and said the airline will focus on profitability and improving its balance sheet, which saw an expansion of debt during the pandemic. He trumpeted a two-notch upgrade from credit-rating agency Fitch, to B+ – one step below the lowest investment-grade rating.


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