American Airlines Group expects Q3 operating margin of 10 to 12 percent

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American Airlines Group expects Q3 operating margin of 10 to 12 percent
 
In an investor update Wednesday, American Airlines Group estimated that its operating margin – operating profits as a percentage of operating revenues – to be 10 to 12 percent.
Other factoids from the AAG 8-K and its September traffic report:
– It expects to have 1,540 aircraft in its fleet at year’s end: 975 in mainline American Airlines and US Airways and 565 at its regional partners. That’s up 12 from Dec. 31, 2013: five more mainline jets and seven more regional aircraft.
– It expects to pay $2.95 to $3 per gallon for fuel in the third quarter just ended, and $2.66 to $2.71 in the fourth quarter. By comparison, American Airlines paid $3.03 per gallon in Q3 2013 and $3.04 per gallon for all of 2013. Each cent change represents about $42 million to $43 million in operating expense.
– American expects capacity, in available seat miles, to increase about 2.2 percent for mainline and regional carriers “primarily due to more active aircraft and larger gauge aircraft replacing smaller gauge legacy aircraft.”
– Capacity on mainline American Airlines and US Airways will be up about 2.4 percent – 1 percent on domestic routes and 5 percent on international routes.
– It expects its unit revenues — revenues per available seat mile flown — to be up 0.5 percent to 1.5 percent in the third quarter.
In its traffic release American Airlines reported that its September traffic, combining it and US Airways, was down 0.2 percent from a year earlier, even though capacity was up 1.6 percent. Load factor or percentage of seats filled dropped 1.5 percentage points to 80.0 percent.
The decline was due to falling loads on international flights, particularly across the Atlantic. Company officials, as well as those at other airlines, have noted that supply has exceeded increases in demand on trans-Atlantic routes.
Atlantic loads dropped to 79.6  percent in September, down 8 points from September 2013. Latin America was down 2 points to 77.1 percent and Pacific was down 4.6 points to 73.1 percent.
On the other hand, loads were up 0.3 percentage points on domestic routes, to 82 percent.
 
 
 
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wings396

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As nice as it sounds, I'm sure that a certain someone will be able to read between the lines bringing out the negatives. I'm also willing to bet that DL will have much better all around metrics than AA.
 
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WorldTraveler

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Several airlines have provided investor guidance or enough information to allow comparison on key metrics.


AA said in this release exactly what I said weeks ago which is that AA has too much capacity in the int'l market with the biggest overcapacity situation existing on the Atlantic.

They are trying to argue that other carriers are fueling the problem but the other carriers are filling their seats while AA is not.

Further, AA's fuel price disadvantage to DL will be 5 cents/gallon, or based on the statement above, a fuel cost disadvantage to DL of over $200 million. Advantage Trainer. DL will also have a fuel cost advantage relative to UA. A couple hundred million dollar fuel cost advantage is HUGE and far overcomes the supposed advantage that comes from newer technology aircraft with their increased debt. DL has invested far less in Trainer than the advantage it is currently receiving over and over in lower fuel prices.

Other carriers including DL and WN are expected to report margins in excess of what AA will report.

AA's RASM growth is likely to be the worst of the big 3 US airlines.

UA says profit sharing will be less than $70 million for the year to date, less than 1/10th of what DL employees have accrued which itself is enormously largely than what AA employees will get.

AA's CASM growth will likely be at the top end of the big 4 airlines.

AAL stock is the lowest performing of the big 4 over the past 3 months.
 
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WorldTraveler

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absolutely... but the bar has been raised.

DL said within the last week that its margin would be 15-16%, similar to what WN also said.

UA hasn't given recent margin guidance.

http://ir.delta.com/files/doc_downloads/traffic%20releases/September/Investor-Update-October-2-2014_v001_x393g9.pdf

the greatest reason for justifying the megamergers was to increase stability in the industry which would come thru better capacity control and pricing.

all of that is undone if carriers indiscriminately add capacity which the market cannot absorb at current pricing levels. falling load factors indicate that is happening at some carriers, predominantly AA.

Further, the greatest benefits are coming in the domestic system which is why WN's RASM growth is coming in higher than at the big 3 with their int'l route systems. Among the big 3, UA is so far leading with RASM growth although they underperformed for years. Their willingness to give up size in order to get higher yields is paying off.

Meanwhile, DL is adding more capacity than any of the big 4 but doing it where it can get RASM that is above what AA is getting.

It is one thing to add capacity; it is another thing to do it profitably.

finally, AA is still far from realizing the cost advantages that come from mergers; DL, UA, and WN all appear to have better cost controls right now.

It appears that AA has the weakest RASM growth and the highest CASM growth - not exactly a recipe for long-term financial success.
 
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WorldTraveler

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maybe or maybe not.

What DL is not doing, and neither is UA or WN, is throw capacity into their system which the market cannot fill.

AA has tried to cobble together the rest of a network which they could not buy through the merger with US and they are paying a high price in terms of their ability to perform at the same levels as other carriers in the industry.

DL has continued to develop its network post merger. But it, like UA and WN didn't expect to fix every network deficiency within the first year of the merger.


and then there are cost related issues including regarding the size of the workforce and efficiencies that are supposed to come from the merger.

The mindset of needing to try to catch up with its peers is costing AA significant amounts of money and the ability to perform on comparable levels as other carriers who merged earlier.
 
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Bob Owens

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Sorry, I'm not cheering, if anything it makes me angrier and most of my coworkers will feel the same way. Instead of cheering we may be more inclined to studying blueprints for Guilotines. Why should we celebrate a success that we were forced to finance with no return? Cake? we arent even getting the crumbs.

12% of $40 billion is $4.8 billion in profits, proof that the $320 million they stole from us was completely un-neccissary for their "reorganization". Would AA be considered uncompetative if they only saw a $4.5 billion profit? Really makes the theft of the matching funds look like pure spite. $4.8 billion in profits yet Little and Buffy both pushed bottom of the industry deals with no profit sharing for their mechanics.
 
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FWAAA

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Bob Owens said:
12% of $40 billion is $4.8 billion in profits, proof that the $320 million they stole from us was completely un-neccissary for their "reorganization". Would AA be considered uncompetative if they only saw a $4.5 billion profit? Really makes the theft of the matching funds look like pure spite. $4.8 billion in profits yet Little and Buffy both pushed bottom of the industry deals with no profit sharing for their mechanics.
No, no, no. The news quoted by the OP is talking about the third quarter, not the full year. AA is expecting "operating profits" equal to about 11% of the expected $11.5 billion of revenue. As you know, operating profits are the result before you pay for (and subtract) interest paid, which will be about $200 million in the 3rd quarter. Net profit before special items should be about $1.1 billion. When added to the first half of the year, the cumulative profit for the first 9 months should equal approximately $3.0 billion. And about half of that is from the US Airways operation.

I completely agree that the unions were complete idiots for trading away the profit sharing. When the dumb bastard CEO offers you 15% first dollar profit sharing in the term sheets after a Ch 11 filing, competent unions would have exited bankruptcy owning at least 20% of the profits.

So what will total net profits be for the year? Maybe about $3.5 billion or so, given that the profit margins are slipping this year.
 

WorldTraveler

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and it is equally a complete embarrassment that labor had no one who managed to understand where the airline industry was going and how to position airline employees at AA to gain from it. But their peers at other airlines aren't doing a whole lot better.

analysts have been saying for years that consolidation would improve margins in the industry. AA/US was the last of the big 4 mergers in a cycle that started SIX years ago. Consolidation has clearly improved the finances of the carriers who have gone thru it.

I've talked repeatedly on here about US' value fare pricing and how US lived off of other carriers' revenues which they stole.


For AA labor to have failed to realize the enormous benefit that AA would enjoy and not get a bigger piece of it is truly an unmitigated embarrassment for labor and yet another reason why the labor movement is in such decline in the US.
 
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Bob Owens

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FWAAA said:
So what will total net profits be for the year? Maybe about $3.5 billion or so, given that the profit margins are slipping this year.
Didn't you say I was wrong (putting it mildly) when I said in court the company claimed they would be earning around $3billion year with their reorganization? 
 

Bob Owens

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Sep 9, 2002
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WorldTraveler said:
and it is equally a complete embarrassment that labor had no one who managed to understand where the airline industry was going and how to position airline employees at AA to gain from it. But their peers at other airlines aren't doing a whole lot better.
 
Understood completely, as I'm sure the framers of our agreement did, they had more resources and were able to dupe just 47 more people into accepting these deals. Will never know the full extent of what they got to sell us out. 
 
These sellouts have a familiar pattern. In times of Low Profits sell profit sharing as a way of getting back some of the concessions, such as our 2003 to 2012 profit sharing where we received nothing, then in times going into high profits give it away (2013-2018). Then after having missed the window stress how important it is to get it back and use it once again to sell concessions. It has to be deliberate. 
 

topDawg

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Nov 23, 2010
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Bob Owens said:
Sorry, I'm not cheering, if anything it makes me angrier and most of my coworkers will feel the same way. Instead of cheering we may be more inclined to studying blueprints for Guilotines. Why should we celebrate a success that we were forced to finance with no return? Cake? we arent even getting the crumbs.

12% of $40 billion is $4.8 billion in profits, proof that the $320 million they stole from us was completely un-neccissary for their "reorganization". Would AA be considered uncompetative if they only saw a $4.5 billion profit? Really makes the theft of the matching funds look like pure spite. $4.8 billion in profits yet Little and Buffy both pushed bottom of the industry deals with no profit sharing for their mechanics.
give them hell in the contract talks. 
 
 
might wanna dump the TWU first though. ;)