American Airlines Group Inc. (NASDAQ:AAL) reported its second quarter 2016 results. The Company’s second quarter highlights include:
- Second quarter 2016 pre-tax profit of $1.5 billion, or $1.6 billion excluding special charges, and net profit of$950 million, or $1.0 billion excluding special charges
- Second quarter 2016 earnings per diluted share was $1.68 versus $2.41 for the same period last year. Second quarter adjusted1 earnings per diluted share was $2.81 versus $2.62 for the second quarter 2015
- Returned more than $1.7 billion to stockholders through share repurchases and dividends
- On July 12, the Company announced new agreements with its AAdvantage® credit card partners, Citi, Barclaycard US and MasterCard which are expected to add $200 million in pre-tax income in the second half of 2016, $550 million in 2017, and $800 million in 2018, with continued modest improvement in pre-tax income each year beyond, in each case as compared to results expected under the prior credit card arrangements
- On July 18, the Company reached an agreement with Airbus to defer delivery of the 22 A350 XWB aircraft it has on order, providing more widebody fleet flexibility and reducing 2017 and 2018 capital expenditures
The Company reported a Generally Accepted Accounting Principles (GAAP) net profit of $950 million, or $1.68 per diluted share. This compares to a GAAP net profit of $1.7 billion in the second quarter 2015, or $2.41 per diluted share. As a result of the reversal of the valuation allowance on the Company’s deferred tax assets as of December 31, 2015, the Company’s 2016 results include a $543 million provision for income taxes at an effective rate of approximately 38 percent, of which $541 million is non-cash due to net operating loss utilization. There was no tax provision for federal income taxes recorded in 2015.
The impact of the year-over-year change in non-cash income tax expense is removed by comparing pre-tax income. The Company reported GAAP pre-tax income in the second quarter of $1.5 billion, and pre-tax income excluding special charges of $1.6 billion. These are the second highest second quarter pre-tax earnings in Company history, behind only the$1.7 billion GAAP and $1.9 billion excluding special charges, reported in the second quarter of 2015. Adjusted earnings per diluted share was a record $2.81, up 7 percent from $2.62 per diluted share in the second quarter of 2015.
“These strong second-quarter results are the result of the hard work by our people to improve every aspect of our airline. The more than 100,000 team members of American Airlines are doing an outstanding job of taking care of our customers,” said Doug Parker, Chairman and CEO. “In addition, our recently announced AAdvantage credit card agreements show that the world’s largest airline network is a powerful draw for both our business partners and our customers.”
Revenue and Cost Comparisons
Second quarter 2016 revenue was hurt by competitive capacity growth, continued global macroeconomic softness and foreign currency weakness. Total revenue in the second quarter was $10.4 billion, a decrease of 4.3 percent versus the second quarter of 2015 on a 1.9 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 12.71 cents, down 6.3 percent versus the second quarter of 2015. Consolidated passenger yield was 15.42 cents, down 5.3 percent year-over-year.
Total operating expenses in the second quarter were $8.6 billion, a decrease of 3.3 percent compared to the second quarter 2015 due primarily to a 24.9 percent decrease in consolidated fuel expense. The Company’s second quarter operating expenses include a $98 million accrual related to the Company’s profit sharing program, which took effect in 2016.
Second quarter mainline cost per available seat mile (CASM) was 11.32 cents, down 4.6 percent on a 1.2 percent increase in mainline ASMs versus the second quarter 2015. Excluding fuel and special charges, mainline CASM was 9.12 cents, up 4.0 percent. Regional CASM was 18.78 cents, down 9.8 percent versus the second quarter 2015 on an 8.0 percent increase in regional ASMs. Excluding fuel and special charges, regional CASM was 15.29 cents, down 4.6 percent.
As part of the Company’s fleet renewal program, the Company invested $1.2 billion in new aircraft during the second quarter, including 14 new mainline aircraft and 14 new regional aircraft, while removing 31 aircraft from the fleet.
On July 18, the Company reached an agreement with Airbus to defer delivery of the 22 A350 XWB aircraft it has on order. Under the new schedule, the Company expects to take delivery of its first A350 aircraft in late 2018, instead of the spring of 2017 as previously expected. The Company now expects to take delivery of these A350 aircraft from 2018 through 2022, with an average deferral of 26 months. This change reduces the Company’s planned capital expenditures for 2017 and 2018 and provides capacity flexibility.
Capital Return Program
As of June 30, 2016, the Company had approximately $9.5 billion in total available liquidity, consisting of unrestricted cash and short-term investments of $7.1 billion and $2.4 billion in undrawn revolver capacity. The Company also had a restricted cash position of $640 million.
The Company returned more than $1.7 billion to its stockholders in the second quarter through the payment of $58 millionin quarterly dividends and the repurchase of $1.7 billion of common stock, or 50.2 million shares, at an average price of$33.55 per share. The Company has returned approximately $8.4 billion to stockholders through share repurchases and dividends since it began its capital return program in mid-2014.
Shares repurchased under the buyback programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The programs do not obligate the Company to repurchase any specific number of shares or continue a dividend for any fixed period, and may be suspended at any time at the Company’s discretion.
The Company also declared a dividend of $0.10 per share to be paid on August 19, 2016, to stockholders of record as ofAugust 5, 2016.
Finance, Marketing, and Network Accomplishments
- On July 7, the U.S. Department of Transportation (DOT) tentatively awarded American the authority for five daily flights to José Martí International Airport in Havana, Cuba, including four from Miami and one from Charlotte. Service is expected to begin in November. In addition, on June 10 the DOT awarded American the right to operate scheduled service between Miami and five cities in Cuba – Camaguey, Cienfuegos, Holguin, Santa Clara and Varadero. Service to those cities is expected to begin in September and will represent American’s first-ever scheduled flights to Cuba
- The Company completed several financing transactions during the quarter, including the issuance of a new $1 billion 7-year term loan secured by the Company’s mainline spare parts, $844 million in special facility revenue refunding bonds related to the John F. Kennedy International Airport (JFK) which refinanced existing outstanding JFK bonds that carried a higher interest rate. In addition, the Company issued the $829 million 2016-2 Enhanced Equipment Trust Certificates consisting of both AA and A tranches. This transaction was then augmented in early July with a $227 million B tranche
- The AAdvantage® program was named Best Elite Program in the Americas by the Freddie Awards
- American Airlines Cargo was named Cargo Airline of the Year for the second year in a row, and Best Cargo Airline of the Americas for the ninth year in a row, in voting sponsored by Air Cargo News
- On June 23, American launched nonstop service between Los Angeles and Auckland, New Zealand with the Boeing787-8
- American has now made Flagship University in Fort Worth the single training location for all of American’s 25,000 flight attendants
- The Fleet Service team became the first uniformed work group to have a common uniform on May 1
- Forty mainline aircraft were painted in the new livery, bringing the total to 76 percent of our combined mainline fleet
Community Relations Accomplishments
- American announced a multi-year, multi-million dollar commitment to Stand Up To Cancer
- On May 26, the first American Airlines Charity Golf Tournament raised more than $225,000 for three Dallas/Fort Worth-based charities, including the Bush Institute’s Military Service Initiative, Komen Dallas County and American Airlines Education Foundation
- American’s Regional Community Relations Council at Tech Ops – Tulsa pledged $50,000 to Tulsa Public Schools for professional Science, Technology, Engineering and Math development for teachers as part of the Support Our Schools campaign
- The American Airlines Education Foundation awarded more than $750,000 in scholarships to 287 children of employees. Each recipient received a $2,500 scholarship, and first-generation college students received an additional one-time award of $1,000. This fall, these students will study at 177 universities across 39 states, Puerto Rico andWashington, D.C.
In the second quarter, the Company recognized $101 million in net special charges before the effect of income taxes, including:
- Operating special charges totaled a net charge of $65 million, which principally included $115 million of merger integration expenses, offset in part by a $56 million net credit principally consisting of fair value adjustments for bankruptcy settlement obligations
- Nonoperating special charges of $36 million related principally to non-cash write offs of unamortized bond discounts and issuance costs in connection with a bond refinancing (Original Source)
Shares of American Airlines Group Inc closed yesterday at $34.96, down $0.96 or -2.67%. AAL has a 1-year high of $47.09 and a 1-year low of $24.85. The stock’s 50-day moving average is $31.21 and its 200-day moving average is $36.45.
On the ratings front, AAL has been the subject of a number of recent research reports. In a report issued on July 15, Buckingham Research analyst Daniel Mckenzie maintained a Buy rating on AAL, with a price target of $44, which implies an upside of 25.9% from current levels. Separately, on July 13, Merrill Lynch’s Andrew Didora reiterated a Sell rating on the stock and has a price target of $29.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Daniel Mckenzie and Andrew Didora have a total average return of 1.8% and -3.1% respectively. Mckenzie has a success rate of 37.5% and is ranked #1974 out of 4075 analysts, while Didora has a success rate of 31.3% and is ranked #3077.
Overall, 2 research analysts have rated the stock with a Sell rating, 4 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $41.00 which is 17.3% above where the stock closed yesterday.
American Airlines Group, Inc. is a holding company for American Airlines and US Airways. The company, together with American Eagle and US Airways Express operates an average of nearly 6,700 flights per day to 339 destinations in 54 countries from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington. Its AAdvantage and US Airways Dividend Miles programs allow members to earn and redeem miles for travel and everyday purchases, as well as flight upgrades, vacation packages, car rentals, hotel stays and other retail products. American Airlines Group is formed with the closing of the merger between American Airlines and US Airways Group.