American Airlines Group Inc (NASDAQ:AAL) reported its first quarter 2016 results. The Company’s first quarter highlights include:
American Airlines Group’s first quarter 2016 pre-tax margin excluding special items was 12.9 percent, a record for the Company’s first quarter.
As a result of the reversal of the valuation allowance on the Company’s deferred tax assets at December 31, 2015, the Company’s 2016 results include a provision for income taxes at an effective rate of approximately 38 percent, which is substantially all non-cash due to net operating loss utilization. There was no tax provision for federal income taxes recorded in 2015.
Net profit excluding special items was $765 million, or $1.25 per diluted share. This compares to a net profit excluding special items for the 2015 first quarter of $1.2 billion, or $1.73 per diluted share. The 2016 first quarter net profit excluding special items included a provision for income taxes of $456 million, of which $453 million was non-cash.
On a GAAP (Generally Accepted Accounting Principles) basis, the Company reported a net profit of $700 million, or $1.14 per diluted share. This compares to a GAAP net profit of $932 million in the first quarter 2015, or $1.30 per diluted share. The first quarter net profit included a provision for income taxes of $417 million, of which $414 million was non-cash.
“We are pleased to report a first quarter pre-tax profit of $1.2 billion, excluding special items, and a 15 percent improvement in adjusted earnings per share,” said Doug Parker, American Airlines Chairman and CEO. “These results include a $73 million accrual related to the system-wide profit sharing plan we announced earlier this quarter. The people of American are doing an outstanding job of taking care of our customers and are the key to our future success.”
1 Excludes special items and non-cash income tax provision. See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of all GAAP to non-GAAP financial information.
Revenue and Cost Comparisons
First quarter 2016 revenue was negatively impacted by competitive capacity growth, continued macroeconomic softness in Latin America, and foreign currency weakness. Total revenue in the first quarter was $9.4 billion, a decrease of 4.0 percent versus the first quarter 2015 on a 3.6 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 12.43 cents, down 7.5 percent versus the first quarter 2015. Consolidated passenger yield was 15.62 cents, down 7.1 percent year-over-year.
Total operating expenses in the first quarter were $8.1 billion, a decrease of 5.9 percent compared to the first quarter 2015 due primarily to a 32.7 percent decrease in consolidated fuel expense. First quarter mainline cost per available seat mile (CASM) was 11.58 cents, down 9.5 percent on a 3.1 percent increase in mainline ASMs versus the first quarter 2015. Excluding special items and fuel, mainline CASM was 9.62 cents, up 1.4 percent compared to the first quarter 2015. Regional CASM excluding net special items and fuel was 16.11 cents, down 2.2 percent on an 8.1 percent increase in regional ASMs versus the first quarter 2015. The first quarter expenses include a $73 million accrual related to the Company’s recently announced profit sharing program.
Cash and Investments
As of March 31, 2016, the Company had approximately $9.4 billion in total available liquidity, consisting of unrestricted cash and investments of $6.9 billion and $2.4 billion in undrawn revolver capacity. The Company also had a restricted cash position of $691 million.
As part of its ongoing $3.0 billion commitment to improving the customer experience, the Company continues to make product investments, including projects to enhance airport boarding areas, the Admirals Club and Flagship Lounges, in-flight connectivity, and improvements to the premium cabin.
In addition, the Company invested $1.3 billion in new aircraft during the first quarter, including 15 new mainline and 13 new regional aircraft, while retiring 22 aircraft. American has the youngest fleet of the U.S. network airlines and, over the next year, expects the average age of its mainline fleet to fall below 10 years.
Also in the first quarter, the Company returned more than $1.6 billion to its stockholders through the payment of $61 million in quarterly dividends and the repurchase of $1.6 billion of common stock, or 39.3 million shares, at an average price of $39.76 per share. In aggregate, the Company has returned approximately $6.6 billion to stockholders through share repurchases and dividends since it began its capital return program in mid-2014.
The Company’s Board of Directors has authorized a new $2.0 billion share repurchase program that will expire at the end of 2017. Since the Company began its capital return program, the Company’s Board of Directors has authorized a total of $9.0 billion of share repurchases.
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 May 18, 2016, to stockholders of record as of May 4, 2016.
Notable Accomplishments
Integration Accomplishments
- Instituted a profit sharing program, retroactive to January 1, 2016, that will pay 5 percent of the Company’s pre-tax profit excluding special items, with an anticipated distribution to employees in early 2017
- Reached a 5-year industry-leading joint collective bargaining agreement with TWU Local 549 representingDispatchers and Operations Specialists
- American Airlines regional partners Envoy, PSA Airlines and Piedmont Airlines each launched industry-leading Cadet Programs to help the most promising future pilots at top colleges, universities and flight schools make a smooth transition from the classroom to the cockpit
Finance, Marketing, and Network Accomplishments
- Submitted an application to the U.S. Department of Transportation proposing scheduled U.S.-Cuba service. The application includes 10 daily frequencies to Havana from the Company’s Miami hub and additional service to Havana from Charlotte, Dallas Fort Worth, Chicago, and Los Angeles. The Company’s proposal also seeks daily service between Miami and Santa Clara, Holguin, Varadero, Camaguey and Cienfuegos
- Announced an expanded commitment at LAX with 20 new flights, more jobs and more community partnerships and sponsorships
- Joined with Chicago Mayor Rahm Emanuel to announce a $1.3 billion plan to add a new runway and other improvements to Chicago O’Hare. Also announced an agreement with the City of Chicago allowing five new gates to be built at O’Hare in Terminal 3
- Issued approximately $1.1 billion in enhanced equipment trust certificates at a blended coupon of 3.967%. The proceeds from this financing were used to finance aircraft previously delivered
- Earlier this week, American was named Airfinance Journal’s “Airline of the Year” for 2015, in recognition of American’s successful integration and financing efforts
- Applied to the U.S. Department of Transportation for daily nonstop service between Los Angeles and Beijing. If approved, the service would launch on Dec. 16
- Launched nonstop service between Los Angeles and Tokyo Haneda on the Boeing 787 Dreamliner
- Announced improvements to the Company’s lounge offerings, including the introduction of full tableside service at select gateway hubs – a first for any U.S. airline. The Flagship Dining experience will debut at JFK in early 2017 and will be introduced at our Dallas Fort Worth, Los Angeles and Miami hubs throughout 2017
- The Company plans to add Flagship Lounges at Dallas Fort Worth, Miami, and Philadelphia. The Company also plans to open new Admirals Club lounges at Houston George Bush Intercontinental and Orlando. In January, American also opened its first refurbished Admirals Club lounge in Phoenix
Community Relations Accomplishments
- Became the only airline to join the Human Rights Campaign, the nation’s largest LGBT civil rights organization, in endorsing the Equality Act, which aims to ban discrimination against LGBT people
- Raised $1 million for the Cystic Fibrosis Foundation by hosting the 31st American Airlines Celebrity Ski weekend at Vail, Colorado. More than 60 employee and retiree volunteers hosted 600 guests for the event. Since its inception, the annual fundraiser has raised more than $36 million for the Cystic Fibrosis Foundation
- Sponsored the 35th annual children’s Amputee Ski Trip, flying a group of 14 teenage patients from Texas Scottish Rite Hospital for Children between DFW and Colorado
- The Company’s pilots and flight attendants donated their time and the Company donated the use of a Boeing 757 to fly 28 Medal of Honor recipients and their families from New York to Washington for National Medal of Honor Day events
- Presented a check for $115,000 to Air Compassion for Veterans, which provides medically-related air transportation to service members, veterans, and family members. Since 2010 American has donated nearly $4 million to this program
- Announced the Company would award $400,000 in grants to three non-profit Charlotte organizations: the Renaissance West Community Initiative, Goodwill Industries of the Southern Piedmont’s Opportunity Campus and the Foundation for the Carolinas
Special Items
In the first quarter, pre-tax profit and net profit included $104 million and $65 million, respectively, in special items, primarily related to merger integration. (Original Source)
Shares of American Airlines Group are down nearly one percent to $39.50 in pre-market trading. AAL has a 1-year high of $53.47 and a 1-year low of $34.10. The stock’s 50-day moving average is $41.00 and its 200-day moving average is $41.56.
On the ratings front, AAL has been the subject of a number of recent research reports. In a report issued on April 12, Credit Suisse analyst Julie Yates maintained a Buy rating on AAL, with a price target of $49, which represents a potential upside of 22.5% from where the stock is currently trading. Separately, on April 11, Buckingham Research’s Daniel Mckenzie maintained a Buy rating on the stock and has a price target of $62.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Julie Yates and Daniel Mckenzie have a total average return of 3.2% and 10.7% respectively. Yates has a success rate of 50.0% and is ranked #1290 out of 3823 analysts, while Mckenzie has a success rate of 54.5% and is ranked #735.
The street is mostly Bullish on AAL stock. Out of 11 analysts who cover the stock, 8 suggest a Buy rating and 3 recommend to Hold the stock. The 12-month average price target assigned to the stock is $50.88, which represents a potential upside of 27.2% from where the stock is currently trading.
American Airlines Group, Inc. is a holding company whose business activity is the operation of a network carrier through its principal wholly-owned mainline operating subsidiary, American. The company provides air transportation for passengers and cargo. It cargo division provides a range of freight and mail services, with facilities and interline connections available across the globe. The company was founded on December 9, 2013 and is headquartered in Fort Worth, TX.
