Company Update (NASDAQ:AAL): American Airlines Group Inc Reports Highest Quarterly Profit In Company History

American Airlines Group Inc (NASDAQ:AAL) reported its second quarter 2015 results.

American Airlines Group’s second quarter 2015 net profit, excluding net special charges, was a record $1.9 billion, or $2.62 per diluted share versus a second quarter 2014 net profit excluding net special charges of $1.5 billion, or $1.98 per diluted share. The Company’s second quarter 2015 pretax margin excluding net special charges was a record 17.2 percent, up 4.4 percentage points from the same period last year.

On a GAAP basis, the Company reported a record net profit of $1.7 billion, or $2.41 per diluted share. This compares to a GAAP net profit of $864 million in the second quarter 2014, or $1.17 per diluted share.

See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of GAAP to non-GAAP financial information.

“Reporting the highest quarterly profit in our history is another indication that our team is on the path to restoring American as the greatest airline in the world,” said Chairman and CEO Doug Parker. “These results are especially remarkable considering the significant and successful work underway to integrate two airlines. The more than 100,000 dedicated team members of American Airlines are doing a phenomenal job and we are grateful for their commitment to our customers.”

Revenue and Cost Comparisons

Total revenue in the second quarter was $10.8 billion, a decrease of 4.6 percent versus the second quarter 2014 on a 1.9 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 13.57 cents, down 6.9 percent versus the second quarter 2014. Consolidated passenger yield was16.28 cents, down 6.1 percent year-over-year.

Total operating expenses in the second quarter were $8.9 billion, a decrease of 10.5 percent compared to the second quarter 2014, due primarily to a 36.9 percent decrease in consolidated fuel expense. Second quarter mainline cost per available seat mile (CASM) was 11.87 cents, down 12.8 percent on a 1.5 percent increase in mainline ASMs versus the second quarter 2014. Excluding net special charges and fuel, mainline CASM was8.77 cents, up 2.5 percent compared to the second quarter 2014. Regional CASM excluding special charges and fuel was 16.02 cents, up 1.4 percent on a 5.5 percent increase in regional ASMs versus the second quarter 2014.

Cash and Investments

As of June 30, 2015, the Company had approximately $9.7 billion in total cash and short-term investments, of which $747 million was restricted. The Company also had an undrawn revolving credit facility of $1.8 billion.

American continues to invest in its product. As part of an extensive fleet renewal plan that has made American’s fleet the youngest of any U.S. network airline, the Company expects to spend $5.4 billion on new aircraft this year. During the second quarter, the Company took delivery of 24 new mainline aircraft and nine new regional aircraft and retired 34 older mainline and eight older regional aircraft. In addition to this fleet renewal program, American is in the midst of investing $2 billion to further enhance its product, including improvements to aircraft interiors, international Wi-Fi connectivity and upgrades to its Admirals Club lounges.

In the second quarter, the Company returned $823 million to its shareholders through the payment of $70 millionin quarterly dividends and the repurchase of $753 million of common stock, or 17.3 million shares, at an average price of $43.53 per share. When combined with the dividends and shares repurchased during the first quarter, the Company has returned approximately $1.1 billion to its shareholders in the first half of 2015, including $943 million of shares repurchased under the existing $2 billion share repurchase program approved in January 2015.

Due to the Company’s strong financial performance, its projected cash flow and the repurchase activity to date, the American Airlines Group Board of Directors has authorized an additional $2 billion share repurchase program to be completed by December 31, 2016. This brings the total amount of share repurchase programs authorized in 2015 to $4 billion. The Company also declared a dividend of $0.10 per share to be paid on August 24, 2015, to shareholders of record as of August 10, 2015.

Share repurchases under the share repurchase program 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 program does 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.

Approximately $629 million of the Company’s unrestricted cash and short-term investment balance was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars per U.S. dollar and approximately $8 million valued at 12.8 bolivars per U.S. dollar, with the rate depending on the date the Company submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system.

During 2014, the Company significantly reduced capacity in the Venezuelan market and is no longer accepting bolivars as payment for airline tickets. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses or other accounting adjustments, which could be material, particularly in light of the additional uncertainty posed by the recent changes to the foreign exchange regulations and the continued deterioration of economic conditions in Venezuela. More generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company and can significantly affect the value of its assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect the Company’s business, results of operations and financial condition.

Notable Accomplishments

Integration Accomplishments

  • Received a single operating certificate from the Federal Aviation Administration (FAA) on April 8, meaning that American Airlines, Inc. and US Airways, Inc. are now regulated by the FAA as one airline
  • Co-located operations at nine additional airports across the network, bringing the total number of co-locations to 123
  • Merged American Airlines Vacations and US Airways Vacations
  • In July, the Company began its switch to a single reservation system. Starting Oct. 17, American will operate as one airline for its customers with a single reservation system, single website and single mobile app. To accomplish this, earlier this month American changed all US Airways coded flights scheduled for Oct. 17and beyond to the American code. All US Airways reservations currently booked for travel beginning Oct. 17have been moved to the American reservation system

Marketing Accomplishments

  • Launched new service from Dallas/Fort Worth International Airport to Beijing, China; New York’s JFK International Airport to Birmingham, England and Edinburgh, Scotland and Miami International Airport toFrankfurt, Germany
  • Launched new Latin American service from Los Angeles International Airport to Guadalajara, Mexico andBelize City, Belize; Dallas/Fort Worth International Airport to Grand Cayman and Managua, Nicaragua andMiami International Airport to Monterrey, Mexico and Barranquilla, Colombia
  • Received DOT authority to serve Los Angeles International Airport to Tokyo Haneda Airport, with service planned to begin in the fourth quarter 2015
  • Announced new nonstop service between Los Angeles International Airport and Sydney, Australia, to beginDec. 17, 2015, pending regulatory approvals, while strengthening our relationship with oneworld partner Qantas
  • Opened a new 25,000-square foot dedicated pharmaceutical cargo cold storage facility in Philadelphia
  • Recognized by Air Cargo News as the Cargo Airline of the Year Award for 2015. This is the first time an airline in the Americas has won the award in its 32-year history. The Company was also named the Best Cargo Airline of the Americas for the eighth consecutive year
  • For the fourth consecutive year, the American Airlines AAdvantage® program was named Program of the Year at the 2015 Freddie Awards, one of the most prestigious honors for loyalty programs in the travel industry. American also took home honors for Best Elite Program

Finance Accomplishments

  • The Company refinanced its $750 million and $1.9 billion secured term loan facilities at lower interest rates and improved collateral terms. In addition, the Company also extended the maturity of its $1.9 billion term loan facility by one year to June 2020. Subsequently, both credit facilities received a 25 basis point reduction in interest cost due to the Company’s improved credit ratings from Standard & Poor’s andMoody’s

Community Relations Accomplishments

  • Recognized four employees with the 2015 Earl G. Graves Award for Leadership in Diversity and Inclusion for their work in making a lasting impression in the workplace, in the community and as role models in diversity
  • Provided a charter flight carrying 44 World War II veterans from Los Angeles International Airport to New Orleans for a visit to The National WWII Museum
  • Launched a disaster relief campaign with the American Red Cross and UNICEF for Nepal and raised approximately $100,000 from our customers and employees

Special Items

In the second quarter, the Company recognized $150 million in net special charges, including:

  • $231 million in merger related integration expenses, including $221 million in mainline special charges and$10 million in regional special charges
  • $77 million in net special credits, including a $68 million credit for bankruptcy related items, principally consisting of fair value adjustments for bankruptcy settlement obligations
  • $11 million non-operating net special credits comprised of a $22 million gain associated with the sale of an investment, offset in part by $11 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing the Company’s secured term loan facilities
  • $7 million in tax special charges related to certain indefinite-lived intangible assets. (Original Source)

Shares of American Airlines Group closed yesterday at $42.61. AAL has a 1-year high of $56.20 and a 1-year low of $28.10. The stock’s 50-day moving average is $40.87 and its 200-day moving average is $47.18.

On the ratings front, American Airlines Group has been the subject of a number of recent research reports. In a report issued on June 25, UBS analyst Darryl Genovesi maintained a Hold rating on AAL, with a price target of $43, which represents a slight upside potential from current levels. Separately, on June 18, Barclays’ Isaac Husseini maintained a Buy rating on the stock and has a price target of $58.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Darryl Genovesi and Isaac Husseini have a total average return of 14.6% and -6.7% respectively. Genovesi has a success rate of 60.0% and is ranked #1280 out of 3714 analysts, while Husseini has a success rate of 33.3% and is ranked #2934.

The street is mostly Neutral on AAL stock. Out of 4 analysts who cover the stock, 3 suggest a Hold rating and one recommends to Buy the stock. The 12-month average price target assigned to the stock is $70.00, which represents a potential upside of 64.3% from where the stock is currently trading.

American Airlines Group Inc, through its subsidiaries, operates in the airline industry. The Company has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix and Washington, D.C.

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