American Airlines Group Inc (NASDAQ:AAL) reported its third quarter 2015 results.
American Airlines Group’s third quarter 2015 net profit, excluding net special charges, was a record $1.9 billion, or$2.77 per diluted share versus a third quarter 2014 net profit excluding net special charges of $1.2 billion, or$1.66 per diluted share. This is the highest quarterly profit in the Company’s history. The Company’s third quarter 2015 pretax margin excluding net special charges was a record 17.7 percent, up 6.7 percentage points from the same period last year.
On a GAAP basis, the Company reported a net profit of $1.7 billion, or $2.49 per diluted share. This compares to a GAAP net profit of $942 million in the third quarter 2014, or $1.28 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.
“We are extremely pleased to report another quarter of record profits thanks to the outstanding work of theAmerican Airlines team,” said Chairman and CEO Doug Parker. “We are particularly proud of the remarkable job our team did this week to move American onto a single reservations system without any operational disruption. Because of their great work, our customers now have seamless access to the full network of the new American Airlines – the best and largest airline network in the world.”
Revenue and Cost Comparisons
Total revenue in the third quarter was $10.7 billion, a decrease of 3.9 percent versus the third quarter 2014 on a 2.9 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 13.16 cents, down 6.8 percent versus the third quarter 2014. Consolidated passenger yield was 15.37 cents, down 9.2 percent year-over-year.
Total operating expenses in the third quarter were $8.7 billion, a decrease of 11.9 percent compared to the third quarter 2014, due primarily to a 43.5 percent decrease in consolidated fuel expense. Third quarter mainline cost per available seat mile (CASM) was 11.33 cents, down 14.7 percent on a 2.6 percent increase in mainline ASMs versus the third quarter 2014. Excluding net special charges and fuel, mainline CASM was 8.56 cents, up 2.6 percent compared to the third quarter 2014. Regional CASM excluding special charges and fuel was 15.78 cents, up 1.7 percent on a 5.0 percent increase in regional ASMs versus the third quarter 2014.
Cash and Investments
As of Sept. 30, 2015, the Company had approximately $9.6 billion in total cash and short-term investments, of which $710 million was restricted, and an undrawn revolving credit facility of $1.8 billion.
The Company continues to make significant investments in the airline through its extensive fleet renewal program, giving it the youngest fleet of the U.S. network airlines. In the third quarter, the Company took delivery of 16 new mainline and 15 new regional aircraft and retired 36 mainline and nine regional aircraft.
In the third quarter, the Company returned $1.63 billion to its shareholders through the payment of $67 million in quarterly dividends and the repurchase of $1.56 billion of common stock, or 38.4 million shares, at an average price of $40.56 per share. When combined with the dividends and shares repurchased during the first half of 2015, the Company has returned approximately $2.7 billion to its shareholders this year.
In addition, the Company’s Board of Directors has authorized a new $2.0 billion share repurchase program to be completed by the end of 2016. This brings the total amount authorized in 2015 for share repurchases to $6.0 billion. The Company also declared a dividend of $0.10 per share to be paid on Nov.19, 2015, to shareholders of record as of Nov. 5, 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 $609 million of the Company’s unrestricted cash and short-term investments is held in Venezuelan bolivars. This balance is valued at 6.3 bolivars to the U.S. dollar, which is the rate that was in effect on the date the Company submitted each of its repatriation requests to the Venezuelan government. This rate is 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 the Company’s 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.
- On Oct. 17, the Company completed its transition to a single reservations system, retiring the US Airwaysname and website. This cutover enables a single website and reservations system for all customer transactions. The complex cutover was accomplished without any disruptions to the operation or customer service
- Reached a tentative agreement with the Communications Workers of America – International Brotherhood of Teamsters (CWA-IBT) for a new joint collective bargaining agreement covering the airline’s 14,000 airport customer service and reservation agents
- Opened the Company’s new state-of-the-art Robert W. Baker Integrated Operations Center in Fort Worth
- Expanded bag tracking technology to the whole airline, enabling customers to track checked baggage in real-time
Marketing, Network and Fleet Accomplishments
- Provided charter service for Pope Francis’ first official visit to the U.S.
- Announced an expansion of the Company’s agreement with Alaska Airlines that allows full access of American’s network to Alaska customers as well as reciprocal airport club access
- Opened the first Admirals Club location that features the Company’s new, signature look at Guarulhos International Airport in São Paulo, underscoring the Company’s ongoing $2.0 billion investment in customer experience upgrades
- Received several accolades for the AAdvantage® frequent flyer program; including U.S. News & World Report’s 2015-16 rankings of Best Travel Rewards and Frequent Business Traveler which selected American as a winner of its 2015 Frequent Business Traveler GlobeRunner Award for Best Frequent Flyer Program
- Announced several new domestic routes and eight new international routes starting in the fall, which include Charlotte to Curacao and Puerto Plata, Dominican Republic; Dallas-Fort Worth to Quito, Ecuador and Punta Cana, Dominican Republic; New York to Caracas, Venezuela; Los Angeles to Montego Bay, Jamaica andMazatlan, Mexico; and Chicago to Punta Cana, Dominican Republic
- Issued $1.1 billion of Enhanced Equipment Trust Certificates at a blended interest rate of 3.8%
- Remarketed $365 million of special facility revenue bonds related to the Company’s terminal at New York’sJFK airport at a one-year interest rate of 2.0%
Community Relations Accomplishments
- Awarded $565,000 in college scholarships to 210 dependents of employees through the American Airlines Education Foundation, including 40 for first-generation college attendees
- Donated an MD80 aircraft to Oklahoma State University’s College of Engineering, Architecture and Technology’s Mechanical and Aerospace Engineering program. The plane will serve as a learning laboratory for college students and be used to provide science, technology, engineering and math lessons for 500 K-12 students per year
In the third quarter, the Company recognized $192 million in net special charges, including:
- $165 million in operating special charges, primarily including $198 million in merger related integration expenses and a $38 million special charge in connection with the Company’s dissolution of its Texas Aero Engine Service joint venture. These charges were offset in part by a $66 million credit related to proceeds received from a legal settlement
- $21 million in nonoperating special charges, principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with the remarketing of the special facility revenue bonds discussed above
- $6 million in tax special charges related to certain indefinite-lived assets (Original Source)
Shares of American Airlines are up 2.54% to $47.16 in pre-market trading. AAL has a 1-year high of $56.20 and a 1-year low of $34.10. The stock’s 50-day moving average is $41.76 and its 200-day moving average is $43.02.
On the ratings front, American Airlines has been the subject of a number of recent research reports. In a report issued on October 13, Evercore ISI analyst Duane Pfennigwerth downgraded AAL to Hold, with a price target of $50, which represents a potential upside of 8.7% from where the stock is currently trading. Separately, on October 12, Deutsche Bank’s Michael Linenberg reiterated a Buy rating on the stock and has a price target of $52.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Duane Pfennigwerth and Michael Linenberg have a total average return of -0.4% and 27.0% respectively. Pfennigwerth has a success rate of 54.5% and is ranked #2607 out of 3801 analysts, while Linenberg has a success rate of 68.8% and is ranked #27.
Overall, 3 research analysts have assigned a Hold rating and 6 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 $54.25 which is 18.0% above where the stock closed yesterday.
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.