American Airlines Posts First Quarterly Loss In Six Years

The airline industry's bloodletting continued Thursday with American Airlines Group Inc. AAL reporting a worse-than-expected $2.2 billion net loss, equivalent to $5.26 per share, in the first quarter due to the reduction in passenger bookings and rising trip cancellations in response to the coronavirus pandemic. 

Excluding special items, such as aircraft write downs, the loss still logged in at $1.1 billion (-$2.65 per share).

Revenue fell 19.6% to $8.5 billion compared to the same period last year. Adjusted earnings missed analysts consensus by $0.29 and the standard earnings were off by $3.07 per share. Revenue missed Wall Street's target by $490 million. 

It was American's first quarterly loss since emerging from bankruptcy six years ago.

The sober results are only the tip of the iceberg, with airlines running at about 5% of normal traffic and expected to generate 90% less revenue in the second quarter.

American, based in Fort Worth, Texas, said it has lopped off $12 billion in operating and capital expenditures from its 2020 budget to better align expenditures with the meager revenue stream. Like its competitors, American has drastically reduced system capacity, implemented voluntary leave and early retirement programs, lowered executive pay, reduced spending on outside contractors, training and marketing, and consolidated boarding areas in terminals. Lower fuel expenses from flying fewer aircraft and much cheaper jet fuel also contributed to the $12 billion in savings, as did the accelerated retirement of aircraft.

American confirmed it has retired 20 Embraer E190 regional jets, 34 Boeing 757s, 17 Boeing 767s and nine Airbus A330-300s, along with a number of other older regional aircraft. The changes remove operating complexity and bring forward cost savings and efficiencies associated with operating fewer aircraft types, it said. 

American previously cut schedules by 80% for April and May, and says June capacity will be 70% of normal, but the company is likely to adjust operating levels depending on demand.

The airline said it is draining cash at the rate of $70 million per day and expects to lower that to $50 million per day in June. By comparison, Delta Air Lines has already halved its cash burn to $50 million and Southwest Airlines said it is using up $30 million to $35 million per day.

American's net loss was on par with United Airlines Holdings, Inc. UAL recent pre-earnings release that it lost $2.1 billion in the first quarter. Delta Air Lines, Inc. DAL posted a $607 million unadjusted loss, while Southwest Airlines Company LUV, which doesn't have a vast international network and wasn't exposed to flight suspensions until much later, posted a loss of $94 million.  

American appears slightly less aggressive at reducing cost than some of its rivals and analysts say it may have to go on a crash diet to optimize its size with the depressed travel market. 

American said it has $6.8 billion in cash and short-term equivalents on hand after raising $2 billion in the first quarter and expects to have $11 billion in liquidity by late June. The company secured $5.8 billion in pass-through aid from the U.S. government to cover employee paychecks through September and has applied for a $4.75 billion emergency federal loan.

The carrier's cargo operation suffered a 32.7% drop in revenue to $147 million, with cargo-ton miles down 30% to 436 million and yield off by 3.5% to $0.34.