AIRLINES & ALLIANCES

American Airlines 4Q and full-year 2023 financial results & call: loyalty, priorities and outlook

Outlook 2024: 

• “Demand remains strong, and we’ve seen robust bookings to start the year as travel trends have begun to normalize across entities. We’re also very encouraged by the trends we’re seeing in business travel. Domestic revenues from business travel ended the fourth quarter at approximately 90% of 2019 levels.”

AAdvantage program: 

• “We’re excited about the continued rollout of the AAdvantage Business program, and we continue to see strength among small and medium-sized businesses. We see further potential revenue upside as we restore our hubs domestically, enabled in part by the recovery and regional supportability. This year, we expect our system capacity growth to be balanced between domestic and international. More than ever, our revenue growth is fueled by a growing number of AAdvantage customers who acquired our co-brand credit cards in record numbers in 2023.” 
• “AAdvantage customers represent both our greatest source of value and greatest opportunity going forward. In 2023, two-thirds of our revenue came from AAdvantage customers. These customers also account for 70% of our upsell, loyalty and partnership revenue.”
• “Over the past year, we have made changes to our distribution strategy to give customers direct, improved access to our best products and enable American to provide better customer service to the individual traveler. We’re very encouraged by the results. Customers who shop directly with us have a more enjoyable experience and are 11 points more likely to recommend American than those shopping in traditional outlets. They’re purchasing more valuable content and doing so at lower expense. In 2023, our revenue was 15% higher than 2019, while our selling expenses were 10% lower.”
• “New York is our largest market for enrolling new customers, both in AAdvantage and in the credit card and it had never been that prior to the NorthEastern Alliance”. 
• “…for us, basic economy is not about a competitive product. It’s our entry level product that gets customers in the door and signed up for AAdvantage.”
• “…60% of our revenue comes from customers buying premium content, of which 45 points of that are AAdvantage customers and 15 points are non-AAdvantage customers.”
• “…65% of our bookings are going through our digital channels. On a revenue basis, it’s actually a little bit north of that. It’s probably a little closer to 70% as we’re intaking. And those are our revenue intakes that are coming in. Separately from that, when we go, look back at 2023, 60% of our revenue came from customers buying premium content, which is a premium seat or greater flexibility around the premium seat. Of those, 15% of our total customer base is non-AAdvantage. About 45% is AAdvantage.”

(Image Source)

Image courtesy: Americn Airlines

On distribution strategy prioritising direct internet sales: 

• “… let me speak at large … First, all of our changes whether it’s with corporate travel management or travel agencies, what have you, are this simple, we sell our product through the Internet. That’s what our customers demand. That’s how we can give them the best content at the lowest expenses to them and the best servicing and we see that. We see that we’re producing revenue more efficiently, more strategically more to the liking of our customers….We’re up 15% in revenue. We are down 8% to 9% in selling expenses. Our likelihood to recommend scores are higher. 

  But as we look at it, what has really been a change is 65% of our revenue comes from AAdvantage customers, but we continue to see a lot more (ph). About 45% of our revenue is coming from AAdvantage customers who are buying premium content, a better seat, more refundability, more flexibility for miles. And that’s up 3 points year-over-year. So that’s all to say that — in any which way we double click on that, it’s meaningful, right? We too exit Q4 with a 90% business recovery. Within that unmanaged business versus managed businesses, almost a 3:1 ratio, with unmanaged business 100% plus recovered, managed business down further. The impact on managed business is really flat from traffic on higher yields. So as we go forward, actually, we’re going to lean further into this.

  What we have realized through this is first and foremost, we need to make it easy for our customers to consume our content through the Internet. So, we’re going to offer more mileage for customers who shop through the Internet. We’re going to roll out better servicing capabilities for Internet distribution, and we are going to start restricting the amount of selling and servicing that we do through non-Internet based channels. And we invite all the travel managers and all the travel agencies of the world to join us in this because this is great for customers and it should be great for them too. All of our financial incentives targeted to that audience are really around helping them shift. So, we’ve actually been very encouraged by what we’ve seen.

• “…if you look at our system right now, about 7% of what we sell is basic economy. And indeed, that is up 20% year-over-year, but that’s up 20% year-over-year because we changed its product. …. What’s been more interesting to us is 10% of our revenue is coming from customers who actually shop basic, but then buy something higher. And within that — that number is up 25% year-over-year. nd almost all of its growth is coming through dot-com and app. And we see more and more ways where customers actually who are coming for a basic product want more than that, and we can go and deliver that to them, which is why so many of our distribution strategies, far from being risky, we see as a great opportunity.

Financial results:

• Record full-year revenue of approximately $53 billion. 
• GAAP fourth-quarter and full-year net income of $19 million and $822 million, or $0.03 and $1.21 per diluted share, respectively.
• Excluding net special items¹, fourth-quarter and full-year net income of $192 million and $1.9 billion, or $0.29 and $2.65 per diluted share, respectively.
• An average load factor of 83.5%. 
• American Airlines labour negotiations: “We finalized a new contract with the APA in the third quarter last year. And a few weeks ago, we did the same for our customer service team, represented by the CWA-IBT, giving team members increased pay and quality of life improvements. We continue to negotiate with the APSA with the shared goal of reaching a deal that will pay our flight attendants at the top of the industry. Now, let’s talk more about our financial results.” 
• “This year [2024], we expect to take delivery of 28 new mainline aircraft, including 20 737 MAX 8, six 787-9 and two A321neo aircraft. Our 2024 aircraft CapEx is expected to be approximately $2.3 billion, and our 2024 non-aircraft CapEx is expected to be approximately $850 million.”
•  

“The American Airlines team produced an exceptionally strong performance in 2023,” said American’s CEO Robert Isom. “We are delivering on our commitments and remain well-positioned for the future, supported by the strength of our network and travel rewards program, our young and simplified fleet, our operational reliability, and our outstanding team. As we look forward, we remain focused on delivering a reliable operation for our customers and reengineering the business to build an even more efficient airline.”

Operational reliability
American and its regional partners operated nearly 2 million flights in 2023, with an average load factor of 83.5%. The company produced its best-ever fourth-quarter and full-year completion factor, with the lowest number of cancellations annually since the merger in 2013.

The airline’s strong operational momentum continued through the holiday travel period. American achieved its best-ever completion factor and on-time departures as well as its lowest mishandled baggage rate over the holidays.

Financial performance
For the full year, American produced record revenue of nearly $53 billion. In the fourth quarter, the company generated revenue of more than $13 billion and an operating margin of 5.0% on a GAAP basis. Excluding the impact of net special items¹, American produced an operating margin of 5.1% in the fourth quarter, exceeding the high end of the company’s prior guidance. These results were driven by continued strong demand for American’s product, record revenue from its travel rewards program, strong operational performance and effective cost control.

Liquidity and balance sheet
Strengthening the balance sheet remains a top priority for the company. American reduced total debt³ by more than $500 million in the fourth quarter and by approximately $3.2 billion in 2023. The company is more than 75% of the way to its goal of reducing total debt³ by $15 billion by the end of 2025. As of Dec. 31, 2023, American had reduced its total debt³ by approximately $11.4 billion from peak levels in mid-2021.

The company ended the year with approximately $10.4 billion of total available liquidity, comprised of cash and short-term investments plus undrawn capacity under revolving and other short-term credit facilities.

Guidance and investor update
Based on present demand trends and the current fuel price forecast and excluding the impact of special items⁴, the company expects its first-quarter 2024 adjusted loss per diluted share⁴ to be between ($0.15) and ($0.35). American expects its full-year 2024 adjusted earnings per diluted share⁴ to be between $2.25 and $3.25.

For additional financial forecasting detail, please refer to the company’s investor update, furnished with this press release with the SEC on Form 8-K. This filing will also be available at aa.com/investorrelations.

Notes
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, including the calculation of free cash flow.

1. The company recognized $173 million of net special items in the fourth quarter after the effect of taxes, which principally included $216 million of nonoperating net special items for charges associated with debt extinguishments and mark-to-market net unrealized losses on certain equity investments. The company recognized $1.0 billion of net special items in 2023 after the effect of taxes, which included operating net special items of $979 million principally related to one-time charges resulting from the ratification of a new collective bargaining agreement with American’s mainline pilots, as well as nonoperating net special items of $362 million for charges associated with debt extinguishments and mark-to-market net unrealized losses on certain equity investments.
2. Please see the accompanying notes for the company’s definition of free cash flow, a non-GAAP measure.
3. All references to total debt include debt, finance and operating lease liabilities and pension obligations.
4. Adjusted earnings per diluted share guidance excludes the impact of net special items. The company is unable to reconcile certain forward-looking information to GAAP as the nature or amount of net special items cannot be determined at this time.

About American Airlines Group
To Care for People on Life’s Journey^®. Shares of American Airlines Group Inc. trade on Nasdaq under the ticker symbol AAL and the company’s stock is included in the S&P 500. Learn more about what’s happening at American by visiting news.aa.com and connect with American @AmericanAir and at Facebook.com/AmericanAirlines.

Cautionary statement regarding forward-looking statements and information
Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about the company’s plans, objectives, expectations, intentions, estimates and strategies for the future, and other statements that are not historical facts. These forward-looking statements are based on the company’s current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth herein as well as in the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (especially in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A. Risk Factors), and other risks and uncertainties listed from time to time in the company’s other filings with the Securities and Exchange Commission. Additionally, there may be other factors of which the company is not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. The company does not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements other than as required by law. Any forward-looking statements speak only as of the date hereof or as of the dates indicated in the statement.