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American Airlines gives upbeat 3Q revenue outlook - Yahoo! Finance



American Airlines Gives Upbeat 3Q Revenue Outlook
American Airlines 3Q revenue, costs up, analyst says management must gain investor confidence




DALLAS (AP) -- American Airlines said Wednesday that its revenue is rising, but higher fuel prices are also pushing up costs in the third quarter.

Analysts had mixed reviews for the latest news from American, the nation's third-largest airline. They praised the upbeat revenue forecast but noted that while other airlines are making money, American parent AMR Corp. is expected to post losses through next year.

AMR's stock price has fallen 55 percent this year through Tuesday, and one analyst suggested that management changes may be needed if the company doesn't come up with a plan to win back investor confidence.

The company updated its outlook in a filing Wednesday with the Securities and Exchange Commission. AMR said third-quarter revenue per mile will rise between 7.8 percent and 8.8 percent compared with a year ago, even with a $25 million loss from 1,200 flights cancelled because of Hurricane Irene last month.

Analysts said the upbeat revenue news, along with similar comments from United Continental Holdings Inc. and Delta Air Lines Inc., should ease fears that the weak economy has hurt travel demand.

But analysts were discouraged that AMR expects costs per mile to rise by 9.2 percent to 10.2 percent. Most of the increase is due to jet fuel, but AMR said other costs are rising too.

AMR also said it might take a big write-down in the fourth quarter to cover the falling value of its older planes. American is replacing some of its gas-guzzlers, and recently announced plans to buy 460 planes over the next several years.

A J.P. Morgan analyst widened his estimated third-quarter loss for AMR, and a Dahlman Rose & Co. analyst cut her target price on AMR shares.

The harshest comments, however, came from longtime airline analyst Ray Neidl of Maxim Group LLC, who said management and labor at American Airlines need a wake-up call.

Neidl said the airline's labor costs are too high -- an argument that American's management makes at every opportunity -- and that the company's leaders are riding on its storied history instead of adapting to changes in the industry. American fell from the world's biggest airline in 2008 to No. 3 in the U.S. today as rivals grew through mergers -- first Delta and Northwest, then United and Continental.

"AMR remains an attractive franchise in our opinion that is undermanaged," Neidl wrote in a note to clients. "The current management seems to be more of a caretaker of a deteriorating asset."

Neidl said AMR does not face imminent bankruptcy because it has $4.9 billion in cash -- although that's down by $900 million in just three months. He added if company leaders don't produce a workable plan to regain investor confidence, it may be necessary to replace them "to save the carrier in the long term."

AMR sidestepped a public spat with Neidl. A spokesman said the company doesn't comment on analysts' opinions.

American has raised its revenue with higher fares and by introducing new fees this year -- most recently, charging extra for good seats such as windows and aisles. It hopes to sell more international travel through partnerships with British Airways and Japan Airlines, and it's spinning off the American Eagle regional affiliate, which should eventually save AMR money. New planes from Boeing and Airbus will cut fuel and maintenance costs.

There has been less progress in labor negotiations. The company has been negotiating with pilots, flight attendants and mechanics since 2008.

Shares of AMR fell 15 cents, or 4.3 percent, to close at $3.33. This year's share price drop of 55 percent compares with declines of 13 percent at United Continental, 34 percent at Delta, 35 percent at Southwest Airlines Co., and 40 percent at US Airways Group Inc.

Elvis90

Maybe the "Ch 11" considerations are simply tough talk for contract negotiations with APA.

Boomer

$800 million is chump change. Delta paid double that for Comair. And they didn't even want us.

acl65pilot

Arpy should give the APA pilots a significant raise, and allow the rest of the industry to beat it.

GQpilot

The fellow who introduced me to commercial aviation was a senior American pilot, who is now retired(thankfully he took the cash payout). It is very sad to see American in this situation. I think they are in a very bad position and it sucks

GQpilot

Boy with all these airlines getting ready to fragment it's gonna be a big old auction. Hey adadadad we have Charlotte goin 6 do I hera 7 odadadada.

georgetg

I've taken the liberty to nudge your highlight to the second half of that sentence.

At that cash burn rate there 16 months left.
Since you need cash to enter CH11, maybe half that.

Unless AMR shows at least 2 consecutive profitable quarters, CH11 is unavoidable.

I'd imagine a deal will be struck (merger etc.) just prior to reaching the Edge of Ch11. That gives the head-honchos the most leverage in gaining concessions. The fact that the CH11 scenario is being floated is part of a concerted effort to set up the narrative over the next 6-9-months.

AMR is a great company, too bad the other players changed the rules mid-game.

Cheers
George

Cactusone

AirlineFinancials:


I have received a lot of questions from a lot of pilots regarding AA/AMR's (apparent) financial and operational problems.

The majority of questions revolve around:
* What is the likelihood of AMR restructuring via bankruptcy or possibly something similar to what was done in 2003
* Why is AA's revenue performance falling behind network competitors

Re: Restructuring.. At first glance, when you hear of $billions in cash, new aircraft orders, full airplanes, higher fares, etc. it is a challenge to understand let alone accept a -potential- AMR BK.

OPINIONS surrounding AMR's future can be found to say most anything one WANTS to believe.

My OPINION is that: Based on AMR's current *and* projected financial condition, my analysis shows AMR's (unrestricted) cash position will be under $4 billion before the end of Q2 2012. I expect (no one on the outside knows) if AMR's cash position does fall to less than $4 billion, the AMR BoD will direct management to file bankruptcy.

It's important to note that Northwest was the only airline bankruptcy I can find that reorganized without requiring DIP financing. NWA was able to finance their own restructuring only because of their high cash position going into bankruptcy. Contrary to popular belief there is no minimum "cash" threshold required before filing bankruptcy. The only real requirement is for management to show the bankruptcy judge that the current business plan is "unsustainable". In my OPINION, AMR could easily show an unsustainable business plan to a bankruptcy judge as early as today.

For some reality perspective: Northwest filed for chapter 11 bankruptcy protection in September 2005. In NWA's most recent 10Q prior to their filing (quarter ending 6/30/2005), they reported $2.14B in cash and equivalent. That was approximately 18% of their annual revenue.

~18% of AMR's revenue would be approximately $4.3B. At the end of Q2 2011, AMR reported $5.2B in unrestricted cash/equivalents. From my analysis, it is a challenge to see how AMR will NOT burn through a $billion in cash over the next 3-9 months.

Re: The (supposed) fall off in AMR's revenue performance. I have attached some charts showing historical operating metrics comparing the four major network carriers.

Revenue performance- Until recently (last couple of quarters), AA has generally led the industry (PRASM, RASM and Yield).
Most noticeable on the charts is that while AA's network competitors have closed the gap on AA's relative revenue premium, AMR has done nothing to shrink the gap in CASM.

While AA's revenue metrics are still at or near the highest for the network carriers. AA's unit costs (CASM) are simply uncompetitive.

The most alarming change is AA's falling yield performance relative to the competing network carriers.

In my opinion, the revenue "gap" has been closing because AA's competitors have, over the last few quarters, built up much stronger GLOBAL networks using their alliance partners and have significantly higher regional/affiliate feed capacity for their domestic operations.

There should also be no argument consolidation made DAL/NWA and UAL/CAL significantly stronger together than they were as stand-a-lone competitors. As such, I suspect AA is losing more-and-more of the higher yield business passenger to UAL and DAL.

I support the arguments above by showing AA's load factors have more-or-less remained competitive with the network carriers and the month-to-month change in capacity has been more-or-less similar for all four network carriers.

Refer comments and questions to:


Bob Herbst

NuGuy

Heyas,

I think this illustrates the futility of bargaining with management to try to save a company. 3-4 years of reduced earnings only to result in a abrogated contract anyway. The time value of money makes this brutal, and thats before you consider the loss of any deferred compensation, like a retirement that gets thrown away.

A better strategy is probably a "max pay to the last day" plan, and negotiate a short term BK contract, then an aggressive follow up contract.

Nu

forgot to bid

From a pilot's perspective it's kind of broken record isn't it?

You can get pilot pay cut in half if you ask for 30% now to save the company from chapter 11, which isn't the goal, then go into chapter 11 and use that new baseline and ask for another 30%- 51% cut. Had you not gotten that cut the court may not have given you a 51% cut, it may have been less. So first, get employees to give up money to save the company and then go into chapter 11. If employees don't give up pay, then take that to the court and blame them for ruining the company. Win-win.

Do I need my tin foil hat? I'll go find it.