The FINANCIAL — American Airlines Group Inc. on January 27 reported its fourth quarter and full year 2016 results. The Company’s earnings highlights include:
Fourth quarter 2016 pre-tax profit of $500 million, or $773 million excluding net special charges, and net profit of $289 million, or $475 million excluding net special charges
Full year 2016 pre-tax profit of $4.3 billion, or $5.1 billion excluding net special charges, and net profit of $2.7 billion, or $3.2 billion excluding net special charges
Fourth quarter Total Revenue per Available Seat Mile (TRASM) was up 1.3 percent year-over-year, marking the first year-over-year increase since the fourth quarter 2014
The Company accrued approximately $57 million in the fourth quarter for its profit sharing plan, bringing the total accrual to $314 million for 2016
Returned $606 million to stockholders through share repurchases and dividends in the fourth quarter, for a total of $4.6 billion in 2016. Announced a new $2.0 billion share repurchase authorization
The Company reported a Generally Accepted Accounting Principles (GAAP) net profit of $289 million, or $0.56 per diluted share in the fourth quarter 2016. The Company’s fourth quarter 2016 results include a $211 million provision for income taxes, of which $207 million is non-cash due to net operating loss utilization. This compares to a GAAP net profit of $3.3 billion in the fourth quarter 2015, or $5.09 per diluted share, which included a non-cash $3.0 billion net special income tax benefit resulting from the reversal of the Company’s valuation allowance, according to American Airlines.
The Company reported a full year 2016 GAAP net profit of $2.7 billion, or $4.81 per diluted share, including a non-cash income tax provision of $1.6 billion. This compares to a GAAP net profit of $7.6 billion in 2015, or $11.07 per diluted share, which included the $3.0 billion non-cash income tax benefit.
The impact of the year-over-year change in non-cash income tax expense is removed by comparing pre-tax income. The Company reported a fourth quarter 2016 GAAP pre-tax income of $500 million, and pre-tax income excluding net special charges of $773 million. This compares to a fourth quarter 2015 GAAP pre-tax income of $244 million, and pre-tax income excluding net special charges of $1.3 billion. For the full year, the Company reported a 2016 GAAP pre-tax income of $4.3 billion, and pre-tax income excluding net special charges of $5.1 billion, which compares to a 2015 GAAP pre-tax income of $4.6 billion, and pre-tax income excluding net special charges of $6.3 billion.
Adjusted fourth quarter 2016 earnings per diluted share was $1.48, down from $2.00 per diluted share in the fourth quarter of 2015. Full year 2016 adjusted1 earnings per diluted share was $9.10, down $0.02 compared to 2015.
“The American Airlines team continued to produce outstanding results in 2016, and outsiders are taking notice. Air Transport World named American as its 2017 Airline of the Year, citing our team’s integration work, operational and customer service improvements, and the significant investments we are making in our product. This recognition is entirely due to the great work of our 120,000 team members,” said Doug Parker, Chairman and CEO.
“As we enter 2017, we will continue to make upgrades to American through new product initiatives. These include Basic Economy which will further our goal to offer the right fares and features for every customer, and, on international flights, our Premium Economy product. And no matter which product our customers choose, they’ll be transported on the youngest fleet among our large U.S. competitors.
“Our product investments are showing up in our unit revenue performance. We had the largest improvement in unit revenue among our competitors and as we look forward, we continue to see strong demand for air service, and improving yields.”
Revenue and Cost Comparisons
Total revenue in the fourth quarter was $9.8 billion, an increase of 1.7 percent versus the fourth quarter 2015 on a 0.4 percent increase in total available seat miles (ASMs). TRASM was 14.90 cents, up 1.3 percent versus the fourth quarter 2015, the first year-over-year increase since the fourth quarter of 2014. For the full year, total revenue was $40.2 billion in 2016, down 2.0 percent over 2015, while 2016 total revenue per ASM was 14.70 cents, down 3.7 percent versus 2015, on a 1.7 percent increase in total ASMs.
Total operating expenses in the fourth quarter were $9.0 billion, up 5.4 percent compared to the fourth quarter 2015, due primarily to a 17.4 percent increase in salaries and benefits expense, which includes the impact of the Company’s recent labor agreements and a $57 million accrual for the Company’s profit sharing program. On a full year basis, total operating expenses were $34.9 billion, up 0.3 percent versus 2015.
Fourth quarter 2016 mainline cost per available seat mile (CASM) was 12.93 cents, up 5.7 percent on a 0.7 percent reduction in mainline ASMs versus the fourth quarter 2015. Excluding fuel and special charges, mainline CASM was 10.17 cents, up 10.3 percent versus the fourth quarter 2015. Regional CASM was 19.60 cents, down 0.9 percent versus the fourth quarter 2015, on an 8.5 percent increase in regional ASMs. Excluding fuel and special charges, regional CASM was 15.70 cents, down 2.5 percent versus the fourth quarter 2015.
For the full year 2016, mainline CASM was 11.94 cents, down 0.8 percent versus 2015, on a 1.0 percent increase in mainline ASMs. Excluding fuel and special charges, mainline CASM was 9.54 cents, up 6.1 percent versus 2015. Regional CASM was 19.08 cents, down 6.4 percent versus 2015, on a 7.9 percent increase in regional ASMs. Excluding fuel and special charges, regional CASM was 15.53 cents, down 3.4 percent versus 2015.
Capital Investments
As part of the Company’s ongoing fleet renewal program, the Company invested approximately $4.4 billion in new aircraft in 2016, including 55 new mainline and 42 new regional aircraft. In addition, the Company invested approximately $1.3 billion on the integration of the airline, product enhancements and operational improvements.
Liquidity and Capital Return Program
As of December 31, 2016, the Company had approximately $8.8 billion in total available liquidity, consisting of unrestricted cash and short-term investments of $6.4 billion and $2.4 billion in undrawn revolver capacity. The Company also had restricted cash of $638 million.
The Company returned $606 million to its stockholders in the fourth quarter 2016 through the payment of $52 million in quarterly dividends and the repurchase of $554 million of common stock, or 12.2 million shares. The Company has now completed its $2.0 billion April 2016 share repurchase authorization and returned more than $9.6 billion to stockholders through share repurchases and dividends since mid-2014.
In addition, the Company’s Board has approved a new $2.0 billion share repurchase authorization that will expire December 31, 2018.
Share repurchases under the buyback program announced today 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.
The Company also declared a dividend of $0.10 per share, to be paid on February 27, 2017, to stockholders of record as of February 13, 2017.
Notable Accomplishments
Integration Accomplishments
More than 300 flight crew training instructors and simulator pilot instructors in the Transport Workers Union (TWU) approved a new five-year contract. In addition, the Company’s 144 flight simulator engineers represented by the TWU and the International Association of Machinists (TWU-IAM Association) approved a new five-year agreement
The Company’s 15,000 pilots were integrated onto a single flight operating system, which allowed flight deck crews to change domiciles and bid onto different aircraft
The final US Airways mainline aircraft, an Embraer E190, was painted in the American livery. Repainting of former US Airways Express regional jets will be finished in mid-2017
Marketing Accomplishments
Began offering international Premium Economy service on the new Boeing 787-9 Dreamliner to Sao Paulo and Madrid, and in early 2017 to Paris and Seoul. American is the first U.S. airline to offer Premium Economy
Added Cadillac Ramp Transfer Service in Charlotte and Philadelphia, which complements existing service at Dallas Fort Worth International, New York-JFK, and Los Angeles International
In early 2017, added a new Platinum Pro tier to AAdvantage
Network Accomplishments
The U.S. Department of Transportation awarded frequencies for new daily nonstop service between Los Angeles International Airport and Beijing
Began nonstop service to Havana, Cuba from both Miami and Charlotte
Community Relations Accomplishments
Raised more than $2.5 million for veteran and military initiatives at the annual Skyball event in Dallas-Fort Worth
Donated a charter aircraft to transport 72 Pearl Harbor survivors and World War II veterans to Oahu for the 75th Pearl Harbor Commemoration
Transported more than 1,700 children and spouses of fallen service men and women to Dallas-Fort Worth for the 11th annual Snowball Express; the airline’s volunteer corps for this annual event included more than 1,000 American Airlines team members, and brought in Gold Star families from 87 cities worldwide via 100 flights
Raised $1.3 million for the Susan G. Komen Young Investigator Grant program
Other Accomplishments
With the Transportation Security Administration, launched two automated screening lanes at Chicago O’Hare’s Checkpoint 7, reducing security screening time by approximately 30 percent
Completed the $160 million expansion of Terminal F at Philadelphia International Airport, including a 34,000-square foot baggage claim building
Closed on Enhanced Equipment Trust Certificates with proceeds of $814 million, re-priced a $1.0 billion term loan, and refinanced the 2013 Citicorp Term Loan with a new $1.25 billion facility
Named as Best Airline for Domestic First Class in Global Traveler magazine’s 2016 GT Tested Reader Survey and named Best North American Airline for the third consecutive year at the 2016 Business Traveller awards
Special Items
In the fourth quarter, the Company recognized $273 million in net special charges before the effect of income taxes, principally consisting of fleet restructuring expenses and merger integration expenses relating to information technology, re-branding of aircraft, airport facilities and uniforms, alignment of labor union contracts, professional fees, relocation, training and severance.
