American Airlines’ fourth quarter earnings report drew a mixed reaction. Investors sold off, analysts questioned the selloff and pilots expressed frustration that the carrier’s profit-sharing level badly trails peers.
American said Thursday that it beat earnings estimates but would lose 20 to 40 cents per share in the current quarter, rather than the expected four cents.
Its shares fell 9%, cutting its year-to-date share price gain to near zero as of Thursday’s close, with Delta shares are up 14% and United up 8%.
In late-morning trading on Friday, American and Delta shares were flat while United shares were up about 4%.
On American’s earnings call, analysts focused on financial metrics and on the ongoing effort to recoup corporate market share lost in a failed 2024 effort to reduce distribution costs.
Only one of them, Jamie Baker of JP Morgan, asked CEO Robert Isom to respond to repeated mentions by United CEO Scott Kirby that American underperforms its two peers.
On the United call on Wednesday, Kirby declared “We are the best airline in the history of aviation;” called out carriers who “chase load factor;” said that United and Delta “tend to add service and route frequency that’s good for customers,” and referred to “every airline that has low margins, that doesn’t look like Delta and United.” Kirby noted that all seven United hubs are profitable.
In 2016 Kirby was asked to leave American due to executive suite tensions. Isom took his spot as president.
Kirby subsequently was named president of United, then advanced to CEO, where he has led a transformation that has United challenging Delta as the industry leader and clearly surpassing American. It is a striking tale of revenge.
On the American call, Baker referred to the United call and asked Isom, “Would you be willing to comment on that margin range between your top and bottom hubs and whether it’s improving or widening?”
Isom responded that Charlotte, Dallas and Miami have their biggest schedules ever. Also, “DCA, which had been a laggard coming out of the pandemic, is now getting back to the performance levels that we had hoped.”
As for the lagging hubs, Isom said that a boost in regional flying this year will strengthen “some of the weaker points in our network,” citing New York and Los Angeles.”
He said LaGuardia will have “the largest schedule that we’ve run since the pandemic.” He said that at LAX, despite capacity restrictions, American benefits from a partnership with Alaska Airlines.
Philadelphia “had been one of the markets that had been most difficult for us given the pull-down of regional aircraft,” Isom said.
“And the same holds true for Chicago. As we restore our regional aircraft lift, the beneficiaries of that are going to be Philadelphia and Chicago.” He also said that Phoenix “has historically been strong.”
There was no other reference to Kirby’s comments by analysts and certainly none by Isom. “I don’t know why Isom didn’t punch back,” said Allied Pilots Association spokesman Dennis Tajer.
“Having a plan you believe in is one thing but dropping your fists when you’ re being punched is another.”
After the call, several analysts said the 9% sell-off was overdone. Deutsche Bank analyst Michael Linenberg wrote a note headlined, “Share price pull-back represents attractive opportunity to own AAL,” while Barclays analyst Brandon Oglenski wrote, “The negative market reaction in American’s shares today likely reflects some concern about a higher-than-expected cost inflation guide, but we see a brighter outlook.”
The question is whether an improved credit card deal, restoration of lost corporate business and more regional flying can bring American up to the level of its peers.
In the fourth quarter, United reported 9.7% adjusted pre-tax margin, while Delta reported 10.8% and American reported 5.9%. For the full year, United adjusted pre-tax margin was 8.1%, while Delta reported 9.1% and American reported 3.4%.
After the earnings call, Allied Pilots Association President Nick Silva sent American pilots a message entitled, “2024 Profit Sharing: Meanwhile at Delta and United.”
Silva said Delta will pay out $1.4 billion in profit-sharing, equal to about 10% of eligible earnings, while United will pay out $713 million.
“In sharp contrast, American Airlines will pay out a negligible 1.5% of each pilot’s 2024 earnings in profit sharing,” Silva wrote. “That perennial bronze medal payout is based on the airline’s report of $1.37 billion in total income.
Let that sink in: American's income is less than what Delta will be paying out in profit sharing.
“We perform the same essential service for the same rates of pay as our peers at Delta and United, yet our total compensation trails theirs thanks to American’s lagging financial performance,” Silva said. That's unacceptable, and one way or the other, it needs to change.”
