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737 MAX grounding dampens American Airlines’ strong Q2 result

written by australianaviation.com.au | July 26, 2019
A file image of American Airlines Boeing 737 MAX 8 N314RH. (Nathan Coats/Commons Wikimedia)
A file image of American Airlines Boeing 737 MAX 8 N314RH. (Nathan Coats/Commons Wikimedia)

Strong travel demand, high load factors and a robust loyalty program have ticked the boxes for American Airlines to deliver a healthy second quarter result.

While net profit of US$662 million (A$953.04 million) for the three months June 30 2019 was up five per cent from the prior corresponding period and at the upper end of analysts’ estimates, the result was dented by a deflated cargo market and the prolonged grounding of Boeing 737 MAX.

Revenue rose 2.7 per cent to US$12 billion (A$17.27 billion), American Airlines said on Thursday (US time).

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The United States Federal Aviation Administration (FAA) grounded all US-registered 737 MAX aircraft on March 13, joining other regulators around the world.

American Airlines has 24 737 MAX aircraft and further 76 on order, seven of which were scheduled for delivery in the second quarter.

The airline has extended some leases on some Airbus A320, 737 and 757 aircraft on a short-term basis to provide flexibility around the 737 MAX’s return to service.

In a statement announcing its results, the airline estimated the 737 MAX cancellations in the second quarter had slashed pre-tax income by approximately US$175 million.

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Further, it expected the 737 MAX issue would negatively impact its full year 2019 pre-tax earnings by about US$400 million. American Airlines has cancelled 737 MAX flights from its schedule until November 2.

“Our confidence in Boeing, FAA, and other regulatory agencies remains intact and we are committed partners along with our Allied Pilots Association and Association of Professional Flight Attendants in this ongoing process,” American Airlines president Robert Isom said during the company’s second quarter results conference call with media and the financial community.

In the second quarter, total operating cost per available seat mile (CASM) of 14.94 cents was up 2.4 per cent from the same 2018 period.

Also second quarter CASM excluding fuel and special items was 11.34 cents, up 4.8 per cent year over year and driven primarily by the lower than planned capacity due to the 737 MAX grounding and operational disruptions related to ongoing negotiations with mechanics on a new contract.

American Airlines said passenger load factors in the second quarter was 86.6 per cent, while passenger revenue per available seat mile (PRASM) grew 4 per cent to a record 15.22 cents.

Cargo revenue decreased 15.4 per cent to US$221 million due primarily to a 16.2 per cent decrease in cargo ton miles, the airline said in its statement.

“The challenges we face this summer are near-term issues that absolutely will be addressed with time,” American Airlines chief executive Doug Parker said.

American Airlines and Qantas want to expand their trans-Pacific alliance. (Seth Jaworski)
American Airlines and Qantas want to expand their trans-Pacific alliance. (Seth Jaworski)

American Airlines says Qantas alliance offers opportunities to expand in Australia

On July 19, American Airlines and Qantas were given final approval by the United States Department of Transportation to extend their alliance on trans-Pacific routes.

Qantas has commenced ticket sales for two new routes – Brisbane-Chicago starting in April 2020 and Brisbane-San Francisco starting in February 2020.

Isom said the alliance would also give the US carrier the opportunity to expand its presence in Oceania.

“We are thrilled with this news to our customers and stay tuned for more route announcements from us later this year,” Isom said.

Also, American Airlines senior vice president for revenue management Don Casey said there was “positive unit revenue growth” on its Australian services in the second quarter.

American Airlines and Qantas staff pose for a photo. (American Airlines)
American Airlines and Qantas staff pose for a photo. (American Airlines)

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