MIAMI — American Airlines is crediting its $597 million profit in the fourth quarter to its decision not to hedge fuel, which allowed it to take full advantage of plummeting prices. For the full year, the carrier posted a profit of $4.2 billion in what Chairman and CEO Doug Parker called “the best year in the long proud history of American Airlines.”
Parker said he was “extremely pleased” to report earnings like this one year into American’s merger with US Airways. “These results allow us to do a number of important things like investing in our people, customers and shareholders,” he said.
With average fuel prices of $2.52 cents per gallon, American did not hedge fuel, said CFO Derek Kerr. “You won’t see capacity changes from us in 2015. We’ll continue to operate like fuel prices are still high,” he said.
During the quarter, American Airlines completed its previously announced $1 billion share repurchase program more than a year before it was due to expire. It also announced an additional $2 billion share repurchase program, to be completed by the end of 2016.
In looking at the quarterly and yearly numbers, Kerr emphasized that because of the merger, year-over-year comparisons are not meaningful. Instead the company compared year-over-year results for American Airlines and US Airways excluding special charges and on a combined basis, which is a non-GAAP formulation that combines the results for AMR Corporation and US Airways Group. “This is the last quarter we will do this comparison,” he said.
Total revenue in the fourth quarter was a record $10.2 billion, up 2.1 percent versus the fourth quarter 2013 on a combined basis and excluding special items, on a 1.7 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 13.50 cents, down 1 percent versus the fourth quarter 2013 on a combined basis. Consolidated passenger yield was a record 16.84 cents, up 0.9 percent year-over-year.
Total operating expenses in the fourth quarter were $9.3 billion, down 4.1 percent, compared to combined fourth quarter 2013 due primarily to a 17.3 percent drop in fuel prices. For the full year, total operating expenses were $38.4 billion, up 1.5 percent versus combined 2013. Excluding special charges and fuel, mainline CASM increased 2 percent to 8.63 cents versus combined 2013. Regional CASM excluding special items and fuel increased 3.6 percent to 15.94 cents versus combined 2013.
At December 31, 2014, American had approximately $8.1 billion in total cash and short-term investments, of which $774 million was restricted. It also had an undrawn revolving credit facility of $1.8 billion.
Also in the fourth quarter, America returned to shareholders $959 million through the payment of $72 million in quarterly dividends and the repurchase of 20.5 million shares of common stock, valued at $887 million.
American Airline Group’s board declared a dividend of $0.10 per share for shareholders of record as of February 9, 2015, to be paid on February 23. It also announced the authorization of an additional $2 billion share repurchase program, to be completed by the end of 2016.
American Airline’s Accomplishments
Thanks to the carrier’s record earnings, the company instituted a 4 percent pay increase for all non-union employees, said Parker. “Our flight attendants approved a new new five-year joint collective bargaining agreement,” he said. “Our pilots have reached a new tentative 10-year agreement that is being voted on.”
Parker said the airline retired 30 aircraft in 2014 and took delivery of 20 new aircraft in the quarter, including 11 Airbus A320 family aircraft, seven Boeing 737-800s and two 777-300ERs. The carrier took delivery of the first of 12 Boeing 787-8s on January 23.
Chief Integration Officer Beverly Goulet noted that the airline has a number of milestone events in 2015. “You will see us harmonize our frequent-flyer programs later this spring, integrating Dividend miles customers into the AAdvantage program,” she said. “We’re also well on the way to a single operating certificate.”
The carrier’s biggest event is the migration of reservations program, which is scheduled toward the end of the year, said Goulet. “We need to have employees fully prepared so things don’t get muddled up. So we’re communicating with employees and giving them the tools to make it as seamless as possible,” she said.
Other highlights include combining American-US Airways operations at 23 more airports during the quarter, bringing the total to 106 and unveiling $2 billion in customer improvements, including new seats, satellite-based Internet access and refreshed Admirals Club lounges worldwide.