American Airlines returns to profit, sees higher non-fuel costs

AMERICAN Airlines Group on Thursday (Jul 21) posted its first quarterly profit without US government aid since the Covid-19 pandemic began as strong summer travel demand generated the highest quarterly revenue in its history.

The Texas-based carrier, however, warned of an escalation in non-fuel costs in the quarter to September as it expects to operate fewer flights than previously planned in order to get operations back on track.

“The capacity moderation drives cost headwinds,” analysts at Jefferies wrote in a note.

American’s shares were down 6.2 per cent at US$14.26 in morning trade.

The company expects non-fuel costs to be up as much as 14 per cent in the current quarter from the same period in 2019, compared with a 12 per cent jump in the quarter to June.

Its capacity in the current quarter is estimated to be 8-10 per cent below the pre-pandemic level. Capacity was earlier projected to be down 6-8 per cent.

Carriers are using 2019, before the pandemic, as the benchmark for their performance.

“As we look to the rest of the year, we have taken proactive steps to build additional buffer into our schedule and will continue to limit capacity to the resources we have and the operating conditions we face,” American’s chief executive Robert Isom said in a staff memo.

Delta Air Lines and United Airlines Holdings also plan to keep their capacity below the 2019 level to avoid stretching their resources thin.

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The lifting of coronavirus curbs and bottled-up travel demand have sparked the strongest summer for US carriers in 3 years, putting most of them on track for a profitable quarter.

But staffing gaps and aircraft shortages have made it tougher to ramp up capacity and fully tap booming demand. In fact, carriers have been forced to cut flights and make costly staffing adjustments to avoid cancellations and delays, driving up operating costs.

Airlines are also facing higher fuel costs, but a decline in global prices is expected to offer some relief. American expects its fuel cost in the current quarter to be down 7 per cent from the June quarter.

The company expects to be profitable in the September quarter on the back of a 10-12 per cent increase in revenue from the same period in 2019.

The company reported an adjusted profit of 76 US cents a share for the quarter till June in line with analysts’ expectations. It generated US$13.42 billion in revenue, topping Wall Street estimates. REUTERS