American Airlines reported third-quarter 2016 net income of $737 million, down 56.5% from a net profit of $1.7 billion in the prior-year period, and is planning conservative capacity growth through 2017.
The Dallas/Fort Worth-based airline pointed out that pre-tax net income excluding special items was $1.5 billion, but earnings on that basis were still $400 million lower year-over-year. Chairman and CEO Doug Parker told analysts and reporters that “while [earnings] are down, they’re still the second-best third-quarter results in American’s history after only last year’s third quarter.”
Unit revenue, as measured in RASM, was down 2.2% year-over-year in the third quarter to 14.73 cents, but Parker noted that RASM was up year-over-year for the month of September. “The [unit revenue] trend’s good and it appears to be continuing,” he said. September marked the first month of positive RASM growth for American since November 2014.
The carrier expects quarterly RASM growth to turn positive in the first half of 2017, and is keeping capacity growth low to help make that happen. CFO Derek Kerr said American’s capacity will be up 1.5% for the full year 2016, which is down 0.5 point from previous guidance. Fourth-quarter capacity is expected to be flat.
While American is “still in the process of developing our operating plan” for 2017, Kerr said the airline expects system capacity to grow just 1% for the full year 2017, including flat domestic capacity and a 3.5% rise in international capacity driven by transpacific flying.
American’s third-quarter revenue dropped 1.1% year-over-year to $10.6 billion while expenses increased 5.2% to $9.2 billion, producing an operating profit of $1.4 billion, down 28.4% from an operating profit of $2 billion in the 2015 September quarter. Parker said cost increases are “driven primarily by investment in our team”—pay increases from new labor contracts and profit sharing.
Parker said American’s investment in labor will pay off long term. “We’ve taken care of our people faster [than our competitors, which has] increased our costs by a good bit” in the near term, he said.
American’s third-quarter system traffic decreased 1.6% year-over-year to 59.9 billion RPMs on a 1.2% increase in capacity to 71.9 billion ASMs, producing a load factor of 83.3%, down 2.3 points. Yield fell 0.6% to 15.3 cents.
