American Airlines Group Inc. (NASDAQ: AAL) today reported its third quarter 2014 results.
- Third quarter 2014 net profit, excluding net special charges, was a record $1.2 billion, up 59 percent versus the third quarter 2013
- Third quarter 2014 GAAP net profit was $942 million, a record for any quarter in the history of American Airlines
- Returned $185 million to shareholders through the payment of $72 million in quarterly dividends and the repurchase of $113 million of common stock through the Company's stock repurchase program
- Declared a dividend of $0.10 per share to be paid on November 17, 2014 to shareholders of record as of November 3, 2014
For the third quarter 2014, American Airlines Group reported a record GAAP net profit of $942 million. This compares to a GAAP net profit of $289 million in the third quarter 2013 for AMR Corporation prior to the merger.
The Company believes it is more meaningful to compare 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. On this basis, third quarter 2014 net profit excluding net special charges was a record $1.2 billion, or $1.66 per diluted share. This represents a 59 percent improvement over the combined non-GAAP net profit of $771 million excluding net special charges for the same period in 2013. The Company's third quarter 2014 pretax margin excluding net special charges was 11 percent. See the accompanying notes in the Financial Tables section of this press release for further explanation of this presentation, including a reconciliation of GAAP to non-GAAP financial information.
"We are very pleased to have reported a record profit for each quarter so far in 2014," said Chairman and CEO Doug Parker. "We anticipate we will also post a record profit for both the fourth quarter and full year 2014. This performance reflects the strength of our merger and the commitment of our team. Our over 100,000 team members are doing an excellent job of integrating our airlines and providing outstanding service to our customers. While some of the biggest tasks in our integration still lie before us, the significant accomplishments to date reinforce our confidence that we are well on our way to restoring American as the world's greatest airline. Thanks to our team, American is in excellent position for success in 2015 and beyond."
Revenue and Cost Comparisons
Total revenues in the third quarter were a record $11.1 billion, an increase of 4.4 percent versus the third quarter 2013 on a combined basis, on a 2.0 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was a record at 14.12 cents, up 1.0 percent versus the third quarter 2013 on a combined basis, driven by a record yield of 16.93 cents, up 2.6 percent year-over-year.
Total operating expenses in the third quarter were $9.9 billion, an increase of 3.5 percent over combined third quarter 2013. Third quarter mainline cost per available seat mile (CASM) was 13.28 cents, up 1.3 percent on a 2.1 percent increase in mainline ASMs versus combined third quarter 2013. Excluding special charges and fuel, mainline CASM was up 0.7 percent compared to the combined third quarter 2013, at 8.35 cents. Regional CASM excluding special charges and fuel was 15.52 cents, up 3.7 percent on a 1.0 percent increase in regional ASMs versus combined third quarter 2013.
Liquidity and Financing Transactions
At September 30, 2014, American had approximately $8.8 billion in total cash and short-term investments, of which $875 million was restricted. The Company also had an undrawn revolving credit facility of $1.0 billion.
During the third quarter, the Company Issued $957 million principal amount of 2014-1 Enhanced Equipment Trust Certificates (EETC) at a blended interest rate of 3.8 percent and issued $750 million principal amount of 5.5 percent senior unsecured notes due in 2019.
Also in the third quarter, the Company returned $185 million to its shareholders through the payment of $72 million in quarterly dividends and the repurchase of $113 million of common stock, or 2.9 million shares. The Company also purchased approximately 432,000 shares from its Disputed Claims Reserve at the prevailing market price to satisfy certain tax obligations resulting from the July 1, 2014, distribution.
As of September 30, 2014, $721 million of the Company's unrestricted cash balance was held in Venezuelan bolivars, valued at the weighted average applicable exchange rate of 6.41 bolivars to the dollar. The Company's cash balance held in Venezuelan bolivars decreased $70 million from the June 30, 2014, balance of $791 million, due primarily to $48 million in repatriations in the third quarter of 2014 ($31 million valued at 6.3 bolivars to the dollar and $17 million valued at 10.6 bolivars to the dollar). This balance also reflects the Company's significant reduction in capacity in this market, pending further repatriation of funds and due to a decrease in demand for air travel resulting from the effective devaluation of the bolivar. The Company continues to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for potential impairment.
In early October, the Company arranged a new credit facility consisting of a fully-drawn $750 million term loan that matures in October 2021 and an undrawn $400 million revolving credit facility that matures in October 2019. Collateral for the new credit facility consists of certain slots, gates and route authorities. Also in early October, the Company increased its existing $1 billion revolving credit facility by $400 million and extended its maturity date from June 2018 to October 2019. As a result of these transactions, the Company's undrawn revolving credit facility is now $1.8 billion.
On October 22, the Company's Board of Directors declared a dividend of $0.10 per share for shareholders of record as of November 3, 2014. The dividend will be paid on November 17, 2014.
Notable Third Quarter Accomplishments
Merger Integration Developments
• Reached a tentative agreement with the Association of Professional Flight Attendants on a joint collective bargaining agreement covering more than 24,000 flight attendants at American and US Airways. This agreement is pending ratification by the flight attendants
• Recalibrated the schedule at our Miami hub to increase the number of available connections and optimize revenue
• Combined operations at 82 airports since the merger, including the Company's hub at Chicago O'Hare
• Broke ground on our new state of the art Robert W. Baker Integrated Operations Center in Fort Worth, with completion planned for the third quarter of 2015
• American flight attendants began exclusively using an electronic flight attendant manual on a handheld tablet, making the documents easier to access for flight attendants and reducing weight on each aircraft. US Airways flight attendants will begin using eManuals after the two carriers achieve a single operating certificate next year
• Rebranded nine Admirals Club® lounges at eight airports, including Ronald Reagan Washington National Airport, Boston Logan Airport, Pittsburgh International Airport, and Tampa International Airport
Fleet and Network Developments
• As part of its plan to modernize its fleet, the Company took delivery of 22 new mainline aircraft during the third quarter
• US Airways became fully integrated in the trans-Atlantic joint business by launching a codeshare agreement with Finnair, providing customers increased access to Helsinki and beyond
• Applied for new international service between Dallas/Fort Worth and Beijing. This will be the Company's 11th route between the U.S. and Asia
• Partnered with the Honor Flight Network and donated a flight, with volunteer flight crews, to bring 114 Vietnam veterans from the Oshkosh Air Show to Washington, D.C., to see the Vietnam Veterans Memorial, Arlington National Cemetery, and the National Museum of American History
• Partnered with The Something mAAgic Foundation for the 19th annual mAAgic flight, bringing 36 children with life-threatening medical conditions and their families to Orlando, Fla. for a special weeklong vacation
In the third quarter, the Company recognized a total of $281 million in net special charges, including:
• $223 million net special operating charges, which principally included $168 million of mainline and regional merger integration expenses and an $81 million charge to revise prior estimates of certain aircraft residual values. These charges were offset, in part, by a net $40 million credit for bankruptcy related items consisting of fair value adjustments for bankruptcy settlement obligations
• $50 million of nonoperating items, primarily due to early debt extinguishment costs related to American's 7.5 percent senior secured notes and other debt
• $8 million in non-cash deferred income tax provision related to certain indefinite-lived intangible assets
Conference Call / Webcast Details
The Company will conduct a live audio webcast of its earnings call today at 12:30 p.m. CDT, which will be available to the public on a listen-only basis at aa.com/investorrelations. An archive of the webcast will be available on the website through November 24.
Investor guidance will be available at aa.com/investorrelations immediately following the 12:30 p.m. CDT conference call. The company will provide guidance on a combined basis related to pretax margin, cost per available seat mile (CASM) excluding special items and fuel, fuel prices, other revenues and estimated interest expense/income on the Presentations/Updates section of its Investor Relations website. This update will also include capacity guidance, fleet plans and estimated capital spending for the remainder of 2014.
About American Airlines Group
American Airlines Group (NASDAQ: AAL) is the holding company for American Airlines and US Airways. Together with wholly owned and third-party regional carriers operating as American Eagle and US Airways Express, the airlines operate an average of nearly 6,700 flights per day to 339 destinations in 54 countries from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. The American Airlines AAdvantage and US Airways Dividend Miles programs allow members to earn miles for travel, vacation packages, car rentals, hotel stays and everyday purchases. Members of both programs can redeem miles for tickets as well as upgrades to First Class and Business Class. In addition, AAdvantage members can redeem miles for vacation packages, car rentals, hotel stays and retail products. American is a founding member of the oneworld alliance, whose members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries. Connect with American on Twitter @AmericanAir and at Facebook.com/AmericanAirlines and follow US Airways on Twitter @USAirways.