American Airlines Group Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
American Airlines Group Inc. (AAG), through wholly owned American Airlines, Inc. and regional carriers, reported unaudited consolidated results for the three months ended March 31, 2022. Results reflect a substantial recovery in air-travel demand from the COVID-19-affected first quarter of 2021, but capacity remained below pre-pandemic levels. Total revenue reached 84% of first-quarter 2019 revenue; capacity was 10.7% below 2019, including domestic capacity down 7.5% and international capacity down 17.4%.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total operating revenue | $8.899 billion | $4.008 billion | +$4.891 billion |
| Passenger revenue | $7.818 billion | $3.179 billion | +$4.639 billion |
| Operating expenses | $10.622 billion | $5.323 billion | +99.6% |
| Operating loss | $(1.723) billion | $(1.315) billion | Loss increased |
| Pre-tax loss | $(2.086) billion | $(1.573) billion | Loss increased |
| Net loss | $(1.635) billion | $(1.250) billion | Loss increased |
| Basic and diluted EPS | $(2.52) | $(1.97) | Lower |
| Operating cash flow | $1.185 billion | $174 million | +$1.011 billion |
GAAP operating margin was approximately negative 19.4% and net margin approximately negative 18.4%. Excluding net special items, pre-tax loss was $1.926 billion versus $3.519 billion in Q1 2021, an improvement of $1.593 billion. The Q1 2021 comparison benefited from approximately $1.9 billion of net special credits, principally payroll support program assistance.
- Passenger revenue benefited from a 97.2% increase in revenue passenger miles, a 74.4% load factor, a 24.7% increase in passenger yield and a 56.0% increase in passenger revenue per available seat mile.
- Total revenue per available seat mile increased 40.8% to 14.95 cents. Total operating cost per available seat mile increased 26.6% to 17.84 cents, while cost per available seat mile excluding fuel and net special items declined to 13.38 cents from 16.45 cents.
- Aircraft fuel expense increased $1.468 billion to $2.502 billion. Average fuel cost, including related taxes, rose 64.7% to $2.80 per gallon, and fuel consumption increased 47.0%.
- Salaries, wages and benefits increased 15.5% to $3.154 billion, while regional expenses increased 68.3% and maintenance expense increased 64.0%, primarily due to higher capacity and operating activity.
- Cash provided by operations was $1.185 billion. Capital expenditures were $807 million, principally for nine Airbus A321neo aircraft, and airport construction spending was $62 million.
- At March 31, 2022, unrestricted cash and short-term investments totaled approximately $12.5 billion. Total available liquidity was $15.5 billion, including $3.063 billion of undrawn revolving and other facilities.
- Long-term debt, including current maturities, was $37.5 billion at AAG and $31.9 billion at American. Current maturities of AAG debt and finance leases were $2.382 billion. Stockholders’ deficit was $8.940 billion.
Material changes versus the prior comparable period
- Demand recovery drove revenue, passenger traffic and load factor materially higher, but the recovery did not offset increased fuel, labor, maintenance, regional and other operating costs.
- Operating cash flow improved substantially, partly because Q1 2022 benefited from increased advance ticket sales and air traffic liabilities as travel demand recovered. Q1 2021 included approximately $2.1 billion of payroll support cash proceeds.
- Fuel prices and consumption increased sharply, and AAG had no fuel-hedging contracts outstanding. Management stated that its policy is generally not to hedge fuel consumption.
- Operating special items shifted from a $1.923 billion net credit in Q1 2021 to a $157 million net charge in Q1 2022. The 2022 charge included a $149 million non-cash impairment of retired Airbus A330 aircraft.
- AAG received $367 million from equipment-note financing related to 2021-1 enhanced equipment trust certificates and repurchased $317 million of unsecured notes during the quarter.
- Aircraft at period-end increased to 1,453 from 1,399, and full-time equivalent employees increased 12.2% to approximately 127,000.
Outlook, commentary, risks and unusual items
Management expects to continue matching capacity with booking trends and stated that, based on current assumptions, projected operating cash flows, available liquidity and anticipated financing access, AAG expects to meet cash obligations and remain in compliance with debt covenants for the next 12 months. The filing does not provide clear formal numeric earnings or revenue guidance.
- COVID-19 remains a material uncertainty, including potential new variants, renewed restrictions, staffing absences and the timing of a full recovery in international and business travel.
- Fuel-price exposure is significant: management estimates that each one-cent-per-gallon increase in fuel prices would increase 2022 annual fuel expense by approximately $40 million.
- AAG had approximately $10.8 billion of borrowings linked to LIBOR and disclosed uncertainty regarding the transition to SOFR or another replacement rate. A 100-basis-point increase in rates was estimated to increase annual variable-rate debt interest expense by approximately $110 million.
- Debt agreements include liquidity, loan-to-value, collateral coverage and debt-service coverage requirements. Certain agreements require at least $2.0 billion of unrestricted cash and available revolving capacity. Management reported compliance with applicable tests as of the latest measurement dates.
- The company had definitive commitments for 201 aircraft, including 67 Airbus A320neo-family, 88 Boeing 737 MAX-family, 43 Boeing 787-family and three Embraer 175 aircraft. Total contractual obligations were $92.474 billion, including debt, interest, leases, aircraft commitments, regional capacity agreements and other obligations.
- The Department of Justice antitrust action concerning the Northeast Alliance with JetBlue remained pending. The company believes the complaint is without merit and intends to defend it vigorously; the ultimate financial and operational impact is uncertain and could be material.
- Restrictions associated with federal payroll support programs prohibited common-stock repurchases and dividends through September 30, 2022 and restricted certain executive compensation through April 1, 2023.
- Other important risks include pilot and labor shortages, regional-carrier financial stress, aircraft-delivery delays, supply-chain disruptions, competition, cyber and technology failures, regulatory changes, foreign-exchange exposure, climate-related costs and potential aircraft or goodwill impairments.
Important facts for investors to verify
- Whether the recovery in passenger demand can produce positive operating and free cash flow after fuel, labor, maintenance and capacity costs.
- The sustainability and availability of the reported $15.5 billion liquidity position, including restrictions on cash, collateral requirements and undrawn facility availability.
- Debt maturities, variable-rate exposure, covenant compliance and the impact of rising interest rates or LIBOR replacement.
- The pace and economics of the 201-aircraft delivery program, associated financing requirements and potential manufacturer delivery delays.
- The outcome and potential remedies of the DOJ Northeast Alliance litigation with JetBlue.
- The duration of COVID-19 effects, international capacity recovery, staffing constraints and the effect of unhedged fuel prices on margins.
- The realization of approximately $17.2 billion of federal NOLs and other tax attributes, which depends on future taxable income and applicable ownership-change limitations.