Business Context and Reporting Period
Company: AMR Corporation (Parent of American Airlines, Inc.)
Filing Type: Form 8-K (Current Report)
Reporting Period: First Quarter 2011 (Ended March 31, 2011)
Event Date: April 20, 2011
AMR Corporation reported its first-quarter 2011 financial results, highlighting a reduction in net loss despite a 24% year-over-year increase in fuel prices. The company is executing a turnaround plan focused on revenue growth, capacity reduction, and cost control.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net Loss | $(436) million | $(505) million | Improved by $69 million |
| Net Loss (Excl. Special Items) | $(405) million | $(452) million | Improved by $47 million |
| Loss Per Share (Diluted) | $(1.31) | $(1.52) | Improved |
| Total Operating Revenue | $5,533 million | $5,068 million | +9.2% |
| Operating Expenses | $5,765 million | $5,366 million | +7.4% |
| Operating Loss | $(232) million | $(298) million | Improved by 22.3% |
| Fuel Expense | $1,842 million | $1,476 million | +24.8% |
| Average Fuel Price (w/ Hedging) | $2.76 / gallon | $2.23 / gallon | +23.8% |
| Cash & Short-Term Investments | $6.3 billion | $5.0 billion | Increased |
| Total Debt | $17.4 billion | $15.9 billion | Increased |
| Net Debt | $11.6 billion | $11.4 billion | Increased |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 9.2% year-over-year, driven by a 5.2% increase in passenger revenue per available seat mile (RASM) and a 6.2% increase in passenger yield.
- Cost Management: Mainline unit costs (excluding fuel and special items) decreased 1.8% year-over-year, demonstrating effective non-fuel cost control despite a 2.7% increase in mainline capacity.
- Operational Disruptions: Results were impacted by severe weather, a fuel farm fire in Miami, and the Japan earthquake/tsunami, which collectively reduced revenue.
- Special Items: Q1 2011 included a $31 million non-cash charge related to sale/leaseback transactions. Q1 2010 included a $53 million charge related to Venezuelan currency devaluation.
Guidance, Outlook, and Strategic Updates
Capacity and Fleet
- Capacity Reduction: AMR announced an incremental 1% reduction in Q4 2011 system capacity. Full-year 2011 mainline capacity is expected to be 1.4 percentage points lower than originally planned (up 2.2% vs. 2010).
- Fleet Renewal: The company plans to retire at least 25 MD-80 aircraft in 2011. Five Boeing 777-300ERs are scheduled for delivery in 2012 and 2013.
Financial Guidance
- Fuel Price Outlook: Planning for an average system fuel price of $3.10/gallon in Q2 2011 and $3.07/gallon for full-year 2011.
- Hedging: 49% of Q2 2011 fuel consumption is hedged (avg cap $2.66/gal); 41% of full-year 2011 consumption is hedged (avg cap $2.63/gal).
- Cost Guidance (CASM): Ex-fuel CASM for 2011 is expected to be flat compared to 2010. Total CASM is expected to increase 8.4%–9.4% for the full year.
Strategic Developments
- Joint Businesses: Launched trans-Pacific joint business with Japan Airlines; aligned summer schedules with British Airways and Iberia; expanded codeshare with Qantas and WestJet.
- Liquidity: Completed a private offering of $1 billion in 7.50% senior secured notes due 2016 in March 2011.
- Distribution: Resumed business with Expedia/Hotwire; filed an antitrust lawsuit against Travelport and Orbitz regarding distribution practices.
Investor Verification Checklist
- Fuel Hedging Effectiveness: Verify the actual realized fuel cost against the $3.07/gallon full-year guidance given market volatility.
- Debt Covenants: Monitor compliance with debt covenants given the increase in Total Debt to $17.4 billion and the company's history of losses.
- Legal Contingencies: Track the outcome of the antitrust lawsuit filed against Travelport and Orbitz, which could impact distribution costs and revenue.
- Capacity Execution: Confirm the successful execution of the announced 1% Q4 capacity cut and the retirement of 25 MD-80s to validate cost-saving assumptions.
- Liquidity Position: Review the utilization of the $6.3 billion cash balance and the impact of the new $1 billion note issuance on future interest expenses.