Business Context and Reporting Period
Company: AMR Corporation (Parent of American Airlines, Inc.)
Filing Type: Form 8-K (Current Report)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2010
Filing Date: January 19, 2011
AMR Corporation reported its fourth quarter and full-year 2010 financial results. The company highlighted significant operational improvements, including the launch of a joint business with British Airways and Iberia, and received approval for a joint business with Japan Airlines. The company also announced the acquisition of two new Boeing 777-300ER aircraft.
Key Financial Metrics
Fourth Quarter 2010 vs. 2009
| Metric | Q4 2010 | Q4 2009 | Change |
|---|---|---|---|
| Total Operating Revenue | $5.586 Billion | $5.063 Billion | +10.3% |
| Operating Income | $68 Million | ($390 Million) Loss | Improvement |
| Net Loss | ($97 Million) | ($344 Million) | 71.7% Reduction |
| Net Loss Per Share (Diluted) | ($0.29) | ($1.03) | 71.8% Reduction |
| Passenger Load Factor | 81.6% | 81.1% | +0.5 pts |
| Unit Revenue (RASM) | 11.03 cents | 10.30 cents | +7.1% |
Full Year 2010 vs. 2009
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Total Operating Revenue | $22.17 Billion | $19.92 Billion | +11.3% |
| Operating Income | $308 Million | ($1.004 Billion) Loss | Improvement |
| Net Loss | ($471 Million) | ($1.468 Billion) | 67.9% Reduction |
| Net Loss Per Share (Diluted) | ($1.41) | ($4.99) | 71.7% Reduction |
| Passenger Load Factor | 81.9% | 80.7% | +1.2 pts |
Liquidity and Debt
- Cash and Short-Term Investments: $4.9 Billion (Q4 2010), including $450 million restricted.
- Total Debt: $16.6 Billion (Q4 2010) vs. $16.1 Billion (Q4 2009).
- Net Debt: $12.1 Billion (Q4 2010) vs. $11.7 Billion (Q4 2009).
- Fuel Cost: Average price paid was $2.42/gallon in Q4 2010 vs. $2.17/gallon in Q4 2009.
Material Changes and Unusual Items
- Special Items (Q4 2010): Results included a $28 million non-cash impairment charge related to route authorities in Colombia due to an open skies agreement. Excluding this, the net loss was $69 million.
- Tax Benefit (Q4 2010): Included a $35 million tax benefit related to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
- Special Items (Q4 2009): Prior year results included a positive net impact of $71 million in non-cash special items and a non-cash tax item. Excluding these, the Q4 2009 loss was $415 million.
- Revenue Growth: Passenger revenue increased 10.5% in Q4 2010, driven by a 7.1% increase in unit revenue and a 3.1% increase in capacity.
- Cost Control: Excluding fuel, mainline unit costs decreased 3.0% year-over-year in Q4 2010.
Guidance, Outlook, and Risks
2011 Guidance
- Capacity: Full-year mainline capacity expected to increase 3.6% (Domestic +1.0%, International +7.7%). Consolidated capacity expected to increase 4.3%.
- Fuel Price: Planning for an average system price of $2.67/gallon for full-year 2011 (vs. $2.32 in 2010). As of Jan 7, 2011, 36% of full-year consumption is hedged with an average cap of $2.52/gallon.
- Costs (CASM): Mainline and consolidated cost per available seat mile (excluding fuel and special items) is expected to be flat compared to 2010.
Management Commentary
CEO Gerard Arpey described 2010 as a year of "significant improvement" and "major progress," citing the implementation of the domestic cornerstone strategy and the trans-Atlantic joint business. The company is well-positioned to capitalize on market opportunities despite challenges.
Risks and Contingencies
- Fuel Volatility: High and volatile fuel prices remain a significant cost headwind.
- Litigation: Ongoing litigation with Global Distribution Systems (Travelport and Sabre) and business discussions with online travel agencies (Expedia, Orbitz) regarding distribution channels.
- Financial Condition: The company notes its materially weakened financial condition due to significant losses in recent years and substantial indebtedness.
- Regulatory: Uncertainties regarding international operations and regulatory approvals for joint ventures.
Investor Verification Checklist
- Non-GAAP Reconciliations: Verify the specific adjustments made to Net Income to arrive at "Adjusted" figures, particularly the $28M Colombia impairment and $35M tax benefit.
- Fuel Hedging Effectiveness: Monitor the actual fuel price realization against the $2.67/gallon guidance and the effectiveness of the hedging program (36% hedged for full year).
- Debt Covenants: Review the company's ability to satisfy covenants given the $16.6 billion total debt load and ongoing net losses.
- Distribution Litigation: Track the resolution of disputes with Travelport and Sabre, as these impact fare availability and distribution costs.
- Joint Business Revenue: Assess the actual revenue contribution from the new British Airways/Iberia and upcoming Japan Airlines joint ventures against the projected $7 billion and $1.5 billion figures respectively.