American Airlines Group Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
American Airlines Group Inc. (AAG) and wholly owned subsidiary American Airlines, Inc. reported unaudited results for the three months ended March 31, 2024. AAG is primarily an airline holding company; American operates mainline and regional air transportation under the American Eagle brand. Comparisons are with the three months ended March 31, 2023.
Financial performance and key metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total operating revenue | $12.570 billion | $12.189 billion | +3.1% |
| Passenger revenue | $11.458 billion | $11.103 billion | +3.2% |
| Operating income | $7 million | $438 million | -$431 million |
| Operating margin | 0.1% | 3.6% | Down |
| Pre-tax income (loss) | $(413) million | $17 million | -$430 million |
| Net income (loss) | $(312) million | $10 million | -$322 million |
| Diluted EPS | $(0.48) | $0.02 | Down |
| Cash flow from operating activities | $2.180 billion | $3.333 billion | -$1.153 billion |
Revenue growth reflected strong travel demand, a 10.5% increase in revenue passenger miles and an 81.5% load factor. Capacity, measured by available seat miles, increased 8.5%, while passenger yield declined 6.6% and total revenue per available seat mile declined 4.9% to 17.83 cents.
Operating expenses increased 6.9% to $12.563 billion. Salaries, wages and benefits rose 17.8% to $3.867 billion, maintenance expense rose 24.2% to $884 million, and rent and landing fees rose 15.8% to $819 million. Fuel expense declined 5.9% to $2.980 billion because the average fuel price fell 12.8% to $2.86 per gallon, partly offset by an 8.0% increase in fuel consumption.
GAAP pre-tax loss was $413 million. Excluding $116 million of net special items, adjusted pre-tax loss was $297 million, compared with adjusted pre-tax income of $45 million in Q1 2023. The filing reports adjusted results as a non-GAAP measure.
First-quarter 2024 CASM was 17.82 cents, down 1.4% year over year. CASM excluding net special items and fuel was 13.49 cents, up 2.3%, indicating higher underlying non-fuel costs.
Liquidity, debt and cash flow
- AAG reported $11.5 billion of total available liquidity at March 31, 2024, consisting of $8.3 billion of unrestricted cash and short-term investments and $3.2 billion of undrawn revolving and other facilities.
- Cash was $604 million and short-term investments were $7.696 billion. Restricted cash and short-term investments totaled $895 million.
- Long-term debt, including current maturities, was $32.2 billion, including $4.0 billion of current maturities. Debt declined from $32.8 billion at December 31, 2023.
- AAG used $642 million in financing activities, including $873 million of debt and finance lease repayments, partly offset by $248 million of aircraft-related borrowings.
- Capital expenditures and aircraft purchase deposits totaled $824 million. Net purchases of short-term investments totaled approximately $702 million.
- The company contributed $280 million to defined benefit pension plans and paid $261 million related to the 2023 profit-sharing program.
- AAG remained in compliance with applicable liquidity, collateral coverage and other debt covenants as of the latest measurement dates. Certain financing agreements require at least $2.0 billion of unrestricted cash and available revolving capacity.
Material changes versus the prior comparable period
- Revenue increased 3.1%, but operating expenses increased 6.9%, resulting in a substantial reduction in operating income and a swing to a net loss.
- Salaries, wages and benefits increased primarily because of the new mainline pilot collective bargaining agreement ratified in August 2023. The agreement included a 21% initial wage-rate increase effective January 1, 2023.
- Maintenance costs increased because of greater engine overhaul and airframe heavy-check activity. Airport rents and landing fees also increased.
- Fuel costs declined despite higher capacity, due to lower average fuel prices.
- Cash flow from operations fell by $1.2 billion, driven by the net loss, pension contributions and profit-sharing payments.
- Operating special items increased to $70 million from $13 million, primarily due to $57 million of labor-contract expenses and $13 million of severance expense.
- Nonoperating special items were $46 million, primarily unrealized mark-to-market losses on certain equity investments, compared with $15 million of debt refinancing and extinguishment costs in Q1 2023.
Outlook, management commentary, risks and unusual items
The filing does not provide a clear full-year earnings or revenue guidance figure. Management emphasized continued demand strength but also noted pressure from capacity growth, lower passenger yields and higher labor and other operating costs.
American had firm commitments for 439 new aircraft, including Airbus A320neo-family, Boeing 737 MAX-family, Boeing 787 and Embraer 175 aircraft. Aircraft and engine purchase commitments totaled $28.450 billion for American, and consolidated contractual obligations totaled $103.447 billion, including debt, interest, leases, aircraft purchases, regional capacity agreements and other obligations.
The company had no fuel-hedging contracts outstanding and remains fully exposed to fuel-price volatility. Management estimates that a one-cent-per-gallon increase in fuel prices would increase annual 2024 fuel expense by approximately $45 million. A 100-basis-point increase in interest rates would increase annual variable-rate debt expense by approximately $100 million and annual interest income by approximately $80 million, based on March 31 balances.
Material risks include high leverage and refinancing needs, labor cost increases and potential labor disruption, fuel-price volatility, aircraft delivery delays, pilot and other staffing shortages, supply-chain constraints, regulatory changes, cybersecurity incidents, severe weather, geopolitical disruption and weakness in travel demand. The company also faces ongoing litigation related to the terminated Northeast Alliance with JetBlue. The government appeal remains pending, and private-party antitrust litigation remains unresolved; potential impacts could be material.
American disclosed that GOL, in which it holds an investment and commercial relationship, commenced bankruptcy proceedings in January 2024, creating potential investment and operational risks. The company also identified uncertainty regarding the realizability of deferred tax assets and future valuation allowances.
Important facts for investors to verify
- Whether revenue growth and load-factor gains can offset lower yields and continued capacity expansion.
- The sustainability of higher labor, maintenance, airport and other non-fuel costs following new labor agreements.
- Near-term debt maturities, refinancing requirements, variable-rate exposure and compliance with minimum-liquidity and collateral covenants.
- Whether operating cash flow remains sufficient to fund aircraft commitments, pension contributions, debt service and other contractual obligations.
- Aircraft delivery schedules and potential manufacturer, regulatory or supply-chain delays affecting planned capacity.
- Fuel-price exposure, given the absence of fuel hedges.
- Potential financial and operational consequences of the Northeast Alliance litigation and other legal proceedings.
- The financial condition of regional carriers and strategic partners, including GOL and Republic Airways.
- Future changes in deferred tax asset valuation allowances and the ability to use federal and state net operating losses.