American vows to return to profitability regardless of fuel prices¶
Chief executive Robert Isom says fuel-price spikes wiped out more than $1 billion in expected profit in less than a month.
American Airlines can return to profitability regardless of volatile fuel prices, chief executive Robert Isom says.
In early July, the carrier had intended to forecast a nearly $1.5 billion pre-tax profit for the year, Isom told investors on American’s second-quarter earnings call on 23 July, but more fighting in the Middle East sent oil prices climbing again.American now expects to be break evenfor the year when accounting for a $6 billion fuel headwind.
“As we move on, I’m confident that we’ll get that balance right and be able to return to profitability, really at any fuel pricing,” Isom says.
Executives point to matching seat capacity with demand, investing in high-value routes like those across the Atlantic, reaping more revenue from premium cabins and flying newer widebody aircraft like Boeing 787-9s and Airbus A321XLRs.
Isom says American has “to make sure that our capacity is sized for the demand that’s out there” as it works to catch up to competitorsUnited AirlinesandDelta Air Lines, both of which reported per-share earnings well above American’s for the second quarter.
“The current fuel curve has dampened our near-term expectations,”chief financial officer Devon May says, “but longer-term, we fully expect that our revenue performance and continued cost execution will result in material margin expansion when fuel prices normalise.”
As airlines look to the second half of the year, fuel remains the biggest variable. Oil prices remain about 24% higher than a year ago, and are up significantly since 1 July to about $82 per barrel on 27 July. About 65% of American’s fuel comes from the Gulf region, executives say.
“I remember back in 2013, 2014, when oil prices for an extended period of time were over $100 a barrel,” says Isom. “The industry and the airlines that I was part of, we found ways to be profitable. And that’s the same type of attitude that we take into this.”Subscribe to gain access to all newsAlready have a subscription?Log in.Choose your subscriptionConsidering a corporate subscription?Contact usto find out more.
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