FORT WORTH, Texas: American Airlines’ fourth-quarter profit fell but met Wall Street expectations, and a key measurement of revenue trends rose for the first time since late 2014, further evidence that airlines are finally starting to push average prices higher.
American executives echoed officials at other airlines in reporting that demand for travel has picked up since the November election.
But the airline also reported a 17 per cent spike in labour spending after new union contracts, and it warned that costs will rise sharply again in the first quarter.
Shares of American Airlines Group Inc. fell $2.64, or 5.3 per cent, to close at $46.95 on Friday.
Separately, American executives said that they would revive a previously rejected bid to work more closely with Australian carrier Qantas. The airlines want to work together on setting prices and schedules, which is forbidden without an exemption from antitrust laws.
The Obama administration rejected immunity for the deal, but airline-industry officials believe that the new Trump administration will be friendlier.
“We are hopeful that the Trump administration will give the Qantas joint venture a second and more favourable look,” said Stephen Johnson, American’s executive vice president.
Johnson added that American, Delta Air Lines and United Airlines are also asking the administration to re-examine whether Middle Eastern carriers Emirates, Qatar Airways and Etihad Airways are violating an open-skies treaty by receiving unfair subsidies from their governments. The Obama administration did not act on the US carriers’ complaints.
At airports around the country, momentum is clearly swinging toward higher fares.
American predicted that total revenue for every seat flown one mile in the first quarter would be 2.5 per cent to 4.5 per cent higher than in early 2016. That is a more optimistic forecast than rivals have offered, although comparisons can be tricky — American includes some revenue, such as from credit-card deals, that other airlines don’t include.
The same figure rose 1.3 per cent in the fourth quarter, the first such increase in so-called unit revenue since the last quarter of 2014, American said.
That trend is not an accident. Airlines have been slowing their growth to tighten the supply of seats and drive up average fares. American said it would add only 1 per cent to passenger-carrying capacity this year.
American is taking other steps to boost revenue. Next month it will start selling “basic economy” tickets designed to win over passengers from discount airlines like Spirit and Frontier. It also plans to offer “premium economy” tickets on international flights that would be better than a regular economy seat but less expensive than business class.
American’s costs, however, are rising sharply. Due to profit sharing and higher wages in new union contracts, the company spent $2.8 billion on labour in the fourth quarter, an increase of more than $400 million in a year, which CFRA Research analyst Jim Corridore called alarming. And American predicted that costs per mile would jump 9 per cent in the first quarter.
“It’s great that they’ve got unit revenue moving in the right direction, but investors are very focused on costs,” Corridore said. He said that concern explained the stock’s slide on Friday.
American, the world’s largest airline, has hired thousands of new workers since its 2013 merger with US Airways. Executives said the pace of hiring is likely to slow. CEO Doug Parker said workers who leave might not be replaced and some might be offered early-retirement incentives, but there would be no mass layoffs.
Fort Worth-based American said that fourth-quarter net income fell to $289 million from $3.28 billion a year ago, when American recorded a $3 billion income tax-accounting benefit.
Excluding a non-cash tax set-aside and certain expenses for fleet changes and costs related to a 2013 merger, American said it would have earned 92 cents per share.
That matched the average forecast of nine analysts surveyed by Zacks Investment Research.
Revenue rose 2 per cent to $9.79 billion, slightly higher than the analysts in the Zacks survey expected.
