How Did American Airlines Perform Operationally In November?
Through the year, American Airlines has grown its capacity in small amounts as opposed to its peers. In November 2016, the trend continued. The legacy carrier’s capacity was up slightly at 0.1%, causing the year to date capacity to grow by approximately 2%. This is in line with the company’s full year capacity growth guidance. Further, the company emphasized that it will continue to maintain capacity discipline in FY 2017, such that the growth is limited to a percentage point. This is likely an effort to control the negative headwinds its unit revenues are suffering from, especially in the Pacific and Atlantic, and manage the excess capacity that has been built into the system. The 130 bps decline in load factor, year to date, is indicative of this excess capacity.
In terms of unit revenues, American has done a spectacular job at arresting the fall in the metric. The carrier has revised its guidance for the final quarter of the year from a decline of (0.5%)-(2.5%) to a likely increase in the range of (1%) – 1%. This is attributable to the capacity discipline the company has been practicing and the improvement being seen in yields, especially Latin America. Furthermore, to maintain the yields in Latin America, the carrier took a decision to cut 25% of the flights it announced to Havana. This is a step taken in response to the weak demand for the region, and the competitive market space.
However, the revenue passenger miles and the number of passengers boarded continued to decline in the month. This doesn’t bode well for the airline, and may impact its top line negatively. Further, the management said that it expects its pre-tax margin for the fourth quarter to be in the 6%-8% range, due to higher operating costs and tax expense.
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Have more questions about American Airlines (NYSE:AAL)? See the following links:
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Airlines
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