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Margaret Moran
Margaret Moran
Articles (349) 

American Airlines: 3rd-Quarter Earnings Continue to Disappoint

The most cash-strapped U.S. airline major continues cutting back operations

October 22, 2020 | About:

On Thursday before the market opened, American Airlines Group Inc. (NASDAQ:AAL) reported its earnings results for the third quarter of 2020.

Revenue for the quarter was $3.17 billion, a 73% drop compared to a year ago, while the adjusted loss per share came in at $5.54 compared to earnings per share of $1.42 for the prior-year quarter. Wall Street had been expecting revenue of $2.81 billion and an adjusted loss per share of $5.58.

Following the news, shares dropped slightly before rising more than 3% for the day.

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Earnings results

The operating loss for the quarter was $2.871 billion compared to operating earnings of $808 million a year ago. Total operating expenses were down to $6.04 billion compared to $11.103 billion, reflecting the savings from reduced capacity, furloughs and other cost-saving measures.

The company saw a 59% year-over-year reduction in available seat miles (ASMs), reflecting a 57.9% passenger load factor, down 28%, as well as a 64% reduction in passenger enplanements.

American Airlines ended the quarter with approximately $13.6 billion of total available liquidity, including a $2 billion increase in its loan capacity through the CARES Act loan program to $7.5 billion. It also issued $1.2 billion in debt with Goldman Sachs (GS) Merchant Bank through two senior secured note transactions and recorded further payments from government loan programs.

The cash burn rate dropped to $44 million per day in the third quarter from approximately $58 million per day in the second quarter.

Chairman and CEO Doug Parker had the following to say:

"We have a long road ahead and our team remains fully engaged and focused not just on managing through the pandemic, but on making sure we are prepared for when demand returns. We are confident that the continued efforts of our team and the actions we have taken will drive customer confidence and strengthen our company for the future."

Looking forward

With the stipulations on government loan money (primarily the ones protecting jobs) having expired at the end of September, American Airlines has taken more action to reduce costs. Of the major U.S. airlines, it is the most strapped for cash with its higher debt levels going into the pandemic, and the Altman Z-Score has now dropped to 0.28.

Even with vast amounts of additional liquidity, American Airlines will thus need to downsize. In addition to the 20,000 employees that the company had already convinced to take optional early-out or long-term leave, it furloughed 19,000 employees beginning Oct. 1. It also removed more than 150 aircraft from its fleet and suspended service to service to several small- and medium-sized markets.

For the fourth quarter, the company expects system capacity to be down more than 50% year over year, with long-haul international capacity down 75%.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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