Before the markets opened on Jan. 28, American Airlines Group Inc. (AAL, Financial) reported earnings results for the fourth quarter of 2020.
The U.S. airline major, which has the weakest balance sheet among competitors and is the most shorted name in the sector, continued to face industry-wide headwinds but managed to deliver a better quarter than Wall Street had previously feared.
Following the news, shares trended higher, up more than 9% to around $18.15 apiece in midday trading.
Earnings results
In full-year 2020, the company reported a loss per share of $18.36 (compared to earnings per share of $3.80 in 2019) and revenue of $17.33 billion (down from last year's $45.76 billion).
For the fourth quarter, American Airlines incurred an adjusted loss per share of $3.86 as opposed to the loss per share of $3.92 that analysts had expected. Revenue was $4.02 billion (down 64% year over year) compared to the expected $3.85 billion. In the same quarter of 2019, the company had recorded adjusted earnings per share of 95 cents and revenue of $11.31 billion.
The airline operator has managed to reduce its daily cash burn rate from $100 million in April 2020 to approximately $30 million in the fourth quarter via layoffs, capacity reductions, eliminating the purchase of ground service equipment and other cost-saving measures.
It also secured $9 billion in government financial assistance through two rounds of PSP legislation and executed an agreement with the U.S. Department of the Treasury through the CARES Act loan program that allows it to draw on up to $7.5 billion of secured term loans, $550 million of which it has already taken out.
To help avoid additional loss of market share, American Airlines launched several initiatives to better appeal to customers, such as mobile wellness wallet solution VeriFLY to streamline Covid-19 testing and documentation requirements. It also eliminated fees for ticket changes (except for economy tickets), mileage re-deposits (part of the rewards program), domestic same-day standby and booking by phone.
In addition, American Airlines restarted cargo-only flights, which it has not done since 1984, transporting nearly 800 million pounds of critical goods such as Covid-19 vaccine doses around the world in 2020.
The company ended the quarter with $14.3 billion of total available liquidity, which it plans to boost to $15 billion by the end of the first quarter of 2021. In 2020, the company raised approximately $13 billion through new debt offerings, increasing total debt by than 30% compared to the end of 2019.
Looking forward
Due to continued industry headwinds, American Airlines continues to burn cash, so in order to further cut costs, the company exited 19 international routes from six hubs in preparation for 2021.
Incorporated more than $1.3 billion of permanent non-volume, non-fuel efficiency cost-saving measures into 2021 operating plan. It also retired five aircraft types and will continue reducing aircraft and flight count.
American Airlines expects its first-quarter 2021 system capacity to be down 45% compared to the same period of last year, with total revenue expected to be down 60 to 65%.
"As we look to the year ahead, 2021 will be a year of recovery. While we don't know exactly when passenger demand will return, as vaccine distribution takes hold and travel restrictions are lifted, we will be ready. We are confident that the actions we have taken to improve our customer experience, enhance our network and increase our efficiency position us well for the future," Chairman and CEO Doug Parker said.
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. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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