A ratified contract with pilots is enough to keep American Airlines Group feeling jolly headed into the holiday travel season, even after losing $545 million in the third quarter while competitors United Airlines and Delta Air Lines were racking up profits of more than $1 billion each.
Fort Worth-based American Airlines reported record-high quarterly revenue of $13.5 billion in the third quarter of 2023 along with a $545 million net loss, much of that due to ratification bonuses handed out to 15,000 pilots. The carrier operated more than 515,000 flights in the third quarter at an average of 84% full. Domestic demand “remains steady,” while international demand continues to drive revenue growth by the Atlantic, Caribbean and Central America.
That clears that path for slightly less volatility this holiday season, even though the carrier is still trying to come to terms on deals with flight attendants and passenger service agents, groups that may be feeling jealous after pilots got raises of more than 41% of the four-year life of the deal that will cost the company upwards of $9.7 billion.
“We’re very pleased to have finalized a new contract with the Allied Pilots Association in August,” Robert Isom, CEO of American, said to investors. “The agreement delivers significant compensation and quality of life improvements to our pilots, while allowing us to expand our training capacity to support underutilized aircraft in our future flying.”
Isom also told investors that American is working toward agreements for its flight attendants and passenger service agents. He added, however, that American is “committed to delivering a reliable operation” for its customers as it approaches the holiday season.
Jonnathan Handshoe, equity analyst at CFRA Research, said in a research note that when American finalizes a deal with its two remaining unionized work groups, he believes this will “place additional pressure on unit costs.”
Finance chief Devon May said the loss was due to the signing bonuses in the pilot agreement. Most of the bonus was calculated from wages earned in 2020 and 2022. American’s pilots voted for the contract in August.
“What we have ongoing with our pilots, we have higher wage rates,” May said. “This agreement moved wage rates up pretty significantly.”
He said “a pretty significant payment was made earlier this month,” meaning pilots have received most of their sign-on bonus, coming through in installments.
May added he expects a “great operation” this winter.
“I just see this team and their level of focus and how they’re delivering day in and day out and how well they’re recovering from weather events and other irregular operations,” May said. “I certainly don’t see anything slowing there. I think we’re running the best operation in the business.”
Even ahead of the pilot contract, American was running a solid operation, said Joseph Rohlena, senior director at Fitch Ratings. This summer proved that point when American managed operations during peak summer periods. More than 3.5 million customers flew on American’s 32,000 scheduled flights over the long Labor Day holiday weekend.
“Pilot deal or no, I think they’re in a better position to operate a peak holiday travel season,” Rohlena said.
American has also signed an agreement with Alaska Airlines to purchase 10 Airbus A321neo aircraft that the carrier expects to join in the fourth quarter of this year and the first quarter of 2024, he said.
May also added that post-Labor Day bookings have been in line with expectations and the carrier has seen a steady improvement in business travel with encouraging signs from both managed and unmanaged corporate customers.
Christopher Raite, senior analyst at Third Bridge, said reliability will be crucial for all carriers heading into the holiday season. Having a contract helps the ongoing pilot shortage, which Raite said his experts feel could drag on for another two years.
“The network carriers are actually advantaged in their ability to recruit pilots when you think about somebody like American versus a low-cost carrier like Spirit (Airlines),” Raite said. “It’s essentially for two simple reasons. Number one, they pay more, and number two, they fly larger aircraft.”
Isom also addressed the Hamas attack on Israel last Saturday that killed 1,400 people according to Israeli authorities and sparked a war between Israel and Hamas.
“On behalf of all of us at American, I want to say how shocked and saddened we are by the attacks in Israel, and we joined the international community in condemning these acts of hate and violence,” Isom said. “We’re devastated by the incredible loss of innocent life.”
Isom said American is making efforts to care for its team members impacted, while also working with the government to find safe travel options for customers departing the region.
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