American Airlines Reports Q1 2025 Earnings: Full Transcript Available

American Airlines Group Inc. (NASDAQ: AAL ) Q1 2025 Earnings Call Transcript April 24, 2025

American Airlines Group Inc. beats earnings expectations. Reported EPS is $-0.59, expectations were $-0.69.

Operator: Thank you for standing by, and welcome to American Airlines Group's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. I would now like to hand the call over to Gabriel Jackson, Managing Director of Investor Relations. Please go ahead.

Gabriel Jackson: Thank you, Latif. Good morning, and welcome to the American Airlines Group First Quarter 2025 Earnings Conference Call. On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devon May. In addition to our Vice Chair, Steve Johnson, we have a number of our senior executives in the room this morning for the Q&A session. Robert will follow up with an overview of our performance, and Devon will follow with details on the first quarter in addition to outlining our operating plan and outlook going forward. After our prepared remarks, we will open the call for analyst questions, followed by questions from the media. To get in as many questions as possible, please limit yourself to one question and one follow-up.

Before we begin today, we must state that today's call contains forward-looking statements, including statements concerning future revenue, cost, forecast of capacity, and fleet plans. These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning as well as our Form 10-K for the year ended December 31, 2024. In addition, we will be discussing certain non-GAAP financial measures, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website.

A webcast of this call will also be archived on our website. The information we are giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thank you for your interest and for joining us this morning. With that, I'll turn the call over to our CEO, Robert Isom.

Robert Isom: Good morning, everyone. It goes without saying that we're in a challenging economic environment which has had a significant impact on the industry. Historically, the airline industry has done well in periods of economic growth and certainty. The industry exited the fourth quarter with positive momentum, but this quickly shifted during the first quarter. The economic uncertainty in the market has pressured demand and impacted American Airlines Group's first quarter results and second quarter outlook. Given this macro environment, we're withdrawing our full-year outlook. That said, if current demand trends continue, we expect to deliver a profitable year and produce positive free cash flow. At American Airlines Group, we have the foundational strength, resilience, team, and financial and operating flexibility to navigate the current environment.

Over the last few years, the effort we’ve put into our operations has positioned us well for challenges ahead. Having refreshed our fleet under markedly distinct economic conditions—with reduced aircraft expenses, cheaper leases, lower interest rates, and amid stable original equipment manufacturers (OEM) and supply chains—we find ourselves with minimal capital expenditure needs related to aircraft through the rest of this decade. Our commitment to top-tier expense control continues, enhancing overall efficiency within the company. Thanks to restructuring initiatives aimed at improving the business model, we anticipate over $750 million in total cost reductions as we conclude 2025. Free cash flows were directed towards fortifying our financial position; by Q1’s close, we achieved our least amount of net debt since late 2015, all while smoothing out future debt repayment schedules.

This foundation enables us to concentrate on our key objectives for 2025: maintaining a dependable operational setup while restoring connections across our entire network and continuously seeking methods to improve efficiency within our airline operations. We’re implementing measures to maximize our revenue potential, boosting collaboration with Citi, expanding our Advantage loyalty program, advancing in the restoration of our sales and distribution channels through indirect means, and refocusing on providing an exceptional customer experience at every touchpoint for passengers flying with American Airlines Group. Moving ahead, we stay dedicated to achieving sustained growth in profit margins over the long term, producing consistent free cash flows, and reinforcing our financial stability even further. Let’s now discuss how things went during the first quarter.

In the first quarter, our unit revenues climbed by 0.7%, outperforming competitors even with heightened vulnerability to tough conditions domestically. Our analysis suggests that American Eagle’s Flight 5342 accounted for roughly a $200 million reduction in quarterly income. Additionally, long-distance global flights showed robust performance regarding per-seat revenue metrics. Specifically, transatlantic operations witnessed a growth of 10.5% compared to last year, whereas across the Pacific, we saw a rise of 4.9% attributed mainly to expanded service offerings towards Japan. The short-range routes within Latin America also experienced their first positive yearly comparison in well over twelve months and remain among the highest contributors profit-wise regionally. Demand internationally originating from the U.S. persists at high levels. Conversely, domestic seat yields dipped slightly by 0.7% due largely to decreased expenditure on leisure activities such as flying, particularly toward the end part of this period.

Our performance in premium and loyalty revenues has maintained its robustness compared to the previous year. In the first quarter, premium revenue saw a rise of 3%, despite having 0.3% less capacity than before. The Revenue per Available Seat Mile (RASM) for our premium seats surpassed those in standard economy class domestically by four percentage points and internationally by eight percentage points. Occupancy rates within our premium sections stayed at record-high levels and climbed by 2.9 percentage points from the prior year. Additionally, loyalty income rose by 5% yearly, driven largely by an increase of 8% in expenditures via our co-branded credit cards during this period. We have initiated steps towards expanding our collaboration with Citi regarding these co-branded credit cards, scheduled to start in 2026, staying aligned with our previously stated objectives for sustained development. Crucially, customer appreciation for our loyalty scheme continues; memberships under Advantage grew by 6% when contrasted against the same timeframe last year.

Premium cabin revenue largely comes from Advantage members, who account for 76%. The American Airlines Group takes pride in offering one of the top-tier travel reward programs renowned for delivering exceptional value to its participants. Even amidst economic challenges and reduced seating capacities, managed business income increased by 8% compared to last year’s figures in Q1. Our team remains optimistic based on positive responses from corporate clients as we work closely with them to better cater to their requirements. Notably, industries such as finance and consulting showed robust growth throughout this period. There has been steady progress in restoring revenues through secondary distribution networks during the initial quarter. By reaching our objective of narrowing the discrepancy against previous market shares down to 7%, we anticipate regaining approximately two additional percentage points in the following quarter.

We are still on course to bring back our revenue share from indirect channels to previous levels by the end of this year. Even though economic uncertainties persist, we began the year with a cautious growth strategy and will keep an eye on how we deploy our resources. Future decisions about resource allocation will hinge on market demands and competition. We aim to stay flexible and respond appropriately based on prevailing conditions, utilizing various tools like cutting down flights during less busy times or taking more drastic measures when needed—such as returning rented planes, phasing out older ones, or postponing new deliveries—to cut capacity effectively without compromising the integrity of our main network. Our focus remains on ensuring long-term prosperity for American Airlines Group, which includes enhancing customer experiences and interactions significantly.

We’ve set up a dedicated customer experience division, a unified group nestled between our sales and operational units. This squad will champion customer interests, driving forward strategies and executing plans aimed at enhancing all aspects of the customer journey—from reservations through travel to the final moments aboard the flight and beyond into post-trip evaluations. Recently, we disclosed that Advantage program participants will enjoy complimentary high-speed satellite internet starting January 2026, courtesy of an agreement with AT&T. Offering free high-speed satellite Wi-Fi across numerous planes surpasses what any other airline provides, marking a significant step as we reaffirm our commitment to elevating the overall passenger experience.

American Airlines Group continues to have the youngest fleet of the US network carriers. We're excited to debut our new state-of-the-art flagship suite seat on our first new Boeing 787-9, and we look forward to the rollout of this product on our new Airbus A321XLR aircraft. These deliveries, along with the planned refresh of existing seats, are expected to grow American Airlines Group's lie-flat and premium economy seating by approximately 50% by the end of the decade. Additionally, American Airlines Group has led the way in introducing premium lounges and offers more premium lounges than any other US network carrier. We're committed to reinvigorating the customer experience throughout various touchpoints to the travel journey, and we're on track to open our newest flagship lounge in Philadelphia in May.

Our upcoming lounge marks the ninth premium facility within our network, with additional locations planned for the future. Additionally, recent updates have been made to streamline our boarding procedures beginning next month, complemented by this week’s release of an updated and revamped mobile application aimed at boosting customer engagement and self-service capabilities. Shifting focus to operational matters: In Q1, the American Airlines Group showcased our capacity to bounce back swiftly from unexpected disruptions through teamwork and adaptability. Continuous investment remains key as we strive towards improving overall operational efficiency. The initial three months were marked by challenges such as California's wildfire outbreaks, heightened wintery conditions affecting Southern hubs, and unfortunately, the unfortunate incident involving Flight 5342 on January 29th. Prior to proceeding, let me pause briefly to honor those who tragically passed away in that event.

Our Office of Continued Care and Outreach was set up just one week after the incident to support affected families and their loved ones. Although this department’s duties may change over time, its primary focus remains centered around fulfilling our mission: taking care of individuals throughout all stages of life. Special thanks go to our staff members involved in both maintaining operations during these challenging times and providing essential assistance directly to our customers; additionally, recognition goes to our dedicated caregiving teams for helping family members cope. We maintain close collaboration with federal authorities here in America, feeling optimistic due to everyone's shared dedication towards enhancing safety measures across U.S airspace moving ahead. With that said, let me now pass things along to Devon so he can provide further insights into our initial-quarter fiscal outcomes as well as projections regarding Q2 performance.

Devon May: Robert, this morning American Airlines Group announced a GAAP net loss of $473 million for the first quarter. After adjusting for special items, they reported a net loss of $386 million, equivalent to an adjusted loss of $0.59 per diluted share. The company’s total revenue for the quarter stood at $12.6 billion, marking a decrease of 0.2% compared to the same period last year; however, unit revenues increased by 0.7%. When excluding fuel costs and net special items from our calculations, first-quarter unit costs rose by 7.8% annually. Our focus remains on operating the airline as effectively as possible while simultaneously improving customer satisfaction through superior staff management practices, more effective use of assets, and supply chain improvements. Thanks to these efforts, we anticipate achieving around $250 million in additional annual cost reductions by 2025, adding onto the previously realized $500 million in savings accomplished during the past year.

We anticipate an extra $100 million from working capital cash flow, raising our overall enhancement in working capital to around $550 million across the last three years. Our workforce continues to show increased efficiency, and we project that core full-time staff numbers will remain roughly steady compared to those in 2024. In terms of our aviation fleet, we look forward to welcoming between 40 and 50 new planes this year. Given our present outlook on these acquisitions, including both new and used airplanes as well as spare engines and net progress payments, we forecast our aircraft Capital Expenditure (CapEx) for 2025 to range from $2 billion to $2.5 billion. Total CapEx projections stand at $3 billion to $3.5 billion for the same period. Looking ahead, we maintain our expectation of modestly maintained CapEx levels, with average annual spending on aircraft projected at about $3.5 billion through the end of the decade.

In the initial quarter, we concluded with $10.8 billion in overall accessible liquidity and generated $1.7 billion in free cash flow for the period. Within this timeframe, we tactically refinanced our $2.3 billion Advantage-supported term loan. This refinancing decreased the interest rate by approximately 300 basis points and significantly enhanced the repayment schedule, shifting $1.9 billion worth of payments from within the next three years to 2028. Moreover, we cut down total debt by $1.2 billion throughout these months. Currently, we possess over $10 billion in unrestricted assets along with an extra $13 billion in potential first-lien borrowings. Our financial position stands at its strongest point in almost ten years, and we continue to aim towards lowering our aggregate debt below $35 billion by the end of 2027.

In the second quarter of 2025, we project a capacity growth between 2% and 4%, compared to last year, as we rebuild our operations at key locations in the north. Our focus remains on adding profitable seating space and staying adaptable amid fluctuating passenger numbers and competition levels. Revenue for Q2 is forecasted to drop slightly by about -2% or rise modestly by +1% from what was seen previously due to ongoing challenges within the domestic economy class segment. However, we predict stronger performance internationally and among higher-class tickets will help counterbalance these effects. Additionally, further advancements via third-party sales platforms should aid in restoring overall income figures. For the upcoming period, expenses excluding fuel costs could climb somewhere around 3% to 5%. This aligns closely with initial forecasts set earlier this year; nearly all of the anticipated hike in per-unit expense without considering jet fuel can be attributed directly to new labor union contracts agreed upon during recent times.

Although these collective bargaining agreements have led to an increase in labor costs, we are satisfied that our major workforce segments benefit from contracts aligning with top-tier industry standards, providing us labor cost stability until 2027. Given our present projections for demand and anticipated fuel prices, we anticipate generating second-quarter earnings of around $0.50 to $1.00 per diluted share. Now, let me hand over the discussion to Robert for his concluding comments.

Robert Isom: Thanks, Devon. The travel sector plays an essential role in driving the U.S. economy, contributing $1.3 trillion in direct expenditures within the country and providing employment opportunities for one out of every eleven Americans. As international visits to the U.S. increase, so does financial input into our economic development. Airline companies form a significant component of this dynamic, and American Airlines Group takes pride in being the leading U.S.-based employer amongst these firms. We stand behind anything that boosts travel demands at home and overseas. Initiatives aimed at positioning America as an inviting location for tourists from around the world align perfectly with our goals, particularly ahead of key events such as the FIFA World Cup 2026, where we serve as sponsors, followed by the 2028 Summer Olympics set to take place in Los Angeles.

Expanding visa-free travel, reducing visa processing durations, and speeding up the implementation of advanced technologies to streamline and fortify travel experiences are key objectives here. Additionally, fostering sustainable development within the U.S.’s travel sector necessitates tackling essential infrastructural concerns—chief among them being the upgrade of air traffic control systems. American Airlines Group pledges collaboration with government bodies, regulatory agencies, and fellow enterprises to surmount these hurdles. Resilience lies at the core of what we do at American Airlines Group; backed by robust financial standing and an agile operational approach, this resilience bolsters our readiness to chart future progress effectively. Our commitment remains steadfast—to uphold our promises and generate outcomes beneficial both to the airline and our investors.

Operator, you can go ahead and open the line for questions from analysts.

Operator: You are restricted to one question followed by a single follow-up. Kindly wait as we assemble the Q&A lineup. Our initial query comes from David Scott Vernon of Bernstein. You may proceed, David.

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