Recovering US airline industry: American Airlines joins rank with full year of profit

After record profits from most US-based airlines in 2014, American Airlines Group joins this trend of a financially-recovered US airline industry. American Airlines today reported its fourth quarter and full year 2014 results.

Reported record fourth quarter 2014 net profit excluding net special charges of $1.1 billion, up 153 percent versus the fourth quarter 2013. For the year, the Company’s 2014 net profit excluding net special charges was a record $4.2 billion, up 115 percent versus 2013
Completed the Company’s previously announced $1 billion share repurchase program more than one year before its expiration.

Announced authorization of an additional $2 billion share repurchase program to be completed by the end of 2016
Declared a dividend of $0.10 per share to be paid on February 23, 2015, to shareholders of record as of February 9, 2015
For the fourth quarter 2014, American Airlines Group reported a record GAAP net profit of $597 million. This compares to a GAAP net loss of $2.0 billion in the fourth quarter 2013, which includes the results for US Airways only for the period from the completion of the merger on December 9, 2013, through December 31, 2013.

For full year 2014, GAAP net profit was $2.9 billion, compared to a full year 2013 GAAP net loss of $1.8 billion for AMR Corporation, which includes the results for US Airways only for the period from the completion of the merger on December 9, 2013, through December 31, of 2013.

The Company believes it is more meaningful to compare year-over-year results for American Airlines and US Airways excluding special charges and on a combined basis, which is a non-GAAP formulation that combines the results for AMR Corporation and US Airways Group. On this basis, the Company’s fourth quarter 2014 net profit excluding net special charges was a record $1.1 billion, or $1.52 per diluted share. This represents a 153 percent improvement over the combined non-GAAP net profit of $436 million excluding net special charges for the same period in 2013. The Company’s fourth quarter 2014 pretax margin excluding net special charges was a record 10.6 percent.

Excluding net special charges, the Company’s 2014 net profit was a record $4.2 billion, or $5.70 per diluted share. This represents a 115 percent improvement over the Company’s combined 2013 non-GAAP net profit excluding net special charges of $1.9 billion.

See the accompanying notes in the Financial Tables section of this press release for further explanation of this presentation, including a reconciliation of GAAP to non-GAAP financial information.

“Our record 2014 results close out a fantastic first year for our merger. These results would not have been possible without the efforts of our more than 100,000 team members,” said Doug Parker, American Airlines Group Chairman and CEO. “They have done a great job of working together to take care of our customers and restore American as the greatest airline in the world.

“We have much to do in the year ahead as we continue to integrate two large carriers. The results we have achieved thus far, combined with our economic outlook, give us confidence that 2015 will be another outstanding year for American Airlines.”

Revenue and Cost Comparisons

Total revenue in the fourth quarter was a record $10.2 billion, an increase of 2.1 percent versus the fourth quarter 2013 on a combined basis and excluding special items, on a 1.7 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 13.50 cents, down 1.0 percent versus the fourth quarter 2013 on a combined basis. Consolidated passenger yield was a record 16.84 cents, up 0.9 percent year-over-year.

Strong demand throughout the year led to 2014 total revenue of $42.7 billion, up 5.6 percent versus 2013 on a combined basis and excluding special items. Full year consolidated PRASM was 13.97 cents, up 2.2 percent versus 2013 on a combined basis.

Total operating expenses in the fourth quarter were $9.3 billion, a decrease of 4.1 percent compared to combined fourth quarter 2013 due primarily to a 17.3 percent decrease in consolidated fuel expense. Fourth quarter mainline cost per available seat mile (CASM) was 13.32 cents, down 6.1 percent on a 1.5 percent increase in mainline ASMs versus combined fourth quarter 2013. Excluding special charges and fuel, mainline CASM was 8.67 cents, up 1.1 percent compared to the combined fourth quarter 2013. Regional CASM excluding special charges and fuel was 15.87 cents, up 0.9 percent on a 3.8 percent increase in regional ASMs versus combined fourth quarter 2013.

For the full year 2014, total operating expenses were $38.4 billion, up 1.5 percent versus combined 2013. Excluding special charges and fuel, mainline CASM increased 2.0 percent to 8.63 cents versus combined 2013. Regional CASM excluding special items and fuel increased 3.6 percent to 15.94 cents versus combined 2013.

Liquidity

At December 31, 2014, American had approximately $8.1 billion in total cash and short-term investments, of which $774 million was restricted. The Company also had an undrawn revolving credit facility of $1.8 billion.

Also in the fourth quarter, the Company returned $959 million to its shareholders through the payment of $72 million in quarterly dividends and the repurchase of $887 million of common stock, or 20.5 million shares. When combined with the $113 million of shares repurchased in the third quarter 2014, the Company repurchased a total of 23.4 million shares at an average price of $42.72 per share in 2014.The Company’s $1 billion share repurchase program announced in July 2014 is now complete – more than one year ahead of its scheduled expiration. The Company also purchased approximately 52,000 shares from its Disputed Claims Reserve at the prevailing market price to satisfy certain tax obligations resulting from the November 4, 2014, distribution.

As of December 31, 2014, approximately $656 million of the Company’s unrestricted cash and short-term investment balance was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, with the rate depending on the date the Company submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system. The Company’s cash balance held in Venezuelan bolivars decreased $65 million from the September 30, 2014 balance of $721 million. In the fourth quarter of 2014, the Company incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of its 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, the Company revalued its remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, the Company recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014.

The Company has significantly reduced capacity in this market. The Company is continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses, which could be material.

The Company also announced that its Board of Directors declared a dividend of $0.10 per share for shareholders of record as of February 9, 2015. The dividend will be paid on February 23, 2015. In addition, the Company announced that its Board also authorized an additional $2 billion share repurchase program to be completed by the end of 2016.

Shares repurchased under the program announced above may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the Company to repurchase any specific number of shares or continue a dividend for any fixed period, and may be suspended at any time at management’s discretion.

Notable Accomplishments

Merger Related Accomplishments

Combined operations at 23 airports during the quarter, bringing the total to 106
Announced details of a combined frequent flyer program for American Airlines AAdvantage® and US Airways Dividend Miles® members that will combine mileage balances and align elite levels and qualification criteria
Integrated the Company’s cargo division under a single cargo air waybill, giving customers worldwide access to seamless cargo shipping across the merged airline
Reached a new five-year joint collective bargaining agreement (JCBA) with the Association of Professional Flight Attendants for the airline’s combined 24,000 flight attendants
Reached a tentative five-year JCBA with the Allied Pilots Association representing the carrier’s 14,000 pilots; ratification results will be known later this month
Reached a new 10-year agreement with the Air Line Pilots Association representing pilots at the Company’s wholly owned subsidiary Envoy Air that provides significant flow-through opportunities from the regional unit to the mainline carrier
Marketing, Network and Fleet Accomplishments

Announced $2 billion in planned customer improvements, including new seats from nose to tail on several aircraft types and fully lie-flat seats on the Company’s long-haul international fleet; satellite-based Internet access, providing connectivity for international flights; a refreshed and modern design for Admirals Club lounges worldwide; onboard power on new aircraft; and improved and updated kiosks to expedite airport check-in
As part of the Company’s fleet renewal program, took delivery of 20 new mainline aircraft in the fourth quarter, including 11 Airbus A320 family aircraft, seven Boeing 737-800 aircraft and two Boeing 777-300ER aircraft. On January 23, the Company received its first Boeing 787-8 Dreamliner, the first of 12 that it expects to receive in 2015
Celebrated the 25th anniversary of our Miami Hub, the premier gateway in the United States for Latin America and the Caribbean
Began service to Cap Haitien, the Company’s second destination in Haiti and 32nd destination in the Caribbean, as well as Campinas (Viracopos), Brazil, the Company’s 10th destination in Brazil
Announced new service from Birmingham, England to New York John F. Kennedy International Airport, as well as second daily services to both Los Angeles International and Philadelphia from London Heathrow Airport
Formed a partnership with Cadillac to offer ramp transfers at Los Angeles International Airport, Dallas/Fort Worth International Airport, New York’s LaGuardia Airport and John F. Kennedy International Airport for the Company’s premium customers
Announced a codeshare relationship with Jetstar that will add the American Airlines code to several destinations in Japan. Also announced a codeshare agreement with Mexico City-based airline Interjet, adding new service to key destinations in Mexico for American’s customers
Community Relations Accomplishments

Recognized as one of the “2014 Best Companies for Diversity” by Hispanic Business Inc. and honored as the only airline to earn a perfect score in the Human Rights Campaign’s Corporate Equality Index
Held the Company’s first combined Be Pink month, raising more than $750,000 from employees, vendors and customers for Susan G. Komen®. In addition, nearly 500 employees participated in Making Strides Against Breast Cancer walks and the Susan G. Komen Race for the Cure Series
Hosted Sky Ball, an annual gala event at one of the Company’s hangars at Dallas/Fort Worth International Airport honoring U.S. military members, veterans, and their families. This event raised more than $1.9 million for the Airpower Foundation, and more than 1,000 American Airlines employees volunteered their time
Held the Company’s annual Snowball Express, with ten American Airlines charter flights bringing nearly 1,800 children and spouses of fallen military men and women to the Dallas-Fort Worth area for four days of activities such as sporting events, dances, and visits to amusement parks
Special Items

In the fourth quarter, the Company recognized $507 million in net special charges, including:

$280 million in merger integration related expenses
$116 million in net charges for bankruptcy related items, principally consisting of fair value adjustments for bankruptcy settlement obligations
$70 million in charges related primarily to certain asset impairments
$31 million in non-operating special items primarily relating to a $30 million special charge for foreign currency losses relating to the Company’s cash balance held in Venezuelan bolivars
$16 million in net regional operating special items including a $24 million charge relating to a new pilot contract, partially offset by an $8 million gain on the sale of certain spare parts
$6 million in non-cash deferred income tax benefits relating to certain indefinite lived intangible assets