AMR Corporation, the parent company of American Airlines, Inc., today reported results for the second quarter ended June 30, 2013. Key highlights include:
- Consolidated and mainline passenger revenue of $5.6 billion and $4.9 billion, respectively – highest passenger revenue for the second quarter in company history
- Net profit of $357 million, excluding reorganization and special items, a $262 million improvement year-over-year
- Operating profit of $502 million, excluding special items, a $254 million improvement over second quarter 2012. GAAP operating profit of $489 million, a $347 million improvement year-over-year
- Consolidated unit costs, excluding fuel and special items, improved 5.8 percent year-over-year, marking the third consecutive quarter of unit cost reduction on that basis
- American continued its fleet renewal and took delivery of nine fuel-efficient Boeing 737-800s and three 777-300ERs in the quarter. For the year, the company has taken delivery of 24 new aircraft, including six 777-300ERs
- American and US Airways continue to anticipate closing their merger in the third quarter of 2013
“American delivered its best financial performance for a second quarter, excluding special items, in the company’s history,” said Tom Horton, AMR’s chairman, president and CEO. “And the momentum is building as we plan for the impending merger with US Airways. I want to thank the American team, 73,000 strong around the world, whose hard work and dedication made this possible. Thanks to them, the new American is taking flight.”
In the second quarter of 2013, GAAP net profit was $220 million, a $461 million improvement compared to the prior-year period. Excluding reorganization and special items, second quarter 2013 net profit was $357 million, a $262 million improvement compared to the prior-year period. This record setting quarterly result was bolstered by a June during which the company recorded its best monthly profit, excluding reorganization and special items, in its history. In the quarter, AMR had $137 million of reorganization and special items, which are detailed below.
AMR continues to execute on its objectives as it nears the completion of its restructuring efforts and prepares for its merger with US Airways. With many financial and operating changes from its restructuring already in place, it expects to realize additional improvements as the company continues to implement new terms negotiated with certain vendors and suppliers. It also plans to compete more effectively in the future when American expects to introduce larger regional jets into the operation, which will enable it to better match aircraft size with demand in certain markets.
“Through the enormous efforts of people throughout our company, the financial trajectory of AMR has improved dramatically and its positive impact can be seen across our business,” said Bella Goren, AMR’s chief financial officer. “Looking forward, additional initiatives we have underway are expected to further build on our progress.”
In the second quarter of 2013, AMR strengthened its liquidity and reduced interest rates through several key transactions. It closed on a $1.05 billion term loan and a $1 billion revolving credit facility. The revolving credit facility will be available upon emergence from its restructuring. AMR also completed a private offering of approximately $120 million of enhanced equipment trust certificates and received gross proceeds of approximately $216 million from the remarketing of tax-exempt bonds related to its Tulsa maintenance base.
AMR realized year-over-year cost improvements across its business, excluding fuel. Furthermore, to position the company for the future, American is in the midst of a significant renewal and transformation of its fleet and has taken delivery of 42 new fuel efficient Boeing 737-800 and 777-300ER aircraft over the past 12 months. During the full year of 2013, American expects to take delivery of 59 new mainline aircraft.
In one of the most effective major corporate restructurings ever, AMR’s proposed Plan of Reorganization provides the potential for full recovery for American’s unsecured creditors and a recovery of at least 3.5 percent of the aggregate diluted common stock of the combined airline for the company’s existing shareholders.
For the second quarter of 2013, AMR reported consolidated revenue of approximately $6.4 billion, comparable with AMR’s record-setting consolidated revenue results in the same period last year. Consolidated and mainline passenger revenue in the second quarter of 2013 was the highest second quarter passenger revenue result in company history. Respectively, they increased 0.2 percent to $5.6 billion and 1.1 percent to $4.9 billion, compared to the second quarter of 2012.
“This quarter’s results are solid evidence that our customers continue to respond positively to improvements in our network, renewal of our fleet and American’s ongoing introduction of industry-leading amenities,” said Virasb Vahidi, American’s chief commercial officer. “We continue to make progress in offering a customer experience that rivals the best airlines in the world and provides a strong foundation for the future.”
Second quarter 2013 consolidated and mainline capacity were both up approximately 1.1 percent year-over-over, while consolidated and mainline passenger revenue per available seat mile (PRASM) were lower by 0.9 percent and 0.1 percent, respectively.
While a decrease in close-in demand was observed beginning in March, actions taken in the second quarter to maintain load factor resulted in sequential PRASM improvement throughout the quarter.
American’s mainline load factor, or the percentage of total seats filled, was 84.8 percent during the second quarter, compared to 85.1 percent in the second quarter of 2012. Mainline passenger yield, which represents the average fares paid, increased 0.2 percent year-over-year.
Despite revenue headwinds and against the backdrop of a sluggish economy, AMR was able to drive profitability and significant margin expansion in the second quarter.
For the second quarter, AMR’s consolidated operating expenses decreased $350 million, or 5.5 percent, versus the same period in 2012. AMR’s mainline and consolidated cost per available seat mile (unit cost) in the second quarter decreased 7.5 percent and 6.6 percent, respectively. Excluding special items, AMR’s consolidated operating expenses decreased $257 million, or 4.1 percent, year-over-year.
Taking into account the impact of fuel hedging, AMR paid $3.02 per gallon for jet fuel in the second quarter of 2013 versus $3.24 per gallon in the second quarter of 2012, a 6.8 percent decrease. The company paid $70 million less for fuel in the second quarter of 2013 than it did in the prior-year period.
Excluding fuel and special items, mainline and consolidated unit costs in the second quarter of 2013 decreased 6.5 percent and 5.8 percent year-over-year, respectively, primarily driven by the company’s restructuring efforts. This was the third consecutive quarter of non-fuel unit cost reduction.
In addition, AMR achieved an operating profit of $502 million and an operating margin of approximately 7.8 percent, an improvement of approximately $254 million and 3.9 points, respectively, over the prior-year period, excluding special items in both periods. On a GAAP basis, AMR realized an operating profit of $489 million and an operating margin of approximately 7.6 percent, an improvement of approximately $347 million and 5.4 points, respectively, over the prior-year period.
An unaudited summary of second quarter 2013 results, including reconciliations of non-GAAP to GAAP financial measures, is available in the tables at the back of this press release.
The company ended the second quarter with approximately $7.1 billion in cash and short-term investments, including a restricted cash balance of $863 million, compared to a balance of approximately $5.8 billion in cash and short-term investments, including a restricted balance of approximately $772 million, at the end of the second quarter of 2012.
Total cash and short-term investments increased approximately $2.0 billion from the first quarter ended 2013. Approximately $1.2 billion of the increase in cash and short-term investments was generated from operating activities, while the balance was significantly bolstered by the financing activities described above.
Pending Merger with US Airways
American and US Airways made significant progress toward planning for the closing of the merger and integrating the two airlines. Led by the Integration Management Office (IMO), integration planning teams and cross-functional task forces are defining the manner in which the two companies will combine their commercial, customer service, operations and corporate functions after the merger closes. During the quarter, the IMO held two Merger Planning Summits.
The following merger milestones were achieved in the second quarter:
- April 2-3: Integration Planning Kickoff — 29 planning teams comprised of leaders from both airlines to plan the integration
- May 6: IMO Planning Summit – IMO team met to conduct planning activities required for merger close and beyond
- May 10: The bankruptcy court presiding over American’s restructuring entered an order approving the merger with US Airways, subject to confirmation and consummation of American’s Plan of Reorganization (the Plan)
- June 10: American and US Airways announced the Board of Directors and senior leadership team responsible for guiding the combined company, American Airlines Group Inc., effective upon the closing of the merger
- June 10: The Securities and Exchange Commission (SEC) Form S-4 Registration Statement was declared effective by the SEC, which gave US Airways shareholders the opportunity to review the proxy statement included in the Form S-4 and vote on the proposed merger at the US Airways annual shareholder meeting on July 12, 2013
- June 19: American and US Airways jointly testified before the Senate Subcommittee on Aviation, Operations, Safety, and Security that the new American Airlines will be a stronger, more competitive airline that will provide significant benefits to customers, employees, financial stakeholders and communities of both airlines
- June 27- 28: IMO Master Planning Summit — Individual teams met to review planning progress and establish the master plan for the overall integration
- July 12: US Airways shareholders, at their annual shareholders meeting, overwhelmingly approved the merger agreement with AMR