American Airlines Group (American Airlines and US Airways) today (July 24) issued this financial statement for the second quarter:
American Airlines Group Inc. (AAL) today reported its second quarter 2015 results.
Reported record quarterly net profit of $1.9 billion excluding net special charges, a 27 percent increase versus the second quarter 2014
Reported record quarterly GAAP net profit of $1.7 billion, a 97 percent increase versus last year’s second quarter
Repurchased over $750 million of common stock and authorized an additional $2 billion share repurchase program
Declared a dividend of $0.10 per share to be paid on August 24, 2015, to shareholders of record as of August 10, 2015
American Airlines Group’s second quarter 2015 net profit, excluding net special charges, was a record $1.9 billion, or $2.62 per diluted share versus a second quarter 2014 net profit excluding net special charges of $1.5 billion, or $1.98 per diluted share. The Company’s second quarter 2015 pretax margin excluding net special charges was a record 17.2 percent, up 4.4 percentage points from the same period last year.
On a GAAP basis, the Company reported a record net profit of $1.7 billion, or $2.41 per diluted share. This compares to a GAAP net profit of $864 million in the second quarter 2014, or $1.17 per diluted share.
See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of GAAP to non-GAAP financial information.
“Reporting the highest quarterly profit in our history is another indication that our team is on the path to restoring American as the greatest airline in the world,” said Chairman and CEO Doug Parker. “These results are especially remarkable considering the significant and successful work underway to integrate two airlines. The more than 100,000 dedicated team members of American Airlines are doing a phenomenal job and we are grateful for their commitment to our customers.”
Revenue and Cost Comparisons
Total revenue in the second quarter was $10.8 billion, a decrease of 4.6 percent versus the second quarter 2014 on a 1.9 percent increase in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 13.57 cents, down 6.9 percent versus the second quarter 2014. Consolidated passenger yield was 16.28 cents, down 6.1 percent year-over-year.
Total operating expenses in the second quarter were $8.9 billion, a decrease of 10.5 percent compared to the second quarter 2014, due primarily to a 36.9 percent decrease in consolidated fuel expense. Second quarter mainline cost per available seat mile (CASM) was 11.87 cents, down 12.8 percent on a 1.5 percent increase in mainline ASMs versus the second quarter 2014. Excluding net special charges and fuel, mainline CASM was 8.77 cents, up 2.5 percent compared to the second quarter 2014. Regional CASM excluding special charges and fuel was 16.02 cents, up 1.4 percent on a 5.5 percent increase in regional ASMs versus the second quarter 2014.
Cash and Investments
As of June 30, 2015, the Company had approximately $9.7 billion in total cash and short-term investments, of which $747 million was restricted. The Company also had an undrawn revolving credit facility of $1.8 billion.
American continues to invest in its product. As part of an extensive fleet renewal plan that has made American’s fleet the youngest of any U.S. network airline, the Company expects to spend $5.4 billion on new aircraft this year. During the second quarter, the Company took delivery of 24 new mainline aircraft and nine new regional aircraft and retired 34 older mainline and eight older regional aircraft. In addition to this fleet renewal program, American is in the midst of investing $2 billion to further enhance its product, including improvements to aircraft interiors, international Wi-Fi connectivity and upgrades to its Admirals Club lounges.
In the second quarter, the Company returned $823 million to its shareholders through the payment of $70 million in quarterly dividends and the repurchase of $753 million of common stock, or 17.3 million shares, at an average price of $43.53 per share. When combined with the dividends and shares repurchased during the first quarter, the Company has returned approximately $1.1 billion to its shareholders in the first half of 2015, including $943 million of shares repurchased under the existing $2 billion share repurchase program approved in January 2015.
Due to the Company’s strong financial performance, its projected cash flow and the repurchase activity to date, the American Airlines Group Board of Directors has authorized an additional $2 billion share repurchase program to be completed by December 31, 2016. This brings the total amount of share repurchase programs authorized in 2015 to $4 billion. The Company also declared a dividend of $0.10 per share to be paid on August 24, 2015, to shareholders of record as of August 10, 2015.
Share repurchases under the share repurchase program 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 the Company’s discretion.
Approximately $629 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 per U.S. dollar and approximately $8 million valued at 12.8 bolivars per U.S. dollar, 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.
During 2014, the Company significantly reduced capacity in the Venezuelan market and is no longer accepting bolivars as payment for airline tickets. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses or other accounting adjustments, which could be material, particularly in light of the additional uncertainty posed by the recent changes to the foreign exchange regulations and the continued deterioration of economic conditions in Venezuela. More generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company and can significantly affect the value of its assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect the Company’s business, results of operations and financial condition.
Special Items
In the second quarter, the Company recognized $150 million in net special charges, including:
$231 million in merger related integration expenses, including $221 million in mainline special charges and $10 million in regional special charges
$77 million in net special credits, including a $68 million credit for bankruptcy related items, principally consisting of fair value adjustments for bankruptcy settlement obligations
$11 million non-operating net special credits comprised of a $22 million gain associated with the sale of an investment, offset in part by $11 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing the Company’s secured term loan facilities
$7 million in tax special charges related to certain indefinite-lived intangible assets
Notes:
(1) The 2015 second quarter mainline operating special items totaled a net charge of $144 million, which principally included $221 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. These charges were offset in part by a net $68 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations. The 2015 six month period mainline operating special items totaled a net charge of $447 million, which principally included $437 million of merger integration expenses as described above and a net $99 million charge related to the Company’s new pilot joint collective bargaining agreement. These charges were offset in part by a net $73 million credit for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations.
The 2014 second quarter mainline operating special items totaled a net charge of $251 million, which principally included $163 million of merger integration expenses related to information technology, professional fees, severance, share-based compensation, re-branding of aircraft and airport facilities, relocation and training as well as a net $38 million charge for bankruptcy related items primarily consisting of fair value adjustments for bankruptcy settlement obligations and $37 million in charges related to the buyout of leases associated with certain aircraft. The 2014 six month period mainline operating special items totaled a net charge of $114 million, which principally included $365 million of merger integration expenses, $40 million in charges primarily related to the buyout of leases associated with certain aircraft and a net $5 million charge for bankruptcy related items, all as described above. These charges were offset in part by a $309 million gain on the sale of Slots at Ronald Reagan Washington National Airport.
(2) The 2015 and 2014 second quarter and six month period regional operating special items principally related to merger integration expenses.
(3) The 2015 second quarter nonoperating special items totaled a net credit of $11 million and primarily included a $22 million gain associated with the sale of an investment, offset in part by $11 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing the Company’s secured term loan facilities. The 2015 six month period nonoperating special items totaled a net credit of $19 million and principally included the $22 million gain associated with the sale of an investment as described above and a $17 million early debt extinguishment gain associated with the repayment of American’s AAdvantage loan with Citibank. These special credits were offset in part by $20 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with the debt refinancing as described above and the prepayment of certain aircraft financings.
The 2014 second quarter and six month period nonoperating special items were primarily due to non-cash interest accretion of $2 million and $33 million, respectively, on bankruptcy settlement obligations.
(4) The 2015 second quarter and six month period tax special items were the result of a non-cash deferred income tax provision related to certain indefinite-lived intangible assets.
During the 2014 second quarter, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with Generally Accepted Accounting Principles, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the Company recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $330 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as a special $15 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.
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