FORT WORTH -- The fuel bill at American Airlines fell by nearly half in the first quarter, helping the company set a record profit despite a dip in revenue.
The combination of cheaper fuel and steady demand for flights within the U.S. has been good for all the major domestic airlines, with American joining Delta, United and Southwest in posting sharply higher earnings.
American Airlines Group Inc. said Friday that net income was $932 million, nearly double last year's $480 million, the previous record for the quarter.
The record profit, however, was less than the company's $1.36 billion savings on fuel, compared with a year earlier.
And that captures the challenge that American and other airlines will face later this year: How will they continue to increase profits in the third and fourth quarters, when their results will be compared with the falling fuel prices of late 2014?
American's president, Scott Kirby, said the airline must increase revenue for every seat it flies 1 mile, a figure known in the industry by the acronym RASM.
"We will have to get to a world where RASM is growing, and I hope that will be the case," Kirby said during a conference call with analysts and reporters. "There are all kinds of things we do to try to manage the business ... and try to increase revenues."
Revenue fell nearly 2 percent in the first quarter to $9.83 billion. The per-mile statistic cited by Kirby fell at a similar rate, and American predicted it will decline even more sharply in the second quarter, by between 4 percent and 6 percent. The company blamed new flights added by competitors, which tend to lead to cutting fares; the strong U.S. dollar, which reduced international ticket sales; and weakness in Latin America.
But expenses fell 7 percent thanks to the nose dive in oil prices that began last summer. Spending on fuel at American, US Airways and their regional airlines including American Eagle dropped 42 percent to $1.86 billion. In a break from recent quarters, the Fort Worth-based company spent more on labor than fuel.
The company's adjusted profit was $1.73 per share, which topped Wall Street expectations. The average estimate of 11 analysts surveyed by Zacks Investment Research was $1.70 per share. Adjusted profit excludes one-time expenses, which were mostly costs tied to combining American with US Airways after their December 2013 merger.
The big airlines have held on to most of the fuel savings. They haven't shared the bounty with passengers through lower fares because travel demand has remained steady and most planes are nearly full at current ticket prices.
Shares of American Airlines Group rose $1.26, or 2.4 percent, to close Friday at $52.71.
American has decided to put off delivery of five Boeing Co. 787 Dreamliners to curb growth in international markets where a glut of seats is crimping fares, Kirby said during the conference call.
Four of the wide-body jets will now arrive in 2017 and the other will be handed over the following year, American said Friday. American also is speeding the retirements of some older aircraft, including single-aisle Boeing MD-80s, and 757s, Kirby said.
"Demand is still growing; it's not growing as fast as supply," Kirby said. "Our bias will certainly be on the downside" when the carrier provides seating-capacity forecasts for the second half of 2015.
Information for this article was contributed by Mary Schlangenstein of Bloomberg News.
Business on 04/25/2015