American Airlines Tops Q2 Earnings, Reinitiates Dividend - Analyst Blog

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Airline behemoth American Airlines Group Inc. ( AAL ) reported historic quarterly profit as the carrier's second-quarter 2014 adjusted earnings of $1.98 per share edged past the Zacks Consensus Estimate of $1.94. Net income excluding special items stood at $1,456 million as compared to the combined income of U.S. Airways and AMR Corporation of $681 million in the previous-year quarter. The carrier also declared a dividend of 10 cents, which is the first since the erstwhile AMR Corporation paid its dividend in 1980.

Second quarter revenues stood at $11,355 million compared to the combined revenues of $10,299 million and was also ahead of the Zacks Consensus Estimate of $11,299 million.

On a year-over-year basis, combined mainline Passenger revenues grew 10.3%, while regional passenger revenues increased 4.1%. Cargo revenues improved 8.3% while Other revenues improved 20.5%.


The 10 cents dividend is consistent with the company's strategy to enhance its shareholders' value, and will be paid on Aug 18, 2014 to its shareholders of record as of Aug 4. At current market price, a 10 cent dividend will lead to a dividend yield of 9.5%. AMR Corp and U.S. Airways merged in Dec 2013 to form the currently largest carrier in the world. The company is adding new aircraft and rescheduling its flights at big hubs to boost revenues going ahead.

With respects to returning value to its shareholders, American Airlines has become the second biggest name in the airline sector following Delta Airlines Inc. ( DAL ), which resumed its dividend in May 2013 after a gap of 10 years. Southwest Airlines Co. ( LUV ) is another big carrier that pays dividends to its stockholders.

Operating Statistics

Airline traffic, measured in revenue passenger miles, went up 2.5% year over year to 57.19 billion. Capacity or available seat miles increased 3.1% year over year to 68.09 billion, while load factor (percentage of seats filled with passengers) declined 50 basis points year over year to 84.0%. Passenger revenue per available seat mile (PRASM) or unit revenue rose 5.9% year over year, along with a 6.5% increase in yield.

Operating Expenses

Total operating expenses crept up 7.0% year over year to $9,956.0 million, primarily due to rise in depreciation and amortization along with salaries, wages and benefits. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel cost and special items, was up 2.5% in the second quarter.


As of Jun 30, 2014, the company had $9.50 billion in cash and short-term investments while long-term debt and capital leases, net of current liabilities stood at $15.20 billion. The company has an undrawn revolving credit facility of $1.0 billion.

American Airlines plans to repay $2.8 billion in debt and aircraft lease prepayments by the end of 2014. The carrier also plans to make an additional pension contribution of $600 million over and above its $120 million of minimum requirement in 2014.

Share Repurchase

The company's board of directors authorized a $1 billion share repurchase program, which will be completed before Dec 31, 2015. American Airlines has followed in the footsteps of United Continental Holdings Inc. ( UAL ), which authorized a $1 billion share repurchase program and is expected to be completed in the next three years.

American Airlines currently carries a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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