American Airlines Profits Drop Due to Taxes, Higher Fuel and Labor Costs

FORT WORTH, Texas (Fort Worth Star-Telegram/TNS) -
(AP Photo/Alan Diaz)

American Airlines profits dropped 91 percent in the fourth quarter, as the company logged a big income tax provision but also took a bottom-line hit from higher fuel and labor costs.

The Fort Worth-based carrier posted net income of $289 million, compared to $3.28 billion in the fourth quarter of 2015, when American reported a $3 billion income tax benefit. On the bright side, revenues grew 1.7 percent in the fourth quarter to $9.8 billion.

“We are particularly pleased with our revenue performance,” American chief executive Doug Parker said, noting that the airline’s unit revenues improved for the first time in over two years.

Investors, however, were not impressed, and sent shares of American stock down 5 percent on Friday, or $2.64 a share, to close at $46.95.

“Despite improved unit revenue, costs were a little worse than our estimate,” Cowen and Company analyst Helane Becker wrote in a research note Friday. “Despite clear reasons for the increases, we expect investor pushback.”

With new union contracts in place, American spent 17.4 percent more on salaries and wages in the quarter and 18.6 percent more on fuel, as the airline paid an average of $1.57 per gallon in the fourth quarter.

Excluding one-time accounting items, American reported fourth-quarter income of 92 cents a share, matching Wall Street analysts’ estimates, according to FactSet Research.

For the full year, American reported net income of $2.68 billion and revenues of $40.18 billion. The company said its board also approved a $2 billion share repurchase program that will expire at the end of 2018.

The carrier set aside $314 million in a profit-sharing plan for its employees, who will receive their profit-sharing payment this spring. This is the first year that American will pay a profit-sharing payment to employees since Parker announced the plan in March.

American also confirmed that it intends to refile its application with the U.S. Department of Transportation for an expanded joint venture with Qantas Airways. In November, the DOT denied the carriers’ request for anti-trust immunity on flights operating between the U.S. and Australia and New Zealand that would allow the carriers to share revenue and marketing expenses on those routes.

“We’re hopeful that the Trump administration will give the Qantas J.V. application a second and more capable look,” said Steve Johnson, executive vice president of corporate affairs.

Johnson added that American, Delta Air Lines and United Airlines are also asking the Trump administration to re-examine whether Gulf carriers: Emirates, Qatar Airways and Etihad Airways, are violating an open-skies treaty by receiving unfair government subsidies. The carriers complained to the Obama administration, which took no formal action.