The second quarter financials of American Airlines were filed with the SEC and contain a lot of fascinating and under reported information.
American Airlines reported record revenue and a return to profitability. The financial statements show that flying planes from one place to another doesn't make American Airlines money. All of American's profits are accounted for by the A Advantage loyalty program.
Looking at American's costs and revenue from passengers can show this.
Despite record high airfare, ticket prices and fees for checked bags, seat assignments and the like are not covering the cost of flying planes
Robert Isom noted in his opening remarks that spending on co brand cards is growing at a greater rate than ever before.
The company generated $1 billion in cash from selling miles. They had immediate revenue of $740 million and deferred $260 million for future travel.
When the carrier borrowed $10 billion against the future income stream of the program, they had to share more of the program's economics than ever before. The net profit of the airline for the quarter is less than the revenue margin.
Over a billion dollars in award redemptions were recognized as revenue during the quarter and over a billion dollars so far this year. The cost side of the program is located there. Passenger revenue would be lower without those redemptions.
The total outstanding mileage liability is $9.3 billion and they expect $3.1 billion to be redeemed in the next year.
The financial analysts didn't ask a single question about the loyalty program. The rest of the group, outside of J.P. Morgan, probably understand the program since Joe DeNardi left.
I'm not suggesting that American stop flying, I'm suggesting that they focus on the loyalty business. They wouldn't sell credit cards if they didn't have flights.
The change in focus of the airline network is helping to drive loyalty program take up. They are able to become more relevant in the New York market because of their increased aggressiveness in New York. They have become relevant in Silicon Valley and the Pacific Northwest thanks to their partnership with Alaska Airlines.
American Airlines Group is making less money than they promised. Whether or not they will ever lose money again depends on the success of their frequent flyer program and whether or not they can recognize they aren't offering a flight product that...
In airlines.
American's financials show that they only make money on their frequent flyer program. American has earned pretax income of over 1.5 billion dollars so far this year and has been booked as marketing revenue from the sale of miles.
In airlines.
Customers wouldn't know the difference if airlines were able to devalue forever. American is starting to see signs that the golden goose is dying due to the devaluations.
In general.
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