Issue No. 723

American Airlines' Turbulence

Here’s a bit of trivia: When was the last time a U.S. airline lost money for a full year? The answer: All the way back in 2011, when American lost more than $1b.

American would file for bankruptcy later that year, and merge with US Airways two years later. By 2014, the new American was almost as profitable as Delta, the industry gold standard. The following year, unhedged at a time of plummeting fuel prices, American surpassed Delta, becoming the champion of America’s Big Three. It would wear the crown just briefly—Delta would regain the lead in 2016 and 2017. But these were nevertheless superb years for American, when it earned double-digit operating margins, greatly fortified its balance sheet and outperformed United.

The came 2018. Not that American lost money last year, or anything even remotely close. In fact, its 8% operating margin made it more profitable than many of its esteemed intercontinental peers around the globe, including Air Canada, Lufthansa, Air France/KLM, LATAM, Cathay Pacific, All Nippon, Singapore Airlines, and Emirates. Keep that in mind for context.

But there were aspects of American’s performance last year—and developments transpiring this year—that are alarming enough to ask serious questions about American’s ability to generate more than just mid-to-high single-digit operating margins. It’s currently doing so, after all, in a North American market that IATA expects will account for more than half of all industry profits worldwide. American isn’t the slowest horse in the race. But those doing worse are running on much muddier tracks.

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