American Reports Record Revenue, Will Eliminate First Class

One theme so far in airline third-quarter earnings reports is that blended business and leisure demand along with the travel that comes with hybrid work flexibility are offsetting the lagging recovery in managed business travel, and American Airlines is no exception.

The carrier’s contracted corporations are 80 percent recovered, but this is the second quarter in a row in which overall revenue, at $13.46 billion, has “never been higher in our history,” American chief commercial officer Vasu Raja said on a Thursday earnings call. He added that while managed corporate hasn’t fully come back yet, “it’s more than being offset. … That’s on the strength of this blended demand … and unmanaged business-related demand, all of which is coming in at higher yield values.” 

As Raja noted, “yet” is the operative word. American CEO Robert Isom said that both leisure and business revenue “remain incredibly strong” and, as in the second quarter, each surpassed 2019 levels in the third quarter. And the company anticipates continued sturdy demand.

The business segment was led by small and midsize enterprises, as well as those traveling for a combination of business and leisure. “That and the return of long-haul international travel leaves us very bullish about overall demand, even in an uncertain economic environment,” Isom said.

The mix of revenue during the third quarter was 45 percent from blended trips, 30 percent from leisure and 25 percent from business, but about “17 to 20 points of that is coming from noncontracted unmanaged business” with the remaining points from contracted customers, Raja said, adding that it’s “meaningfully small. Call it four, five points smaller than historic.” 

Premium Cabin Trends

American recently announced enhancements to its long-haul premium configurations, whereby beginning in 2024, there will be new Flagship suites on Boeing 777-300ER aircraft as well as on new Boeing 787-9 and Airbus A321XLR deliveries, and premium seating on long-haul aircraft will increase by more than 45 percent by 2026, Isom said. 

The result? The removal of first class. “First class will not exist on the 777 or, for that matter, at American Airlines for the simple reason that our customers aren’t buying it,” Raja said. “The quality of the business class has improved so much, and frankly, by removing [first class], we can provide more business-class seats, which is what our customers most want or are most willing to pay for.”

The growth in blended demand is behind this trend, too. Previously, about 50 percent of the premium cabin was filled with contracted corporate customers, Raja said. Now, between 40 percent and 50 percent is blended demand and the rest is leisure demand willing to pay more for the quality of a business class seat. (Will that mean even more of a “premium squeeze” as corporate travelers return to the road?)

Q3 Metrics and Guidance

American’s total revenue was not just a record but also represented a 13 percent increase over the same period in 2019, despite flying 9.6 percent less capacity than three years ago, according to the company. The carrier also reported third-quarter 2022 passenger revenue of $12.4 billion, up 55.8 percent year over year. Net income was $483 million, up from $169 million a year prior.

Projected fourth-quarter capacity is 5 percent to 7 percent lower than in 2019, with revenue expected to be 11 percent to 13 percent higher. 

American operated more than 500,000 fights this past quarter with a load factor of 85.3 percent, which was 6.6 points higher than the year prior. The carrier had more than 52.6 million passengers in the quarter, according to the company.

Average third-quarter fuel costs were $3.73 per gallon and are expected to be between $3.51 and $3.56 for the fourth quarter. 

RELATED: American Q2 results

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