AA Forecasts Decline in 1Q Sales
By Darren Shannon 
American Airlines expects an almost 11% drop in its first quarter revenue, a rate similar to the carrier’s February capacity reductions but a little more than the 8.6% drop in January’s available seat miles.
The airline in a March 18 Securities and Exchange Commission filing also said it expects mainline unit costs to be 11.91 cents for the first three months of the year and 11.79 cents for the full year, a significant decline on the 13.87 operating expense per available seat mile recorded in 2008 for all but the regional operations or the 13.32 cent operating CASM posted in last year’s first quarter.
American also expects to end the first quarter with $3.1 billion in cash and short-term investments, the same amount it had at the end of 2008. This liquidity includes about $460 million in restricted cash, as well as the impact of a $700 million long term loan payment made in the first quarter.
The guidance indicates a 9.6% to 10.6% year-on-year drop in the airline’s first quarter mainline unit revenue, as much as 11.2% less in consolidated unit revenue, and drops of 5.6% and 6.65% for cargo and other revenue, respectively. At the end of the first quarter in 2008, American recorded mainline unit revenue of 10.67 cents, itself a 6.5% improvement on the same period in 2007.
Fuel pricing, a major factor in the U.S. airline industry’s 2008 losses, is expected to average $1.81/gal. this year, said American, with the first quarter’s average settling at $1.92. According to the guidance, fuel has steadily declined since the beginning of the year, with January prices of $2.00 falling to an expected $1.80 in March.
Hedges account for 45% of American’s first-quarter fuel costs with a cap of $2.52 and a floor of $1.91 affecting 42% of the quarter’s cost. For the full year, American is hedged 35% at a cap of $2.51 and a floor of $1.86 for 32% of its fuel requirements.
Although American’s costs fall year-on-year, its guidance noted an increase in non-fuel costs. “[First quarter] and full year 2009 unit cost increase in ex-fuel unit cost versus the prior year is primarily due to cost headwinds associated with reduced capacity, pension-related employee benefit costs, and costs associated with dependability improvement initiatives, said American.
However it noted, “Improvement in ex-fuel unit cost expectations versus previous guidance are due to reduced passenger-related variable expenses, foreign exchange effects, and efforts focused on reducing costs.”
Photo: American Airlines
