American Airlines Group (NASDAQ:AAL) CEO Robert Isom said demand remains strong across the carrier’s network, cabins and geographies, while volatile fuel costs remain the principal constraint on profitability.
Speaking at a Morgan Stanley conference, Isom said American expects third-quarter revenue growth of 16% to 19% year over year and continues to see broad-based strength in corporate, international, domestic, premium-cabin and coach demand. He said the carrier’s capacity and unit-cost performance were also tracking in line with expectations.
Revenue Strategy Centers on Four Pillars
Isom said American’s strategy is centered on rebuilding its network, improving the customer experience, growing premium revenue and strengthening its AAdvantage loyalty and co-brand card business.
American has rebuilt capacity at major hubs including Dallas-Fort Worth, Charlotte, Miami, Philadelphia, Phoenix and Chicago after what Isom described as undergrowth in its network following the pandemic. The company expects to receive five additional gates in Chicago by the end of the year, while future terminal additions at Dallas-Fort Worth could support further expansion.
The company is also investing in upgraded lounges, Flagship Suites, aircraft cabin reconfigurations, high-speed Starlink Wi-Fi and the return of seatback video. Isom said premium seating is expected to increase about 50% by the end of the decade as reconfigured aircraft and new deliveries enter the fleet.
He said 30% of American’s seats now generate 50% of its revenue, highlighting the importance of premium products. American also has recorded a 5-percentage-point improvement in customers buying up from Basic Economy fares, according to Isom.
- Managed corporate revenue rose 26% in the second quarter, marking a fifth consecutive quarter of double-digit growth.
- American has regained its prior corporate position following sales and distribution changes, though Isom said it has not yet achieved its “full fair share” of corporate business.
- Corporate yield is nearly double that of other channels, Isom said.
Fuel Volatility Clouds Otherwise Strong Outlook
While executives expressed confidence in operating trends, both Isom and Chief Financial Officer Devon May said fuel costs have risen sharply. May said fuel for the fourth quarter had increased by about $1 per gallon over the past four weeks compared with levels reflected in the company’s prior forward guidance.
May said each one-cent change in fuel prices is worth approximately $10 million per quarter to the airline, implying about a $1 billion run-up in fourth-quarter fuel expense from the recent increase.
“For everything that is controllable, we feel great about it,” May said, citing revenue, capacity and unit-cost performance. He said American may adjust late-fourth-quarter capacity, including December flying, in response to higher fuel prices.
Isom said the company has recovered a substantial portion of higher fuel costs through pricing, though it has accepted somewhat lower load factors in exchange for stronger unit revenue. If fuel prices remain elevated, he said the industry may need to make further capacity adjustments.
Loyalty Program and Citi Partnership Offer Growth Opportunity
Isom highlighted record AAdvantage enrollments and the company’s new relationship with Citigroup as major longer-term revenue drivers. American expects approximately $8 billion in co-brand cash remuneration this year and said that figure is projected to exceed $10 billion by 2030.
The company also anticipates the Citi relationship could add $1.5 billion in pretax profitability by 2030. Isom said American is expanding card offerings, including initiatives aimed at small and medium-sized businesses, while free Wi-Fi is helping drive loyalty-program enrollments.
American’s balance sheet has also improved, Isom said. The company reduced total debt from a peak of $54 billion a few years ago to roughly $36 billion, with a target of $35 billion. May said the airline has its lowest debt level in more than a decade and substantial liquidity.
Management Sees Margin Potential Beyond Fuel Pressures
Isom said American remains focused on expanding margins and profitability rather than prioritizing a single operating metric. He reiterated that the company’s prior targets included mid- to high-single-digit pretax margins and potentially mid-teen-plus EBITDA margins.
According to Isom, American would have been positioned to make significant progress toward those targets this year absent fuel volatility. He said the company’s revenue opportunity does not require excessive capital investment because its fleet and capital-expenditure plans are largely in place.
For the fourth quarter, about 25% of bookings had been made at the time of the conference. Isom said trends were consistent with a strong finish to the year, with demand holding up in both premium and coach cabins. He added that American expects to grow less in 2027 than it had anticipated several months earlier, while continuing to rebuild a competitive network and manage profitability.
About American Airlines Group (NASDAQ:AAL)
American Airlines Group Inc is a holding company whose principal subsidiary, American Airlines, provides scheduled passenger air transportation and cargo services. The airline serves destinations throughout the United States and connects customers to international markets across the Americas, Europe, Asia and other regions through its own network and partnerships.
American Airlines offers multiple travel classes and related services, including reservations, onboard products, travel rewards through the AAdvantage loyalty program, and freight transportation.
