What led to an increase in operating cost in 2Q14?

Market Realist

American Airlines Group - Second quarter earnings overview (Part 5 of 11)

(Continued from Part 4)

Increase in 2Q14 operating expenses

American Airlines’ reported total operating expenses increased to $9,956 million in 2Q14 from $5,937 million in 2Q13. Out of the total $ 4,019 million increase, $3,546 million was due to the merger. Since the merger between American Airlines and U.S. Airways completed in December 2013, the reported 2Q13 results does not include costs related to U.S. Airways. The remaining cost increase was primarily due to increase in the following mainline cost components:

  • 0.9% increase in fuel expense due to rise in average price per gallon of fuel.
  • 12.4% increase in salary, wages and benefits due to merger related labor contracts.
  • 9.1% increase in maintenance, materials and repair due to increase in the volume of engine overhauls
  • 15.7% increase in aircraft rent and 6.4% increase in D&A due to the addition of new aircrafts (leased and purchased) under the fleet renewal program.
  • $165 million increase in special items

 

Unit cost growth on a ‘combined basis’

The table above shows the unit cost increase on a ‘combined basis’(combined the pre-merger results of American Airlines and U.S. Airways in 2Q13 to make it comparable to 2Q14) in order to make the comparison between the two periods more meaningful.  American’s operating unit cost measured as Cost per Available Seat Miles (CASM) increased by 3.7% to 14.62 cents in 2Q14 from 14.10 cents in 2Q13. Excluding special items and fuel CASM increased to 9.31 cents in 2Q14 from 9.09 cents in 2Q13.

 

American’s (AAL) CASM of 14.62 cents is lower than its legacy peers, United (UAL) with 14.91 cents and Delta (DAL) with 14.63 cents. Its low-cost peers, Southwest (LUV) and JetBlue (JBLU) however have lower CASMs of 12.42 cents and 11.88 cents respectively.

 

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