Passengers dislike American Airlines for cramped seats and tight bathrooms, pilots want the CEO fired, and analysts have chastised management for under-performing. But now American Airlines is an investor favorite.
American’s stock soared 41%, its largest single-day trading gain, after announcing on Thursday it would restore 55% of domestic capacity in July, signalling a stronger rebound from coronavirus than at Delta Air Lines or United Airlines.
That’s not coincidental, American might argue.
“We are a good bit better built from what it feels like the recovery is going to be,” CEO Doug Parker told investors last month. “That is more domestic, less international.”
Airlines globally are expected to recover faster the more exposed they are to domestic flying, where passengers have greater local confidence and do not face international entry restrictions.
Qantas is restoring 40% of Australian domestic capacity in July while China Eastern this month aims for 70-80% in domestic China.
American’s domestic mainline capacity last year was 2% greater than Delta’s and 17% more than United’s.
“The core strength of American Airlines is our domestic and short-haul network. It has been for a long time,” American VP Strategy Vasu Raja told investors at the Bernstein Industrial Conference.
DALLAS, TEXAS – MARCH 13: A passenger checks in for an American Airlines in Terminal D at … [+]
About 70% of American’s available seat miles are in the domestic or short-haul international segments, Parker said.
That includes 60% domestic, about the same as Delta, while United has around 52% in the domestic market. Delta and United are more exposed to long-haul flights – and the required expensive aircraft.
Delta and United could redeploy idle aircraft to domestic flying, but the burden is higher. Last year Delta had 154 widebodies and United 196, while American only had 150. All are implementing or planning widebody retirements.
American may be better domestically than internationally, where it lost partner LATAM, does not have as strong Asian partnerships, is shrinking in China and was beaten to India and South Africa by Delta and United.
But comparing American to peers may not be so easy. Delta would argue it earns a revenue premium – passengers will pay more for Delta. Now Delta has the added perk of blocking middle seats through September 30 whereas American and United are starting to fill middle seats.
American may have its power hub of Dallas/Fort Worth, but United reckons it will fare better once leisure recovery is supplemented with business travellers.
“When business traffic does come back, I think it comes back first in our hubs. Our hubs are in the biggest business centers,” United CCO Andrew Nocella told the Wolfe Global Transportation conference last month.
These strategic matters overlook finances. Delta aims to reduce daily cash burn to $40m at the end of June, better than American’s projected $50m.
American, even before COVID-19, had far higher debt than Delta or United, so large it was routinely asked if it would file for bankruptcy.
No it will not, Parker said.
American’s plan is to secure a government loan this month and then look at other equity raising. That could be pre-selling frequent flyer miles to banks, aircraft debt raising, or – a dilution consideration for investors – issuing new equity.
Perhaps investors have considered additional factors. While American stock rallied 41%, its share price at $17 is still half that of Delta’s $32 or United’s $39.