American to Alter Some Hub Schedules in Plan to Boost Earnings

Jan 28, 2014 4:30 pm ET

Jan. 28 (Bloomberg) -- American Airlines Group Inc. is adjusting flight schedules at three of its hubs and expanding sales of first-class upgrades, priority access and preferred coach seats to help boost earnings by at least $400 million.

The airline, created in the December merger of American and US Airways Group Inc., will change aircraft size on some routes to better match demand as part of the hub revisions, President Scott Kirby said today. He spoke on a fourth-quarter earnings conference call after American reported sales that beat analysts’ estimates as average fares rose.

American, the world’s largest airline by passenger traffic, will return to banks of flights throughout the day at its Miami, Chicago and Dallas-Fort Worth hubs. US Airways used that system, which was abandoned by American in 2004.

“Collectively, we expect these initiatives to be worth over $400 million in annual earnings improvements,” Kirby said on the call.

The airline will begin announcing new products or services sold apart from tickets during the next several months, as soon as the technology is ready, he said. American collected $4 billion in the so-called ancillary revenue last year.

“We expect to be able to grow that,” he said.

American’s total quarterly sales on a combined basis climbed 8.7 percent to $9.98 billion, exceeding the $9.9 billion average of nine analyst estimates compiled by Bloomberg. Profit was $436 million excluding some costs, compared with a loss of $42 million a year earlier, the Fort Worth, Texas-based company said in a statement.

Earnings, Yield

Earnings per share on a combined basis were 59 cents, American said. That beat the 55-cent average of 12 estimates compiled by Bloomberg. Yield, or the average fare per mile, increased 5.3 percent, and traffic rose 3 percent.

The carrier’s shares rose 5.9 percent to $31.96 at the close in New York.

Former American parent AMR Corp. exited bankruptcy in the merger with US Airways, capping a transaction announced in February. The deal closed Dec. 9, vaulting the new American to No. 1 in the global industry by traffic two years after AMR sought court protection after annual losses that began in 2008.

The airline’s planned revamping of flight schedules at the three hubs primarily will involve the timing of flights and the size of aircraft, not adding new destinations. Dallas-Fort Worth is the largest of American’s nine U.S. hubs based on daily departures, while Chicago is third and Miami is fifth.

‘Banked Model’

“American had gone somewhat against the grain when they did go to a more or less continuous hub operation,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia. “This is what United and Delta use, so prior to the merger, three of the big four were using the banked model. American was the outlier.”

When operations at a hub are banked, large numbers of flights arrive within a limited time and connect passengers to other planes to continue to final destinations.

The airline doesn’t plan “any big initiatives” like reintroducing banks at Los Angeles or New York, Kirby said.

The move among the industry’s largest airlines to replace 50-seat jets with bigger planes helps with the creation of efficient banked schedules, said Bob Mann, president of aviation consultant Robert W. Mann & Co. in Port Washington, New York.

“This creates the opportunity to go back in and peak a schedule for revenue optimization without causing delays, which cause costs to creep up,” he said in an interview.

American already started adding seats on its Boeing Co. MD-80s, 737-800s and 777-200s.

The number on the MD-80s is rising to 140 from 135, as the airline continues plans to retire those planes from its fleet. Work to boost seating on 737-800s to 160 or 164 from 150 and on the 777-200s to 260 from 247 will begin later this year. If American decides to increase 777-200 seating to 289, the work won’t be finished until 2015, Kirby said.

--Editors: John Lear, Cecile Daurat