American Airlines has revealed record-breaking profits for 2015, probably aided by the sharp drop in oil prices, and renewed interest in corporate travel.
During the final quarter of 2015, the airline carrier based in Fort Worth, Texas, managed to generate profits amounting to $1.3 billion (the equivalent of $2 for every share), surpassing predictions made by financial analysts, which had estimated profits corresponding to $1.97 per share.
The results also trumped the ones reported in the last quarter of 2014, when net income reached $1.1 billion (tantamount to $1.52 per share).
Overall, throughout the course of 2015, annual profits rose to $6.3 billion, after having been measured at $4.2 billion at the end of 2014.
Apparently, one of the top reasons why the company’s net income soared so much, despite the fact that bankruptcy appeared inevitable for American Airlines just a couple of years ago, is the fact that oil prices have been plummeting.
Unlike other airline carriers which tend to stock up on aircraft fuel well ahead of scheduled flights, so as not to be affected by possible price fluctuations, America Airlines stays away from this practice commonly referred to as fuel hedging.
Instead, it buys the fuel it requires gradually, which allows it to take advantage of plunging oil prices, although it also makes it more vulnerable in case these costs soar.
On the other hand, American Airlines revenues in the last quarter of 2015 experienced a downward trend, amounting to approximately $9.64 billion, whereas during the same time interval in 2014 they had been gauged at around $10.2 billion.
A possible explanation for this obvious drop in revenues may be the heavy discounts that the company provided to its customers in order to keep up with rivals such as Southeast Airlines, which recently boosted the volume of flights it operates from Dallas Love Field, close to American Airlines’ main hub, Dallas/Forth International Airport.
Overall, American Airlines passengers had to shell out less money than usual in the final quarter of 2015 (the equivalent of an 8.9% drop in prices, per each mile traveled), as fares were reduced in order to compete with those offered by low-cost carriers such as Frontier Airlines and Spirit.
There was also a diminished interest in travel destinations from South America, which may have also contributed to a loss in revenues.
It is well worth mentioning however that flight cancellations related to the Zika virus outbreak which triggers microcephaly among infants haven’t actually had a statistically significant effect on American Airlines’ operations.
At the moment, pregnant women and other vulnerable individuals are being urged by the Centers for Disease Control and Prevention not to take trips to Mexico, Cape Verde, Samoa, or to several countries from the Caribbean, Central America and South America.
It may be that the number of such trips abroad wasn’t that high to begin with, in order to have a detectable impact on profits, or it may be that travel notices related to this mosquito-borne disease are still relatively new, and more time must pass before their ramifications can become obvious.
Meanwhile, American Airlines President Scott Kirby has declared that the company would continue to offer competitive prices in the second half of 2016, by introducing super cheap fares, similar to the “basic economy” flights provided by Delta Airlines.
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