American Airlines Company’s Overview and Performance

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Company Overview

When it comes to fleet size, American Airlines can be considered the largest airline in the whole world. As a founding member of the Oneworld alliance, this company operates approximately 50 countries across the globe. In fact, its business is based on providing scheduled air transportation for passengers and cargo. Taking into consideration that American Airlines cooperates with regional partners, this company operates over 6,000 flights per day to nearly 350 destinations on different continents.

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Therefore, both international and domestic networks are served by this airline. On average, almost 200 million individuals use services offered by this company each year. Presently, this airline operates ten hubs, including the ones located in Charlotte, Chicago, and Los Angeles. From the perspective of the labor force, American Airlines employed approximately 130,000 individuals in 2019.

Thus, despite increasing financial difficulties that affected the entire airline industry at the beginning of the twenty-first century, American Airlines still managed to become one of the largest airlines in the world. Leaders of this company were required to decrease flight routes, reduce seating capacity, and hire a vast number of employees in order to achieve this goal. Currently, as the largest airline in the U.S., this organization offers airline tickets, cheap flights, and vacation packages to people from different continents.

Company Performance

Income Statement

A severe decline in passenger demand and government travel restrictions related to the COVID-19 pandemic have significantly affected the operating revenues of American Airlines in 2020. The impact can be analyzed by comparing passenger and cargo revenue of 2019 and 2020. For instance, in 2020, the company’s leaders reported total operating revenues of $17.3 billion, a decrease of $28.4 billion, or 62.1%, as compared to 2019.

In turn, passenger revenues decreased by $27.5 billion, as it was $14.5 billion in 2020. In 2019, this rate was around $42 billion, 65.4% higher than passenger revenue in 2020. In the context of cargo revenue, the same financial trends are determined. In this case, international schedule reductions have resulted in a considerable decrease in cargo ton-miles, reflecting declines in freight volumes. For example, in 2020, cargo revenue was $769 million, a decrease of $94 million, or 10.8%, as compared to 2019.

Balance Sheet

In terms of a company’s assets, liabilities, and shareholders’ equity, they should be analyzed with the help of the balance sheet. For instance, the company’s total assets for 2020 were $62.008B, which is a 3.36% increase from 2019. As of 2016, the total assets of this organization were $51B. In other words, American Airlines has the opportunity to improve the valuation of the firm with the help of assets.

As a combination of accounts payable, current debt, and capital lease obligations, liabilities are an integral part of the balance sheet of any organization providing services to clients. When it comes to American Airlines, the company’s total liabilities for 2020 were $68.88B, which is a 12.6% increase from 2019. This amount of financial resources can be used to finance operations and pay for significant expansions.

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Finally, shareholders’ equity is usually used to determine the company’s value after liabilities are subtracted from total assets. In the case of American Airlines, this figure reached around $-6,867,000 in 2020 compared to $-118,000 in 2019. In 2020, the shareholder’s equity of this company had been significantly affected by additional investments, retention of the earnings, as well as its own activities. As a result, there is a considerable difference in shareholders’ equity of 2019 and 2020.

Solvency and Liquidity

Considering that the outbreak of Covid-19 has decimated air travel, the solvency of major air carriers, including American Airlines, is endangered. Therefore, American Airlines is not in a healthy position with peers in the solvency/liquidity ratios. In 2020, the company lost a total of $8.9B, which is why it currently takes appropriate measures to reduce costs.

For instance, its daily cash burn rate decreased from approximately $100 million in April 2020 to around $30 million at the end of the year. Moreover, American Airlines implemented a variety of equity and debt offerings in 2020 in order to raise nearly $13 billion. As a result, it is predicted that the first quarter of 2021 will demonstrate a $15.0 billion increase in total available liquidity.

Valuation / Accounting Methods

At the present time, the company prefers using the Incremental Cost Method in order to account for its free travel awards. Nevertheless, American Airlines should improve its reported unit revenue, which is why it would be tremendously helpful to use the Deferred Revenue Method. In fact, in spite of the fact that this accounting method could result in a ballooning FFP liability balance, the company would be able to create the impression of improving financial performance.

Shareholder returns

To identify the total amount an investor reaps from an investment, it is crucial to take into consideration shareholder returns. The principal individual insider shareholders in American Airlines are W. Douglas Parker, Robert D. Isom, and Stephen L. Johnson, who own 2.6 million, 1 million, and 0,8 million shares, respectively. At the same time, Vanguard Group Inc., PRIMECAP Management Co., and BlackRock Inc. are the primary institutional shareholders in American Airlines. In total, the company has around $640 million shares today.

Conclusion

This analysis provides comprehensive information regarding America Airlines’ performance under the circumstances of considerable global competition on the market. In the majority of demonstrated categories, this company has the potential to grow and develop as one of the largest airlines in the world. It is essential to note that the activity of this company has been significantly impacted by the pandemic, which is why it lost over $8 billion. However, as it has been shown in the ratios, the airline takes appropriate measures in order to achieve new goals with minimal financial losses.

Hence, this year can be considered a great period for investments. Even though the travel sector is not expected to rebound quickly after the pandemic, American Airlines can be regarded as an excellent place of investment for the long haul. In fact, this firm aims to gain around $7.5 billion with the help of its FFP as collateral. As a result, American Airlines is expected to significantly improve its cash position in the next several years. Lastly, once the travel restrictions are canceled, the airline industry will recover its stocks.

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Other Relevant Information

Consolidated Statements of Stock.

Consolidated Statements of Stockholders’ Equity – USD ($) $ in Millions Total American Airlines, Inc. [Member] Common Stock [Member] Common Stock [Member]American Airlines, Inc. [Member]
Beginning Balance at Dec. 31, 2016 $ 5 635 $ 9 698 $ 6 $ 0
Increase (Decrease) in Stockholders’ Equity
Net income 2 584 2 689
Other comprehensive loss -351 -351
Cash tax withholding on shares issued -56
Purchase and retirement of AAG common stock -4 416 -1
Dividends declared on AAG common stock -224
Settlement of single-dip unsecured claims held in distributed claims reserve 3
Share-based compensation expense 100 100
Intercompany equity transfer 3
Ending Balance at Dec. 31, 2017 -284 8 580 5 0
Increase (Decrease) in Stockholders’ Equity
Net income 1 282 1 285
Other comprehensive loss -71 -69
Cash tax withholding on shares issued -51
Purchase and retirement of AAG common stock -1 563
Dividends declared on AAG common stock -198
Settlement of single-dip unsecured claims held in distributed claims reserve 15
Share-based compensation expense 90 90
Intercompany equity transfer 2
Ending Balance at Dec. 31, 2018 -780 9 888 5 0
Increase (Decrease) in Stockholders’ Equity
Net income 1 412 1 658
Other comprehensive loss -120 -119
Cash tax withholding on shares issued -37
Purchase and retirement of AAG common stock -799
Dividends declared on AAG common stock -188
Share-based compensation expense 86 86
Ending Balance at Dec. 31, 2019 $ (169) $ 11 770 $ 5 $ 0
Consolidated Statements of Stockholders’ Equity (Parenthetical) – $ / shares 12 Months Ended
Dec. 31, 2018 Dec. 31, 2019 Dec. 31, 2018
Statement of Stockholders’ Equity
Purchase and retirement of common stock (in shares) 33 953 127
Purchase and retirement of common stock (in shares) 16 606 157 33 900 000 119 823 621
Dividends declared on common stock (in dollars per share) $ 0,4 $ 0,4 $ 0,4
Issuance of shares of common stock pursuant to employee stock plans (in shares) 1 709 140 2 166 861 2 506 067

The following table sets forth the computation of basic and diluted earnings per common share (EPS) (in millions, except share and per share amounts):

Earnings Per Common Share 12 Months Ended
Dec. 31, 2019
Earnings Per Share
Year Ended 2019 2018 2017
Basic EPS: Net income $ 1,412 $ 1,282 $ 2,584
Weighted average common shares outstanding (in thousands) 464,236 489,164 552,308
Basic EPS $ 3.04 $ 2.62 $ 4.68
Diluted EPS: Net income for purposes of computing diluted EPS $ 1,412 $ 1,282 $ 2,584
Share computation for diluted EPS (in thousands):
Basic weighted average common shares outstanding
464,236 489,164 552,308
Dilutive effect of stock awards 1,424 2,528 3,791
Diluted weighted average common shares outstanding 465,660 491,692 556,099
Diluted EPS $ 3.03 $ 2.61 $ 4.65
Restricted stock unit awards excluded from the calculation of diluted EPS because inclusion would be antidilutive (in thousands) 1,266 328 1,429
American Airlines Group PE Ratio Historical Data
Date Stock Price TTM Net EPS PE Ratio
2021-04-27 21.76 0.00
2021-03-31 23.90 $-13.34 0.00
2020-12-31 15.77 $-18.60 0.00
2020-09-30 12.29 $-13.84 0.00
2020-06-30 13.07 $-8.17 0.00
2020-03-31 12.19 $-1.86 0.00
2019-12-31 28.58 $3.81 7.50
2019-09-30 26.79 $3.55 7.55
2019-06-30 32.28 $3.33 9.69
2019-03-31 31.34 $3.06 10.24
2018-12-31 31.60 $3.04 10.40
2018-09-30 40.57 $2.89 14.04
2018-06-30 37.16 $3.43 10.83
2018-03-31 50.75 $3.84 13.22
2017-12-31 50.71 $3.91 12.97
2017-09-30 46.19 $3.93 11.75
2017-06-30 48.84 $4.05 12.06
2017-03-31 40.97 $4.10 9.99
2016-12-31 45.12 $4.78 9.44
2016-09-30 35.29 $9.31 3.79
2016-06-30 27.21 $10.40 2.62
2016-03-31 39.30 $11.13 3.53
2015-12-31 40.47 $11.29 3.58
2015-09-30 37.03 $7.02 5.27
2015-06-30 37.99 $5.81 6.54
2015-03-31 50.10 $4.57 10.96
2014-12-31 50.81 $3.92 12.96.

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BusinessEssay. (2022, September 4). American Airlines Company's Overview and Performance. Retrieved from https://business-essay.com/american-airlines-companys-overview-and-performance/

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BusinessEssay. (2022) 'American Airlines Company's Overview and Performance'. 4 September.

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BusinessEssay. 2022. "American Airlines Company's Overview and Performance." September 4, 2022. https://business-essay.com/american-airlines-companys-overview-and-performance/.

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BusinessEssay. "American Airlines Company's Overview and Performance." September 4, 2022. https://business-essay.com/american-airlines-companys-overview-and-performance/.