American Airlines has recorded a USD 950 million second-quarter profit, having decided to take an aggressive approach to deal with expansion by low-cost carriers into some of its core markets.
American matched its competitors’ prices, triggering a consumer bonanza as cheap fares hit the market from all sides.
While costly to American in the short term, American’s President Scott Kirby says the strategy is working.
Two big low-cost rivals in the US are Frontier Airlines and Spirit Airlines. American has faced fiercer competition from Southwest Airlines in the past year
“There is no choice but to compete and match prices with nonstop carriers,” Kirby told Skift.com. “It’s not a matter of being vindicated or anything of those words. It is what you have to do.”
American’s net income dropped 44% to USD 950 million, hit heavily by taxes. The airline put aside half a billion dollars to pay income taxes, the Fort Worth Star-Telegram reported.
Revenues also fell 4.3% to USD 10.36 billion for the quarter, with growing competition partly to blame.
Cheap fuel helped American’s result. Fuel costs dropped 25.5%.
American also decided to defer receipt of the 22 Airbus A350 aircraft it has on order. Deliveries will now start from late 2018.
Another revelation: although uncertainty persists following Britain’s exit from the European Union, Kirby revealed that American’s bookings on trans-Atlantic flights have improved since the Brexit vote.
Written by Peter Needham