Top US Airline Profit Margin: American Eagle

[767-300ER]

American Eagle reports top profit margin

[font=Times New Roman,Times,Serif]Dallas Business Journal

Fort Worth-based American Eagle Airlines was one of three regional airlines reporting the top operating profit margins of any U.S. airlines for the second quarter, according to a report issued Sept. 20 by the U.S. Department of Transportation.
Operating profit margin is a measure of profitability that the DOT uses to compare airlines. American Eagle, with 15.5%, SkyWest Airlines, with 13.1%, and JetBlue Airways, with 14.1%, logged the highest figures for the quarter.

Among airlines based in North Texas, Fort Worth-based American Airlines Inc. had an operating margin loss 4.6%, while Dallas-based Southwest Airlines Co. had an operating margin profit of 11.5%.

For all groups -- regional carriers, low-cost carriers and the major network airlines -- the largest percentage operating loss margins were reported by regional carrier Atlantic Coast Airlines, low-cost carrier ATA Airlines and by major network carrier Delta Air Lines.

In other categories measuring profitability, the group of seven largest regional airlines that included American Eagle also ranked best for the highest domestic operating margins of any of the selected carrier groups.

The group as a whole had a margin of 9% for the quarter.

In comparison, the seven largest low-cost air carriers -- a group that includes Southwest Airlines -- had the second best profit margin of 7.2%.

The seven largest hub-and-spoke network carriers -- which includes American Airlines, the sister airline of American Eagle -- logged a 2.8% loss.

In a third category measuring profitability, Southwest Airlines, JetBlue Airways and ATA Airlines reported the lowest unit cost per available seat mile of any airline.

American, with an operating loss of $145.3 million, ranked fifth among the major network carriers for second quarter profit or operating loss. Northwest ranked highest, with an $84.3 million profit; only Delta, with a $198 million loss, fared worse than American.

Among the low-cost carriers, Southwest ranked first for operating profit, with $196.8 million.

In terms of airline unit costs per mile, American ranked fifth among the major carriers, at just over 11 cents a mile. Southwest ranked fifth among the low-cost carriers, at just over eight cents a mile.

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[English]

hmmm...think this is why Eagle management was so quick to come to an agreement on the contract negotiations last week?

 

[vc10]

The profit is illusory. AMR is free to make any arrangement between its subsidiaries---within broad parameters it is up to AMR whether it puts revenue in the Eagle pocket or in the Mainline pocket. So it can make Eagle look as profitable (or unprofitable) as it wants.

hmmm...think this is why Eagle management was so quick to come to an agreement on the contract negotiations last week?

 

[amcnd]

Eagle is set up to be "cost competitive" with other airlines. I.E. CHQ/TSA. They try to run us at a 8% profit margin, if we keep our cost down then we get to keep the rest I.E the 14.5%. This is done for two reasons. 1. if they need to sell Eagle they can show profit and growth. the two key things for a IPO. 2. Or to put preasure on AA to keep its cost down. In the end it all comes down to the bottom line witch is AMR's pockets.

 

[80drvr]

Eagle is set up to be "cost competitive" with other airlines. I.E. CHQ/TSA. They try to run us at a 8% profit margin, if we keep our cost down then we get to keep the rest I.E the 14.5%. This is done for two reasons. 1. if they need to sell Eagle they can show profit and growth. the two key things for a IPO. 2. Or to put preasure on AA to keep its cost down. In the end it all comes down to the bottom line witch is AMR's pockets.

The following excerpt from Airline Capital Associates illustrates how one can say that regional affiliates make money while another says they lose money......

At American Eagle, revenues in 2003 were $1.128 billion, and expenses were $951 million so


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the company posted an operating profit of $176 million versus an operating loss of some $36​

million in 2002. Executive Airlines posted a modest profit for the year, so the regional​

subsidiaries fared better than did American Airlines. Of course, since Eagle operates on a fee per​

departure business model, it should show an operating profit because this model assures the​

recipient a margin over its operating costs. The table below sets out revenues and expenses for​

the two AMR regional subsidiaries for 2003.​

Table 2.4​

​

Operating Revenues & Expenses – American Eagle & Executive​

​

($ Millions)


​

Source American Eagle Executive


​

Operating Revenues 1,128.0 276.7​

Operating Expenses 951.5 264.7​

Operating Profit 176.5 12.0​

Eclat Consulting/Aviation Daily


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In January 2003, American began paying Eagle on a straight fee per departure basis instead of


​

the combined fee per departure plus revenue share arrangement that was in place prior to that​

date. The effect of this change was that Eagle’s reported operating margin was 15+%. At the​

American Airlines level, however, the benefits are less clear. AMR’s Form 10-K report for 2003​

reports that the regional affiliates generated revenues of $1.52 billion for American but that​

payments made to the regional affiliates by American totaled $1.75 billion – a $250 million​

negative contribution from the regional affiliates. (AMR deducts amounts paid to regional​

affiliates from AA operating expenses in calculating the unit costs (CASM) at AA.) In the 1​

st​

quarter of 2004, the regional affiliates generated $420 million of revenues while the amount


​

deducted in calculating American’s CASM was $487 million. Clearly, the regional affiliates are​

at an advantage to the mainline carrier.​

Eagle’s financial strength is dependent on the strength of AMR Corp., so the comments above​

regarding AMR’s financial position pertain to Eagle as well.​