American CFO: Just Wait Until Our Cost Savings Kick In
The results, which included American's best quarterly revenue ever and a $95 million profit, excluding items, "reflect only a fraction of our restructuring process," Goren said, in an interview. "We will achieve, progressively, more and more savings, as we implement changes. The second-quarter impact (of cost savings) was very small."
American's $95 million gain represented a $381 million improvement over the same period a year earlier. Including reorganization costs and special items, the parent of American Airlines lost $241 million, compared with a net loss of $286 million a year earlier. Revenue rose 5.5% to $6.5 billion.
Among the principal drivers of second-quarter gains, Goren said, were improved demand for premium seats, increasing corporate sales and the increasing effectiveness of immunized joint ventures with international partners. Also, yields on ticket sales increased. But these gains were all on the revenue side. A principal intent of bankruptcy is to enable cost reductions, and these have barely shown up in American's results.Goren cited five ratified contract agreements with the Transport Workers Union, changes in agent staffing levels, management downsizing and renegotiated agreements with suppliers and aircraft lessors as cost-saving measures that have occurred, but have so far not yet shown up, or have shown up only minimally, in American's financial results. "We will achieve progressively more and more," she said. "The target is $2 billion annually." For American, the second quarter of 2011 was a troubling one. American was denying continuing speculation that it would seek bankruptcy protection, but it was the only major airline to report a loss in what is normally a profitable quarter for the industry. The loss of $286 million, or 85 cents a share, exceeded the consensus estimate of 75 cents, as fuel expenses rose 31% and added $524 million in spending. Also, the impact of the March 2011 earthquake and tsunami in Japan was greater for American than for competitors because American generally had a higher percentage of sales in Japan, due to its partnership with Japan Air Lines.
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