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January 16, 2013

Q&A with AMR CFO Bella Goren

AMR chief financial officer Bella Goren spent a couple of minutes on the phone with the Star-Telegram on Tuesday to talk about the carrier's financial results.

As a note, Goren would not comment on a possible merger decision with US Airways or any other strategic alternatives the carrier is considering while in bankruptcy.

Here's the full Q&A

Goren: The fourth quarter obviously capped an extremely important year for American. I think our full year performance relative to prior years shows just how far we have come in that period. We were able to reach the vast majority of our restructuring milestones in creating a new cost structure and greatly improved revenue generating capacity for American going forward. These achievements have created an enormous value for our creditors, for our customers and our team members. And I think put us in a position to emerge as a far stronger, more profitable, highly competitive airline, certainly ready to lead the industry.

The new American has some exceptional strengths and among those is a highly competitive cost structure, a solid balance sheet, greater operational flexibility and I think it will help us generate superior long term financial results.  Look at our network and expanded network with some very important announcements we made throughout 2012 for some domestic and international service and in conjunction with our oneworld partners is very attractive to our business travelers. In addition, our new products and services certainly will help to American to elevate above the competition.

When it comes, for example, to our fleet, later this month we will become the first U.S. airline to put into service the Boeing 777-300ER aircraft which offers better operating economics as well as a state of the art customer experience and amenities like international Wi-fi and such. In 2013 we will take delivery of 59 new mainline airline aircraft which is certainly a pretty impressive number. And Andrea if you look at our press release we have some new information we included this quarter that we have not done in the past, on the very last page shows what our planned new aircraft deliveries as well as retirements and what our fleet will be over the next year.

ST: So it looks like you’re retiring MD-80s and 757s over the next year.

Goren: That’s correct. So if you look at that page and the one thing that is of note is in the past quarter, the fourth quarter of 2012, is when our 737-800, the numbers we have in our fleet, surpassed the MD-80s. That is obviously a very important milestone and as we look at our 2012 performance, there are a number of notable accomplishments that we list in the press release so without reading those to you what I would like to highlight is that as we look forward since many of our cost savings, operating flexibility that we’ve been able to achieve for restructuring and revenue initiatives will ramp up in 2013. We expect our performance to continue improving.

ST: There is a lot in the quarterly release but I had a question about the special items mentioned in the quarter such as the Hurricane Sandy impact and the operational issues. What caught my eye was the $280 million benefit from a settlement of a commercial dispute. Is that the Sabre lawsuit?

Goren: I think on that what we disclosed which is a settlement of a commercial dispute is as much as I can say.

I do want to go back to something you’ve mentioned on some of the items we highlighted. If you look at the fourth quarter loss excluding special and reorganization items of $88 million and you look at the cumulative impact of the items such as Hurricane Sandy and the impact that the earlier operational disruption has on the fourth quarter that cumulative impact is $142 million to the bottom line. Obviously, if it weren’t for the cumulative impact of those events we would have had a profitable quarter excluding reorganization and special items and I think that’s pretty notable.

ST: Can you break those down between Sandy, snowstorm and operational issues?

Goren: What we have broken down is the revenue component of that not the net profit. The revenue component was $155 million compared to $142 so I just want to make sure you know that. But I don’t have it right in front of me, we can get back to you on it. [Note: American did get back to me and the breakdown is $65 million in revenue impact related to Hurricane Sandy and the northeast snowstorm in early November and $90 million in revenue impact related to the operational issues the carrier had earlier in the fall that hurt bookings in the fourth quarter.]

ST: Some of the improvements you made in bankruptcy, it seems that quite a few were reported in the fourth quarter. Have you done everything you needed to do on the balance sheet while in bankruptcy?

Goren: Here’s how I will answer it. It is pretty much all done but it is not all reflected in the fourth quarter. We’ve been able to achieve it but the impact to the bottom line is going to be more evident in 2013. Because if you look, for example, on page 3 of our press release, what we highlighted we said in the fourth quarter we realized $400 million in restructuring related savings and we explain what that’s attributable to. So obviously that is a portion but not all of it and more and more of it will be taken in as we go through 2013.

ST: Your PRASM [passenger revenue per available seat mile] number was flat compared to the fourth quarter of 2011. Is that going to improve now that you your labor contracts renegotiated?

Goren: We don’t give guidance on a PRASM number but obviously as we highlighted there is more operating flexibility which will help us on the top line as well as revenue initiatives that we have underway. For example, as you know, we are reconfiguring our Main Cabin extra and while we are in that transition we have not been able to realize the revenue benefit of selling that product.

ST: Can you give any booking guidance going into the first quarter and if the impact from the operational issues in the fall are still hurting your bookings?

Goren: We are not giving booking guidance but I also would say that we had explained the booking impact from those impacts…We’re not giving guidance except to say that the certainly the impact has diminished throughout the fourth quarter, the operating impact was in late September, early October so they impacted the fourth quarter primarily.

I only have a couple of minutes but a couple of things I want to close with…2012 was a very important year for American. It certainly wasn’t easy but our people have worked very hard to do what was necessary and we’re now in a position to lead again. What I would say is considering where we were in November of 2011 which is just over one year ago, this is certainly an amazing achievement. We have a remarkable team which is how we were able to achieve so much change while producing major improvements in every aspect of our business. Certainly, I think if you look at our results and look at what we have commented on which is continued cost savings and just overall financial strength going into 2013, the new American is certainly well-positioned to have a bright future as a strong competitor and I would add as a winner.

-Andrea Ahles

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