American Airlines executives on Tuesday said they have no plans to adjust pricing or capacity in response to lower fuel costs, marking a unanimous commitment among the three U.S. legacy carriers on the matter.
As the only airline among the legacy carriers that does not participate in fuel hedging, AA is seeing the most direct benefit from lower fuel prices. For 2015, the carrier projects it will see more than $5 billion less in fuel expenses year over year, all of which will go directly to its bottom line, American Airlines Group CEO Doug Parker said during the company's fourth-quarter earnings call on Tuesday. Even so, that will not change its pricing strategy.
"Pricing is tied to demand, and demand remains strong," Parker said. "That's what we should base our pricing on, not our cost structure."
Parker touted a similar line on capacity. AA plans to increase domestic capacity 3 percent and international capacity 1.5 percent year over year in the first quarter, but the carrier couldn't pump that up even if it wanted to, he said. "Our infrastructure would not be able to handle additional capacity above current plans for at least 18 months," Parker said.
During the fourth quarter, AA's operating revenues were $10.2 billion, up 1.8 percent compared with combined operations of AA and US Airways for the same period in 2013. Net income for the quarter was $597 million, compared with a loss of almost $2 billion for the two carriers in the fourth quarter of 2013.
For the full year, AA's net income was $2.9 billion, compared with a loss of $1.2 billion for the two carriers in 2013.
Consolidated revenue passenger miles declined slightly year over year during the quarter as capacity increased 1.7 percent, leading load factor to decline 1.6 percentage points year over year to 80.1 percent. Passenger revenue per available seat mile declined 1 percent, and yield increased 0.9 percent, AA reported.
AA president Scott Kirby noted that PRASM was lower than expected due in part to increased competition from "an unusually high and concentrated number of new starts" by competitor carriers, including Southwest Airlines' growth out of Dallas Love Field following the expiration of the Wright Amendment. Even so, Kirby said the carrier is seeing strength from its corporate accounts, including double-digit percentage PRASM increases in New York during the quarter.
AA also continues the consolidation process with US Airways this year. It plans to finish consolidating the two airlines' frequent-flyer programs later in the spring, to be on a single operating certificate within the first half of this year and to consolidate the reservations program in the latter part of the year, according to executives.