American Airlines CFO on fixing balance sheet after COVID
FORT WORTH, Texas (AP) — Derek Kerr might have the hardest job in the airline business.
Kerr is the chief financial officer of American Airlines, and his task is to fix a balance sheet that has been battered by borrowing needed to survive the pandemic.
American has the most debt among all U.S. airlines, more than $36 billion. The airline is trying to fly through a bumpy recovery in travel during which revenue is rising but so are costs like fuel and labor.
Kerr spoke recently to The Associated Press. The answers have been edited for length.
Q. American is coming off its first profitable quarter, excluding government aid, since the pandemic started. Planes are packed. What's going to happen to revenue after Labor Day, when leisure travel slows down?
A. Leisure is really, really strong. Small business is back 100% also, because those businesses had to survive, they are out flying. Corporate business is back about 65%, 75%. As we look out at bookings … we don't see any huge change from a revenue standpoint as we go forward.
Q. Spot prices for jet fuel prices have eased in the last couple of months, but they're still double the price before the pandemic. Why doesn't American hedge against fuel spikes like Southwest does?
A. Hedging is insurance. It's very expensive, and you can't insure your entire portfolio of fuel. The airline industry is the No. 2 user of fuel. If we all hedged fuel, we'd move the fuel price and actually drive the fuel price up. Plus you put a risk on the company (if oil prices fall). And then the last thing is you have a natural hedge today — as fuel increases, the industry can raise revenues. We have passed on pretty much the fuel increases that are out there.
Q. American predicts nonfuel costs in the third quarter will be up 12% to 14% compared with the third quarter of 2019 on a per seat, per mile basis. Can you get costs under control?
A. It's not necessarily a cost issue, it's a utilization of the fleet issue. If we flew our entire fleet, that (cost per seat per mile) would only be up about 2%. We've built these airlines, from a cost perspective, to fly more, and we're not flying more because of the resources that we need to do that.
Q. How will you fly more? Do you need more pilots?
A. There is a pilot shortage at the (regional airlines) because the mainline carriers (like American, Delta and United) hire from the regionals. We'll continue to work through that. That may take a couple of years to resolve itself. At the mainline, it's more about a throughput of training. We can bring the pilots on, we have to get them through training. I hope by the beginning of next year, middle of next year, we'll work through that and we'll be able to have the whole mainline fleet up.
Q. When will your profit margins return to pre-pandemic levels?
A. It's actually the same answer, because obviously that growth will come back at a much cheaper cost because the costs are already here. That will improve the margins over time.
Q. You've got $15.6 billion in liquidity. When are you going to use that to pay down debt?
A. Right now we're going to hold on to that liquidity until we feel like we've totally turned the corner. We did have one profitable quarter. That's awesome, it's great, I'm proud of everybody here that that worked to get to that point, but we need to sustain that. We are going to take ($15.6 billion of liquidity) down into the $10 (billion) to $12 billion range at some point in time — just not ready to do that yet, but hopefully pretty soon.