American cuts more debt; demand is strong; revenues at record highs

By Devika Patel

Knoxville, Tenn., Jan. 26 – American Airlines Group Inc. expects to have cut total debt by $10 billion by the end of 2023 from peak levels in mid-2021 and achieve its lowest net debt to EBITDA leverage ratio since 2017 by the end of this year.

In the fourth quarter, American prepaid a $1.2 billion term loan.

As of Dec. 31, 2022, American had reduced its total debt by more than $8 billion since the second quarter of 2021.

“We expect that by the end of 2023, we will have reduced total debt by $10 billion to $11 billion from peak levels in mid-2021,” chief financial officer Devon May said on the company’s fourth quarter and year ended Dec. 31, 2022 earnings conference call on Thursday.

“We expect that by the end of the first quarter, we will have lower net debt and better net debt to EBITDA than we did at the end of 2019 and, by the end of the year, we anticipate having the lowest net debt-to-EBITDA ratio we have had since 2017,” May said,

There are no meaningful maturities until 2025, and the company plans to keep using excess liquidity to pay down debt.

“We will continue to balance both debt reduction opportunities and investments in the business while meeting appropriate target liquidity levels,” vice chair, president of American Eagle and strategic adviser Derek Kerr said on the call.

“We will target $10 billion to $12 billion of total liquidity in the medium term and intend to utilize excess liquidity to accelerate our deleveraging initiative at the appropriate time.

“With no meaningful maturity towers until 2025, we have the flexibility as to how and when we begin to address those instruments,” Kerr said.

The company ended the year with $12 billion of total available liquidity.

Revenues were at a record high for the year and demand for travel is strong and expected to remain so.

“We produced revenues of $13.2 billion in the fourth quarter, an increase of 16.6% versus 2019 and the highest fourth quarter revenue in company history,” chief executive officer Robert Isom said on the call.

“Notably, we achieved this record revenue while flying 6.1% less capacity than we did in the fourth quarter of 2019.

“American also produced record revenues of $49 billion for the full year, which is a 7% increase over 2019, while flying 8.7% less capacity.

“Demand remains strong and our revenue performance is in line with our expectations following our strong holiday performance.

“Post-holiday bookings are off to a strong start.

“In fact, this is our best ever post-holiday booking period with broad strength across all entities and travel periods.

“We expect a strong demand environment to continue in 2023 and anticipate further improvement in demand for long-haul international travel this year,” Isom said.

American Airlines is a Fort Worth-based airline.

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