American Airlines' Q3 2025 Earnings Call: Contradictions Emerge on Premium Leisure Yields, Capacity Strategy, and Chicago Hub Commitment

Date of Call: None provided

Financials Results

• Revenue: Record third-quarter revenue of $13.7 billion, about 1% ahead of the midpoint of initial guidance
• EPS: Adjusted pre-tax loss of $139 million; adjusted loss per share $0.17 (adjusted), a 50% beat versus the midpoint of prior guidance
• Operating Margin: Q4 expected adjusted operating margin of 5%–7% (guidance)

Guidance:

• Q4 2025 capacity +3%–5% YoY; revenue +3%–5% YoY; unit revenues roughly flat YoY
• Q4 CASMx expected +2.5%–4.5% YoY
• Q4 adjusted operating margin 5%–7%; Q4 EPS $0.45–$0.75; FY EPS $0.65–$0.95
• 2025 CapEx ≈ $3.8B; 2026 CapEx ≈ $4.0–$4.5B
• Expect >$1B free cash flow for 2025; end-Q3 total debt $36.8B with target < $35B by end-2027
• Citi co-brand partnership launches Jan 1; co-brand remuneration targeted ≈ $10B by decade-end, ~ $1.5B incremental operating income vs 2024

Business Commentary:

• Revenue Performance and Sales Strategy:
• American Airlines reported an adjusted pre-tax loss of $139 million for Q3, or a loss of $0.17 per share, which was at the higher end of their guidance.

• The loss was driven by stronger revenue performance, particularly in corporate revenue growth by 14% year-over-year, due to the company's focus on sales and distribution efforts.

• Premium Travel Demand and Loyalty Program:

• Premium cabin routes outpaced the main cabin in terms of unit revenue by 5 percentage points year-over-year.

• The increase in premium demand was driven by a 7% year-over-year increase in active AAdvantage accounts and 20% increase in Chicago enrollments.

• Capacity and Fleet Management:

• American Airlines plans to increase capacity by 3% to 5% year-over-year in Q4, focusing on restoring hubs.

• Capacity expansion is supported by new aircraft deliveries and fleet reconfigurations, with premium seating expected to grow at twice the rate of non-premium offerings.

• Financial Outlook and Margin Expansion:

• The company expects to deliver an adjusted operating margin of 5% to 7% and EPS of $0.45 to $0.75 in Q4, more than double the implied guidance from July.
• The improvement in guidance is attributed to strong revenue performance and ongoing operational efficiencies.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted record Q3 revenue of $13.7B, a 50% beat to EPS guidance midpoint, and raised guidance for Q4 and full year. They emphasized momentum in sales, Citi card partnership ramping Jan 1, premium-product expansion, CapEx discipline and a target to reduce total debt to < $35B by end-2027, underpinning expectations for margin expansion into 2026.

Contradiction Point 1

Premium Leisure Yielding and Corporate Travel Strategy

It involves the company's strategy regarding premium leisure yields and corporate travel demand, which are crucial for revenue projections and market positioning.

How prevalent is the trend of premium leisure yields surpassing corporate yields, and how does this trend impact corporate stock demand? - [Jamie Baker](J.P. Morgan Securities)

2025Q3: Premium leisure is increasingly yielding more than corporate travel, driving growth in business and leisure demand. American is doubling down on corporate travel, focusing on optimizing sales efforts to leverage both premium leisure and corporate demand. - [Devon May](CFO)

What is the estimated percentage of unprofitable flights, and what strategies are in place to reduce this percentage? - [Jamie Nathaniel Baker](JPMorgan Securities)

2025Q2: We are pleased with our share gains in the corporate market. We're optimistic that our successful sales strategies will allow us to gain share in this segment despite challenging conditions. - [Robert D. Isom](CEO)

Contradiction Point 2

Capacity and Premium Investment Strategy

It involves the company's strategy on capacity and premium investment, which is key to understanding its growth and revenue projections.

Can you discuss capacity and premium investment, particularly the mix and scale of premium versus main cabin? - [Sheila Kahyaoglu](Jefferies)

2025Q3: Our premium seating is expected to grow at twice the rate of non-premium offerings, with a focus on expanding our lie-flat international capable seating by 50% by the end of the decade. - [Devon May](CFO)

How have capacity and unit costs changed compared to January? What challenges and opportunities will you face next year? - [Catherine Maureen O'Brien](Goldman Sachs)

2025Q2: We guided for a capacity increase of 20% to 25% for the year, which based on the current booking trends we believe is likely to be at the lower end. CASM was up 4% in Q2. Year is unfolding as expected. - [Devon E. May](CFO)

Contradiction Point 3

Capacity and Demand Management

It highlights inconsistencies in the airline's strategies for managing capacity and demand in response to economic uncertainties, which impacts operational and financial planning.

Why was September unit revenue positive and how does premium vs. domestic impact Q4 guidance? - [Scott Group](Wolfe Research)

2025Q3: While premium revenues have been strong throughout the year, main cabin revenues improved sequentially since July, with September showing positive unit revenue. - [Devon May](CFO)

Is the business declining? Are there signs of stabilization? - [Scott Group](Wolfe Research)

2025Q1: We are managing to the environment, being cautious but adjusting as needed. - [Robert Isom](CEO)

Contradiction Point 4

Premium Revenue Performance

It involves differing perspectives on the performance and expectations of premium revenue, which could impact strategic decisions and investor expectations regarding revenue streams.

Why was September unit revenue positive, and how do premium vs. domestic factors impact Q4 guidance? - [Scott Group](Wolfe Research)

2025Q3: Premium revenues have been strong throughout the year, main cabin revenues improved sequentially since July, with September showing positive unit revenue. - [Devon May](CFO)

How will price/cost on a net basis trend throughout the year? - [Scott Group](Wolfe Research)

2024Q4: Premium RASM was up 7%, helped by strong corporate and first class demand. Main cabin RASM increased 2%. - [Robert Isom](CEO)

Contradiction Point 5

Chicago Hub Strategy and Market Support

It involves differing assessments of the Chicago market and hub strategy, which could impact regional growth and competitive positioning.

Can Chicago sustain two major competitors, and will a 20% enrollment growth close the margin gap by 2026? - [Dan McKenzie](Seaport Global)

2025Q3: Chicago can support two hub carriers, and American is committed to investing in its presence there. - [Devon May](CFO)

How do you assess the assumptions behind your indirect revenue guidance and full-year industry outlook? - [Catherine O'Brien](Wells Fargo)

2024Q4: We'll add the 145s to Chicago as part of our continued strategy to focus on hub profitability and to restore the schedules we had pre-COVID. - [Robert Isom](CEO)

Q&A:

• Question from Scott Group (Wolfe Research): September unit revenue was positive but the Q4 guide is flat—please explain that change and how domestic versus premium dynamics are shaping Q4.
  Response: Sequential recovery: July weak, August better, September positive; Q4 guide flat as main-cabin demand is recovering while premium remains consistently strong, driving overall sequential improvement.

• Question from Scott Group (Wolfe Research): Early thoughts for 2026 on capacity and unit costs—are Q4 capacity/unit-cost dynamics indicative of next year?
  Response: No 2026 guidance yet; fleet can support mid-single-digit growth, management will set capacity based on demand and competition, and expects margin expansion into 2026.

• Question from Sheila Kahyaoglu (Jefferies): With reconfigs and new deliveries, how are you thinking about premium versus main-cabin mix and short-haul vs long-haul?
  Response: Premium seats to grow roughly 2x non-premium; lie-flat international-capable seating to increase ~50% by decade-end; growth balanced between domestic hubs and international operations.

• Question from Sheila Kahyaoglu (Jefferies): Where across domestic hubs are you seeing the greatest unit-revenue improvement and how should we think about capacity next year?
  Response: Chicago showing the strongest improvement (AAdvantage enrollments +20% there); plan to exceed 500 departures in Chicago; capacity restoration focused on Philadelphia, Miami and Phoenix.

• Question from David Vernon (Bernstein): What % of seats are premium as of end-2025 and how does buy-up behavior drive unit-revenue upside?
  Response: Premium load factor ~65% with paid premium load ~80%; premium outpaced main cabin by ~5 PRASM points YoY and now represents nearly 50% of ticket revenue, indicating significant unit-revenue upside from mix shift.

• Question from David Vernon (Bernstein): What are the top product/experience investments you’re prioritizing?
  Response: Focus on in-flight amenities (amenity kits, Lavazza coffee, Bollinger), lounge expansion (Miami, Charlotte, Admirals Club growth), and hard-product upgrades including flagship suite rollouts and 777/A321/XLR reconfigurations.

• Question from Dan McKenzie (Seaport Global): Can Chicago support two large hub carriers long term, and will +20% enrollments there help close the margin gap?
  Response: Yes—Chicago can support two hub carriers; American will invest to scale Chicago (>500 departures); the enrollment lift will help regain share and improve profitability over 2026–2027.

• Question from Jamie Baker (J.P. Morgan Securities): With premium-leisure yields strong, does that change how aggressively you pursue corporate share?
  Response: Both segments matter—corporate travel yields remain valuable and under-recovered vs 2019 (business ~80% of 2019), so American is doubling down on sales to win corporate while capturing premium-leisure demand.

• Question from Atul Maheshwari (UBS): Is the expectation that November/December will be slower than October driving caution on Q4 RASM, and how much revenue lift remains from restoring indirect-channel share?
  Response: Caution due to limited November/December bookings; current best estimate is flat Q4 and management is encouraged by holiday bookings but will monitor; indirect/channel recovery progressed through the year with full restoration expected by year-end and further benefit in 2026, but no single-year dollar run rate was provided.

• Question from Catherine O’Brien (Goldman Sachs): What should CASMx look like on mid-single-digit capacity growth and are your leverage/net-debt targets still intact?
  Response: CASMx depends on growth level; some costs (airport rent) may outpace inflation and pilots have a ~4% step in 2026, but management believes they can improve beyond Q4 over time; financial targets remain: total debt < $35B by end-2027, net debt < $30B and ~3x leverage as a goal for investment-grade progress.

• Question from Connor Cunningham (Melius Research): What incremental value does loyalty/Citi deliver and how do you view investment spend in product vs returns?
  Response: Citi partnership expected to grow cash remuneration ~10%/yr toward ~$10B by decade-end, implying roughly $1.5B incremental operating income vs 2024; investments are disciplined and intended to drive revenue and margin improvements, not discretionary overspend.

• Question from Michael Lindenberg (Deutsche Bank): Why the nose-to-tail 777-200 investment and what’s the payback; also what is the impact of the government shutdown at Reagan?
  Response: 777-200 reconfigs were planned to extend useful life and deliver attractive payback over the aircraft’s remaining service life; government-travel impact is modest (~<$1M/day revenue), some temporary operational delays at Reagan, and management expects effects to be short-lived.

• Question from Leslie Josephs (CNBC): With the push to premium, what is the end goal and is there a limit to spend to get there; what about operational improvements?
  Response: End goal is to invest where customers will pay and where the investments earn a return; operations will be improved via efficiency and targeted investments (hard product, lounges, amenities) rather than unlimited spending.

• Question from Niraj Choksi (The New York Times): How are you balancing focus on core hubs versus growth opportunities in non-hub markets?
  Response: Priority is hubs in the fastest-growing metros; near-term growth emphasis on New York, Chicago, Phoenix, Miami and Philadelphia, with non-hub expansion secondary and evaluated against supply/demand and market opportunity.