American Airlines leadership has stated that they expect to close the pre-tax profit margin gap with rivals Delta and United, despite trailing them in recent years. This confidence stems from profit in cost performance and a strong recent improvement in total revenue, thanks to the new credit card partnership with Citibank. American Airlines has been trailing both Delta and United in terms of pre-tax profit margin.

Delta and United have pulled ahead with stronger premium services and loyalty programs along with the efficient networks but American Airlines believes that it can improve its competitive position. Delta and United accounted for more than 86% of the profits published by the seven largest airlines last year. Airline margins are notoriously thin which is less than 4% last year when compared with close to 20% for big US companies as per the Airlines for America industry group.

American Trails Competes in Pre-Tax Profit Margin

• Delta and United Airlines’ top executives said Thursday that they expect to close the gap with American Airlines, which has been under constant assault for its failure to meet the profit margin.
• The profit margin refers to the difference between revenue and cost.
• In the recent years, American Airlines has trailed peers Delta and United.
• In the second quarter, American Airlines said that its pre-tax margin was 5.8%.
• Delta Airlines reported a pre-tax margin of 11.6% while United reported 11%.

Optimistic Outlook From American Airlines Executives

Despite the current gap in profit margin, American Airlines executives are sure about their ability to bridge the difference. American’s chief financial officer emphasized that there is potential to make substantial strides in improving margins as the airline continues to focus on cost management and revenue growth. Moreover, the Vice Chairman of AA has shared that the airline is making progress on the revenue side, suggesting that it is on track to close the margin gap in the near future.

American Will Boost Revenue Through Credit Card Deal With Citibank

• Key to Johnson’s enthusiasm is the credit card deal American Airlines has recently signed with Citibank in December 2024.
• American Airlines got a smaller check of $1.4 billion from JPMorgan Chase and a pretty decent haul to Chase paid United around $800 million.
• The deal which takes effect in 2026, removes Barclays as an issuer of American cards and provides exclusivity to Citibank.
• That should enable the bank to compete with American Express and chase those who issue Delta and United credit cards.
• American Airlines’ new app which moves towards free Wi-Fi and better food along with new airplanes are improvements that will boost the revenue, although none are unique to American.

American Airlines To Compete With Major Airlines Like Delta and United

• American Airlines CFO Devon has announced at an investor conference that they are planning to be able to shift that margin gap pretty.
• While Vice Chairman Steve Johnson said that American Airlines has performed well on the cost side to make a profit on the revenue side.
• The improvement “Leaves us encouraged about the revenue gap to other carriers”.
• He noted that historic revenue performance accounts for more than half of the total revenue gap.
• The operating margin of American stood at 8% which is lower than Delta’s about 13%.
• United outperformed American with the stronger pre-tax earnings. The problem lies in American’s reliance on domestic flying.

Revenue Growth Strategies: Key Initiatives Driving the Shift

One of the key reasons for American Airlines’ growing optimism is a new partnership with Citibank that will begin in 2026. This agreement will mean that Citibank will take over the credit card program for American Airlines which replaces the current partner, Barclays. As a result, American Airlines hopes to create a more competitive landscape to make it easy for them to compete against credit card offers from other airlines like Delta and United. The American leaders believe this move will significantly increase the money they make from their credit card program.

American Airlines is focused on making its travel experience better for passengers which they believe will help them earn more money. New features are announced, like free Wi-Fi and better meal options during flights. Additionally, they are all set to add new airplanes to their fleet. These changes aim to make customers happier and more loyal which will help American Airlines catch up to its competitors, Delta and United.

Challenges in Domestic Hubs and International Market

• Despite its improvement, American Airlines is dealing with some difficulties when it comes to its international flights.
• United and Delta, American Airlines does not have as many flights to different countries which makes it harder for them to earn money from those markets compared to its competitors.
• Instead, American Airlines is focusing on improving its services in important cities within the United States like Dallas, Charlotte, and Chicago.
• These cities play a key role in the airline’s plan to increase its share of the market and make more profit.
• Chicago is a key city where American Airlines and United Airlines are competing fiercely for leadership.
• United’s CEO has expressed worries about American Airlines not doing well enough at Chicago O’Hare Airport, where American is finding it tough to keep up.
• Despite this, American Airlines leaders are hopeful about growing their business in important places like Chicago and New York.
• They are focusing on attracting more passengers and increasing the number of customers who use their credit card services.

Why is American Airlines Focusing On EBITDAR Margin?

American Airlines has high capital expenditures and uses the EBITDA margin rather than the pre-max margin to show the operational performance and cash flow potential, as it excludes the amortization and depreciation costs. It provides a clear view of core business profitability independent of accounting and financing differences.

Reasons Behind AA Uses EBITDAR Margin:

• Focus on Operations: EBITDAR strips out the interest, depreciation, taxes, and amortization which are expenses related to financing and non-cash accounting practices. It helps with a clear comparison of operational efficiency and core profitability.
• Cash-Flow Potential: EBITDAR can offer a better estimate of the ability of American Airlines to generate revenue from its operations by excluding the non-cash expenses like depreciation. It is important for making interest payments and investing in growth.
• Industry Benchmarking: The EBITDA margin allows for apples-to-apples comparison between the airlines of different sizes.
• Financing Decisions: The lenders and investors prefer to see a strong EBITDA margin as it indicates the financial strength and ability of the airline to meet its obligations.

When is it useful for American Airlines?

Know the aspects that prove EBITDA is useful for American Airlines for its further growth:

High Depreciation/Amortization: The airline industry involves the investment in tangible assets like planes, which lead to high depreciation costs. Excluding these costs from the EBITDA calculation provides an accurate picture of the performance of the airline.

• Capital Intensity: The airline in capital-intensive industries like airlines can use EBITDA to demonstrate their underlying profitability if their net income is lessened by the large depreciation cost.
• Evaluating Operational Effectiveness: Analysts can access how effectively the company is managing its operating expenses and making a profit from its core flight services through the focus on EBITDA margin, regardless of its debt levels or tax structure.

The Bottom Line!

American Airlines trails Delta Air Lines and United Airlines in the profit margins due to strategic missteps. Its focus is on the domestic network competition rather than the premium travel experience. Delta and United are pulling ahead by investing in the premium cabins and international routes along with the loyalty programs which enable them to impose higher fares.

While American Airlines has a new partnership with Citibank and a young fleet that could improve costs. The leadership of American Airlines is about closing the margin gap through the future revenue growth from its credit card deal, but its historical performance shows a challenge in matching its rivals’ profitability. For more information regarding the above-discussed article/or to book your upcoming journey with Delta, United, or American Airlines, contact Myflightpolicy.com at Call Us : +1-877-271-4004 24/7.

Frequently Asked Questions

About The Author

About Sofia Marin

Originally from New York, Sofia works in Myflightpolicy.com as a travel content writer and brings a creative international flair to our content team. With a strong knowledge of US travel industry, she crafts engaging and SEO-friendly content that help users to solve their queries whether it is related to the flight reservation, flight cancellation, or change flight.