American Airlines Jumps as CEO Sees Cash Flow Poised for Takeoff

(Bloomberg) -- American Airlines Group Inc. surged as executives sketched out a robust outlook for 2020 after two punishing years for investors.

Profit and cash flow are poised to rise as the company improves operations and reaches the end of heavy investments in new jets, Chief Executive Officer Doug Parker said Thursday. That will enable the company to cut debt even if earnings are flat, he said, signaling relief for a major concern for investors.

“We are confident we will begin to produce significant free cash flow for our investors in 2020 and beyond,’’ Parker said on a conference call with analysts to discuss earnings. “As we generate that significant free cash flow, we will naturally deleverage our balance sheet.”

American is trying to engineer a turnaround after a summer plagued by flight delays and cancellations, and a widening lag with rivals in shareholder returns. On-time performance in September was the best in almost two years, American said, and the results of an aggressive expansion plan at the company’s Dallas hub are exceeding expectations.

“We just know we’re excited about our prospects to grow and to grow efficiently and profitably,’’ Parker said.

The shares climbed 4% to $29.41 at 3:07 p.m. in New York after advancing as much as 5.5% for the biggest intraday gain in four months. American fell 12% this year through Wednesday, the only decline on a Standard & Poor’s index of major U.S. airlines. The carrier also brought up the rear last year, with a 38% tumble.

‘Approaching Improvements’

Even if earnings are unchanged from 2019 levels during the next two years, American should generate $2.5 billion in free cash flow in 2020 and $3 billion in 2021, said Parker, who cautioned that those numbers aren’t official forecasts. Earnings are widely expected to increase the next two years, based on estimates compiled by Bloomberg.

“We do believe the time has arrived that American can more succinctly shine a light on approaching improvements -- assuming the wheels don’t come off the economy,” JPMorgan Chase & Co. analyst Jamie Baker said in a note to clients. “We look for renewed balance sheet management to emerge as a focus by management.”

In the third quarter, earnings rose to $1.42 a share, American said in a statement Thursday. That topped the $1.40 average of analyst estimates compiled by Bloomberg. Sales climbed 3% to $11.9 billion, in line with expectations.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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