FORT WORTH, Texas (AP) — The CEO of American Airlines says travel demand is strong, explaining why airline profits are up even as fares have fallen because of cheaper jet fuel.
Fuel was American’s biggest expense, accounting for nearly one-third of all expenses, until oil prices began plunging last year.
“If it gets cut in half, that’s a pretty big change to your economic model,” CEO Doug Parker said Tuesday.
Through the first half of 2015, fuel savings at parent American Airlines Group Inc. were $2.2 billion, or 40 percent, compared with the same period last year. That’s helped the company earn almost as much in the first six months of this year as it did in all of 2014 despite a modest 3 percent increase in revenue. Analysts expect American to soar past last year’s profits.
Parker said travel demand is strong in the U.S. and weaker on international routes, especially in Brazil, a key market for American.
Airlines were criticized last year when they didn’t immediately cut fares as fuel prices plummeted. Parker said the airlines didn’t lower fares right away because nobody knew whether the oil slump would last.
When fuel prices remained lower for a long enough time, airlines added flights which led to lower fares, he told reporters at a company event Tuesday. According to trade group Airlines for America, average fares on the seven largest U.S. airlines were 4.8 percent lower in July than a year earlier.
Still, “You add it all up, profits are way up,” Parker said on MSNBC. “We’re in pretty good supply-demand balance,” he added.
Shares of American Airlines Group rose 35 cents to close at $42.64. Despite a slight rebound in the last three weeks, they are down 20 percent in 2015.
The event Parker was speaking at was the groundbreaking of the company’s new $88 million, state-of-the-art, 149,000-square-foot integrated operating center near the company’s headquarters. The new facility is located near American’s headquarters and Flight Academy south of Dallas/Fort Worth International Airport. It will serve as the nerve center of American’s global network. The center will be named the Robert W. Baker Operations Center, named after a former vice chairman of the airline.
Specific functions of the new Integrated Operations Center will include Flight Dispatch, Crew Scheduling, Maintenance Operations Control, Weight and Balance Planning, System Customer Service, Flight Planning Support, and Emergency Planning and Response. The building has been designed to withstand winds associated with an EF3 tornado (165-185 mph). The architectural design firm for the project is Corgan and the general contractor is Holder Construction.
American Airlines, Tarrant County’s largest employer, is said to be considering a new corporate headquarters. Some other area cities, including Irving, have been luring the corporate campus away from Fort Worth, but officials involved in the discussions have recently indicated the airline is likely to remain in the city. – Robert Francis of FWB contributed to this report.