American kept just $71 million on nearly $17 billion, and is purportedly adding more widebodies. The people who built American Airlines’ debt want to fix it.
The $71 Million Quarter
American did something remarkable last quarter in the most disappointing possible way. It booked record revenue of nearly $17 billion and kept just $71 million in adjusted earnings. Delta earned $1.6 billion in the same stretch and United earned $805 million, so the largest airline in the world by fleet took home a rounding error next to either. Matthew walked through how thin that margin is and why fuel cost explains much of it but not all. The more interesting question is what American intends to do about it, because the answer is to do more of what created the gap.
Growing Fastest, Earning Least
It might help to start by comparing capacity. While Delta and United hold seats back to protect pricing power, American is flying more, with capacity up 5.4% in the second quarter, and around 5% planned for the full year, and 48 aircraft joining the fleet in 2026. It is the fastest-growing of the big three and the least profitable by a wide margin. American’s pre-tax margin trailed both peers by more than 500 basis points last year even as revenue set records, and Isom’s own turnaround pitch is built around closing a $3 billion profit gap with United and a $5 billion gap with Delta.
Growth is not the answer when every new seat mile earns less than the last. Delta and United learned that discipline and that premium is what prints margin. American keeps reaching for size, which is the one lever that has not worked.
The Order That Adds To The Pile
Now layer on the fleet. American has an open request for proposals with both Boeing and Airbus for a new widebody order, weighing more 787s against the Airbus A330neo, on top of the 89 Dreamliners it already has on the books (19 yet to be delivered, and an option for 19 more.) The stated goal is to grow internationally, the premium long-haul market where Delta and United make their money when examining the core business and not the co-branded credit card suite. The balance sheet is both the difference and the problem.
American Airlines Group already carries the heaviest debt of the big three, roughly $27 billion to $30 billion net against about $20.8 billion at United and $15.6 billion at Delta, with leverage near four times earnings while Delta sits at 2.6. Widebodies are the most expensive metal an airline can buy. Financing another fresh long-haul fleet means more debt stacked onto the most leveraged carrier in the bunch, in service of the same grow-your-way-out plan that produced a $71 million quarter.
The order is not a done deal and the oneworld alliance is growing while Star has lost some carriers in the last couple of years, but as the only carrier with an in-country alliance partner the Fort Worth, Texas-based carrier will have to be strategic and successful if they could grow their way out, but how much more debt could the airline absorb?
“A new A330-800 fresh off the line costs about $260 million, and the larger A330-900 costs slightly more at $296 million. The Boeing counterpart will run you $248 million for the 787-8, $293 million for the popular 787-9, and $338 million for the 787-10.” – Aerotime
Assuming a 50% discount from book price and a minimum of 48 frames (it needs to replace 45 older 777-200s), the carrier would add $5.92bn in debt if it only added 787-8s. If it was solely growth routes, the 787-8 would make sense. It has the range to hit most dots on the map from an American hub with the least amount of risk due to its smaller size than 787-9/10 models. But the carrier is looking for replacements for older 777-200 models which have a higher seat count than 787-8s (273 vs 234) but most importantly, the 777-200s have nearly twice the premium seat configuration. If the airline is pivoting to premium, it will need more than that to make it work. That would push the airframe cost over $7bn assuming the same volume and discount.
Not all of the 777-200s are selling out but none of these will replace the 777-300ER fleet of 18 aircraft. United is purportedly circling an otherwise unsellable 20 777-9 sub fleet as the type nears certifications and Emirates has already rejected its first ten types as the aircraft were built as early as 2020 but have never seen service.
UNITED AIRLINES COULD BE EYEING BOEING’S “TERRIBLE TEENS” 777-9s
United Airlines may be considering the acquisition of around 20 early-build Boeing 777-9 aircraft that were rejected by their original customers, most notably Emirates.
These aircraft were built years ahead of the… pic.twitter.com/W2K00mKLYa
— Turbine Traveller (@Turbinetraveler) July 25, 2026
That could be a good fit for American’s larger routes specifically to London but almost none of this offers growth.
Economics on the Airbus A330-800/900 frames are slightly worse.
Trust The People Who Built This?
Isom told investors American is positioned for significant upside and laid out a plan to close those profit gaps through reliability, premium cabins, and new widebodies. But Isom has run large parts of American for a decade, as chief operating officer, then president from 2016, and chief executive since 2022, part of the same leadership that took on the debt, chose volume over margin, and leaned on the America West instincts this site has flagged before. The people describing the hole are the people who dug it.
It does mean the pitch deserves scrutiny. When the plan to escape a debt-fueled growth problem is more debt-fueled growth, run by the executives who designed the first version, the burden of proof sits with them, not with the analysts handing them the benefit of the doubt.
Where This Could Actually Work
To be fair, American does need widebodies eventually, with its oldest 777s facing retirement in the 2030s, and premium international is genuinely where the profit sits. If the airline used a modern long-haul fleet to lift revenue per seat rather than just add seats, this could be the rare growth story that improves margins instead of diluting them. The question is not whether American needs premium international. It is whether this balance sheet and this management can fund it without digging the hole deeper first.
It could also work if American pushes those retirement concerns further into the future and uses immediate airframes solely for growth. But new markets take time to grow. Perhaps American’s most successful European growth story has been Athens where the carrier now flies from five hubs after only starting service a few years ago. American would need to hit on most of its bets with new aircraft to get out of the hole the current management group created and it doesn’t seem like a credible plan to me.
Conclusion
The largest airline in the world, American Airlines, reported $71 million last quarter, grew faster than anyone else while doing it, and answered with a shopping list for more of the most expensive planes in the sky. Leading that plan are the executives who built the debt it is now trying to escape. Maybe it works, and premium international finally closes the gap. My honest take is that American is betting on more of the same and asking shareholders to trust the people who created the problem are the best ones to fix it. Why would the ones who made the mess be the ones to clean it up? That is the question American’s own strategy keeps refusing to answer.
What do you think?
While I am a UA 1K and not a huge fan of DFW or PHL, I think AA’s CLT PHX are operationally strong and improved ORD airfield and MIA terminal are decent foundations. And growth comes at a cost. I think just as much as international growth can propel revenue, so can improved domestic premium experiences AND SEATS – and do so much faster.
AA finally is adding/expanding to 12 F seats to A320s, something UA did years ago – they really could leapfrog if they went in bigger. And their Main Cabin Extra is silly small (so is Delta’s). They just need to go bigger. They have a huge domestic footprint and connect more small markets to big ones than anyone else. I do think UA missed by not following through with 16F on A320s and not doing 24F on 321s and Max10s when the finally deliver (yes I know the coastline premium config is coming, but think non-PS 757). But for not a ton of capital, AA could do this. Why do I still stay with UA? I know that I can get work done in an E+ seat and I have a good chance of getting a non-middle one even booking a week out – and with Next there is always room for a rollaboard even if I have a tight connect and board late, the cabin service is improved, etc.
Were I to switch to AA, and I periodically look at their flights when they have a nonstop instead, it would be a middle MCE and even less likely upgrade… not to mention spottier service and poorer lounges. Expanding F and MCE to equal or best UA – they would pick up more premium revenue and more frequent travelers (book later, at higher fares, pay for premium cards and lounges). PHX/LAX to Eastern cities, CLT/MIA/PHL/ORD to Western cities, and DFW to larger East or West Coast markets would all have demand for this. And with WN adding assigned and extra legroom seats, AA needs to differentiate from them.
I had to re read that headline twice!
prepositions matter!
It did feel a little suggestive… growing who into what-hole now?
“Knowing others is intelligence; knowing yourself is true wisdom.” – Lao Tzu –
So many mistakes. They are looking at the 787 and the A350 for delivery in the 2032 and later delivery time frame. They are not for growth but for the replacement of the 777 ageing out
@True – I mention the replacement as a path for this making sense. The carrier has enough long haul equipment to make money now but can’t seem to. Adding $7bn+ to the current debt load for possible greenfield revenue only works if they know how to make money now with the world’s largest fleet and record revenue.
AA, which lags far behind its competitors financially, appears to be experiencing a major internal crisis and confusion within its management. The company’s management style is being harshly criticized by both employees and industry analysts, reinforcing the perception that the management of the colossal legacy airline does not know exactly what it is doing and lacks a sense of direction. Best of good luck to AA anyway!
Be informed that AA is the largest airline in the world, leading by passenger numbers, flight volume, and total seats offered, followed closely by DL and UA. On the other hand, UA recently surpassed its domestic competitors to claim the largest operating mainline fleet. It currently has 1126 aircraft.
Other than the AADVANTAGE program, AA has spent much of the last 30 years being its own worst enemy.
One of the worst things Isom has done – no short list – is after promising to retain the value of the golden goose (AAdvantage) he still continues to destroy value in the program. If American wasn’t making it very clear that they are using the profitability of AAdvantage to bootstrap the airline up then this would perhaps make sense. Since AA actually is using AAdvantage as a crutch this is akin to shooting holes in your lifeboat.
You make some very valid points. Nonetheless I do think that AA is stumbling in the generally right direction. I have no love for Isom and less for Parker before him. The scourge of ULCC DNA that has poisoned American should absolutely be extirpated. That said, do you actually believe that the breathtakingly inept Board would suddenly decide that they wanted to employ a capable CEO after so many years of keeping on inept bunglers? I think that with The Board’s record that it’s not unreasonable for them to somehow hire someone even more incompetent than Isom so better to keep the known incompetent than have to deal with the quirks and foibles of a new one. I recognize how sad that is but that’s how I see it.
787 is 25% more efficient than 777 so with high fuel prices that may be very logical, in fact all lccs have young efficient fleet so you’re wrong there
as far as profitabilty the air travel industry is essentialy a gamble. meaning that AA carries the most debt since they have the biggest network, when air travel tanks like covid or reccesion they retain the biggest losses so they have to hope that air travel rises than they will be the most profitable. as of now the industry is soaked with capacity, so the money is with premium, in a few years the trend might turn and then AA will be raking it in and AA will have to buy kirby out…
@TOM BRADLEY – You’ve missed quite a few on this one, and I think looking at the linked source articles would help. Profitability is only a gamble for American Airlines, not United or Delta and here’s why. Faced with the same challenges with fuel price, and against similar revenue both Delta and United had substantially more profit. Delta earned about $2bn more but landed $1.9bn in profit, while United landed a billion more in revenue and made $800MM for the same quarter. Delta’s debt is about half of American’s at $15bn but United is closer at $20bn. Still each of those had margins substantially higher than American with the same fuel difficulty.
You said [American] has to hope that when air travel rises they will be the most profitable. But this was American’s best quarter ever for revenue, as it was with the others. They have never brought in more money than in 2026 and yet continue to lag competitors by billions for the year. United’s 777-200 fleet is almost twice the size of American’s so even a switch out to all 787-9s ($7bn) for all 777-200s in American’s fleet would take a payback period of 13-17 years (useful life of this aircraft is 20-25 years) without considering any other switchout costs, margin changes, or seat types. Assuming the debt was taken today and aircraft deliveries are immediate (they wouldn’t be), the airline doesn’t come to breakeven on this investment until 2039 to 2043. That’s on top of its existing debt and essentially profitless years (last year it made just $100MM on $55bn – it’s best year ever before this year.)
It’s fanciful and requires in essence 13 years minimum just to get to the point where American could potentially run ahead of competitors assuming record revenue every year. It’s absurd.
delta and united have only been profitable since they use a different modekl than AA. when the air travel market will be less saturated and demand will increase, aa will be more profitable than delta and united.
that is the gamble, i cant understand what you cant understand
American needs a new Board, not just a new CEO.
Honestly… who’s to say this isn’t one last spending binge before another round of chapter 11.
The biggest drag on AA vs. The competition is the general disgruntlement and contempt of almost everyone that works there for the passengers.
Flew their new flagship business from DFW-LHR for the first time since Covid and almost everyone single person from the gate agent, lounge staff, onboard crew was miserable and loath to actually do anything. If that’s how they all treat the premium passengers, I can’t imagine what’s going on in the back of the plane.