Why Is American Airlines’ Margin Lagging Behind Delta & United Despite Strong Financial Performance?

American Airlines is the world’s largest airline by number of passengers carried, which is one of the key metrics used to define a carrier’s overall performance. Its growth and expansion over the years are incredibly impressive, and the airline today leads the industry globally in terms of the number of employees, aircraft capacity, and scheduled passenger miles flown.

Lower margins than its rivals

However, there are a few key metrics where American Airlines lags far behind its competitor legacy carriers, Delta Air Lines and United Airlines. Despite its powerhouse status, American’s financial performance has lulled in recent years.

According to The Airline Observer, AA returned an operating margin of just 5.1% in the fourth quarter of 2023. Delta Air Lines, by contrast, returned a significantly higher 9.7%, with United not far behind at 7.7%.

In the peak summer season, when carriers typically achieve the best performance, American’s operating margin sat at just 5.4%, while both its competitors were in double digits. In this article, we will take a deeper look at the multiple reasons that have led to American Airlines’ lagging financial performance.

Structural issues

The matter of what is dragging American’s financial performance downwards is not a new question, and virtually every industry analyst has their own theory as to what is causing it. An analysis of the carrier’s financials by Fortune pointed towards deep-rooted issues as the key weakness that holds American Airlines back.

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Ever since American’s 2013 merger with US Airways, the carrier has been caught up in debt which keeps the airline saddled with a weak financial outlook. With investors wary, the company has come to be trapped in a vicious cycle of being beaten out in the market by Delta and United.

Photo: Carlos Yudica | Shutterstock

The nature of American Airlines’ route network has also come to its detriment. The airline is “sun-belt obsessed,” as industry expert Brian Sumers put it. Unfortunately, the region simply lacks the consistently high levels of premium demand that are observed on routes from cities like New York, Chicago, Los Angeles, and San Francisco, which are locations where the carrier’s market share continues to wane.

Strategic decisions

Some industry analysts, however, do not let American Airlines off the hook for its performance by blaming structural issues. Rather, they argue that many strategic decisions have left the carrier out to dry.

The carrier has failed to compete effectively in the Northeast,which is the country’s most valuable aviation market. The proposed Northeast Alliance between the airline and JetBlue was struck down by a US judge, a move that prevented American from becoming more competitive in the extremely saturated market.

Photo: Philip Pilosian | Shutterstock

The airline’s leadership has attempted to push back on this notion, pointing to sign-ups for cobranded credit cards in the New York Area, according to reports from Skift. At the end of the day, however, the carrier’s premium products and passenger experience, especially on domestic routes, are lagging behind its two competitors in these critical regions.

The one diamond sticking out of American Airlines’ relatively weaker route network is undeniably its hub in Miami. As a rapidly growing business hub and with Florida emerging as the state of choice for conservative America, demand at MIA will only continue to grow, especially in crucial premium markets.

Elsewhere, the airline has also embarked on a number of cost-cutting techniques, including the layoff of 700 customer service personnel that took place on 30 January.