American Airlines reports record quarterly profit.

 
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New York (AirGuideBusiness - Business & Industry Features) - Mon, Nov 2, 2015 American Airlines reported a record quarterly profit on October 23, with adjusted EPS up 67% year over year to $2.77. Yet after the stock rose in early trading that day, it gave up all of its gains during the subsequent earnings call. During the earnings call, American's management team, for the second straight quarter, gave a very frank assessment of the competitive environment. This was the primary cause of investors' dismay. The big picture takeaway was that the carrier will continue to compete aggressively against discounters like Spirit Airlines. Let's take a look at five specific points that American Airlines executives emphasized to see what this means in practice. Air travel is a commodity to many And we have many customers who are willing to fly [ultra-low cost carriers]. ... So 87% of our unique customers fly us one time per year or less, and they represent over 50% of our revenue. -- American Airlines President Scott Kirby One of the most important points made during the earnings call was that American Airlines has to treat its "Main Cabin" section as a commodity product. While the company makes a lot of money from loyal, high-fare customers, most of the people in the back of the plane are just looking for the cheapest fare. Indeed, more than half of American's revenue comes from customers who fly the airline no more than once a year. American Airlines executives feel that if they don't match cheap fares from Spirit Airlines -- or anybody else, for that matter -- they won't capture these customers. This is too big a percentage of American's revenue for the company to walk away from this business. Spirit is small, but disruptive If you measure our overlap as our domestic ASMs that have nonstop competition from someone, 28% of our domestic ASMs have nonstop competition with Spirit. That is much larger than our domestic overlap with Delta (NYSE:DAL) and United. -- Scott Kirby Some analysts suggested that American Airlines could simply ignore Spirit, which has a little more than $2 billion in annual revenue, compared to more than $40 billion for American. However, Spirit's small revenue base is deceptive. Unlike most airlines, Spirit operates one flight per day on most of its routes. So while it has far fewer flights than American Airlines, those flights are spread across many routes. And with one daily flight on a route, it can impact demand and pricing...

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