American Airlines to Spend $1.8 Billion in 2018 Making Economy Worse, Premium Better

Jan 25, 2018

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According to American Airlines CEO Doug Parker, the world’s largest airline is in the midst of the “most aggressive and successful aircraft modernization in the history of commercial aviation.”

Indeed, the airline has taken delivery of almost 400 new aircraft over the last four years. In addition to buying new aircraft, the airline spent money to finally retire the last of its angle-flat business class seats, retrofit half of its large widebody fleet with premium economy cabins and open top-notch Flagship Lounges in New York’s JFK, Chicago (ORD), Miami (MIA) and Los Angeles (LAX).

Basically, AA has spent a ton to buy new planes and make its premium product much better than before. From 2014 to 2017, the airline spent around $23 billion to do so:

However, 2018 is going to mark a turning point. After averaging 97 new aircraft per year from 2014 to 2017, American Airlines unveiled Thursday that it’s only going to spend $1.8 billion to bring 65 new aircraft (22 mainline and 43 regional) into its fleet in 2018. In addition, it’s planning to spend $1.8 billion more on “non-aircraft capex,” or capital expenditure, in 2018.

What are the plans for that second batch of funds? American Airlines’ Chief Financial Officer Derek Kerr detailed that in Thursday morning’s earnings call:

Complete projects to improve our product and operations — such as narrowbody retrofit programs, the ongoing installation of premium economy on our widebody aircraft, and improvement in our clubs.

That quote might be yawn-inducing to many, but there’s some important information in there. The continuing premium economy retrofits and lounge improvement projects are good news for premium cabin travelers. But, it’s the first part — the “narrowbody retrofit programs” — that’s a bad sign for economy travelers.

As detailed at the Media & Investor Day in September, American Airlines is planning to “harmonize and optimize” its narrowbody fleet. How’s it going to do that? By shoving more seats onto its 219 Airbus A321s and 304 Boeing 737s.

Of the four aircraft types listed on that slide, there’s only one that’s currently flying with the same number of seats that’ll it end up with: the Boeing 737 MAX — which is a miserable experience for flyers and flight attendants alike. And, American Airlines is going to be spending heavily over the next couple of years to make sure that it’s just as miserable across the other 500+ A321s and 737s in its narrow-body fleet. The codename for this project: “Project Oasis.”

What does it all boil down to? Well, that $1.8 billion in “non-aircraft capex” is going to continue making the American Airlines premium cabin experience better while making the economy experience even worse.

The original version of this article referenced 27 aircraft deliveries based on a statement from AA CFO Derek Kerr. This number has been updated to reflect the details included in the company’s 8-K filing.

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