Cost Creep Remains American Airlines' Achilles Heel

Cost Creep Remains American Airlines' Achilles Heel

In recent years, United Continental's (NYSE: UAL) perennial margin deficit relative to Delta Air Lines (NYSE: DAL) has become a frequent topic of conversation among airline investors and analysts. By contrast, the growing margin gap between American Airlines (NASDAQ: AAL) and Delta has mostly flown beneath the radar.

At an investor day event last month, American Airlines' management laid out a blueprint for boosting earnings in the coming years. However, three years of big increases in non-fuel unit costs may have spoiled the company's chances of matching Delta's profit margin.

Just a few years ago, American Airlines seemed to be firing on all cylinders. Management's firm stance against fuel hedging paid off in a huge way as oil prices crashed beginning in 2014. The resulting fuel cost advantage allowed American Airlines to post a higher pre-tax margin than either Delta or United in 2015.

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Source: Fool.com