American Airlines will retrofit its 47 Boeing 777-200ER aircraft with its new Flagship Suite business class as it bets even bigger on the premium market.
"We spent a lot of time way back when in the ancient days of the airline industry wondering if our customers would pay more for a better product, CFO Devon May said Thursday morning during the carrier's quarterly earnings call. "And the answer to that question is a resounding yes, and we're going to respond to that and respond to it for so long and to the extent that our customers demand it."
The Flagship Suite debuted in June on the newest American Boeing 787-9 Dreamliners. It offers a sliding privacy door, a unique chaise lounge seating option, a wireless charging pad and more personal storage space than older-generation AA business classes.
American had already planned to place the new suite on 30 incoming Dreamliners and to retrofit its 20 777-300ER aircraft with the product. In addition, American's Airbus A321XLR (extra-long range) narrowbodies will have the Flagship Suite.
The first of those aircraft will take to the skies on Dec. 18, American announced Thursday, flying between New York JFK and LAX.
American is also placing new Premium Economy seats on those aircraft.
Premium sales growth across airlines
The airline's decision to add its ageing 777-300ER fleet to the retrofit program coincides with the continued growth in premium sales at American and across the U.S. and global airline industries. It's also part of American's strategy for closing the large financial performance gap it continues to suffer compared to legacy competitors Delta and United.
May said that American's rate of year-over-year premium revenue growth in the third quarter was 5 percentage points faster than main-cabin revenue growth.
A 14% year-over-year increase in corporate revenue contributed to that figure, and CEO Robert Isom said American is on track to have restored its corporate market share by the end of the year to the level it was at prior to an aborted 2023 and 2024 strategy to pull back from agency sales channels in an effort to drive more direct and NDC bookings.
Continued strength in the premium leisure market was the other driver of premium revenue growth. May said that 65% of American's premium-cabin passenger are now from the leisure segment. He also noted that paid occupancy in those cabins is nearly 80% compared to a mid-60s percentage prepandemic.
Isom said American's premium seat inventory will grow at twice the nonpremium rate through the end of the decade, and that the airline's lie-flat inventory will grow by approximately 50% during that time.
"People are willing to pay for experiences, and we are going to make sure that we have a hard product that they enjoy," he said.
The 777-200ERs will see their premium seat count increase by 25% once retrofitted. Executives did not provide a timeline for those retrofits on the call.
The 777-200ER fleet have an average age of more than 24 years, American's annual report for 2024 shows. May said the aircraft should be operational well into the 2030s.
American's Q3 results
For the third quarter, American reported operating revenue of $13.69 billion, up 0.3% year over year and beating consensus analyst forecasts by $60 million, according to the investment website Seeking Alpha.
Operating expenses declined 0.1% year over year on 1.6% less capacity.
American sustained a net loss of $114 million for the quarter, down from a net loss of $149 million last year.
The airline expects to be back in the black next quarter with an operating margin of 5% to 7%.