How AAL (American Airlines Group) Makes Money in 2026: A Deep-Dive With Income Statement

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Understanding how a major airline like American Airlines (AAL) makes money is essential for investors and anyone interested in the business of aviation. In this post, we break down American Airlines's quarterly income statement (Q4 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick American Airlines Overview

American Airlines operates as one of the world's largest airlines, providing passenger air transportation services across domestic and international routes. Revenue comes primarily from passenger tickets, supplemented by cargo services and other ancillary products like loyalty program fees and onboard sales. The company focuses on network optimization, fleet modernization, and premium cabin expansions to drive demand.

Revenue Breakdown

• Total Revenue (Q4 2025): $14.0B (+2.5% YoY)
  • Passenger Revenue: $12.7B (90.4% of total)
  • Other Revenue by Product: $1.1B (8.0% of total)
  • Cargo Revenue: $0.2B (1.6% of total)
  • Growth is powered by modest increases across passenger and cargo segments, with other revenue showing stronger 7.5% YoY expansion from ancillary sources.

Passenger revenue dominates as the core driver, reflecting American Airlines' reliance on ticket sales amid fluctuating travel demand, fuel costs, and capacity constraints. Other revenue, including credit card partnerships and baggage fees, provides higher-margin diversification, while cargo remains a smaller but stable contributor.

Gross Profit and Margins

• Gross Profit: $14.0B (100.0% gross margin)
  • Cost of Revenue: Not specified in detail (+N/A YoY)
  • American Airlines maintains exceptional margins due to its asset-light operational model in the airline industry, where revenue recognition often aligns closely with direct costs like fuel and aircraft leasing passed through in pricing.
• Most costs come from aircraft fuel, labor, landing fees, and maintenance, though aggregated under operating expenses in this structure.

The 100% gross margin appears unusually high for airlines, typically pressured by variable costs; this presentation likely nets out direct cost of revenue against passenger and cargo sales, shifting major expenses to operating categories for a cleaner view of core operations.

Operating Income and Expenses

• Operating Income: $0.5B (+-60.2% YoY, 3.2% margin)
• Operating Expenses: $13.5B (+560.2% YoY)
  • R&D: Not applicable (N/A YoY, 0% of revenue) — Airlines invest minimally in traditional R&D, focusing instead on technology for route optimization.
  • SG&A: $6.8B (+1317.3% YoY, 48.7% of revenue) — Covers salaries, marketing, distribution costs, and administrative overhead, ballooning due to labor deals, network expansion, and inflationary pressures.
  • American Airlines continues to prioritize growth while expanding operations, evident in surging expenses tied to pilot contracts, regional flying, and customer experience upgrades.

The explosive YoY operating expense growth highlights post-pandemic normalization, including resolved labor disputes and capacity ramp-ups, squeezing margins despite revenue gains.

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Net Income

• Pre-Tax Income: $0.1B (+-82.3% YoY, 1.0% margin)
• Income Tax: $42.0M (29.8% effective tax rate)
• Net Income: $99.0M (+-83.2% YoY, 0.7% net margin)
• American Airlines converts a moderate portion of sales into profit due to operational leverage tempered by high fixed costs, interest burdens, and taxes.

Net interest expenses of $350M and minor other income of $40M further erode pre-tax earnings, underscoring the capital-intensive nature of the airline sector with debt from fleet financing.

What Drives American Airlines's Money Machine?

• Passenger Revenue: 90.4%+ of revenue / Core from economy, premium, and international flights, with 2.1% YoY growth amid steady demand.
• Capacity Utilization (Key Metric): Implied strong load factors supporting revenue per available seat mile (RASM), though offset by cost of available seat mile (CASM) pressures.
• Fleet and Network Investments: Heavy capex in aircraft like A321neo for efficiency, alongside loyalty program enhancements driving other revenue.
• Future Growth Areas: Cargo and premium leisure travel, though not yet profitable at scale amid competition and fuel volatility.

Visualizing American Airlines's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant costs, 0.7% of revenue drops to the bottom line.

The diagram reveals passenger revenue as the overwhelming inflow, funneled through massive operating outflows, with thin profitability highlighting leverage to fuel prices and demand recovery.

Key Takeaways

• American Airlines's money comes overwhelmingly from passenger revenue
• High gross and net margins illustrate the power of American Airlines's high-volume, low-margin network model
• Heavy investment in labor and network expansion, balanced by efficiency in ancillary revenue
• Ongoing growth is driven by travel demand and premiumization

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FAQ About American Airlines's Income Statement

1. What is the main source of American Airlines's revenue in 2025?

American Airlines generates over 90% of its revenue from passenger revenue. Additional revenue sources include other products (8.0%) like loyalty fees and cargo (1.6%).

2. How profitable is American Airlines in Q4 2025?

American Airlines reported net income of $99M in Q4 2025, with a net margin of approximately 0.7%, reflecting moderate profitability driven by revenue growth offset by surging operating costs.

3. What are the largest expense categories for American Airlines?

The biggest expenses on American Airlines's income statement are operating expenses, particularly SG&A costs. SG&A investment reached $6.8B in Q4 2025, as American Airlines prioritizes labor, distribution, and network investments.

4. Why does Cargo Revenue operate at a relative loss?

Cargo, despite generating $226M in revenue, contributes minimally to profits in Q4 2025. This is because American Airlines aggressively invests in capacity amid volatile shipping rates, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does American Airlines's effective tax rate compare to previous years?

American Airlines's effective tax rate in Q4 2025 was 29.8%, consistent with previous years. This moderate rate is primarily due to standard corporate taxation on domestic operations, with limited international tax benefits.