Q3 2020 American Airlines Group Inc Earnings Call

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Good morning, and welcome to the American Airlines Group third quarter 2020 earnings call Today's conference is being recorded.

At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero and now I would like to turn the conference over to your moderator managing director of Investor Relations Mr. Dan.

David Please go ahead.

Thanks, Robert Good morning, everyone and welcome to the American Airlines third quarter 2020 earnings Conference call.

In the room are on the call with US. This morning, we have Doug Parker, our chairman and CEO, Robert Isom, President Derek Kerr Chief Financial Officer.

So on a call for acuity says one or several of our senior execs, including Maya Leibman Information Officer, Steve Johnson, our VP of corporate Affairs, BACE, rather our Chief revenue Officer, Allison Taylor, Chief customer Officer, and David Moore, Our Chief operating officer like we normally do I will start the call with an overview.

Our quarter and the actions were taken during this pandemic Robert will then follow with some remarks about our commercial initiatives and after Roberts remarks, Derek will follow with the details on our liquidity and cost outlook. After their comments, we will open the call for analysts questions and lastly questions from the media to get in as many questions as possible. Please limit your self.

For one question and a follow up.

Before we begin we must state that today's call does contain forward looking statements, including statements concerning future revenues comp forecast for capacity fleece pants and liquidity.

These statements represent our predictions and expectations as to future events, but there are numerous risks and uncertainties that could cause actual results to differ from those projected information about some of these risks and uncertainties can be found in our earnings press release issued this morning, and our form 10-Q for the quarter ended September Thirtyth 2020. In addition, we'll be discussing.

Certain non-GAAP financial measures this morning, which exclude the impact of unusual items a reconciliation of those numbers to the GAAP financial measures is included in the earnings release and that can be found on the Investor Investor Relations section of our website a webcast of this call will also be archived on the website information that we're giving you on the call is as of today.

And we undertake no obligation to update the information such as well so.

So thanks again for joining us and at this point I'd like to turn the call over to our chairman and CEO Doug Parker.

Hey, Dan Good morning, everybody, thanks for joining us so.

So look there is no doubt that this continues to be an unprecedented time earned for our entire industry our team.

And our customers at American.

We continue to take actions that we can manage through this pandemic and position our Allen for success when demand returns.

So I'm going to start with a quick summary of our results for the quarter, which are improved versus earlier in the year, but still reflective screen really challenging environment. We're in today.

Our third quarter pretax loss, excluding net special items was $3.6 billion, our revenues were down 73% year over year and.

In this environment, we continue to focus on controlling what we can reducing costs and cash burn are front and center.

In total we removed approximately $17 billion in cost from our business.

And our cash burn rate declined markedly reducing gord.

We ended the quarter with a pro forma liquidity balance of approximately $15.6 billion, which is much more liquidity than we've ever had before and more than double where we began this year.

The customer confidence is gradually begin to return we continue to evolve in this new era of trap.

The foundation of all that of course is our incredible team.

These are difficult times for sure we couldn't be prouder of how the American team is handling the situation.

Our team is out there keep in our country moving safely transporting hundreds of thousands of people around the globe every day.

And we're doing an excellent job of generating revenue in this environment is making a difference for American airlines and the United States in general.

That's why it was so difficult to see October 1st, perhaps not having the payroll support or even the cures Act is.

Extended both in support of our team and the commercial aviation infrastructure, that's going to be critical to an economic rebound.

Theres enormous bipartisan support for an extension.

Unfortunately, our elected officials still have been able to get enacted.

Because they've been unable to agree on broader cobot relief legislation.

So without the extension and we had to throw a 90000 of our team members beginning until reversed and we discontinued service to numerous markets around the country.

We remain hopeful that our elected officials can come together on this important legislation, we haven't our team our industry and working Americans and our economy at large.

Elections matter, but theres.

But theres nothing pulling higher than support for a coupon release stimulus package.

PSP extensions will be an important component of any such package.

Robin daring to talk more about our results were passport, but know that every action. We took in the third quarter centered on our aggressive plan to bolster liquidity conserve cash and ensure the customers comply with complete confidence when they travel in America.

On the liquidity front American other said ended the third quarter the profit with approximately $13.6 billion will avail available liquidity.

And $15.6 billion when you pro forma for an additional $2 billion and authorized capacity through the cares Act loan program, which was finalized just this week.

And also this morning, we announced on top of that authorization to issue up to $1 billion of equity in an aftermarket offering.

As a conserving cash and this in this environment, we're focusing on what we can control to that end. We've been we worked relentlessly to rightsize all aspects of the airline.

It has been done primarily through cost savings, resulting from reduced flying and long term structural changes to our fleet and our infrastructure.

We continue to realize the benefits both financially and operationally accelerating the retirement of more than 150 aircraft from our fleet.

Thanks to these efforts along with gradual improvements in the revenue environment, we continue to bring down our daily cash from our sales.

Our burn rate improved by approximately $14 million per day during the third quarter from $58 million down to $44 million and.

And we expect our fourth quarter burn rate to be improved even more to between $25 million 30 million breeding and.

And we expect that number to continue to drop going forward as demand for air travel continues to gradually improve.

Also during the third quarter, we continued our focus plan to capture the travel demand that does exist.

Markedly one in every three domestic passengers flew in American Airlines flight during the third quarter.

And if we can say one thing to every American balanced customer instead, it's safe to fly.

Others I've shared this data as well, but it's certainly worth repeating I ought to estimates that 1.2 billion people have flown so far in 2020 and among that group. They're only 44 cases of COVID-19, which transmission is believed to have an associated with our trio.

So it's clear our efforts are working as an industry, even with our team members being on the front lines and working through them in to support our communities and serve our customers. Our team has a lower rate of cobot nine infection than the national average and notably we've seen fewer cases with our airborne team members, our pilots and flight attendants.

Then with our other work groups.

I personally been flying multiple times every week and I see it everywhere I go.

The level of cleaning the safety measures and the diligence from our team and our customers is truly incredible and we are greatly appreciated.

So in closing we know we have a long road ahead of us and our entire team remains fully engaged and we couldn't be prouder of powder. The amazing work they are doing each and every day.

We're focused on just getting through this pandemic, making sure we're prepared to succeed as demand returns.

And we are highly confident that we're going to just that so then I'll turn it over to Rob.

Thanks, Doug and good morning, everyone I want a second my appreciation to the entire American Airlines team. Despite this year's remarkable challenges they continue to rise to the occasion and deliver for our customers and each other when it is most needed and we're incredibly grateful.

Taking care of our team and customers continues to be our top priority. We have taken additional steps in recent weeks to provide customers further east in mind as they return to the Scots.

We upgraded our clean commitment by adding surface wise to to our safety program surface wise to as an approved is approved by the EPA has a long lasting products to help fight the spread of the novel Corona virus and it will be applied to Americans entire fleet in the coming months.

We've also made travel easier and less complicated by eliminating change fee, allowing customers to standby on earlier fight on the same day at no charge.

These customer focused initiatives, along with changes to our basic economy product and new advantage sleep benefits get travelers tremendous flexibility when they fly American.

Additionally, we launched a new travel tool to help customers quickly see the current COVID-19 travel guidelines for domestic and international destinations.

As we entered the third quarter. The U.S. saw an increase in COVID-19 cases, which was followed by a slowdown in demand. We responded quickly and efficiently in a way that maintain scale at our largest connecting hubs in DFW and sharp.

Our price has paid off as evidenced by our passenger revenue results, notably DFW and Charlotte were our best performing hubs year over year.

Our cargo team continues to outstanding work driving revenue and supporting the global economic.

The group the global economy during the pandemic.

We more than doubled our cargo only flying from August to September not bring in more than 1900 flights serving 32 destinations during the third quarter today.

To date the cargo flights have helped our customers move more than 85 million pounds of critical goods around the world I Miss the COVID-19 outbreak and despite a nearly 60% reduction assistant capacity in the third quarter, our cargo revenue was effectively flat year over year.

During the quarter, we started to see signs of a slow but steady recovery passenger demand.

Although domestic net bookings finished the quarter down 50%.

This was an improvement from the first part of July with bookings were down 80%.

During the month of September 45% of domestic flight had a load factor greater than 80% compared to just 25% in July.

As we look ahead with one third of our place being actively managed by our yield management system, we see improving yield curves in the coming months.

And we are just waiting for customers to come to US we are taking steps to reopen markets to travel through preflight COVID-19 testing.

Testing options are now available to customers traveling to Hawaii in Costa Rica, which make it in the Bahamas following soon.

And we're engaged in efforts to expand that program across the Caribbean.

These testing programs are important because they will ultimately help to reopen markets by further inspiring confidence and trap.

The pandemic is change our business in many ways that we could have never expected, but the American team has re imagine how did deliver a safe healthy and enjoyable travel experience for our customers.

Before pre flight COVID-19 testing is a great example of that is going to be at impart an important part of advancing the industry's recovery from the pandemic.

Our approach to to fourth quarter capacity is straightforward.

We will continue to focus on our large connecting hubs at DFW in Charlotte.

Thank you put capacity in markets that are showing positive recovery such as the Sunbelt, Mexico and the markets that are opening in the Caribbean.

We expect our fourth quarter system capacity to be down slightly more than 50% year over year with long with long haul international capacity down approximately 75% year over year.

While we're encouraged with the trends we're seeing in our net bookings will continue to remain as flexible as possible and let that man serve as our guide for future capacity levels.

As we look across the competitive landscape. We believe there is no network better positioned than Americans.

First our network is big in the markets where customers want to go.

With our sunbelt hubs in Charlotte Miami, DFW, Phoenix, we've seen demand resilience throughout the pandemic.

This combined with our easy access and mountainous destinations provides an outlet for customers to redefine the meaning of working remotely are just getaway.

Secondly, we have the best short haul international network with the largest presence in Mexico and the Caribbean.

Demand for this region has been strong and based on current trends, we expect our fourth quarter revenue for this region to reach 70% of 2019 levels.

Third now is the time to be creative and find smart ways to strengthen our hubs in key markets.

With our recently announced domestic partnerships with Alaska and Jetblue.

We are raising the competitive bar and expanding our network in an asset light manner, while providing customers with more choices and a world class product.

Importantly, our extensive engagement with leisure operators is delivering results and then in the segment that is leading the recovery and to that end American was recently named airline partner of the year by the American Society of travel advice and advisors for the second year in a row.

So in conclusion, we remain committed to making sure our customers feel safe and comfortable and have flexibility when they travel.

As we continue to manage the current environment, we remain focused on being flexible and nimble in all parts of the organization and with that I'll turn it over to their thanks, Robert and good morning, everyone. This morning, we reported a GAAP net loss of $2.4 billion or $4.71 per share in the third quarter.

During the quarter, we recognized $540 million of pre tax net special items net special items included a $2.1 billion credit, resulting from the payroll support program financial assistance, which was offset in part by $875 million of severance costs associated with our voluntary and involuntary head count reduction.

And.

And $742 million fleet impairment charge extra.

Excluding net special items, we reported a net loss of $2.8 billion or $5.54 per share with us.

With a prolonged decline in passenger demand our primary focus has been to ensure we have the financial strength for a range of recovery scenarios. We have moved quickly to raise incremental liquidity reduce cash burn and become as efficient as possible on.

On the revenue front, our third quarter total revenue was 3.2 billion down 73% year over year on a 59% reduction in total capacity while.

While our revenue was down materially it was nearly double what it was in the second quarter, we expect fourth quarter to be down approximately 65%, while our current booking trends are positive. They are still down significantly and we continue to plan for a slow recovery as Robert mentioned, we expect our fourth quarter capacity be down slightly.

More than 50% year over year.

We have worked hard to rebuild our fleet into one of the more efficient to operate and offers our customers a consistent and improved product and experience. Our team has been actively engaged with Boeing and Airbus to provide flexibility in how we manage our fleet, giving us ample opportunity to adjust as demand conditions warrant.

As announced this morning in our earnings press release, we have reached an agreement with Boeing to secure a deferral rates on eight of our 2021, Max deliveries and all 10 of our Max deliveries in 2022 if.

If the deferral rates are ultimately exercised these aircraft can be deferred to the second half of 2023 through the first quarter of 2024 to avoid exercising these deferral rates, we would need to see substantial improvement in the demand environment.

During the quarter, we finalized a series of sale leaseback transactions to finance, our remaining Athree hundred 20 aircraft deliveries in 2021 as a result, we now have financing for all of our planned aircraft deliveries through 2021 as we.

As we have spoken about in the past our long held strategy has been to drive efficiencies through the simplification of our fleet.

With the permanent retirement of our Athree hundred 3200 fleet announced this morning, we now have only four aircraft types in our mainline fleet.

737, the Athree hundred 20 family 787, and Triple seven so.

Aside from the scale and fuel efficiencies the operating efficiencies on the crew maintenance and schedule are permanent.

We also continue to preserve pursue the harmonization of our 737 and Athree hundred 21 fleets and expect to have all of our 737 aircraft operating in the same configuration by the end of the first quarter of 2021, we.

We expect to have our Athree 21 fleet harmonized by the spring of 2022, when combined with our fleet simplification strategy. These steps provides significant opportunities to improve revenue production and reduce costs now and well into the future.

Lastly, we retain inexpensive optionality in our total fleet count as we have 51 aircraft with lease expirations through the end of 2022. In addition, we have more than 200 older own mainline and regional aircraft that could be efficiently part should demand conditions deteriorate.

We continue to take a zero based approach to our expense planning and have moved quickly to better align our cost with our reduced schedule.

Produced producing the $17 billion reduction in 2022 expenditures that Doug talked about as.

As we look to our team members. In addition to the cost reduction efforts, we've outlined in the previous quarters more than 20000 team members have opted for an early retirement or long term lease. This is an addition to the painful but necessary process of Furloughing 19000 team members, we're extremely great.

FFO for the sacrificing contributions these team members have made to our airline.

Finally on liquidity, we continue to take proactive steps to reduce our cash burn rate improve our total liquidity position in the third quarter, our operational cash burn rate was approximately $36 million per day, and our debt principal and severance burn was approximately 8 million per day in total our third quarter average cash burn rate was approximately.

We have 44 million per day, which.

Which improved sequentially from the second quarter burn rate of 58 million per day.

During the quarter, we closed both Goldman Sachs merchant Bank secured notes financings totaling $1.2 billion. In addition to the care that loan Doug mentioned that provided $5.5 billion of loan capacity.

We also received the final payments of our Aladdin PSP funds, including an incremental $168 million of previously unallocated funds identified by the U.S Treasury. This.

This week, we were able to increase the amount available under the care that loan to seven and a half billion when combined with our third quarter ending liquidity balance of $13.6 billion. We ended the third quarter with a pro forma liquidity balance approximately 15.6 billion.

This morning, we also announced the authorization to issue up to $1 billion of equity in an aftermarket offering to further bolster liquidity. We view this as another lever that the company has available at any time.

As we look to the fourth quarter, we present, we expect to end the quarter with more than 13 billion of total available liquidity, which excludes any proceeds from the ATM offering I just mentioned this.

This resulted in an average cash burn rate of between 25, and 30 million per day, which includes debt principal and interest and severance payments.

Our goal remains to get our daily cash burn rate to zero as quickly as possible. The timing of reaching this goal continues to be dependent on the demand recovery timeline as many of our cost reductions have already been finalized.

In terms of our debt obligations, we believe the market is under appreciating our balance sheet flexibility and efficiency approximately four.

Approximately 40% of our outstanding debt is pre payable without penalty and we don't have any large non aircraft debt maturities until our $750 million unsecured bond matures in 2022 last year.

Lastly, thanks to the tireless efforts of our Treasury team our weighted average cost of debt is just over 4% despite higher coupon co related financings that we completed this year.

While we continue to be pleased with the outcomes. Our recent funny recent financings the incremental debt to our balance sheet and dilution to our shareholders has been significant however, with the flexibility that I've outlined we have the ability to proactively repaid debt and de lever our balance sheet over the next several years when we return to a normalized.

The revenue environment.

To conclude we still have a long road to recovery ahead of US. However, the actions we have taken to conserve cash bolster liquidity and support our team members and customers give us confidence that we are well prepared when demand returns and with that ill open it up the line with analysts for questions.

Thank you as a reminder to ask the question you will need to press star one on your telephone suicide question press the pound key aspect.

Our first question comes from Brandon Oglenski of Barclays. Your line is now open.

Hey, good morning, everyone and thanks for taking my question.

Okay, no, it's a really difficult environment right now and a lot of airlines are still burning through cash, but as we look forward. You know this is a real ability for the industry to rebuild itself more specifically American but I guess what is the strategy going forward guys. Because you will have a pretty large debt balance and I think competitor down the dems cross.

The city there wont have that much in a lower cost structure. So in that type of environment. How do you navigate to differentiate and have the ability to pay down debt and be profitable, what's the new American got to look like.

Hi, Brad as Doug. Thanks look we're going to be more efficient, let's for certain reasons opportunity.

It's really.

That's terrific as all as as it it does provide some amazing opportunity to think largest airline in the world.

Affectively shut it down and build back where that makes sense, we've done things like reduced 30% of our management are not going to bring that back we've installed.

Accelerate the retirement of 150 aircraft and aircraft types that are going to come back.

So and more and more like that as we do and then as we build like to schedule, we're going to build back flying that is profitable and pick.

Pick out a lot of what used to exist was muscle. So we feel really good about what we're talking about how we will emerge.

From this both these would be where we used to be and review our competitive position we.

We do indeed have.

Higher debt levels, we did before that's because we haven't.

Got to modernize our fleet.

So that's behind US and we don't have as Derek noted lower.

Large amortization in the near term, we don't we have certainly.

We certainly don't think you know once we get to where we're generating cash you're going to see us needing to doing more in terms of raising more.

And we'll we'll do as we as we move to cash positive is will use those proceeds to pay down the debt.

And I think you'll see from our competitors, so, but we feel really good about our ability to compete in the future as the industry against cash positive. So all Americans merrigan as fast as possible use our proceeds to pay down debt first.

Appreciate that and I guess, if we are going to be a more leisure oriented market for a few years is there here that you know the fare structure in the industry could walk lower do you think you're going to have a cost structure to compete in an environment like that.

Yes of course, because because what we have we have a.

Route network, we can do that.

We love Us expand more Robert but.

The reality is we have a huge competitive advantage in terms of.

Our ability to connect customers around the United States and internationally within rebounds sub and spoke network of ours is.

The.

Many other carriers cant compete with couple of Cana, but not all.

That's that's a great revenue generator, we of course will need to.

Hello costs, along with our latest ever going to get our cost down through the efficiency that.

EBITDA you can see in our in our cash burn numbers now being similar to where our competitors are as the industry gradually rebounds will rebound or rate, our cash levels and there for our earnings our cash burn levels on our earnings.

Rebound as the industry does on a bus or anyone else what I'll just add to that top brand is.

No I think it has been a bit historically thought of business and leisure as having the hugely different on yield performances across our system that is not always the case indeed.

Our airline business.

Business style revenue those are people, who don't stay a Saturday night midweek travel single person that in the itinerary are about a third of our revenue, but only about a third of that comes from the large global corporates that are most likely to delay travel and even if it's a one were actually less exposed to that historically have been then.

What mainly guy, but to the replacement value that traffic is very different for American airlines in our largest causes such as Dallas Fort worth the Charlotte.

The non corporate traffic that's on the airplane can often produced yield there between 70% to 75% of the corporate but indeed, the non corporate yield what we what you might call the leisure yields in some of these hubs outperform corporate yields in some of the big coastal metro areas that are there. So I'm really the strength of the American airline businesses and so much of what we do.

We create conductivity for customers it really wouldn't exist if it weren't for American airlines buying in some of these markets. So thats.

Core attribute of our business model that will be something that takes us through this crisis and we'll absolutely be part of what what powers. The revenue production of the airline on the other end of it.

Thank you.

Thanks, Ken.

Our next question comes from Mike Linenberg Deutsche Bank. Your line is now.

Hey, good morning, everyone, two very quick ones here.

Garik, the 25 to 30 million of burn.

What is that number if we were or you could just tell us roughly what is the piece that's related to debt interest principal payment and severance just to do it.

In the fourth quarter and eight.

It's the same in the third and fourth quarter. So it's $8 million in principal and interest payments in that 25, Okay. Great and then just second you guys have done a nice job on the cost side pulling down cost I think ex fuel profit ex fuel and special as I think you are down about 30%.

Sept Q1, what do you know where were the things shake out for the fourth quarter.

Given the fact that you will have a bit more people off the table et cetera.

What what should we be looking at the way we had we had reductions in costs as we as we look at it was 40% in the third quarter and then.

And independent and as we add we're adding back a little bit capacities, and we said that 59% down in the third quarter and close to 52%. So we add probably a little bit of costs due to.

Capacity coming back in so we should be in a similar range, maybe 38 36 38 range.

Cost down in the fourth quarter, great. Thanks for that thanks, everyone. Thanks.

Thanks, Mike.

Thank you and our next question comes from Joseph Denardi of Stifel. Your line is now open.

Yeah, Hey, good morning.

Derek you talked to the balance sheet flexibility and efficiency and your ability to pay down debt you need to generate cash obviously to do that part of that cap. So if you want the market to better appreciate your ability to repair the balance sheet can you provide some visibility around capex over the next few years.

Yes, as we look at Capex I mean, we've already all fall down to.

21, and 22, so we were at one seven and will be called $800 million added 21.

We pulled 200 million out of 22, so we.

So we would be at about a billion dollars is the run rate and we can take that lower also we just right now we're at a at that run rate and we and we definitely can take a borrower if there's if we need to from a capex perspective, we're sitting at about a billion in size.

And 2021 and about a billion 720 22 now I also said that we have deferral rights on aircraft and we and we can push that that would reduce those two capex numbers.

Our new years and as you know we don't have many deliveries in 23 24. So the capex profile is much much smaller than we've had over the past years.

And will you will use to be able to use that cash that was going to buy aircraft and integrate the airlines into paying down debt.

Got it Thats helpful. Then Vasu why we're Americans earnings why those Americans earnings power and margin so much lower than peers pre coven and why will that change on the other side of that thank you.

Yeah, Thanks to its a great question added.

A range of answers for it but I'll I'll at least get on one that we are starting to see emerging in the trends right now which is just on how we mix capacity across our network are looked at as you look at Threeq results right now.

Our our relative PRASM performance in the system as strong versus our competitors, that's kind of an empty victory in the environment. We're in but it's an important lesson because what we see right now is that about 75% of our airlines capacity in our four biggest hobbs and those hubs, we're producing based on what we see today 30, 40% rather.

On premiums to the industry, our smallest hubs as we see them. Today are you know 10% of our of our capacity and still producing a RASM deficit while in the old days that was a much bigger mix that the things that we're outperforming on a RASM basis, where in some cases as big as Dallas Fort worth our largest top.

So what that means for us as they relate to an earlier question on is that as we come out of here one of our really guiding principles on is that we will produce a revenue premium to the industry. The way. We go about doing that is first and foremost.

Orient more of our organic assets in the markets, where we can produce an outsized level of value for customers, which as we see today produces an outsized level of revenue for the airline that too through many of the partnerships that we've created not just with Alaska, Jetblue, but with British Airways AG or jal or many others are.

Around the world in markets, where we can produce outsized customer value alone we're going to work with these partners to make sure that we produce that value and get the returns that come with that.

Third and very importantly to.

We need to go and increasingly across our commercial division and give our customers really good reasons to want to fly more and pass more which sounds.

Which sounds very simple and indeed, it is but we think that by doing that there's a real path out of it where where American can produce at a different level than it might have before.

Thank you.

Thanks, Joe.

Thank you and our next question comes from Helane Becker of Cowen. Your line is now open.

Well aligned.

Latin.

Are you muted.

Yes.

Operator, we can go onto the next.

[laughter].

Oh, Hi area.

Sorry about that I don't know what happened and so here's my question Doug Yes.

On the stimulus program, if nothings opened and people don't travel by more.

Well the industry being the same places it is now and need more stimulus money isn't it better.

Work with governors to open and.

And then more stimulus money rather than getting it now.

Yeah, Oh, yeah.

Again as the.

Separate to the stimulus of course.

An entire quarterly package would help stimulate the economy I think really important.

So you have EPS and I think the sooner the better I think our country needs it and.

And that would help in many ways too.

Yeah I think.

As to the payroll support planned expenses.

Yes, that's not about stimulus in our view it's about.

In critical infrastructure in place.

That's about the impact.

The importance of the airline industry to that economic recovery is entirely what the PSP program was put in place to do.

What it does is it has airlines keep.

Keep more people employed than we would otherwise basically existing demand as a certain markets. We wouldnt serve otherwise basically existing demand and the concept was that.

The government you know as a.

Pass through a gives money to airlines to pay those people into and through why those flights we wouldn't flow. So as the economy returns that critical infrastructures in place I think.

I think thats. Good policy has been great policy up to date I think it's good posiet should be extended and I'm not alone in that there's enormous bipartisan support for that.

For exactly those reasons, it's not about getting money into airlines is making sure that critical infrastructure stays in place. So yes, I think it's really important to keep in place now I fear that absent an extension.

You will see these you will see two infrastructure decline and as the economy looks to rebound we will be prepared as well as we should be to facilitate that.

The rebound so that's what it's about and yes. So therefore, you know I don't think it makes sense, let that critical infrastructure.

Get harder to go over to go lower and again I guess they were now on others.

Virtually everyone. We talked through now agrees that should have so I.

So I guess part Mercury, which is another question, we said, let's hear which is walking that's all well and good but if things don't get better six months from now that you're going to need. It again I don't think so I happen to believe we're seeing now even in this environment.

Gradual return of revenues, we expect that to continue I think six months from now.

Certainly you will see a better environment than we have today irrespective of what may or may not happen as it relates to the pandemic itself.

Because people are getting more and more comfortable travel and.

So these are opening up new business is returning some one so.

So I think six months from now it'll certainly better and from come from airline cyclicality perspective will be heading into a summer which is always as higher demands. So anyway, I think our view anyway is that a six months and PSP expenses would be the west PSP extension, you would need to keep that infrastructure in place, but after that you are good you know, we're not going to be in a good position to.

Do do we what people want us to do which is bigger to help your commentary about.

Gotcha, that's very helpful. Actually thank you and then my other question how many aircraft are actually being scheduled right now.

I am than any that the easier way to do it is how many how many airplanes are we not flying and that that number as is.

Order of magnitude of about 200 Jets, we have we have a couple of airplanes to fly on relatively lazy like that it makes some of the maintenance the operations of the airline easier.

202 hundred out of.

200 out of out of 13, Adam with 1350.

Right I knew that part I just didn't know the first thank you yeah. Thanks Helen.

Okay. Thanks have a nice day.

With us.

Thank you and our next question comes from Hunter Keay Wolfe Research. Your line is now open.

Uh huh.

Hi, good morning.

Thanks, Jimmy on a dairy.

Derek of the your revenue in Threeq was like $3.2 billion, how much will your cash receipts, maybe net of refunds in the quarter.

Revenue was about 70 525 from a revenue perspective so.

We did burn some of the stored value during the quarter.

Our NGL still has about we had a day to yell at about 4.9 billion at the end of the third quarter and there's about two and a half billion that is still stored value that was from refunds and other things that were.

Given out during the early part of Covance.

Okay.

Thank you and then I've got a question for Allison actually.

I'm asking you. This question given your your your comment of the importance of TMC is in the press release, you put out with the new Sabre deal.

How much did you spend on TMC commissions in 2019, just just roughly and how much is your budget. How much are you being given to spend on agency commissions and 22021 and 2022.

Relative to what you said about the importance of agencies as business travel recovers and of course, obviously the elephant in the room the the compare.

The competitiveness of the corporate travel landscape and as it evolves over the next couple of years.

Yes, Paul 21, four at TMC denied continue to lead the leads and alliance bank in China agencies that close partners or us to facilitate important new corporate business.

They still working out what that would be because as you know we still are looking at the return of corporate business overhaul for the larger complex global accounts, the lights up any twain coupon.

So its a little hot at the moment to predict what those commissions will they all are.

Oh, not refrain is continued to be Horton Florence and we believe once again they will be robust hot in the latter half of 21. We are also working with them on to open up markets like the Cardinal between the UK and will be lets say into the sales.

The titanium.

You got enough pockets I think is important initiative all of them.

Two hours in the French honor, we haven't gone through the budget process for 2021, and we will go through that process and figure out the right amount that we need.

That we need to do for a while to get the corporate bank.

Yes.

Yes.

So what I think you're getting at.

Uh huh.

Given given our first the scale of American and our our.

The ability to sort of corporate customers. It is rarely American that is out there.

The increase in commission rates in an effort to truck business travel. So I don't think you'll see that be the case in the future paragraph.

But we do we do we do all the major match, others hour and we need to be competitive, but it's not an elephant is oh, so there's not the wonders.

There.

Great can of commissions in general.

Okay. No. That's very helpful. Thank you very much.

Thank you and our next question comes from Jamie Baker JP Morgan. Your line is now open.

Hey, good morning, everybody couple for Derek presumably I'm first you know based on the October 1st Furloughs and the accompanying service suspensions.

Now, what's the best demanded level of cost savings there either on a quarterly or annual basis.

Yeah, I think on it we've got.

Yes, we've got as we put together how much in savings we've got from a management perspective. It was about a half a billion dollars and pay that we had in the in the management side of things via a mile from efficiencies and other things that we got out from some of the management or I mean is heard some of the law.

It was about 400 billion so from a headcount perspective, we're right around $1 billion of permanent efficiencies and head count from those two areas. So out of the $17 billion billion of it is definitely stuff that doesn't come back.

Fleet reductions is another area, where we will see significant savings and.

And then the other part is as we add back in that cost as Doug said earlier as we add back into flying how do we do that more efficiently to drive those costs down and keep most of the keep everything we can from the savings that we've had.

Savings that we've had in 2020.

Permanent as we move forward.

But the the aircraft savings I mean, you're not counting that as part of the PSP exercise and what I'm getting at is that in the event of another round of PSP certain costs are going to be added back to the PML, but then effectively taken out by the PSP. So so what I'm really trying to calculate its what im.

Packed PSP would have on liquidity, so youre aircat your aircraft covenant is helpful, but that separate correct.

Yes that is separate from DSP.

We have seen it all headcount headcount related right.

And we should be assuming so your net number on that was about a billion annually correct.

With the amount of reductions from furlough, yes that 5 billion billion and a half annually. Okay. All right. That's a that's helpful. And then again so so on the planned retirement of I guess your out of five aircraft families altogether.

What level longer term.

Cost of that permanently removed and is your estimate net of any revenue inefficiencies maybe this is.

The question for profit.

That might occur since you'll just have somewhat fewer options in terms of aircraft gauge.

Oh, I I might add from a cost perspective, I think there's two things one is from a cost perspective, we should have a permanent reduction in those aircraft coming out.

From a because you have maintenance coming out you have the all that good stuff coming out so that could be.

Could be anywhere from I mean, we haven't calculated the 20 to 21 plan yet and as we just retired the 332 hundreds this morning, and we still have some 730 sevens that are on the graph on whether they come back up as we move forward, but you know I jumped at $1 billion in this year and then at that stage that next year from a from a.

It's in a cost perspective as we go forward.

I have thought through.

Oh go ahead, Jamie just from a from a revenue perspective.

The the really nice thing about the retirement to this is that we have really accelerated where we wanted to be down the road and so I think one of the things that we've said before is that we were looking for efficiencies just because of the different number of aircraft type seating configurations and also when you take into account our regional partners the number of operators as well so.

Over the course of the last five years, we've gone from elderly over 50 different sub fleet types down to now about I think 23 years ago, and you know that in terms of being able to serve the market place where.

We're ending up with sleep families that really worked well so from a 320 family prospective outlook. We didn't we're not losing out on anything in terms of a retirement, it's like 75 up from 7878 and nine were not losing out on anything from a seven cents in 330 perspective.

So with the variance in the different fleet types and the same holds true for our regionals I think we've got that the that the fleet to serve the spectrum of demand needs and do it in a way that's incredibly efficient got it and there are just remaining unencumbered asset number and then ill.

That will be done.

Hey, we have about a 11, we about $4 billion of unencumbered assets and that we have $7 billion of first lien capability. So around $11 billion perfect. Thank you everybody take care.

You too.

Thank you and our next question comes from David David Vernon of Bernstein. Your line is now open.

Hey, good morning, guys I wanted to ask the post cobot cost question slightly different way. If you were to take a look at the.

The actions you've taken on the fleet side and assumes normal level of utilization.

How would the gauge shifts like if you were to just take a snapshot in 2018, what does or gauge look like pre Tobin, what's it going to look like in the future and then if you think about the reduction in hourly operating costs from all the simplification is there a way that you can frame kind of a cost reduction potential just on the variable our hourly operating cost.

The new fleet.

Investors are really trying to try to get their heads around this does this issue of okay. The Americans margins were X before the crisis, what are they going to be after the crisis and I think I'm getting some more.

Tangible data points around exactly what fleets and what that could be helpful.

Sure Hey, David This is Bob ill start how that others can can join in agriculture.

And what makes sense for a little bit complexes were still in a profit the setting what at 2021 capacity itself out as Derek mentioned, we've got 730 sevens on the ground. We have 50 seaters that are on the ground depending on how those come back or not that will impact our future gauge. So let me give you more of a conceptual answer but if you think about it right we.

We've taken out and all of the fleet simplification that Robert Derek just spoke about we have taken out a roughly 50 wide bodies from December until June of this year and what all that is is taking out some of our lesser IR lower gauge airplanes such as seven.

Seven 767, and now we have a.

More of our wide body fleet Orion higher gauge higher density products like 787, but importantly for the narrow body fleet certainly versus last year and years prior there's a material impact it in up gauging.

First we have the 190 and the the MD eightys coming out replaced with larger gauge on 737, and 321 neo that are coming in and the regional side, we have more 50, seaters coming out being replaced with.

With dual class regional jets, so all of that is a pretty material impact.

And in the.

In the months ahead, we'll get a better sense, what that means for our average gains year over year, but let's just say that the basic fleet not the outlet you could probably get pretty good sense for for what that impact yeah and bus and we kind of were kind of looking at it you know over 19, just because the 20, so strange but you know I think we'll have.

You know our average seat in 19 from a mainline was about 167 and as we do the Oasis projects and all the changes of the aircraft that should go up.

Somewhere in the neighborhood of 5% or five five seats and then the regionalized, we make that change on the regional you're going to get about three more seats as we make the change there. So there will be a significant as as we look into 2021.

Departure should be down engaged should be up so that will give us a.

Cost a a benefit from a CASM perspective as we.

Fly less departures at higher gauge.

At lower cost.

All right.

That's helpful. And then maybe just as a quick follow up could you talk a little bit about kind of rebuilding the regional footprint in the feeder footprint is there going to be a shift in the old model versus the contracted model or how do you are you are you thinking about kind of how to start to rebuild fee traffic as you.

Start to look at what the networks and look like post code.

Oh, we do have done a really nice job over over the years and following a strategy that speaks to simplification in terms of fleet types and simplification in terms of number of operators with.

With Piedmont say, an envoy and just really at this point a few up a partner carriers, we feel like we're in a really good spot and with carriers that are established and the all fighting on the basis of quality and efficiency. So we see it we feel pretty good about it in terms of building back of course, you know.

Putting these larger.

Two class regional Jets into service an important place is really important I take a look to 2021.

When demand recovers and that we opened up a new regional facility and DCH and think about the kind of changes that we talked about with up gauging and what that will mean.

For for the airline is going to be positive not just from us.

Not just from a cost efficiency perspective, but also from a path.

Revenue perspective, but also from a passenger perspective in terms of of quality of service and we're going to be able to providing a product they really want.

Right Thanks for that.

The system here.

And our next question comes from Joe How are you from credit Suisse. Your line is now open.

[music].

Hey, Joe Hey, Thanks, very much hey, good morning, everyone.

Derrick quick question for you and apologies if you if you answered it in your prepared remarks, but what would you consider using some of the sum of $1 billion of the equity raise to retire near term data at a significant discount I think you mentioned your you're 5% unsecured notes due 2022 or sort of your next big maturity and those are.

And those are trading at about 70 cents on the dollar. So is that something you would consider or do you really want to see the cash generation drive, but the debt pay down.

It is something we consider would consider as we look out to our planning for 2021 and see where our cash needs are.

But it is something we would consider.

Got it okay. Thank you and then just one more quick one.

Did you say that there is retrofit an aircraft not activity taking place today is as part of the fleet harmonization initiatives. So that stuff is no longer on hold is that right.

Correct, Yeah for right for US we had not put it on hold when I when I talk about our capex being what it is in and 2021 almost 40.

40% of that is actually that project, we've continued to push it.

With aircraft on the ground, we've been able to speed it up which I think is the right decision to get the seven three eights done as quick as possible and.

73 Sevens, sorry, cemeteries have an eighth get done as quick as possible and then speeding up the 320 ones to get that project on a while the aircraft are on the ground, we can speeded up save costs and getting a better.

And get the benefits sooner. So those those have been in the numbers and remain in the numbers as we move forward.

That's very helpful. Thanks for the time everyone.

Weve Jones.

Thank you and our next question comes from July 20, with Evercore ISI. Your line is now open.

Thanks, Thanks for the time appreciate it.

So so you obviously have some improvement in the cash burn level here into into the fourth quarter.

You know another.

Another way to say 25 to 30 million a day is 10 billion annually, which is which is still a pretty big numbers, so maybe going back to.

Jamie's cost questions all the Opex savings that youve realized how much of that run rate is being reflected here in the fourth quarter.

And if it's simply timing you know absent revenue recovery, which we can model you know.

Where would that kind of 10 billion a year kind of cash burn go to based on the cash savings you've realized.

Well the way, we've said, we had $17 million of savings throughout the year right in that 16.2 of that billion as is expense now some of that as volume right. So as we add volume back in those expenses are going to go back in.

Some of the permanent stuff is what we talked about which is the management head count the efficiencies the fleet a lot of the stuff. We're doing a will will be permanent as we move forward to reduce that what we've also said is that you know to get us back to a.

Cash positive.

The cash burn to be breakeven needs. You know, we've always said, it's a demand recovery and we need the demand to come back. So you know we will we are holding flat expenses third quarter over fourth quarter everyday you know as we add back end capacity, so being more efficient but.

But the burn differences come in from the revenue recovery and where we're seeing it exactly today is what weve modeled out as we go out into the fourth quarter. So I think the as we look into next year and as we look forward that it's the demand recovery that gets US back you know flying our entire fleet.

And the revenue back and being as efficient as we can to cut those costs out in 2021.

Thanks, just just for a follow up there this morning and on the CNBC interview I think it was mentioned that Theres nothing more or you know we've done virtually everything we can.

On costs at this point I guess my question would be are you at a structural disadvantage for some reason or what would you need to see in terms of this recovery for that view to change and thanks for taking the questions.

He joins Doug Yeah, again, what I said was again.

It look we haven't we haven't done it we cannot reduce costs.

Of course, we can ramp up by now we should have so as you.

So as you've heard as he was running from all the airlines right now that's.

That's that's where we've gotten to reduce all the costs, we can uh huh.

At this point.

Clearly as we as we ramp back up.

Derek and other parties that we don't expect you should see the same kind of cost RASM going forward, but if your question is of the de fourth quarter EPS through 20 months pretty cash earn number.

How does that get better we don't want to give the impression that is good.

Better because we're going to further be able to reduce cost from existing comp.

Just as our other large competitors, whose cash burn numbers are virtually exactly the same for the fourth quarter.

You are going to be doing you know there are those numbers will get better for all of us.

At similar rates as demand recovers.

That is what is required if it doesn't we'll stay well stay at these kind of permanent I don't think anyone expects that to be the case.

Inventories through this year.

Or even close to it so we've got and we've got to be improvement in these burn levels. You know from the third to the fourth quarter is there some of.

There are some of those cost savings because we get we get through a sales.

Burma is by far the biggest driver is revenue improvement and that's what that's what we'll be improving as we go forward and what we did this because we will get this industry backed in cash.

I appreciate the time.

Just one.

Thank you and our next question comes from Andrew Jeffrey of Bank of America. Your line is now open.

Yeah, sure, Hey, Hey, good morning.

Hey, good morning, everyone. Thanks, Thanks for the questions I start maybe talk to US doing question a little differently on costs may put each of them on the revenue side. So what level of revenues versus 2019 do you feel like you need to be at in order to reach cash breakeven.

I mean, the good that is there to start on no no no no. We I mean, we said you know from a from a revenue perspective, you know, we really an airline back up and getting it where we've got our aircraft back in.

And we'd get loads in about the 65 to 70, 570% range is kind of where it's where it's going to take to get us get us back to breakeven and that getting all aircraft back in is is you know capacity much lower than where we were in 2019, because we've taken out a 157 aircraft.

And it will be much lower than what we had planned. So we're all going to take capacity out in 2021, the industry will be smaller but getting.

But getting most of our aircraft back up getting loads in the 65 to 70 range, which all of which will drive the revenue recovery and get that get the revenue back in is kind of where we see where we would be breakeven from a cash perspective.

That's great. Thank you and then just like second question maybe for both Sue can you maybe just talk about how your discussions I've done with with global with global authorities and how you're thinking about potentially the reintroduction of both the long haul international net network maybe.

Maybe what regions are kinda routes, you think could come first, particularly when you think about your new how you how your new fleet plan. Please until this thing has really not what we would be happy if and so as we mentioned earlier on we are actively working with a number of level regulatory bodies no more so than than with the.

UK I'm seeing is our our really our largest international connect point is indeed, our haven't Heathrow. So.

So we actually ourselves Nigeria, we are closely working with the UK government two really quick.

To really create a an air travel corridor, which could be not just the basis for further reopening in on long haul services to the UK, but indeed that template for how we can do long haul reopenings more globally now other than that well that impacts primarily our higher European to some degree our Asian network I'm really in many ways.

He is our South American network is already coming back most all of our Miami The South American schedule is in place and doing quite well.

And by the time, we get into December that well well continue on so.

A big part of our long haul network, which is South America, we expect to be back.

Certainly by buying new years, or so and then.

And then the other big chunk of it which is Heathrow. We are working on to reopen and then we have some confidence it's good for the global aviation community, but more critically it's good for customers everywhere.

Figure out a really smart way to get a market reopened and that can be I'm the template for dealing it elsewhere. So that's how we're thinking about it.

Great. Thank you.

Thank you and ladies and gentlemen, this does conclude or analysts today, if anyone from the media would like to ask a question at this time. Please press Star then one on your Touchtone telephone again is anyone from the media would like to ask a question. Please press Star then one.

My first question comes from Allison Signer Wall Street Journal. Your line is now open.

Hi, Thanks, so much.

I'm, just curious how you're thinking about sort of changes in the competitive landscape seeing some of your competitors starting to announce plans to go into new cities, including.

Including some of your your Hot Highland Miami, just curious how you see that playing out and how you over time.

[laughter], we welcome the competition.

Look we've got a incredibly strong network as we talked on the call today and assets that will serve our customers really well so but we're excited about the potential for return of demand and what we can do you know when it when it does come back and we're ready to take on competition, no matter where comps.

Thanks.

Thanks.

Thank you and our next question comes from Leslie attention a CNBC. Your line is now open.

Hi, Good morning, Thanks for taking my question how are you.

But the advantage program do you have any sense of where revenue going is it recovering and what's your outlook for.

For co brand card spend going forward, maybe even slightly 21.

Yeah, Hey, let me. This is this is not to add and thanks for the question we are indeed.

At a time when there is a.

So much has changed in our business and indeed, the state of crisis. Indeed, Our act our co brand program has our revenues from haven't fallen nearly at the rate of overall passenger revenues simply because people can.

People continue to keep spending out there and indeed as we as we look at consumers more broadly I'm savings are our people are spending their spending on different things and so we are actually one of our major priorities and that the year and years ahead has to work even more closely with our co brand providers city Barclays, but even.

Mastercard as well to ensure that we're on our cards are top of mind and that is that they're driving increasing amount of.

Of spend for our customers and revenue for the airline.

Thanks.

Thank you and our next question comes from David Killeen of Associates Rice. Your line is now open.

Thanks. Good morning, everybody can you discuss I don't know if the speed for Doug or anybody, but can you discuss a Thanksgiving Christmas bookings and what kind of load factors, you're expecting for those holidays and.

And also to clarify Derek.

Eric are you, saying 65 to 70 565 to 70 load factors at breakeven, even with the current mix of business and and leisure being heavily leisure.

Hey, this is I see that I had and I can I get an answer both for the second one first really it seems I wouldn't think of any maybe on 65% to 70% of 20 net revenues.

Which is what Eric was giving he was holding our yields constantly thinking about load factor. So that's.

Let's say that the simpler way to that I'm thinking about your second question and then add tier your first question.

Yes, we do anticipate that the Thanksgiving period, and the December 2nd half period will be relatively strong our one because we've seen the last several holidays.

Columbus Day Labor Day July 4th and Memorial day becomes sequentially stronger.

And indeed, what we what we're finding more and more is that as consumers start resuming life, returning to spending and full service restaurants going back to school things like that there. Shortly thereafter searches resuming and air travel spending resumes deal I, even with with current rates of.

Case growth, we continue to see that at least in in many geographies such as the Sun belt that are most critical for American Airlines. So we do see that as we get into the Thanksgiving week as Robert mentioned in his opening comments.

More than half of our flights or are being yield manage in some ways, which means that the airline is holding out anticipating higher revenues closer to departure and so thats, a promising thing, which we hadn't seen in the past now.

This is a volatile environment the recovery will be choppy and should things change, we'll we'll respond accordingly, but right now things are are better than they were but far from sustainable.

All right. Thank you.

Thank you and our next question comes from Justin definitely nothing that's your line is now open.

Yes, thanks for the time this morning.

To clarify a bit on the timing around the seven through seven Maxs deferrals that you announced the five wells.

Okay, just thinking that those will come.

Speaking with them about any other aircraft before if the business is not returning as you're hoping thank you.

Thanks, Justin the deferrals, we have.

And finally, we had 18 deliveries in 2021, and we have deferral rights on eight of those aircraft.

And then we have deferral rights on all 10 aircraft that come in 2022.

Well make those decisions you know down the road as we look at the demand environment as as they come back nodes can punch to 2023 and 2024, so that that's where we're at on a nose.

We have also been working with Airbus on just making and re spreading that the delivery stream. There. We have we have moved some of the ones that were coming in 2021 to 2022, so we pushed a little bit and at this point in time, we're pretty firm on where we are from the delivery schedule.

With Airbus and Boeing.

Okay. Thanks.

Thank you and our next question comes from Edward Russell is TP G. Your line is now open.

Hi, Thank you for taking my question.

Wondering if you could talk a bit more about the Max returned to service or some reports earlier this week that you'll be flying it around the Christmas time, but I know those dates have slipped repeatedly how confident are you about that returned timeline.

Thanks, Thanks that were hey, it really just depends on what happens you know the aircraft is going to be returned and uncrowded when the Epay says, it's OK and after.

After we and our team get to take a look at it as well based on you know what we're hearing.

That would allow for a non grounding sometime in the month of November if that holds true, but will likely have aircraft up in service you know a month or so after that so you know potentially by the very end of December.

But it all remains to be seen and we're incredibly flexible in terms of.

Or any type of time, just as we have done over the last over the course of the last year or so.

Great. Thank you.

Thank you and our next question comes from Kyle Arnold at Dallas Morning News. Your line is now open.

Hi, I know they fall in Chicago and new.

New York, New Jersey, Connecticut, It expands into their travel corn teams how problematic are these for.

Travel here domestically and is there anything to be done that can stimulate travel.

In those areas in the West coast in the northeast, where it's not as strong as so many areas of the country.

It does track to try it.

Try the cow travel will come back when there are things that are open and thanks for people to do certainly any type of restriction is corn teams are not helpful. But again, we're trying to make things easier on customers, where there are any type of of Oh deferred.

Difficulties such as the work that we're doing in the Caribbean and.

And and work that we're doing in Hawaii and as was mentioned earlier work that we're trying to do.

In Europe, and especially the UK and trying to open up a travel core doors, but the real key to all of this is having thing for people to do one of the things that we've talked about is a great indicator right.

Restaurants being open.

You know as a good indicator of.

People being able to go to travel to those that destinations and.

And it's just a critical key so that's about all I can offer you, though and we work with many about pot with.

With that he I travel Association I tell partners topping two companies as well and to make sure that rule I'm looking to get frankly to bring back tourism one of the things to reduce confusion without cost lives as you quite rightly say no one day on the area Mike.

And then arcade et cetera is we have just placed on <unk> dot com outside to play you displacing your destination I'd tell you what we're calling the travel.

Our in place full that states well that country is explainable and this is really helping out. After this I was a standard instead travel as well and help them with bookings going forward.

Thanks.

Thanks, Tom.

The conference.

And this does include a media today I will now turn the call back over to Doug Parker for closing comments.

Thanks, everyone for your interest in it.

[laughter] Investor relations or profit from you guys. We appreciate your time, thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Hello.

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[music].

Good morning, and welcome to the American Airlines Group third quarter 2020 earnings call Today's conference is being recorded.

This time, all participants are in a listen only about <unk> of the presentation. We will conduct a question and answer session asked the question. During the session do you all need to press star one on your telephone.

If you require any further assistance. Please press star zero and now I would like to turn the conference over to your moderator managing director of Investor Relations Mr., Dan Cravens. Please go ahead.

Thanks, operator, and good morning, everyone and welcome to the American Airlines third quarter 2020, <unk> earnings Conference call.

[music] call with US. This morning, we have Doug <unk>, Chairman and CEO.

President <unk> Chief Financial Officer also on the call for acuity session or somewhere or senior exactly when he Maya Leibman Chief Information Officer, Steve Johnson are easy of corporate Affairs, BACE, rather our Chief revenue Officer, Allison Taylor, Chief customer Officer, and David Moore, Our Chief operating officer.

Like we normally do I will start the call with another.

Did you ever corridor and the actions were taking during this pandemic. Robert will then follow whats your remarks about our commercial initiatives and after lunch remarks, Derek will follow with the details on our liquidity and cost outlook. After Eric's comments well open the call for analysts questions and lastly questions from the media to get in as many questions as possible. Please limit your.

So the one question and a follow up.

We we again, we must state that today's call does contain forward looking statements, including statements concerning future revenue and cost forecasts.

Or Catholic asked if we fans and liquidity. These statements represent our predictions and expectations as a future event, but there are numerous risks and uncertainties that could cause actual results to differ from those projected.

Information about some of these risks and uncertainties can be found in our earnings press release issued this morning, and our form 10-Q for the quarter ended September Thirtyth 2020.

In addition, we're already discussing certain non-GAAP financial measures. This morning, which exclude the impact of unusual items a reconciliation of those numbers to the GAAP financial measures is included in the earnings release and that can be found on new <unk> Investor Relations section of our website a webcast of this call will also be archived on the website information that we're giving you on it.

As of today's date, and we undertake no obligation to update the information subsequent so thanks again for joining us and at this point I'd like to turn the call over to our chairman and CEO.

Thank you Dan good morning, everybody thanks for joining us.

There's no doubt there's continues to be an unprecedented time earned for our entire industry our team.

And our customers at American we continue to take actions that we can manage through this pandemic bullish not only for.

Bush not only for success when demand returns.

I'm going to start with a quick summary of our results for the quarter, which are improved versus earlier in the year, but still reflect extremely challenging environment. We're in today.

Our third quarter pretax loss, excluding net special items $3.6 billion, our revenues were down 73% year over year.

In this environment, we continue to focus on controlling what we can reducing cost and cash burn or I'm sorry.

In total we removed approximately $17 billion in cost from our business and our cash burn rate declined markedly he was looking for.

We ended the quarter with a pro forma liquidity balance of approximately $15.6 million, which is much more liquidity than we've ever had before and more than double where we began this year.

The customer confidence is gradually beginning to return we continue to evolve in this new era of travel.

Well they should all that of course is our incredible team.

These are difficult times for sure and we couldn't be prouder of the American team is handling this situation.

Our team is out there keep in our country moving safely transporting hundreds of thousands of people around the globe every day.

And we are doing an excellent job of generating revenue in this environment is making a difference for American airlines in the United States in general.

So why it was so difficult to see October 1st, perhaps not having the payroll support or even the cures Act.

Oh in support of our team and the commercial aviation infrastructure, that's going to be critical to an economic rebound.

There's enormous bipartisan support for an extension.

Fortunately our elected officials still have been able to get an accurate.

They have been unable to agree on broader cobot relief legislation.

Without the extension we have to throw a 19000 of our team members beginning October one.

We discontinue service to numerous markets around the country.

We remain hopeful that our elected officials can come together on this important legislation, we have marketing our industry and working Americans and our economy at large.

Elections matter.

Well theres nothing pulling higher than support for a company released stimulus package.

PSP extension will be an important component of any such package.

Robert under him to talk more about our results and our path forward I know that every action we took in the third quarter centered on our aggressive plan to bolster liquidity conserve cash and ensure that customers to par with complete confidence when they travel demand.

On the liquidity from American another set of the third quarter, the profit margin of $13.6 billion real Nobel available liquidity.

And $15.6 million when you pro forma for an additional $2 billion in authorized capacity through the cares Act loan program, which was finalized just this week.

Also this morning, we announced on top of that authorization to issue up to $1 billion of equity in an aftermarket offering.

As a conserving cash in this in this environment, we're focusing on what we can control to that end. We've been worked relentlessly to rightsize all aspects of the airline.

It has been done primarily through cost savings, resulting from reduced oil and long term structural changes to our fleet and our infrastructure.

We continue to realize the benefits both financially and operationally accelerating the retirement of more than 150 aircraft from our fleet.

Thanks Robert.

Along with gradual improvements in the revenue environment, we continue to bring down our daily cash burn.

Alright improved by approximately $14 million per day during the third quarter through $58 million down to $44 million.

We expect our fourth quarter burn rate to be improved even more to between 25 million to 30 million Britain.

And we expect that number to continue to drop going forward as demand for air travel continues to gradually improve.

Also during the third quarter, we continued our focus plan to capture the travel demand that does exist.

Markedly one in every three domestic matters on an American airlines flight during the third quarter.

And if we can say one thing to every American customer instead, it's safe to fly.

Others I've shared this data as well, but it's certainly worth repeating I want to ask.

The 1.2 billion people its loan so far in 2020 and among that group. There are only 44 cases, OCO would 19, which transmission is the lead.

You do have been associated with their true.

So it's clear our efforts are working as an industry, even with our team members being on the front lines and working through the pandemic to support our communities and serve our customers. Our team has a lower rate of cobot nine infection than the national average and notably we've seen fewer cases with our airborne team members our pilots and flight attendants then what.

Then with our other work groups.

I personally been flying multiple times every week and I see it everywhere I go the level of cleaning the safety measures and the diligence from our team and our customers is truly incredible and we are greatly appreciated.

So in closing we have a long road ahead of us and our entire team remains fully engaged and we couldn't be prouder of powder. The amazing work, they're doing each and every day.

We're focused on just getting through this pandemic, making sure we are prepared to succeed as demand returns and we're.

And we are highly confident that we're going to do just that so with that I'll turn it over to Rob.

Thanks, Doug and good morning, everyone I want a second my appreciation to the entire American Airlines team. Despite this year's remarkable challenges they continue to rise to the occasion and deliver for our customers and each other when it is most needed and we're incredibly grateful.

Taking care of our team and customers continues to be our top priority. We have taken additional steps in recent weeks to provide customers further peace of mind as they return to disguise.

We upgraded our clean commitment by adding surface wise to to our safety program.

First wise to as an approved is approved by the EPA and the long lasting products to help fight the spread of the novel current a virus and it will be applied to the Americas entire fleet in the coming months.

We've also made travel easier and less complicated by eliminating change fees.

Customers the standby on earlier fight on the same day at no charge.

These customer focused initiatives, along with changes to our basic economy product.

And new advantage really benefit.

Travelers tremendous flexibility when they find there.

Additionally, we launched a new travel tool to help customers quickly see the current COVID-19 travel guidelines for domestic and international destinations.

As we enter the third quarter. The U.S. saw an increase in COVID-19 cases, which was followed by a slowdown in demand.

We responded quickly and efficiently in a way that maintain scale at our largest connected in DFW.

In DFW and sharp.

It has paid off as evidenced by our passenger revenue results, notably DFW and Charlotte were our best performing hubs year over year.

Our car our cargo team continues to do outstanding work driving revenue and supporting the global economic.

The global economy during the pandemic.

More than doubled our cargo only flying from August to September not bringing more than 1900 clients serving 32 destinations during the third quarter.

Today.

Flights has helped our customers more than 85 million pounds of critical goods around the world and that's the kind of 19 outbreak and despite a nearly 60% reduction assistant capacity in the third quarter. Our cargo revenue was effectively flat year over year.

During the quarter, we starting to see signs of a slow.

But steady recovery passenger demand.

Although domestic net bookings finished the quarter down 50% just.

This was an improvement from the first part of July when bookings were down.

80%.

During the month of September 45% of domestic flight had a load factor greater than 80% compared to just 25% in July.

As we look ahead with one third of our flights being actively managed by our yield management system, we see improving yield curves in the coming months.

And then I guess waiting for customers to come to us, we're taking steps to reopen markets. The travel through pre flight COVID-19 testing.

Shifting options are now available to customers traveling to Hawaii in Costa Rica, which make it in the Bahamas following suit.

And we're engaged in efforts to expand that program across the Caribbean.

These testing programs are important because they will ultimately help to reopen markets by further expiring competence and trap.

The pandemic is change our business in many ways that we could have never expected, but the American team has re imagine how did deliver a safe healthy and enjoyable travel experience for our customers.

Slide 19 testing is a great example of that is going to be a part an important part of advancing the industry's recovery from the pandemic.

Our approach to fourth quarter capacity is straightforward.

We will continue to focus on our large connecting houses DFW in Charlotte.

Hey put capacity in markets that are showing positive recovery such as the Sunbelt, Mexico and the markets that are opening in the Caribbean.

We expect our fourth quarter system capacity to be down slightly more than 50% year over year with wrong with long haul international capacity down to approximately 75% year over year.

While we're encouraged with the trends we're seeing in our net bookings will continue to remain as flexible as possible and let that man serve as our guide for future capacity levels.

As we look across the competitive landscape. We believe there is no network better position that Americans.

First our network is big in the markets where customers want to go.

With our sunbelt hubs in Charlotte Miami, DFW, Phoenix, we've seen demand resilience throughout the pandemic.

Combined with our easy access and Magnitsky destinations provides an outlet for customers to redefine the meaning a working remotely are just getaway.

Secondly, we have the best short haul international network with a largest presence in Mexico and the Caribbean.

Demand for this region has been strong and based on current trends, we expect our fourth quarter revenue for this region to reach 70% of 2019 levels.

Third now is the time to be creative and find smart ways to strengthen our hubs in key markets with our recently announced domestic partnerships with Alaskan Jetblue.

We are raising the competitive bar and expanding our network in an asset light manner, while providing customers with more choices and a world class product.

Importantly, our extensive engagement with leisure operators is delivering results in the segment that is leading to recover and to that end American was recently named airline partner of the year by the American Society of travel advice.

Advisors for the second year in a row.

So in conclusion, we remain committed to making sure our customers feel safe and comfortable and have flexibility when they travel as we.

As we continue to manage the current environment, we remain focused on being flexible and nimble in all parts of the organization and with that I will turn it over to their thanks, Robert and good morning, everyone. This morning, we reported a GAAP net loss of 2.4 billion or $4.71 per share in the third quarter.

In the quarter, we recognized $540 million of pre tax net special items net special items included a $2.1 billion credit, resulting from the payroll support program financial assistance, which was offset in part by $875 million of severance costs associated with our voluntary and involuntary headcount reduction.

And.

And $742 million fleet impairment charge. Thanks.

Excluding net special items, we reported a net loss of 2.8 billion or $5.54 per share with.

With the prolonged decline in passenger demand our primary focus has been to ensure we have the financial strength for a range of recovery scenarios. We have moved quickly to raise incremental liquidity reduce cash burn and become as efficient as possible.

On the revenue from our third quarter total revenue was $3.2 billion down 73% year over year on a 59% reduction in total capacity while our.

While our revenue was down materially it was nearly double what it was in the second quarter, we expect fourth quarter to be down approximately 65%, while our current booking trends are positive. They are still down significantly and we continue to plan for a slow recovery as Robert mentioned, we expect our fourth quarter capacity be down slightly.

More than 50% year over year.

We have worked hard to rebuild our fleet into one of the more efficient to operate and offers our customers a consistent and improved product and experience. Our team has been actively engaged with Boeing and Airbus to provide flexibility in how we manage our fleet, giving us ample opportunity to adjust as demand conditions warrant.

As announced this morning in our earnings press release, we have reached an agreement with Boeing to secure a deferral rates on eight of our 2021, Max deliveries and all 10 of our Max deliveries in 2022.

The deferral rates are ultimately exercised these aircraft can be deferred to the second half of 2023 through the first quarter of 2024 to avoid exercising these deferral rate, we would need to see substantial improvement in the demand environment.

During the quarter, we finalized a series of sale leaseback transactions to finance, our remaining Athree hundred 20 aircraft deliveries in 2021 as a result, we now have financing for all of our planned aircraft deliveries through 2021.

As we have spoken about in the past our long held strategy has been to drive efficiencies through the simplification of our fleet with the permanent retirement of our Athree hundred 3200 fleet announced this morning, we now have only four aircraft types in our mainline fleet.

737, the Athree hundred 20 family 787, and Triple set aside.

Aside from the scale and fuel efficiencies the operating efficiencies on the crew maintenance and schedule our permanent.

We also continue to preserve pursue the harmonization of our 737 and Athree hundred 21 fleets and expect to have all of our 77 aircraft operating in the same configuration by the end of the first quarter of 2021, we.

We expect to have our Athree hundred 21 fleet harmonized by the spring of 2022, when combined with our fleet simplification strategy. These steps provide significant opportunities to improve revenue production and reduce costs now and well into the future.

Lastly, we retain inexpensive optionality in our total fleet count as we have 51 aircraft with lease expirations through the end of 2022. In addition, we have more than 200 older on mainline and regional aircraft that could be efficiently part should demand conditions deteriorate.

We continue to take a zero based approach to our expense planning and have moved quickly to better align our cost with our reduced schedule.

Produce producing the $17 billion reduction in 2022 expenditures that Doug talked about as.

As we look to our team members. In addition to the cost reduction efforts, we've outlined in the previous quarters more than 20000 team members have opted for an early retirement or long term lease. This is an addition to the painful but necessary process of Furloughing 19000 team members were extremely grave.

FFO for the sacrificing contributions these team members have made to our airline.

Finally on liquidity, we continue to take proactive steps to reduce our cash burn rate improve our total liquidity position.

In the third quarter, our operational cash burn rate was approximately 36 million per day, and our debt principal and severance burn was approximately 8 million per day in total our third quarter average cash burn rate was approximately 44 million per day, which.

Which improved sequentially from the second quarter burn rate of 58 million per day.

During the quarter, we closed both Goldman Sachs merchant Bank secured notes financings totaling $1.2 billion. In addition to the care that loan Doug mentioned that provided $5.5 billion of lung capacity.

We also received a final payments of our Aladdin PSP funds, including an incremental $168 million of previously unallocated funds identified by the U.S Treasury. This.

This week, we were able to increase the amount available under the care that loan to seven and a half billion when combined with our third quarter ending liquidity balance of $13.6 billion. We ended the third quarter with a pro forma liquidity balance approximately 15.6 billion.

This morning, we also announced the authorization to issue up to $1 billion of equity in an aftermarket offering to further bolster liquidity. We view this as another lever that the company has available at any time.

As we look to the fourth quarter, we presently expect to end the quarter with more than 13 billion of total available liquidity, which excludes any proceeds from the ATM operating EPS. This measure this.

This resulted in an average cash burn rate of between 25, and 30 million per day, which includes debt principal and interest and severance payments.

Our goal remains to get our daily cash burn rate is zero as quickly as possible. The timing of reaching this goal continues to be dependent on the demand recovery timeline as many of our cost reductions have already been finalized.

In terms of our debt obligations, we believe the market is under appreciating our balance sheet flexibility and efficiency our proxy.

Approximately 40% of our outstanding debt is pre payable without penalty and we don't have any large non aircraft debt maturities until our $750 million unsecured bond matures in 2022 last year.

Lastly, thanks to the tireless efforts of our Treasury team our weighted average cost of debt is just over 4% despite higher coupon co related financings that we completed this year.

While we continue to be pleased with the outcomes. Our recent funny recent financings the incremental debt to our balance sheet and dilution to our shareholders has been significant however, with the flexibility that I've outlined we have the ability to proactively repay debt and de lever our balance sheet over the next several years when we return to a normalized.

Revenue environment.

To conclude we still have a long road to recovery ahead of US. However, the actions we have taken to conserve cash bolster liquidity and support our team members and customers give us confidence that we are well prepared when demand returns.

And with that I'll open it up in line with analysts for questions.

Thank you as a reminder to ask a question you'll need to press star one telephone switch.

Question Christa Tom.

Okay.

Our first question comes from Brandon Oglenski of Barclays. Your line is now open.

Hey, good morning, everyone and thanks for taking my question.

Okay, no, it's a really difficult environment right now.

A lot of airlines are still burning through cash, but as we look forward. You know this is a real ability for the industry to rebuild itself more specifically American but I guess what is the strategy going forward guys. Because you will have a pretty large step balance and I think competitor down.

Across the city, there well have that much at a lower cost structure. So in that type of environment. How do you navigate to differentiate and have the ability to pay down debt and be profitable, what's the new American going to look like.

Hi, Doug Thanks.

Any more efficient venture certain reasons opportunity.

Right.

Terrific as long as as it it does provide some saving opportunities and largest airline in the world.

Effectively shut it down.

Back when it makes sense, we've done things like reduced 30% of our management are not going to bring that back.

Okay accelerating the retirement of 150 aircraft and aircraft types that aren't going to come back.

So and more and more.

And as we do and then as we go back to schedule, we're going to.

We're going to build back flying that is profitable and pick.

Pick out a lot of what used to exist.

Yes.

So we feel really good about what we're about how we will emerge from this.

These are the where we used to be in the review.

Our competitive position.

We do indeed.

Higher debt levels, we did before this.

As we can.

Got to modernize our fleet.

So that's behind US we don't have as Derek noted large.

Large amortization in the near term we don't we certainly don't think once we get to where we're generating cash as needing to doing more in terms of raising more.

And we'll we'll do as we as we move to cash positive EPS will use those proceeds to pay down the debt.

And I think you'll see from our competitors, so, but we feel really good about our ability to compete in the future as the industry against cash positive. So all Americans merit and as fast as possible use our proceeds to pay down debt first.

Appreciate that and I guess, if we are going to be a more leisure oriented market for two years, there tier that the fare structure in the industry could walk lower do you think you're going to have a cost structure to compete in an environment like that.

Yes of course, because because what we have we have a.

Route network can do that.

US extend more Robert but.

Reality is we have a huge competitive advantage in terms of.

Our ability to connect customers around the United States internationally within rebounds.

A member of ours.

Many other carriers cant compete with couple of Amphenol.

That's that's a great revenue generator we of course.

Hello costs, along with that I'd like to say, we're going to get our cost down through the efficiencies.

Yes.

You can see it in our ashburn numbers now being.

March where our competitors are as the industry gradually rebounds will rebound already or cash.

Our cash levels and therefore our earnings.

Our cash burn levels in our earnings release.

Rebound as the industry does.

Anything else.

I'll just add to that Brandon is.

No I think in a benefit historically thought of business and leisure is having that seasonally different yield performances across our system that is not always the case indeed.

In our airline.

Business style revenue those are people, who don't pay a Saturday night mid week travel a single person in the itinerary are about a third of our revenue, but only about a third of that comes from the large global corporates that are most likely to delay travel and even just one were actually less exposed to that historically have been.

What made me.

But to the replacement value that traffic is very different for American airlines, and our largest such as Dallas Fort worth is Charlotte.

The non corporate traffic that's on the airplane can often produce yield there between 70% to 75% of the corporate indeed, the non corporate.

Well, we what you might call the leisure yields in some of these have outperformed corporate yields in some of the big coastal metro areas that are there. So really the strength of the American airline businesses and so much of what we do we create connectivity for customers. It really wouldn't exist if it weren't for American airlines buying in some of these markets. So.

Core attribute of our business model that will be something that takes us through this crisis and we'll absolutely be part of what what powers. The revenue production of the airline on the other end of it.

Thank you.

Thanks.

And our next question comes from Mike Linenberg Deutsche Bank. Your line is now Paul.

Hey, good morning, everyone, two very quick ones here.

Garik, the $25 million to $30 million of burn.

What is that number if we or you could just tell us roughly what is the piece that's related to debt interest principal payment and severance just to do it.

Well in in the fourth quarter and eight.

It's the same in the third and fourth quarter, so $8 million in principal and interest payments in that 25, Okay. Great and then just second you guys have done a nice job on the cost side pulling down cost I think ex fuel profit, excluding special I think youre down about 30%.

Sept Q, what what are you.

Where would the things shake out for the fourth quarter.

Given the fact that you will have a bit more people off the table et cetera.

What what should we be looking at new way.

The way, we had we had reductions in costs as we look at it was 40% in the third quarter.

And it's kind of as we add we're adding back a little bit of capacities, and we said, 59% down in the third quarter and close to 52%. So we add probably a little bit of cost due to capacity coming.

Capacity coming back in so we should be in a similar range.

Maybe 38 36 38 range.

Costs down in the fourth quarter.

Great. Thanks for that thanks, everyone.

Thanks, Brian.

Thank you and our next question comes from Joseph Denardi of Stifel. Your line is now open.

Yes, Hey, good morning Derek.

Daryl you talked to the balance sheet flexibility and efficiency and your ability to pay down debt you need to generate cash obviously to do that part of that is that cap. So if you want the market to better appreciate your ability to repair the balance sheet can you provide some visibility around.

Capex over the next few years.

Yes, as we look at Capex I mean, we've already all all down to.

21, and 22, so we were at one seven or $800 million added 21.

We call it 200 million added 22, so we.

So we would be at about a billion dollars run rate and we can take that lower also we just right now we're at.

At that run rate and we and we definitely can take a lower if there's if we need to from a capex perspective.

Second that about.

A billion in second and 2021 at 5 billion 720, 22, now I also said.

We have deferral rights on aircraft and we and we can push that would reduce those two capex numbers.

Our new years and as you know we don't have many deliveries in 23 24. So the capex profile is much much smaller than we've had over the past years.

And will you will use to be able to use that cash that was going to buy aircraft and integrate airlines into paying down debt.

Got it Thats helpful. And then thought to why we're Americans earnings while as Americans earnings power and margin so much lower than peers pre coven and why will that change on the other side of that thank you.

Yes, Thanks and great question.

At hand.

There is a range of answers for it but I'll I'll at least.

The one that we are starting to see emerging in the trends right now which is just on how we missed capacity across our network.

As you look at Threeq results right now.

Our our relative PRASM performance in the system that strong versus our competitors, that's kind of an empty victory in the environment. We're in but it's an important lesson because what we see right now is that about 75% of our airlines capacity is in our four biggest Todd.

Those hubs, we're producing based what we see today 30, 40% RASM premiums to the industry are.

Our smallest hubs as we see them today.

Our 10% of our of our capacity and still producing a RASM deficit in the old days that was a much bigger mix that the things that we're outperforming on a RASM basis, where in some cases as big as Dallas Fort worth our largest hub. So what that means for us. This may relate to an earlier question isn't it.

As we come out of here one of our really guiding principle is that we will produce our revenue premium to the industry. The way. We go about doing that is first and foremost.

Orient more of our organic assets in the markets, where we can produce an outsized level of value for customers, which as we see today produces an outsized level of revenue for the airline.

Two through many of the partnerships that we've created not just with Alaska, and Jetblue, but with British Airways AG or Jal.

Many others around the world in markets, where we can produce outsized customer value alone we're going to work with these partners to make sure that we produce that value and get the returns that come with that.

Third and very importantly, too.

We need to go and increasing across our commercial division.

Our customers really good reasons to want to fly more and pass more Woodstock.

Which sounds very simple and indeed, it is but we think that by doing that there's a real path out of it where where American can produce at a different level that might have before.

Thank you.

Thanks, Joe.

Thank you and our next question comes from Helane Becker of Cowen. Your line is now open.

Well thanks.

Hi.

You did.

Operator, we can go onto the next.

Yes.

Oh, Hi area.

Sorry about that no it happened so.

My question Doug.

On the stimulus program, if things open and people don't travel by more.

Well the industry being the same places it is now and need more stimulus money isn't it better.

Work with governors to open.

And then you have more stimulus money rather than getting it now.

Yes.

Hi, Ken.

Separate to the stimulus of course.

Recovery package will help stimulate the economy I think one important.

Yes, and I think the sooner the better I think our country needs it and that would.

And that would help in many ways too.

Yes, I think.

As to the payroll support lab expenses.

Yes, that's not about stimulus in our view it's about.

Critical infrastructure in place.

That's about.

The importance of the airline industry to that economic recovery is entirely what the PSP program was put in place.

Do what it does is it has airlines.

More people employed than we would otherwise basically existing demand served markets, we wouldnt serve otherwise basically existing demand and the concept was that the.

The government.

Pass through gives money to airlines to pay those people into into why those flights we wouldn't.

So as the economy returns that critical infrastructures in place.

Thats good policy I think it's been great policy up today I think it's good policy should be extended and I'm not alone in that are enormous bipartisan support for that.

Right exactly those reasons, it's not about getting money into airlines is making sure that critical infrastructure stays in place. So yes, I think thats really important to keep in place now I feel good.

So kind of extension.

We'll see we'll see so and infrastructure decline.

As the economy looks to rebound, we won't be prepared as well as we should be to facilitate that.

Right. So that's what it's about and yes. So therefore I don't think it makes sense that critical infrastructure.

Get harder to go over to go lowered again I guess they were now on matters.

Virtually every one we talked to you now agrees that should have so.

So I guess part market, which is another question, which is next year, which is walking thats, all well and good but if things don't get better six months from now that you're going to need it again.

I don't think so I happen to believe we're seeing now even in this morning.

Gradual return.

Revenues, we expect that to continue I think six months from now.

Certainly you will see a better environment than we have today irrespective.

What may or may not happen as it relates to the pandemic itself.

Because people are getting more and more comfortable travel and.

So these are opening up new business is returning some one so.

I think six months from now it'll certainly better and from airlines.

Airline cyclicality perspective will be heading into a summer, which is always as higher demand. So anyway, I mean, our view anyway is that.

Six months and PSP expenses would be the west PSP extension, you would need to keep that infrastructure in place, but after that you are going to we're not going to be in a good position to do.

Do do it weve, what people want us to be here to help the economy.

Got it that's very helpful. Thank you and then my other question how many aircraft are actually being scheduled right now.

Hi, how and when they do that the easier way to view it as how many how many airplanes are we not lying and that that number as is in the order of magnitude of about 200 jets.

We have a couple of airplanes to fly on relatively lazy like that it makes some of the maintenance of the operations of the airline easier.

Okay 200.

200 to 13.

13 1350.

Right I knew that part I just didn't know the first thank you yeah. Thanks.

Okay. Thanks have a nice day.

Okay.

Thank you and our next question comes from Hunter Keay Wolfe Research. Your line is now open.

Hey, good morning.

Thanks, Jimmy on a.

Derrick of the year revenue in Threeq, you is like $3.2 billion, how much will your cash receipts.

Maybe net of refunds in the quarter.

Revenue.

70, 525 from a revenue perspective, so we.

We did burn some of the stored value during the quarter.

Our NGL still has about we ended days yell at about 4.9 billion at the end of the third quarter and there is about two and a half.

And that is still stored value that was from refunds and other things that were.

Given out during the early part of Covance.

Okay cool.

Thank you and then I had a question for Allison actually.

I'm asking you this question given.

Given your your your comment of the importance of Pmcs and the press release, you put out with the new Sabre deal how much did you spend on TMC commissions in 2018, just roughly and how much.

Is your budget how much are you being given to spend on agency commissions in 22021 and 2022.

Relative to what you said about the importance of agencies as business travel recovers and of course, obviously the elephant in the room the.

Competitiveness, the corporate travel landscape and as it evolves over the next couple of years.

Yes, 21, four at TMC denied seasonally believe analyze thank you Joanna agencies that client partners or us to facilitate important new corporate business.

I still working out what that would be because as you know.

We still are looking at return of corporate business overhaul the largest complex global accounts light.

21.

So it's a little harder to predict what those completions will they all are.

Well I would say if you need to be.

So you need to be Horton forward and we believe once again, they will be robust partner in the latter half of 21.

We're also working with them to.

Not markets like that.

Cargo between the UK and let's say into the sales shipments Haiti.

You got it.

I think its important initiative all them.

Yes to Allisons differentiator, we haven't gone through the budget process for 2021, and we will go through that process and figure out the right a mile.

That we need to do for good.

I get the corporate bank.

Yes.

What I think you're getting at.

Given.

Given given our scale American and there are.

Ability to sort of corporate customers is rarely American.

Increasing commission rates in an effort to attract business travel. So I don't think you'll see that be the case in the future if that's what you're asking.

Okay.

We do all the major match, others hour and we need to be competitive but the horses.

This is also the number one news.

There.

Great can of commissions and general Okay.

Okay, No thats very helpful. Thank you very much.

[music].

Thank you and our next question comes from Jamie Baker of JP Morgan. Your line is now open.

Hey, good morning, everybody.

Our goal for Derek presumably first based on the October 1st Furloughs, and the accompanying service suspensions.

Now, what's the best demanded level of cost savings there either on a quarterly or annual basis.

Yes, I think on it we've got.

Yes, we've got as we put together how much in savings we've got from a management perspective. It was about a half a billion dollars. Okay that we had in the in the management side of things.

A mile from efficiencies and other things that we.

We got out from some of the management I mean, sorry in some of the labor was about 400 billion. So from a headcount perspective, we're right around $1 billion of permanent efficiencies and head count from those two areas. So out of the $17 billion billion of it is definitely something that doesn't come back.

Fleet reductions is another area, where we will see significant savings and.

And then the other part is as we add back in the costs as Doug said earlier as we add back in the flying how do we do that more efficiently to drive those costs down and keep most of the.

Keep everything we can from the.

Savings that we've had in 2020.

Permanent as we move forward.

But the the aircraft savings I mean, you're not counting that as part of the PSP exercise I mean, what I'm getting at is that in the event of another round of PSP certain costs are going to be added back to the PML, but then effectively taken out by the PSP. So so what I'm really trying to calculate it's what impact.

Act PSB would have on liquidity, so youre aircat your aircraft carbon it's helpful, but that separate correct.

Yes that is separate from VSP the us at all.

At all headcount headcount related.

Right.

And and we should be assuming so you are in that number on that was about a billion annually correct.

Well the amount reductions from PARO gap out billion billion and a half annually.

Okay. All right. That's that's helpful. And then again so on the planned retirement of I guess your out of five aircraft families altogether.

What level longer term.

Cost of that permanently removed and is your estimate net of any revenue inefficiencies maybe this is.

Question for profit.

That might occur since you'll just have somewhat fewer options in terms of aircraft gauge.

Oh I might add from a cost perspective, I think there's two things one is from a cost perspective, we should have a permanent reduction in those aircraft coming out.

From a because you have maintenance coming out you have the.

Okay, good stuff coming out so that could be.

Could be anywhere from I mean, we haven't calculated the 20 and 21 plan yet and as we just retired the threethirty two hundreds this morning, and we still have some 730 sevens that are on the graph on whether they come back up as we move forward, but Jeff.

Hi, Bill.

In dollars in this year and then at that stage that next year from a from a maintenance and a cost perspective as we go forward.

I know.

Today I'll go ahead, Jay just from a from a revenue perspective.

The.

Really nice thing about the retirement is that we have really accelerated where we want it to be down the road and so I think one of the things that we've said before is that we are looking for efficiency just because of the different number of aircraft type seating configurations and also when you take into account our regional partners the number of operators as well so over the.

The last five years, we've gone from sales really over 50 different sub fleet types down to now about I think 23 year Cho.

And.

Yes in terms of being able to serve the market place.

We're ending up with fleet families that really work well so from a 320 family perspective.

We didn't we're not losing out on anything in terms of a retirement like the seven five.

From a 7878 and nine were not losing out on anything from seven six in Threethirty perspective, so with the variance in the different fleet types and at the same holds true for our regionals.

I think we've got that the that the fleet to serve the spectrum of demand needs and do it in a way that's incredibly efficient got it.

Got it and Derek just remaining unencumbered asset number and then ill.

That will be done.

We have about 11, we about $4 billion of unencumbered assets and that we have $7 billion in the first lien capability so around $11 billion.

Thank you everybody take care. Thank you.

Thank you and our next question comes from David David Vernon of Bernstein. Your line is now open.

Hey, good morning, guys I wanted to ask the post cobot cost question slightly different way. If you were to take a look at.

The actions you've taken on the fleet side and assumes normal level of utilization.

How would the gauge shifts like if you were to take a snapshot in 2018, what does our gauge look like pre Tobin, what's it going to look like in the future and then if you think about the reduction and hourly operating costs from all the simplification is there a way that you can frame kind of a cost reduction potential just on the variable our hourly operating costs.

The new fleet.

Investors are really trying to trying to get their heads around this business issue. Okay. Yes Americans margins were X before the crisis, what are they going to be after the crisis and I think.

Getting some more.

Tangible data points around exactly what fleets and look like would be helpful.

Sure Hey, Dave This is Bob I'll start and others can can join in and.

And what makes sense for a little bit complex is we're still in a profit the setting what our 2021 capacity is now as Derek mentioned, we've got 737 is on the ground.

We have 50 seaters that are on the ground, depending on how does come back or not that will impact our future gains and let me give you more of a conceptual answer but if you think about it right. We as we've taken out and all of the fleet simplification that Robert just spoke about we have taken out roughly 50 wide bodies from the.

Denver until June of this year and what all that is is taking out some of our lesser are lower gauge airplanes, such as 77 767 and now we have a.

More of our widebody fleet on higher gauge higher density products like 787.

At least for the narrow body fleet, certainly versus last year and years prior theres a material impact in up gauging first we have the 190 and the.

The MD 80 is coming out replaced with larger gauge 737, and 321 neo that are coming in and the regional side, we have more 50, seaters coming out being replaced.

With dual class regional jets, so all of that is a pretty material impact.

And.

In the months ahead, we'll get a better sense, what that means for average gains year over year, but but just do the basic fleet map Alley, you can probably get pretty good sense for for what that impact is yes, and bus and we kind of were kind of looking at AG over 19, just because the 20, so strange, but I think we'll have.

You know our average seat in.

19 from a mainline was about 167 and as we do the Oasis projects in all the changes of the aircraft that should go up somewhere.

Somewhere in the neighborhood of 5% or five five seats and then regionalized, we make that change on the regional you're going to get about three more seats as we make the change there. So there will be a significant as we look into 2021.

Departure should be down engaged should be up so that will give us a.

A cost benefit from a CASM perspective as we.

Fly less departure that higher gauge.

At lower cost.

All right.

Thats helpful. And then maybe just as a quick follow up could you talk a little bit about.

Kind of rebuilding the regional footprint and the feeder footprint is there going to be a shift in the old model versus the contracted model or how do you are you are you thinking about kind of how to start to rebuild fee traffic as you.

Start to look at what the networks will look like post code.

We've done a really nice job over over the years. Following a strategy that speaks to simplification in terms of fleet types and simplification in terms of number of operators with.

With Piedmont, PPSA and on way and just really at this point a few partner carriers, we feel like we're in a really good spot and that would carry that are established and all fighting on the basis of quality and efficiency. So we see it we feel pretty good about it in terms of building back of course, you know.

Putting these larger.

Two class regional Jets into service and import price is really important I take a look to 2021.

When demand recovers and that we open up new regional facility and DCH and think about the kind of changes that we talked about with up gauging and what that will mean.

For for the airline is going to be positive not.

Not just from a cost efficiency perspective, but also from a path.

Revenue perspective, but also from a passenger perspective in terms of quality of service and we're going to be able to provide them a product they really want.

Right Thanks for that.

Thanks, Jim.

And our next question comes from Joe kind of Credit Suisse. Your line is now open.

Okay.

Okay. Thanks, very much hey, good morning, everyone.

Derrick quick question for you and apologies if you if you answered and in your prepared remarks, but what would you consider using some of the some of the $1 billion of the equity raise to retire near term data at a significant discount I think you mentioned your 5% unsecured notes due 2022 or sort of your next big maturity and does it.

And those are trading at about 70 cents on the dollar. So is that something you would consider or do you really want to see the cash generation drive the debt paydown.

It is something we could center would consider as we look out to our planning for 2021 and see where our cash needs are.

But it is something we would consider.

Got it okay. Thank you and then just one more quick one.

Did you say that there is retrofit and aircraft not activity taking place today is as part of the fleet harmonization initiatives. So that stuff is no longer on hold is that right.

Correct, Yes for ride for US we had not put it on hold.

When I talk about our Capex being what it is in 2021 almost.

40% of that is actually that project, we've continued to push it with aircraft on the ground, we've been able to speed it up.

Which I think is the right decision to get the seven three eights done as quick as possible and.

Three cents, sorry, cemeteries have an AIDS get done as quick as possible and then speeding up the 320 ones to get that project on while the aircraft are on the ground, we can speed it up save costs.

And get the benefits sooner. So those those have been in the numbers and remain in the numbers as we move forward.

Thats very helpful. Thanks for the time everyone.

Thanks, John.

Thank you and our next question comes from Joan Sweeney with Evercore ISI. Your line is now open.

Thanks, Thanks for the time appreciate it.

So so you obviously have some improvement in the cash burn level here into into the fourth quarter.

Another way to say 25 to 30 million a day is 10 billion annually, which is which is still a pretty big numbers. So maybe.

Maybe going back to.

Jamie's cost questions.

All of the Opex savings that Youve realized how much of that run rate is being reflected here in the fourth quarter.

And if it's simply timing absent revenue recovery, which we can model.

Where would that kind of 10 billion a year kind of cash burn go to based on the cash savings you've realized.

Well the way, we've said, we had $17 million in savings throughout the year right and 16.2 of that billion as as an expense now some of that as volume right. So as we add volume back in those expenses are going to go back in.

Some of the permanent stuff is what we talked about which is the management head count the efficiencies the fleet a lot of the stuff. We're doing will will be permanent as we move forward or reduce that what.

What we have said is that you know to get us back to you.

Cash positive mix.

The cash burn to be breakeven needs. We've all said, it's a demand recovery and we need the demand to come back. So we will we are holding flat expenses third quarter over fourth quarter everyday and we add back end capacity, so being more efficient.

But the burn differential has come in from the revenue recovery and where we're seeing it exactly today is what weve modeled out as we go out into the fourth quarter. So I think the as we look into next year and as we look forward that it's the demand recovery and that gets us back.

Flying our entire fleet getting the revenue back.

And being as efficient as we can to cut those costs out.

2021.

Thanks, just just for a follow up there this morning and on the CNBC interview I think it was mentioned that theres nothing more or we've done virtually everything we can.

On costs at this point I guess my question would be are you at a structural disadvantage for some reason or what would you need to see in terms of this recovery for that view to change and thanks for taking the questions.

Hi, guys Doug.

Again, what I said.

Nice out again.

Look we haven't we haven't done it we cannot.

Yes, we can.

By now we should have.

So as you've heard.

Earnings from all the airlines right now.

That's that's where we've gotten to reduce all the costs we can.

This point clearly as we as we ramp back up.

As Eric and others have already so we don't expect you should see the same kind of cost RASM going forward, but your question is on the.

The fourth quarter of 325 to 30 cash burn number.

How does that get better we don't want to give you the impression.

Better because we're going to further be able to reduce cost.

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Just as our other large competitors use kasper numbers are virtually exactly the same for the fourth quarter.

I'm going to be doing.

Those numbers will get better for all of us.

At similar rates as demand recovers.

That is what is required and if it doesn't we'll.

At these kind of permanent helping anyone expects that to be the case.

In the case through this year.

Understood. So we've got and we've got to be improvement in these burn levels.

From the third to the fourth quarter isn't.

There are some of those cost savings because we get we get through.

Bruce is by far the biggest driver is revenue improvement and that's what that's what will be will improve as we go forward.

Well because industry.

Okay.

I appreciate the time.

Right.

Thank you and our next question comes from Andrew Jewelry of Bank of America. Your line is now open.

Andrew.

Hey, good morning, everyone. Thanks for the questions.

Maybe talk to US doing question, a little differently on costs may put each of those on the revenue side. So what level of revenues versus 2019 do you feel like you need to be at in order to reach cash breakeven.

Hey, good that is there to start no no no. We I mean, we said from a from a revenue perspective.

We are building the airline back up and getting it.

Where we've got our aircraft back in.

And we have good loads in about the 65 to 70, 570% range is kind of where it's where it's going to take to get us get us back to breakeven and that getting all aircraft back in his couple.

Capacity much lower than where we were in 2019, because we've taken out 157 aircraft.

Will be much lower than what we had planned so we're all going to take capacity out in 2021, the industry will be smaller.

Getting most of our aircraft back up getting loads in the 65 to 70 range, which all of which will drive the revenue recovery and get that get the revenue back in.

Just kind of where we see where we would be breakeven.

Breakeven from a cash perspective.

That's great. Thank you and then just a second question maybe for both Sue can you maybe just talk about how your discussions have gone with with global with global authorities on how you're thinking about potentially the reintroduction of the long haul International network.

Maybe what regions are kind of routes you think could come first, particularly when you think about your new how you how your new fleet plan. Please involvements. Thanks, absolutely no we would be happy Uh huh.

And so as we mentioned earlier, we are actively working with a number of level regulatory bodies no more so than than with the UK.

Hi, really our largest international connect point is indeed, our haven't Heathrow. So.

So we actually ourselves now Angie we are closely working with the UK government.

To really create on air travel corridor, which could be not just the basis for further reopening in long haul services to the UK, but indeed that template for how we can do long haul reopening more globally now other than that.

Well that impacts primarily our higher European some degree our Asian network I'm really in many ways, our South American network is already coming back.