Q3 2021 American Airlines Group Inc Earnings Call

October 21, 2021

Good morning, and welcome to the American Airlines Group third quarter 2021 earnings conference call.

Today's call is being recorded at this time all lines are in a listen only mode.

Following the presentation, we will conduct a question and answer session.

To ask a question you would need to press Star then one on your telephone.

If anyone should require further assistance. Please press Star then zero and now I would like to turn the conference over to your moderator haven't missed the relations Mr. Dan Cravens.

Thanks, Sarah and good morning, everyone and welcome to do that.

Third quarter 2021 earnings conference call on the call. This morning, we have Doug Parker, Chairman and CEO, Robert Isom, President and Derek Kerr Chief Financial Officer also on the call and I'm on the line as well for a Q&A session are several of our senior execs, including Maya Leibman Chief.

For information Officer, Steve Johnson, our EVP of corporate Affairs, Elise Eberwein, our EVP of people came in.

People.

Engagement and Ross you Raj <unk>, our Chief revenue officer like we normally do Doug will start the call with an overview of our quarter and we will update to the actions we've taken during the pandemic.

Barbara will then follow with some remarks about our operations commercial and other strategic initiatives. After Roberts remarks, Derek will follow with the details on the quarter and our operating plans going forward. After derek's comments, we will open the call for analyst questions and lastly questions from the media to get in as many questions as possible. Please limit yourself to one question and a follow.

Before we before we begin we must state that today's call does contain forward looking statements, including statements concerning future revenues costs forecast of capacity and fleet plan. 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.

All of 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 32021. In addition, we will be discussing certain non-GAAP financial measures. This morning, which exclude the impact of unusual items, a reconciliation of those GAAP numbers to the GAAP.

The financial measures is included in the earnings release and that can be found in the Investor Relations section on our website.

Webcast of this call will also be available on the website.

The information that we're giving you on the call is as of today's date and we undertake no obligation to update the material. So subsequently.

Thanks again for joining us at this point.

Now I'll turn the call over to our chairman and CEO, Doug Parker.

Dan and thank you everyone for being with US good morning. So we're.

We're starting out very strong.

Domestic business revenue.

Which declined from 27% of our 2019 levels in March to 52% in June jumped even more.

And July actually jumped to 64%.

As companies began to return to work in your employees began to return to the skies and as a result, we had American produced a profit in the month of July.

But in this round of Delta variant led to a rebound in pandemic fears of course company's deferred return to work plans.

That domestic revenue domestic business.

As revenues go back to 57% of 2019 and 47%.

Now I know some people behind that trend discouraging, but we actually think it's encouraging.

Spike in business revenue in the month of July showed the business travel does want to return there was enormous pent up demand.

This pandemic is behind us it should resume.

Zoom its prior rapid trajectory to recovery.

And as to how that all gets reflected in the financial results that profit in July.

Larger losses in August and September added up to a cumulative loss.

On a GAAP basis, we actually reported a net profit of $169 million, but when we exclude net special items.

We're in a net loss of $641 million.

While we obviously don't like reporting losses. This is our smallest quarterly loss since the pandemic began in early 2020.

What we're most proud of is how well the American Airlines team is performing.

No one is managing through this pandemic and into the recovery rather than the people of American.

And it shows in our results.

At a time when airlines are struggling to build back service in response to demand no. One has built back further and faster in American.

We flew greater than 80% of our 2019 capacity in the third quarter or a larger world, while our large competitors have restored only 70%.

As a result, we flew 13% more.

We were closing the quarter than our next closest competitor.

And our teams safely transporting more than 48 million passengers in the quarter.

And our team did this well doing an excellent job of taking care of our customers.

We struggle with growth ourselves as we entered the quarter, we responded quickly and aggressively.

We ended the quarter flying by far the largest airline in the.

With the best September operational performance in American history.

That great performance by our team has led to strong customer acceptance as evidenced by our industry, leading passenger counts and our revenue trends for.

For the quarter revenues were significantly improved over 2020 and were down 25.

5% in the third quarter versus the same period in 2019.

They were down 37, 5% in the second quarter on the same year over two year basis.

And notably our passenger unit revenues in the quarter were down 10% versus 2019 versus 12% declines that the other large international U S carriers, despite our higher capacity production.

On the cost front, we've reshaped our network simplified our fleet.

Operational cost efficiencies into the business that will serve us well for years ago, we accelerated the retirement of more than 150 older aircraft.

American continues to operate the youngest and most fuel efficient fleet of the U S network carriers.

And importantly, we've action more than $1 3 billion of permanent annual cost reductions into the business through our green flag initiatives.

And as we've navigated through the crisis, we've been careful to think and look long term.

We've announced a series of strategic relationships with other airlines around the world that strengthen the American network, adding additional utility to our customers and long term value for our shareholders.

The most notable of these are in northeast aligns with Jetblue and our West Coast International lines from Alaska.

We continue to implement and grow in the third quarter.

Looking forward, we feel great about where Americans position do you have it.

Deferred business demand and the recent rise in fuel prices the fourth quarter will be challenging.

But that's a near term issue finding our longer term bullish trend.

We're encouraged by the upside that exists in demand for business and international travel.

And our confidence is reinforced by the incredible work the American Airlines team has done throughout this pandemic and continues to do today.

We're particularly excited about the future that lies ahead for American anarchy.

With that I'll turn it over to Robert.

Thanks, Doug and good morning, everyone I want to start by thanking the entire American airlines team for their efforts in.

In the third quarter and throughout the pandemic.

Our airline continues to succeed thanks to the hard work of our team.

As Doug mentioned this summer represented the largest operational ramp up in the history of America.

As we built back the operation much like other businesses, we have managed through supply chain constraints veteran staffing challenges.

Constantly changing travel restrictions and a lot more.

Through it all we operated more flights and carried more customers than any other U S airline more than tripling our daily departures from May 2020, which was the low point of our schedule.

And we're pleased with where we are.

<unk> recorded our most reliable September since the merger based.

Two factors on time departures and on time arrivals.

We will continue to focus on delivering a safe and reliable operations continuing to build momentum as we further scale, our operation will come back even more customers.

I also want to acknowledge the efforts of the American team the third Cordiant's third quarter in support of the.

A U S Civil Reserve Air Fleet program it.

It was a tremendous honor for America to aid in the effort to bring more than 5000 evacuees from Afghanistan to the U S as well as hundreds of members of the U S military.

The work included.

Working with the customs and border protection open offices Philadelphia facility.

As a welcoming center for foreign Nationals.

To our team members throughout the airline and from all over the World who came together to support Americans crap activation.

As we reported this morning, our third quarter total revenue was approximately 9 billion up $1 5 billion from the second quarter.

This improvement was driven by our path.

Passenger revenue recovery, which.

Which increased by more than 20% sequentially from the second quarter on a 12% increase in available seat miles.

Overall passenger revenue in the third quarter were 72% of what it was in the third quarter of 2019, which is up 13 point sequentially from the second quarter.

And then.

Leisure revenue has now returned to pre pandemic levels at 98% of 2019 levels in the third quarter.

As Doug described business revenue growth stalled in the quarter and finished flat for the second quarter at around 50% of 2019 levels.

Given the recent booking trends with a delta during society and everything we're seeing and hearing.

Hearing from our customers, we're planning for a robust peak travel period for the fourth quarter and we're excited about the prospects for 2022 and here's why.

We expect the domestic leisure revenues will surpass 2019 levels in the fourth quarter and continue that trend throughout 2022.

Short haul international revenues should follow that same pattern.

Recent trends show that corporate bookings month to date have improved significantly and are accelerating like they were earlier in the year before the delta variant and associated restrictions were imposed.

Our largest corporate customers tough there'll be returning more fully to the office of travel as we move out of 2021.

Because of that we continue to expect.

A full rebound in business revenue for 2019 levels on a monthly basis by the end of 2022.

Speaking regularly with our top corporate customers almost all have resumed domestic U S business travel to some extent there's companies return to the office and less travel restrictions, we see continued growth in corporate travel.

Industrial.

<unk> healthcare and professional services continue to lead that recovery.

While international travel, particularly long haul business travel, while the slower to return to that starting to come back.

Right now almost two thirds of our corporate customers are travelling internationally or at least a central business and.

And we expect international travel to improve significantly.

With the easing of cross border requirements and we are encouraged by the recent news about the U S government using international travel and entry restrictions starting in November.

Following the White House announcement, we saw an immediate increase in bookings and several of our key international markets overnight, we saw a 66% increase.

And bookings to the U K, a 40% increase to core Europe, and a 74% increase to Brazil clear.

Clearly there is significant pent up demand for travel to and from the U S and many customers are eager to return to travel when it is permitted.

Now just focusing on the fourth quarter, we expect total revenue will recover to approximately 80%.

Percent of 2019 levels.

Approximately five points sequentially versus the third quarter with the strongest performance in domestic and short haul international markets.

We continue to make significant strides in building the products global network in the industry and reconnecting with our customers.

Our partnerships with Jetblue and Alaska are delivering tremendous benefits for customers.

Enabling to do find that otherwise would be possible.

One of the 715000 customers, we're able to travel across our networks during the quarter. Thanks to these innovative partnerships.

Together American at Jetblue will operate more than 700 daily flights from New York to Boston, New York, and Boston This winter, including nearly.

The international destinations out of JFK.

We also continued to create a seamless experience for our customers, including rolling out reciprocal linked benefits are advantaged and true blue mosaic members and we expect to launch mileage redemption on Jetblue very soon.

Our loyalty program continues to demonstrate its attractiveness.

To our customers and partners November acquisitions in the third quarter exceeded 2019 levels. Despite the airline flying a significantly smaller scale.

As our customers continue to engage with advantage our co brand cash payments were essentially fully recovered at 96% in the third quarter versus the same period in 2019.

This is up from just.

78% in the second quarter on the same basis.

This trend to continue as the network returns to a more normalized level.

On the ESG front during the quarter American became the first North American airlines to commit to developing the science based targets for reducing greenhouse gas emissions by 2035.

We also agreed.

Purchase more carbon neutral sustainable aviation fuel.

American also became an anchor partner to breakthrough energy energy catalyst and we've committed to invest $100 million and a groundbreaking collaborative effort to accelerate the clean energy technologies necessary for achieving a net zero economy by 'twenty six.

We're excited about this.

Work and what it will mean for the future of aviation and acceleration of adoption of critical next generation clean technologies across all in all industries.

So in summary, while the Delta variant has shifted the timelines of the recovery we remain very bullish on the return of demand and we feel great about how we're positioned thanks to the hard work and dedication of the American Airlines team.

And with that I'll turn it over to Derek Thanks, Robert and good morning, everyone. Before I begin my remarks, I would also like to thank the American Airlines team for their hard work during the quarters. There continued resilience in the face of uncertainty due to the Delta variant is commendable.

This morning, we reported third quarter GAAP net profit.

<unk> of $169 million or 25 cents per diluted share excluding net special items, we reported a net loss of 641 million or a loss of 99 cents per share as Doug mentioned in his remarks. This was our strongest quarter since the pandemic began.

As we have discussed in the past.

We always expected the recovery would be unpredictable and our third quarter results reflect this.

Despite the delta variant related volatility in demand and revenue trends that Robert discussed our financial performance improved from the second quarter, but fell short of our initial expectations that we outlined in our last.

<unk>.

While the slowdown in demand was clearly disappointing it is important to note that the trajectory of our results continues to be positive and.

In fact, even with the drop off in bookings from the Delta variant and rising oil prices, our third quarter pre tax earnings excluding net special items improved by nearly 600 million. So.

Earnings versus.

Versus the second quarter. This makes it even clearer to us that the steps we are taking over the past 18 months are working.

As we have navigated the pandemic, we built back our network in a way that we can keep our capacity aligned with demand or giving us the ability to be flexible as conditions change. We've also worked.

To keep our controllable costs down and of action $1 3 billion in permanent annual cost initiatives this year alone.

Based on our results. It's clear these actions are paying off as our third quarter CASM, including fuel and special items was up just 10, 5% versus the same period in 2019 despite flying.

Approximately 20% less capacity.

On the fleet side, we moved swiftly to retire older aircraft and accelerate our fleet Harmonization project. Our 737 retrofit program was completed in May and we continue to expect our <unk> hundred 21 aircraft to be complete by early next year.

Full year ahead.

Out of our original schedule and.

In addition to the customer benefits of larger overhead bins in seat power and streaming inflight Entertainment. These aircraft will generate more revenue and allow us to connect more customers over our network.

They will also provide a unit cost tailwind as we build back our network.

With respect.

Our wide body aircraft, we continue to work with Boeing to finalize the timing of our delayed 787 dash eight deliveries.

We're expected to arrive in 2020 one in the meantime, due to the continued uncertainty in the delivery schedule. We have proactively remove these aircrafts from our winter schedule to.

Spectrum is potential passenger disruption I'd also like to note that these delays have had an impact on our fourth quarter CASM. Since we built the cost structure to fly these aircrafts during the fourth quarter.

We ended the quarter with approximately 18 billion of total available liquidity, which reflects the 950.

Million prepayment of our spare parts term loan made in July and approximately 440 $649 million of scheduled debt payments made during the quarter.

The scheduled debt Paydown unencumbered 20, Boeing Triple seven aircrafts further.

Our unencumbered.

<unk> asset base of $3 8 billion and our first lien capacity to more than $8 4 billion.

As we look ahead, we feel confident whether we have enough. It whether we have enough liquidity to allow Americans and navigate the choppiness of the recovery.

Because of this choppiness, we will continue to keep liquidity at elevated.

<unk> levels in the near to medium term with a plan to step down our targeted liquidity to approximately $10 billion to $12 billion at some point next year. When we are confident the recovery has taken hold and we have return to sustained profitability.

The deleveraging of America's balance sheet remains a priority and we are committed to significant.

Steady and continuous debt reduction in the years ahead.

Even with the slower than expected recovery observed during the third quarter, we remain on track with our target of reducing overall debt levels by 15 billion by the end of 2025.

$10 million of this will be achieved through amortization of debt and is net.

Of new financing importantly, these debt reduction targets are based on a plan that assumes future deliveries are finance.

Should we elect to use cash in lieu of financing aircraft that decision would contribute to deleveraging and further accelerate the timeline to achieve these targets.

Of the incremental five.

Nearly $1 billion has already been action with the prepayment of the spare parts term loans, we announced on the last call. As we look ahead, we will continue to focus our efforts on pre payable debt, which currently represents approximately 30% of our total debt obligations.

In addition to deleveraging our balance sheet. This plan will allow us to smooth.

Our maturity towers and free up high quality collateral assuming this level of debt reduction and continued margin improvement. Our plan is targeted to result in the best credit metrics in the history of post merger American by the end of this four year period.

Looking into the fourth quarter the delay in the return of corporate travel and rising.

Our near term prices will put pressure on our margins relative to the third quarter, we expect our capacity to be down approximately 11% to 13% versus the fourth quarter of 2019.

Based on current demand assumptions and capacity plant, we continue to expect a slight sequential increase in our revenues and expect total revenues to be down.

<unk> fueled 20% versus the fourth quarter of 2019.

In total we expect the pre tax margin, excluding net special items of between negative 16 and negative 18%.

For the full year, we are for the fruit of Europe projected debt principal payments are expected to be $4 4 billion. This includes the seven.

Approximately $50 million payment of spare parts of term loan and a $550 million prepayment of the term loan with U S. Treasury that was completed earlier. This year, we have $612 million scheduled debt principal payments in the fourth quarter.

With respect to capital expenditures, we expect full year, 2020, one capex to remain.

Minimal with non aircraft capex of approximately $900 million and net aircraft capex, including pre delivery payments remaining an inflow of $900 million.

We're still in the early stages of building our operating plans for 2022, and we'll have more to say on what our capacity and cost outlook will look like on our next earnings call.

But at a high level based on the demand trends, we see today, along with the feedback from our corporate customers, we expect to slowly increase our capacity throughout the year and to have full year capacity very near 2019 levels.

Of course, it's subject to the future demand environment, and we will always retain the ability to adapt.

If demand conditions warrant.

Lastly, I know a lot of investors are concerned about inflationary pressure in 2022 and beyond.

No more once we finalize our 2022, but budget, but we do see pressures in fuel prices.

Bearing in training for both new hires and existing crews as we ramp up our operation including.

And on the regional side, where we recently announced the pilot retention program.

We are also seeing increased starting wages for certain regional groups, including vendors.

Even with these pressures our fleet simplification strategy enables higher aircraft utilization and higher average gauge both of which were.

Including upset some of these unit cost pressures.

As I said earlier, we will share more specific details on these impacts to our cost structure as our 2022 plan on our next earnings call in January.

So in conclusion, our team continues to do an amazing job of managing through the uncertainty maintaining a strong.

Liquidity position and driving efficiencies throughout the organization and we are well positioned for the future. So with that I will open up the line for analysts questions.

Yeah.

Thank you.

To ask a question you would need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Jamie Baker with J P. Morgan. Your line is now open.

Hey, good morning, everybody. So Doug I think it was like three or four years ago, you had a slide at our conference. It was entitled There. They go again.

It was a list of airline behaviors that you.

Strong warning investors to keep an eye out for it was it was a cool slide.

Yeah.

So two bullets on that stood out.

Expanding service to markets that don't touch a hub.

And establishing new hubs.

Could you help frame the Seattle expansion against that slide it's not.

You were slide was written in stone and you carried it down from Mount Sinai or anything I'm, just having trouble reconciling it in the current environment.

Sure.

Although at a high level of investment.

With more details if you'd like Jamie.

So yeah look that's not a new house was answered there are already a hub there to Alaska.

Because they're our partner and we are simply make it stronger.

Adding America by having our alliance with Alaska, whereby we can do things they can't.

They wouldn't be able to do without investment that wouldn't make sense.

By buying international because we have international aircrafts.

And they can do things that we can't do we should see those flights with their already existing Seattle It was not only.

Have you seen that be concerned.

Please note that hasn't happened as we put them anyway.

Anyway, that's the distinction.

Hey, Jamie this is back to <unk>.

I'll add to that actually we see that Seattle.

As being really intellectually consistent with that.

And Brett it's pretty simple that.

You know, we go create value for customers by being relevant and being relevant in the biggest market and in order to create a legitimate valuable and profitable International network, we need to be able to watch flights from international.

In our markets.

And for US historically on the West Coast, we've had a very very small presence.

Most namely in the Pacific Northwest, we've had almost no presence with this which is a very creative deal. What we're doing is we're flying things like Seattle to Heathrow foresee how the Bangalore, all of which feed off of that that's huge local marketing.

Alaska has cultivated it draws from the connectivity of our Seattle hub and we've been really encouraged with with the results not just across the west coast really across the system, Alaska Airlines are increasingly emerging as.

One of if not our largest codeshare partner and we are seeing a huge customer benefit.

That all up and down the West coast.

Actually as we as we look at it.

We are creating a close to 300 and it was about 300000 customers are now able to experience any of our Alaska, where before they had no no competitive option, whereas they had one or two competitive options in the marketplace.

In the markets.

<unk> is responding.

We set records for advantage enrollments, but the two markets, where our enrollments are growing the most or all of the markets in the West Coast partnership.

I think from a San Diego North of Seattle, and the other ones are in New York and Boston, So we see as actually being really consistent in a really effective.

And why is the way to go in and develop a level of network comprehensiveness that would be too to impossible to do on our.

Okay, that's really helpful.

And then a follow up this one a quick one on fuel maybe for Robert or Derek question I repeatedly receive is why Havent management.

Management's adjusted capacity to account for $2 50, <unk> jet Carol and I know you can't speak for the industry, but for American is there a certain period of time that you need to be.

Convinced that debt.

Higher fuel is going to be sustained is there just too much uncertainty around.

22 revenue to be making capacity decisions today, just looking for some color on how you would answer the question.

Getting every day and and I imagine my competitors are as well thanks in advance.

Jamie I'll go first level, because you and I've been doing this a long time.

When when oil.

<unk> moved this quick it's really hard.

Sponsors of what's happened here.

Run up very very quickly.

We're already selling all the capacity that's out there so.

What I know is what I believe is.

And there's been this has been the industry and our business.

This is the new normal you will see adjustments you'll see.

And capacity.

Resulting in changes in pricing they just don't happen that quickly.

And also it takes a while for everyone does.

This is real.

But.

2014 was a pretty good year in the underlying business and Brent averaged 100 Bucks a barrel.

Yes.

This.

We know this as well is that if there's if this was the name of them.

Right now I'm in a very.

Near term, it's hard to do with that.

Robert.

Doug.

This will come into balance and.

Fuel prices run up very very quickly.

As we take a look things there must be an impact.

See adjustment capacity and pricing in the long run.

Got it. Thank you all three if you take care.

Thanks Jade.

Our next question comes from the line of Conor Cunningham with <unk> Partners. Your line is now open.

Hey, everyone. Thanks for the time begun.

Hi.

<unk> done one listening to delta in United's call a huge portion of their script is about premium products and how they think that's a structural change happening.

I don't think you guys mentioned much about that I was wondering if you could just speak to how your different products are performing right now and do you actually agree that there is structural change happening where leisure travelers are trying to buck.

Our towards towards premium seats.

Hey, Conor this is vasu I can I can start that one and others may China.

We certainly as most definitely see a change where there is customers who are much more willing to buy premium than before indeed, our premium revenue across our domestic.

<unk> system for much of the quarter was actually higher than what it was in <unk>.

2019.

Which is pretty promising but we spent a lot of time looking at this.

There is a component of it which certainly seems very promising but it still seems early to say whether this thing is structural or not at least in our own system.

More of a lot of wide bodies out of international flying we deploy them into domestic we were really encouraged by what we saw where there are a lot of customers with a lot more disposable income who would travel on leisure trip and they would not only pay for the the lifelock product they would pay a premium versus other non life.

What products in the marketplace.

So that's certainly been an encouraging thing.

But what we don't know so much of that trip behavior. All so yeah. It was people, leaving on a Thursday coming back on a Monday. So we do think that with more disposable income there will be some interest in the consumer to have more experience is to pay more.

More for those experiences we don't know is how to size the magnitude of it because theres a lot of things, but certainly it's being for American Airlines that we did that was very unique for the last several months.

And we don't yet know how how.

How how much.

Much of a structural change that is.

But to the earlier point I mean, the beauty of the airline and we.

This pandemic has proven over and over again is that.

We can change the where the airplanes go very very quickly and with that we can also change the product designed pretty quickly. So this is something that we're looking at it is a similar trend that we're seeing time will tell how structural that is taken out soon now to understand hey look we're ready for it.

Apparently you know for a long time, not just in selling the product, which I should just talk about what the heart product as well. So the fleet is ready from a cabin configuration perspective, whether that's is it does this class class cabins or premium economy that we put we put in a tall or wide bodies and then just.

We've been for look at travel recovery and ways to service Youre going to see that we're adding back amenities that will allow us to sell and bundle in different ways. So everything from our five star service that's come back to the opening of our flagship lounges, which are best in the industry.

We.

As we wait to sell into service every customer that's debt.

Every end of the spectrum in terms of demand. So we feel really good about how we're set up.

To whatever environment, we find ourselves in.

Yeah.

Okay I appreciate it and then just on the cost structure I mean investors.

We're trying to get comfortable with different stories on the cost side for the airlines in general So I mean, clearly inflationary pressures, but curious if you can talk to any of the tailwind that you might be having that that that that has.

In 2022 outside of just bringing back capacity in 2019 levels.

The reason why I ask because I would've thought.

Given some of the structural changes you've had.

Within within fleet simplification, so on the four key would've had a little bit more leverage to it so any details would be helpful.

Yeah, I think kind of in the fourth quarter I mean, the story and I touched a little bit about on here is.

Built the airline to fly more.

The quarter without a doubt two of the issues. One is the Boeing 787, eighths, which are not here. We had assumed they were going to be in the schedule. So we have 77 pilots we have crews ready to fly those aircraft.

We unfortunately had to pull them out of the schedule in the fourth quarter and.

In the fourth quarter.

Other thing from a capacity perspective.

That we're all dealing with right now is on the regional side is pilot support ability on the regional side, which will resolve itself over time, but as you know the mainline.

As hiring up.

A lot.

The first is they go to get pilots is on is on the regionals. So we're probably not flying as much regional as we would've flown so I think from a CASM perspective, that's what drove it a little bit higher in the fourth quarter without a doubt versus where we had planned. So we're not fly and exactly what we would've flown in where we've already got in the cost.

Place there is there.

As we go forward the tailwind there really I mean at $1.3 billion worth of.

Cost reduction is permanent it's going to be in there.

As we look into next year.

We haven't done the plan yet so that's why it's really hard for me to give any kind of guide on the CASM for next year.

Stretch them, we do see it as inflation inflationary hedge to mostly from a salary perspective, a vendor perspective, those kind of things.

And fuel as I talked about that will that will have to overcome as we look at the plan for next year, we will do that as we as we dig through the process, but we will have the the tailwind.

Of the car.

Costs coming out that we did from an efficiency standpoint, and also the number one getting out of the aircraft types.

And modifying the aircraft to be the same all across from the Oasis project will benefit us a lot as we go into 'twenty 'twenty.

Yes.

Just because we haven't spent a lot of time talking about it.

The $1 3 billion gigs, we talked about a lot, but just for others.

As far as closely because those are real they're in they're in the airlines when we look at this as we go back and probably the 2019 scheduled today.

It produces.

22 states that amount.

Combination of everything a lot of things.

One is our $500 million of snow in management payroll.

And as Derek said, all the efficiencies you get from eliminating somebody's got fleets training otherwise. So those are those are in there as a tailwind to offset.

Hum.

Any pressure there.

I'm talking about.

Okay I appreciate it.

Thanks Connor.

Our next question comes from the line of Sheila <unk> with Jefferies. Your line is now open.

Hi, good morning, and thank you for the time guys.

Maybe if you could talk.

Okay Panic market has begun to open up a little bit more and maybe heading into 2022 but your passenger revenues are still down about 75%. How do you think about the cadence of that recovery.

Hey, this is what I see like than I can.

Take that one look we've been really encouraged by what we've seen over.

Let's call it three or four weeks and international large, but especially at Trans Atlantic.

Certainly after after the regulatory restrictions change we saw a big spike in bookings in the two or three days after it.

Which is it's not that surprising what's been more encouraging to us is that it's really.

The line itself.

But what we are seeing out there.

What you see from US right now is a little bit of cautious optimism.

And in November and December we are absolutely seeing bookings coming in.

And a greater rate than what we saw in 2019, a lot of that that was a pent up demand effect as we get into next year.

With every passing week, we see our bookings step up more and more across trans Atlantic and so we're really encouraged by that but the big variable will be what corporate start returning back to office and start traveling again for business, which we anticipate being more in the Q1 timeframe then in the Q4 timeframe.

So for us where our trans Atlantic.

Network is.

Concentrated around London, So we don't anticipate as much of a business recovery in Q4, but we are seeing a really really meaningful leisure recovery.

All the more so as British Airways builds back it's connected connecting schedule.

In Heathrow, we anticipate taking an increasing amount of demand as Q4 goes along so.

Do you see that number in aggregate, we see that something is changing a lot from where we are in October and November to January and beyond.

Great. Thanks, a lot.

Yeah.

Our next question comes from the line of David Vernon with Bernstein. Your line is now open.

Thanks, operator, and thanks, guys for taking.

The question so.

So Doug and Robert we sat down a little bit before the pandemic and and you had sort of laid out a picture where American had been lagging on some of the customer facing in information technology. So that was kind of constraining the operation in ways like like not letting you a book up to a higher load factor because of the denied boarding practice.

The ability to kind of pay for upgrades dynamic pricing on on current five tickets all that stuff a lot of it sounded like I T driven initiatives and I was wondering kind of coming out of the crisis as we start to look out over the next couple of years is there still catch up work you need to do to bring yourself at parity with tears in terms of the way they are monetizing capacity or.

To close that gap through this crisis.

Hey, Hi, this is Mike and I'm proud to say that over the last several years, we'd really have to close the gap on a number of our technology initiatives, including some of the ones that you've rattled off like dynamic pricing and allowing stops entire love factored in.

Or are you kind of an untapped.

The departure of activity.

We've really.

The pandemic has an opportunity to really identify and close.

One of them and really focus on a lot of the other things that we've been talking about that will be tailwind for next year like our Cmos partnerships and making that.

That's the customer experience for our customers with our west coast and northeast alliances.

Is that they'll wait until it's at this point kind of what that uplift might be in terms of load factor or sort of ancillary revenue growth. It looks like the other way that you watch before it pretty well, but is there a.

A better way to put up put a number around some of these things.

Hey, this is off to where we were in the early stages of doing that as we build next year's plan, but I.

I'll pass it.

Probably our our topline initiatives, making sure that all of these partnerships are really integrated and seamless for the customer.

Way to go.

A lot of the long standing issues that have existed in the code sharing relationships really get get alleviated pretty quickly.

We're pretty pleased with that we've made a lot of progress with with Alaska Jetblue and what we're seeing is very encouraging to my earlier comments, we're seeing a lot of customers come in Adam a meaningful amount of revenue production.

That's there to that.

Yeah.

As we looked at it in Q3.

There was a massive benefit to customers, we estimate this benefit and about a half percent two of a percentage point of CIS.

System revenue, but something which is a lot more meaningful to our New York and Boston.

Reduction network, which was operating at 50% of historical levels. So what do you think theres a lot of uplift to the whole thing without a lot of investment further.

Alright, Thanks, a lot guys.

Our next question comes from the line of Dan Mckenzie with Seaport Global Your line is now open.

West Coast, Hey, Thanks. Good morning, guys. The first question here is just a housecleaning question from a prior question. The Oasis project is that included in the one 3 billion of structural cost savings or is that above and beyond and then just related to that if that had been fully implemented in 2019.

Oh, how much would that have contributed to pretax income.

Yeah. It is included it it just added more seats and some of the aircraft and from an operational benefit it will help out a lot because as we swap the aircraft. They will both be of that so it is in that in that.

Because we reduce reduce the aircraft types.

It's included in that number what it's gonna do its benefit number one from a CASM perspective, because we'll have more seats and from a revenue perspective, because we'll be able to sell more seats.

Understood Okay.

Second question here, what is the aggregate wallet spend.

A fortune 1000 accounts in the northeast that American can now access for the first time as a result of the the northeast Alliance. So accounts that you know really where you had no shot at winning you know pre the relationship with Jetblue versus now you know you walk in and you sit down with the corporate travel managers, you can actually put together a a competitive network solutions.

Solution and then just related to that potential aggregate spend you know what would Americans fair share American Jetblue its fair share of that.

Hey, Dan This is Bob to thanks for the question I have and.

I appreciate what's your what's your trying to get out of it which is effectively how much more market can we access them.

You can access on its own and while head I don't have specific numbers in some cases, we gotta be little careful in what we share about it for us as we see it in New York Historically, we might have been at 25% player, but we were competing for something which was actually like 10% to 15%.

Of the available business travel market at large not just not just the corporate market and.

So in large part because we had a really great product and in Heathrow or in the transcon markets. If we couldnt get you very effectively to Toronto at some point customers, especially larger accounts or power travelers.

But it isn't a style customers just stopped flying us.

And now as we see it we have the best network between between a a jetblue you know we've gone from a world where we have four trips a day JFK San Francisco to one where we'll have you know.

<unk>, 13th portrait booking trips a day, where all of our transcon product is full flat we've taken the 50 seat RJ out of out of new.

New York Altogether. So when you think about New York, It's a business travel market, which is not.

Two or three times larger than the next biggest market.

But you know several orders of magnitude more than that and that's all in our market that we get to compete for and when we get to compete for it we see a new York, whose RASM instead.

Set of underperforming the system by 10% to 15% can perform in line with the system.

Okay.

Hey, Dan I, just wanted to go back and just to add one more point regarding the our fleet harmonization project, which we're almost done with we only have I think 60 of the 320 ones.

That are remaining will be complete by the first quarter.

Eric mentioned that in the $1 3 billion so.

So much of the savings in terms of actual commonality in what we can take out in terms of.

The reduction of fleet sizes, and being able to operate the airline more efficient that's included in the $1 3 billion.

So is what we are adding seats. So you know.

Very very low marginal cost so you've gone from 160 seats on the sub threes up to 172, and then on an average adding a few seats to the 320 ones.

As well.

As you know benefits that will be seen.

It's not in run rates going forward.

And that actually was my question.

On a revenue perspective.

Yeah that the incremental revenue that you gave that was actually my question was that's what that's what I was trying to get at but thanks for the time you guys.

Thanks, Matt.

Our next question comes from the line of Stephen Trent with Citi.

It is now open.

Good morning, gentlemen, and thanks for taking my question.

I just had a quick one on <unk>.

Looking at your investment so you guys committed to invest in jet Smart Angola in South America.

You of course have this tie up with Jetblue.

Blue in the United States.

When do you think about.

Other international corridors do you see any opportunities for similar kinds of tie ups. For example, you know outside of the Oneworld Alliance.

Hey, this is Oscar.

I can I can start on that one.

Look we.

Ah.

Ultimately, what we want to do is create the most comprehensive network for our customers and whether it is a codeshare and investment the joint venture or whatever it is.

Don't see them an end in themselves. Those are just simply means through which we can create something really comprehensive for our customers and in many parts of the world.

We would love to be able to do it all just organically with American Airlines met all that's not always possible from regulatory.

Or other reasons.

And so based on that we made that employ different mechanics, whether it is in an investment a codeshare loyalty partnership.

And so it'll it'll change out there.

But for us the the true north is creating the most comprehensive global network and we see that whether it's you know what.

We've seen the benefit to the consumers in the northeast and the West Coast as we looked at our South America really it has less to do with investments in more of that but one thing we can't do for the South American customer has carried him within.

In South America, and so we're always on the lookout for for partners that can help us do that and create more value for the customer and.

How do we go in and partnerships together and sort of second order issue.

I appreciate it and just one very quick follow up.

How are you guys thinking longer term about.

Europe pipeline of pilots and when you think about.

Time into the next five to seven years and what have you.

So Stephen I'll.

Take that one look.

Pilot profession has never been a there's never been a better time to get into it and what I'll tell you is you know.

We will attract people to the profession, given the kind of starting.

Salaries that we're offering right now and ultimately what pilots top out at.

I do see this as ultimately an economic issue that will be soft you've seen us do some things recently with regional pilots.

To make sure that they stay in position that progressed.

Onto American Airlines, and we will continue to monitor that over time.

As we saw.

A few years back this will be brought into balance just simply based on economics people will want to come into the profession.

Okay I appreciate that thank you for the time.

Thank you.

The next question comes from the line of Chris that Hello, Bliss with Susquehanna. Your line is now open.

Thank you and thanks for taking my question good morning, So on head count.

How should we think about ftes.

2022, and if possible 2023.

How do you run your network at or above 2019 capacity fewer ftes relative to 2019.

Yeah, I think I mean, we have taken.

<unk> taken out a significant amount of head count out of the company. That's part that's mostly what the 1.3.

$2 billion of cost reductions permanent cost reductions are.

As Doug alluded to.

500 of that is management head count.

600 of it is productivity.

Productivity.

At the at the other areas with throughout the company. So yes, we.

Brian I don't have a number for the <unk> 2022 plan because we haven't put that together yet but that is the significant portion of what the $1.3 billion worth of permanent cost reductions or it's mostly in the head count.

On the personnel side of things at American Airlines.

And the second question on the corporate side. So you mentioned a full recovery by year end 2022.

Just curious what the mix of users is here I know you mentioned industrials health care and I think one other group, but are your survey is showing a mix similar to pre pandemic travel or has it shifted.

Okay outlook contemplating the same type of travel, meaning both end user type and frequency.

Hey, This is this is about Finland, and I can help with that.

R R.

And we see you're exactly right certain industries and verticals are traveling more than others, we do anticipate there.

Theyre being a rebound across all of them because at this point all industry verticals are improving there.

Is there just a different points in the improvement curve and we're critically and more importantly to your question. What we see is that even in and sectors, where travel is less bad that the.

Rate of progress we're seeing.

Is mirroring.

Those sectors, where travel is is more relatively more returns. So we didn't think we would have some have some real confidence that indeed corporate travel is likely to come back with government and Robert mentioned earlier their remarks, there is an immense amount of pent up demand and we find that once people start to travel.

They continue to do so are very importantly, though for us in our system. We have a lot of a lot of our business style demand is small and medium sized business really across the southeast and the southwest and already I mean, we're seeing like on a traffic basis that it is very.

Very well recover.

On a revenue basis.

That'll start to recover as people come back in and.

Paying us more clients more frankly pay biopsy with alcohol at this Alison Taylor just held our corporate customer Advisory Board meeting down in Miami, I was able to attend as well for a part of it and that brings together.

Our top 50 corporate customers and those that are responsible for procurement.

Procurement of travel at those companies.

I was really pleased to hear you know just over and over again about look we have to get back to the office and once we get back to the office.

What's going to come so it's not surprising.

Yes.

The industrials and health Health care Pharmaceuticals are leading US right now they're back in the office.

They've got to take care of us and put food on the table. So that's happening what's gonna come next is you know some of the other banking and financial services Entertainment.

If those get.

In the office.

They started the new year, they're going to come back to just as we're seeing in some of these other sectors.

And interesting.

Chris It's Tom.

Data around just supports what Robert just told you.

Talking about how.

In July we're up to 64% of them.

Of our 2019 levels in terms of business revenue Theres, a big difference between large companies those that we have on corporate discount programs and and our small and medium business and that's 54% of large corporates are at 35% on a year or two year basis and the small medium business is at 83%. So I'll tell you about what it.

It's estimated largest site people that are back at work are traveling when the large corporates to get back to work. They will travel it's less about sectors more about people getting comfortable bringing people back into the office are those companies that don't have.

Large large headquarters the large HR departments are outlined because they need to do across.

All sectors.

Those companies that.

Our larger organizations need to worry about those things more.

Yet back they were starting to come back.

So they'll get up into those ranges, that's where business wants to be.

Great color. Thank you.

Thanks.

Our next question comes from the line of Helane Becker with Cowen. Your line is now open.

Thanks, very much luck, there hi, everybody I hope you are all doing well.

We are having and how are you.

Oh, Okay, I guess I'll see you Tomorrow night.

Yeah.

By the way congrats.

Congratulations.

Thank you.

So here is my question really for Derek Intel.

Interest expense I think in the.

Third quarter was $476 million I want to say Keith.

Can you just talk about.

Yes.

And the cadence of that and how.

How it's going to look.

Over the next couple of years in the context of your going from 15 billion. Yeah. I think you've said in the press release $15 billion of debt Paydown by 2025.

Yeah, well I can give you what our scheduled debt paydowns are over the next few.

Yeah. So we said we're going to pay down $4 4 billion this year.

Next year is $2 5 billion.

The year after that I would just say it's around three to $3 5 billion each year as you go forward. So.

But on the call we do plan on financing aircraft in this environment.

Going forward. So the net debt will be a little bit different than that so the $10 billion will come off let's just call. It two two and $2 billion a year over the next five years.

That will reduce that what we do.

The other five we had talked about $1 billion already went.

At in 2021, so we did the paydown of the spare parts as well.

We also because of the recovery slowed a little bit we are going to hold on to cash and hold.

That's where we're at today once we feel we're comfortable with that I think we will quickly.

Use the excess cash.

To pay off most of the remaining 4 billion. It just depends on where our cash balances it depends on how it will grow over time.

But I would expect it to be sooner than later as long as the recovery happens business comes back.

The debt pay down over time, the $10 billion.

We will be over.

Or ratably over time, I don't think we have any big huge debt payments, there's a $750 million one in 2022 that we have.

Nothing huge going forward. So I wouldn't look at it that way is pretty ratably, the $10 billion over the next four.

Four years, and then we would try to attack.

The other $4 billion as soon as we feel.

I feel comfortable and have excess cash that we can take it down to that $10 billion to $12 billion. We're at 18 today.

So we would we would most likely do it early or as I said in the comments, we could use cash to pay for aircraft.

And just not add the debt instead of paying off any pre payable debt. So that's the plan that we have today.

Okay. That's very helpful. Thank you and then on the 77 I think there's we're going to be leased.

In aircraft from D. S Aviation are you.

Is this just the delays change.

Any other financing arrangements for those aircrafts.

It does not change the financing of the aircrafts still leased it.

Okay perfect. Thank you.

Yeah.

Our next question comes from the line of Duane <unk> with Evercore ISI. Your line is now open.

Hey, good morning.

A question for Doug I thought it was interesting in the prepared comments that more capacity versus peers.

More revenue versus peers was called out.

Is that the main goal of the company at this point more revenue.

We relative margins matter.

And to what extent is profitability are a priority for the board at all or does it not even come up in conversations given how high liquidity is what is the board trying to solve for.

For relative margins Joy.

And we feel really good about that the reason I talked.

Or just about the absolute growth at this point in time, because we're all working to add that capacity.

And to get to where we can meet the demand that we know what's coming.

The team has done.

To get back more competitively than others to take care of more customers and others and to do so.

Obviously safely and efficiently.

So on Atlantic.

Running a really great operation right now but of course, that's not the goal of the company is just so we can be alerted to go the company is to maximize shareholder value over the long term.

The way, we will do that is producing returns and what we and what we feel very good about our ability.

As we come out of this.

And to improve our relative margins certainly versus prior.

I think probably because everybody.

As you compare them back to.

2019 or other years.

And just a quick housekeeping and I appreciate you taking the questions.

I'm just looking into the fourth quarter do you expect the operating cash burn to be.

Other than the $1 7 billion burn in <unk> and I'm not sure. If you have the cow, but can you can you speak to the daily cash burn estimate or we're going to head back to there. Thanks for taking the questions.

No I would say, we're not hitting back there.

The fourth quarter is a season seasonally.

Largely you'd do burn cash in the fourth quarter, I don't know him, but I, but I go back I go back through every fourth quarter. Since you guys merged and Theres no negative operating cash burn understand revenues depressed yields a little bit higher but operating cash flow is typically positive in the fourth quarter.

Yeah.

Operating cash flow.

The seasonality does.

Profitable years.

This is rather than as cash declining.

Essentially comfortable doing the cashes that operational cash flow will track with the earnings estimates.

Thank.

Any questions. Thanks.

Excellent.

Our next question comes from the line of Andrew <unk> with Bank of America. Your line is now open.

Hi, good morning, everyone.

So as American keeps.

Ramping up the capacity and maybe a little bit little bit quicker than your network.

Our peers.

With your vaccine mandate upcoming just curious are you planning your network or a staffing any differently into peak holiday season, and how do you think about the operational risks around that.

Hey, Andrew it's Robert we're getting ready for the holiday season, we expect a lot of passengers.

There is tremendous pent up demand, especially as.

Vaccinations take hold in infection rates decline and we're going to be ready.

Look we have to get ready for holiday is always in there.

This year, we're doing our best to make sure that we have right people in the right places.

At the right times.

That's that's the effort and we're taking the appropriate.

Precautions were where necessary, but we're finding a full schedule as we go into the holidays and looking forward to it.

Hey, Andrew This is one important thing to notice is clarifying your question also.

The absolute ASM production of American Airlines.

Lines and any month in the Q in the fourth quarter is actually less than the absolute ASM that we're producing in July so far.

Very much.

For where we have been on being able to go and get these big pools of demand that have been.

Out there and geographies that are really favorable to us because it really worked out but.

And as things shape up, but we're very much managing to is.

The relative profitability of the airline.

So just to clarify so that gets lost in the year over year are the versus 2019 comparisons.

That's a fair point thank you.

Second maybe to ask the fuel.

Question, a little bit differently.

I think I know the answer to this but.

Over the past year year, plus did you ever.

Ever consider introducing our hedging policy and do you think that this is an option you could rethink going forward. Thanks.

Yeah, Andrew I never say never we've been quite happy.

I'm.

On the heavy now for however, many years.

I'm sorry, what.

Okay.

Hum.

And that feels right to us.

What we find is what I said is over time the industry adjust them.

Okay.

What generally happens is we ended up paying a premium for the hedge.

Without much benefit at all.

Anyway.

I don't want to say, we won't ever do it but it's not something we would look we've begun to look at.

And this run up I can tell you that.

No.

We prefer actually we think we have a reasonable economic hedge.

In terms of what happens with fuel prices and the economy as well.

Although as we've come together and have is telling you.

Not right now.

Got it thank you.

Our next question.

Question comes from the line of Mike Lindenberg with Deutsche Bank. Your line is now open.

Hey, everyone. Good morning, everyone.

Eric you talked about the delayed 780 sevens.

Providing are creating a bit of a CASM headwind in the fourth quarter can you just remind us how many airplanes, how many incremental <unk>.

<unk> used to have in the <unk> and and how many percentage points of headwind is that just roughly.

Well it depends on when we were thinking earlier, we were supposed to have all of 13 and in 2021.

That schedule has changed weekly.

We had.

Please go back to last quarter, we probably had.

Six of them built into the schedule.

6% ASM.

It probably a point of ASM that we had to take out of the schedule.

That's really what's driving a lot of this and then as I said the regional.

We haven't had a pull down in ASM is from.

Regional perspective, just so pilot support ability, which we will which we're getting all under control right now, but both of those have caused.

A reduction in ASM that we would've flown in the fourth quarter.

Primarily driven by the 780 eights.

Okay.

And then just my second question.

And this is either Doug or Robert can you be willing to share with us where where you stand on vaccinations across your employee work group and then just any thoughts on the testing, which it seems like every carrier is going to have exemption issues and theyre going to have to test and we're hearing that the costs are high they are not you don't have guidance.

From the government.

Is it is it is it a meaningful cost headwind that we have to worry about or anything.

Anything that you can share on that topic would be great. Thanks.

Hey al.

I'll start it's Robert look the vast majority of our team members are vaccinated and we're working through the.

We set a November 24th deadline for vaccination or a combination.

Request to be provided we don't expect anybody to leave American Airlines and.

Certainly they're going to be out.

Theyre, helping us during during the holidays. So no issues there we don't know what the exact.

<unk> you know in a combination would look like for you know the the minimal number of people that actually apply for it for that.

There's likely to be some combination of of masking self declaration in testing and that testing. We don't we don't know the details up so we're working through that and you know as time.

<unk> will be able to fulfill yet.

Alright, Thanks Robert.

I certainly wouldn't be adding any cost into your forecast so to the extent there.

To the extent there will be testing going on it will be it will be for those who have chosen to be vaccinated.

Our religious or.

Medical exemption.

We are accommodating.

I don't suspect that will be an extremely high percentage of the employees.

I can.

I can't even imagine.

Material cost.

Those individuals under the Osha standards once a week.

So I don't know, where we'll end up we're working through the.

I'm Gonna station process with our unions, but.

Yeah.

First of all British call, especially I would do.

Do everything they could to try them and what you don't have to worry about that piece.

Has to be as to the.

Again, just a follow up just to reinforce what Robinson.

It was part a little bit of Andrews questions.

Certainly when this was first announced I think there are concerns about.

It was going to mean for airlines.

But we've all gotten extremely comfortable with that.

Turning to see yesterday, the comments from the White House from Jeff Stein.

Arrange these which of course includes it yesterday.

And about how the goal of this is to get everybody vaccinated not to punish you didn't want in there.

You have people if people have religious her medical exemption that there'll be accommodated and they'll be able to work so that you're going to see.

From all the airlines are this is.

Yeah.

We're all well prepared to meet all federal mandates and.

All the customers that are that are coming through.

Very good thanks, guys.

Thank you Mike.

Thank you we will now take questions from the media.

If you are with the media and would like to ask a question. Please press Star then one on your telephone.

Please standby, while we compile.

The Q&A roster.

Our first question comes from the line of Allison Slider with Wall Street Journal. Your line is now open.

Hi.

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