Q4 2023 American Airlines Group Inc Earnings Call

January 25, 2024

Okay.

Thank you for standing by and welcome to American Airlines group's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone to remove yourself from the queue. You May press star one again.

I'd now like to hand, the call over to Scott Lamb VP of Investor Relations and corporate development. Please go ahead.

Thank you Latif and good morning, and welcome to the American Airlines Group fourth quarter and full year 2023 earnings conference call.

Scott H. Group: On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO Devon may.

Scott H. Group: Number of our other senior executives are also in the room. This morning for the Q&A session.

Robert D. Isom: Robert will start the call with an overview of our performance and Devin will follow with details of the fourth quarter and full year. In addition to outlining our operating plans and outlook going forward.

Robert D. Isom: After our prepared remarks, we'll open the call for analyst questions followed by questions from the media.

To get in as many questions as possible. Please limit yourself to one question and one follow up.

Robert D. Isom: Before we begin today, we must state that today's call contains forward looking statements, including statements concerning future revenues and costs forecast of capacity and fleet plans.

Robert D. Isom: These statements represent our predictions and expectations of future events.

Robert D. Isom: Numerous risks and uncertainties could cause actual results to differ from those projected.

Robert D. Isom: Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning as well as our Form 10-Q for the quarter ended September 32023.

Robert D. Isom: In addition, we'll be discussing certain non-GAAP financial measures this morning, which.

Robert D. Isom: Which exclude the impact of unusual items.

A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website.

Robert D. Isom: A webcast of this call will also be archived on our website.

Robert D. Isom: The information, we're giving you on the call. This morning is as of today's date and we undertake no obligation to update the information subsequently.

Robert D. Isom: Thank you for your interest and for joining the joining us this morning, and with that I'll turn the call over to our CEO Robert Isom.

Robert D. Isom: Thanks, Scott and good morning, everyone. Today American reported an adjusted pretax profit of $257 million for the fourth quarter and approximately $2 5 billion for the full year driven by the strength of our network continued demand for our product and fantastic execution by our team.

Robert D. Isom: I want to thank the American Airlines team for their incredible work to care for our customers and deliver our 2023 that we're proud of.

Robert D. Isom: We're running a historically strong operations driving incremental revenue through our commissioner commercial initiatives, managing our costs producing record free cash flow and strengthening our balance sheet through debt reduction.

Robert D. Isom: This year, we'll continue to prioritize reliability profitability and accountability, while building, an even more efficient and resilient airline.

Scott H. Group: We also remain focused on taking care of our team and continue to make progress on our labor agreements.

Scott H. Group: Our commitment and negotiations has been consistent.

Scott H. Group: Breach deals as quickly as possible and ensure our team has paid as well as their industry peers.

Scott H. Group: Finalized a new contract with the IPA in the third quarter last year and a few weeks ago. We did the same for our customer service team represented by the CW Aibt, giving team members increased pay and quality of life improvements.

Scott H. Group: We continue to negotiate with the APSA with a shared goal of reaching a deal that will pay our flight attendants at the top of the industry.

Scott H. Group: Now, let's talk more about our financial results.

Scott H. Group: We produced record full year revenues of approximately $53 billion driven by strong demand for our product and record revenue from our travel rewards program.

Scott H. Group: Demand remains strong.

Scott H. Group: We've seen robust bookings to start the year as travel trends have begun to normalize across entities.

Scott H. Group: We're also very encouraged by the trends, we're seeing in business travel.

Scott H. Group: Domestic revenues from business travel ended the fourth quarter at approximately 90% of 2019 levels.

We're excited about the continued rollout of the advantaged business program and we continue to see strength amongst small and medium sized businesses.

We see further potential revenue upside as we restore our hubs domestically enabled in part by the recovery in regional support ability.

Scott H. Group: This year, we expect our system capacity growth to be balanced between domestic and international.

Scott H. Group: More than ever our revenue growth is fueled by a growing number of advantage customers, who acquired our co brand credit cards in record numbers in 2023.

Scott H. Group: Advantage customers represent both our greatest source of value and greatest opportunity going forward.

Scott H. Group: In 2023, two thirds of our revenue came from advantaged customers.

Scott H. Group: These customers also account for 70% of our upsell loyalty and partnership revenue.

Scott H. Group: Over the past year, we have made changes to our distribution strategy to give customers direct improved access to our best products and enable American to provide better customer service to the individual traveler.

Scott H. Group: Very encouraged by the results customers, who shop directly with us have a more enjoyable experience and our 11 points more likely to recommend American than those shopping and traditional outlets.

Scott H. Group: They are purchasing more valuable content and doing so at lower expense in.

Scott H. Group: In 2023, our revenue was 15% higher than 2019, while our selling expenses were 10% lower.

Our fleet network travel rewards program will continue to drive significant value moving forward and our limited near term capital requirements will position us to continue to generate free cash flow.

Scott H. Group: Turning now to the operation the American Airlines team continues to achieve industry, leading operational results.

Scott H. Group: Produced our best ever performance in the fourth quarter and over the full year, including a record on time departure rate and completion factor during the busy holiday season.

Scott H. Group: American ranks first among the U S network carriers in mainline and regional completion factor in 2023, with our lowest number of cancellations for any year since the merger.

Scott H. Group: All of this led to record likelihood to recommend scores in the fourth quarter and full year.

Scott H. Group: No network airline is operating more reliably than American over the past year and a half.

Scott H. Group: We're running the best operation in our history, Thanks to our focus on operational excellence and strong collaboration across the entire organization we.

We will continue to build on that performance and deliver exceptional service for our customers now.

Scott H. Group: Now I'll turn it over to Devon to share more about our fourth quarter and full year financial results and outlook for the rest of the year.

Devon: Thank you Robert and thank you to the American Airlines team for continuing to produce outstanding results.

Devon: In the fourth quarter and for the full year, we delivered a fantastic operation for our customers. We took further action to strengthen our balance sheet and early this year, we finalized a new contract for our customer service team members.

Devon: In the fourth quarter, excluding net special items, we reported net income of $192 million.

Devon: Our adjusted earnings per diluted share of <unk> 29.

Robert: And earnings results above our guidance for the quarter driven by strong operational performance and better ex fuel unit cost performance.

For the full year, we delivered on our stated objectives and produced results in line with the guidance. We provided last January including on capacity production unit revenue CASM ex and earnings per share.

Excluding net special items, we generated full year net income of $1 9 billion.

Robert: Our adjusted earnings per diluted share of $2 65.

And importantly for the full year, we generated free cash flow of $1 8 billion.

Robert: In 2023 American produced record revenue of approximately 53 billion.

Robert: We generated an adjusted EBITDAR margin of 14, 5% and an adjusted operating margin of seven 6%.

Robert: In the fourth quarter revenue was more than 13 billion or.

Robert: Our adjusted EBITDAR margin was 12% and we produced an adjusted operating margin of five 1%.

Robert: Our strong operational performance in the fourth quarter, resulting in capacity that was five 8% higher year over year slightly above the midpoint of our guidance range unit revenue for the quarter was in line with the midpoint of our previous guidance down six 4% year over year.

Robert: Unit costs, excluding net special items and fuel was up four 2% year over year, nearly a point better than the low end of our prior guidance range. This outcome was driven in part by the strength of our operation, resulting in more capacity lower overtime and premium pay and lower interrupted trip expense.

Robert: Turning now to our fleet, we have modest aircraft capex requirements. This decade due to the fleet investments we made over the past decade in 2023, we took delivery of 23, new mainline aircrafts.

Robert: This year, we expect to take delivery of 2008, new mainline aircraft, including 20 737 Max eight.

Robert: Six 787, nine and two <unk> hundred 21 Neo aircraft.

Robert: Our 2024 aircraft Capex is expected to be approximately $2 3 billion.

Robert: And our 2020 for non aircraft Capex is expected to be approximately $850 million we.

We continue to have discussions with manufacturers for additional aircraft to deliver later this decade and into the 2030.

Robert: Due to the young age of our fleet, we have very modest aircraft replacement needs.

Robert: As a result, we expect aircraft capex to average less than $3 $5 billion per year from 2025 through 2030.

Robert: Our relatively low capital requirements, along with our free cash flow production has allowed for significant progress in strengthening the balance sheet we.

Robert: We have now reduced total debt by approximately 11 $4 billion from peak levels in 2021 and by the end of this year, we expect to have reduced total debt by approximately $13 billion from peak levels in 2021, which is over 85% of the way towards our $15 billion total debt reduction goal.

Robert: Now onto the outlook for 2024, our focus this year will be to continue to deliver industry, leading reliability and to reengineer our business to ensure we run the airline as efficiently as possible while enhancing the customer experience. This year will finally be producing more capacity than we did in 2019.

Robert: Consistent with our prior expectations, we plan to grow capacity mid single digits year over year in 2024.

Robert: This growth will be enabled by improved asset utilization and new aircraft deliveries.

Robert: Based on current assumptions, we expect full year <unk> to be flat to down 3% year over year.

Robert: For the full year, we expect CASM ex to be up approximately half a percent to three 5% versus 2023.

Robert: This unit cost guidance reflects approximately two five points of year over year CASM ex pressure due to collective bargaining agreements ratified in 2023 in early 2024 and anticipated agreement with our flight attendants in 2024.

Our ability to achieve this full year unit cost result is due to our focus on operating more efficiently and improving our asset utilization.

Robert: In 2024, we expect aircraft utilization to be up 2% to 4% and we expect to deliver approximately $400 million in cost savings through the use of digital solutions reengineering processes and transforming procurement.

Robert: We have spent the last 18 months sizing the opportunity and developing plans to reengineer, our business to be more productive while improving the customer and team member experience. We are excited about the early results and we will spend more time discussing these opportunities in greater detail at our upcoming Investor day.

Robert: This year, we expect to produce adjusted earnings per diluted share of between $2 25, and $3 25.

Robert: Using the midpoint of that guidance, we are forecasting free cash flow production of over $2 billion.

Robert: Looking at the first quarter, we expect <unk> to be down approximately three 5% to five 5% on six 5% to eight 5% more capacity year over year.

Robert: We expect first quarter CASM ex to be up approximately 2% to 4% year over year recall that we did not have the cost impact of our new pilot agreement accrued in the first quarter of 2023.

Robert: Our year over year CASM ex performance improved throughout the year as we lap the pilot agreement increases.

Robert: Our current forecast for the first quarter assumes a fuel price of between $2 65, and $2 85 per gallon.

Robert: Based on our current demand assumptions and fuel price forecast, we expect to produce an adjusted operating margin of between zero and 2% in the first quarter and an adjusted loss per share of between 15 and 35.

Robert: We are pleased with the progress the American Airlines team has made in 2023, and we remain focused on delivering results to unlock additional value in 2024 and beyond.

Robert: Now back to Robert for closing remarks.

Robert: Thanks, Devin the American Airlines team continues to produce outstanding operational and financial results when I moved into the CEO role two years ago, we made a commitment to be reliable and profitable and we have delivered in a big way.

We made it clear to all of you what we're going to do.

Robert: And our team made it happen moving forward, we will continue to execute on our plans and control what we can control.

Robert: Our team has done tremendous work, but there is much more in front of us as we continue to leverage our fleet and our network and build on our operational momentum, we see significant opportunities to reengineer the business to build a more efficient airline.

Devin Smith: All of this will enable us to generate sustainable free cash flow we.

Devin Smith: We look forward to sharing much more at our Investor day on March 4th.

Devin Smith: And now operator, please open the line for analyst questions.

Devin Smith: As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the question queue. You May press Star one again.

Devin Smith: Now everyone the opportunity to ask a question you will be limited to one question and one follow up.

Devin Smith: Please standby, while we compile the Q&A roster.

Devin Smith: Our first question comes from the line of Michael Lindenberg of Deutsche Bank.

Michael Linenberg: Oh, Hey, Hey, Thanks, Good morning, everyone, I guess sort of a two part question involves.

Michael Linenberg: Involves Latin America, too I guess.

Devin Smith: December quarter. It did look like that that was the geography that underperformed and I know some have called out that that is going to be a challenging geography in the March quarter as well obviously, it's the reason that you are very strong and I believe last quarter.

Michael Linenberg: You did indicate that you were sort of going to add even more capacity into the region. There were markets that maybe were working there.

Devin Smith: You differentiate between near International Beach markets, and maybe Latin America long haul is there a distinction one is outperforming the are there any color on that and then I have a quick follow up related to the region as well. Thank you.

Devin Smith: Absolutely Mike No. It's a great question Theres actually two things to clarify one is the difference between as we call. It short haul and long haul Latin America and also the difference between year over year RASM, it actually marginal profitability.

So I'll do the second one first first.

Michael Linenberg: In December we flew our largest largest schedule ever in Miami with so much of it going to Latin America, but also about most profitable we've seen the Miami hub, we've been able to drive a lot of efficiency over South America, and so while we do see some more challenging near term revenue trends. The important thing is it's near term both in short and long.

Michael Linenberg: As we look at Q1, the entirety of our short haul business domestic plus.

Devin Smith: The short haul Latin markets together, basically any way, where we can play a narrow body turns positive by the end of Q1. So we do see the issue is really more near term and related with in the long haul market too we see improving trends as we as we move through the course of the year.

Devin Smith: Okay, Great and then just.

Devin Smith: My second on Latin America.

Devin Smith: They're down in Brazil, it looks like they may potentially file for bankruptcy when I think about your capex and investments for 2024.

Devin Smith: Are you, including in that some potential additional investment in goal or is that TBD or maybe that's not even on the table how should we how should we think about that and your relationship there.

Devin Smith: Mike.

Devin Smith: A lot about this that we're not going to quite answer yet, but at least let me. Let me offer this first foremost and always our partnership with <unk> is a commercial partnership.

And we benefit them tremendously through our network, our advantage program and our customer base, where a massive source of value for them and whatever course of action they choose to take that will hold true.

Michael Linenberg: And the last thing I'll say is really for our customers that no matter what might happen in the region.

Michael Linenberg: We see no compromise to our network connectivity the quality of service or whatever else might be the case. So we're prepared for all eventualities, but our partnerships are first and foremost commercial partnerships.

Michael Linenberg: Thank you.

Michael Linenberg: Our next question comes from the line of Scott Group of Wolfe Research.

Michael Linenberg: Hey, Thanks, good morning, So overall, we've seen some of the other airlines so far guide too.

Scott H. Group: Positive RASM this year.

Scott H. Group: How come you guys are so flat you guys are flat to down on RASM any thoughts that explains the difference.

Scott H. Group: What youre guiding to and maybe what some of the others are saying.

Scott H. Group: Hey, look we see obviously tremendous demand, but we built our plan based on what we think we think is going to happen now that said.

Scott H. Group: If other carriers are actually seeing that kind of benefit it is going to accrue to American as well and so I have no doubt that if there are adjusted adjustments to our assumptions based on any.

Scott H. Group: Reason, whether that be capacity or demand.

Scott H. Group: Look we're going to be the beneficiaries as well as for overall economic performance in the U S.

Scott H. Group: Yes, Scott I'll only add.

Scott H. Group: Our focus in this company as margin performance.

Scott H. Group: And there is still much that can change as you get out into Q3 or Q4, but as we see it right now as the year has started.

Scott H. Group: Our intake in revenues at the same growth rate that our capacity is coming in.

Scott H. Group: As I mentioned earlier, we will exit Q1, as we anticipated with positive year over year RASM in our domestic and short haul business.

Scott H. Group: And we expect a lot of the same strength in international RASM to continue, but first and always where margin focused.

Scott H. Group: So just so im understanding within your RASM guide for Q1 Youre expecting.

Domestic RASM to inflect positive by the end of the quarter is that right correct.

Scott H. Group: Correct.

Devin Smith: Okay, and then just so I just want to clarify them. The full year guide does include expectations for a flight attendant deal.

Devin Smith: Yes, it does have a flight attendant deal.

Devin Smith: Okay Alright. Thank you guys appreciate it.

Devin Smith: Thank you.

Our next question.

Devin Smith: Comes from the line of Catherine O'brien of Goldman Sachs. Your question. Please Kathryn.

Devin Smith: Hey, good morning team, maybe one for Devin first.

Grant's on the progress towards your total debt goal.

Devin Smith:

Devin Smith: It seems like that is tracking ahead of schedule.

Devin Smith: Whats the right debt reduction target, we should be thinking about for 2024 with over $2 billion of free cash flow currently expected.

Devin Smith: I'm sure, we'll hear more in March, but any high level thoughts on where you want leverage to go in the short term and what's the appropriate long term level of net debt to EBITDAR or whatever your preferred metric is thanks so much.

Devin Smith: Hey, Thanks for the question Katie we are pretty focused on the next 24 months right now so as we mentioned in the prepared remarks, we expect total debt reduction to be down $13 billion by the end of 2024, so about $1 billion $5 improvement from where we were at at the end of 2023, we still.

Katie Smith: Have a target for $15 billion of total debt reduction.

Katie Smith: At the end of 2025, so we're really proud of the progress we have made over the last couple of years also really proud of the progress we've made in.

Smoothing out our debt towers going forward to start at 2023, we had over <unk>.

Katie Smith: <unk> $9 billion of debt due in 2025 through debt Paydown and some refinancings, we have significantly smoothed that tower and we feel really good about where we're at now I still feel great about the $15 billion total debt reduction targets and as we get to the Investor Day in March we'll talk a lot more about our longer term goals for the balance sheet.

Devin Smith: Got it and then maybe if I could just dig in a little more with you vasu.

Vasu Raja: How you expect the different regions to perform underlying that lung Q revenue guide of down three five to five and a half.

Vasu Raja: Understand.

Vasu Raja: You already told us that short haul domestic turning positive by the end of the quarter, but would love to just kind of run through Trans Atlantic Latam.

Vasu Raja: Asia Pac domestic with whatever detail you can provide thanks so much.

Vasu Raja: Yes, sure happy to.

Vasu Raja: Looking for US, we we anticipate that the domestic system well.

Vasu Raja: We will turn positive by the end of the quarter.

Speaker Change: Maybe I should start by saying this.

Speaker Change: So much of our capacity is weighted to the short haul market in Q1, we will be over 75% of our ASM and domestic and short haul Caribbean. So that very much influence sustains, but we ended Q1 with.

Speaker Change: With <unk>.

Speaker Change: RASM across those regions turning positive in long haul, we see a lot of them.

Speaker Change: Secondly, flat Trans Atlantic performance year over year, Trans Pacific and long haul Latin.

Speaker Change: Flat to slightly down year over year, but all of those entities are seeing improving trends and certainly as we've seen more capacity changes coming in the schedules for March and beyond those.

Those numbers will yet move again.

Speaker Change: More encouraged by what we see in short haul than maybe any other region at this point.

Speaker Change: Thank you our next question.

Speaker Change: Comes from the line of Jamie Baker of Jpmorgan Securities. Please go ahead Jamie.

Speaker Change: Oh, Hey, good morning, everybody a couple for <unk>.

Speaker Change: First the dead horse question.

Jamie Baker: I know youre not going to give specific guidance on geographic profitability, but as we think about the northeast Alliance.

Jamie Baker: The unwind.

Jamie Baker: Considering demand seasonality.

Jamie Baker: What quarter do you anticipate the maximum pain from the unwind being experienced and perhaps that's behind us in your models.

Jamie Baker: At what point are New York, and Boston, the largest drag or the least contributing however, you want to think about it.

Well, Jamie the worst is behind us.

Jamie Baker: It happened in Q3 in fact.

Jamie Baker: New York and I'd refer you and others.

Jamie Baker: Prior commentary that Ive made her on this either in pressure are on these calls the New York marketplace. Many of our customer base has changed.

Post pandemic world.

Jamie Baker: It now has a thing which which our slot portfolio serves a whole lot better in New York performance is doing better.

And unlike what led to the partnerships. We've had there we see continued growth in origination sure New York is our largest market for enrolling new customers, both an advantage and in the credit card and it had never been that prior to the NDA. So we're certainly open that we're open to any partnership that is better for our customers.

Jamie Baker: Full stop.

Jamie Baker: For where we are right now the worst is certainly behind us.

Jamie Baker: Perfect and then on corporate recovery in the past.

Jamie Baker: You and I mean, we've all spoken about blended travel in the network and pricing changes that you've made to take advantage of that phenomenon.

When we think about what you're seeing today in terms of corporate recovery, though.

Jamie Baker: Is it robust enough that you need to make further adjustments or is it simply incremental yield without any cost or effort.

Adam: Hey, Jamie it's Adam.

Adam: Great question.

Adam: And maybe one that speaks at large to our distribution strategy and so let me speak at large to that first and I'll hit that.

Adam: First all of our changes, whether it's with corporate travel management or travel agencies or what have you.

Adam: Paul.

Paul: Sell our product through the Internet, that's what our customers demand. That's how we can give them the best content at the lowest expenses to them and the best servicing and we see that we see that we're producing revenue more efficiently more.

Paul: Strategically more to the liking of our customers that I'll Echo what Robert said were up 15% and revenue were down 8%, 9% and selling expenses, our likelihood to recommend scores are higher but as we look at it as really.

Paul: When a change is 65% of our revenue comes from advantage customers.

Paul: More.

Paul: About 45% of our revenue is coming from advantage customers, who are buying premium content, a better seat more affordability more flexibility for miles.

And that's up three points year over year. So.

Paul: All to say that in any which way we double click on that is meaningful to.

Paul: To exit Q4, with a 90% business recovery within that unmanaged business versus managed businesses almost a three to one ratio with unmanaged business, 100% plus covered managed business down further.

Paul: The impact on managed business is really flat.

Paul: Traffic on higher yields so as we go forward absolutely we're going to lean further into this what we have realized through this is first and foremost.

Paul: We need to make it easy for our customers to consume our content through the internet. So we're going to offer more mileage for customers, who shop to the Internet, we're going to roll out better servicing capabilities for Internet distribution, and we are going to start restricting the amount of selling and servicing that we do through.

Paul: Non internet based channels and we invite all the travel managers and all of the travel agencies of the world to join US on this because this is great for customers and it should be great for them to all of our financial incentives targeted to that audience are really around helping shift. So we've actually been very encouraged by what we've seen.

Paul: I mean, clearly a relative RASM performance similar to what it was.

Paul: In the exit pandemic period and now in the year ahead, we have the opportunity to optimize.

Paul: Thank you our next question.

Paul: It comes from the line of David Vernon of Bernstein.

Paul: Hey, good morning, guys. So on the topic of sort of premium and how.

Biopsy are affecting the business right now can you give us some sort of color around how.

Paul: Premium product sales or movements up and down the fare ladder happening growth in basic growth in premium just give us some sense of kind of where you are in that process of tapping into what is a more.

Paul: More lucrative.

Paul: Segment revenue.

Steve: Thanks, David This is Steve and I'll pick it up right, where I left it off I think.

Steve: I can probably give you a fact point that makes it.

Steve: Easier to understand is why we are so focused around <unk>.

Steve: Selling creating more content for advantaged customers. So if you look at our system right now about 7% of what we sell is basic economy, and indeed that is up 20% year over year, but thats up 20% year over year, because we changed its product, but last year. We included it in commission dealings in corporate travel management programs. We just took it out.

Steve: Last year, we reintroduced it this year.

It's actually not the critical thing what's been more interesting to US is 10% of our revenue is coming from customers, who actually shop basic but then buy something higher and within that that number is up 25% year over year and almost all of its growth is coming through dotcom and app.

Steve: And we see more and more ways, where customers actually who are coming for our basic product want more than that.

Steve: And we can go and deliver that to them, which is why so many of our distribution strategy is far from being risky we see as a great opportunity.

Steve: Okay, and then maybe just as a quick follow up as you think about some of the rationalization of the negative margin or lower margin capacity, that's being contemplated out in the industry. How do we how should we be thinking about the impact of let's say unbundled operator pulling in capacity.

Steve: On your fair ladder does that is that sort of uniform impact up and down the different fare classes or is it more concentrated in something like a basic product anything you could tell us for help us to understand how some of the capacity changes in the market might impact American would be really helpful.

Steve: Well look at large I think Robert mentioned it earlier I mean, if there is.

Steve: Like all businesses supply demand driven businesses and if there is less supply that's going to have a clear impact on on demand.

Robert: For us with things like basic.

Robert: But for all of our fare products, we do not make products that are so odious no one will buy it the whole point of them is to actually have customers experienced travel enjoying advantage and for US based economy is not about a competitive product. It's our entry level product that gets customers in the door and signed up for advantage.

Robert: Hey, David I, just wanted to add one other thing here, which is this is that we've.

Robert: Built technology.

Robert: To enable us to react to whatever may come our way so as far as soon as said look.

Robert: Our goal is to make sure that we can deliver product to the customers and the way they want to receive it. It also has to be done in a way that is incredibly nimble and can be changed and in the past you may have seen carriers even.

Robert: American unable to react very quickly that's not the case right now so whatever happens in the marketplace. We've got the technology, we got the product to be super competitive and whether its us developing it on our own or having to compete we will be ready.

Okay.

Robert: Thank you. Our next question comes from the line of Conor Cunningham of Melius research.

Robert: Please go ahead Connor.

Okay. Conor please make sure your line isn't muted speaker phone lift your handset.

Robert: Our go to our next question.

Conor Cunningham: Our next question.

Conor Cunningham: Comes from the line of Ravi Shanker of Morgan Stanley.

Ravi Shanker: Question. Please Ravi.

Ravi Shanker: Good morning, everyone. This is Katherine on for Ravi Sir Thank you for taking my question.

My question is really around the Investor day in a few weeks, which I know is probably the first one you guys posted in about seven years and I was just curious what investors can expect to hear during the event, whether it's new financial long term targets, rather initiatives just any color around that would be great.

Katherine: Hey, Catherine Thanks, No. We're excited about the investor to Investor Day, and look we worked really hard to put.

Katie Smith: The focus of the company and doing the funding fundamentals really well you know that we've talked about returning the company to reliability profitability strengthening our balance sheet by paying down debt.

Catherine: And a really great spot now to talk about what's next and on that horizon, we're going to be talking about the benefits of all the work that we've done on our fleet.

Catherine: All everything we've done with our network and partnerships as Susan mentioned.

A number of times even today the.

Catherine: The potential within our loyalty program.

Catherine: We're going to talk about even doing better in terms of what we deliver to our customers and ultimately we want to talk a lot about how we can do that all a lot more efficiently one of the things you'll see is that Americans are.

Catherine: It's a changed airline we have a focus on producing free cash flow and ultimately rewarding our shareholders. So can't wait to tell you more about all of that.

Catherine: Yeah.

Katie Smith: Just as a quick follow up I know, it's probably too early but I was curious if you had seen any share shift in January just due to the issue with the Max grounding with other carriers I wasn't sure. If you had seen anything in the data.

Katie Smith: Yes.

Now the vast vast who can add some color to that look January isn't it's been a strong month for us, but it's never the busiest months of the year and so we will fly load factors in the <unk>.

Katie Smith: <unk> is probably similar for the rest of the industry and while I'm sure that there's benefit I know that there is it's not material. When you think about the number of seats that are open for for all carriers and the overall size of the American Airlines business.

Katie Smith: Yeah.

Katie Smith: Thank you.

Katie Smith: Our next question.

Katie Smith: It comes from the line of Duane <unk> of Evercore ISI. Your question. Please Duane.

Katie Smith: Hey, good morning, Thank you.

Katie Smith: Maybe start with Vasu can you speak to <unk>.

Katie Smith: Advanced bookings beyond <unk> here.

Vasu Raja: Just curious I mean, we had this real surge this time last year.

Vasu Raja: Maybe you could just comment on what the booking curve looks like if it's shorter if it is lengthening.

Vasu Raja: And if you have any commentary on.

Vasu Raja: Domestic versus international book yields.

Vasu Raja: As you look a little further out into into peak periods.

Vasu Raja: Yeah, Hey, thanks for the question.

Vasu Raja: The booking curve is largely flat to last year there is a.

Vasu Raja: A moderate shift let's call it two points from outside of the inside 30 day range to the outside 30 day range.

Vasu Raja: What I would say right now we're in taking revenues in line with with capacity.

Vasu Raja: And the entity by entity market by market, sometimes its yield sometimes its traffic, but as long as thats continuing we're encouraged right now and in the summer really the most impactful thing that we see as long haul and we're seeing a long haul book up on a revenue basis that at the same rates.

Vasu Raja: We saw last year, which is a particularly strong year and we're just too early in the domestic and short haul character really see that yet, but we're encouraged by what we see even as we start selling more of March end and the post Easter period.

Vasu Raja: Yeah.

Vasu Raja: Yes.

Vasu Raja: Thanks, Jeff you actually said more than I thought you would just a follow up there on the long haul any commentary on book yields are are we holding serve or are we are we going backwards a bit.

Jeff Bezos: Yeah, so far we're holding serve and.

Jeff Bezos: It's still a long way to go there.

Jeff Bezos: Thank you. Our next question comes from the line of Andrew to Dora of Bank of America. Please go ahead Andrew.

Jeff Bezos: Hey, good morning, everyone.

Jeff Bezos: So Robert just on the operations, you've obviously made some great strides here post pandemic, certainly seems to really be helping your CASM.

Jeff Bezos: Don't want to steal any thunder from Investor day, but just kind of wanted to get your bigger picture thoughts on like what is next operationally at American into 'twenty, four and 'twenty five what's the plan or are you at a point now where it's sort of maintaining what you have built so far.

Lou: Hey, Andrew Thanks, Lou will look.

Lou: We're really proud of the team and what they've accomplished.

Andrew: Think about American airlines being the most reliable carrier in the country over the last 18 months over the last year. So nobody can claim that they.

Lou: Fluid more reliable schedule or canceled fewer flights and we're really proud of that but I'll tell you that as a baseline now.

Lou: That we can take going forward and Youre right about the best way to run an airline as the most reliable all the rework costs are taken out of it.

Lou: But we're not going to stop there.

Lou: We can do what we did and when you do it more efficiently and I wanted to just hand, the mic over to David seem more.

David: To talk a little bit more about how he thinks we can we can bring in things like technology to bear David Yes, No. Robert Thank you and again Super proud of what the team has done in 2023. It was a great year, but it really as Robert said it is the foundation of where we're headed in the 'twenty four and beyond.

David: What I would tell you is we have a much better understanding of the complexities of our operation and we're investing in technology to solve quickly and more efficiently and more optimally than we ever have before so our relationship and are partnering with our it team is is.

David: Is just starting and we see a lot of opportunity in the future to do what we do better more efficiently than we ever have before.

Got it.

David: My follow up question to a lot of discussion on the call just with regards to your distribution strategy.

David: Thought.

David: The 80%.

David: Of bookings coming through these new channels was interesting.

David: Where do you think that can go 80% already seems pretty high and what would've been the growing pains, thus far with the DC rollout. Thank you.

David: Yeah, Hey, thanks for the question.

David: Ill answer it in this way we have been similarly, enthusiastic and even a little surprised at how quickly the transition has happened.

David: Not just that we're 80% coming through Internet based technology within that 65 plus percent is coming just strictly through our owned channels, which is our greatest rate of growth.

David: First I will say.

David: Strategically, we're going to distribute to the internet, it's what our customers demand thats, how we give them the best fares in the lowest expenses and the best servicing so at some point the number becomes 100.

David: And the real issue in 2024 as we went on just continue to try to transition as many of our.

David: Retailing partners to use the internet with us.

David: So ultimately it becomes 100, we're really encouraged by what we've seen there.

David: Thank you.

David: Our next question comes from the line of.

Speaker Change: Savi <unk> of Raymond James Your question. Please sorry.

Speaker Change: Okay.

Speaker Change: Good morning, just to follow up on the comment about balanced growth between domestic and international I was curious if you can talk a little bit about like on the international side and if there is kind of a difference in growth trends between Atlantic and Latam and Asia and then on the domestic side just.

Speaker Change: If the regional next year, what kind of improvement in mix you are expecting this year.

Speaker Change: Sure.

Speaker Change: Just so that I understand you're talking about the American airlines capacity mix.

Speaker Change: Unlike the industry capacity midstream something that's right.

Speaker Change: Correct, Okay, well look at large consistent with pretty much all of that we've talked about we will through the course of the year it'd be roughly 70, 525 short haul long haul carrier.

Speaker Change: Increasingly as about 50, our growth will be split about 50 50 between short haul and long haul certainly the thing that we are.

Speaker Change: Nameless enthusiastic about is the continued improved.

Speaker Change: Utilization of our wholly owned regional jet impact so much of how domestic.

Speaker Change: Turns to positive RASM.

Speaker Change: Is directly correlated to us, bringing regional jets back in.

Speaker Change: As good as that starting to look in the weeks and months ahead. We know we still have 10% more utilization to do there. So.

Speaker Change: That's really where our opportunity is and in long haul I mean, you can kind of see the schedule. That's out there right now there's probably not a lot of difference.

Speaker Change: When it actually goes to fly, but a big chunk of our footprint will be in trans Atlantic in the summer, which tends to be the highest demand.

Speaker Change: <unk>, followed by Latin America, and last of all Pacific.

Speaker Change: That's helpful and lastly, if I might.

Speaker Change: Just kind of the converse of that basic economy and discussion on the premium revenue side I was.

Vasu Raja: Just wondering if you can talk about what youre seeing there and if.

Vasu Raja: If youre seeing any what you're seeing in the kind of the booked fresh class load factor or those kind of trends.

Vasu Raja: Yes look 60% of our revenue comes from customers buying premium content of which 45 points of that are advantaged customers and 15 points or non advantage customers.

Vasu Raja: So I'd say at large I real commercial opportunity is to make those people who are help those people who were 15% buying premium content join our program.

Vasu Raja: <unk> continued to have great content to the people, who do and we've seen continued improvements in premium load factors pretty much every way there is premium.

Vasu Raja: Revenues across our system are up 15%.

Vasu Raja: Premium book load factors are at their highest levels approaching close to 80 and some some periods that are there.

Really a lot of what we're endeavoring to do is reserve so much of our premium capacity for our best customers.

Vasu Raja: Thank you.

Speaker Change: Our next question comes from the line of Conor Cunningham of Melius Research. Please go ahead Conor.

Conor Cunningham: Hi, everyone can you hear me.

Conor Cunningham: We've got you kind of go ahead.

Conor Cunningham: Sorry about that just in terms of head count for 2024, we haven't heard a lot about that from you guys from the industry standpoint, it's obviously slowing but what do you need to add this year to kind of hit your 2020 for our trajectory in terms of capacity and maybe beyond that thank you.

Conor Cunningham: Yeah for this year. It certainly is a lot less hiring than what we've done in the past we are going to be bringing on about 1% more head counts or what we'll call. It.

Conor Cunningham: Somewhere around one or 2000 more heads this year, but a big reductions from where were last year and it's just a sign of where we're at with efficiencies as well, we probably hired ahead a little bit in 2023, but this year, we're looking to grow the airline mid single digits and head count is going to grow by about 1%.

Conor Cunningham: Okay, perfect well, we haven't actually heard a lot about maintenance headwinds from you guys and that's been like a major theme.

Katie Smith: From a lot of the other carriers. So just are you seeing any meaningful call out in the 2024 and then what are you guys doing specifically to mitigate a lot of those those headlines I realize that it grew a lot last year, but is that kind of normalize going forward. Thank you.

Katie Smith: Yeah, I'll start and just maybe talk about where in the P&L has been and then turn it over to Robert David but.

Katie Smith: We did have some headwinds in 2023 I want to say, our maintenance expense and <unk> 23 versus 2022 was up something close to half a billion dollars.

Robert Silk: This year it flattens out a bit we do expect it to be up and that's one of the areas of the P&L, where we'll have a little bit of variability just depending on how many in house engine overhauls that we ended up doing this year.

Robert Silk: But 23 was a big step up 24 is less so and there is a lot of great work being done on David's team to address the tall and it over to Matt Yeah.

So I'll just.

Matt Smith: Sorry, I kind of I think one of the things that.

Matt Smith: I look at is that maintenance needs for the industry as a whole are going to increase increased greatly.

Matt Smith: Americans really well positioned not only because of what we've done over the past decade by bringing in more new aircrafts than anyone but as well remember that we have maintenance capabilities.

Matt Smith: Where we're not.

Matt Smith: Solely dependent on outside resources are going to be incredibly constrained.

Matt Smith: So one of the things that I know David can talk to US about is that we're going to make sure that we have even more capacity to do engine overhauls, we already have 12000 mechanics to more than anybody else in.

David: Commercial aviation and we're going to put them to good use and I think that that's going to be even more of a strategic advantage for American as we take a look at really <unk>.

David: Constrained resource David.

David: Robert Yes, there's a lot of effort.

Robert: Robert and Devin talked about is that.

Robert: Lot of focus here, we have these normal waves that we run into with maintenance cycles that we have on heavy checks and engine checks that we got to do but a lot of emphasis this past year and going into 2024 of getting a lot more efficient in how we manage that maintenance.

Robert: Robert talked about we have really good control with longer term.

Robert: Resources to get that work done. So we're very confident that we're going to be able to get the efficiencies.

Devin Smith: And reduce some of that cost here in the near future.

Devin Smith: Yeah.

Devin Smith: Thank you.

Devin Smith: Our next question.

Devin Smith: It comes from the line of Daniel Mckenzie of Seaport Global Your question. Please Daniel.

Devin Smith: Oh, Hey, Thanks, Good morning, guys my.

Daniel J. McKenzie: My two questions are on technology as well here, so 65% of the bookings going to 100% on AA Dot com.

Daniel J. McKenzie: What percent or portion of the revenue does this represent today and what percent of the revenue was up 15% exactly.

Daniel J. McKenzie: What I would say is.

Daniel J. McKenzie: <unk>, let me first clarify.

Daniel J. McKenzie: So 65% of our bookings are going through our digital channels on a revenue basis, it's actually a little bit north of that it's probably a little closer to 70 as we're intake and those are our revenue intakes that are coming in separately from that when we go look back at 2023.

Daniel J. McKenzie: 60% of our revenue came from customers buying premium content, which is a premium seat or greater flexibility around the premium seat.

Of those 15% of our total customer base is non advantage about 45% is advantaged.

Daniel J. McKenzie: Yeah. Thanks, a lot that's helpful.

Daniel J. McKenzie: And then the second question is really a bigger longer term question on potential cost savings and it relates to the transition to the cloud.

Daniel J. McKenzie: I'm wondering where American is at with respect to that transition and what kind of cost savings that could ultimately represent on an annual run rate. So is it tens of millions hundreds of millions or maybe somewhere in between.

Daniel J. McKenzie: Hey, Dan Let me start and this one is maybe Devon or others can pick up but this is actually a great one which we look forward to talking about more in our Investor day, and we are operating the entirety of the company with the Tech first mindset. This is one of many initiatives, but by no means no means the biggest as promising as it is as you as you've laid out so more to come soon.

Devon: Yeah, and vastly I'll just add that look.

Devon: All of that kind of work will be a facilitator to delivering product faster more efficiently and so that's the kind of mindset.

Vasu Raja: I'd, rather not talk about it just as a discrete item we will bring it all together as we get to March worth Uh-huh. Okay. Thanks, guys great job.

Vasu Raja: Thank you at this time, we ask all media. If you have a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question to remove yourself from the question queue. You May Press Star one one again to allow everyone the opportunity.

Vasu Raja: To ask a question you will be limited to one question and one follow up again at this time, we ask media to press star one to one.

Vasu Raja: Our first question.

Vasu Raja: It comes from the line of Alison Sider of Wall Street Journal. Please go ahead Alison.

Vasu Raja: Hi, Thanks, so much.

Vasu Raja: Im wondering what is your level of confidence in Boeing's current leadership.

Vasu Raja: Yes.

Vasu Raja: Hey, Ali look a couple of quick things first off.

Ali: Some of Boeing's current issues are all around the <unk>.

Speaker Change: <unk> nine and the 737 nine hundreds of American Airlines don't it does not fly those aircraft.

Vasu Raja: Our huge Boeing customer though.

Vasu Raja: We're dependent on them for.

Vasu Raja: Just producing.

Vasu Raja: We're going to hold them accountable.

Speaker Change: Boeing needs to get their act together.

Speaker Change: The issues that they've been dealing with over the recent period a period of time, but also going back a number of years now is unacceptable.

And no matter, who it is olive Boeing needs to come together and to get back on the right track.

Speaker Change: And the production limits at the FAA announced.

Last night for the Max but do you expect that to have any impact on deliveries for American I mean, do you think that that it makes sense for Boeing.

Vasu Raja: So look we will encourage boeing to do everything that they can get back on track and produce a quality product plain and simple.

Vasu Raja: For us we have a fleet right now of over 500 aircrafts. So we have 20.

Vasu Raja: Max Eights that are on the horizon for this next year. These aircraft are likely already in production and I don't anticipate to run into any issues, but I'll say this as well, though nobody nobody has taken on more new aircraft and American Airlines.

Vasu Raja: In recent history, and we take that acceptance process very very seriously and we've done that.

Vasu Raja: For years, we have the teams of people in place to make sure that what comes on to American's property is ready to go ready to fly and as I said before we encourage Boeing to get their act together and get back on the right track.

Vasu Raja: Thank you our next question.

Vasu Raja: It comes from the line of Mary Slogging see Bloomberg News. Please go ahead Mary.

Vasu Raja: Hey, good morning, just to follow up on that as you continue to talk to.

Vasu Raja: To Oems about a potential narrow body order.

Mary Schlangenstein: This year are the things that are occurring at Boeing right now is that having any impact at all.

Mary Schlangenstein: About placing that order and then also wondering if you think that.

Mary Schlangenstein: Federal officials are taking the right steps.

Mary Schlangenstein: And looking at Boeing.

Mary Schlangenstein: They may expand to other production lines and the Max.

Mary Schlangenstein: Do you see them, taking the right steps or would you like to see them doing something different maybe going even stronger on new requirements from Butler.

Mary Schlangenstein: So Mary Thanks for the questions. Let me just start with this first.

Mary Schlangenstein:

Mary Schlangenstein: Administrative whitaker.

Mary Schlangenstein: We have incredible confidence in she is the right person for the job right now and.

Mary Schlangenstein: Very very confident.

Mary Schlangenstein: He will hold all of us.

Mary Schlangenstein: But especially Boeing accountable.

Mary Schlangenstein: What they do and to that end I think that's the right approach.

Mary Schlangenstein: Look.

Mary Schlangenstein: Aviation in the United States aviation throughout the World.

The safest form of transportation, we have a commitment to keep it that way and Boeing has to be part of that equation now as we take a look at future needs for aircraft again American Airlines as well.

Mary Schlangenstein: We have 500 aircraft and a lot of the growth that we've been talking about is getting claims back up in the air that.

Mary Schlangenstein: We could get more utilization out of so we're fortunate from that perspective gross fortunate to be the operate the world's largest fleet of Airbus aircraft.

Mary Schlangenstein: So look.

Vasu Raja: We need Boeing to be successful over the long run they've got to get their act together, we need all Oems.

Vasu Raja: To do their job.

It's hard enough running an airline we need quality product and thats, what we demand.

Vasu Raja: So can you comment on whether what's going on at Boeing will reflect.

Vasu Raja: The ultimate decision on a narrow body order.

Vasu Raja: Well, we'll take a look.

Vasu Raja: We take the take the.

Vasu Raja: The acquisition of new aircrafts, bringing new aircraft onto American sleep very seriously and we're going to make sure that whatever is purchased.

Vasu Raja: Whether it be from Airbus Boeing Embraer you name it.

Vasu Raja: That's something we take very seriously and we're going to make sure that that product is it.

Vasu Raja: Credibly reliable safe right.

Vasu Raja: Right from the get go write off the factory floor.

Vasu Raja: Thank you.

Vasu Raja: Yeah.

Vasu Raja: Thank you.

Vasu Raja: Please standby for our next question.

Vasu Raja: Our next question comes from the line of Leslie Josephs of CNBC Youre question. Please Leslie.

Vasu Raja: Alright, thank you.

Leslie Josephs: Are you increasing your oversight personally at Boeing and do you see that as a permanent change just given that it's kind of been one issue. After another and then just another question is Boeing providing any compensation, whether cash or in the form of <unk>.

Leslie Josephs: Discounts or anything else because of the issue and the FAA blocking any further production that that could impact deliveries.

Leslie Josephs: Hey, Leslie.

Leslie Josephs: Look.

Leslie Josephs: As I've said before American Airlines are taking more new aircrafts than anyone.

Leslie Josephs: Really the history of commercial aviation.

Leslie Josephs: Over the last 10 years and on that front, we've had to deal with quality issues.

Leslie Josephs: We've had to make sure that we were protected against and so from that perspective, we have a very robust aircrafts acceptance process with people that are dedicated to that and we're going to make sure that whatever we take from any manufacturer and especially Boeing that we have the right resources to ensure that they meet our specifications.

Leslie Josephs: Patients and are ready to go when they come in into our into our fleet.

I'll leave it at that.

Leslie Josephs: Yes.

Leslie Josephs: Thank you that does conclude the Q&A portion of our call I would now like to turn the conference back to Robert Isom for closing remarks, Sir.

Leslie Josephs: Thanks Latif.

Leslie Josephs: 2023 was an exceptional year for us it was another year of building back from the pandemic.

Leslie Josephs: And I'm really proud of what the team has done they have established us as the industry leader in reliability.

Robert D. Isom: We've restored the airline profitability, we produced record free cash flow last year, you got a year another year of really making sure that we continue the progress. It's a year that we're still recovering from the pandemic and we're going to have to see how demand and capacity all shakes out, but as I've said.

Robert D. Isom: Even earlier today, we expect demand to be very strong.

Robert D. Isom: The spring and summer I think.

Robert D. Isom: We are going to be exceptional times for us in terms of demand for our product as we look forward.

Doug Parker: And that we are we have a mindset of producing for our customers taking care of our team and also making sure that we reward shareholders more on that in the next month and everybody take care.

Doug Parker: We'll talk soon.

Doug Parker: This concludes today's conference call. Thank you for participating you may now disconnect.

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Thank you for standing by and welcome to American Airlines group's fourth quarter and full year 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

One on your telephone to remove yourself from the queue. You May press Star one one again I would now like to hand, the call over to Scott long VP of Investor Relations and corporate development. Please go ahead.

Scott H. Group: Thank you Latif and good morning, and welcome to the American Airlines Group fourth quarter and full year 2023 earnings conference call.

Scott H. Group: On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO Devin Mei.

A number of our other senior executives are also in the room. This morning for the Q&A session.

Robert D. Isom: Robert will start the call with an overview of our performance and Devin will follow with details of our fourth quarter and full year. In addition to outlining our operating plans and outlook going forward.

Robert D. Isom: After our prepared remarks, we'll open the call for analyst questions followed by questions from the media.

Robert D. Isom: To get in as many questions as possible. Please limit yourself to one question and one follow up.

Robert D. Isom: Before we begin today, we must state that today's call contains forward looking statements, including statements concerning future revenues costs forecast of capacity and fleet plans.

Robert D. Isom: These statements represent our predictions and expectations of future events, but numerous risks and uncertainties 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 that was issued this morning as well as our Form 10-Q for the quarter ended September 32023.

Robert D. Isom: In addition, we'll be discussing certain non-GAAP financial measures this morning, which.

Robert D. Isom: Which exclude the impact of unusual items.

Robert D. Isom: A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website.

Robert D. Isom: A webcast of this call will also be archived on our website.

Robert D. Isom: The information, we're giving you on the call. This morning is as of today's date and we undertake no obligation to update the information subsequently.

Robert D. Isom: Thank you for your interest and for joining the joining us this morning, and with that I'll turn the call over to our CEO Robert Isom.

Robert D. Isom: I want to thank the American Airlines team for their incredible work to care for our customers and deliver our 2023 that we're proud of.

Robert D. Isom: We're running a historically strong operation driving incremental revenue through our commercial commercial initiatives, managing our costs producing record free cash flow and strengthening our balance sheet through debt reduction.

Robert D. Isom: This year, we will continue to prioritize reliability profitability and accountability, while building, an even more efficient and resilient airline.

Robert D. Isom: We also remain focused on taking care of our team and continue to make progress on our labor agreements.

Robert D. Isom: Our commitment and negotiations has been consistent.

Robert D. Isom: Steels as quickly as possible and ensure our team has paid as well as their industry peers.

Robert D. Isom: We finalized a new contract with the IPA in the third quarter last year and a few weeks ago. We did the same for our customer service team represented by the CW Aibt, giving team members increased pay and quality of life improvements.

Robert D. Isom: We continue to negotiate with the APSA with a shared goal of reaching a deal that will pay our flight attendants at the top of the industry.

Robert D. Isom: Now, let's talk more about our financial results.

Robert D. Isom: Produced record full year revenues of approximately $53 billion driven.

Robert D. Isom: Driven by strong demand for our product and record revenue from our travel rewards program.

Robert D. Isom: Demand remains strong.

Robert D. Isom: We've seen robust bookings to start the year as travel trends have begun to normalize across entities.

We're also very encouraged by the trends, we're seeing in business travel.

Robert D. Isom: Domestic revenues from business travel ended the fourth quarter at approximately 90% of 2019 levels.

We're excited about the continued rollout of the advantaged business program and we continue to see strength amongst small and medium sized businesses.

Robert D. Isom: We see further potential revenue upside as we restore our hubs domestically enabled in part by the recovery in regional support ability.

Robert D. Isom: This year, we expect our system capacity growth to be balanced between domestic and international.

Robert D. Isom: More than ever our revenue growth is fueled by a growing number of advantage customers, who acquired our co brand credit cards in record numbers in 2023.

Robert D. Isom: Advantage customers represent both our greatest source of value and greatest opportunity going forward.

Robert D. Isom: In 2023, two thirds of our revenue came from advantaged customers.

Robert D. Isom: These customers also account for 70% of our upsell loyalty and partnership revenue.

Robert D. Isom: Over the past year, we have made changes to our distribution strategy to give customers direct improved access to our best products and enable American to provide better customer service to the individual traveler.

Doug Parker: Very encouraged by the results customers, who shop directly with us have a more enjoyable experience and our 11 points more likely to recommend American than those shopping and traditional outlets.

Doug Parker: They are purchasing more valuable content and doing so at lower expense in.

Doug Parker: In 2023, our revenue was 15% higher than 2019, while our selling expenses were 10% lower.

Doug Parker: Our fleet network travel rewards program will continue to drive significant value moving forward and our limited near term capital requirements will position us to continue to generate free cash flow.

Doug Parker: Turning now to the operation the American Airlines team continues to achieve industry, leading operational results.

Doug Parker: Produced our best ever performance in the fourth quarter and over the full year, including a record on time departure rate and completion factor during the busy holiday season.

Doug Parker: American ranked first among the U S network carriers in mainline and regional completion factor in 2023, with our lowest number of cancellations for any year since the merger.

Doug Parker: All of this led to record likelihood to recommend scores in the fourth quarter and full year.

Doug Parker: No network airline has operated more reliably than American over the past year and a half.

Doug Parker: We're running the best operation in our history, Thanks to our focus on operational excellence and strong collaboration across the entire organization we.

Doug Parker: We will continue to build on that performance and deliver exceptional service for our customers now.

Doug Parker: Now I'll turn it over to Devon to share more about our fourth quarter and full year financial results and outlook for the rest of the year.

Devon: Thank you Robert and thank you to the American Airlines team for continuing to produce outstanding results.

Devon: In the fourth quarter, excluding net special items, we reported net income of $192 million or.

Devon: Our adjusted earnings per diluted share of 2009.

Devon: And earnings results above our guidance for the quarter driven by strong operational performance and better ex fuel unit cost performance.

Devon: For the full year, we delivered on our stated objectives and produced results in line with the guidance. We provided last January including on capacity production unit revenue CASM ex and earnings per share.

Devon: Excluding net special items, we generated full year net income of $1 9 billion.

Devon: Our adjusted earnings per diluted share of $2 65.

Devon: And importantly for the full year, we generated free cash flow of $1 8 billion.

Devon: In 2023 American produced record revenue of approximately 53 billion.

Devon: We generated an adjusted EBITDAR margin of 14, 5% and an adjusted operating margin of seven 6% and.

Devon: In the fourth quarter revenue was more than $13 billion. Our adjusted EBITDAR margin was 12% and we produced an adjusted operating margin of five 1%.

Devon: Our strong operational performance in the fourth quarter, resulting in capacity there was five 8% higher year over year slightly above the midpoint of our guidance range unit revenue for the quarter was in line with the midpoint of our previous guidance down six 4% year over year.

Devon: Unit costs, excluding net special items and fuel was up four 2% year over year, nearly a point better than the low end of our prior guidance range. This outcome was driven in part by the strength of our operation, resulting in more capacity lower overtime and premium pay and lower interrupted trip expense.

Devon: Turning now to our fleet, we have modest aircraft capex requirements. This decade due to the fleet investments we made over the past decade in 2023, we took delivery of 23, new mainline aircraft.

Devon: This year, we expect to take delivery of 2008, new mainline aircraft, including 20 737, Max 867 hundred 87, nine and two <unk> hundred 21 Neo aircraft.

Devon: Our 2024 aircraft Capex is expected to be approximately $2 3 billion.

Devon: And our 2020 for non aircraft Capex is expected to be approximately $850 million.

Devon: We continue to have discussions with manufacturers for additional aircraft to deliver later this decade and into the 2030.

Devon: Due to the young age of our fleet, we have very modest aircraft replacement needs.

Devon: As a result, we expect aircraft capex to average less than $3 $5 billion per year from 2025 through 2030.

Devon: Our relatively low capital requirements, along with our free cash flow production has allowed for significant progress in strengthening the balance sheet we.

Devon: We have now reduced total debt by approximately $11 4 billion from peak levels in 2021 and by the end of this year, we expect to have reduced total debt by approximately $13 billion from peak levels in 2021, which is over 85% of the way towards our $15 billion total debt reduction goal.

Devon: Now onto the outlook for 2024, our focus this year will be to continue to deliver industry, leading reliability and to reengineer our business to ensure we run the airline as efficiently as possible while enhancing the customer experience. This year will finally be producing more capacity than we did in 2019.

Devon: System with our prior expectations, we plan to grow capacity mid single digits year over year in 2024.

Devon: This growth will be enabled by improved asset utilization and new aircraft deliveries.

Devon: Based on current assumptions, we expect full year <unk> to be flat to down 3% year over year.

Devon: For the full year, we expect CASM ex to be up approximately half a percent to three 5% versus 2023.

Devon: This unit cost guidance reflects approximately two five points of year over year CASM ex pressure due to collective bargaining agreements ratified in 2023 in early 2024 and anticipated agreement with our flight attendants in 2024.

Devon: Our ability to achieve this full year unit cost result is due to our focus on operating more efficiently and improving our asset utilization.

Devon: In 2024, we expect aircraft utilization to be up 2% to 4% and we expect to deliver approximately $400 million in cost savings through the use of digital solutions reengineering processes and transforming procurement. We have spent the last 18 months sizing the opportunity and developing plans to reengineer our business to be more productive.

Devon: While improving the customer and team member experience. We are excited about the early results and we will spend more time discussing these opportunities in greater detail at our upcoming Investor day.

Devon: This year, we expect to produce adjusted earnings per diluted share of between $2 25, and $3 25.

Devon: Using the midpoint of that guidance, we are forecasting free cash flow production of over $2 billion.

Devon: Looking at the first quarter, we expect <unk> to be down approximately three 5% to five 5% on six 5% to eight 5% more capacity year over year.

Devon: We expect first quarter CASM ex to be up approximately 2% to 4% year over year recall that we did not have the cost impact of our new pilot agreement accrued in the first quarter of 2023.

Devon: Our year over year CASM ex performance improved throughout the year as we lap the pilot agreement increases.

Devon: Our current forecast for the first quarter assumes a fuel price of between $2 65, and $2 85 per gallon.

Devon: Based on our current demand assumptions and fuel price forecast, we expect to produce an adjusted operating margin of between zero and 2% in the first quarter and an adjusted loss per share of between 15 and 35.

Devon: We are pleased with the progress the American Airlines team has made in 2023, and we remain focused on delivering results to unlock additional value in 2024 and beyond.

Robert: Now back to Robert for closing remarks.

Robert Silk: We made it clear to all of you what we're going to do.

Robert: And our team made it happen moving forward, we will continue to execute on our plans and control what we can control.

Robert: All of this will enable us to generate sustainable free cash flow.

Robert: We look forward to sharing much more at our Investor day on March 4th.

Robert: And now operator, please open the line for analyst questions.

Robert: As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the question queue. You May Press Star one one again.

Robert: Allow everyone the opportunity to ask a question you will be limited to one question and one follow up.

Robert: Please standby, while we compile the Q&A roster.

Robert: Our first question comes from the line of Michael Lindenberg of Deutsche Bank.

Oh, Hey, Hey, Thanks, Good morning, everyone, I guess sort of a two part question to involves.

Michael Linenberg: Involves Latin America, too I guess Rajiv.

Michael Linenberg: December quarter. It did look like that that was the geography that underperformed and I know some have called out that that is going to be a challenging geography in the March quarter as well obviously, it's the reason that you are very strong and I believe last quarter.

Michael Linenberg: You did indicate that you were sort of going to add even more capacity into the region. There were markets that maybe were working there.

Rajiv: You differentiate between near International Beach markets, and maybe Latin America long haul is there a distinction one is outperforming the are there any color on that and then I have a quick follow up related to the region as well. Thank you.

Rajiv: Absolutely Mike It's a great question Theres actually two things to clarify one is the difference between as we call. It short haul and long haul Latin America and also the difference between year over year RASM, it actually marginal profitability.

Brian: So Brian I'll do the second one first first.

Brian: In December we flew our largest largest schedule ever in Miami with so much of it going to Latin America also about most profitable we've seen the Miami hub, we've been able to drive a lot of efficiency over South America, and so while we do see some more challenging near term revenue trends. The important thing is it's near term both in short and long.

Brian: As we look at Q1, the entirety of our short haul business domestic plus.

Brian: The short haul Latin markets together, basically any way, where we can play a narrow body turns positive by the end of Q1. So we do see the issues is really more near term and related with in the long haul market too we see improving trends as we as we move through the course of the year.

Okay, Great and then just.

Speaker Change: My second on Latin America, Youre partner down in Brazil, It looks like they may potentially file for bankruptcy when I think about your capex and investments for 2024.

Michael Linenberg: Are you, including in that some potential additional investment in goal or is that TBD or maybe that's not even on the table how should we how should we think about that and your relationship there.

Michael Linenberg: Hey, Mike there's probably a lot about this that we're not going to quite answer yet, but at least let me. Let me offer this first foremost and always our partnership with <unk> is a commercial partnership.

Michael Linenberg: And we benefit them tremendously.

Michael Linenberg: Through our network, our advantage program and our customer base, where a massive source of value for them and whatever course of action they choose to take.

Michael Linenberg: That will hold true.

Doug Parker: And the last thing I'll say is really for our customers that no matter what might happen in the region. We see no compromise to our network connectivity of the quality of service or whatever else might be the case. So we're prepared for all eventualities, but our partnerships are first and foremost commercial partnerships.

Thank you.

Doug Parker: Our next question.

Doug Parker: It comes from the line of Scott Group of Wolfe Research.

Hey, Thanks, good morning so.

Doug Parker: Overall, we've seen some of the other airlines so far guide too.

Doug Parker: Positive RASM this year.

Doug Parker: How come you guys are so flat you guys are flat to down on RASM any thoughts that explains the difference.

Doug Parker: What youre guiding to and maybe what some of the others are saying.

Doug Parker: Thank you Scott.

Doug Parker: Hey, look we see obviously tremendous demand, but we built our plan based on what we think we think is going to happen now that that said.

Doug Parker: If other carriers are actually seeing that kind of benefit it's going to accrue to American as well and so I have no doubt that if there are adjusted adjustments to our assumptions based on any.

Doug Parker: Reason whether that be.

Doug Parker: <unk> demand.

Doug Parker: Look we're going to be the beneficiaries as well as for overall economic performance in the U S.

Doug Parker: Yes, Scott I'll only add.

Doug Parker: Focus in this company as margin performance.

Doug Parker: And there's so much that can change as you get out into Q3 or Q4, but as we see it right now as the year has started we are in taking revenues at the same growth rate that our capacity is coming in.

Doug Parker: As I mentioned earlier, we will exit Q1, as we anticipated with positive year over year RASM in our domestic and short haul business.

Doug Parker: And we expect a lot of the same strength in international RASM to continue, but first and always where margin focused.

So just so im understanding within your RASM guide for Q1 Youre expecting.

Doug Parker: Domestic RASM to inflect positive by the end of the quarter is that right.

Doug Parker: Correct.

Doug Parker: Okay, and then just so I just.

Doug Parker: Just want to clarify them. The full year guide does include expectations for flight attendant deal.

Yes. It does have a same flight attendant deal.

Doug Parker: Okay, Alright, Thank you guys I appreciate it.

Doug Parker: Thank you.

Doug Parker: Our next question.

Comes from the line of Catherine O'brien of Goldman Sachs. Your question. Please Kathryn.

Hey, good morning team, maybe one for Devin first.

Katie Smith: Congrats on the progress towards your total debt goal.

Kathryn: It seems like that's tracking ahead of schedule.

Kathryn: What's the right debt reduction target, we should be thinking about for 2024 with over $2 billion of free cash flow currently expected I'm sure we'll hear more in March but any high level thoughts on where you want leverage to go in the short term and what's the appropriate long term level of net debt to EBITDAR or whatever your preferred metric is thanks so much.

Devin: Hey, Thanks for the question Katy.

Katy: Or are pretty focused on the next 24 months right now so as we mentioned in the prepared remarks, we expect total debt reduction to be down $13 billion by the end of 2024, or so about $1 billion $5 improvement from where we were at at the end of 2023.

Katy: We still have a target for $15 billion of total debt reduction.

Katie Smith: At the end of 2025, so we're really proud of the progress we have made over the last couple of years also really proud of the progress we've made.

Katie Smith: Smoothing out our debt towers going forward to starting 2023, we had over <unk>.

$9 billion of debt due in 2025 through debt pay down and some refinancings, we have significantly smoothed that tower and we feel really good about where we're at now still feel great about the $15 billion total debt reduction targets and as we get to the Investor Day in March we'll talk a lot more about our longer term goals for the balance sheet.

Vasu Raja: Got it and then maybe if I could just dig in a little more with you vasu.

Vasu Raja: How do you expect a different region to perform underlying that lung Q revenue guide of down three five to five five.

Vasu Raja: Understand.

Vasu Raja: You already told us that short haul domestic turning positive by the end of the quarter, but would love to just kind of run through Trans Atlantic Latam.

Vasu Raja: Asia Pac domestic with whatever detail you can provide thanks so much.

Vasu Raja: Yes, sure happy to.

Vasu Raja: Looking for US, we we anticipate that the domestic system well.

Doug Parker: I will turn positive by the end of the quarter.

Doug Parker: Right.

Doug Parker: Maybe I should start by saying this.

Doug Parker: So much of our capacity is weighted to the short haul market in Q1, we will be over 75% of our ASM and domestic and short haul Caribbean. So that very much influence sustains, but we ended Q1 with.

Doug Parker: With <unk>.

Doug Parker: RASM across those regions turning positive in long haul, we see a lot of them.

Doug Parker: Secondly, flat Trans Atlantic performance year over year, Trans Pacific and long haul Latin.

Doug Parker: Flat to slightly down year over year, but all of those entities are seeing improving trends and certainly as we've seen more capacity changes coming in the schedules for March and beyond those.

Doug Parker: Those numbers will yet move again, we're probably more encouraged by what we see in short haul than maybe any other region at this point.

Doug Parker: Thank you our next question.

Doug Parker: Comes from the line of Jamie Baker of Jpmorgan Securities. Please go ahead Jamie.

Doug Parker: Oh, Hey, good morning, everybody a couple for <unk>.

Jamie Baker: First the dead horse question.

Jamie Baker: I know you're not going to give specific guidance on geographic profitability, but as we think about the northeast the lion.

Jamie Baker: Unwind.

Considering demand seasonality.

Jamie Baker: What quarter do you anticipate.

Jamie Baker: The maximum pain from the unwind being experienced and perhaps that's behind us in your model.

Jamie Baker: At what point are in New York, and Boston, the largest drag or the least contributing however, you want to think about it.

Jamie Baker: Well, Jamie the worst is behind us.

Jamie Baker: It happened in Q3 in fact.

Jamie Baker: New York and I'd refer you and others.

Jamie Baker: Prior commentary that I made on this either in pressure are on these calls the New York marketplace. Many of your customer base has changed.

Jamie Baker: The post pandemic world.

Jamie Baker: Now is the thing, which which our slot portfolio serves a whole lot better in New York performance is doing better.

Jamie Baker: And unlike what led to the partnerships. We've had there we see continued growth in origination sure New York is our largest market for enrolling new customers, both an advantage and in the credit card and it had never been that prior to the NDA. So we're certainly open that we're open to any partnership that is better for our customers.

Jamie Baker: Full stop but for where we are right now the worst is certainly behind us.

Jamie Baker: Perfect and then on corporate recovery.

Jamie Baker: Past.

Jamie Baker: You and I mean, we've all spoken about blended travel in the network and pricing changes that you've made to take advantage of that phenomenon.

Jamie Baker: When we think about what you're seeing today in terms of corporate recovery, though.

Jamie Baker: Is it robust enough that you need to make further adjustments or is it simply incremental yield without any cost or effort.

Hey, Jamie it's Ed.

Jamie: Great question.

Ed: And maybe one that speaks at large to our distribution strategy and so let me speak at large to that first and then I'll hit that.

Jamie: First all of our changes, whether it's with corporate travel management or travel agencies or what have you the simple <unk>.

Jamie: Sell a product of the Internet, that's what our customers demand thats, how we can give them the best content at the lowest expenses to them and the best servicing and we see that we see that we're producing revenue more efficiently more.

Robert Silk: Strategically more to the liking of our customers I'll I'll Echo what Robert said were up 15% and revenue were down eight 9% and selling expenses, our likelihood to recommend scores are higher but as we look at it what has really been a change is 65% of our revenue comes from advantage customers.

Robert Silk: More about.

Robert Silk: About 45% of our revenue is coming from advantage customers, who are buying premium content, a better seat more fund ability more flexibility for miles.

Robert Silk: And that's up three points year over year. So.

Robert Silk: All to say that in English will be double click on that it's meaningful right to.

To exit Q4, with a 90% business recovery within that unmanaged business versus managed businesses almost a three to one ratio with unmanaged business, 100% plus covered managed business down further.

Robert Silk: The impact on managed business is really flat.

Robert Silk: Traffic on higher yields so as we go forward absolutely we're going to lean further into this what we have realized through this is first and foremost.

We need to make it easy for our customers to consume our content through the internet. So we're going to offer more mileage for customers, who shop through the Internet, we're gonna roll out better servicing capabilities for Internet distribution, and we are going to start restricting the amount of selling and servicing that we do through.

Robert Silk: Non internet based channels and we invite all the travel managers and all of the travel agencies of the world to join US on this because this is great for customers and it should be great for them to all of our financial incentives targeted to that audience are really around helping shift. So we've actually been very encouraged by what we've seen.

Robert Silk: I mean, clearly a relative RASM performance is similar to what it was.

Robert Silk: In the the exit pandemic period and now in the year ahead, we have the opportunity to optimize.

Robert Silk: Thank you our next question.

Robert Silk: It comes from the line of David Vernon of Bernstein.

Robert Silk: Hey, good morning, guys. So on the topic of sort of premium and how.

Robert Silk: Buyers are affecting the business right now can you give us some sort of color around how.

Robert Silk: Premium product sales or movements up and down the fare ladder happening growth in basic growth in premium just give us some sense of kind of where you are in that process of tapping into what is a more lucrative.

Segment revenue.

Thanks, David This is vastly when I'll pick it up right, where I left it off I think I can probably give you a fact point that makes it.

David: Easier to understand is why we are so focused around.

David: Selling creating more content for advantaged customers. So if you look at our system right now about 7% of what we sell is based economy and indeed that is up 20% year over year, but that's up 20% year over year, because we changed its product that last year. We included it in commission dealings in corporate travel management programs. We just took it out.

David: Last year, we reintroduced it this year.

David: That's actually not the critical thing what's been more interesting to US is 10% of our revenue is coming from customers, who actually shop basic but then buy something higher and within that that number is up 25% year over year and almost all of its growth is coming through dotcom and app.

David: And we see more and more ways, where customers actually who are coming for our basic product want more than that.

And we can go and deliver that to them, which is why so many of our distribution strategy is far from being risky we see as a great opportunity.

David: Okay, and then maybe just as a quick follow up as you think about some of the rationalization of the negative margin or lower margin capacity, that's being contemplated out in the industry. How do we how should we be thinking about the impact of let's say unbundled operator pulling in capacity.

David: On your fair ladder does that is that sort of uniform impact up and down the different fare classes or is it more concentrated in something like a basic product anything you could tell us or help us to understand how some of the capacity changes in the market might impact American will be really helpful.

David: Well look at large and I think Robert mentioned it earlier I mean, if there is.

David: Like all businesses supply demand driven businesses and if there is less supply that's going to have a clear impact on on demand.

David: For us with things like basic.

David: But for all of our fare products, we do not make products that are so odious no one will buy it the whole point of them is to actually have customers experienced travel enjoying advantage and for US basic economy is not about a competitive product. It's our entry level product that gets customers in the door and signed up for advantage.

David: Hey, David I, just wanted to add one other thing here, which is this is that we've.

Built technology.

David: To enable us to react to whatever may come our way so as far as Sue said look.

David Vernon: Our goal is to make sure that we can deliver product to the customers the way they want to receive it. It also has to be done in a way that is incredibly nimble and can be changed and in the past you may have seen carriers, even American unable to react very quickly that's not the case right now so whatever happens in the marketplace. We've got the <unk>.

Doug Parker: Technology, we got the product to be super competitive and whether its us developing it on our own or having to compete we will be ready.

Doug Parker: Oh.

Doug Parker: Thank you. Our next question comes from the line of Conor Cunningham of Melius research.

Conor Cunningham: Please go ahead Connor.

Conor Cunningham: You can kind of please make sure your line isn't muted speaker phone lift your handset.

Conor Cunningham: Well go to our next question.

Conor Cunningham: Our next question.

Connor: It comes from the line of.

Connor: Ravi Shanker of Morgan Stanley Your question. Please Ravi.

Connor: Good morning, everyone. This is Katherine on for Ravi Sir Thank you for taking my question.

Katherine: My question is really around the Investor day in a few weeks, which I know is probably the first one you guys posted in about seven years and I was just curious what investors can expect to hear during the event, whether it's new financial long term targets, rather initiatives just any color around that would be great.

Katherine: Hey, Katherine Thanks, No. We're excited about the investor to Investor Day, and look we've worked really hard to put.

Doug Parker: The focus of the company and doing the funding fundamentals really well you know that we've talked about returning the company to reliability profitability strengthening our balance sheet by paying down debt. We're in a really great spot now to talk about what's next and on that horizon, we're going to be talking about the benefits of all the work that we have.

Katherine: Done on our fleet.

Katherine: All everything we've done with our network and partnerships <unk> mentioned.

Katherine: A number of times even today.

Katherine: Potential within our loyalty program.

Doug Parker: We're going to talk about even doing better in terms of what we deliver to our customers and ultimately we want to talk a lot about how we can do that all a lot more efficiently one of the things you'll see is that Americans are look it's a changed airline we have a focus on producing free cash flow and ultimately rewarding our shareholders.

Doug Parker: So can't wait to tell you more about all of that.

Doug Parker: Okay.

Doug Parker: Just as a quick follow up I know, it's probably too early but I was curious if you had seen any share shift in January just due to the issue with the Max grounding with other carriers I wasn't sure.

Doug Parker: <unk> seen anything in the data.

Doug Parker: Now the vast vast who can add some color to that look January isn't it's been a strong month for us, but it's never the busiest months of the year and so we will fly load factors in the.

The seventies, it's probably similar for the rest of the industry and while I'm sure that there's benefit I know that there is it's not material. When you think about the number of seats that are open for for all carriers and the overall size of the American Airlines business.

Doug Parker: Thank you.

Doug Parker: Our next question.

Doug Parker: It comes from the line of Duane Feniger worth of Evercore ISI. Your question. Please Duane.

Doug Parker: Hey, good morning, Thank you.

Doug Parker: Maybe start with Vasu can you speak to.

Doug Parker: Advanced bookings beyond <unk> here.

Vasu Raja: Just curious when we had this real surge this time last year.

You could just comment on what the booking curve looks like if it's shorter if it is lengthening.

Vasu Raja: And if you have any commentary on.

Vasu Raja: Domestic versus international book yields.

Vasu Raja: As you look a little further out into into peak periods.

Vasu Raja: Yeah, Hey, thanks for the question.

Vasu Raja: The booking curve is largely flat to last year there is a.

Vasu Raja: A moderate shift let's call it two points from outside of the inside 30 day range to the outside 30 day range.

Vasu Raja: What I would say right now we're in taking revenues in line with with capacity.

Vasu Raja: Entity by entity market by market, sometimes its yield sometimes its traffic, but as long as thats, continuing where we're encouraged right now and in the summer really the most impactful thing that we see as long haul and we're seeing a long haul book up on a revenue basis at the same rates as us.

Vasu Raja: We saw last year, which is a particularly strong year and we're just too early in the domestic and short haul character really see that yet, but we're encouraged by what we see even as we we start selling more of March end and the post Easter period.

Vasu Raja: Thanks, Jeff you actually said more than I thought you would just to follow up there on the long haul any commentary on booked yields are we are we holding serve or are we or are we going backwards a bit.

Jeff Bezos: Yeah, so far we're holding serve and.

Jeff Bezos: Still a long way to go there.

Yeah.

Jeff Bezos: Thank you. Our next question comes from the line of Andrew to Dora of Bank of America. Please go ahead Andrew.

Jeff Bezos: Hey, good morning, everyone.

Jeff Bezos: So Robert just on the operations, you've obviously made some great strides here post pandemic.

Robert: It seems to really be helping your CASM.

Don't want to steal any thunder from Investor day, but just kind of wanted to get your bigger picture thoughts on like what is next operationally at American into 'twenty four 'twenty five what's the plan or where are you at.

Robert: At a point now where it's sort of maintaining what you have built so far.

Lou: Hey, Andrew Thanks, Lou will look.

Lou: We're really proud of the team and what they've accomplished.

Lou: Think about American airlines being the most reliable carrier in the country over the last 18 months over the last year. So nobody can claim that they.

Lou: Flu, a more reliable schedule or canceled.

We're flights.

Lou: We're really proud of that but I'll tell you that as a baseline now.

Lou: That we can take going forward and Youre right about the best way to run an airline as the most reliable all the rework costs are taken out of it.

Lou: But we're not going to stop there.

David Vernon: We can do what we did and when you do it more efficiently and I want to just hand, the mic over to David seem more.

David Vernon: To talk a little bit more about how he thinks we can we can bring things like technology to bear David Yes, No. Robert Thank you and again Super proud of what the team has done in 2023. It was a great year, but it really as Robert said it is the foundation of where we're headed into 'twenty four and beyond.

What I would tell you is we have a much better understanding of the complexities of our operation and there we're investing in technology to solve quickly and more efficiently and more optimally than we ever have before so our relationship and are partnering with our it team has just started.

Starting in and we see a lot of opportunity in the future to do what we do better more efficiently than we ever have before.

David Vernon: Okay.

David Vernon: Got it.

David Vernon: My follow up question to a lot of discussion on the call just with regards to your distribution strategy.

David Vernon: Thought.

David Vernon: The 80%.

David Vernon: Bookings coming through these new channels was interesting.

David Vernon: Where do you think that you can go buy 80% of our it seems pretty high and what would've been the growing teams thus far with the.

David Vernon: <unk> and DC rollout. Thank you.

David Vernon: Yeah, Hey, thanks for the question.

David Vernon: Well I'll answer it in this way we have been similarly, enthusiastic and even a little surprised at how quickly the transition has happened.

David Vernon: It's not just that we're 80% coming through Internet based technology within that 65 plus percent is coming just strictly through our owned channels, which is our greatest rate of growth.

No.

David Vernon: First I will say.

David Vernon: Strategically, we're going to distribute to the internet, it's what our customers demand its how we give them the best fares and the lowest expenses and the best servicing so at some point the number becomes 100.

David Vernon: And the real issue in 2024, as we wanted to just continue to trial.

Transition as many of our.

David Vernon: Retailing partners to use the internet with us.

David Vernon: So ultimately it becomes 100, we're really encouraged by what we've seen there.

David Vernon: Thank you.

David Vernon: Our next question comes from the line of Savi Seth.

Raymond James Your question. Please savi.

Savi Seth: Hey, good morning, just to follow up on the commentary about balanced growth between domestic and international I was curious if you can.

Savi Seth: Can talk a little bit about like on the international side and if there is kind of a difference in growth trends between Atlantic and Latam and Asia and then on the domestic side just.

Savi Seth: If the regional next year, what kind of improvement in mix you are expecting this year.

Savi Seth: Sure.

Savi Seth: Just so I understand you're talking about the American airlines capacity mix.

Savi Seth: Unlike the industry capacity mix or something that's right.

Savi Seth: Correct, Okay, well look at large consistent with pretty much all that we've talked about we will through the course of the year be a roughly 70 525 short haul long haul carrier.

Savi Seth: Increasingly as about 50, our growth will be split about 50 50 between short haul and long haul certainly the thing that we are.

Savi Seth: They most enthusiastic about is the continued improved.

Savi Seth: Utilization of our wholly owned regional jet in fact, so much of how domestic.

Turns to positive RASM.

Savi Seth: Is directly correlated to us, bringing regional jets back in.

Savi Seth: As good as that starting to look in the weeks and months ahead. We know we still have 10% more utilization to do there. So.

Savi Seth: That's really where our opportunity is and in long haul I mean, you can kind of see the schedule. That's out there right now theres, probably not a lot of difference.

Savi Seth: When it actually goes to fly, but a big chunk of our footprint will be in trans Atlantic in the summer, which tends to be the highest demand.

Savi Seth: Followed by Latin America, and last of all Pacific.

Savi Seth: That's helpful and lastly, if I might.

Savi Seth: Just kind of the converse of that basic economy discussion on the premium revenue side I was.

Savi Seth: Just wondering if you can talk about what youre seeing there and.

Savi Seth: If youre seeing any what you're seeing in the kind of the books for.

Savi Seth: <unk> class load factor those kind of trends.

Savi Seth: Yes, it was up 60% of our revenue comes from customers buying premium content of which 45 points of that are advantaged customers and 15 points or non advantage customers.

Savi Seth: So I'd say at large I real commercial opportunity is to make those people who are help those people who were 15% buying premium content join our program.

Savi Seth: And continue to have great content to the people, who do and we've seen continued improvements in premium load factors pretty much every way there is premium.

Savi Seth: Revenues across our system are up 15%.

Savi Seth: Premium book load factors are at their highest level approaching close to 80 and some some periods that are there.

Savi Seth: Really a lot of what we're endeavoring to do is reserve so much of our premium capacities for our best customers.

Savi Seth: Thank you.

Savi Seth: Our next question comes from the line of Conor Cunningham of Melius Research. Please go ahead Conor.

Hi, everyone can you hear me.

Conor Cunningham: We've got you kind of go ahead.

Conor Cunningham: Thanks, sorry about that just in terms of head count for 2024, we haven't heard a lot about that from you guys from the industry standpoint, it's obviously slowing but what do you need to add this year to kind of hit your 2020 for our trajectory in terms of capacity and maybe beyond that thank you.

Conor Cunningham: Yeah for this year. It certainly is a lot less hiring than what we've done in the past we are going to be bringing on about 1% more head count So what we'll call it.

Conor Cunningham: Somewhere around one or 2000 more heads this year, but a big reduction from where we were last year and it's just a sign of where we're at with efficiencies as well, we probably hired ahead a little bit in 2023, but this year, we're looking to grow the airline mid single digits and head count is going to grow by about 1%.

Conor Cunningham: Okay, perfect well, we haven't actually heard a lot about maintenance headwinds from you guys and that's been like a major theme.

Devin Smith: From a lot of the other carriers. So just are you seeing any meaningful call out in the 2024 and then what are you guys doing specifically to mitigate a lot of those those headlines I realize that I grew a lot last year, but is that kind of normalize going forward. Thank you.

Devin Smith: Yeah, I'll start and just maybe talk about where the P&L has been and then turn it over to Robert David but.

Robert Silk: We did have some headwinds in 2023 I want to say, our maintenance expense and <unk> 23 versus 2022 was up something close to half a billion dollars.

Robert Silk: This year flattens out a bit we do expect it to be up and that's one of the areas of the P&L, where we'll have a little bit of variability just depending on how many in house engine overhauls that we ended up doing this year.

Robert Silk: 23 was a big step up 24 is less so and there is a lot of great work being done on David's team to address the call hand, it over to Matt Yeah. So I'll just.

Sorry, I kind of I think one of the things that I.

Robert Silk: I look at is that maintenance needs for the industry as a whole as a whole are going to increase increased greatly.

Robert Silk: Americans really well positioned not only because of what we've done over the past decade by bringing in more new aircrafts than anyone but as well remember that we have maintenance capabilities.

Matt Smith: Where we're not.

Matt Smith: Solely dependent on outside resources are going to be incredibly constrained.

Matt Smith: So one of the things that I know David can talk to US about is that we're going to make sure that we have even more capacity to do engine overhauls.

David: I already have 12000 mechanics to more than anybody else in.

David Vernon: Commercial aviation and we're going to put them to good use and I think that that's going to be even more of a strategic advantage for American as we take a look at.

David Vernon: Really.

David: Constrained resource David.

David: Robert Yes, there's a lot of effort.

Robert: Robert and Devin talked about is that.

Robert: Lot of focus here and we have these normal waves that we run into with maintenance cycles that we have on heavy checks and engine checks that we got to do but.

Robert: Lot of emphasis this past year and going into 2024 of getting a lot more efficient in how we manage that maintenance as Robert talked about we have really good control with longer term.

Robert: Resources to get that work done. So we're very confident that we're going to be able to get the efficiencies.

Robert: And reduce some of that cost here in the near future.

Robert: Yeah.

Robert: Thank you.

Robert: Our next question.

Speaker Change: It comes from the line of Daniel Mckenzie of Seaport Global Your question. Please Daniel.

Daniel J. McKenzie: Thanks. Good morning, guys. My two questions are on technology as well here, so 65% of the bookings going to a 100% on AA dot com.

Daniel J. McKenzie: What percent or portion of the revenue does this represent today and what percent of the revenue was up 15% exactly.

Daniel J. McKenzie: Yeah.

Daniel J. McKenzie: What I would say is.

Daniel J. McKenzie: <unk>, let me first clarify.

Daniel J. McKenzie: So 65% of our bookings are going through our digital channels on a revenue basis, it's actually a little bit north of that it's probably a little closer to 70.

Daniel J. McKenzie: Intake and that does drive revenue intakes that are coming in separately from that when we go look back at 2023.

60% of our revenue came from customers buying premium content, which is a premium seat or greater flexibility around the premium seat.

Daniel J. McKenzie: Of those 15% of our total customer base is non advantage about 45% is advantaged.

Daniel J. McKenzie: Yeah. Thanks, a lot that's helpful.

Daniel J. McKenzie: And then the second question is really a bigger longer term question on potential cost savings and it relates to the transition to the cloud.

Devon Smith: Yes, Vasily I'll, just add that look.

Devon Smith: All of that kind of work will be a facilitator to delivering product.

Vasu Raja: Faster more efficiently and so that's the kind of mindset. So.

I'd, rather not talk about it just as a discrete item we will bring it altogether.

Vasu Raja: Get to March 4th Mhm, Okay. Thanks, guys great job.

Vasu Raja: To ask a question you will be limited to one question and one follow up again at this time, we ask media to press Star one one.

Vasu Raja: Our first question.

Vasu Raja: It comes from the line of Alison Sider of Wall Street Journal. Please go ahead Alison.

Vasu Raja: Hi, Thanks, so much.

Vasu Raja: Wondering what is your level of confidence in Boeing's current leadership.

Vasu Raja: Hey Ali look.

Couple of quick things first off.

Vasu Raja: Some of Boeing's current issues are all around the Max nine and the.

Vasu Raja: 737, nine hundreds of American Airlines don't it does not fly those aircraft were huge Boeing customer, though and.

Vasu Raja: We're dependent on them for just.

Vasu Raja: Producing.

Vasu Raja: We're going to hold them accountable.

Vasu Raja: Boeing needs to get their act together.

Vasu Raja: They've been dealing with over the recent period a period of time, but also going back a number of years now is unacceptable and no matter, who it is olive Boeing needs to come together and to get back on the right track.

Vasu Raja: And the production limits at the FAA announced.

Vasu Raja: Last night, the Max like do you expect that to have any impact on deliveries for American I mean, do you think that that it makes sense for Boeing.

So look we will encourage boeing to do everything that they can get back on track and produce a quality product plain and simple.

Vasu Raja: For us we have a fleet right now of over 500 aircrafts. So we have 20.

Vasu Raja: Max Eights that are on the horizon for this next year. These aircraft are.

Vasu Raja: Likely already in production and I don't anticipate to run into any issues, but I will say this as well, though nobody nobody has taken on more new aircraft and American Airlines.

Vasu Raja: In recent history, and we take that acceptance process very very seriously and we've done that.

Vasu Raja: For years, we have the teams and people in place to make sure that what comes onto American's property is ready to go ready to fly and as I said before we encourage Boeing to get their act together and get back on the right track.

Vasu Raja: Thank you our next question.

Vasu Raja: It comes from the line of Mary Slogging State of.

Mary Schlangenstein: Bloomberg News. Please go ahead Mary.

Mary Schlangenstein: Hey, good morning, just to follow up on that as you continue to talk to Oems about a potential narrow body order.

This year are the things that are occurring at Boeing right now is that having any impact at all as you think about placing that order and then also wondering if you think that.

Mary Schlangenstein: Federal officials are taking the right steps.

Mary Schlangenstein: And looking at Boeing.

Mary Schlangenstein: They may expand to other production lines and the Max.

Mary Schlangenstein: Do you see them, taking the right steps or would you like to see them doing something different maybe going even stronger on new requirements from Butler.

Mary Schlangenstein: So Mary Thanks for the questions. Let me just start with this first.

Mary Schlangenstein: <unk>.

Administrative whitaker.

Mary Schlangenstein: We have incredible confidence in he is the right person for the job right now and <unk>.

Mary Schlangenstein: Very very confident.

Mary Schlangenstein: He will hold all of us.

Mary Schlangenstein: But especially Boeing accountable.

Doug Parker: For what what they do and to that end I think that's the right approach.

Doug Parker: Look.

Doug Parker: Aviation in the United States aviation throughout the World.

Doug Parker: The safest form of transportation, we have a commitment to keep it that way and Boeing has to be part of that equation now as we take a look at future needs for aircraft again American Airlines as well.

We have 500 aircraft and a lot of the growth that we've been talking about is getting claims back up in the air that.

Doug Parker: We could get more utilization out of so we're fortunate from that perspective, we're also fortunate to be the operator of the world's largest fleet of Airbus aircraft.

Doug Parker: So look.

Doug Parker: We need Boeing to be successful over the long run they've got to get their act together, we need all Oems.

Doug Parker: To do their job.

Doug Parker: It's hard enough running an airline we need quality product and thats, what we demand.

Doug Parker: So can you comment on whether what's going on at Boeing will reflect.

Doug Parker: The ultimate decision on a narrow body order.

Doug Parker: Well, we'll take a look.

Doug Parker: We take the take the.

Doug Parker: The acquisition of new aircrafts, bringing new aircraft onto American sleep very seriously and we're going to make sure that whatever is purchased.

Doug Parker: Whether it be from Airbus Boeing Embraer you name it.

Doug Parker: That's something we take very seriously and we're going to make sure that that product is.

Doug Parker: He is incredibly reliable safe.

Doug Parker: Right from the get go write off the factory floor.

Doug Parker: Thank you.

Doug Parker: Okay.

Doug Parker: Thank you.

Doug Parker: Please standby for our next question.

Doug Parker: Our next question comes from the line of Leslie Josephs of CNBC Youre question. Please Leslie.

Leslie Josephs: Hi, Thank you are you increasing your oversight personally at Boeing and do you see that as a permanent change just given that it's kind of been one issue. After another and then just another question is Boeing providing any compensation, whether cash or in the form of <unk>.

Leslie Josephs: Discounts or anything else because of the issue and the FAA blocking any further production that that could impact deliveries.

Hey, Leslie.

Leslie Josephs: Look.

Leslie Josephs: As I've said before American Airlines has taken more new aircrafts than anyone.

Leslie Josephs: It really the history of commercial aviation.

Leslie Josephs: Over the last 10 years and on that front, we've had to deal with quality issues.

We've had to make sure that we were protected against.

Leslie Josephs: So from that perspective, we have a very robust aircraft acceptance process with people that are dedicated to that and we're going to make sure that whatever we take from any manufacturer and especially Boeing that we have the right resources to ensure that they meet our specifications and are ready to go when they come in into our into our fleet.

Leslie Josephs: I'll leave it at that.

Leslie Josephs: Yes.

Leslie Josephs: Thank you that does conclude the Q&A portion of our call I would now like to turn the conference back to Robert Isom for closing remarks, Sir.

Leslie Josephs: Thanks, Latif, but 2023 was an exceptional year for us it was another year of building back from the pandemic.

Leslie Josephs: And I'm really proud of what the team has done they have established us as the industry leader in reliability.

Robert D. Isom: We've restored the airline profitability, we produced record free cash flow last year, you've got a year another year of really making sure that we continue the progress. It's a year that we're still recovering from the pandemic and we're going to have to see how demand and capacity all shakes out, but as I've said.

Robert D. Isom: Earlier today, we expect demand to be very strong.

Doug Parker: The spring and summer.

Doug Parker: Thank God.

Doug Parker: We are going to be exceptional times for us in terms of demand for product and as we look forward.

Doug Parker: I'm very interested in sitting down with folks and talking on March 4th at our Investor day, and talking about the future of American building on that platform showing how we have changed and that we are we have a mindset of producing for our customers taking care of our team and also.

Doug Parker: So making sure that we reward shareholders more on that in the next month and everybody take care.

Doug Parker: We'll talk soon.

Doug Parker: This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2023 American Airlines Group Inc Earnings Call

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