Q1 2024 American Airlines Group Inc Earnings Call
Okay.
Speaker Change: Thank you for standing by and welcome to American Airlines.
Operator: Thank you for standing by, and welcome to American Airlines' First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
First quarter 'twenty 'twenty four 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.
Operator: After the speaker presentation, there will be a question-and-answer session; to remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Scott Long, VP of Investor Relations and Corporate Development. Please go ahead. Thank you, Lateef. Good morning, and welcome to the American Airlines Group first quarter 2024 earnings conference call. On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devon May.
Speaker Change: One one again.
Speaker Change: I'd now like to hand, the call over to Scott Lamb VP of Investor Relations and corporate development. Please go ahead.
Scott Lamb: Thank you Latif and good morning, and welcome to American Airlines Group first quarter 2024 earnings Conference call.
Scott Lamb: On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO Devin made a number of our other senior executives are also in the room. This morning for the Q&A session Rob.
Scott Lamb: Robert will start the call with an overview of our performance and Devin will follow with the details on the first quarter. In addition to outlining our operating plans and outlook going forward.
Scott Lamb: After our prepared remarks, we'll open the call for analyst questions, followed by questions from media to get in as many questions as possible. Please limit yourself to one question and one follow up.
Speaker Change: 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.
Speaker Change: These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected.
Speaker Change: 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 March 31 2024.
Speaker Change: In addition, we'll be discussing certain non-GAAP financial measures this morning, which exclude the impact of unusual items.
Speaker Change: A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found on the Investor Relations section of our website.
Speaker Change: A webcast of this call will also be archived on our website.
Speaker Change: 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.
For your interest and for 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. The American Airlines team continues to build a more reliable efficient and resilient airline I'd like to thank our team for running a fantastic operation, we're driving revenue through our commercial initiatives efficiently managing costs and producing free cash flow to further strengthen our balance sheet.
Operator: A number of our other senior executives are also in the room this morning for the Q&A session. Robert will start the call with an overview of our performance, and Devon will follow with details on the first quarter, in addition to outlining our operating plans and outlook going forward. 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: Let's talk about our financial results for the first quarter. This morning, we reported an adjusted net loss of $226 million for the quarter for an adjusted loss of 34 cents per diluted share.
Robert D. Isom: This outcome was within our originally guided range. Despite a significant increase in fuel expense in the quarter, which was approximately $100 million higher than the midpoint of our initial guidance.
Scott Long: Before we begin today, we must state that today's call contains forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity, and fleet plans. 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 in our Form 10-Q for the quarter ended March 31, 2024.
Robert D. Isom: We remain on track to deliver our full year EPS guidance and we continue to expect to produce approximately $2 billion of free cash flow this year.
Robert D. Isom: We produced record first quarter revenues of $12 $6 billion business travel has continued to recover with particular strength in small and medium sized businesses. Additionally.
Robert D. Isom: Additionally, we have seen sequential improvement in the recovery of managed corporate travel and domestic business revenue growth outpaced capacity growth in the first quarter.
Robert D. Isom: Additionally, our focus on delivering premium content that our customers desire is paying off.
Robert D. Isom: In the first quarter upsell loyalty and partnership revenue, what we define as premium content made up 61% of our revenue and increased 17% year over year.
Robert D. Isom: As we've outlined in the past our revenue growth is increasingly fueled by advantaged customers, who continued to acquire our co branded credit cards at historically high levels.
Robert D. Isom: Advantage customers account for 72% of our premium content revenue.
Robert D. Isom: And in the first quarter, our premium cabin saw a 10% increase in revenue versus 2023.
Robert D. Isom: We expect these trends to continue which is why we're investing in our product and premium customer experience.
Scott Long: In addition, we'll be discussing certain non-GAAP financial measures this morning, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website.
Robert D. Isom: And just last week, we announced several new premium onboard enhancements and customers will have an increasingly elevated experience with the introduction of our new state of the art flagship suite seats on our long haul aircraft, including a retrofitted Boeing triple seven three hundreds and future Airbus 321, XLR and Boeing.
Robert D. Isom: 779 deliveries.
Robert D. Isom: Our fleet network and travel rewards program will continue to enable significant upside moving forward.
Scott Long: A webcast of this call will also be archived on our website. 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. Thank you for your interest and for joining us this morning. And with that, I'll turn the call over to our CEO, Robert Isom. Thanks, Scott. And good morning, everyone.
Robert D. Isom: And our limited near term capital requirements position us to continue to generate meaningful free cash flow this year and in the years to come.
Robert D. Isom: We continue to make progress on our commercial initiatives.
Robert D. Isom: And we are always looking to improve our performance and drive additional revenue.
Robert D. Isom: We see meaningful opportunities to improve upon our results much of which will be captured as we progress through the year.
Robert D. Isom: First we continue to believe in the value that our distribution strategy provides to our customers and to American engaging directly with our customers through modern Internet based technology is where the industry is headed and we're leading the way that being said there are near term actions, we can take to optimize our efforts.
Robert D. Isom: The American Airlines team continues to build a more reliable, efficient, and resilient airline. I'd like to thank our team for running a fantastic operation. We're driving revenue through our commercial initiatives, efficiently managing costs, and producing free cash flow to further strengthen our balance sheet. Now, let's talk about our financial results for the first quarter. This morning, we reported an adjusted net loss of $226 million for the quarter, or an adjusted loss of $0.34 per diluted share.
Robert D. Isom: Advance of hitting steady state on this long term strategic initiative and those are underway.
Robert D. Isom: Second our network was uniquely impacted by increased industry capacity in the first quarter, but we see that moderating in the quarters ahead. This will be a tailwind for us going forward.
Robert D. Isom: Third increasing the utilization of our fleet is a priority, but we can improve the deployment of our own capacity to better match supply and demand throughout the year.
Robert D. Isom: And finally, our team is laser focused on executing well on these and all of our commercial initiatives day in and day out.
Robert D. Isom: Turning now to the operation American continues to produce industry, leading operational results.
Robert D. Isom: We're running the best operation in our history because of our steadfast commitment to operational excellence and strong collaboration across the entire airline.
Robert D. Isom: We continue to minimize our cancellations, resulting in our best ever first quarter completion factor. We delivered these results despite air traffic control challenges during the quarter and significant weather events across our network.
Robert D. Isom: Our strong completion factor performance enabled American to achieve eight combined mainline and regional zero Cancelation days in the first quarter and improve our mishandled baggage rate by 10% year over year.
Robert D. Isom: This outcome was within our originally guided range, despite a significant increase in fuel expense in the quarter, which was approximately $100 million higher than the midpoint of our initial guidance. We remain on track to deliver our full year EPS guidance. And we continue to expect to produce approximately $2 billion of free cash flow this year. We produced record first quarter revenues of $12.6 billion. Business travel has continued to recover, with particular strength in small and medium-sized businesses.
Robert D. Isom: Our outstanding recovery efforts have become the hallmark of our operation as we minimize cancellations and shorten the recovery time for our airline and customers.
Robert D. Isom: As our attention shifts to the summer operation, we're focused on safety reliability and continuing to provide a great experience for our customers.
Robert D. Isom: We continue to find ways to improve the travel experience for our customers, especially ahead of the busy summer travel period through.
Robert D. Isom: Through investments in technology, we have made significant progress in our digital servicing capabilities American is now able to sell and digitally serviced approximately 95% of transactions, which greatly simplifies and enhances the experience of our customers and team members.
Robert D. Isom: We're also seeing tangible benefits from our reengineering efforts.
Robert D. Isom: Additionally, we have seen sequential improvement in the recovery of managed corporate travel, and domestic business revenue growth outpaced capacity growth in the first quarter. Additionally, our focus on delivering premium content that our customers desire is paying off. In the first quarter, upsell, loyalty, and partnership revenue, which we define as premium content, made up 61% of our revenue and increased 17% year over year. As we have outlined in the past, our revenue growth is increasingly fueled by advantaged customers who continue to acquire our co-branded credit cards at historically high levels. Advantage customers account for 72% of our premium content revenue.
Robert D. Isom: We are using our assets more productively across the airline and our total aircraft utilization improved approximately 4% year over year in the first quarter, primarily driven by improvements in our regional support ability.
Robert D. Isom: And now I'll turn it over to Devin to share more about our first quarter financial results and second quarter outlook.
Devin: Thanks, Robert I want to commend the American Airlines team for its focus and execution and for leading us on the path to achieving our long term goals.
Devin: We delivered a fantastic operation for our customers in the first quarter. Despite a significant run up in fuel in the quarter, we were able to produce results within our guided range for each of our operating metrics and we remain on track to deliver on our full year guidance.
Devin: Excluding net special items, we reported a first quarter net loss of $226 million or an adjusted loss per diluted share of <unk> 34.
Devin: We produced record first quarter revenue of $12 $6 billion.
Devin: Up three 1% year over year.
Devin: Our adjusted EBITDAR margin was seven 6% and we produced an adjusted operating margin of 0.6%.
Devin: Our strong operational performance in the first quarter resulted in capacity there was up eight 5% year over year at the high end of our guidance range.
Devin: Total revenue was approximately half a percent higher than the midpoint of our January forecast.
Devin: Unit revenue was down four 9% year over year slightly lower than the midpoint of our guidance on 1% higher ASM.
Devin: Our strong operational performance in the quarter also resulted in unit cost, excluding net special items and fuel on the low end of our guidance range up two 3% year over year. As a reminder, the first quarter of 2023 did not include the cost impact of our new pilot agreement.
Devin: Which resulted in a year over year headwind.
Devin: Normalizing for this our first quarter CASM ex would have been approximately flat year over year.
Devin: We have some modest updates to our fleet and Capex guidance versus our March Investor day update for the year. We now expect to take delivery of 22, new mainline aircraft down from our prior estimate of 29 aircrafts. Our new aircraft deliveries include 16, 737, Max eight 3%.
Devin: 787 dash nine and three <unk> hundred 21 Nicos <unk>.
Devin: We also plan to take delivery of 12, new Embraer <unk> hundred 75 aircraft.
Devin: We continue to expect to grow full year capacity in line with our guidance of up mid single digits year over year, while Boeing delivery delays have impacted mainline capacity production. They have been largely offset by improvements in our regional aircraft utilization.
Devin: Aircraft delivery delays are impacting the entire industry, but they are not having the same impact on American as other carriers since we're not as dependent on new aircraft deliveries as most of our peers.
Devin: We have modest aircraft capex requirements. This decade due to our previous re fleeting efforts.
Devin: We now expect our 2024 aircraft capex to be approximately $2 2 billion and our total capex to be approximately $3 1 million.
Devin: We continue to expect aircraft capex to be approximately three to $3 $5 billion per year from 2025 through 2030.
Devin: In the first quarter, we generated operating cash flows of $2 2 billion and we produced free cash flow of $1 4 billion.
Devin: Our relatively low capital requirements and free cash flow production have allowed us to make significant progress towards strengthening the balance sheet.
Devin: We reduced total debt by nearly $950 million in the first quarter and we have now reduced total debt by $12 $3 billion from peak levels in 2021.
Devin: Net debt is now at $33 4 billion.
Devin: Nearly $2 billion lower than pre pandemic levels.
Devin: We continue to expect to be more than 85% of the way to our $15 billion total debt reduction goal by the end of this year.
Devin: Now onto the outlook for the second quarter, our focus continues to be on delivering industry, leading reliability maximizing revenue and profitability and reengineering our business.
Devin: Not only drive savings and greater productivity, but also delivers a better experience for our customers and team members.
Devin: Our work to reengineer the business is progressing well and we remain on track to deliver approximately $400 million in cost savings in 2024.
Devin: Additionally, we continue to find opportunities to improve working capital by.
Devin: By the end of this year, we expect to have achieved approximately $200 million in incremental working capital improvements. In addition to the $100 million we achieved in 2023.
Devin: At the Investor Day, we highlighted our goal to increase the production rate at our engine overhaul facility in Tulsa and the team has done an incredible job accelerating that initiative this year.
Devin: While this results in additional expense being pulled forward into 2020 for the longer term benefit of this project is materially NPV positive.
Devin: Our engine overhaul facility in Tulsa is a strategic asset and another competitive advantage for American and a constrained aircraft maintenance market.
Devin: We plan to grow capacity at 7% to 9% year over year in the second quarter, primarily through improvements in aircraft utilization.
Devin: Our capacity growth will slow considerably in the back half of the year and we continue to expect to produce mid single digit capacity growth for the full year.
Devin: We expect second quarter travelers to be down 1% to 3% versus 2023 with unit revenues, reflecting positive year over year in the third quarter.
Devin: We will continue to deliver strong unit cost performance in the second quarter with CASM ex is expected to be up approximately 1% to 3% year over year.
Robert D. Isom: And in the first quarter, our premium cabins saw a 10% increase in revenue versus 2023. We expect these trends to continue, which is why we're investing in our product and premium customer experience. And just last week, we announced several new premium onboard enhancements, and customers will have an increasingly elevated experience with the introduction of our new state-of-the-art flagship suite seats on our long-haul aircraft, including our retrofitted Boeing 777-300s and future Airbus 321XLR and Boeing 787-9 deliveries.
Devin: We still expect full year CASM ex to be up approximately half a percent to three 5%. Despite a changing mix of flying with less mainline capacity and greater regional capacity production.
Devin: Our current forecast for the second quarter assumes a fuel price of between $2 75, and $2 95 per gallon.
Devin: Based on our current demand assumptions and fuel price forecast, we expect to produce an adjusted operating margin of between nine 5% and 11, 5% in the second quarter and adjusted earnings per diluted share of between $1 15, and $1 45.
Devin: The American Airlines team is focused on delivering results to unlock value in 2024 and beyond we remain on track to deliver full year adjusted earnings per diluted share of between $2 25, and $3 25 and.
Devin: And we continue to anticipate producing approximately $2 billion of free cash flow in 2024.
Devin: I'll now turn it back to Robert for closing remarks.
Robert D. Isom: Thanks, Devin as we outlined at our Investor Day last month American has it changed airline with a strong foundation and we're well positioned to create value.
Robert D. Isom: We have a young and simplified fleet that continues to be a differentiating factor for American.
Robert D. Isom: We're operating with excellence, we have built a strong network with fantastic partnerships around the globe.
Robert D. Isom: Our Fleet Network and Travel Rewards Program will continue to enable significant upside moving forward, and our limited near-term capital requirements position us to continue to generate meaningful free cash flow this year and in the years to come. We continue to make progress on our commercial initiatives, and we are always looking to improve our performance and drive additional revenue. We see meaningful opportunities to improve upon our results, much of which will be achieved as we progress through the year.
Devin: And we're engaging with customers through our industry, leaving leading travel rewards program demonstrating that life is better as an advantage remember, we're managing our unit costs better than our network peers, and we're focused on reengineering, our business improving asset utilization and enhancing productivity across the airline.
Devin: These unique advantages have us well positioned to achieve our stated objectives this year and in the years ahead.
Devin: All of this will result in margin expansion and growing free cash flow generation, creating value for our shareholders.
Devin: We're committed to delivering on what we said we would achieve and we will provide updates on our progress along the way.
Devin: We have significant opportunities ahead of us and we intend to take full advantage of those opportunities by leaning into our strengths and continuing to execute.
Devin: As we move through the year, we will continue to leverage our fleet network and rewards program and build on our strong operational momentum.
Speaker Change: And with that I'll turn it back to the operator to open up the line for analyst questions.
Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May press star one one the game to allow everyone. The opportunity to participate you will be limited to one question and one follow up please standby, while we compile the Q&A.
Robert D. Isom: First, we continue to believe in the value that our distribution strategy provides to our customers and to America. Engaging directly with our customers through modern internet-based technology is where the industry is headed, and we're leading the way. That being said, there are near-term actions we can take to optimize our efforts in advance of hitting steady state on this long-term strategic initiative. And those are underway.
Speaker Change: Foster.
Speaker Change: Our first question comes from the line of David Vernon of Bernstein. Please go ahead David.
David Scott Vernon: Hey, good morning, guys and thanks for the question.
David Scott Vernon: So maybe about two or Robert when you look at the <unk> RASM guide its a little bit better I think than people were expecting.
David Scott Vernon: But it is not quite sort of flat and level with peers.
David Scott Vernon: Also a pretty big sequential ramp from sort of <unk> into <unk>. When you look at the the traveler number can you guys kind of help us understand kind of what's embedded underneath that what's driving the big sequential acceleration on top of capacity growth and maybe why.
David Scott Vernon: That unit revenue metric is not performing at the same rate as as Ed Pierce.
Speaker Change: Absolutely absolutely. It's an excellent question I want I suspect thats on many peoples minds.
Speaker Change: And actually that the the tail of the quarterly progression of trials and really.
David Scott Vernon: Starts in the first quarter and as we saw in the first quarter. There are three things that impacted us in the first quarter, which changed materially as the year progresses. The first is in first quarter.
Robert D. Isom: Second, our network was uniquely impacted by increased industry capacity in the first quarter, but we see that moderating in the quarters ahead. This will be a tailwind for us going forward. Third, increasing the utilization of our fleet is a priority, but we can improve the deployment of our own capacity to better match supply and demand throughout the year. And finally, our team is laser focused on executing well on these and all of our commercial initiatives day in and day out. Turning now to the operation.
David Scott Vernon: Competitive capacity grew the most in our markets and strength in the domestic and short haul network.
David Scott Vernon: And our first quarter.
David Scott Vernon: We flew too much.
David Scott Vernon: But when you look at what we did about 60% of our growth ASM were in off peak times.
David Scott Vernon: Times of day or days of leak, which is about 10 to 15 points higher than the.
David Scott Vernon: Our next competitor and the third thing and related Roberts Mark at the top of this is Q1 marks the end of really.
David Scott Vernon: A year of transition of our distribution strategies in which we were really focused on actually.
David Scott Vernon: Creating the right long term customer proposition, reducing a lot of the unnecessary expenses that went along with it.
David Scott Vernon: All three of those conditions start to change as we go forward, which is not just us guessing you actually start to see it in Q1.
David Scott Vernon: Preferred to my first point.
David Scott Vernon: We see industry capacity is starting to change as we go into the summer and certainly into the fall.
David Scott Vernon: That reduction is coming most heavily in the narrow body system, which uniquely favors us too.
Robert D. Isom: American continues to produce industry-leading operational results. We're running the best operation in our history because of our steadfast commitment to operational excellence and strong collaboration across the entire airline. We continue to minimize our cancellations, resulting in our best ever first quarter completion factor. We deliver these results despite air traffic control challenges during the quarter and significant weather events across our network. Our strong completion factor performance enabled American to achieve eight combined mainline and regional zero cancellation days in the first quarter and improve our mishandled baggage rate by 10% year over year.
David Scott Vernon: As we go into third quarter, you have already seen this in our in our published schedules and Youll see more of it in the days ahead.
David Scott Vernon: We're also taking a much more.
David Scott Vernon: Careful look at at our off peak or off time channel.
David Scott Vernon: So we will produce less less flying in the troughs too, which also creates a benefit to try them and now having gone through.
David Scott Vernon: A year of transition with our distribution strategy, we get to do optimization and we see a lot of ways to be able to do that which is great for our customers frankly can really bring in a lot of our our travel agency and corporate partners.
David Scott Vernon: But very critical you can drive revenue and profit for the airline and so you see that in our sequential build.
David Scott Vernon: As we go quarter to quarter to the year.
Speaker Change: And then maybe just as a follow up.
Speaker Change: When you think about sort of the exit rate of <unk> and what we're seeing kind of in April is that kind of consistent with that ramp building from a sequential perspective and traveling I mean I'm sure you guys have.
Speaker Change: <unk> gone through the guidance and stuff like that it just looks like a really big sort of <unk>.
Speaker Change: Yeah look and its probably its probably best to give a sense of our <unk>.
Speaker Change: By entity as we go look in the 10-Q, what we see is in the Trans Pacific Network, we anticipate RASM to be flat to slightly up and Trans Atlantic mid single digits up in Latin America double digits down and domestic.
Robert D. Isom: Our outstanding recovery efforts have become the hallmark of our operation as we minimize cancellations and shorten the recovery time for our airline and customers. As our attention shifts to the summer operation, we're focused on safety, reliability, and continuing to provide a great experience for our customers. We continue to find ways to improve the travel experience for our customers, especially ahead of the busy summer travel period. Through investments in technology, we have made significant progress in our digital servicing capabilities. American is now able to sell and digitally service approximately 95% of transactions, which greatly simplifies and enhances the experience of our customers and team members.
Speaker Change: That to be flat to slightly down, but very importantly, as we work our peaks in <unk>, we were actually inflected positive in domestic.
Speaker Change: April as a lot of industry capacity comes back we turned a little negative, but as we end the Q1 period.
Speaker Change: Expect to see and are already starting to see more favorable revenue outlook in domestic so when you look at it in that way.
Speaker Change: <unk>, we anticipate that the long haul system at large will be positive on a RASM basis, the domestic and short haul system down with a steadily improving trend both in domestic and short haul international every single month.
Speaker Change: In the second quarter.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Conor Cunningham of Melius Research. Your question. Please Conor.
Conor Cunningham: Hi, everyone.
Conor Cunningham: We can talk a little bit about the regional build back.
Conor Cunningham: I'm just trying to understand maybe took David's earlier point, just the mix dynamic that youre seeing as you bring back regional aircraft I would think it's positive for unit revenue.
Conor Cunningham: But potentially negative for unit cost, but I don't know if its playing out like that if you could just kind of talk about the regional build back in and how that's contributing to your margin trajectory. Thank you.
Conor Cunningham: Hey, Conor it's Devon, yes.
Devon: Original doing both of those things and it is what gives us confidence in unit revenue inflect positive in the third and fourth quarter, but.
Devon: Just to give you some numbers around it in the first quarter.
Devon E. May: We're also seeing tangible benefits from our re-engineering efforts. We are using our assets more productively across the airline, and our total aircraft utilization improved approximately 4% year-over-year in the first quarter, primarily driven by improvements in our regional support ability. Now, I'll turn it over to Devon to share more about our first quarter financial results and second quarter outlook. Thanks, Robert.
Devon: We operated the equivalent of around 465 fully utilized regional jets, we expect that number to grow by 20% to 25 regional jets each quarter as we move throughout the year. So by the time, we get to the fourth quarter. We expect to have around 535 fully utilized regional jets and it is going to do the things that you just.
Devon: Talked about it is going to be helpful to unit revenue. These are higher unit revenue producing assets. It does drive a bit of a headwind on unit costs, but we do still expect our unit cost to stay within our guidance for the year, but we are seeing really nice trends there and we're excited to see that as part of building improvement.
Speaker Change: And then Devin I'll, just add that as we see these.
Speaker Change: These aircraft come back and have a chance to put them in the schedule.
Devin: And actually planned for them fully it has.
Devon E. May: I want to commend the American Airlines team for its focus and execution and for leading us on the path to achieving our long-term goals. We delivered a fantastic operation for our customers in the first quarter. Despite a significant run-up in fuel in the quarter, we were able to produce results within our guided range for each of our operating metrics, and we remain on track to deliver on our full year guidance. Excluding net special items, we reported a first quarter net loss of $226 million, or an adjusted loss per diluted share of 34 cents.
Devin: It will show benefit so vasu do you want to talk a little bit about how we intend to deploy those aircrafts, yes, absolutely because this thing as it relates to the test to my earlier answer.
Vasu: As we go and get more regional support ability at the as the year progresses.
Vasu: Already see it in our published summer and an early <unk> schedules, we're driving a lot more connectivity into into all of our hub.
Vasu: Dallas and Charlotte, our two largest hubs will not just have on some of their largest large capacity based as ever the same thing will be true in Phoenix, and Miami and all the core parts of our airline which.
Vasu: Well in the summer and drive the most and profitability and so it really ties back to my earlier answer as we are now in a place where we can go and optimize so much. So many of the things that are unique to us we will see an increasing amount of really P&L benefit as the year progressed.
Speaker Change: Awesome, maybe just to stick with that.
Speaker Change: That comment just on DFW and Charlotte.
Vasu: Like you said it seems like Youre entrenching, our doubling down or whatever the term that you wanted to use their youre, adding a lot more service there I would have already thought that your market share was really high so as you bring on that new services I'm, just trying to understand the dynamics of how those two hubs play out.
Devon E. May: We produced record first quarter revenue of $12.6 billion, up 3.1% year over year. Our adjusted EBITDAR margin was 7.6%, and we produced an adjusted operating margin of 0.6%. Our strong operational performance in the first quarter resulted in capacity that was up eight and a half percent year over year at the high end of our guidance range. Additionally, total revenue was approximately half a percent higher than the midpoint of our January forecast. Unit revenue was down 4.9% year over year, slightly lower than the midpoint of our guidance on 1% higher ASMs.
Vasu: And if there is still incremental upside as you as you allocate more resources there. Thank you.
Speaker Change: Yes sure.
Speaker Change: Certainly as incremental upside because every time, we go grow in DFW and Charlotte, we grow at a relatively low marginal costs or whatnot.
Speaker Change: Adding gates, we're not doing anything else to go drive the expense at the airport and they're already low cost airport platforms for us. So the more we go and do that.
Speaker Change: It doesn't really drive a lot of incremental cost, but very importantly every connection that we got to stick into DSW with Charlotte comes in really high marginal RASM diverses versus the system and so we're very encouraged by what is we bring back the RJ as we up gauge in those hubs really what we go and do not drive more market share in DFW and Charlotte, but we could.
Speaker Change: A lot more connectivity for customers all across the U S and just like I mentioned at Investor day, and a ton of markets, where customer demand is growing wealth is growing but frankly their options are limited and American airlines gives them really great choices and they want to pay for it.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Sheila <unk> of Jefferies. Your question. Please Sheila.
Sheila: Good morning, and thank you everyone.
Sheila: Lastly, I'm, sorry, you're going to get your share of that Latin American comment there. So I just wanted to dig a little bit deeper into that.
Sheila: Now our Q1 PRASM performance like one or two points better than some of your network peers does is obviously concerned about that you talked about Q2.
Sheila: Last quarter, you talked about Miami being profitable.
Sheila: So if you could just walk us through short and long haul dynamics in Latin America near term and how much of a driver.
Sheila: And as in inflicting bathroom. Thank you. Thank you for.
Speaker Change: Sure and let me start by saying this.
Sheila: The short haul international network as we call it.
Devon E. May: Our strong operational performance in the quarter also resulted in unit cost, excluding net special items and fuel, on the low end of our guidance range, up 2.3% year over year. As a reminder, the first quarter of 2023 did not include the cost impact of our new pilot agreement, which resulted in a year-over-year headwind. Normalizing for this, our first quarter CASMX would have been approximately flat year over year. We have made some modest updates to our fleet and CapEx guidance versus our March Investor Day update. For the year, we now expect to take delivery of 22 new mainline aircraft, down from our prior estimate of 29 aircraft.
Speaker Change: Mexico, Caribbean, Latin America, or short haul and CLA for sure.
Speaker Change: It's actually a really key part of our system and it is a place where we are competitively advantaged not because of any one hub like Miami, but a combination of all of our hubs and our fleet structure means that we can go serve a lot of markets at a very low cost base and drive that drive a lot of revenue for our customers over it. So it's a big chunk of our flying it can be.
Speaker Change: Third of all.
Speaker Change: Our flying which is much larger than what our competitors are in Q1. The industry grew a lot into the market too, which impacts us on a RASM basis, but RASM doesn't necessarily turn into profitability and as we look at that if.
Speaker Change: If the market were seasonally other people will go in and.
Speaker Change: Put more capacity in it but if you look at the Grand scheme of things, we've always been we've always grown and it's going to be a really key part to what we do.
Speaker Change: And you're right it's implicit in your.
Speaker Change: <unk> that the short haul network as is bearing differently than the long haul networks, we see a short haul network, which has double digit negative RASM, but it is not by any means unprofitable for us yet.
Speaker Change: There are some other things that will go do and as we've already loaded some things, where we're actually endeavoring to grow it but our long haul network as positive as we go into Q1, we anticipate a lot of.
Speaker Change: Improvement to both short haul and long haul is that as the year goes along.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line of Jamie Baker of Jpmorgan Securities. Your question, Please Jamie Hey.
Jamie Nathaniel Baker: Hey, Good morning, everybody first question on Chicago, So just looking at domestic seats Vasu. This scheduled growth rate in the second and third quarter is.
Jamie Nathaniel Baker: Well over twice that of the system totally understand growth in places like Dallas and Charlotte you just addressed Charlotte.
Devon E. May: Our new aircraft deliveries include 16 737 MAX 8s, 3 787-9s, and 3 A321neos. We also plan to take delivery of 12 new Embraer E175 aircraft. We continue to expect to grow full year capacity in line with our guidance of up mid single digits year over year. While Boeing delivery delays have impacted mainline capacity production, they have been largely offset by improvements in our regional aircraft utilization. Aircraft delivery delays are impacting the entire industry, but they are not having the same impact on American Airlines as other carriers since we are not as dependent on new aircraft deliveries as most of our peers. We have modest aircraft capex requirements this decade due to our previous refleeting efforts.
Jamie Nathaniel Baker: But Chicago is obviously, a more competitive market I guess I'm just trying to square this growth against your demand.
Jamie Nathaniel Baker: Confidence in the second quarter, it seems like a lot of growth for the market to accommodate.
Speaker Change: Well I actually Jamie it's an excellent question I'm happy that you that you thought because that is actually part of it.
Speaker Change: Chicago as we see it more and more obviously plays a really complementary role with DFW and Charlotte because we can go drive a lot more connectivity on it to my earlier point about the origin as those RJ as her coming back when we get to go do in Chicago that we haven't been able to do a long time is put connectivity into Chicago from places like the upper Midwest that alright.
Speaker Change: Unique to Chicago, Oracle's and serve more efficiently over Chicago, but it creates more pathways for customers.
Speaker Change: Across the upper Midwest.
Speaker Change: Go and access more parts of the world and we find that to be actually really high marginal RASM marginal profit flying to be able to go and do that it's uniquely made available through.
Speaker Change: The increasing some portability of our regional fleet.
Speaker Change: That's helpful and then second.
Speaker Change: So as you approach the date at which certain agency bookings will no longer accrue advantaged credit I guess two questions first what percentage of our revenue currently comes through those affected channels that youre going to cut or not cut off modify.
Speaker Change: Second what are your sort of underlying assumptions as to how that plays out so do you assume that.
Speaker Change: Your change will drive passengers you know one on one from Ta to American Dot com or do your model for some type of of net loss and total bookings you know does the ancillary.
Speaker Change: Up sells.
Speaker Change: Offset that just wondering what you're modeling in terms of the consumer behavior.
Speaker Change: Absolutely Jamie I'm extremely happy that you asked that question to give you the best answered it worth it to understand where we've been to understand where we're going and how as we call. It the preferred agency program fits into it.
Devon E. May: We now expect our 2024 aircraft capex to be approximately $2.2 billion, and our total capex to be approximately $3.1 billion. We continue to expect aircraft capex to be approximately three to three and a half billion dollars per year from 2025 through 2030. In the first quarter, we generated operating cash flows of $2.2 billion, and we produced free cash flow of $1.4 billion. Our relatively low capital requirements and free cash flow production have allowed us to make significant progress towards strengthening the balance.
Speaker Change: So if you look at it for a long time, we endeavor to go and do things like maximize.
Speaker Change: Sure agency share, our corporate share, but that isn't necessarily optimizing revenue per se and we left we were in a world and certainly as we came out of the pandemic, where a lot of the agency of corporate related bookings that we were doing were coming in at relatively low revenue values, but sitting in the premium cabin.
Speaker Change: So a lot of what our strategy is to reframe around how do we go and create more value for the end customer is choosing.
Speaker Change: To travel.
Speaker Change: And how do we go do it in a really economical way and what we find over and over again as they want great products. They want it delivered well they want to be rewarded and they want to be able to shop and service digitally and be able to compare products.
Speaker Change: A lot of our transition has been undoing. So many things that we've done which we're not really creating value for the customer nor creating profit for American airlines and we've done that over the course of last year, we've reduced a lot of it.
Speaker Change: And interestingly as you see it today.
Speaker Change: Maybe there are more junior and maybe less Jon This version of all of US Jamie and we would've thought when we embarked on this thing that it would come at a real risk of business revenues, but if you just look at what we reported today our business revenues are growing at a greater rate than capacity unmanaged is on the higher end of that contract and corporates, which would presumably be the most effect.
Devon E. May: We reduced total debt by nearly $950 million in the first quarter, and we have now reduced total debt by $12.3 billion from peak levels in 2021. Net debt is now at $33.4 billion, nearly $2 billion lower than pre-pandemic levels.
Speaker Change: Or just slightly on the lower end of that but where we're doing it at 7% less in distribution expense, 60% of our customers or our advantage customers and they produce two thirds of our revenue. So what we've seen happen is a lot of those customers are actually leaving the agency and coming to us directly on their own and this is a really important thing because this.
Speaker Change: As of where we are but where we can go is a very different thing and there's really three things that we're focused on as we go in and optimize our distribution strategy. The first is exactly what you pointed out with preferred agencies.
Speaker Change: And we actually pushed the release, but I think because we were all pleasantly surprised how many people are taking it but the vast majority of our agencies are currently in an NBC transition roughly about the agencies that constitute about 30% to 40% of our revenue are already doing more than 30% of their bookings through through NBC and are on a path to be in some key.
Devon E. May: We continue to expect to be more than 85% of the way to our $15 billion total debt reduction goal by the end of this year. Now on to the outlook for the second quarter. Our focus continues to be on delivering industry-leading reliability, maximizing revenue and profitability, and re-engineering our business. This not only drives savings and greater productivity but also delivers a better experience for our customers and team members. Our work to re-engineer the business is progressing well, and we remain on track to deliver approximately $400 million in cost savings in 2024.
Speaker Change: This is close to 100 by the end of the year and then even more agencies a lot of big agencies, who are signing on for it because they realize the customer utility and having a digital selling and servicing experience and frankly, they see it as an opportunity to go compete against other agencies, which is great for our customers. So we've pushed our preferred agency program to bring.
Speaker Change: More people into it because we see pleasantly C on the amount of take rates, but we can do other things in the near term, which even as we speak we are doing the second thing is we can do a lot just simply go and create a more product on the shelves for contracted business customers that are there and.
Speaker Change: And we see more ways to do it through the booking tools that are there right now and we have the ability to go and offer a direct connect any corporate traveler that they're including JP Morgan Chase should they be interested and.
Speaker Change: The last thing that is very critical for US is what we have learned through this is.
Devon E. May: Additionally, we continue to find opportunities to improve working capital. By the end of this year, we expect to have achieved approximately $200 million in incremental working capital improvements, in addition to the $100 million we achieved in 2023. At Investor Day, we highlighted our goal to increase the production rate at our engine overhaul facility in Tulsa, and the team has done an incredible job accelerating that initiative this year. While this results in additional expense being pulled forward into 2024, the longer-term benefit of this project is materially NPV positive.
Speaker Change: We have a number of ways to go generate volume and the top on that list is being able to create more redemption for advantage customers, but by no means do we have to go back into a world where we endeavor to.
Speaker Change: Ray as expenses without creating value for the customer our expenses rise just turn into something where there's real incremental revenue.
Speaker Change: So now I'll very directly to your question.
Speaker Change: So without preferred agency program, we actually anticipate that the majority of our agencies will be in it by the time, we rolled it out.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Stephen Trent of Citi. Please go ahead Steven.
Stephen Trent: Good morning, gentlemen, and thanks very much for taking my question.
Stephen Trent: I believe I heard in Bob's prepared remarks that 61% of revenue now comes from outside of main cabin can you give.
Stephen Trent: Give us a high level view as to.
Stephen Trent: What this mix looked like five years ago.
Vasu: Yes, Hi, this is vasu.
Vasu: Im happy to although five years' time in this business is as you know al if I can attunity ago.
Vasu: And so really probably the more.
Vasu: Factually irrelevant, saying is what it is year over year and so yes, 61% of our revenue is coming from from premium content. It is the revenue driver of the airlines that revenue was up 17% year over year.
Vasu: Close to a 10 point shift in mix from non premium content.
Vasu: And it's a little difficult to compare versus five years ago, because you look at numbers and which can be.
Vasu: Stratospherically high and that really relates to just a different time and place for where our customers were where the industry was and frankly, where the technology of today is but this growth in premium content, that's something which is really encouraging to us because it certainly corroborate the point that.
Devon E. May: Our engine overhaul facility in Tulsa is a strategic asset and another competitive advantage for American in a constrained aircraft maintenance market. We plan to grow capacity at 7 to 9% year over year in the second quarter, primarily through improvements in aircraft utilization. Our capacity growth will slow considerably in the back half of the year, and we continue to expect to produce mid single-digit capacity growth for the full year.
Vasu: Customers value experiences and they're willing to spend on experiences and we're pleased that we see that growth pretty much across channels and maybe if anything more so through our direct channels.
Speaker Change: <unk> I would I would add that that's a critical component of our distribution strategy as well, we absolutely positively must make sure that our customers no matter, where they they interact with US has the full access and full access to the goods and services amenities that American can offer.
Speaker Change: The key for US trust going forward so.
Speaker Change: I like what we see in terms of trends, we're going to we're going to pursue more of it and then from that perspective from a technology.
Vasu: [noise] basis, we now are at a point, where 95% of all transactions that customers.
Devon E. May: We expect second-quarter TRASM to be down 1 to 3% versus 2023, with unit revenues inflecting positive year over year in the third quarter. We will continue to deliver strong unit cost performance in the second quarter, with CASMX expected to be up approximately 1% to 3% year-over-year. We still expect full-year CASMX to be up approximately 0.5% to 3.5% despite a changing mix of flying with less mainline capacity and greater regional capacity production. Our current forecast for the second quarter assumes a fuel price of between $2.75 and $2.95 per gallon.
Vasu: With us can be digitally serviced. So this is a coordinated effort across everything that we're doing and as I said earlier as well.
Vasu: We'll make adjustments along the way this is about one in the long run but in the short one Brian we've got to make tactical adjustments and we're doing that.
Brian: Super helpful. I was thinking broadly about the big transformation versus pre pandemic, but thats great.
Brian: Just one other quick one for me when I think about the.
Brian: The regional fleet and your relationship with Embraer hypothetically.
Brian: <unk> is the larger Oems continue to stumble in terms of delivery.
Brian: Would it be too while to think under certain scenarios that you.
Brian: Consider.
Brian: The largest stage embraer aircrafts for some mainline flying or it's just that that's just too wild an idea from the scope clause perspective, and what have you.
Speaker Change: Alright, well I like that question because it gives me a chance to give a shout out we all hear in the supply chain of.
Speaker Change: Partners are vendors that have really not recovered.
Speaker Change: Through the pandemic very well, we all know those names, but I wanted to give a shout out to embraer. They have delivered day in and day out to the pandemic no matter the concerns of their supply chain the rest of the industry.
Speaker Change: And our Oems can learn a lot from them. So I'm proud to be the operator of the world's largest fleet of Embraer aircraft and I'm also proud to have an order book.
Speaker Change: Larger than anybody else as well so we are.
Speaker Change: Tied to Embraer now that aircraft.
Speaker Change: We used today, the <unk> hundred 70, fives ideally suited to our regional network.
Devon E. May: Based on our current demand assumptions and fuel price forecast, we expect to produce an adjusted operating margin of between 9.5% and 11.5% in the second quarter, and an adjusted earnings per diluted share of between $1.15 and $1.45. The American Airlines team is focused on delivering results to unlock value in 2024 and beyond. We remain on track to deliver full-year adjusted earnings per diluted share of between $2.25 and $3.25, and we continue to anticipate producing approximately $2 billion of free cash flow in 2024. I'll now turn it back to Robert for his closing remarks. Thanks, Devon.
Speaker Change: And it's also ideally suited for the constraints that we have in terms of the mix between our mainline and regional flying so as we look forward I feel really good about the fleet plan that we have I don't know about new offerings.
Speaker Change: For the time being.
Speaker Change: Our narrow body fleet and what we have projected are our wide body fleet.
Speaker Change: We're in pretty good shape on aircraft through the end of the decade.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Helane Becker of T. D. Cohen. Your line is open Helane.
Helane Renee Becker: Thanks, very much operator, hi, everybody.
Helane Renee Becker: So I have two questions. One is can you discuss any progress or lack thereof on your flight attendant contract and.
Helane Renee Becker: I think how would that change the comment Devin made about.
Helane Renee Becker: Reducing costs and our focus on cost reduction and then my other very unrelated question is how has the goal of bankruptcy affected your Latin and South American operations.
Helane Renee Becker: Positively or negatively thank you.
Speaker Change: Thanks, Helane I'll take the flight attendant question, we've had a philosophy.
Devin: At American where we are going to pay our teammates at the best in the industry.
Devin: And we've been really successful in negotiating contracts with most recently with our pilots. Our dispatchers are most I guess most most recently is with our agents.
Speaker Change: And we're really pleased that they are paid at the top of the industry that isn't the exact same philosophy that we have with our flight attendants. It's what we pursued throughout negotiations that spend the basis every offer that we've had on the table and of course there have been.
Devin: Our movements in the industry and the top of the market.
Devin: Most notably.
Devin: By the recent pay increases that we've been made aware of it at Delta and our flight attendants will benefit accordingly, and I really look forward to this being the basis for us getting to a deal.
Devin: I'm very optimistic about that and then in regard to.
Devin: How that.
Devin: Would possibly impact our financials going forward of course, we've.
Devin: Of.
Devin: <unk>.
Devin: <unk> identified that this will be something we'll do.
Devin: This year, Devon can give you more insight on how that flows through our forecast.
Devon: We have always planned for an increase for our flight attendants to pay them.
Devon: App.
Devon: The top of the industry and with the new Delta rates will obviously go and seek to match those rates.
Devon: So it's a little bit of an increase from where we were adding guidance, but even with that we still expect to be inside of our full year CASM guidance and how it affects what you call our cost savings initiatives. Just these are initiatives, where we are reengineering. The business. So we are finding efficiencies throughout our business by utilizing technology better.
Devon: Through improved asset utilization and also through driving real procurement savings. So we've always expected. These types of increase for our team members.
Devon: But it doesn't interrupt anything we're trying to do to reengineer the business.
Devon: So we don't have the deal done yet, but we're going to get back to the table. So vastly you want to talk about go and to go the simple answer to your question is it doesn't.
Robert D. Isom: As we outlined at our Investor Day last month, American is a changed airline with a strong foundation, and we're well positioned to create value. We have a young and simplified fleet that continues to be a differentiating factor for Americans, who are operating with excellence. We have built a strong network with fantastic partnerships around the globe, and we engage with customers through our industry-leading travel rewards program, demonstrating that life is better as an Advantage member. We're managing our unit costs better than our network peers.
Devon: We are the best in Latin America, we have the best network advantages as greatest advantages in domestic it's even greater than any country in South America. We will always have the best network for our customers and the best rewards program there.
Devon: We're encouraged by it because we've been doing this a long time down there changes and calamities come and go the one constant is American airlines.
Speaker Change: And Helane I'll just to add to this just.
Helane Renee Becker: Look we've.
Helane Renee Becker: <unk> built a great relationship with goal and my hope is as Theyre able to restructure in a fashion that.
Helane Renee Becker: Benefits them and I know that they really appreciate the revenue we put on their aircraft as well. So my guess is that.
Devon: Goal.
Devon: Be something that is involved with American as we look forward to.
Devon: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Come from the line of Duane <unk> of Evercore ISI. Your question. Please Duane.
Duane: Hey, good morning, just a couple quick ones and Vasu, recognizing you've had quite a work out here. This morning already sorry for going back to the well but I'm.
Duane: I'm not used to keep them.
Duane: Just with respect to <unk>.
Duane: Sunbelt hubs in the concept.
Duane: A lot of your geography was sort of reopened earlier had a faster unit revenue recovery and to the extent that you have a window into kind of coastal markets urban markets that are maybe recovering more vigorously right now I wonder if you could just comment on that do.
Duane: Do you think American maybe has less exposure at the margin.
Duane: To coastal markets that are having a more vigorous RASM growth right now.
Speaker Change: Yes, so we definitively have have less exposure to more core coastal markets. I mean, you can see that in and just the the ASN mix not just currently but certainly over time.
Operator: And we're focused on reengineering our business, improving asset utilization, and enhancing productivity across the airline. These unique advantages have us well positioned to achieve our stated objectives this year and in the years ahead. All of this will result in margin expansion and growing free cash flow generation, creating value for our shareholders. We're committed to delivering on what we said we would achieve, and we will provide updates on our progress along the way.
Duane: But the long term trends are the long term trends.
Duane: The GDP of the country is growing but it's driven by so many markets that uniquely created by our hub network.
Duane: More spending is up it's up even higher in those markets. So we're not in a place where our.
Duane: Industry capacity has been high and in a lot of the.
Duane: Domestic system that starts to change, but very importantly.
Duane: Here at American we.
Duane: We have a lot that we can go do more hungry to go do it now it's just a matter of like Robert said of executing and we see it we see it for our customers and you can clearly see it in our forecast for the full year.
Speaker Change: Thanks, and then just for my follow up any update on the NDA appeal. Thanks for taking the questions.
Speaker Change: Really no no update were.
Operator: We have significant opportunities ahead of us, and we intend to take full advantage of those opportunities by leaning into our strengths and continuing to execute. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again.
Speaker Change: Pursuing that and.
Speaker Change: We're confident that we will be able to make our case and.
Speaker Change: The facts will prevail and for US it's more about making sure that we just have the right precedent set out there.
Speaker Change: At some point in time.
Speaker Change: We may want to entertain something again, but right now it's really just to make sure that.
Speaker Change: We have.
Speaker Change: Our interest protected.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Christopher Stathopoulos of Susquehanna Financial Group.
Christopher Stathopoulos: Question. Please Christopher.
Speaker Change: Good morning. This is Anthony on for Chris. Thank you for taking our questions.
Anthony: You've been very clear that your debt reduction goal of $15 billion from the peak is our top priority in the near term assuming you hit that by the end of next year as you plan to reconsider capital returns in the 2026 story or do you expect that reduction to remain a focus even beyond that 15 billion target.
Speaker Change: Yeah.
Speaker Change: Consistent with what we've been saying we are focused on the debt reduction targets. We're looking forward to talking about other opportunities beyond that point, but right now we want to get through our $15 billion hit that number.
Unknown Attendee: To allow everyone the opportunity to participate, you will be limited to one question and one follow-up. Please stand by while we compile the q&A roster. Hey, good morning, guys. And thanks for the question. So maybe Vasu or Robert, when you look at the 2Q RASM guide, it's a little bit better, I think, than people were expecting.
Speaker Change: And then we will talk more about capital allocation as we get beyond 2025.
Speaker Change: Great. Thank you and then can you talk a little bit about what youre macroeconomic assumptions you have for the second half are you mentioned that you expect RASM.
Speaker Change: Our RASM to inflect positively in <unk>.
Speaker Change: Do you assume any acceleration or slowdown in the second half versus first half from a macro perspective. Thank you.
Speaker Change: No. We go off of sort of fed published GDP rates and we see exactly the same demand backdrop that everyone else sees a healthy U S economy, which is so key to us.
Speaker Change: Strength coming from the Sunbelt and growing spending on experiences over other forms of merchandise are good.
Speaker Change: One of the things that we mentioned at our Investor day, though as well that against that backdrop of.
Unknown Attendee: But it's not quite sort of flat and level with peers. There's also a pretty big sequential ramp from sort of 1Q into 2Q when you look at the TRASM number. Can you guys kind of help us understand kind of what's embedded underneath that?
Speaker Change: The projected financial growth of the country.
Speaker Change: We continue to see a lot of constraints that are going to continue to hit the industry.
Speaker Change: So we built in to our forecast what we know so.
Speaker Change: So far and haven't gone really any farther than that but when you take into account the issues with aircraft delivery delays other supply chain issues, even air traffic control issues.
Speaker Change: I really think it's going to be a challenge to produce a lot of capacity and for that reason I think that American is.
Vasu Raja: What's driving the big sequential acceleration on top of capacity growth and maybe why that unit revenue metric is not performing at the same rate as peers? Absolutely, absolutely. It's an excellent question and one I suspect that's on many people's minds.
Speaker Change: We distinguish ourselves we have.
Speaker Change: The vast majority of the capacity that.
Speaker Change: The resources that we need to to fly the capacity that we have out there and while ours in the back half of the year actually moderates as well I think we're going to be in better shape than the rest of the rest of our competitors.
Speaker Change: Okay.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from the line of Michael Lindenberg of Deutsche Bank. Your line is open Michael.
Michael John Linenberg: Oh, Hey, good morning, I guess I got to hear Robert.
Michael John Linenberg: Any sort of quick takeaways from this rule from the D O T on refunds any potential unintended consequences and maybe is this a solution looking for a problem because I thought you were doing a lot already of what is spelled out in that role.
Vasu Raja: Look, and actually, the tale of our year, the quarterly progression of TRASM really starts in the first quarter. And as we saw in the first quarter, there were three things that impacted us in the first quarter, which changed materially as the year progressed. The first is that in our first quarter, competitive capacity grew the most in our markets of strength in the domestic and short haul network. Two, in our first quarter, we flew too much.
Speaker Change: So Michael I'll.
Michael John Linenberg: Reiterate some comments I made earlier this morning, and Nate gotten who heads up our government affairs is going to.
Speaker Change: Chime in here as well I'll just I'll just start with this yes.
Speaker Change: We have the same interest as the D O T a.
Speaker Change: Which is taking care of customers and making sure that they get full value for what they pay that's the nature of our business.
Nate: We've done incredibly well at executing on that front. We're the most reliable airline in terms of completion factor certainly over the last couple of years now.
Vasu Raja: When you look at what we did, about 60% of our growth ASMs were in off-peak times of day or days of the week, which is about 10 to 15 points higher than our next competitor. And the third thing, and related to Robert's comments at the top of this, is that Q1 marks the end of really a year of transition for our distribution strategies, in which we were really focused on actually creating the right long-term customer proposition and reducing a lot of the unnecessary expenses that went along with it. All three of those conditions start to change as we go forward, which is not just us guessing. You actually start to see it.
Nate: So we feel really good about that in terms of what we do when disruptions happen.
Nate: We refunded I think over $2 billion worth of customers.
Nate: But the ticket fares last last year alone and so we're on top of the policies and the scorecards that are already established.
Nate: I'd tell you that from kind of <unk>.
Nate: Top of mind the issues that there are a lot of issues that I think are still gray.
Nate: If the intent of these rules is to really make sure airlines don't over schedule.
Nate: And in the event of disruptions don't have meltdowns, which Fortunately I'm very confident in the way that we schedule Airlines, we don't over schedule that we make sure that we have the resources and unfortunately.
Nate: We haven't had the issues with major meltdowns certainly over the last couple of years, if that's the intent.
Nate: Fine.
Nate: If.
Nate: The intent to something broader than we'd really need to be careful because theres a couple of things that I feel.
Nate: <unk> are important to note one is that we have the safest rebuilt the safest form of transportation air travel in the United States.
Nate: Based on years of of doing the right things and having the right motivations.
Nate: When we talk about weather and we talk about maintenance those are synonymous to me with safety.
Nate: We have to make sure that the inputs.
Vasu Raja: On Q1, referring to my first point, we see industry capacity starting to change as we go into the summer and certainly into the fall. That reduction is coming most heavily in the narrow-body system, which uniquely favors us. Two, as we go into the third quarter, you've already seen this in our published schedules, and you'll see more of it in the days ahead. We're also taking a much more careful look at our off-peak or off-time channel of flying. So we'll produce less flying in the troughs too, which also creates a benefit for Trasm.
Nate: To the system the motivations that the penalties are rewards are consistent with the way we want our people.
Nate: Motivated and operating and I think that that's something that we need to figure out and then the other piece that I think is.
Nate: Fairly gray is.
Nate: Well, there's a lot of parties that are involved with air transportation, we control a lot of it we certainly don't control the weather but.
Nate: We also depend on the FAA for aircraft control not just short run in the long run as well.
Nate: We have to make the right decisions for our customers.
Nate: So in the event of diversions related medical emergencies, we're going to have to be smart in what we do and always put the customer first.
Nate: We have hurricanes in volcanic eruptions and all other things we have to be smart about how we deploy our network and how we recover we don't want to end up in a situation.
Nate: Where we end up not serving the customers and the way they want to be serviced just to avoid penalties. So you've done a lot more research on that.
Vasu Raja: And now, having gone through a year of transition with our distribution strategy, we get to do optimization. And we see a lot of ways to be able to do that, which is great for our customers. Frankly, it can really bring in a lot of our travel agency and corporate partners, but, very critically, it can drive revenue and profit for the airline.
Speaker Change: To tell you truth I've just seen the surface level. So I just wanted to bring up those kind of things that I've I've mentioned in the past go ahead, yes, not too much standard that they're really Robert.
Speaker Change: I would just say our business model is built to.
Nate: Support our customers when we don't deliver and from what we've seen over the rule. So far it is largely consistent with the policies that we currently have in place for refunds and cancellations, we do just need to drill down and make sure we understand the rule when it comes to those gray areas that you mentioned.
Speaker Change: Great. Thanks, So just real quick second one here to Devin just the the credit card deal of renewal is that is that a 2024 event or is that 2025, just any color or timing around that thanks for taking my questions.
Speaker Change: Hey, Ross this is Mike I'll start some others may want to comment.
Mike: The switch the names yeah.
Mike: I've been doing this so long with you, Mike I forget, which one of us is which I get.
Mike: [laughter] that's okay [laughter].
Mike: Okay.
Nate: I suspect you know honored.
Nate: Vasu I'm honored to be call it zero given the brainpower.
Nate: Yes.
Nate: I'll tell you what walk around New York with that Friday, if you still feel that way.
Nate: [laughter] anyway.
Nate: No.
Speaker Change: And more to the point sorry for that Mike.
Vasu Raja: And so, you see that in our sequential build as we go quarter to quarter. And then maybe, just as a follow-up, when you think about sort of the exit rate of 1Q and what we're seeing kind of in April, is that kind of consistent with that ramp building from a sequential perspective in TRASM? I mean, I'm sure you guys have carefully gone through the guidance and stuff like that. It just looks like a really big sort of 1Q to 2Q pop.
Speaker Change: We are actively working on on the re commercialization of our credit card programs like we mentioned at Investor Day, We Havent done. This in 10 years, we have a real opportunity to go and get it right, we anticipate sharing more and more news with everybody. This year. It is a top end key project for us.
Speaker Change: I'll, just say that unlike 10 years past or maybe not like many of our competitors. We just bringing a lot that makes us a really great partner for a credit card company.
Speaker Change: First.
Speaker Change: All of the points that Robert made earlier, we are growing advantage enrollment.
Speaker Change: Plus 60% versus a few years ago that is a massive and booming segment. That's two thirds of our revenue, but very importantly, when you go and look underneath that what.
Speaker Change: What we look at two things in our card program. The first is the growth in active accounts that is up close to 10% year over year that means not only are we acquiring more fewer people are trading away from the program, but while that's happening our spend per active account is growing at 4% that's higher than what it has grown before in our program. It's.
Vasu Raja: So when you look at it in that way, in our 2Q, we anticipate that the long-haul system at large will be positive on a RASM basis, and the domestic and short-haul system will decline with a steadily improving trend, both in domestic and short-haul international, every single month in the second quarter. Thank you. Our next question comes from the line of Conor Cunningham of Milius Research. Your question, please,
Speaker Change: Higher than what other industry cards grow at and so really what that tells US is we have a great and growing customer base. They very much value. The card. That's there all the changes that have really been done have been done by.
Speaker Change: By American Airlines through the.
Speaker Change: The structure of <unk>.
Speaker Change: Of our loyalty program advantage. So we are very excited for what this can mean, we know that there's probably a number of partners out there who are comped.
Speaker Change: Comparably, if not even more excited about it so we need to get it right. Because this thing is very impactful to our customers and of course very impactful to our bottom line.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Andrew The Dora of Bank of America. Please go ahead Andrew.
Speaker Change: Hi, good morning, everyone. Thanks for the questions. Most of my questions have been answered but Rob.
Speaker Change: Robert just kind of wanted to ask on capacity I know you reiterated your full year growth and you hinted earlier that that kept bends down a little bit but.
Conor Cunningham: Thank you, and this comes from the line of Jamie Baker of JPMorgan Securities. Your question, please, Jamie, is whether your change will drive passengers, you know, one-on-one from an OTA to American.com, or do you model for some type of net loss in total bookings, does ancillary upsells, you know, offset that, just wondering what you're modeling in terms of consumer behavior. Good morning, gentlemen. And thanks very much for taking my question.
Speaker Change: You also talked about the RJ building.
Rob: Throughout the end of the year and <unk> schedule still look to be up in the high single digits, which is pretty similar to the first half. So just curious on how you were thinking about kind of the capacity cadence as we move through the back half of the year to kind of hit your full year outlook. Thank you. Thanks.
Speaker Change: Thanks, Andrew I'm going to hand, it off to Devin because we can be really clear on that go ahead.
Devin: Sure Yeah. The first half of this year, we have been building back our capacity we've talked a lot about it last year that we were probably the last carrier to get back to our 2019 levels of capacity production.
Devin: We came in ahead of our capacity guide due to the strong operation in the first quarter. So grew eight 5% in Q1, we're guiding to 8% in the second quarter, that's where we expect we will end up with a strong operation.
Conor Cunningham: I believe I heard in Bob's prepared remarks that 61% of revenue now comes from outside of the main cabin. Can you, you know, give us a high-level view as to what this mix looked like five years ago? Yeah, hi, this is Vasu.
Devin: But the capacity production does come down pretty materially as we look out in the third and fourth quarter.
Speaker Change: Third quarter, we haven't finalized all the schedule, yet, but we're expecting capacity production probably around the 4% growth range.
Speaker Change: Fourth quarter, maybe a little bit north of that.
Speaker Change: So back half of the year call. It in that four 5% range or so and then full year.
Speaker Change: In line with mid single digits, but probably something north of 5% for the year.
Speaker Change: Okay, that's great color. Thank you.
Speaker Change: Thank you at.
Jamie Nathaniel Baker: I'm happy to, although five years in this business, as you know well, is like an eternity ago. And so really, probably the more factually relevant thing is what it is year over year. And so yes, 61% of our revenue is coming from premium content. It is the revenue driver of the airline. That revenue is up 17% year over year. It's close to a 10-point shift in mix from non-premium content.
Speaker Change: At this time the line is open to media questions. If you have a question. Please press star one on your telephone to remove yourself from the queue. You May press star one again.
Speaker Change: The line is open for media questions to allow everyone. The opportunity to participate you will be limited to one question and one follow up please standby, while we compile the.
Speaker Change: Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question.
Alison Sider: It comes from the line of Allison slider.
Alison Sider: Wall Street Journal your question. Please Allison.
Alison Sider: Hi, Thanks, so much.
Alison Sider: Yeah, Robert I'm curious if you ended up having a meeting with boeing's chairman or other directors and.
Alison Sider: How it went and what kind of feedback you provided and what youre hearing about the prospects for felling turning itself around.
Speaker Change: So Ali.
Speaker Change: Gave us update earlier today as well.
Speaker Change: I've talked to everyone at Boeing that I can possibly address and the message is the same get your act together and it starts with producing quality products. One at a time off the assembly line get back to the basics.
Vasu Raja: And it's a little difficult to compare versus five years ago because you look at numbers which can sometimes be stratospherically high, and that really relates to just a different time and place for where our customers were, where the industry was, and, frankly, where the technology of today is. But this growth in premium content is something that is really encouraging to us, because it certainly corroborates the point that customers value experiences, and they're willing to spend on experiences. And we're pleased that we see that growth pretty much across channels and, maybe, if anything, more so through our direct channels. Thank you.
Speaker Change: Quality and safety are Paramount.
Speaker Change: I can't tell you, if they're making progress or not because it's all actions that matter.
Speaker Change: Words.
Speaker Change: And we're continuing to work with them, we will do everything we can to support the support Boeing we need them to be successful in the long run.
Speaker Change: But as I've said before.
Speaker Change: Well, we're going to make sure that we're protected.
Speaker Change: So we're we've got an order for an aircraft that I, absolutely love, which is the Max 10, it all fit very well within our network that doesn't come until 2028.
Speaker Change: Hopefully Boeing has their act together too.
Speaker Change: Produce that aircraft and deliberate.
Speaker Change: And if they can great if they can't we're gonna be protected on that front too.
Speaker Change: So I come at this with a very.
Speaker Change: Sober mindset, which is show us get it done and.
Speaker Change: We will be there we need Boeing to be successful.
Speaker Change: And they should just eliminate all distractions from the task at hand.
Speaker Change: And do you see any.
Duane Thomas Pfennigwerth: Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your question, please, Duane. I really have no update.
Speaker Change: Indications from customers that there is like a nervousness about flying in general or Boeing in particular like any kinds of book away from.
Speaker Change: Bundling claims or just any.
Speaker Change: Case in that some of these.
Speaker Change: Safety events, we've seen across the industry are impacting customer behavior.
Unknown Executive: We're pursuing that, and we're confident that we'll be able to make our case, and the facts will prevail. And for us, it's more about making sure that we just have the right precedent that's set out there. At some point in time, we may want to entertain something again, but right now, it's really just to make sure that we have our interests protected.
Speaker Change: No we've seen nothing the the aircraft that we fly in our fleet we've had four.
Speaker Change: In some cases decades.
Speaker Change: And that product maintained by American Airlines flown by American Airlines pilots.
Speaker Change: Those are quality products that.
Speaker Change: We're proud to operate so no and as a matter of fact, we're excited about what we see on what we see in terms of Ah.
Speaker Change: Of the 780 Sevens and the deployment that we make we just announced that we're going to be putting a new interior on the 789 deliveries and the Boeing aircrafts that have been.
Speaker Change: Have been produced in the past the seven threes seven three hundreds and two hundreds.
Christopher Nicholas Stathoulopoulos: Our next question comes from the line of Christopher Stathoulopoulos of Susquehanna Financial. How do we distinguish ourselves? We have the vast majority of the resources that we need to fly the capacity that we have out there, and while ours in the back half of the year actually moderates as well, I think we're going to be in better shape than the rest of our competitors. On the top of mind, the issues that there are a lot of issues that I think are still gray.
Speaker Change: Those have all been very quality products that our customers enjoy.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mary's Logins team.
Speaker Change: Bloomberg Your question please Mary.
Mary: Alright, thanks, very much some of your competitors have reported that they saw a managed corporate travel volume increase in the first quarter, but like 14%, 15% I wanted to see if you can talk about the same hybrid a comparable number on that and what it may or may not say.
Mary: About your push for the direct bookings.
Vasu: Hey, Mary this is vasu its a great question and I'm happy to answer it so.
Vasu: Look we have seen first of all we've seen total business revenues, which is really for us the very important thing to look at.
Vasu: Similarly.
Vasu: Double digit closer approaching double digit exiting certain acute certainly Q1 double digit rates of growth.
Vasu: It's really being driven by unmanaged.
Vasu: Unmanaged corporations that continue to come back and come back to American Airlines.
Christopher Nicholas Stathoulopoulos: So if the intent of these rules is to really make sure airlines don't overschedule, great. Thanks. And just real quick, second one here to Devon, just the credit card deal or renewal, is that a 2024 event or is that 2025? Just any color or timing around that.
Mary: Managed corpus contract and corporations are growing a little bit less than than than that but still high in the mid to high single digits.
Mary: Very importantly, this is this is actually the great opportunity that we see because really over the last year. We've done a number of things to just transition away from a lot of practices, which weren't great for our customers and it didn't give them cheaper fares it didn't necessarily give them lower cost that actually created a more difficult servicing experience. What we're finding now is that many of those <unk>.
Mary: They want the same thing that everyone else has we can go deliver it a whole lot better with all the tools and the technology and the change we pushed through in the last year.
Unknown Executive: Thanks for taking my question. Thank you. Sure, yeah, you know, in the first half of this year, we have been building back our capacity. We talked a lot about it last year that we were probably the last carrier to get back to our 2019 levels of capacity production. We came in ahead of our capacity guide due to the strong operation in the first quarter.
Mary: Despite all of that we see that revenues are coming back very materially for us expenses are down and we can see more opportunity to optimize it and frankly do better both for our corporate contract and corporate customers are unmanaged customers as well.
Mary: Sort of guess work that's out there we actually see it we're rolling out things right now and that's.
Mary: Implicit in our guide for Q2 and for the year.
Mary: So if your managed corporate is growing at a lower rate, but is that an indication that you're seeing some pushback with people that don't want to go to Europe your direct booking system.
Speaker Change: Hey, Mary I'll kick this off of US you can it can handle that as well no. We don't we don't think that is the case at all look.
Mary: We've got some fine tuning to do no doubt.
Unknown Executive: So it grew eight and a half percent in Q1, and we're guiding to 8% in the second quarter. That's where we expect we'll end up with a strong operation. But capacity production does come down pretty materially as we look out in the third and fourth quarters. For the third quarter, we haven't finalized all the schedules yet, but we're expecting capacity production probably around the 4% growth range. Fourth quarter, maybe a little bit north of that.
Mary: We the objective here is to say hang onto all the cost savings and then also to make sure that we maximize revenue production as we take a look at the first quarter.
Mary: Quite likely some benefit that our competitors received because of some of the things that we've the changes that we've made that said this is the opportunity for us to go and to make sure that as I said the goal is cost savings and especially.
Mary: Our revenue production so as Vasu said, we've seen great reception to what we're doing with the unmanaged corporate business small medium size businesses.
Mary: In terms of the larger corporates.
Mary: That's that's something that is an opportunity for us.
Mary: But it will be consistent with our long range plans of making sure that every customer that does business with American Airlines has access to the full suite of amenities product services and tools.
Speaker Change: Especially anything you want to add.
Speaker Change: I think that was a great answer and looked at maybe the last thing I would add to that also as corporates are coming back and they're coming in more disproportionately to coastal markets, where we're relatively smaller and unmanaged business comes back it comes back on the Heartland in the Sunbelt, where we are relatively larger in and so that also impacts some of the numbers you see.
Unknown Executive: So back half the year, call it in that 4 or 5% range or so. And then full year, still in line with mid single digits, but probably something north of 5% for the year. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Leslie Josephs: Comes from Leslie Josephs.
Leslie Josephs: C N B C. Your line is open Leslie.
Leslie Josephs: Hi, Good morning, Thanks for taking my question can you compare as the bookings for this summer and if any are coming in for the back half of the year versus 2023, both and where people are going the pace of bookings and how much they're paying and then do you have any concern about kind of a slowdown in economic growth and a lot of consumers.
Operator: At this time, the line is open to media questions. So Ali, I've given this update earlier today as well. I've talked to everyone at Boeing that I can possibly address, and the message is the same: get your act together. And it starts with producing quality products one at a time off the assembly line. Get back to the basics, quality and safety are just paramount.
Leslie Josephs: It's across the board just racking up credit card debt.
Leslie Josephs: Thanks.
Speaker Change: Sure. This is obviously I can start.
Speaker Change: And maybe.
Speaker Change: Last question first.
Speaker Change: We continue to see healthy macro trend.
Speaker Change: Don't get beyond what was what's the same information that probably everybody on this call gets to see and report on.
Speaker Change: As far as bookings go look really beyond the summer the system. It has it's not very much booked.
Unknown Executive: I can't tell you if they're making progress or not because it's all actions that matter, not words. And do you see any indications from customers that there's a nervousness about flying in general or Boeing in particular, like any signs of customers booking away from Boeing planes or just, Yeah, any indication that some of these safety events we've seen across the industry are impacting customers? Hi, thanks very much. Some of your competitors have reported that they saw a managed corporate travel volume increase in the first quarter of like 14%, 15%.
Speaker Change: In.
Speaker Change: In June right now in our domestic system, we're about 35% to 40% booked up which is pretty normal for that that entity. The long haul network is a lot more booked up.
Speaker Change: 60% and building all of the time depending on.
Speaker Change: The entity, that's there, but we continue to see healthy bookings come in and.
Speaker Change: Like I mentioned before.
Speaker Change: When I was talking about RASM bye bye.
Speaker Change: By geography.
Speaker Change: There are more customers, who are coming back and really value traveling theyre paying more than before and so far in Q2 that trend seems to be taking shape. We anticipate that will continue based on all the macro factors that we see today should things change we will see.
Speaker Change: So bookings for summer are higher than last year.
Speaker Change: Yes.
Speaker Change: Looking at up higher in part because of the positioning of of our airline network and also just overall demand trend.
Speaker Change: Leslie just just to put a fine point on it we see strong demand and we're going to revenue manage appropriately, but the marketplace domestic international looks looks very strong.
Unknown Executive: I wanted to see if you could talk about the same type or a comparable number on that and what it may or may not say about your push for direct booking. Hey Mary, this is Vasu.
Speaker Change: Yeah.
Speaker Change: Thanks.
Leslie Josephs: Thank you.
Speaker Change: This concludes the Q&A portion of the call I would now.
Speaker Change: Now like to turn the conference back to Robert Isom for closing remarks, Sir.
Robert D. Isom: Let's see what.
Robert D. Isom: Look we don't like reporting a loss.
Vasu Raja: It's a great question, and I'm happy to answer it. So look, we've seen total business revenues, which is really, for us, a very important thing to look at, grow similarly at, you know, double-digit, closer, approaching double-digit, and exiting certainly Q1, double-digit rates of growth. It's really being driven by unmanaged corporations that continue to come back and come back to American Airlines. Managed corporations, contracting corporations, are growing a little bit less than that, but still high, in the mid-to-high single-digits.
Robert D. Isom: A challenge for US it's also an opportunity.
Robert D. Isom: As we look forward we are.
Robert D. Isom: We're encouraged by what we see in terms of industry dynamics and also by those things that we've identified in the first quarter that we can go and address we're going to do that and we're going to stick to our longer term game plan that we pointed out at Investor day.
Robert D. Isom: And that is based on this.
Robert D. Isom: The environment for Air travel is very is constructive.
Robert D. Isom: We see demand coming back strong again again this year and that's favorable for American Airlines because that demand is also coming in the places that we are strong.
Robert D. Isom: We arent changed airline where an airline that delivers on our commitments.
Robert D. Isom: And we will continue to do so.
Robert D. Isom: We will be focused on execution as we go throughout the year and there is great opportunities ahead as well.
Robert D. Isom: And those opportunities as we outlined on Investor day are really.
Vasu Raja: Very importantly, this is actually the great opportunity that we see, because really, over the last year, we've done a number of things to just transition away from a lot of practices that weren't great for our customers, and it didn't give them cheaper fares.
Robert D. Isom: Based on our fleet.
Robert D. Isom: We have the vast majority of the assets that we need to fly our schedule and more already in house, we're probably less dependent than anyone on outside services to actually run our airline we're proud of the team that we've assembled theyre doing incredibly well.
Robert D. Isom: Best operational reliability in our company's history, and leading the industry in terms of completion factor. Our network is something that we're going to lean into we're proud of what we built the regional nature that extends out to a global reach and this fantastic set of partners that we can leverage.
Vasu Raja: It didn't necessarily give them lower costs, but it actually created a more difficult servicing experience. What we're finding now is that many of those customers want the same thing that everyone else has, and we can deliver it a whole lot better with all the tools and the technology and the changes we've pushed through in the last year. And despite all that, you know, we see that revenues are coming back very materially for us.
Robert D. Isom: And we have this opportunity now as we've talked about on the call and through various questions to create a travel.
Robert D. Isom: Rewards ecosystem distribution platform through the renegotiation of our co brand deals, we're going to do that and at the same time, we're going to be incredibly focused on reengineering, our business and running it as efficiently as possible I'm pleased with the progress we're making on all those fronts.
Vasu Raja: Expenses are down, and we can and see more opportunity to optimize it and, frankly, do better, both for our corporate contracting corporate customers and our unmanaged customers as well. That's not some sort of guesswork that's out there. We actually see it.
Robert D. Isom: As we progress through the year I expect margin expansion in generation of free cash flow and that bodes well for our shareholders. So we will end the call and get back to work. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Hmm.
Speaker Change: [music].
Vasu Raja: We're rolling out things right now, and that's implicit in our guide for Q2 and for the year. Thank you. Our next question comes from Leslie Josephs of CNBC. Your line is open, Leslie. Hi, good morning.
Speaker Change: Yes.
Speaker Change: [music].
Leslie Josephs: Thanks for taking my question. Can you compare the bookings for this summer and if any are coming in for the back half of the year versus 2023, both in where people are going, the pace of bookings, and how much they're paying? And then do you have any concern about kind of a slowdown in economic growth and a lot of consumers in the US across the board just racking up credit card debt? Sure, this is Vasu. I can start. And I'll maybe do the last question first.
Speaker Change: Okay.
Speaker Change: [music].
Vasu Raja: Look, we continue to see healthy macro trends. We don't guess beyond what's the same information that probably everybody on this call gets to see and report on. As far as bookings go, look, really beyond the summer, the system hasn't got very much booked in, you know, in June right now, in our domestic system, we're about 35 to 40% booked up, which is pretty normal for that entity. The long-haul network is a lot more booked up, 50, 60% and building all of the time, depending on the entity that's there.
Speaker Change: Yeah.
Speaker Change: [music].
Vasu Raja: But we continue to see healthy bookings come in, and like I mentioned before, and when I was talking about Rasm by Geography, there are more customers who are coming back and really value traveling. They're paying more than before.
Speaker Change: Sure.
Speaker Change: [music].
Vasu Raja: And so far in Q2, that trend seems to be taking shape. We anticipate that will continue based on all the macro factors that we see today. Should things change, we will too. Yeah, we're booking up higher in part because of the positioning of our airline network and also just the overall demand trend. Lateef, thanks. Look, we don't like reporting a loss.
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Unknown Executive: That's a challenge for us. But it's also an opportunity. And that is based on the fact that the environment for air travel is constructive. We see demand coming back. It's strong again this year.
Speaker Change: Okay.
Speaker Change: Okay.
Unknown Executive: And that's favorable for American Airlines because that demand is also coming from the places that we are strong. We are a changed airline. We're an airline that delivers on our commitments, and those opportunities, as we outlined on investor day, are really based on our fleet. It's because we have the vast majority of the assets that we need to fly our schedule and more already in house. We're probably less dependent than anyone on outside services to actually run our airline.
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Unknown Executive: We're proud of the team that we've assembled. They're doing incredibly well, with the best operational reliability in our company's history, and leading the industry in terms of completion factor. Our network is something that we're going to lean into. We're proud of what we've built, the regional nature that extends out to global reach in this fantastic set of partners that we can leverage. And we have this opportunity now, as we've talked about on the call and through various questions, to create a travel rewards ecosystem distribution platform through the renegotiation of our co-brand deals.
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Unknown Executive: We're going to do that. And at the same time, we're going to be incredibly focused on re-engineering our business and running it as efficiently as possible. I'm pleased with the progress we're making on all those fronts. As we progress through the year, I expect margin expansion and the generation of free cash flow, and that bodes well for our shareholders.
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Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
unknown: [music].
unknown: Okay.
unknown:
unknown: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
unknown: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
unknown: [music].