Q4 2024 American Airlines Group Inc Earnings Call
Speaker Change: Thank you for standing by and welcome to American Airlines Group's fourth quarter in full year 2024 earnings conference call.
At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again.
Speaker Change: 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.
Speaker Change: Good morning, and welcome to the American Airlines Group fourth quarter and full year 2024 earnings conference call.
Speaker Change: On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devon May. In addition to our Vice Chair, Steve Johnson, we have a number of other senior executives in the room this morning for the Q&A session.
Speaker Change: Robert will start the call with an overview of our performance, and Devon will follow with details on the fourth quarter and full year, in addition to outlining our operating plans and outlook going forward.
Speaker Change: After our prepared remarks, we will open the call for analyst questions, followed by questions from the media.
Speaker Change: 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, forecasts 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: In addition, we'll be discussing certain non-GAAP financial measures, which exclude the impact of unusual items.
Speaker Change: A webcast of this call will also be archived on our website.
Speaker Change: The information we are giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently.
Speaker Change: 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 Isom: Earlier today, American reported a fourth-quarter adjusted pre-tax profit of $808 million, or an adjusted earnings per diluted share of 86 cents, above the high end of the guidance we issued in early December.
Robert Isom: For the full year, we reported an adjusted pre-tax profit of $1.8 billion, or an adjusted earnings per diluted share of $1.96.
Robert Isom: I want to thank the American Airlines team for a great year and for their resiliency, continued hard work, and dedication to delivering a safe and reliable operation for our customers.
Robert Isom: As I've said previously, at American, we're focused on delivering results.
Robert Isom: As we closed out 2024, we achieved a number of notable milestones.
Robert Isom: We announced a new 10-year agreement with Citi to become the exclusive issuer of the ADDvantage co-branded credit card portfolio in the United States, which we expect will drive substantial incremental value to American over the life of the agreement while unlocking even more value for ADDvantage members.
Robert Isom: We generated record-free cash flow of 2.2 billion dollars in 2024.
Robert Isom: And I'm excited to report that as of the end of 2024, we have reduced our total debt by more than $15 billion from peak levels in mid-2021, achieving our initial debt reduction goal a full year ahead of schedule.
Robert Isom: While there's still much work to do, these accomplishments are clear evidence that the American Airlines team is committed to delivering results and achieving our stated objectives.
Now, on to our fourth quarter performance.
Robert Isom: Total revenue grew 4.6% on 2.5% higher capacity year-over-year. This resulted in our unit revenue inflecting positive in the quarter, up 2% year-over-year and above the high end of our December guidance.
Robert Isom: Passenger revenue strength throughout the fourth quarter was broad-based. In the fourth quarter, Americans' year-over-year domestic, Atlantic, Pacific, and total passenger unit revenue results led U.S. network carriers.
Robert Isom: While Latin unit revenue was down on a year-over-year basis, we expect short-haul Latin year-over-year unit revenue to be positive in the first quarter.
Robert Isom: This strong performance is the result of the actions we have taken, and we're encouraged by the trends we see early in the year.
Robert Isom: Demand for American's product remains strong, as evidenced by the continued strength of our business, premium, and loyalty revenue performance.
Robert Isom: In the fourth quarter, managed business revenue was up 8% year-over-year, a sequential improvement of two points versus last quarter, and we continue to see yield strength as we look ahead into the new year.
Robert Isom: In the fourth quarter, loyalty revenues were up approximately 14% year over year, with Advantage members responsible for 75% of premium cabin revenue.
Robert Isom: 2024 was a record year for ADDvantage. Throughout the year, we had a record number of customers enroll in the program, with members earning and burning more miles than any year in our history.
Robert Isom: Spending on our co-branded credit cards was up 9.5 percent year-over-year in the fourth quarter, further highlighting the value of our loyalty program.
Robert Isom: American is proud to have an industry leading travel rewards program that is frequently acknowledged as providing the best value for its members.
Robert Isom: Finally, we remain committed to providing a leading customer experience, especially for our premium customers.
Robert Isom: We're excited to introduce our new state-of-the-art flagship suite on our new Boeing 787-9 and Airbus A321 XLR aircraft later this year.
Robert Isom: In the fourth quarter, we introduced boarding automation as a first step to improving the boarding process, and customer feedback has been overwhelmingly positive.
Robert Isom: American was the first airline to offer streaming entertainment on our mainline fleet.
Robert Isom: And we're proud to offer high-speed Wi-Fi on more aircraft than any other domestic airline. In December, we began the installation of high-speed satellite Wi-Fi on our dual-class regional aircraft. We expect the entire fleet will be retrofitted by the end of this year.
Robert Isom: Additionally, we're in the process of redesigning our mobile app, making it easier to navigate and to provide more self-service options for our customers.
Robert Isom: Building on these customer-focused initiatives is one of our top priorities and we'll have more to share in the months ahead.
Robert Isom: Momentum in recovering revenue from indirect channels continued in the fourth quarter, and we remain on track to fully restore our revenue share from indirect channels as we exit this year.
Robert Isom: Our indirect flow and revenue share improvement was driven by sequential gains in corporate revenue share, which has been the primary focus of our recovery efforts.
Robert Isom: As we enter the new year, we're in position to continue recovering share and indirect channels. We've completed new contracts with all of our agency partners that serve our corporate customers and agreed to new agreements with the leisure agencies that serve our most profitable leisure customers.
Robert Isom: Additionally, we've reviewed and reworked agreements with our corporate customers most affected by the previous strategy and largely restored share of those travelers in our hub markets.
Robert Isom: Completing these steps provides a strong foundation for us to continue to compete for that business and restore our share in these important distribution channels and with those customers.
Robert Isom: Last year, we took steps to further grow and optimize ADDvantage.
Robert Isom: In December, we announced a 10-year agreement with Citi to become the exclusive issuer of the Advantage co-branded credit card portfolio in the U.S.
Robert Isom: American has had a partnership with Citi for more than 37 years. The strength of that partnership has enabled us to deliver first-class products and customer service to millions of Advantage card members, and we're excited to continue to partner with Citi.
Robert Isom: The 2024 amount includes a one-time cash payment received in the fourth quarter related to our new credit card agreement.
Robert Isom: As we disclosed at the time of the announcement, we expect the agreement, set to begin in 2026, will enable cash payments from our co-branded credit card and other partners to grow by approximately 10% annually.
Robert Isom: Our expanded partnership with Citi will unlock more value and provide exciting new benefits to our customers.
Robert Isom: With the agreement completed, the teams have turned toward building the business and we look forward to making several exciting announcements over the coming year.
Robert Isom: Turning now to our operation. Thanks to the resiliency of the American Airlines team, we delivered another quarter of strong results despite a difficult operating environment.
Robert Isom: Operational disruptions are part of the airline business, and at American, we continue to show that operational resiliency and rapid recovery are part of our DNA.
Robert Isom: In the fourth quarter, American ranked second in completion factor and on-time departures among the four largest U.S. carriers. For the year, we achieved our second-best completion factor since the merger, carrying our largest-ever volume of passengers.
Robert Isom: Looking ahead, continued investment in the operation and the technology that supports it will drive further improvements in our operating reliability and resiliency.
Robert Isom: In closing, we've achieved a number of important objectives in 2024, and our performance in the fourth quarter shows what this team and what this airline are capable of.
Robert Isom: That foundation and the momentum we've built will serve us well in 2025.
Before I turn the call over to Devon.
Speaker Change: I'd like to take a moment to acknowledge those impacted by the devastating wildfires in Southern California.
Our hearts go out to those communities.
Speaker Change: Americans Advantage members and team members have donated more than 1.7 million dollars in funds to the American Red Cross to support relief efforts and we've donated supplies and care packages to families and firefighters in the Los Angeles area.
Speaker Change: And with that, I'll turn it over to Devon to share more about our fourth quarter and full year financial results and our outlook for 2025.
Devon May: Thank you, Robert. Excluding net special items, we reported a fourth quarter net income of $609 million or adjusted earnings per diluted share of 86 cents.
Devon May: Fourth quarter unit cost excluding fuel and net special items was up 5.7 percent year-over-year.
Devon May: Our adjusted EBITDA margin was 14.9% and we produced an adjusted operating margin of 8.4%.
Devon May: In 2024, we achieved nearly $500 million of savings from our Re-Engineering the Business initiative, exceeding our goal by nearly $100 million.
Devon May: Most of the value in 2024 was due to better workforce management driven by process improvements and technology implementation, along with improved asset utilization and procurement savings.
Devon May: We also had nearly $350 million of working capital cash release, which exceeded our expectations and helped drive our 2024 free cash flow performance.
Devon May: We remain focused on running the airline as efficiently as possible while enhancing the customer experience.
Total CapEx for 2024 came in at $2.7 billion.
Devon May: Based on our current expectation for new deliveries, our 2025 aircraft capex, which also includes used aircraft purchases, spare engines, and net PDPs, is expected to be between $2 and $2.5 billion.
Devon May: and our total capex is expected to be between $3 and $3.5 billion.
Devon May: We continue to expect moderate levels of CapEx moving forward, with aircraft CapEx averaging between $3 and $3.5 billion for the remainder of the decade.
Devon May: We ended 2024 with $10.3 billion of total available liquidity and produced record free cash flow of $2.2 billion.
Devon May: During the fourth quarter, we prepaid $750 million of near-term debt maturities and strategically repriced two-term loans.
Devon May: We ended the year with total debt of $38.6 billion and net debt of $31.6 billion, our lowest level of net debt since 2015.
Devon May: With these actions, we achieved our total debt reduction goal of $15 billion from peak levels in mid-2021, a full year ahead of schedule.
Devon May: We are thrilled to have delivered on this commitment, and we remain focused on continuing to strengthen our balance sheet as we work toward our stated credit rating goal of BB.
Devon May: Previously, we committed to reducing total debt to less than $35 billion by year-end 2028. We are now committing to achieve that goal by the end of 2027.
Now on to the Outlook for 2025.
Devon May: In the first quarter, we expect capacity to be flat to down 2% year-over-year.
Devon May: This capacity is driven by lower capacity in the off-peak months of January and February which combined are down approximately 3% followed by growth of 3 to 4% in the peak travel period in March.
Devon May: We continue to expect full-year capacity to be up low single digits, in line with expected economic growth and our prior guidance.
Devon May: Our growth in 2025 is focused on improving our schedule in markets that are not yet fully restored to historical levels, primarily in our northern hubs.
Devon May: We expect our year-over-year capacity growth rates to be fairly balanced between domestic and international operations.
Devon May: We will remain flexible and will adjust capacity in response to demand and the competitive environment in which we operate.
Devon May: We expect first quarter revenue to be up 3% to 5% and for the full year we expect revenue growth of approximately 4.5% to 7.5% versus 2024.
Devon May: This is driven by continued indirect revenue recapture, strong demand for our product, and a constructive industry backdrop with supply in line with expected demand.
Devon May: First quarter non-fuel unit costs are expected to be up high single digits year over year. This unit cost growth is driven by the reduction in year-over-year capacity, the mix of that capacity, and the new collective bargaining agreements that were reached in the second half of 2024.
Devon May: Based on the timing of our labor agreements and the shape of capacity, we expect unit costs to improve sequentially throughout the year, from high single digits in the first quarter to low single digits as we exit the year.
Devon May: For the full year, we expect non-fuel unit costs to be up mid-single digits year over year with a large majority of the cost growth coming from higher salaries and benefits.
Devon May: As we look out to 2026, we have certainty in our labor costs, and the rate pressure from our new collective bargaining agreements will ease. We expect that in 2026, our year-over-year growth of our salaries and benefits per ASM will be well inside of inflation.
Devon May: We continue to focus on reengineering the business to become more efficient. Through best-in-class workforce management, efficient asset utilization, and procurement transformation, we expect more than $200 million of incremental cost savings in 2025.
Devon May: Additionally, we are investing in a multi-year transformation in our IT and tech ops organizations to modernize technology, improve operations, and optimize staffing costs.
Devon May: We anticipate continuing to productively utilize our workforce, with mainline full-time employee counts staying approximately flat to 2024.
Devon May: This year, we also expect more than $100 million in additional working capital improvements.
Devon May: Thank you for watching. I'm David. I'll see you next time.
Devon May: For the full year, we are expecting to deliver adjusted earnings per diluted share of approximately $1.70 to $2.70.
Now, I'll turn it back to Robert for closing remarks.
Thanks, Devon.
Robert Isom: As we start 2025, the long-term targets we outlined last March
Remain our focus.
Robert Isom: Our priorities for this year will continue the momentum we've built in the back half of last year and further our progress toward achieving our long-term targets. In 2025, we plan to operate with excellence and efficiently deliver a safe and reliable operation.
Robert Isom: Take a fresh look at our product and service as we sharpen our focus on the customer experience.
Robert Isom: Continue to strengthen our network, both organically and through our airline partnerships.
Robert Isom: Our December announcement with Citi was an important milestone for American. It will allow us to enhance, advantage, and further strengthen our leading travel awards and co-branded credit card program ecosystem.
Robert Isom: All of these priorities, including the restoration of our core sales and distribution initiatives, will allow us to deliver on our revenue potential.
Robert Isom: And we'll continue our work to re-engineer the business as we build a more efficient airline.
Robert Isom: We know that by delivering on our commitment, we'll unlock significant value for our shareholders.
Operator, please open the line for questions.
Speaker Change: 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.
Robert Isom: 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.
are first in the line.
Catherine, your line is open, Catherine.
Morning everyone, thanks so much for the time.
Speaker Change: So, you know, we don't know exactly what low single-digit capacity growth means for the year, but if I just use 2%, that means RASM growth is about 4% for the year versus the 5% I'm getting in 1Q on your guidance. You know, I understand capacity growth accelerates over the year, but can you talk about your assumptions on indirect revenue improvement and the industry outlook underlying that full year guide? And just really wondering, like, what could go better than your base case?
Speaker Change: So Catherine, thanks. I'll start on our expectations for indirect revenue recovery and Devon can speak to capacity and Steve can add anything that he thinks is important as well. We're on track for recovering what we had lost. I feel really good about
The progress we've made in a short six-month period.
Speaker Change: And as we take a look, and you can see from our notes...
Speaker Change: We also believe that from a revenue performance perspective, even outside of indirect channels, we think that we're poised to perform and outperform. You saw it in our fourth quarter results.
Speaker Change: And, you know, I can't speak to others' assumptions, but in an environment where the economy is improving, I think that we're going to improve faster than our largest competitors. Devon?
Devon May: I don't think there's any big moves in the quarterly capacity numbers. We got it the first quarter which would be down 0 to 2 percent. The remaining quarters will probably all up in the neighborhood of 3 percent per quarter in terms of ASM capacity which gets you about that midpoint on low single-digit capacity for the year.
Long. Thank you.
Devon May: Captain, this is Steve. I'll just follow up with you. You asked about sources of potential upside from our base case. I'll just offer three.
Devon May: First, I think that there's a decent chance that we could restore our sales and distribution
Devon May: resource sales and distribution revenue faster than Robert's by the end of 2025. I think that's an upside. Second, I would point you to both the third quarter and especially the fourth quarter. Ultimately we're going to be judged on everything and certainly revenue by our results and I think the fourth quarter shows what we're capable of.
Devon May: and then finally, I just point to our agreement with City, the new agreement doesn't start until 2026 and so, the...
Devon May: the growth that we focus on from, we won't start until then, but to get to that there is a ramp-up effort underway that I think could provide upside in our co-grant revenue during the year.
Thank you very much.
That's great. Thanks. Thanks. Additional callers to use.
Speaker Change: May be one more for you, you know, as you've reached your medium term debt goal, can you speak to how you're thinking about cap allocation between now and that longer term goal in 2027? You know, understand you have more deleveraging to do to hit that 2027 goal, and then you mentioned the double B credit rating, but you know, what's the gating factor to consider shareholder returns? Thanks so much for all the time.
Speaker Change: But our focus still remains on improving the balance sheet. We've set another near-term goal here to have it.
Speaker Change: totaled that down another $4 billion to around $35 billion by 2027. So we'll focus on that. We'll continue to focus on reinvesting in the business. And as we continue to improve free cash flow and improve the balance sheet, we'll come back and talk more about other capital allocation priorities.
Speaker Change: Thank you. Our next question comes from the line of Connor Cunningham of Melius Research. Your question, please, Connor.
Speaker Change: Our next question comes from the line of Connor Cunningham of Milius Research.
Your line is open, Connor.
We'll go to the next question.
Our next question comes from the line.
of Scott Group, Uplift Research. Your question please, Scott.
Scott Long: Hey, thanks. Good morning. So, Devon, you laid out CASM going from high singles to start the year towards low singles, ending the year. It doesn't seem like guidance implies a big deceleration in RASM throughout the year. So, can you just talk about like how you see the progression of like price-cost on like a net basis?
trending throughout the year.
Scott Long: Well I'll just start by talking a little bit about our cost performance because you know right now we are seeing some more pressure in the first quarter than we are during the rest of the year so
Scott Long: To start, we are really proud of our cost performance over the last several years. I'm excited about what the company is doing to re-engineer the business and drive more efficiencies. I think we're making really nice investments in technology. The operations team is really leaning into this and I think we're delivering a more efficient operation, a better operation for our customers.
Scott Long: In the first quarter, though, we are seeing unit costs up high single digits. It's a handful of things. We have less capacity in the first quarter than we did a year ago. That starts to change as we grow capacity in the last three quarters of the year.
Scott Long: We have a ton of regional capacity coming online, as you know, that's higher cost capacity than the mainline capacity. It's actually driving average gauge to be down, you know, 4 to 5 percent in the first quarter, year over year.
StageLength is down as well.
Scott Long: And then, of course, the labor agreements that were signed in the back half of last year weren't in our base for this year. So we see a lot of cost pressure in the first quarter. It eases throughout the year. We feel we're incredibly well positioned as we get into 2026, and we know we run the business as efficiently as anybody.
Scott Long: On the margin side, I don't think there's any quarter that show outsized margin improvement year over year.
Scott Long: guided EPS to midpoint of $2.20, so we are seeing nice EPS improvement year over year, but I don't think you're going to see any one quarter pop really materially versus what we performed, versus how we performed in 2024.
Speaker Change: Okay and then can you just talk about maybe the progression of RASM throughout Q4 and then just regionally how you see RASM playing out in Q1 like transatlantic was up 12% in Q4 can that sustain itself in the near term?
and a regional caller. Thank you.
Speaker Change: Well, Scott, thanks. Thanks for that. You know, I just point to, you know, the fourth quarter in which we had, you know, strong performance across the board.
So Atlantic, Pacific.
Speaker Change: and then also domestic, you know, in terms of year-over-year improvement, led our network competitors and overall we led it as well. As we take a look out into this year, I see continued strength domestically and the strong dollar is absolutely going to have an impact on buying and travel to Europe this summer.
Speaker Change: win behind our sales and also something that I think that we're going to be able to do even better in and Steve mentioned some of the things that are going to be Additive as well in terms of potential for even even better performance
Speaker Change: So overall, really confident about the year and like what we see and how we can operate in this environment.
Thank you.
Speaker Change: Our next question comes from the line of Jamie Baker of JPMorgan Securities. Your line is open, Jamie.
Jamie Baker: Hey, good morning everybody. So an interesting statistic that United threw out yesterday was that the margin gap between its best and worst performing hubs had narrowed to
Jamie Baker: I guess the lowest gap in, I think it was nine or ten years, we've discussed Americans relative hub performance on these calls and in person for, you know, quite some time, but I never asked about the range. Would you be willing to comment on that margin range between your top and bottom hubs?
Jamie Baker: And whether it's improving or widening, obviously a lot of moving pieces in many of your hubs at the moment.
Speaker Change: Okay, thanks Jamie, and I'll start, Devon and Steve can can add in Look, it's it's no secret that we've had to build back our network And we have a large portion of our network that is supported by our regional fleet I feel great that in 2025 we're going to have our regional fleet fully deployed
Speaker Change: And what that's going to allow us to do is, you know, better fill out.
Speaker Change: Some of the hubs that, quite frankly, you know, are ready and, I think, willing to support the network in a different way. But we've got to put the capacity there. So you're going to see the largest schedules that we've ever had in places like DFW in Charlotte. Miami, in its peak, will be bigger than it's ever been. DCA.
Speaker Change: which had been, you know, a laggard coming out of the pandemic.
Speaker Change: and we talked about, you know, some of the work that we're going to be doing in Chicago. So across the board, we see performance improving. Some of the weaker points in our network, you know, is we take a look to the coast.
in New York and out in Los Angeles.
where we put that capacity.
Speaker Change: In Los Angeles, from that perspective, there are some capacity restrictions, but on that front, that's one where we really do partner well with our one world partner, Alaska.
Airlines, and we look forward to continuing that progress.
Speaker Change: When you take a look at America, you've always known that DFW, Charlotte, DCA, and now DCA getting back into the ranks have performed well. Philadelphia is getting back to where it should be. Phoenix is historically been strong. And then, as I mentioned, we've got a focus on the coasts in Chicago.
Doyle.
metaphorical but
Speaker Change: By the way you describe the effort in your prepared remarks.
makes it.
Speaker Change: Sound like most of that effort is behind you. Is that the right interpretation? I guess I'm just confused on exactly where American is on the Reconciliation front and how managed corporate recovery trends from here. Thanks in advance
Speaker Change: Thanks, Jamie. Look, I will give a ton of credit to our commercial team led by Steve Johnson for the enormous amount of work that had to be put in and they absolutely enlisted me in that effort and I will say I don't know if it's 50% of the time I spent a considerable amount of my time you know making sure that I was up to speed and talking to our corporate
Speaker Change: and agencies as well. That work is paying off. It's foundational in that, don't forget, these contracts are set up over a period of time. Revenue doesn't show up right away, but we're not resting on that. We're learning from, certainly, the issues associated with our past strategy.
Speaker Change: and that I believe, you know, bodes well for the future. So, Steve, why don't you spend some time talking about progress and how you feel about where things are headed.
Steve Johnson: Sure, Jamie and let me start by saying The team and I feel good about that as Robert said in his opening remarks and again just a second ago you know, we're on track to To achieve the commitment that he's made to fully recover our share by that end of 2025 as I said earlier I think we can beat that but it's not a linear process and it's kind of event driven if you feel
Steve Johnson: know what I mean. We saw in the third quarter, you know, Robert's comment at Bernstein when he said that we were abandoning the old strategy that had an impact on share. We
Steve Johnson: with the restoration of content into Edifact had an impact on share.
Speaker Change: The engagement with our partners in the third quarter, you know, what Robert was just talking about that sometimes referred to around here as the apology tour, you know, that had an impact on share.
Speaker Change: The fourth quarter was, you know, lots of work done in the fourth quarter, but a little bit different and maybe that
Speaker Change: infrastructure. It was making new agreements with all of our partners in the indirect community. It's an arduous task, kind of counterparty by counterparty.
Speaker Change: while it was going on, you know, understandably, we were negotiating so you didn't see a lot of share shift during that period of time. Indeed, some of our partners sent us either even stronger messages during those negotiations, you know, but it was ultimately successful and we now have.
Robert Isom: new agreements with 30 of the most important TMCs and agencies, and as Robert said earlier, you know, we've modified the economics for all of our significant corporate customers who are impacted by our old strategy.
Robert Isom: and you know as we as we say and our partners say even more frequently you know three airlines are better than one and those agreements create real incentives to move business to American and indeed the agreements with the TMCs and the agencies create real incentives to reestablish the share equilibrium that existed you know at the beginning of 2023 so I expect those agreements
second quarter, and so you'll see continued progress.
Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Connor Cunningham of Miele's Research. Please go ahead, Connor.
Hi, everyone. Can you hear me now?
We've got you, Connor. Can you hear me?
Speaker Change: Go ahead, Conor. Someday I'll figure out how to use the phone. Someday I'll figure out how to use the phone.
Speaker Change: Can you, so I'm just trying to take all this, you sound like there's upside indirect corporate share regains and then the loyalty stuff.
Speaker Change: as well as just like sequentially improving costs throughout the year. But your four-year guidance at the low end suggests a decline, your re-earned earnings. And I'm just trying to understand that part a little bit better. It just seems.
Speaker Change: Like, are you assuming that the main cabin doesn't get any better from here? It just seems really conservative, just given what we've heard from you today and what we've heard from others so far. Just try and understand it a little bit better. Thank you.
I'll start, Devon can add in here.
Speaker Change: Look, again, we can only forecast based on what we know and what we see right now.
Speaker Change: We don't know, you know, what others are putting into their models. We've told you that we think there's continued strength, and that in terms of revenue performance, especially given the capacity that we're putting in, we see significant growth in our unit revenues.
Speaker Change: So that's, you know, my comment in terms of, you know, questions about, you know, how is your forecast versus, you know, what the assumptions others are making.
Devin, anything you want to add? Yeah, I'll just say...
Speaker Change: Midpoint of our guide is $2.20. That's up more than 10% versus what we did in 2024.
Speaker Change: There's obviously variability in earnings. We think the midpoint is what we seek to achieve. We'd like to do better than that, but we put a range of outcomes because there is still some volatility that's there in things like
Speaker Change: fuel or you know some amount of economic risk at a macro level but right now we feel really good about the midpoint on the guide and it's a nice year over year improvement and we hope to exceed that.
Speaker Change: Okay, that's helpful. And then, on the city contract, or city, you know, the renegotiation, I'm just trying to understand that a little bit better. So the economics change in 26.
Speaker Change: But I think that there's a volume and spend related component in 25, so can you just help, you know, bridge the contribution of how that will evolve, you know, Ernie's contribution, how that evolves over that, the change from 25 to 26?
Speaker Change: It just seems, again, like there's this potential for it to surprise. So, just thoughts there. Thank you.
The End.
Speaker Change: Sure, let me see if I understand the question. Our existing agreement includes minimums for new accounts and new business that Barclays and Citi have committed to. We expect them to overperform on those as part of the ramp up into 2026.
Is that helpful?
Yeah, no, that's, that is. Thank you very much.
Thank you.
Speaker Change: Our next question comes from the line of Ravi Shankar of Morgan Stanley. Your question please, Ravi.
Ravi Shankar: Great, thanks. Good morning. I just want to start with a follow-up on the corporate normalization commentary. I think you said that you adjusted the economics for some of the biggest accounts there. Can you unpack that a little bit more? How does the profitability of the corporate business compare to where it was before now that like once the share is normalized?
Thank you very much. Thank you.
Ravi Shankar: Sure, the adjustments we, we've evolved our business with our corporate customers over the course of the last seven or eight months.
Ravi Shankar: We, you know, talked about this on the last earnings call. We, you know, some of this had to do with macro changes that we made like
unique corporate experience advantages for our traveling corporate customers, employees.
Ravi Shankar: on waivers and favors, allowing travel agents to, in certain cases, you know,
Ravi Shankar: book flights or change tickets that are, you know, not completely consistent with the general rules that apply. So some of that was, I think, very helpful. But as part of the former strategy, we had created a kind of one-size-fits-all discounting system for corporations that across the board, for anyone who was impacted by that, that reduced discounts to, I think, an uncompetitive level.
and so and that impacted about
Ravi Shankar: 24 percent of our corporate customers. Those were the ones that over the course of the strategy, their contracts came up and we were able to change them. So with respect to those customers, we've gone back, worked with them, negotiated with them and established economics that are more consistent with the past and more competitive.
Ravi Shankar: In all cases, the revenue from those agreements, even with a little bit better discounting, is going to be very accretive.
Yeah, and Steve, I think we've said this.
Ravi Shankar: that when we talk about sales expense and bringing back sales team and potential impact on some of the things that we're doing, that overall cost impact is going to be a little less than a point of chasm. But again, all of this is going to be highly beneficial to the company.
Speaker Change: Great, that's a helpful explanation. And maybe as a follow-up, you guys mentioned upgraded Wi-Fi, which is great to hear, but as we enter a new era of premium cabins, if you will, obviously you guys have new planes, but how do you think about bringing your own device versus screens on seats, and maybe the ability to monetize those screens over time?
Speaker Change: Rami, can you can you say that one more time? I missed a part of that question.
Rami: So the question was kind of as we enter a new era of premium cabins, how do you guys think about bring your own device versus having integrated screens on seats?
Rami: Does one versus the other kind of impact your ability to either kind of sell a premium service or monetize that screen over time?
Speaker Change: Oh, no. So, Robbie, thanks for that question, and let me talk about some of the things that we anticipate regarding product going forward. We're really pleased to announce the introduction of our new flagship suite, and that's going to be coming on the 787-9s and the 321XLRs.
Speaker Change: And one of the things you'll note is those are, you know...
Speaker Change: Let's face it, those are international aircraft, long haul. And one of the things that we're going to make sure is our customers, especially in the premium cabins, and from that perspective, any international seats, that they have access to screens.
Speaker Change: in addition to, you know, the latest in terms of Wi-Fi and streaming entertainment. So those aircraft are going to be fully equipped. You'll see that we're doing reconfigurations on...
Speaker Change: and adding flagship suites to that and offering more premium seating overall.
Speaker Change: Same with that. That will come with the latest in terms of technology in seatback.
Speaker Change: as well. Now, from a domestic perspective, we've said that, you know, we're really interested in making sure that our customers have access to
Speaker Change: to Wi-Fi, satellite-based Wi-Fi, on everything that they fly. And while we can't offer it on the smallest regional jets, you'll note that we will have streaming Wi-Fi installed as part of our initiative this year.
Speaker Change: Apple Plus is really something, you know, industry record setting, and we anticipate that that is just the start of where things will go.
Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Duane Fennigworth of Evercore ISI. Please go ahead, Duane.
Speaker Change: Hey, thanks. Good morning. Just on your Northern Hub build-out, that comment,
Speaker Change: kind of caught our attention. Can you talk about what inning you're in?
Speaker Change: and maybe expand on how much of your footprint transitioned over to JetBlue, how much of that has transitioned back, and basically what your footprint in your northern hubs looks like now versus pre-pandemic.
Speaker Change: Dwayne, I'll start and Steve can elaborate further, but I'll just note two points right off and that's LaGuardia and DCA.
Speaker Change: We're going to be back to our largest schedules, the largest number of seats offered in both
LaGuardia, and DCA since the pandemic.
Speaker Change: And that, I believe, is indicative of the focus that we're putting on. And by the way, we're seeing really nice results with that added capacity. In terms of Philadelphia, that had been one of the markets that had been most...
Speaker Change: most difficult for us given the pull down of regional aircraft. And the same holds true for Chicago. As we restore our regional aircraft lift,
Speaker Change: The beneficiaries of that are going to be Philadelphia and Chicago. In Philadelphia, Steve, I don't quite know the size of Philadelphia compared to prior times, but I think we're getting close to back to where we were.
Speaker Change: Yeah, and that's the intention to have Philadelphia more or less the same size as it was pre-pandemic.
Thank you.
Speaker Change: That's helpful and then I don't know if you have a metric to share but just on
Speaker Change: you know, how you measure competitive capacity, you know, how do you see that in in 1Q and maybe an early read on 2Q versus what you were seeing maybe in 4Q. Thanks for taking the questions.
Speaker Change: So, Duane, I'll start with this. Look, competitive capacity, it's important, but it's all important to the extent that it drives profitability. We're focused on margins.
Speaker Change: and we're focused on making sure that we take advantage of the assets and the strengths that we have. So we're focused on that, but obviously, you know, keeping track of what's going on in the marketplace.
Speaker Change: there is an impact in any one of the places that we fly. We're going to adjust accordingly. The good thing about the fleet that we've built up, despite the difficulties that
We have with supply chain and aircraft deliveries throughout.
Speaker Change: since the merger, $30 billion plus in terms of new aircraft. We have the youngest fleet, we don't anticipate any big retirements coming up, and we have the ability to flex this fleet in a very economic fashion should we find that conditions warrant expansion.
Speaker Change: So, you'll see us with moderate growth based on, you know, expectations for this year as we get out into latter stages of 2025 and 2026. If demand and profitability warrant an adjustment, we'll be ready to go.
Speaker Change: And I just add that, you know, to the extent that you're asking that question based on an ASM growth comparison, I just also look at the growth and departures and recognize that as we grow, we're going to have our growth in the most competitive time channels and most competitive places possible. So it's, I don't know that ASMs is the perfect measure for comparing.
Thank you.
Speaker Change: Our next question comes from the line of Michael Linenberg of Deutsche Bank. Your question please, Michael.
Uh, yeah, hey, um...
Speaker Change: Good morning. Two sort of fleet-related questions here. Just on the comment on...
Speaker Change: growing your international fleet from 120 to 200 by 2029. At that point in time, how many A321neo XLRs will you have in your fleet at that point? And presumably that's in that 200 number.
Speaker Change: Yeah, that is in the 200 number, and we expect to have 40 NEOs at that point. Great. Sorry, 40 XLRs at that point.
Speaker Change: This is my second question, as we think about fleets getting old and I know your fleet is aging and more specifically widebodies and the ability to procure widebodies.
Speaker Change: You know, I know economically it makes sense to procure narrowbodies from both OEMs. You guys do that. It's helped you out well with the Maxes and the 321 or 320 NEOs.
Speaker Change: Is, are we at a point where, you know, the decision to do that with wide-body aircraft, whether it's, you know, to procure from different OEMs or even from two different families within the same OEM.
Speaker Change: when you think about, you know, your replacement for your Y bodies, you know, probably later this decade. Thanks for taking my question.
Thanks, Mike, and I'll start. Others can chime in.
Speaker Change: I really like where we're at in terms of our fleet. We're the operator of the world's largest fleet of
Speaker Change: You know, we're one of the world's largest operators of 737 aircraft. We've got the MAX 8s and unfortunately those are being delivered. We've got this order out for the MAX 10s.
Speaker Change: Now, the benefit in having these large fleets in kind of one flavor, it's really helpful from an efficiency perspective.
Speaker Change: Right? You know, we're not out there with, you know, a dozen different aircraft types.
our pilots, our flight attendants.
Speaker Change: you know, engines, supply chain, you think about it, it greatly simplifies what we're doing. We had that same philosophy from a wide body perspective.
Speaker Change: And we love the 787 model, the 8s and then the 9s are going to be the real, you know, workhorses as we go forward. We know that our customers love it as well.
Speaker Change: If we take a look at the 777, is the 777-300 going to be around for some time?
Speaker Change: and they're going to be getting a refresh and starting this year we'll see the benefit of the flagship suites coming out. Those are going to be in the fleet for a long time. We've got a decision to make about a triple seven
Speaker Change: 200 at some point in time, whether we reconfigure or do something else. And we're in contact with Airbus.
Speaker Change: We're in contact with Boeing as well, and we're also mindful of the benefits that we get by having a simplified fleet.
and with fleet types.
Speaker Change: that give you great flexibility depending on range and demand. And the comment about, you know, your fleet's getting older, that's true. It's just, you know, nature of time. But the fact of the matter is we're starting from a much better spot than any of our competitors.
Speaker Change: As Devon has said, you know, our anticipated capital spending over the long run, and this is to provide...
Speaker Change: virtually any level of growth that we want, especially if we have the ability to keep older aircraft around and hold off the retirement.
Speaker Change: It is very modest. So $3.5 billion type range as we take a look out in to 2026 and beyond 2025. It's a real low spot in terms of capital capital spending. So we already have the lowest
Speaker Change: Average age for our fleet. We don't have retirements coming up and I see that as others have to invest in their fleet
Speaker Change: and are talking about, you know, numbers that are more than double of those kind of capital expenditures and, you know, the difficulty in, at least with delivery of aircraft these days, I really like where we're at.
Speaker Change: Thank you. Our next question comes from the line of Brandon Oglenski of Barclays. Your question please, Brandon.
Thank you. Thank you.
Brandon Oglenski: Hey, good morning everyone, and thank you for taking the question.
Speaker Change: Robert, I guess if you step back, I mean, because obviously so much has changed in the past year, especially, you know, since the Investor Day, I think in March of, you know, last year.
but
Obviously, you've talked about a lot getting corporate share back.
Speaker Change: But how would you articulate Americans' commercial strategy going forward today? And I guess I'm just observing here, but it feels like maybe you're still in a zone of defense. When does that then transition into an offensive front with that strategy?
Devon May: Thanks for that question. Our Investor Day commitments, we stand by them. I don't like that we haven't grown margins. As I take a look out into the future, and as Devon has said, I do believe that we're set up well to grow margins, especially because of everything that we've done from an efficiency perspective.
Devon May: Now, I'm going to get back to the other side of that equation because it's not just a cost perspective.
Devon May: But you combine, you know, the record-free cash flow production that we've produced. We've done a really nice job of getting this airline set up so that we're not worried about balance sheet issues. And that puts us in a very different position. I've talked to you about our fleet.
Devon May: And as we take a look going forward, you are going to see this year American absolutely spend a lot more time and focus and energy in terms of improving our customer experience in a way that we can we can monetize. So, from that perspective.
Devon May: We have a foundation built that I think others are trying to catch up on, whether it's, you know, establishment of satellite Wi-Fi across all fleets.
Devon May: ultra-premium lounges, which we're going to be introducing a new Philadelphia lounge to add to the complement that we already have.
the new flagship suites and 787-8.
Devon May: or 7879s and XLRs, or whether it's just the domestic product where we're so strong.
Devon May: We have a regional product that others can't touch in terms of the E-175.
Devon May: And in terms of the rest of the fleet, you'll see that the older aircraft that we have, whether it's the 320s and 319s, they're going to be both getting upgraded.
Devon May: And so I feel like we have all the pieces of the puzzle in place to really take off. Now, we've got some work to do putting that together and selling and telling our story better, but we are the largest and the best market in the world here in the U.S.
Devon May: We've got an enviable position in the biggest business markets. When you think about London Heathrow and Tokyo, we've got the best set of partners around the world in those biggest markets. Americans got a lot of momentum as we look forward.
Speaker Change: I appreciate that, Robert. And then, Devon, I know you talked a lot about, you know, the cost headwinds this year, but is there any productivity offsets potentially in these new labor agreements, and especially, you know, in the context of that simplified fleet that Robert was just discussing?
The End
You know, not necessarily...
Speaker Change: offsets related to the labor agreements themselves. I think the offsets we're finding is just a lot of work on efficiency and investing in the right technologies. As we've talked about last year, our re-engineering the business efforts generated about five hundred million dollars in value. This year we think we're going to generate a couple hundred million dollars, but that's net of some really meaningful investments that we're making in our IT shop, that we're making in our tech ops organization to digitalize all the work that they are doing, so I feel
Speaker Change: We look out to 2026. I think our cost profile is going to look really good.
Speaker Change: I've always said, I look back over the last several years, I think we perform better than anybody when it comes to unit cost delivery, so.
Speaker Change: You know, we're not necessarily seeing anything in the labor agreements. That's not what we're going after in those labor agreements. But we are running a more efficient business right now, and I think we're going to run a more efficient business a year from now than we are today.
Speaker Change: Thank you. At this time, we will be taking questions from media. Media, please press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. To allow everyone the opportunity to participate, you will be limited to one question and one follow-up. Again, we are taking media questions at this time.
Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Allison Sider of Wall Street Journal. Your question, please, Allison.
Allison Sider: Hey, thanks so much. I'm curious, after the Starship breakup last week, you know, how concerned are you about sort of the operational and safety impacts from, you know, from space launches and, you know, is there anything you're asking the FAA to do differently in terms of kind of how it handles those?
Speaker Change: Well, Ali, thanks for the question. We're in constant contact with DOT and FAA, and no doubt, you know, launches do have an impact.
on our network, especially, you know, given
the airspace issues that are, you know, impacted.
Speaker Change: What we do, we coordinate closely. I've got David Seymour here, our chief operating officer, and I think what he'll tell you is that the coordination effort is better than it's ever been. And that one of the things we try to do,
is work with any launches to make sure that
Speaker Change: and David. They're as least impactful in terms of time of day that they take place. David, you want to add anything? Yeah, I think, Robert, you said the right things in our coordination with them, and I think it just...
Speaker Change: The FAA is going to be very mindful of those launches and they executed their strategy in locking out a containment zone for that launch. It was disruptive to us in terms of diversions that we had to do holding aircraft on the ground.
Speaker Change: But we recovered well, but as Robert said, the coordination right now that we have with the FAA and air traffic side has never been better and, you know, we're going to continue to work with them on that.
Speaker Change: Do you know or is there anything you want to be done differently for future launches in terms of the sort of perimeter for the closed airspace or the timing of launches or anything you're looking to change from a safety perspective?
Speaker Change: We're still waiting for, you know, the FAA to continue their review of that, but on the surface right now I don't see anything different that we're going to see. They've done a lot of work over the last several years of actually continuing to manage that, so we have not as impacted as we were in the past.
Speaker Change: But we're going to work with them, but I think they need to continue their review of that situation, and then we'll get back and see if we need to adjust plans.
Thanks.
Thank you.
Our next question.
Speaker Change: Comes from the line of Mary Slangenstein of Bloomberg News. Your question please, Mary.
Mary Slangenstein: Hi, thanks. I wanted to ask about the IFE on the premium cabins that you're talking about going forward. I'm wondering what's been responsible for that shift?
Speaker Change: In your approach on IFE, it's just competitive pressure, something that consumers are demanding, or what's behind that?
Speaker Change: Oh, hey, Mary. You might have mistaken something. In terms of our IFE strategy, in-flight seat-back entertainment on our international-based wide-body aircraft, or in the case of the 321XLRs, those will be equipped to take care of our customers. The rest of our fleet will have satellite-based Wi-Fi, except for the smallest of the regional jets.
Speaker Change: Right, but you don't currently have IFE on your international widebodies, or am I wrong on that?
We currently have IFE on our international-based aircraft.
Speaker Change: Thank you. Sorry about that. The other question I wanted to ask was what changes that you potentially foresee from the Trump administration in terms of either the operations of the FAA and ATC, issues with them trying to step up hiring or make changes faster than the past administration had to.
to change the ATC issues affecting the airlines.
Well, as I said in some earlier comments,
I think
Thank you.
Speaker Change: President Trump and the administration, they recognized the importance of aviation to commerce. They certainly did that during the first Trump administration in response to COVID and the support that was provided to the industry. It's a reason why the industry is as strong as it is today. And credit really does go to the first Trump administration and the quick reaction.
Speaker Change: Now, in regard to what we do next, I do believe that it's imperative that we look at investing in air traffic control.
Speaker Change: We know that there's a huge tax put on, you know, efficiency for the airlines on our customers in terms of the time it takes to fly.
Speaker Change: And ultimately, you know, we've got to address it because, you know, there's a lot of growth that I think is possible and hoped for in the industry.
Speaker Change: But we can't keep on jamming more aircraft into the skies in a way that can't be serviced efficiently. So today, it takes a lot longer to fly from Chicago to New York or Washington to New York than it did 20 years ago.
Speaker Change: There's no reason for that. There's plenty of room in the sky. There's technology that we can be deploying that would be helpful from an overall control perspective. And also, our aircraft are actually equipped.
Speaker Change: to handle and to perform in a different system. So we've got a lot of work to do. It's going to take investment, but I have great confidence that that will be the type of work that we're able to engage on. And the last thing I'll just say is that I also believe that
Speaker Change: The administration will be very cognizant of regulatory issues that can benefit both the airlines and our customers as well, and we'll be working closely with them on that. So I'm very, very optimistic about the future.
Thank you.
Speaker Change: Our next question comes from the line of Leslie Josephs of CNBC. Please go ahead, Leslie.
Leslie Josephs: Hi, good morning, everyone. Just considering what the Trump administration has said about DEI and how they're extending that, ordering changes within the federal government, I was curious where American Airlines stands. I see the website says DEI are foundational to American Airlines culture and that you plan to lead the industry with DEI. Any changes there internally? And do you have any concerns about the review at the FAA that the federal government's doing? Thanks.
Leslie Josephs: Thanks Leslie. I can't speak to you know anything going on at the FAA. I'll just say that at American we've always had a philosophy of hiring the best best team members that we can possibly bring into the company. We serve
Leslie Josephs: 650,000 plus on peak days customers 650,000 plus customers of all backgrounds and places throughout the world. We have 130,000 team members that you know work in and you know all parts of the globe. Our efforts here are going to be focused on caring for people on life's journey.
Leslie Josephs: And in that, we're going to do that in a way that it's beneficial for our customers and profitable for our airline. That's going to be our guiding factor as we go forward in looking for ways to better take care of our customers and better take care of our team members. That's front and center, and that is, you know, where American's headed.
Thank you.
Leslie Josephs: This concludes the Q&A portion of the call. I would now like to turn the conference back to Robert Isom for closing remarks.
Robert Isom: Thanks Lateef. I appreciate everybody's interest and time today and I just like to reiterate that the fourth quarter was a quarter for us in which we laid down some incredibly important milestones.
Leslie Josephs: It was important for us to outperform the industry in terms of revenue production year over year.
Leslie Josephs: It was important for us to achieve record free cash flow that put us in place to take advantage of a lot of other things that we've been doing in this company to make sure that our balance sheet is as strong as possible.
Leslie Josephs: but also to expand upon that and take advantage of everything that we've built in this airline over the last several years.
Leslie Josephs: And there's a tremendous amount of upside in American right now. When you take a look at our performance and what we're capable of doing as we look out into 2025 and going into 2026, American is poised to outperform. Thank you for your time.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
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