American Airlines Group Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2022

There are 15 speakers on the call.

Operator

Good morning, and welcome to the American Airlines Group Second Quarter 2022 Earnings Conference Call. Today's call is being recorded. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. And now, I would like to turn the conference over to your moderator, Head of Investor Relations, Mr.

Operator

Scott Long.

Speaker 1

Thank you, Olivia. Good morning, everyone, and welcome to the American Airlines Group Second Quarter 2022 Earnings Conference Call. On the call this morning, we have our CEO, Robert Isom and our Vice Chair and CFO and President of American Eagle, Derek Kerr. Also on the call for Q and A are David Seymour, Vasu Raja and a number of other senior executives. Robert will start the call this morning with an overview of the Q2.

Speaker 1

Derek will follow-up with details on the quarter and our operating plans and outlook going forward. And 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. These statements represent our predictions and expectations of future events, The 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, which was issued this morning as well as our Form 10 Q for the quarter ended June 30, 2022. In addition, we'll be discussing certain non GAAP financial measures this morning, which exclude the impact of unusual items.

Speaker 1

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 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, we undertake no obligation to update any information subsequently. Thank you for your interest and for joining us this morning. With that, I'll turn the call over to our CEO, Alberto.

Speaker 2

Thanks, Scott, and good morning, everyone. Thanks for joining us. I want to start by thanking the American Airlines team, which has done an amazing job of running our airline, Especially during very challenging operating conditions in the past few months. We've managed significant weather, both thunderstorms and extreme heat in many parts of the country. Customers continue to come back to travel in record numbers and our team has adapted to one of the busiest summers that we've ever experienced.

Speaker 2

And they've done so with grace, professionalism and a level of commitment to our customers and each other that is second to none. Every single day, I hear from our customers about something incredible that our team has done. We're so proud of their work and grateful for their support. I also want to thank and acknowledge our key partners in the U. S.

Speaker 2

Government, Secretary Mayork, Secretary Buttigieg and their teams at the FAA, TSA, CBP Air travel has significantly impacted them as well and we appreciate their consistency and professionalism. All of us have to acknowledge There are challenges in the national airspace, particularly in high traffic locations like Florida and the Northeast, but I am grateful for the shared commitment that we have In the public and private sectors and management on the front line to facilitate the efficient return of travel. American served 53,000,000 customers in the quarter And we couldn't have done that without everyone pulling together. As we have shared previously, we have 2 primary goals this year, Running a reliable operation and returning to profitability. And that's the entirety of our focus.

Speaker 2

We've made a lot of progress on running a reliable airline, But we have still some work to do and I'll touch on that more in a moment. The big news is this, we're really pleased to report a quarterly profit for First time since the start of the pandemic. That's two and a half years. It's driven by the strong demand environment and the hard work of our team. We're also pleased to have hit our pre tax margin guidance despite a challenging end of the quarter and a significant run up in oil prices.

Speaker 2

American reported a 2nd quarter GAAP net income of $476,000,000 Excluding net special items, We reported a 2nd quarter net income of $533,000,000 American produced revenues of $13,400,000,000 in 2nd quarter and that's an increase of 12.2% versus 2019 and a record for any quarter in the company's history. And let me repeat that. That's a record for any quarter in our company's history. These results were achieved while flying 0.5% less capacity than we did in 2019. Importantly, these results are an indication that our actions are producing the expected results.

Speaker 2

Early in the pandemic, we made a conscious decision to simplify our fleet network, focusing our flying where we could create outsized Customer value and using partnerships to augment that service. In the 2nd quarter, some 70% of our flying was in American's areas of strength, Our Sunbelt hubs, Mexico, Caribbean, Latin America and London. This flying outperformed the industry as we've offered customers more options than any other airline. Our domestic partnerships are also producing for our customers and for us. As a matter of fact, our unit revenue performance in JFK and Los Angeles Outperformed the system in the Q2.

Speaker 2

Customers are flying in different patterns than they have previously and that's creating opportunities for us. System business revenue is now fully recovered compared to 2019 with revenue from small and medium businesses and customers exhibiting a blended behaviors that would We associate with both business and leisure continuing to outpace the recovery of our managed corporate revenue. The majority of this revenue growth has Further, Laser demand surpassed 2019 levels in the Q2 and customers continue to show us their increasing appetite for travel. Enrollments in our loyalty program continue at record levels and spend on our co brand cards is growing at the greater rate than ever before. Looking forward, we will limit capacity to the resources we have and the operating conditions we face.

Speaker 2

We will continue to orient our flying to create value for our customers. As always, we will remain nimble to ensure that we are best positioned to capitalize on continued demand strength. Now turning back to reliability. After running a solid operation in April May headlined by a strong Memorial Day, we had challenges in June. June was a difficult month for the entire industry from an operational perspective with extreme weather impacting every major hub and air traffic control challenges in certain parts of the country.

Speaker 2

At American, we encountered significant weather on 27 of the 30 days in June. That weather resulted in ramp closures, ground stops, ground delay programs, airspace flow programs, which had a ripple effect throughout our operation. Despite the challenging operating environment in June, our D0, that's departures on time, a 14 arrivals within 14 minutes and completion factor for the full quarter Well, better than the Q2 of 2019. Our team achieved this while flying a second quarter schedule that was more than 25% larger than our closest competitor On a departure basis, American operated more than 500,000 flights in the quarter. That's an 8% increase over the Q2 of 2021 with a load factor of 87%, which is 10 points higher than the Q2 of 2021.

Speaker 2

While June was challenging, we have seen improvements so far in July, including over the busy Independence Day weekend. American finished the holiday period with a combined D0814 and completion factor all above goal and in line with our pre pandemic performance, while operating a July 4th holiday schedule that was 30% larger than our competitors as measured by total departures. Our operational performance for the full quarter and the results we've delivered in the 1st few weeks of July give us confidence moving forward, But we still aren't where we need to be. And

Speaker 3

we have

Speaker 2

a lot of flying ahead of us still in the summer. So we are investing in our operations to ensure we meet our reliability goals and delivered for our customers. We've taken proactive steps to build additional buffer into our schedule for the rest of the year. As I said a minute ago, We're sizing the airline for the resources we have available and the operating conditions we face, and we will make other changes as needed. Even with these adjustments, American still offers customers the largest network of any U.

Speaker 2

S. Airline with an average of more than 5,400 daily departures. So I want to close by reiterating that I'm tremendously excited about what lies ahead for American. We're encouraged by the trends we're seeing across the business And we've built an airline that can be successful in a number of different demand and economic environments. Our 2nd quarter results and strong revenue production despite challenging conditions Demonstrates that our plan to return to profitability and deliver a good operation for our customers is working.

Speaker 2

We have the strongest assets in the industry and the work that our team has accomplished to build and deliver the most comprehensive network in the business is paying off. And with that, I'll turn it over to Derek. Thanks, Robert, and

Speaker 1

good morning, everyone. Before I begin, I want to thank the American Airlines team for their continued dedication to our customers during this busy summer travel season. This morning, we reported a second quarter GAAP net income of $476,000,000 or earnings of $0.68 per diluted share. Excluding net special items, we reported a net income $533,000,000 or earnings of $0.76 per diluted share. We talk a lot about our goal of returning the airline to And our 2nd quarter performance is a result of that focus.

Speaker 1

Profitability in the quarter was driven by record revenue performance. As Robert noted, our 2nd quarter revenue was $13,400,000,000 was 12.2% higher despite flying 8.5% less Demand contributed to the strength we saw in the quarter. Operating earnings improved sequentially through the quarter in line with the growth in revenue despite rising fuel costs. We continue to reap the benefit of the past investments in our fleet and are well positioned for the future. In the Q2, we took delivery of 5 A321neos and reactivated 9 Boeing 737-800s from long term storage.

Speaker 1

We continue to work closely with Boeing on the timing of our delayed 788s and we expect to begin taking delivery of those aircraft this quarter. We now expect to receive 9,780s this quarter and 4 this year and 4 in the 1st part of 2023. Lastly, based on our latest guidance from Airbus, we are now expecting our A321 XLRs to be delivered starting in the Q1 of 2024 Instead of the Q3 of 2023, this will shift planned aircraft capacity out of 2023 into future years. Our 2023 aircraft CapEx is now expected to be $1,900,000,000 We ended the 2nd quarter with $15,600,000,000 of total available liquidity. During the quarter, we generated operating cash flow of $1,700,000,000 and free cash flow of more than 800,000,000 Total debt reduction remains a top priority.

Speaker 1

We remain on track with our target of reducing overall debt levels by $15,000,000,000 by the end of 2025. In the near term, we will continue to keep up keep our liquidity at elevated levels With a plan to step down to $10,000,000,000 to $12,000,000,000 when we are confident the recovery has fully taken hold. At that time, any excess liquidity will be Prioritized to reduce debt. During the quarter, we made $1,000,000,000 in scheduled debt and finance lease payments, including paying off the remaining outstanding balance of our center $750,000,000 unsecured senior notes that matured in June. To date, we have reduced overall debt levels by $5,200,000,000 from peak levels in the Q2 of 2021.

Speaker 1

This means that after only 12 months, we have completed more than 1 third of our $15,000,000,000 total debt reduction target. This progress affords us tremendous flexibility as to when and how we bring down the remaining $10,000,000,000 in total debt by the end of 2025. As we have said previously, moving forward, we will continue to balance our total liquidity with the expected demand recovery, Debt reduction opportunities and investment in the business. We expect to make $375,000,000 of scheduled debt payments in the 3rd quarter, which includes the scheduled payoff and unencumbering of 8 CRJ700 aircraft. As we look to the remainder of the year, We are making targeted investments to ensure operational reliability.

Speaker 1

With recent schedule adjustments, we now expect Full year 2022 capacity to be recovered to 90.5% to 90.5% of 2019 levels. Consequently, we now expect our full year CASM excluding fuel and net special items to be up between 10% 12% versus 2019. The increase in unit cost is driven by lower planned capacity and other investments to support the operation, including wage premiums and regional pilot pay. These unit cost increases represent near term investments that will drive long term value. We are confident that unit cost will improve as we increase asset utilization to historical levels.

Speaker 1

In the Q3, we expect to be profitable despite the continuation of elevated fuel prices. Pre tax margins are expected to be between 2% 4% for the quarter based on the current demand trends and our latest fuel price forecast. We currently expect total revenue to be 10% to 12% higher versus the Q3 of 2019 on 8% to 10% lower capacity. On this revenue strength, we expect total revenue per ASM to be 20% to 24% higher in the Q3 versus the same period in 2019. We expect our Q3 CASM excluding fuel and net special items to be up between 12% 14% compared to 2019, Lower planned capacity and the investment in the reliability of the operation that I mentioned previously are driving unit costs higher for the quarter.

Speaker 1

Our current forecast for the Q3 assumes fuel between $3.73 $3.78 per gallon, An increase of more than 80% versus the price of fuel in the Q3 of 2019. In conclusion, demand is strong and we remain focused on our key objectives of operational reliability and profitability. While we've made investments in our operation that will impact near term costs, we are confident that we're very well positioned as we move into 2023 because of our network, our fleet, our team and the actions we have taken. With that, we will open up the line for analyst questions.

Operator

And our first question coming from the line of Michael Linenberg with Deutsche Bank. Your line is open.

Speaker 4

Yes. Hey, good morning, everyone. Hey, Good job this quarter and good outlook. I guess, Derek, first to you on the $5,200,000,000 debt reduction that you've been able To do thus far, presumably you're not including any sort of reduction in the pension obligation. And just given the run up in interest rates and Sort of thinking where the discount rate would go.

Speaker 4

Can you just give us a sense of maybe the potential tailwind on that from a deleveraging Active, sort of where things stand and how you're thinking about that pension obligation? Thanks.

Speaker 1

Yes. Two things. One is We look at that at the end of the year. So there was some benefit in the pension, the reduction in 2021, There was a slight reduction in 2021 of the pension obligation. As we look at where we're at now as of June 30, The actual pension status or funding ratio has gone up to about 81%.

Speaker 1

The liabilities have dropped over $3,500,000,000 due to the interest rate change and it's a higher interest rate, which has more than offset the asset reduction. So it's actually in a much better spot than it was before. Not the way we want to get there without a doubt, But it is in a better spot from a pension liability standpoint. But we have not added that in for anything in 2022. But if we did, it'd be Right now, it would be about $1,000,000,000 lower from a liability perspective, from a debt perspective than it would be before.

Speaker 1

So We are managing it the way we would any other time, staying very conservative in our pension And watching it, but the interest rate has actually driven the liability much, much lower than what the Reduction in the asset class has been.

Speaker 4

Okay. That's helpful. And then the second question, and this is probably more for Vazu. Derek, you said that you're going to get 9,787s this quarter. And I know that everybody's been that has slipped multiple times.

Speaker 4

And Assuming that it does slip again, when I look in the Q4, it does look like you do have the 787 scheduled in, it's in your timetable. If For some reason that were to slip again, like how many points of capacity do those airplanes account for in the back part of the year? Thank

Speaker 2

Yes. Well, 2 things, Mike, I corrected that

Speaker 1

I think in my comments, but it is 9 for the year. We will have 2 coming in, I think in early August. The first two will come earlier and we don't have any of them built into the schedule until November timeframe. So if those do slip from August a little bit, we have put in almost a 2 month pad in those coming in. We don't think it will impact the Q4 a lot.

Speaker 1

If they slip a lot further, where the impact is going to be into 2023, Not a lot into 2022.

Speaker 3

Okay. And Mike, presuming that all 9 don't deliver, call that roughly about a point of capacity in a month.

Speaker 4

Okay. Okay, great.

Operator

One moment for our next question. Our next Question coming from the line of Helane Becker with Cowen. Your line is open.

Speaker 5

Thanks very much, operator. Good morning. Thank you. Hi. So just two questions.

Speaker 5

The first question, Robert, I saw you on CNBC this morning and you talked about the pilot contract. And I know you guys don't like Talk about it, but you did present your pilots with an offer that would increase pay by 17% by 2025, I think. Could you just talk about what happens next and the status of that?

Speaker 2

Sure. So Helane, thanks for the question. Look, It's really important for us to take care of our pilots. You know that throughout the pandemic, we had put an offer on the table that would have made our pilots The most highly paid pilots in the industry. We never pulled that back even throughout the pandemic.

Speaker 2

But look, United went out and I put out a better offer and we thought it was really important to get to the table and make sure that our pilots knew that we're going to take care of them. So we've done that And now, we are negotiating very closely and actively. And my hope is that we make progress over the coming weeks and months. Now how that bakes into your financial forecast, we haven't put anything in yet. We don't know exactly where we'll end up.

Speaker 2

And then the point I just make is that with every contract, not only are there changes to compensation and quality of life, We think that when we get to a contract, we'll have a contract that operates very efficiently for the company as well.

Speaker 5

Okay, great. That's really helpful. Thank you. And then just a follow-up question on London. I know Phil asked you about that too.

Speaker 5

And I heard Scott say last night that London operations will call him up and tell him a day or 2 in advance they're canceling flights. I don't think you guys have as many flights to London as they do, but are you seeing the same issues? And is that and maybe how does that Get fixed. Or is it more a British Air problem and a partner problem?

Speaker 2

No. Let me start with this. First off, we have a really sizable Operation New London Heathrow with our Atlantic Joint Business Partner, PA, we offer the largest schedule in New London Heathrow. So it's really important to us. One of the things that we've done is we've been able to isolate American's operations into T3.

Speaker 2

And so that has allowed us with our team to make sure that we're doing everything possible. Now all that said, there's so much that you can do with your own team members. There's infrastructure Like bag systems that you're dependent

Speaker 3

on Heathrow. And then of

Speaker 2

course, VA is incredibly dependent on Heathrow as well. To that end, we're working as a group with our 1 rope carriers to make sure that we match our capacity to the resources that are there. That will take some time to work our way through. And to that end, maybe I'll have Nate Gatton, our Head of Government Affairs and Corporate Real Estate add to what's going on and the prognosis for that. Yes.

Speaker 2

Thanks, Robert. We were told last week on Extremely short notice to cancel departing flights as a way to help manage airport crowding. And as Robert said, we found that request to be Quite disappointing and frustrating on many levels, mostly because of the significant burn that we put on our customers on very short notice with few options for re Looking, given the several loads. What we did was work with HAL to limit the capacity on our departing flights by capping loads, Uncertain flights, we've rebooked passengers over other European points of departure, did things like limit non rev travel, It's Sarah. And as Robert mentioned, we did that in conjunction with our One World and JV partners.

Speaker 2

It's important to understand that These procedures will be in place until the beginning of next week, at which point a new procedure for limiting passengers at Heathrow is going to be instituted This time by the slot coordinators. And we don't have the full details on how that's going to work yet, but the new arrangement would probably continue to impact All the airlines serving Heathrow through the 2nd week in September. But I would just say we're very disappointed in The circumstances, we have high load factors this summer, and yet we're told by the airport at the very last minute that they can't handle the passengers And that we need to reduce the capacity. And just final point, fortunately, we don't see these same kinds of caps on the horizon in the United States, But we do expect to face similar issues and challenges at additional international locations through the summer. So, Helane, I'll just close with this.

Speaker 2

Look, We're going to put these measures in place, work with the airport authorities. At the end of the day, we've got to match capacity to the resources that are available. And we're going to push hard to make sure that all the airports that we work with get the resources they need to serve our operations at So thanks for the question.

Speaker 5

Thanks very much. Have a great day team.

Operator

Thank you. And one moment for our next question. Our next question coming from the line of Jamie Baker with JPMorgan. Your line is open.

Speaker 6

Hey, good morning. I guess since Helane brought up London, flew back on American yesterday, nothing but positive things to say. I'll take that up with Scott offline. First question for Ramanu. Last quarter, you brought up the phenomenon of corporate travelers combining business Pleasure extending trips, bringing a spouse, that sort of thing.

Speaker 6

With another 90 days of Corporate recovery under your belt now. I mean is the trend any different and to the extent that this is sustainable? Is there a way to actually monetize it? Or is it just sort of gravy? If it happens, great.

Speaker 6

If not, no biggie.

Speaker 3

Hey, Jamie. Thanks for the question. And indeed, this is a topic which is Very quickly on our minds here, because indeed in the last 90 days and be the 9 months or 12 months before that, The trends have not abated. In fact, they've grown even stronger. I mentioned in our last call when you asked the question But it used to be that as much as 70%, 75% of our revenues could be both identified and would self classify itself very binary as Traveling only for business or only for leisure and now that's only 50%.

Speaker 3

And that other 50% that's there indeed is Still there, it tends to be higher yielding. It comes to us directly through our dotcom and mobile. And it's looking for and it does that largely because it's looking for travel experiences and journeys and things like that, which The industry hasn't been able to make available through the very antiquated technologies and things like that that we've been prone to using. So yes, this really has opened our eyes Creating a lot of value for these kinds of customers, who are a growing number. Like all of our advantage enrollments are coming out of that population.

Speaker 3

They're disproportionately concentrated in places where America has just a lot of natural strength. Think of the Sunbelt, Midwest, Southeast. So we're really encouraged by what we see and indeed it's proven through the pandemic to be a very durable source of demand that's Both high yielding and wants a lot more in the airline product than just a single transaction. So it is very much

Speaker 2

on our minds and

Speaker 6

And then second question, Probably for Derek or Robert, but the demand data is obviously super encouraging. You're Smaller than you were pre COVID, but you're generating more revenue. I mean, that's a great strategy for many business expos, but Your margins aren't recovered and you weren't satisfied with your pre COVID margins to begin with. So simple question, What are the drivers of higher margins from here?

Speaker 2

Jamie, let me start with just From the top and then Derek can go into more detail. Look, there's more margin growth at American. We've resourced this airline To fly a larger airline, just plain and simple. We built in a lot of redundancies and even in In June, those redundancies weren't enough. But over time, we know that we can utilize our assets A lot harder than we have been able to this point.

Speaker 2

And as you take a look going forward in terms of margins, I know that the Q3, look we pulled out some additional flying and that's fine that we would rather do. You know that we have regional aircraft that aren't in the air. And while we may not have the pilots, we have the other resources to actually fly those aircraft. So the key to us is ultimately to be able to use our assets at a higher rate. But Derek, go ahead.

Speaker 1

No, I was going to say the exact same things. J. B, as we look at the Q2, we talked about 100 regional aircraft being on the ground and we had probably 40 mainline aircraft equivalent aircraft on the ground. So you're talking about 100 50, 140, 150 aircraft that aren't being utilized. So either 2 things have to happen is the resources come and we put those aircraft back up We've got to get out of those aircraft.

Speaker 1

So we really want to fly all those. We want to get back to the utilization that we were at. And that is where the margin comes because as Robert said, we are built from a cost perspective To fly those aircraft and today we're not. So that's where it's at and that's where we believe as we get ourselves back up to ASM levels in the 2019, it comes at a much cheaper cost because the assets are here.

Speaker 2

Hey, Jamie, just to add one other point, just from even a second quarter perspective. The month of June was really hard on the airline. 27 out of 30 days, we had severe weather that resulted in ramp closures, ground stops, ground delay programs, airspace flow programs. And in sum, we flew at least a percentage point or more, less Then we would have otherwise. June in the second quarter would have been better had we seen a more normal Type close to the quarter.

Speaker 2

So that gives me optimism that there's not only utilization that we can work our way out of, But also more normal operating conditions are going to benefit us

Speaker 1

as we go forward in 'twelve.

Speaker 6

Okay, very helpful. Thank you. Thank you, gentlemen. Take care.

Operator

Our next question coming from the line of Savi Syth with Raymond James. Your line is open.

Speaker 7

Hey, good morning. If I may, just a little kind of a follow-up to Jamie's question there. So if you look at versus 2019. Just how much has kind of inflation been built in? I know you have this regional pilot pay that's And I've been listening there.

Speaker 7

So how much of these kind of increases are structural versus what could we like if I take your either 3Q or your kind of full year unit How much is structural versus how much could we see kind of

Speaker 8

go away as you get back to

Speaker 7

kind of 2019 level capacity?

Speaker 1

I would say, as we look at the cost structure, the cost structure as we talked about, it's built to fly another 150 aircraft. So We did add cost in. So if you take the Q3 or over the Q2, the increase is really driven by 3 things, which is Mainline salaries due to putting in some of the pilot contract issues. The maintenance is up year over year just because of engine overhauls and things that we're seeing throughout the summer and then the regional pilot pay that's put into place. So the regional pilot is put into place to get more aircraft up in the air.

Speaker 1

So that hopefully that is there, it's there to stay, the higher Cost to fly regional and the new contract that we put in place regional is there. That hopefully drives more aircraft back up in the We'll see where that goes. If it doesn't, then that cost doesn't come. So I think those things are built in. They're going to be there as we move forward.

Speaker 1

So it's important for us to get the utilization back up and get the aircraft in the air.

Speaker 7

That makes sense. And if I can ask Follow-up on that regional pilot pay. The pay was surprising and I understand that at least Part of it is a bonus that supposedly kind of rolls off in 2024. But given how kind of much the gap versus mainline pay has been narrowed or in some cases even higher than mainline pay. Just is that sustainable from a Economic standpoint for those markets, because you're flying them with smaller aircraft, fuel is a bigger impact on those smaller markets.

Speaker 7

Is that sustainable long term or is it the right move right now because maybe because capacity is out of those markets and fares are high or or you just need to get this capacity back up. I was just kind of curious as the kind of thinking behind that big of a pay increase.

Speaker 2

Savi, let me start and then I know some others might want to jump in. The answer to that is yes. Look, the regional network to American Airlines is incredibly important. And whether it's 50 or 65 or 76 seat aircraft, being able to serve those markets in a way that connects to our hubs and then unleashes The breadth of the rest of our network, that's a really compelling offering that achieves higher yields. And so even though pilot expense for those Regional aircraft will be going up.

Speaker 2

We're confident that

Speaker 3

the yields that are being produced

Speaker 2

will take that into account. But one thing I want to make clear though is, We take a look at Regional Pilot Pay. Look, it costs quite a bit of money to become a pilot and the expectations for a pilot coming out And saying taking that first job, right, they have changed over time. So as we look forward, I do think that as an industry, Pilot wages are going to increase and that's something that the industry as a whole is going to have to digest And ultimately that will show up through our cost structure and be a factor in terms of how we try to monetize our product. Yes.

Speaker 2

And hey, this

Speaker 3

is Vasu. I'll just add to what Robert said in this, but For our airline in particular, so much of how we create value and drive margins is by creating as many unique O and Ds as Yes. And you've seen it through many quarters now, where we've flown more capacity in the industry, we can produce higher Nominal PRASM at least as good if not better than what our network competitors are certainly in domestic and short haul. And a major part of that is the regional jet. In this last quarter, we flew 20% we had 20% more O and Ds than what our next largest network competitor did.

Speaker 3

And in those markets, we are seeing yields that are 25% greater than what happened to the rest of the system. And That's what's really driving the ELA growth that's there. Many of those markets are where we see the high value blended demand that Jamie asked about earlier. So indeed, not only is it something sustainable, it's something which is a unique feature of what we do and always will be.

Speaker 7

Appreciate that. Thank you.

Operator

Thank you. One moment for our next question. And our next question coming from the line of Duane Pfennigwerth with Evercore ISI. Your line is open.

Speaker 9

Hey, thanks. Good morning. Maybe we'll start where Savi just left off. So I guess anybody could do what you're doing on the pay side. So it's hard to see how that's a unique benefit.

Speaker 9

Historically, on the regional side, that pay arbitrage was one of the reasons that profitability worked. So why is why are pay increases like this the right answer from a profitability perspective? I understand why they might be the right answer from a small market market share perspective. From a small market share perspective, but why is that a better answer than your peers from a margin perspective?

Speaker 2

Duane, let me start. First off, again, the days of being able to go out and attract a pilot for wages that are $40,000 a year, okay, are gone. I don't think that we're going to return to an environment where That is the type of compensation that regional pilots make. It's a different world. And for pilots coming in, We're still not talking about exorbitant salaries.

Speaker 2

And I think that that is something that no matter the carrier, they're going to face The issues of having to pay higher rates for pilots. That said, there is a uniqueness about American Airlines network It allows us to use regional our regional network and our regional pilots in a fashion that produces outsized yield. That's what will differentiate us. It's not that, hey, we're going to go out and be able to have a slight difference in terms of pilot wages and that's going to make the difference terms of the margin we make as a company. Tasi, you want

Speaker 3

to add something? Yes. I'll just add to it very simply, Duane, in an industry that has Struggled for a long time to be able to pass this cost into revenue. At least for us what we've seen time and time again with the regionals is Anytime there has been a cost increase that is the one part of the business where we can most consistently pass it through to revenues. And we do it because of what it does.

Speaker 3

It creates A unique product for customers that increasingly nobody else but American Airlines can go and do. And when you look through our system, right, There's many of those markets that you simply couldn't up gauge. And even if you did up gauge it flying to large cities, Birmingham, Alabama, Wilmington, North Carolina once a day at a 737 doesn't really create a lot of utility for some really big metro areas in

Speaker 1

the U.

Speaker 3

S. So for us, this is actually a place where by doing it and frankly by doing it through our wholly owned regional jets, which themselves are very massive airlines. It creates a lot of unique value for our customers, which turns into revenue for us.

Speaker 9

Appreciate that perspective. And then just one thing that's a little confusing to me. Can you clear up The difference in characterization on corporate, a couple of your peers call it sort of 80% recovered. Perhaps you carried kind of less of that premium traffic going in, maybe differences in hub geography Explains it, but why do you see it as sort of fully recovered versus the 80%? And if much more of it is coming through your own distribution, How do you know it's corporate?

Speaker 9

Thanks for taking the questions.

Speaker 3

Yes. Thanks, Dewey. And I think this is an important clarification because I think that Maybe throughout the industry people use a lot of different words, but the same words mean different things. Let me be really specific about what we do. When we talk about business, we talk about a trip type that is business.

Speaker 3

And this is Jamie's question. We're able to go and calibrate it on We ask customers, did you actually buy for business? And we can actually go and look at it. Was it a single person in the itinerary? They didn't check a bag.

Speaker 3

They did a day trip likely business, right? And so business revenue is that. And for us historically that business revenue has been 40% to 45%. Of that, a component of it, historically, there is a sixty-forty split between what we consider unmanaged or small businesses And really managed businesses. These are large corporations that contract travel globally, Right.

Speaker 3

They use large travel agencies to help them manage the program. And so for us, what we see is that business revenue It's indeed 40% to 45% recovered. The nature of it has changed materially though where that unmanaged business is 125% to 130% And that managed or contracted corporate business is indeed about 75% to 80% recovered, maybe consistent with other things that you've heard. That of course and that's the thing that we've been seeing for some time. We see it to be a relatively durable trend and one that will continue, which is that There's going to be more and more unmanaged businesses out there.

Speaker 3

And indeed, we see even with those accounts that are contracted corporate accounts, As we emerge from the pandemic, fewer and fewer of them are enforcing travel policies or doing a lot of the things That they contracted to begin with anyway. So that's a trend which we anticipate will continue. And hopefully that clarifies the point too.

Speaker 9

It does. Thank

Operator

you. Thank you. And our next question coming from the line of David Vernon with Bernstein. Your line is open.

Speaker 10

Hey, good morning guys. So Robert, this is Eric. I want to talk a little bit about the rate of recovery in sort of either pretax or operating margins. You were down on pretax sort of 3.90 bps relative to 2019 in

Speaker 1

the second quarter. It looks

Speaker 10

at Same on a September level. And I'm just trying to get a sense for when we should start to expect to see those pretax margins kind of Recover and is that all 100% driven by volume recovery or is there something to do on the revenue side or the cost side To kind of accelerate the rate of change in the profit margin.

Speaker 2

Well, I'll just start, David. Hey, look, This gets back to the question is asked earlier. We have a lot of redundancy built in the business. Utilization isn't where we need it. I think that as we take a look to the future, we're depending on a couple of things.

Speaker 2

One is, fortunately, we're in a really strong revenue environment. And as we're looking into the 3rd quarter, anticipating And as we're looking into the 3rd quarter, anticipating 20% to 24% increases And in TRASM versus 2019, from a cost perspective, that's where we would like See unit costs come in lower. And the big driver to that is making sure that we find a more fulsome schedule And take out the redundancy that we have built in. And it gets back again to how quickly we can get these jets back up From a regional perspective, getting 787s back in and my view is that that's The name of the game for us as we go forward and as we take a look into the rest of 2022 2023, Our goal is to make sure that we're utilizing our assets as hard as we possibly can.

Speaker 10

And if I were to play devil's advocate And say, this isn't necessarily the case that we're thinking about, but in a world where we don't get that capacity recovery, The conversation within the company or with the Board around maybe restructuring at that level, that resource level, to some Full of lower. Not saying that's a base case, but I'm just wondering, as you guys think about managing the organization through the next couple of years here, if we end up in a world where That next 10% of the ASMs, the demand just isn't there, right? What are the levers that you could pull to maybe

Speaker 2

Hey, David. I mean, you've nailed it. We will size the airline for the demand that's out there. So right now there's more demand that we'd like to be servicing. We have the capacity to be able to do it.

Speaker 2

As time goes forward, if that demand doesn't materialize, what we will do is we will size the airline appropriately. We have flexibility within our fleet To be able to take out, I believe, everything that we would need to in terms of matching demand going forward. And on Then we would size the resources around it, including all of the people resources. Now on that front, We have great flexibility because we're hiring so many folks just to make sure that we can run the airline as we need to. So whether it's a people perspective, whether it's a fleet perspective, we have the ability to size zero lines for the demand factors out there.

Speaker 1

Yes. I'll add some numbers there, David. In 2023, we've got 95 lease renewals, 2024, 72 lease renewals. We have unencumbered aircraft of over 200 aircraft. We have deliveries coming in 2023.

Speaker 1

We have 31 in 2024forty 7. So that is exactly right. What you said is what we would do. We're not there yet because we believe that the demand is there To get more of these aircraft up, but if we see that, then that is what we would do is not renew leases, We'll push deliveries like we have in the past. You saw us last quarter push out some deliveries on the 789s and make sure that we right size those.

Speaker 1

And then we would take some of the unencumbered assets and we would move those and sell those and not put them back up in the air. So that's where we would go. You're exactly right.

Speaker 10

All right.

Speaker 2

Thank you, guys.

Operator

Thank you. And our next Question coming from the line of Daniel McKenzie with Seaport Global. Your line is open.

Speaker 11

Hey, good morning. Thanks guys. Going back to the commentary of more margin growth over time, setting aside market expectations for a recession And just putting a finer point on the prior commentary, all else equal, based on what you see today, Are the initiatives in place to offset the structurally higher cost in this next cycle? So just putting a finer point on Getting back to margins in the last cycle or actually exceeding those because in the past the commentary seemed Pretty bullish for doing a little bit better than what you've done on your historical margins.

Speaker 2

So, hey Daniel, thanks for the question and others My time is here too. I'll bring us back a little bit because I think what we're focusing on right now It's getting back to sustained profitability. So we've reported within guide this quarter despite Really challenging operating conditions. We're expecting profitability as we go into the Q3 and our intent is to stay in the black. Okay.

Speaker 2

That's job number 1. As we go out, it's still a murky environment out there, right? We're recovering from the pandemic And we're doing so well. We know that demand now is back and back strong. There's so many constraints out there In terms of aircraft deliveries, in terms of just people and pilots, that look, we think that we're going to be in a position Where we have the ability to improve revenue performance and get higher utilization out of the assets that we have, That bodes well for the future, but I'm reluctant to look too far out into 2023 and say that there are Certain margins that we will or will not hit.

Speaker 2

And I'll leave it at that unless anybody else wants to chime in.

Speaker 1

No, but I would say, Yes, that is our goal and that we know where we were in 2019. We know what those pretax EBITDA margins are. Getting the asset utilization back up where the demand environment is would get us back to those levels. So it is all about Moving forward, getting the asset utilization where it needs to be, get aircraft back up in the air, and we can reach those levels for sure.

Speaker 3

Hey Dan, let me pick up where Derek left off too. In this way, if you think about American Airlines prior to the pandemic, We flew more capacity than many of our competitors, but we've produced certainly lower nominal PRASM than What many of our certainly what the industry leader at the time was and through the pandemic, we've done a lot. In fact, this is Robert's commentary really. We didn't just simplify the fleet. We also concentrated the network where 70% to 75 And we really lean hard in the partnerships Create value where we couldn't organically.

Speaker 3

And now we are in a place where really for a couple of quarters, we can fly 5% to 15% more capacity than the 2019 PRASM leader, but produced PRASMs that are pretty comparable to that. So that's where when we say getting asset utilization up and running, it's a meaningful thing. But the thing that could be lost is that doesn't mean we're putting back 2019. Like there's not a world where we're going to go back into flying money losing flights for strategic purposes or things like that. There's not a world where we go and complicate fleet.

Speaker 3

But there is one where we've really realized the more unique O and Ds we create, the more that turns into real revenue production for the airline. And that's the basis to go build off of. And from that, a lot more is possible and will be.

Speaker 11

Yes. Understood. Thanks for that. A question on the regional operation, what does it look like 1 to 3 years from now, same size, smaller? And as you look at the percent of the regional network that's Competing against mainline aircraft.

Speaker 11

Where is that today and is where would you like to see it and is that an opportunity for helping to drive margin expansion?

Speaker 2

Daniel, it's absolutely an opportunity to drive margin expansion. First goal is to just get all the aircraft that we have back up and flying. And so our fleet is of regional aircraft is roughly 600 aircraft, love to get those back up. And over time, There will be changes in terms of mix to that fleet, but it will be based on how Effective it supports our hubs and the rest of the mainline operation too. So first goal and one that I think will take the next couple of years for sure Just to get all 600 back up and flying.

Speaker 11

Thanks for the time, guys.

Operator

One moment for our next question. Our next question coming from the line of Sheila Kahyaoglu with Jefferies. Your line is open.

Speaker 12

Hi. Good morning, guys, and thank you for the time. I echo Jamie's I don't know if you guys were screening for airline analysts going into Heathrow, but my experience with American was pretty good.

Speaker 2

That's something I can hear.

Speaker 12

Maybe just talking to your other large hubs, if you could talk about unit revenue in JFK and LAX, You mentioned in your prepared remarks it's outperforming the total system. Can you maybe provide some color on that? Is that relative to 2019 or on an absolute unit revenue basis across the system?

Speaker 3

Yes. Hi, thanks for the question. This is Vasu. And the answer is both. To Robert's specific point, That is compared to our system in Absolute.

Speaker 3

But let me provide a little bit of context behind the point. For us historically in New York, especially New York, Kennedy and LA, American Airlines typically produced unit revenues that were, Let's call it 90% of what the industry could produce through its domestic system. And now those are starting to get both in New York Kennedy and in Los Angeles, we're starting to produce unit revenues that are much more in line with the domestic system. This is material for us because our largest hubs where our capacity concentration is so great, We're able to produce unit revenues at a real advantage to what our competitors are able to do. So we're able to go and Serve these markets with higher unit revenues, has it bleeds through.

Speaker 3

That's something that we tend to look at really, really closely. But what we're really most encouraged about in New York and LA is, this isn't just a function of going in there and cutting a bunch of flights and growing RASM. We've improved the consumer proposition that's there. In New York, certainly, we between American Airlines and JetBlue, our Northeast Alliance Has put back more capacity sooner than anybody else. We've launched new routes.

Speaker 3

We've taken the American Airlines metal In the markets like Doha in India that 2 or 3 years ago would have been relatively unthinkable and our consumers are responding. We're seeing originating market Both in that partnership and also our West Coast partnership with Alaska and that's coming directly away from our large network competitors. So we're encouraged by the whole thing and really the context for it is this consumer proposition Starting to bleed its way into unit revenue results and that's most encouraging of all.

Speaker 12

Great. Thank you for that color Vasu. And then maybe just following up on the regional Is there any way to think about the current impact of subdued regional operations on the mainline operation and the traffic you're missing out on?

Speaker 2

I'm sorry, could you repeat

Speaker 3

the question, Sheila? We missed part.

Speaker 12

Sorry. Can you just talking about the regional operations, Is there any way to quantify how much you're missing out on traffic because of subdued regional operations?

Speaker 3

Because of subdued regional operations, got it. It's really difficult to do. We've actually taken a couple of cuts at it because The reality is that this is such a sort of unprecedented time in the industry where there are so many constraints on the infrastructure, so many issues with Aircraft deliveries, resources, things like that, that it's hard to really isolate what effect it is. In fact, When we look at it, what we find is, through the pandemic, we've been able to sustain a lot more of the connectivity of our system through the regional jets. And those places where we've sustained the connectivity are really what's driving our yield growth.

Speaker 3

And it's bringing in new customers that are not in necessarily large coastal metro areas. So it's hard to kind of isolate it because there's so many variables at play. But per Robert and Derek's Commentary, the regional jet, especially the wholly owned regional jet is really key to helping our mainline fleet grow and recover its utilization.

Speaker 12

Okay, great. Thank you so much.

Operator

One moment for next question. And our next question coming from the line of Andrew Theurer with Bank of America. Your line is open.

Speaker 13

Hey, good morning, everyone. Vasu, just a question on your 3Q revenue guide. When I look at other airlines, I think you guys are now the one that's not pointing to a sequential acceleration in total revenue growth 2Q to 3Q. Why do you think that is? And are you just trying to be a little bit more conservative given what's going on out there in the macro environment right now?

Speaker 3

Well, let me start by saying we're actually really encouraged by demand. I mean, the demand for our products has Then high in like an ahistorical way that continues. And indeed the way demand is coming back It's both really encouraging and somewhat different than what was there before from my earlier commentary. But really what you see when you go from 2Q to 3Q is first of all just a change in capacity production. We're taking A more conservative view of just how we size the airlines of the resources we have.

Speaker 3

For Robert's comments that impacts a lot of it. And then beyond that, really there's a wide range that we have in unit revenue production, Because we're really encouraged by the trends that we see, but if we've learned anything over the last couple of quarters, things could go change a lot. But right now, our optimism we see nothing really materially dilute our optimism in any way.

Speaker 13

Okay, understood. And then I've just been thinking, given the operational challenges across the entire industry, Do you think that will that's going to influence the way maybe corporate's willingness to travel come the fall? Have You or Robert have any had any conversations with kind of your big managed corporate clients that have maybe expressed concerns Over this operational reliability, just curious your thoughts on that. Thanks.

Speaker 3

Look, I'll start and then others can pick up Part of it, and this kind of goes to some of my earlier commentary. One of the things that we're seeing is that like large corporate Large contracted corporations are starting to just use different tools than what they had before. Prior to the pandemic, If corporations wanted to go and manage travel behavior, they could create more elaborate travel policies and Higher range of consultants and other firms to help manage that. But now through the pandemic, Video conferencing has become normalized. There's a lot more flexibility in the workplace and things like that.

Speaker 3

And so what we see actually is In a lot of cases, corporations though they may be they may not be enforcing travel policies as much as there was before, There is a lot more latitude and so we'll see customers who will often supply out of their travel policy, will pay more For a service that might have been there before, but they might be traveling less if they're worried about, for example, issues at London Heathrow. So At large, we're really encouraged by what we see. But the way corporations are probably going to go and manage this as a practical matter It's probably going to be very different than what was there. And we see that in the data, right? There's fewer people who are really and conforming to a travel policy.

Speaker 3

It's hard to see how that changes, but that's not necessarily a bad thing, because we continue to see demand come in and we're encouraged about where it may go even if it goes to

Speaker 2

Hey, Andrew, I'll just add one other point. And it's just this, look, Travel is coming back in record numbers, which is fantastic. And we have set really, really high standards for In terms of operational reliability, we look, started out every day doing everything we can to get every single passenger, every flight We're used to go on time. But if you take a look at really what's going on in the second quarter, Okay. We're not that far in terms of overall operating performance from where we have been historically.

Speaker 2

As a matter of fact, In the Q2, American did better than it did in 2019. And if you take a look back at prior quarters of history, We're not that far off from other points as well. The fact of the matter is that, look, we have operating conditions That we have to be sensitive to. I can't nor can anyone else do anything about 27 out of 30 days of really severe weather in a majority in a number of our hubs that just ultimately result in flight canceling And I'm rolling from day to day. And when we talk about weather, please understand this, it's not weather, it's safety, Okay.

Speaker 2

When there are air traffic control programs, when there's weather, when there's we're doing We're taking actions to make sure that we ensure the safety of our folks, not just our customers, but also the people on the ground. When ramps close, It's due to widening strikes. And so those kind of things are things that we're always going to take into account. And you know what, there will be seasonal variability to what we do. Everybody is working very hard.

Speaker 2

I know that our government partners are working very hard. The airlines are working very hard. And I know that The rest of the world will get to where the United States is, which in the scheme of things, United States is doing very well compared to the rest of the world.

Speaker 1

Very clear. Thank you very much.

Operator

And our next question coming from the line of Stephen Trent from Citi. Your line is open.

Speaker 14

Good morning, everybody, and thanks very much for taking my question. I just wanted to go back to something you mentioned earlier about investments that you've been making that have affected your near term cost. I think people are pretty aware that You guys are making a big effort on the pilot side and that makes sense. But could you elaborate maybe outside of crew, Whether you're making digital type investments or other processes that can improve your throughput? Thank you.

Speaker 2

Yes. Let me ask Maya Lehman, our Chief Financial Officer to step in here.

Speaker 8

Hi. We're super excited about a lot of the digital enhancements that we've been making. I'll Separate them, as Robert says, into our main goals of operational reliability and profitability. On the reliability side, we've done so much To really shore up how we respond in an irregular operation to bring our crews back together, we've also really enhanced some Focus on how we do gating at some of our larger airports like Dallas and Charlotte. And when we get better at that, what happens is we reduce the taxi time, so we save fuel, we dedicate more time to the turn and we better utilize our assets.

Speaker 8

We've also done some interesting work in creating algorithms that help us, especially in markets like Charlotte, where we get these pop up thunderstorms, where we can actually slow down the operation a little bit rather than use sort of a blunt force instrument like canceling an entire bank. So while flights may get a little bit delayed, at least they arrive, as opposed to what we were doing previously. On the profitability side, we've done so much in terms of putting new products in the market like the ability to upsell to a higher cabin, which We have more flexibility in how we price that product and the channels it can be purchased in. We've done a lot of improvements in overbooking technology. In a world where there's no change fee, there's a lot more volatility when it comes to cancels, closing cancels No shows that we have to have a better overbooking strategy, for that.

Speaker 8

You've heard Basu mention how important our partnerships are and how we rely on them Revenue generation, we need to create a much more seamless experience for our customers when they're traveling on us and for example, JetBlue or Alaska. And finally, you also heard Basu talk about the loyalty program and how we have used it to really grow our co brand spend, our enrollments are up and engagement with the So those are just a few of the things that we're doing.

Speaker 14

That's very helpful. Let me leave it there and then thanks very much.

Operator

Thank you. And I will now turn the call back over to Mr. Isom for any closing remarks.

Speaker 2

Well, I'll just I'll close with

Speaker 1

Pardon me? We're going to go to media. We're going

Speaker 2

to go to media next. Okay, great. Media next. Thank you.

Operator

Ladies and gentlemen, we will now move to the media question and answer session. First question coming from Alison Sider. Your line is open. Hi, thanks so much.

Speaker 12

Just curious if you could

Speaker 4

share anything, if you're seeing any delays or disruptions that are tied to enough spare parts or engines, if there's any kind of supply chain types of issues you're seeing there.

Speaker 2

Thanks, Ali. I'll have our Chief Operating Officer, David Seymour, take that one.

Speaker 1

Yes, Ali. No, I appreciate the question there. Yes, that's something throughout the pandemic We've been monitoring very closely working with our large OEM partners throughout to stay ahead of that. And so we've been doing a lot to Provide forward looks at what our requirements are. So while we know the supply chain systems are tight, we've taken a lot of steps throughout the pandemic Stay ahead of that.

Speaker 1

And so right now, we're not experiencing those. But again, we know that they're not far away and we're going to

Speaker 3

continue to monitor them closely.

Speaker 2

Yes. And Ali, I was just saying that the biggest supply chain issue has been the aircraft manufacturers themselves. We haven't had the kind of The delivery certainty that we'd like, so we know that our friends at Boeing and Airbus are working hard to get that back on track.

Speaker 8

And then I guess just on hiring, do you still have a

Speaker 4

lot of hiring left to do or when has it shifted more towards just

Speaker 2

So, hey, I'll start on this. Look, American Airlines, I know we have 12,000 more team members in position, but that's resulted As a result of 20,000 team members that we've had to bring on board and get up to speed, we're going to be hiring 2,200 pilots both this year and next year. We've done a great job, I think, in just about every other rank within our team to get the right people on board. So from American Airlines perspective, we're doing a good job. Of course, we'd like for the regionals To have more supply of new pilots, but we're working hard on that.

Speaker 2

Over the long run though, Coming to American Airlines is it's not only a great career, great competition, great benefits. The time to get here is now because if you ever wanted to get in and build seniority or A new role and lead, it's a good time to come to America.

Speaker 7

Thanks.

Operator

Thank you. One moment for our next question. Our next question coming from the line of Mary Saracens with Bloomberg. Your line is open.

Speaker 4

Hey, thank you. Derek, I wanted to see if you could clarify one thing. You said you have 140 to 150 planes on the ground, but you referred to Mainline equivalent aircraft. So can you be a little more specific? You've got 100 regional jets and then what makes up the rest of that number?

Speaker 1

Yes. The mainline equivalent our mainline aircraft, but what we've done is instead of pulling aircraft out of the schedule, We lowered the utilization on those aircraft. So if you normally fly 10 hours a day, we now fly 9 hours a day. And if you take that hour across the entire fleet, It's equivalent to about 44, 45 aircraft. So we haven't really pulled anything out of the schedule.

Speaker 1

We've flown it. Now as we look forward, I think the right answer as we pull down capacity in the 3rd Q4 is to probably take some of those aircraft out And utilize them for spares and for maintenance lines and utilize them to make the reliability better in the airline. I think as we go forward, we'll do it a little bit differently than we have and not and we'll raise the utilization on the rest of the fleet, but take some aircraft out to provide Relief for David and his operating team to have more aircraft for maintenance and more aircraft for spares.

Speaker 4

Okay, great. And how long do you expect that conditions in the industry are going to require American to limit its capacity?

Speaker 2

Well, look, Mary, if I knew the answer to that one, I'm going to be in really good position. Look, I think it's dependent on the supply chains, aircraft manufacturers and ultimately pilot supply to get all back In sync, we're doing our part and as we've talked, we look at from a mainline perspective kind of getting everything Fully utilized over the course of this next year or so. And then from a regional perspective, it's just going to take a little bit longer than that. Maybe 2 or 3 years to kind of get the supply chain for pilots back to where we needed to be. So that's the way I look at it.

Speaker 2

Overall, I am confident that everybody's getting back to work and the variability will hopefully be reduced And the kind of operating performance will improve from where it was even pre pandemic.

Speaker 4

Right. And when you refer to supply chains, are you Actually talking about physical, like assets, like supplies that Ali asked about or are you talking more and predominantly about Pilots alone.

Speaker 2

So pilots are 1 piece. But what I'm speaking of is, Mary, there's not a day that goes by where we don't have issues With provisioning our aircraft with pillows, blankets, plastic cups, food, At various times we have issues with fueling. It's just the concessionaires at the airport. It's just a myriad of things that have to all have to come together to put an aircraft in the air. And yes, The supply chain for aircraft parts is one thing that we monitor closely, but it's all these other things We really are dependent on so many other parts of the system.

Speaker 2

And again, I mentioned our government partners, it's our airport partners, And it's so many others. Aviation touches just a broad swath of the economy And we need it all to get back to working really well.

Speaker 4

Okay. Thanks very much.

Operator

Thank you. One moment for our next question. And our next question is coming from the line of Kyle Arnold with Dallas Morning News. Your line is open.

Speaker 3

Hey, thanks so much. You mentioned the capacity trim in The 3rd and the 4th quarter, considering that July is almost over and December travel season, you have about a month left in it. Where are you looking at making those cuts? Are they going to be coming after the peak summer demand is over? And what kind of Demand, I guess, are you seeing for the fall?

Speaker 3

And does that play into these capacity cut decisions? Yes. Hey, Kyle. Faith, this is Batu. So first, a number of the cuts that we talked about have already been loaded into our published schedules that are there.

Speaker 3

And as we go into fall, effectively, we're going to take the capacity in the places where it can create the most Operational benefit, which means, 1, it can go and turn into the best quality, the best level of reliability for our customers and also where we can reaccommodate people the best. So we minimize any passenger disruption. And then as we go forward in the later September, October and deeper into the winter, We have time yet to go and figure out how that goes. There's still a number of things that we're looking at before we make that determination.

Operator

Our next question coming from the line of Holden Wang with Dallas Business Journal. Your line is open.

Speaker 10

Hi, thanks for taking my question this morning. I just wanted to, I guess, get your thoughts on elasticity And if you have any concerns about that going forward, we're seeing fares continue to go up. Do you have any concerns about as fares go up, What effect that might have on elasticity going forward?

Speaker 3

Hey, thanks for the question. This is Vasu. And No, we don't spend a lot of time worrying about it. It's just for one simple reason that, what we try to do is create the most value for our customers and when they like it, they pay us for And so a lot of what you see out there is so much demand surging back into travel. As people went through the pandemic, You see in tons of data that consumers crave experiences and there's no experience like the experience of travel.

Speaker 3

And it's bringing a lot of people back and a lot of people are coming back and doing things very differently than before. And so that's what's really driving things as much as anything. And concepts such as the elasticity of our debt demand, While it's going to be probably intellectually satisfying to talk about the reality of it is that consumers really like what they're getting, Being able to go and travel to world again and they're taking advantage of it and that's turning into relatively higher fixed.

Speaker 10

Thanks. And then just to check my other question, you talked earlier about the issues at Heathrow. Just curious about maybe if you could talk about where you're sort of at overall from a recovery standpoint within international travel?

Speaker 3

Yes, I can pick that up too. So look, the second quarter was very robust. Even though we didn't have all of our the white bodies that we had planned to take, nonetheless, Those that we had performed extremely well. We had there's a lot of pent up demand for people going internationally, Wherever that might be, transpacific, transatlantic and long haul South America. And we anticipate that that will continue Now, this summer, the international testing requirement was dropped.

Speaker 3

And while we saw some benefit of that, It was dropped pretty deep into the booking curve. We anticipate there will be that they'll have a much more significant impact On travel demand as we go into the fall and already we're seeing indications of it. And last but not least, Short haul international, Mexico, Central America, the Caribbean has been and remains Extremely strong for American Airlines, and we anticipate that will be the case, going forward. Thank you very much.

Operator

One moment for our next question. Our next question coming from the line of Laurie Aratana with Washington Post, your line is open.

Speaker 7

Hi. Thank you for taking the time. I wondered if you could go over the Hiring numbers again, how many folks you've brought on? How close that gets you to where you want to be? And as a question on that, how much of the staffing issues are hiring

Speaker 2

Hey, thanks for that question. Look, our staffing issues are really Making sure that we can cover the variability that's in the operations today. We have more people per flight hour, Per flight than we have ever had in our company's history on duty. What we're dealing with right now is just a lot A variability in the operating environment. To get to the point where we are now, we've added 12,000 positions, gone out and hired 20,000 people To actually fill those and cover for other attrition.

Speaker 2

The only shortfall that we have right now is really among our regional pilots. Of course, we're going to do things to make sure that we run the airline as reliably as possible and also take into account more extreme variability in operating conditions. We're doing that by pulling the schedule down a little bit as we go into the Q3. But we hope that All the work that we've done puts us in a position where we can restore service, get back up to speed as quickly as possible.

Speaker 7

Great. Thank you.

Operator

Thank you. And that concludes the media Q and A. I will now turn it back to Mr. Robert Isom for closing remarks.

Speaker 2

Thank you so much. And hey, I'll just close with this. I am so proud of our team after fighting through this horrible pandemic For the last two and a half years, battling every step of the way, persevering, caring for customers and each other every single day, We set a couple of goals. 1 is to return to profitability and to run the most reliable airline we could. And I am so pleased to report that we have returned to profitability.

Speaker 2

We intend to stay that way. And I know that our team is intent I'm making sure that we produce the kind of product that we're all proud of and that our customers want to fly. So thanks for listening in and we'll talk to you next quarter.

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Earnings Conference Call
American Airlines Group Q2 2022
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