American Airlines Group Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
January 26, 2023

There are 18 speakers on the call.

Operator

Welcome to American Airlines Group's 4th Quarter 2022 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the call over to Managing Director of Investor Relations, Scott Long. Please go ahead.

Speaker 1

Thank you, Latif. Good morning, everyone, and welcome to the American Airlines Group 4th Quarter and Full Year 2022 Earnings Conference Call. On the call this morning, we have our CEO, Robert Isom our Vice Chair, President of American Eagle and Strategic Advisor, Derek Kurt And our new CFO, Devin May. A number of our other senior executives are also on the call for the Q and A session. Robert will start the call this morning with an overview of our performance and our 2023 priorities.

Speaker 1

Derek will follow with details on the Q4 full year, And Devin will then outline our operating plans and outlook going forward. After Devin's comments, we'll open the call for analyst questions, followed by questions from the media. 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, but numerous risks and uncertainties could cause actual results Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning as well as our Form 10 Q for the quarter ended September 30, 2022. In addition, we'll be discussing certain non GAAP financial measures 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 Web We undertake no obligation to update the information subsequently. Thanks for your interest and for joining us this morning. And with that, I'll turn the call over to our CEO, Robert Eifman.

Speaker 2

Thanks, Scott, and good morning, everyone. Thanks for joining us. This morning, American reported a 4th quarter GAAP net income of 8 $103,000,000 and a full year net income of $127,000,000 Excluding next net special items, We reported a 4th quarter net income of $827,000,000 and a full year net income of $328,000,000 Our performance in the Q4 and for the full year was driven by continued strength of demand and revenue environment and the incredible efforts of the American Airlines team. We're tremendously proud of what the team has accomplished over the past year. We committed to running a reliable operation and we're delivering.

Speaker 2

Coming out of the holidays, American had the best completion factor of any major U. S. Airline. We also said we would return America to profitability And we've done that as well. Our team has delivered a 3rd consecutive quarterly profit and 4th quarter margins that are higher than the Q4 of 2019, Despite our fuel price increasing by approximately 70%, we generated nearly $2,400,000,000 in pre tax profits over the past 3 quarters and we're pleased to report a full year profit for the first time since 2019.

Speaker 2

In addition to running a reliable operation and generating sustained profits, we're making significant progress on repairing our balance sheet. We recently prepaid a $1,200,000,000 term loan a year before its scheduled maturity date. And we have now reduced our total debt by more than $8,000,000,000 from peak levels in mid-twenty 21. This puts us well past the halfway point of our $15,000,000,000 total debt reduction goal only 18 months into the program. Derek will talk more about our deleveraging plans in just a few minutes.

Speaker 2

Let's talk more about the 4th quarter and full year results. We produced revenues of $13,200,000,000 in the 4th Quarter, an increase of 16.6% versus 2019 and the highest 4th quarter revenue in company history. Notably, we achieved this record revenue by flying 6.1% less capacity than we did in the Q4 of 2019. American also produced record revenues of $49,000,000,000 for the full year, which is a 7% increase over 2019, While flying 8.7% less capacity, demand remains strong and our revenue performance is in line with our expectations Following our strong holiday performance, post holiday bookings are off to a strong start. In fact, this is our best ever post holiday booking period With broad strength across all entities and travel periods, demand for domestic and short haul international travel continues to lead the way.

Speaker 2

We expect the strong demand environment to continue in 2023 and anticipate further improvement in demand for long haul international travel this year. Now turning to the operation. The American Airlines team delivered a fantastic performance in the 4th quarter. We operated more than 475,000 flights in the quarter With an average load factor of approximately 84%, we ranked 1st in completion factor among the 9th largest U. S.

Speaker 2

Carriers. Our team delivered an even stronger performance over the holidays despite challenging conditions in many parts of the country. American outperformed the industry over the December holiday period, Ranking first in completion factor. Key to our success has been sizing our airline for the resources we have available and the operating conditions we expect to encounter and we will continue to do that going forward. We're doubling down on our efforts to run a reliable operation in 2023, including investing in our team, Our fleet and technology to support our operation and we're seeing this work pay off as our operation is off to a strong start just a few weeks into 2023, including the best on time arrival performance of the 9 largest U.

Speaker 2

S. Carriers so far this year. American is proud to operate the simplest, Youngest and most efficient fleet among U. S. Network carriers.

Speaker 2

In August, we began taking deliveries of new 788 aircraft from Boeing For the first time in 15 months, in the Q4, we took delivery of 5, 788s and we expect to receive the remaining 4 in the first half of twenty twenty three. Our Boeing 789s are expected to be delivered starting in 2024. During the 4th quarter I'm sorry about that. Okay. During the Q4, we also took delivery of 7A321Us, 3175s and 3737-800s from long term storage.

Speaker 2

Devin is going to talk more about that. But what I'd like to say is that the results the American Airlines team produced in 2022 and what we are projecting in 2023 Our proof positive that the actions we have taken in recent years have put us in a position of strength and allowed us to take full advantage of the recovery. We spent more than 5 years on the most complex integration in the history of the airline industry, 3 years navigating the pandemic and making the airline more efficient and now we're poised to drive the business forward in 2023 and beyond. We have simplified and harmonized our fleet, modernizing our facilities, fine tuned our network to focus on the most profitable client, develop new partnerships, introduced new tools for our customers and team and hired tens of thousands of people. Through it all, the American Airlines team has gone above and beyond to deliver strong operational and Now before I turn it over to Derek to provide more detail on our 2022 financial performance, I want to thank him for his partnership over the past 20 years as CFO.

Speaker 2

He is a great friend and has been a trusted advisor throughout my career. Quite simply, he's the best CFO in the history of the airline industry. This financial leadership has helped create the largest airline in the world, The merchants of America West and U. S. Airways in 2005 and U.

Speaker 2

S. Airways and American in 2013. Derek was instrumental in raising $25,000,000,000 During the pandemic to ensure American would not just survive, but also be in a position to thrive on the other side of it. And I'm very pleased that Derek will remain as American at American Vice Chair will continue to lead our American Eagle and Cargo teams and serve as a strategic advisor to the company. As we look forward to 2023, we remain focused on running a reliable operation, achieving sustained profitability and reducing debt.

Speaker 2

We have made tremendous progress at all three of these areas, thanks to Derek's leadership and we will continue to sharpen that focus with Devin May as our CFO. And on behalf of the entire American Airlines team, I want to thank Derek for his leadership and tremendous contributions to the airline as our CFO. And now, I'll hand it over to Derek.

Speaker 3

Thank you, Robert. Thanks for your kind words. I really appreciate it. It's been an honor, tremendous honor to serve as CFO of American, U. S.

Speaker 3

Airways and America West over the past 20 years. I'm incredibly proud of what the team has accomplished in that time. Now on to the business of the morning. Excluding special items, we reported a 4th quarter net income of $827,000,000 or earnings of 1 point and $0.17 per diluted share. We produced our best 4th quarter pre tax margin since 2016, When we produce roughly the same results at fuel prices that were nearly double the price per gallon lower than 2022.

Speaker 3

Throughout 2022, you heard us talk about our focus on returning the airline to profitability and we have done that. We achieved a full year profit due to continued demand strength and the hard work of our team despite a $1,900,000,000 pretax loss in the Q1. Excluding net special items, we produced a full year net income of $328,000,000 or $0.50 per diluted share. 4th quarter revenue far exceeded our initial guidance due to continued strong demand. Revenue in the 4th quarter was higher than any 4th quarter in company history.

Speaker 3

As Robert mentioned, the domestic and short haul international entities continue to lead the way and we expect further improvement in long haul international as we continue to grow back our capacity. Costs for the quarter, excluding fuel, came in at the high end of our initial guidance range primarily due to higher profit sharing and expense driven by higher earnings in the quarter. American is proud to operate the simplest, youngest and efficient fleet among U. S. Network carriers.

Speaker 3

In August, we began taking deliveries of our new 788 aircraft We will now begin the call. At this time, all participants are in a listen only mode. In the Q4, we took delivery of 5 788s and we expect to receive the remaining 4 in the first half of twenty twenty three. Our Boeing 789s are expected to be delivered starting in 2024. During the Q4, we also took delivery of 7 A321neos, 3 E175s and reactivated 5737s from long term storage.

Speaker 3

In 2023, we expect to take delivery of 2 A321neos and we plan to reactivate 9 more 738s from long term storage. Based on our latest guidance from Boeing, we now expect to take delivery of 17737 MAX 8s in 2023 compared to Boeing's contractual commitment of 27 deliveries. This change in timings will shift planned CapEx out of 2023 and into future years. Our 2023 aircraft CapEx is now expected to be approximately $1,500,000,000 Repairing our balance sheet remains Top priority in our actions in the 4th quarter show our commitment to debt reduction. In the 4th quarter, we repaid 1,200,000,000 Term loans secured by domestic slots.

Speaker 3

This prepayment increased estimated 1st lien borrowing capacity to 10,300,000,000 and addressed our most significant 2023 maturity. With the actions we have taken, we have now reduced our total debt by 8,200,000,000 or more than half of our goal to reduce total debt by $15,000,000,000 by the end of 2025, only 18 months into our deleveraging program. We ended the year with $12,000,000,000 of total available liquidity. We will continue to balance both debt opportunities and investments in the business while meeting appropriate target liquidity levels. We will target $10,000,000,000 to $12,000,000,000 of total liquidity in the medium term and intend to utilize excess liquidity to accelerate our deleveraging initiative at the appropriate time.

Speaker 3

With no meaningful maturity towers until 2020 5, we have the flexibility as to how and when we begin to address those instruments. With that, I'm happy to turn the call over to our new CFO, Devin May, who will share our outlook for 2023. Devin has more than 20 years of airline industry experience across finance, operations, network planning and alliances, and he is the perfect person to lead our finance organization going forward. He has been an integral part of our executive team for more than a decade and has built a great team around him. The CFO transition has been and will continue to be With that, I'll turn it over to Devin.

Speaker 3

Thank you, Derek, and good morning, everyone. Before we get into our guidance, I want to start by thanking Derek for his leadership over the past 20 years. I've had the privilege of working with Derek Since 2002 when I joined America West Airlines. He has been a close brand and mentor during this time and our airline is set up well for the future because of his leadership. I'm honored to be taking on the CFO role and being part of an incredible senior leadership team.

Speaker 3

I look forward to leading the finance team and building on the progress we've made on our financial Priorities. For 2023, we will continue to size the airline for the resources we have with a focus on reliability and sustained profitability. We continue to expect to produce capacity that is 95% to 100% of 2019 levels or up approximately 5% to 8% year over year. We are on track to hire over 2,000 mainline pilots in 2023 and we expect to achieve our run rate level of training throughput in the back half of this year, allowing for further aircraft utilization improvements in 2024. We continue to expect regional pilot supportability to be constrained throughout this year and next.

Speaker 3

Demand for air travel strengthened as we went through 2022 and we expect industry revenue will return to its historical share of GDP in 2023. Given our level of capacity production, the strength of our network and industry supply constraints, we expect total unit revenue to be up low single digits year over year. For the full year, we expect CASMx to be up 2% to 5% versus 2022. These projections include the estimated impact of anticipated labor agreements, which account for roughly 3 points of CASM ex fuel. For the full year, we expect to produce earnings of $2.50 to $3.50 per diluted share.

Speaker 3

Using the midpoint of that EPS guidance, we are forecasting operating cash flows of approximately $5,500,000,000 and free cash flow of nearly $3,000,000,000 Looking to the Q1, we expect to produce an operating margin of between 2.5% and 4.5% based on our current demand and fuel price forecast. And while we are eager to get new labor agreements ratified, given where we are at in the quarter and the time required for ratification, We do not anticipate ratifying new contracts prior to the end of the Q1. If that does occur, we will update our guidance accordingly. In the Q1, continued strength in demand is expected to result in total revenue per available Sea Mile that is 24% to 27% higher year over year. Our Q1 CASM excluding fuel and net special items is expected to be flat to down 3% year over year.

Speaker 3

The current fuel forecast for the Q1 assumes a fuel price of between $3.33 $3.38 per gallon and a full year price of between $3 $3.10 per gallon. As Derek noted earlier, we'll continue to focus on debt reduction And I'm proud of the progress we have made to date. In 2023, we expect to make further progress on our $15,000,000,000 debt reduction goal. We will use our free cash flow to pay down $3,300,000,000 in debt amortization this year and we expect that by the end of 2023, We will have reduced total debt by $10,000,000,000 to $11,000,000,000 from peak levels in mid-twenty 21. Based on the forecast I just provided, We expect that by the end of the Q1, we will have lower net debt and better net debt to EBITDAR than we did at the end of 2019.

Speaker 3

And by the end of the year, we anticipate having the lowest net debt to EBITDA ratio we have had since 2017. In conclusion, in 2023, we will continue to focus on delivering on our stated objectives. We are set up to run a reliable airline, Grow margins and strengthen the balance sheet. Importantly, American is uniquely positioned to deliver substantial free cash flow in 2023. The confidence in our ability to execute on these goals is due to our world class network and incredible team.

Speaker 3

With that, let's open the line for analyst questions.

Operator

Thank you. Our first question comes from the line of Helane Becker of Cowen. Please go ahead Helane.

Speaker 4

Thanks very much, operator. Hi, everybody, and thanks for your time. Derek, I'm going to miss you, but good to know that you'll still be at the company.

Speaker 5

Thanks, Elaine.

Speaker 4

Sorry about Michigan. Okay. So here's

Speaker 2

Just business, Elaine. Just business.

Speaker 4

So yes, yes. So here's my question actually. 2, The first one is on CapEx. The one the guidance that you gave for CapEx seems low in light of the fact that you're taking For 7,878 this year, is that a mix where it's leased versus owned in there?

Speaker 3

Hi, Elena. This is Devin. That is what's happening with CapEx this year. So we're taking delivery of 23 airplanes, 4 of those are 788s, which are direct lease. So those 4 are not included in the CapEx guide.

Speaker 4

Okay. All right. That's very helpful. And then just for my follow-up question. As you're thinking about long haul international, do you see in your bookings, I think you mentioned that you think it will improve as the year goes on.

Speaker 4

Do you see that in bookings that's already starting to occur at some point in

Speaker 6

Hi, Helane. This is Vasu. Yes, is the short answer. We very much see it in bookings. We started seeing it frankly in Q4 of last year.

Speaker 6

In Q1, we see continued strength across all of the geographies that we have and that's continuing out into the summer. So we are very encouraged by the trends that we're seeing, all the more encouraged because It is coming often at lower cost of sale and we're still building business class cabins and things like that.

Operator

Our next question comes from the line of Catherine O'Brien of Goldman Sachs. Your line is open, Catherine.

Speaker 7

Hey, good morning, everyone. Also want to add my congrats to Derek on a wonderful career. And then just on your operational performance, really stood out during the issues the industry experienced over the holidays. Obviously, it wasn't anything geographical considering what happened to some of your peers. So can you walk us through what you think drove it?

Speaker 7

Were there investments being made behind the scenes over the last

Speaker 2

Hey, Catherine, thanks. We're really proud of the operating performance. I'll tell you, it's something that we've been working on a long time. And it starts with making sure that we have The resources available to fly the schedule and we don't put out a schedule that we're not confident that we can really fly. That's where we start.

Speaker 2

And then yes, it's investments in so many different places. We benefit from having the youngest, Most efficient fleet of aircraft. We spent tremendous amount of time investing in technology to make sure that we can Identify where our crews and our planes and our maintenance requirements are, but really I want to give credit to the team here. We have So much experience on board that we're just really watchful, and it all came together over the holidays. The investments that we've made, the team that we have out there, making sure that we have the right schedule.

Speaker 2

I've got David Seymour here as well. I probably want to add to it. Look, there's a lot of good decision making going on out there too.

Speaker 8

Yes, Robert. I emphasize the points you talked about, but another key item here is Release storms that we've been very focused on recovery after that, because it's so critical to us and it's one That I think throughout this year, we're doing better and better on and we certainly showed that over the holiday. But the key for us along with having New positions that we put in there are focused when we have storms like this. We've changed a lot of our processes and procedures that we had how we manage these. And then we've also been partnering with our IT group and really enhancing some of the technology resources that we have to manage through these events because they change very dynamically and very And we have to stay in front of them.

Speaker 8

But more importantly is the recovery. We started looking at the forward look of what the storm potentially could be And started building our recovery plan before the storm hit, and that's where we're very focused on. So again, as Robert said, very proud of

Speaker 3

the team, very proud of the

Speaker 8

partnership With all the whole airline, because it's not just operations, it's a lot of our support groups that are very critical to us getting through these. So Great job. We're going to continue to improve on that.

Speaker 2

And Catherine, it speaks to what we're going to be focused on going forward as well. It's still reliability and And we're going to try to get better every day. Today, we have another 5,000 plus flights and 500,000 customers that we have to service. And so we make

Speaker 6

it our business to take

Speaker 2

care of people every day. So we're back out there in business.

Speaker 6

Thank you.

Speaker 7

That's great. That's super helpful color. If I could just sneak one more in, maybe for Vasu. Can you just help us think about some of the assumptions that drive your full year revenue outlook? Like what are the assumptions on business and international recovery?

Speaker 7

Is there an assumption in there that the industry is going to pass on higher price of labor and fuel on a one for one basis? Just any thoughts that drive the full year revenue outlook? Thanks.

Speaker 6

Absolutely. I would be happy to do that. Look, first of all, in our revenue forecast, we don't Assume any change to some of the fundamentals of airline demand. We presume that airline industry revenues will regain its historical relationship with GDP roughly about a 0.1%. We also presume the same historical relationship between Revenue and fuel prices.

Speaker 6

But what is very important is that, as we've talked about for some time, What's different about us is that we have used the last few years to really materially change our network, our partnerships and our fleet. And that really bleeds through in our forecast for next year. If you compare our capacity mix just in future schedules We have published what we did in 2019. We've taken 5 points of capacity out of our lowest RASM, lowest margin long haul flights And we've grown 5 points of capacity in our highest margin, short haul flights. Additionally, within the short haul system, we've taken 5 points of Capacity from some of our lowest performing, lowest RASM markets and redeployed it into our Sunbelt hub, which are not just our highest RASM market, but some of the highest RASM market in the industry.

Speaker 6

So when you think about that, that's 10 points of capacity mix We've taken from truly the lowest RASM, lowest margin things and put into some of the highest margin things that are out there. And you're seeing some of that Trend already, due to 22. That was a I think that have been in our past schedules. You see it in our quarter one schedules, and that drives a lot of our revenue performance. Now to put that into a bit of focus, 10 points of capacity in an airline of our size, you can think of that as Larger than just about any airline hub with the exception of DFW, Charlotte and maybe 1 or 2 other hubs that our competitors operate.

Speaker 6

So That is a material reworking of our airline network over the last few years. But what's just as important is how we have done it, which is really through a significant amount of fleet simplification. So, we over the last few years, we've shed 50 long haul capable airplanes, Many of which were really inefficient like the 757, 767. We've up gauged both the regional jet and the main lines that we've got And we've simplified the airline down to 4 fleet types. So what that enables us to do is in the fleet that's left, we can much more dynamically Alter schedules to follow where the demand is, but we can produce schedules that, as you heard David and Robert talk about, are a lot more operable and frankly a lot more efficient.

Speaker 6

So we've seen the benefits of that in our recent revenue performance And we anticipate the benefits of that in the year ahead.

Speaker 7

Thanks.

Operator

Our next question comes from the line of Jamie Baker of JPMorgan. Your question please, Jamie.

Speaker 9

Hey, good morning, everybody. First, Derek, What a run you've had. Just wanted to wish you the very best from the JPMorgan team as you transition. I still remember hanging up on you on Question from us, Sue. So Southwest cited pass through cancellations in Book Away as part of its 1st quarter guide this morning.

Speaker 9

I'm wondering what the benefit for American in Dallas and Chicago might look like and whether you see Share tapering back to pre December levels in March? Or do you think there's possibly a longer tail To any Southwest benefit that you might be picking up after all, I mean, you're on time and completion factors obviously speak for themselves over the holidays.

Speaker 2

Yes. Hey, Jamie, thanks for

Speaker 6

the question. Look, we don't see any recognizable benefit from What other airlines are doing? For us, it really is as simple as when we go put the flights in places people want to go and operate it well, The bookings come, the revenue materializes. And there's really not a lot of, fact that we can point to beyond that very simple truth.

Speaker 9

Okay, fair enough. And as a follow-up, Doug wasn't shy in discussing hub Profitability, LA, Miami and JFK being the real drags on margin, DC, Charlotte, Dallas, the obvious Standouts and LA has obviously seen some rationalization. You have NEA contribution up here in my neck of the woods. I'm just wondering whether your internal model shows the range between your most and least Profitable hubs narrowing and if so, what the specific drivers might be?

Speaker 6

Yes. So the short story is, we do see an improvement in very many Our hubs as we've gone and restructured the network. And in some cases, as you think about partnerships for us, We don't see those very differently from how we think about our own airline network. But when you put a codeshare flight number or a American Airlines operated flight number, it has the same effect of creating more network for customers and there's a real benefit for it. But There's 2 things going on.

Speaker 6

The 1, demographically, we see so much growth in the interior of the country. And 2, what is really driving our hub profitability is for a great number of cities, American Airlines has the best network for so many customers. There's 300 cities that we serve today. In 2019, we serve roughly the same amount of cities. Most of our competitors have actually shrunk the number of cities that Sure.

Speaker 6

But furthermore, within the cities that we have in about 200 of those 300 cities, we have a material schedule advantage to other airlines that operate there. So that creates an effect that is actually really beneficial across all of the hubs in our network. And indeed, some of how we Seahub profitability and how these hubs work together has changed materially due to the pandemic. And to My earlier comment, that's why we've restructured so much of the airline network as we have.

Speaker 2

Jamie, you mentioned Los Angeles. So I'd like to pass through to Expand on that a little bit. Look, in Los Angeles, we're there's a limited amount of gates and let's face it, we Need to use those, we need to use those in a way that's profitable. We've taken a look at that and Vasu can tell you the kind of changes we've made.

Speaker 6

Well, yes, look, in LA, much like In New York, through our partnerships, we've been able to create something really cool for customers where if you think about it in times We flew 50 seaters and small RJs in markets where we didn't really have a schedule proposition for customers. And in both of those markets, take it LA and New York, effectively what we've done is we've turned 50 seaters, which are not particularly efficient in the long haulers, 777s that are flying a whole lot farther. So we've engaged in both of those markets materially. We've been able to use partnerships to go and offer A much broader network for customers. And now we're in this place where lo and behold, we're adding a third LA Heathrow, Because it's a really it's Robert's point, a very efficient way to go use Gates and leverage what we've got with customers.

Speaker 6

In New York, so much of our growth is actually powered by long haul flights that are flying within the partnerships that we have with Qatar, British Airways and the net effect of that has been really positive outside of really good financial results, which we see in our revenue trend. For the first time ever, our top two markets for advantage enrollments are New York and Los Angeles. We're signing up more credit cards there. We are originating we're having growing originating market share in those places. So A lot of what we've done is frankly up gauged in those markets.

Speaker 6

We've gotten a lot smarter about what we do for customers. Yet at the same time, their partnerships can offer them so much more.

Speaker 9

I'll sound like a broken record, but thank you yet again for such a thorough response.

Speaker 2

That's what

Speaker 6

we do around here, Dave. Indeed. Any good year. Yes.

Operator

Thank you. Our next question comes from the line Scott Group of Wolfe Research, your line is open, Scott.

Speaker 2

Hey, thanks. Good morning. So if I just look at the Q1 TRASM guide versus Q4 implies a much Sort of bigger drop than normal sequentially Q4 to Q1. Just any thoughts, color there? And then I want to kind of ask that in the context of fuel.

Speaker 2

So, spots obviously a lot higher than what you're guiding to. What's your confidence that you can recapture Fuel with higher trials than you're already guiding to for the year? Yes. Hey, Scott, this is Vasu. I'll start

Speaker 6

and I think Devin We'll finish this one out. Look, 1st and foremost, as we're starting this year, we have been really encouraged by demand trends. Historically, the 1st 3 weeks coming out of a holiday season are our strongest sales weeks. These 1st 3 weeks have been the strongest that we've seen in The post merger airline, and we're really encouraged by that. And you see that of course in our trials and guide out there.

Speaker 6

Now what is interesting though is as we are building Q1, what is different from times past, is we have been very conscious in Q1 about how we use the airline's resources. It's people, it's planes, it's facilities, everything, largely so that we can have as much of that capacity for the summer peak As possible. So when you look at our Q1, we have peaked the airline a lot less than what we had historically. It's a lower percentage of Q2 than what it's historically been. And that's really a conscious design.

Speaker 6

And you see That is really what you see in our Q4 to Q1, change that's there. And that's sort of a unique thing. And to my earlier point, we don't presume any change to the historical relationship between airline revenues and fuel prices, but Devin may want to add more

Speaker 3

to that too. Just really quick on your comment on fuel price. So our fuel price forecast is based on Friday's Close, where Brent was trading, almost exactly where it's at today, and then using the forward curve for Brent and Heacrack from there. So I think our forecast that we have delivered today is pretty much in line with where fuel is at today.

Speaker 2

Okay. And then just separately, can you just give any color what you're assuming for the cargo and other revenue? And then the non op expenses Up a good amount from the Q4 run rate, any color there? Thank you.

Speaker 3

Yes, this is Devin. So just on cargo revenue, we are expecting it to be down slightly year over year. When it comes to non op, the largest change you're seeing in non op is due to a non cash pension credit that we got last year based on The prior year's market performance of our pension assets and what were relatively low interest rate. This year, we saw interest rates increase, pension assets came down. And so this non cash credit that was, fairly significant in 2022 is Much smaller in 2023.

Speaker 3

And that's something that I'm sure you're hearing from other companies and seeing in other industries.

Operator

Thank you. Our next question comes from the line of Michael Linenberg of Deutsche Bank. Your line is open, Michael.

Speaker 10

Hey, good morning, everyone. And hey, Derek. I'm going to miss you. I know you're going to still lose the company, but we've had a lot of fun over the years.

Speaker 6

Yes, we have. Thanks,

Speaker 10

Mike. Next drinks on me.

Speaker 3

Boston trip. Never forget the Boston.

Speaker 2

Anyway, just

Speaker 10

I have 2 here, if I could just start off with Vazu, because I think we're trying to get our arms around the run up in fuel And I think Delta is out there sort of guiding to 50 or well, Exceed 60% of their revenue in premium and ancillary. And I think right now they're in the mid-50s. And when I think about those revenue segments, many of them come With the price elasticity of demand that's less than 1, many of them are the types of segments where you can have a fuel surcharge. And so, Vasu, as you think about it, like sort of what percentage of your routes maybe are subject to fuel surcharges, whether they're international long haul or which ones are premium, corporate, Long haul or which ones are premium, corporate, cargo. How should we think about like In round numbers, maybe what percent of your revenue where you stand a very good chance of passing on 100% of the Verizon fuel?

Speaker 10

Sort of where do you sit there and just any color on how you guys think about it?

Speaker 2

Yes. Hey, Mike, it's a

Speaker 6

great question. Look, I would actually even simplify it further. Look, in the airline network business, if you can offer something unique to the customer, they pay you a premium for it. It is as simple as that. And so And we see it time and time again.

Speaker 6

We've seen it through the pandemic. The most unique thing we can offer customers is to take them to places where our competitors can And better schedules than what our competitors can do. So as long as that's the case, we find that those routes regardless of whether customers Purchase a transaction, which is 1st class or economy or fly for leisure business, they always have yields that index To the top of our system. So if you think about us, right, to my earlier point in 200 of the 300 cities That we serve in the Western Hemisphere, we have a material schedule advantage. But when you look at it on the number of origin and destination markets we make and something that turns into like something like 65% to 70% of our origin and destination markets.

Speaker 6

We have a material advantage over what our competitors are. That is what drives our revenue performance. And unsurprisingly demand at large for the airline product is relatively inelastic. But in so many of those places, it is inelastic. We're also further benefited by just general trends that we're seeing that So much of what is driving the economy and likely to continue to do so are markets in the Sunbelt and the interiors of country and less so the coastal markets, which creates an immediate benefit for American Airlines.

Speaker 6

So we're benefited from that. We're benefited How we can uniquely serve it are likely to continue to be able to uniquely serve it. And when fuel prices rise, it's a really simple thing for us. We have any number of ways to go and Manage capacity down so the airline continues to produce.

Speaker 10

Very good. And then just Second question to Robert, all the talk about capacity constraints across the aviation ecosystem. And as I think about American, It feels like things like pilots and mechanics, maybe that's not an issue. If you sort of think about like what are The big hurdles that you have from a constraint issue, and is it just that maybe you don't have enough wide body airplanes and therefore it's an issue with the OEMs delivering the airplanes that you need? Is it air traffic control?

Speaker 10

Like where are you sort of where are the roadblocks that you're running into with respect constraint in the aviation ecosystem. And thanks for answering my question.

Speaker 2

Yes. Thanks for that. And yes, we're in an Environment of a lot of constraints coming out of the pandemic. We certainly saw everything last year. It's just things that we never thought we would have issues with, Pillows and blankets and food and fuelers and things like that.

Speaker 2

We've gotten our arms around a lot of that, but what we have now Yes, aircraft manufacturers that are just starting to get their feedback under them. I mentioned that Boeing is starting to deliver aircraft, a shout out to The Boeing team and Dave Calhoun, we need them to keep it up. But there's constraints out there in terms of engines and aircraft. At American right now, we have really an issue with regional aircraft And then some issue with mainline aircraft. On the regional side, it's largely a pilot constraint and we're not flying the fleet that we'd like to.

Speaker 2

Basu would actually like to deploy more aircraft. Now on that front, it's pretty explainable. It's just a shortfall in pilots. We didn't Attract people into the business for a couple of years, and we're working our way through that as we have retirements that are coming out the other side. American took the monumental step last year of greatly increasing regional pilot pay.

Speaker 2

And I think that that is the biggest thing that any company can do and has done To actually get the pump primed and people flowing back then. And we're seeing that. We're seeing that We've stabilized the pilot ranks at our regionals and we see potential growth as we come through the end of the year. Now, from a mainline perspective, look, we're going through the greatest training cycle of pilots that we've ever experienced. We had, I think, almost 900 retirements last year, probably nearly the same number this year.

Speaker 2

So We're stretching our training resources like we've never before, but fortunately, we plan for this. And so From an equipment perspective like simulators, we've got those in place. One of the things that we're really working on is to

Speaker 6

make sure that we have The

Speaker 2

people resources and having the check pilots that we need to really address all of our training needs. And I'm hopeful that as we Work with the APA and we get a new contract, we'll be able to get even more flexibility. But overall, I do see from a mainline perspective, we should be through The constraints that related to pilots as we progress through the year, regionals probably take a couple of years. But as we've said, we have aircraft that we can deploy and will, and that's going to be done in a very efficient fashion. You mentioned some other areas that are absolutely positively out on the horizon.

Speaker 2

The large airports, all have constraints, Whether that's at the gate or at on the airfield. And then we have aerospace issues that clearly We need to address and that's going to take leadership. Unfortunately, we're working with the DOT and FAA. And I know that Secretary Buttigieg has Interest like we all do in making sure that we can invest for the future and it's going to take a long term view. But overall, I look, these constraints right now are things that we're managing through.

Speaker 2

I think it bodes well at least from Yes, a demand environment and being able to ensure that we can achieve profitability. Over the long run, we're going to make sure that we have a business model that works in any demand environment with any set of constraints.

Speaker 10

Great, great. Thanks, Robert.

Operator

Our next question comes from the line of Connor Cunningham of Melius Research. Your line is open Connor.

Speaker 2

Hi everyone. Thank you and congrats Derek and Devin. It's great to hear.

Speaker 11

Just on back to Jamie's question on the operation and maybe some of the Southwest issue. I'm just curious if you could Speak to the how your conversation with your corporate partners has evolved, given your just operational strength. Like, I would imagine it would be a lot easier these days, but can you just talk about how that's changed at all and what your expectation is for new contracts and so on? Thank you.

Speaker 2

So, hey, Connor, I'll start and I'm going to hand it straight off to Vasu. But I'll tell you what, one thing that hasn't changed is that Reliability, it translates into likelihood to recommend. It translates into Net Promoter Scores. And we see it Over the holidays and as we really progressed through last year and got reliability to a really high level, Our scores have improved to the highest levels that we've seen. Those are the kind of things that I think that our corporate customers Are interested in this as well, Hassane.

Speaker 6

Yes. Robert is 100% right. And so first, I'll say for our customers at large, They clearly benefit from a better operation and we see it. We for the year, we as Robert said, we posted our best likelihood to recommend scores By a meaningful amount in any time post merger. And that's no action.

Speaker 6

That is the operation. But look, what's really important out there is, yes, many of our partners are encouraged, but what's really important and this links back to some of the other questions, is that also the marketplace has changed very meaningfully. As I mentioned on our last call, we see the same trends where roughly 30% of our revenues are coming from what we've historically called leisure, About 45% are blended trips, only about 25% are what we've historically called business trips. And of that 25%, historically that number would have been about 35%. So it shifted a lot.

Speaker 6

And within the 25%, only about 5 points to 7 points of that are coming from contracted corporations. The rest are non contracted, unmanaged businesses who are flying on us. And what we see amongst those contracted corporations is quite striking. Almost 2 thirds to 75 percent of our corporate contracts are actually not fulfilling the terms of their contracts for understandable reasons. For so many companies, if you're struggling to bring people back to the office, it's hard to compel them to go do a day trip to Chicago or New York.

Speaker 6

And so we see that broadly. And so even though many customers are happy with our service And many corporate travel buyers are very happy with our service. The reality is same day corporate business trips, which used to be 3% to 4

Speaker 11

Okay, great. That's awesome. And then on the if you're talking about free cash flow again, that's obviously great to hear. I'm just curious how your expectation for future aircraft deliveries has changed. Should we expect that We're going to start paying cash for these planes going forward.

Speaker 11

I realize that your CapEx budget is lower, but just curious on how you're thinking about financing those aircraft in the future. Thank you again. Bye.

Speaker 3

Yes. This year is a low point for aircraft CapEx. We'll see it come up a little bit next year and then get back to more of a run rate type capital expenditures as we get out into 2024, 2025. In terms of financing, it's going to be dependent on where the market is at. And so, yes, there's potential opportunity that we may pay cash for some airplanes, But it's dependent on what sort of free cash flow we are delivering and what sort of market rates we're able to achieve.

Speaker 5

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of David Vernon of Bernstein. Your line is open, David.

Speaker 12

Hey, good morning, everyone. Robert, I wanted to ask you about How we're exiting 2023 on the cost side? You guys have been running a pretty clean operation and the margins are Obviously, pretty healthy. I'm just wondering how much baggage are you carrying in the 2023 outlook from lower productivity, more full training classrooms, is there a way to think about, what that penalty would be from a unit cost perspective Because of some of those lingering effects of restoring the network embedded inside of this 2023 guidance.

Speaker 2

Well, I'm going to ask Devin to help me out. But David, I would tell you that the biggest I think the biggest issue that we have right now is we have aircraft that we could be utilizing at Much higher level. And you feel absolutely positively, we're going through some training cycles that Are just unprecedented and the hiring that's going on at American right now that is going to over time Stabilize and we won't have to work those assets quite as hard. Biggest thing right now is aircraft. Devin, do you want to give some numbers on what you think that?

Speaker 3

Yes. I'd just say for aircraft utilization, we are just starting to approach historical levels. So just starting to approach our 2019 Levels of aircraft utilization as we get through this year.

Speaker 1

So like we've talked about, this is a

Speaker 3

fleet that should be able to produce Higher aircraft utilization than the fleet we had prior to the pandemic. Just recall prior to the pandemic, we had a lot of older aircraft, Smaller sub fleets that have really high spare ratios. So even though we will likely put more into operational support Then we would have planned to a year or 2 ago. We still think this is a fleet that can produce significantly higher utilization than what we're doing today.

Speaker 12

Okay. I mean the leverage on the aircraft ownership cost is pretty straightforward. But as you think about increasing that utilization, can you talk about The impact on the at the margin on costs and things like labor and the rest of the business. I'm just trying to get a lot of questions about, scalability and how unit cost should be moving as we're thinking about 2020, not just 2023, but also 2023 into 20 24. Any

Speaker 3

Yes. I think just as Robert said, there's certainly some more operating leverage in the business. And if you're asking specifically about the Salary line or the training headwinds, I think that is absolutely a part of it. As we get through this year and get our training throughput to a level That it should be at. I think we are going to see some efficiencies on that side.

Speaker 3

Through the rest of the P and L, yes, there's opportunities as We increase aircraft utilization in areas like airport rent and landing fees and that type of thing.

Speaker 2

And in maintenance. When you have aircraft that sit on the ground, especially within our regional fleets, it's not as if those don't require maintenance. So look, The fleet is meant to be flown and whether it's things like rents and landing fees, maintenance, Those are the areas that I would probably look to most as being opportunities for us to see much greater efficiency.

Speaker 12

All right. Thanks for that. And then one last real quick one. Free cash flow should be something like 130% of net income In this based on the guidance today, as you think about the go forward look, I'm just curious about the whether you're able to use the loss in the last couple of years. How long is that going to affect sort of cash taxes?

Speaker 12

And when When do you think cash taxes are going to start to become a part of the equation here? Is that a 2024, 2025, 2016 thing or is that like Any sense of when that might kick in?

Speaker 3

Yes. We don't expect to be cash tax payers in that period for at least through 2026.

Operator

Our next question comes from the line of Andrew Didora of Bank of America. Your question please, Andrew.

Speaker 8

Hi, it's Andrew.

Operator

Andrew, your line is open.

Speaker 13

Hey, good morning, everyone. It's Andrew DeDoro. Just in terms of the balance sheet and the debt pay down of the $8,000,000,000 of gross pay down done thus far, Am I doing my calculations right? Is about $3,500,000,000 of that coming from the pension? And then of the $15,000,000,000 kind of Total gross debt pay down number, how much of that do you assume is just a reduction of pension benefit?

Speaker 3

Yes. So that is the right calculation. So in the summer of 2021, when we had historically low interest rates, our pension obligation It's obviously significantly higher. It's sitting around $2,000,000,000 at the end of 2022. By the end of 2025, where we've set our $15,000,000,000 goal, it's still right around that number, maybe a little bit lighter, based on Expected asset returns and the pension contributions we're going to make.

Speaker 1

Got it. And I know you've answered a lot of questions in

Speaker 13

terms of Asset utilization, hiring and things like that. But as you sit here today for your 2023 capacity plan, Do you have the pilots in the aircraft in house to hit that plan or does the plan require additional hiring and additional kind of Deliveries from the OEMs relative to plant in order to hit that capacity goal? Thanks.

Speaker 3

We'll be hiring pilots throughout the year. We feel really good though about the hiring forecast we have and what we're expecting for training throughput. In terms of deliveries, as we talked earlier, we do expect to take 23 aircraft this year. Those deliveries Would be required to hit this plan. I think we've taken a pretty conservative approach to what we have for in service dates, and we feel like this is the plan we're going to be able to hit.

Speaker 2

Yes. And Andrew, that's look, as Vasu and Devin get together to build And that work and work with David Seymour on our operating capacity. We're being really mindful of making sure that we have the resources to So there's a confidence factor that we're using in that as well.

Operator

Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your question please, Duane.

Speaker 14

Hey, good morning. Thanks. Congrats to Derek and Devin. Just to follow-up, just where you left off there. I think at one point last year, I believe you paused mainline hiring because of the pilot training throughput and the pilot training lead times.

Speaker 14

Can you just mark to market like did you restart hiring? When did you restart hiring? And how many incremental do you need to hire to hit your growth plan this year?

Speaker 3

Yes. So we were hiring ahead of needs and training throughput as we got later in the year. So we did hiring for most of the month of December, I believe. That hiring has resumed here in January. Our expectations are we're going to hire around 2,000 pilots for this year and probably Little bit on the higher end as we get through the year and training capacity continues to increase.

Speaker 14

Okay, thanks. And then just Most of my questions have been asked, but just an aircraft financing question. So hypothetically, if you had $100,000,000 in aircraft CapEx And you debt finance that. Where do you see LTVs? So is it $80,000,000 or $85,000,000 that would go on the balance sheet?

Speaker 14

Where do you see LTVs and cost of debt today? And alternatively, if you lease that $100,000,000 of gross CapEx, How much would go on the balance sheet in the form of an operating lease liability?

Speaker 3

Okay. There's a lot to that. I'll just say our treasury team right now we have 23 deliveries, 12 of which are Our financing requirements for the remainder of this year are pretty limited, but those are all the factors they're going to be looking at is what sort of rates are embedded in The operating leases that are in the market today, what sort of LTV we can get on the debt, what's happening with the rest of the balance sheet and our free cash flow, And they're going to make the right economic decision. So we have a great treasury team. They're looking at these remaining 9 aircraft we need to finance for this year and looking out to 2024 as well.

Speaker 15

Okay.

Speaker 14

I mean, fair enough. It's not like if you will or if you won't. It's if you do debt finance $100,000,000 in CapEx, Where is the market in terms of that LTV and cost of debt today?

Speaker 3

Yes. It's something that obviously we expect is going to move around Over the next handful of months, I don't have a number that I'm ready to give right here today, but it's something that we're going to stay tight with, and We have a team that knows the market well.

Speaker 14

Okay. Thank you for taking the questions.

Operator

Our final analyst question before we open the line to media comes from Ravi Shankar of Morgan Stanley. Ravi, your line is open.

Speaker 15

Good morning, everyone. So one short term and one long term The short term question is going to be it's good to hear that you said you're having your best ever post holiday booking period so far this year. Can you just expand a little bit more? Are you seeing any changes in customer behavior? Are they flying to different destinations?

Speaker 15

Are they looking to Maybe kind of downgrade their tickets or look for more flexibility, kind of any signs at all of any change in customer behavior kind of given where macro is?

Speaker 6

Yes, we are seeing some changes in customer behavior. People are especially leisure travelers are booking even further out. We see that blended customers are also much more willing to book further out. And third, we see that customers, especially Blended customers or people purchasing a blended trip are more willing to buy higher value fare products And shop direct with us. So we continue to see a world where roughly 60 ish percent of our revenues Are coming direct to us through our dotcom and mobile app, and we see that continuing to grow.

Speaker 6

Furthermore, as those blended trips come into our, as we call them, own channels, 70% of the people shopping for the lowest fare End up buying a higher fare than that. So, we're encouraged by that. And then as far as where people are flying, I suppose that's pretty simple too. They're flying everywhere they possibly can except for places in Asia.

Speaker 15

Great to hear. Thanks a lot. And maybe just a follow-up. You guys have come a really long way kind of in the last year kind of since where everyone was during the pandemic, but The markets may be not recognizing that.

Speaker 3

So I'm wondering if there's

Speaker 15

any plan to kind of host an Analyst Day to kind of give us a kind of a long term plan on

Speaker 2

Thanks for that question. The answer to that is look, We've been really pleased with the work that we've done throughout the pandemic and setting American up. And the answer to your question is, yes. We're going to get out and make sure that people know our story, more details on that as the time progresses, You'll hear more from us on that.

Speaker 15

Very helpful. Thank you.

Operator

Our first question comes from the line of Mary Schleichenschnein

Speaker 16

Hey, I wanted to ask a couple of business related questions quickly. On your business travel, whether it's corporate managed or not, Do you anticipate any impact from the growing number of companies that are laying off workers, particularly In high-tech, but also now extending to some manufacturing companies. And then my second question is, Is your expectation that this shift to blended trips is in fact a structural change within the industry And will not diminish going forward in terms of at least as far out as you can see. Thank you.

Speaker 6

Hey, thanks, Mary. This is Vasu, and I'll answer the questions in reverse order. First, look,

Speaker 2

We do

Speaker 6

see a meaningful change in the trip purposes that people are booking, that there's a lot more blended trips. Even so many people who are searching for what conventionally would have been a business style itinerary, We see it in our dotcom end up selecting something which is pretty unconventional where they stay a Saturday night or they book another person for a midweek trip or something like that. So we do see that. And our credit card partners at Citi see the same thing too that Demand for travel is still a really strong category and has preserved travel at large Has preserved its relationship with GDP, if not, somewhat grown a little bit. So that there is a meaningful thing.

Speaker 6

We're out of the pandemic, there's clearly a value that consumer is placing on travel. Then as far as how layoffs are impacting things, Look, what's really important to note about business travel is, yes, it's 25% of our revenues, But those companies that are intending to do the largest, the biggest, largest ones tend to buy on a corporate contract. And that's so much of that business just really hasn't recovered and we haven't built an airline plan around it. However, non contracted business is 100% recovered, contracted business is about 75% recovered, And we don't presume that it grows much further than that. So we aren't seeing a really significant impact, But we also aren't building a plan based on a lot of that demand returning.

Speaker 16

And is that 75% recovery for Correct. Is that down from prior estimates? I thought that you had said perhaps 80% in the past.

Speaker 6

No, it's hovered in the Sorry, Mary. It's hovered in the 75% to 80% range. And to be conservative, we build our plan around the lower end of that.

Speaker 16

Okay. And that's revenue?

Speaker 6

Correct.

Operator

Thank you. Our next question comes from the line of Leslie Joseph of CNBC. Your line is open Leslie.

Speaker 13

Hi, good morning everyone. Thanks for taking my question. Curious if what your hiring needs are outside of the unionized groups like the offices And if you're seeing anyone apply or maybe you can benefit from some of the tech layoffs? And then secondly, with Your plans to do this high J configuration cabin, are you planning to increase staffing at all of cabin crews To kind of handle the more high touch service, and more passengers in that cabin. Thanks.

Speaker 2

Hey, Leslie. I'll start and Cole Brown, our Chief People Sure.

Speaker 3

You can help me out.

Speaker 2

Look, the hiring at American is really unprecedented levels. You mentioned our pilot hiring. Yes, we anticipate 2,000 pilots this year. But over the last 2 years, and Cole will correct me, I think we've hired almost 40 1,000 people, which is across all groups. We have A view that we're going to bring folks in, make sure that they're really well trained, but it really is throughout all of our operations and headquarters and And we're going to bring the best and the brightest in.

Speaker 2

So, Cole, you want to add anything

Speaker 3

to that?

Speaker 13

Robert, I would just

Speaker 16

I wish what your point is that we are taking a hard and thoughtful look as it relates to any hiring outside of operations, Making sure that we're bringing in the best and brightest, but also that we're thinking through not only what our needs are today, but where we're going tomorrow. And some of those skill sets might evolve and change. We have an exciting new CIO that's come on board and taking a really important look at our IT organization. And so more to come. But right now, we feel like we are focused on the right things and being very thoughtful and measured And where we are hiring, at the corporate level.

Speaker 16

It's certainly the focus is the areas

Speaker 6

that we've previously discussed with you all.

Speaker 13

Got it. Thanks. And then on the staffing, for the Hi Jay?

Speaker 6

Hey, we're really this is Vasu. We're really excited for the new HiJ product. Our customers Love our new business class. We've gotten great feedback as we've shared concept designs with some of our most loyal customers And our flight attendants. But we haven't yet determined a number of things with how it operates, where it operates, things like that.

Speaker 6

It's a little bit premature right now.

Speaker 7

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Claire Bouchey of Financial Times. Your line is open, Claire.

Speaker 16

Hello. Thanks for taking my question. I was wondering if you're at all concerned about new regulation in response to Perceived increasing unreliability of air travel?

Speaker 2

Hey, Claire, I'll just start. Look, our primary focus is on making We run the best airline we possibly can. That's the way that ultimately we address customers' needs and ensure that Our customers are being treated fairly. Of course, we'll work with government authorities to make sure that we're taking care of people in the right fashion.

Operator

Our next question comes from the line of Doug Cameron of WSJ. Doug, your line is open.

Speaker 5

Doug Cameron or is there another Doug?

Operator

Go ahead Doug Cameron.

Speaker 5

Okay. Thanks. I got a hugely loaded question for Devin and Derek and a super quick follow-up for Vasu, if you let me. The loaded one. You must be relieved that you don't have to finance 100 planes this Given where interest rates are and the vagaries of supplier delays, just on that lack What sort of complications does the uncertainty over when you actually get planes as opposed to contractually getting them?

Speaker 3

Well, you're right. I am happy that we're taking 23 airplanes and 12 of them are already Finance this year. I will say, we did go through a huge wave of investments, prior to the pandemic. And over that period, I think that the timing is obviously fortunate. We were in a nice economic environment, a really good environment for financing those airplanes.

Speaker 3

As we look out to this year, I don't think the timing of the deliveries as it sits today is Too concerning with, how we're going to finance the airplane more than anything. We just want to make sure, the airplanes are Delivered an in schedule, so we can run a great operation and have really solid schedules for our customers. What we've done on that front is we have Planned conservatively, within service dates that we believe are coming in far later than when we'll actually take delivery of the airplanes. And that's something that's going to be really good for our customers.

Speaker 2

Yes. And we continue to work with both Airbus and Boeing To make sure that we encourage them in an appropriate fashion to deliver on time. And I know that they're working hard to make sure that they can meet our needs.

Speaker 5

That's great. And just as I say quickly for Vasyl. Vasyl, are you seeing any kind of skirmishes on the payer and scheduling front just given How competitive capacity trends are going or is demand just that strong that you ain't seeing anything anywhere?

Speaker 6

Hey, thanks for the question. We don't comment on fair and competitive scheduling trends, But I will say we are really encouraged with the demand trends that we see and are very confident in the airline we've set up to go and Take care of our customers along the way.

Speaker 5

Fair enough. Thank you very

Operator

Thank you. Our next question comes from the line of Kyle Arnold of Dallas Morning News. Your line is open Kyle.

Speaker 17

Hey, thanks so much. You had some cuts at the regional level or service to some smaller cities. What's your strategy behind the regional served locations right now. And do you think there'll be further cuts as we continue to go through this pilot shortage at the regional level?

Speaker 2

Hey, Kyle, I'll just start on this. Look, it's really unfortunate that we've had to reduce service anywhere Most especially to some of the smaller communities, that's solely a result of the issues that we faced With pilot staffing at our regional airlines, as I mentioned before, we're working really hard on it. American, I think has taken the biggest step to get people into the industry Have anyone and I know others have followed us there. That's going to have an impact. We've seen the benefits of those efforts And we're stabilizing the fleet and I think that we just grow back from here.

Speaker 17

Is there any outlook on how long there might be constraints

Speaker 2

Yes. So I think from a regional perspective, it takes time to get people back into the industry. But again, for anybody that is listening and reading, it's a great time to come into aviation. These are careers, our pilot careers are ones that are can be great quality of life And also very lucrative as well. And so I think it's an opportunity that as we look to the future That there are communities that haven't typically been places where we've sourced pilots that we're going to look to in the future.

Speaker 2

We're showing great progress And hiring pilots of color and also female pilots. And I look at that as an opportunity going forward that's going to greatly benefit and really change the face of Our flight crews and really looking forward to it. I think it's something that's probably over the course of the next couple of years.

Operator

Thank you. Our next question comes from the line of Ted Reed of Forbes. Your line is open, Ted.

Speaker 8

Thanks for taking the question. My question is for Robert. Robert, We've been hearing you say for a long time that you're going to make a reliable airline and a profitable airline, and you seem to have done that this year All right, last year. So now I want to know what is the vision for the future? Can American be restored to being the greatest airline as it once once perceived?

Speaker 8

And do you have a Path to do that now that you've accomplished started to accomplish your other goals?

Speaker 2

Well, hey, Ted, great to hear from you. Let me just start with this. I'm really pleased with 3 profitable quarters and producing a profit For the full year in 2022, the things that we've talked about doing are the right things. Getting customers to where they want to go, having the broadest network and doing in a fashion that can produce profits, pay down debt It's exactly where we need to go. And off of that platform, I see great things.

Speaker 2

But what you're going to see from us As certainly in the near term is more of the same, intense focus on reliability, profitability and accountability. And for our customers, that's going to mean we're going to deliver for them, deliver with the best network that Fa Zhou has talked about, making sure that we have a travel rewards program that's best in the industry. We're going to operate with excellence and it's going to require even greater planning And day to day execution and when things don't go right and let's face it, we're in a business where all sorts of things can happen, we got to be the best at recovering and you're going to see us continue to invest And along the way, we have the opportunity to really make better use of technology To further digitalize our operations and our customer experience and Ganesh Jairam, who is our new CIO, Has been charged with executing exactly that and ultimately put this all together in a business model That is incredibly efficient, improves margins and reduces debt. That's what we're focused on right now. I want to keep the team with their head in the game every day And really excited about what that means for the future, because I do think it means that American is not just more competitive out in the marketplace, We're going to be more competitive in terms of stock performance as well.

Speaker 2

All

Speaker 8

right. Let me just ask a follow-up When you look back at the history of the industry, the people who've been considered the greatest leaders have been the ones who've expanded the airline, Wolf, Crandall. And going forward, I don't mean right away, but over the years, can this airline expand maybe more in Asia or places where you're perceived this week?

Speaker 2

Hey, Ted, just first off, just in terms of ego around here, look, we are focused on business And really making sure that we have the capacity to address the opportunities in the marketplace. America has been around for 96 years now. Coming up on our 100th anniversary in 2026, and I want American to be the airlines that meets The needs of our customers, our communities and our shareholders as well. And so we're focused on that right now. And, look, we're really encouraged by what we're seeing.

Speaker 3

All right.

Speaker 2

Thank you, Robert. Good to hear from you, Ted.

Operator

Thank you. That concludes the media Q and A. I would now turn the call back over to Robert Isom for closing remarks.

Speaker 2

Thanks for that. Thanks everybody for listening in.

Speaker 6

Look, American is in a

Speaker 2

position of strength, especially as we take a look at Coming out of the pandemic, we're poised to recover. We're going to focus on our goals, reliability, profitability, making sure that we Reduce our leverage and put American in a position to take advantage of opportunities that come about. We're really encouraged by The results and excited about the opportunities ahead. Thank you very much.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr
Earnings Conference Call
American Airlines Group Q4 2022
00:00 / 00:00