American Airlines Group Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
October 20, 2021

There are 20 speakers on the call.

Operator

Good morning, and welcome to the American Airlines Group Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. 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. Dan Cravens.

Speaker 1

Thanks, Sarah, and good morning, everyone, and welcome to the American Airlines Group Third Quarter 2021 Earnings Conference Call. On the call this morning, we have Doug Parker, Chairman and CEO Robert Isom, President and Derek Kerr, Chief Financial Officer. Also on the call and on the line as well for a Q and A session are several of our senior execs, including Maja Lieben, Chief Information Officer Steve Johnson, our EVP of Corporate Affairs Elise Everwein, our EVP of People and Global Engagement and Vazirajah, our Chief Revenue Officer. Like we normally do, Doug will start the call with an overview of our quarter and we'll update to the actions we've taken during the pandemic. Robert will then follow with some remarks about our operations, commercial and other strategic initiatives.

Speaker 1

After Robert's remarks, Derek will follow with the details on quarter and our operating plans going forward. After Derek's comments, we will open the call for Hanel's questions and lastly, questions from the media. Before we begin, We must state that today's call does contain forward looking statements, including statements concerning future revenues, costs, forecast of capacity and fleet plans. These statements represent our predictions and expectations as to future events, but there are numerous risks and uncertainties that could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found on our earnings press release issued this morning and our Form 10 Q for the quarter ended September 30, 2021.

Speaker 1

In addition, we will be discussing certain non GAAP financial measures this morning, which exclude the impact of unusual items. A reconciliation of those GAAP numbers to the GAAP financial measures is included in the earnings release and that can be found in the Investor Relations section of our website. A webcast of this call will also be available on the website. The information that we're giving you on the call is as of today's date, and we undertake no obligation to update the material subsequently.

Speaker 2

Thanks again for joining us.

Speaker 1

At this point, I'll turn the call over to our Chairman and CEO, Doug Parker.

Speaker 3

Thank you, Dan, and thank you, everyone, for being with us. Good morning. So our Q3 started out very strong. Our domestic business revenue, which had climbed from 27% Our 2019 levels in March to 52% in June jumped even more in July, actually jumped to 64%. As companies began to return to work and their employees began to return to the skies.

Speaker 3

And as a result, we had American produced a profit in the month of July. But then the spread

Speaker 4

of the delta variant led to

Speaker 3

a rebound in pandemic fears, of course, company's deferred return to work plans and That domestic revenue the domestic business revenues fell back to 57% of 2019 in August and 47% in September. Now I know some people find that trend discouraging, but we actually think it's encouraging. The spike in business revenue in the month of July Shows that business travel does want to return. There is enormous pent up demand. And once this pandemic is behind us, it should resume its prior rapid trajectory to recovery.

Speaker 3

And as to how it all gets reflected in the financial results, that profit in July, followed by larger losses in August September, Added up to a cumulative loss. On a GAAP basis, we actually reported a net profit of $169,000,000 But when we exclude net special items, We recorded a net loss of $641,000,000 And while we obviously don't like reporting losses, this is our smallest quarterly loss Since the pandemic began in early 2020. What we're most proud of is how well the American Airlines team is performing. No one is managing through this pandemic and into the recovery better than the people of America, and it shows in the results. At a time when airlines are struggling to build back Service and response to demand, no one has built back further and faster than American.

Speaker 3

We flew greater than 80% of our 2019 capacity in the 3rd quarter While our large competitors have restored only 70%. As a result, we flew 13% more seat miles in the quarter than our next closest competitor. And our team safely transported more than 48,000,000 passengers in the quarter. And our team did this while doing an excellent job of taking care of our customers. We struggled with growth ourselves in the early as we entered the quarter, but we responded quickly and aggressively.

Speaker 3

We ended the quarter flying by far the largest airline in the world With the best September operational performance in American's history. That great performance by our team has led to strong customer acceptance, as evidenced by our industry leading passenger accounts and our revenue trends. For the quarter, revenues were significantly improved over 2020 We're down 25% in the Q3 versus the same period in 2019, whereas they were down 37.5% in the 2nd quarter on the same year over 2 year basis. And notably, our passenger unit revenues in the quarter were down 10% versus 2019 versus 12% declines at the other large international U. S.

Speaker 3

Carriers, despite our higher capacity production. On the cost front, we've reshaped our network, simplified our fleet and built operational cost efficiencies into the business that will serve us well for years to We accelerated the retirement of more than 150 older aircraft and American continues to operate the youngest and most fuel efficient fleet of the U. S. Network carriers. And importantly, we've actioned more than $1,300,000,000 of permanent annual cost reductions into the business through our green flag initiatives.

Speaker 3

And as we navigated through the crisis, we've been careful to think and look long term. We've announced a series of strategic relationships with other airlines around the world The strength in the American network, adding additional utility to our customers and long term value for our shareholders. The most notable of these are our Northeast Alliance with JetBlue Our West Coast international alliance with Alaska, which we continue to implement and grow in the Q3. Looking forward, we feel great about where America is positioned. Due to the deferred business demand and the recent rise in fuel prices, the 4th quarter will be challenging, but that's a near term issue fighting a longer term bullish trend.

Speaker 3

We're encouraged by the upside that exists in demand for business and international travel, and our confidence is reinforced by the incredible work the American Airlines team has done throughout this pandemic It continues to do today, and we're particularly excited about the future that lies ahead for American and our team. With that, I'll turn it over to Robert.

Speaker 4

Thanks, Doug, and good morning, everyone. I want to start by thanking the entire American Airlines team for their efforts in the Q3 and throughout the pandemic. Our airline continues to succeed, thanks to the hard work of our team. As Doug mentioned, this summer represented the largest operational ramp up in the history of America. As we build back the operations, much like other businesses, we have managed through supply chain constraints, vendor and staffing challenges, Constantly changing travel restrictions and a lot more.

Speaker 4

Through it all, we operate more flights and carry more customers than any other U. S. Airline, We're then tripling our daily departures from May 2020, which was the low point of our schedule. And we're pleased with where we are. American recorded our most reliable September since the merger based on completion factor,

Speaker 2

on time departures and on time arrivals. We'll continue to

Speaker 4

focus on delivering a safe and reliable operations and continuing momentum as we further scale our operation and welcome back even more customers. I also want to acknowledge the efforts of the American team in the 3rd quarter in support of the U. S. Civil Reserve Air Fleet Program. It was a tremendous honor for America to aid in the effort to bring more than 5,000 evacuees from Afghanistan to the U.

Speaker 4

S. As well as hundreds of members of the U. S. Military. That work included, working with the Customs and Border Protection To open up the Philadelphia facilities as a welcoming center for foreign nationals.

Speaker 4

We're grateful to our team members throughout the airline and from all over the world who came together to support American Craft Activation. As we reported this morning, our Q3 total revenue was approximately 9,000,000,000 up $1,500,000 from the 2nd quarter. This improvement was driven by our passenger revenue recovery, which increased by more than 20% sequentially from the second Quarter on a 12% increase in available seat miles. Overall passenger revenue in the 3rd quarter was 72% of what was in the Q3 of 2019, which is up 13 points sequentially from the 2nd quarter. Domestic leisure revenue has now returned to pre pandemic levels at 98% of 2019 levels in the 3rd quarter.

Speaker 4

As Doug described, business revenue growth stalled in the quarter It finished flat in the 2nd quarter at around 50% of 2019 levels. Given recent booking trends With the delta variant subsiding and everything we're seeing and hearing from our customers, we're planning for a robust peak travel period in the Q4 and we're excited about the prospects for 2022. Here's why. We expect that domestic leisure revenues will surpass 2019 levels in the Q4 and continue that trend throughout 2022. Short haul international revenues should follow that same pattern.

Speaker 4

And recent trends show that corporate bookings month to date have improved significantly and are accelerating like they were earlier in the year before the delta variant and associated restrictions were imposed. Our largest corporate customers tell us they'll be returning more fully to the office and travel as we move out of 2021. And because of that, we continue to expect a full rebound of business revenue to 2019 levels on a monthly basis by the end of 2022. Speaking regularly with our top corporate customers, almost all have resumed domestic U. S.

Speaker 4

Business travel to some extent. As companies return to the office and lift travel restrictions, we see continued growth in corporate travel. Industrials, healthcare and professional services continue to lead that recovery. Long haul international travel, particularly long haul business travel, while the slowest to return is starting to come back. Right now, almost 2 thirds of our corporate customers are traveling internationally for at least essential business.

Speaker 4

And we expect international travel to improve Significantly with easing of cross border requirements and we're encouraged by the recent news about the U. S. Government easing international travel entry restrictions Starting in November. Following the White House announcement, we saw an immediate increase in bookings in several of our key international markets. Overnight, we saw a 66% increase in bookings to the UK, a 40% increase to core Europe and a 74% increase to Brazil.

Speaker 4

Clearly, there's significant pent up demand for travel to and from the U. S. And many customers are eager to return to travel when it's permitted. Now just focusing on the 4th quarter, we expect total revenue will recover to approximately 80% of 2019 levels, up approximately 5 points sequentially versus the 3rd quarter with the strongest performance in domestic and short haul international markets. We continue to make significant strides in building the broadest global network in the industry and reconnecting with our customers.

Speaker 4

Our partnerships with JetBlue in Alaska are delivering tremendous benefits for customers and enabling new flying that otherwise wouldn't be possible. More than 715,000 customers were able to travel across our networks during the quarter, thanks to these innovative partnerships. Together, American and JetBlue will operate more than 700 daily flights from New York and Boston this winter, including nearly 50 international destinations

Speaker 5

out of JFK.

Speaker 4

We also continue to create a seamless experience for our customers, including rolling out reciprocal lease benefits for ADDvantage and TrueBlue Mosaic members, we expect to launch mileage redemption on JetBlue very soon. Our loyalty program continues to demonstrate its attractiveness to our customers and partners. New member acquisitions in the Q3 exceeded 2019 levels, despite the airline flying a significantly smaller schedule. As our customers continue to engage with Advantage, our co brand cash payments were essentially fully recovered at 96 percent in the Q3 versus the same period in 2019. This is up from just 78% in the 2nd quarter on the same basis.

Speaker 4

We expect this trend to continue as the network returns to a more normalized level. On the EFC front, during the quarter, American became the 1st North American airline Commit to developing the science based target for reducing greenhouse gas emissions by 2,035. We also agreed to turn to purchase more carbon neutral American also became an anchor partner to breakthrough energy catalyst

Speaker 2

and we've committed to invest $100,000,000

Speaker 4

In a groundbreaking collaborative effort to accelerate the clean energy technologies necessary for achieving a net zero economy by 2,050. We're excited about this work and what it will mean for the future of aviation and the acceleration and adoption of critical next generation clean technologies across all industries. So in summary, while the Delta variant has shifted the timeline for the recovery, we remain very bullish on the return of demand and we feel great about how we're positioned, Thanks for the hard work and dedication of the American Airlines team. And with that, I'll turn it over to Derek.

Speaker 2

Thanks, Robert, and good morning, everyone. Before I begin my remarks, I would also like to thank the American Airlines team for their hard work during the quarter. Their continued resilience In the face of uncertainty due to the Delta variant is commendable. This morning, we reported a 3rd quarter GAAP net profit of 169,000,000 or $0.25 per diluted share. Excluding net special items, we reported a net loss of 641,000,000 or a loss of $0.99 per share.

Speaker 2

As Doug mentioned in his remarks, this was our strongest quarter since the pandemic began. As we have discussed in the past, as we always expected, the recovery would be unpredictable and our Q3 results reflect this. Despite the delta variant related volatility in demand and revenue trends that Robert discussed, our financial performance improved from the 2nd quarter, We fell short of our initial expectations that we outlined in our last earnings call. While the slowdown in demand was clearly disappointing, It is important to note that the trajectory of our results continues to be positive. In fact, even with the drop off in bookings from the Delta variant And rising oil prices, our 3rd quarter pretax earnings excluding net special items improved by nearly $600,000,000 sequentially versus the 2nd quarter.

Speaker 2

This makes it even clearer to us that the steps we are taking over the past 18 months are working. As we have navigated the pandemic, We've built back our network in a way that would keep our capacity aligned with demand, while giving us the ability to be flexible as conditions change. We've also worked to keep our controllable costs down and have actioned $1,300,000,000 in permanent annual cost initiatives this year alone. Based on our results, it's clear these actions are paying off as our Q3 CASM, including fuel and net special items, was up just 10.5% versus the same period in 2019 despite flying approximately 20% less capacity. On the fleet side, we moved swiftly to retire older aircraft and accelerate our fleet harmonization project.

Speaker 2

Our 737 retrofit program was completed in May And we continue to expect our A321 aircraft to be complete by early next year, a full year ahead of our original schedule. In addition to the customer benefits of larger overhead bins, in seat power and streaming in flight entertainment, these aircraft will generate more revenue and allow us to Connect more customers over our network. They will also provide a unit cost tailwind as we build back our network. With respect to our wide body aircraft, we continue to work with Boeing to finalize the timing of our delayed 787-eight deliveries that were expected to arrive in 2021. In the meantime, due to the continued uncertainty in the delivery schedule, We have proactively removed these aircraft from our winter schedule to minimize potential passenger disruption.

Speaker 2

I'd also like to note that these delays have had an impact on our 4th quarter CASM since we built the cost structure to fly these aircraft during the 4th quarter. We ended the quarter with approximately $18,000,000,000 of total available liquidity, which reflects the 9 $649,000,000 of scheduled debt payments made during the quarter. The scheduled debt pay down unencumbered 20 Boeing 7 77 aircraft further improving our unencumbered asset base to $3,800,000,000 and our first lien capacity to more than 8,400,000,000 As we look ahead, we feel confident with our we have enough liquidity to allow American to navigate The choppiness of the recovery. Because of this choppiness, we will continue to keep liquidity at elevated levels in the near to medium term With a plan to step down our target liquidity to approximately $10,000,000,000 to $12,000,000,000 at some point next year, when we are confident the recovery has taken hold and we have returned to sustained profitability. The deleveraging of Americas balance sheet remains a priority We are committed to significant, steady and continuous debt reduction in the years ahead.

Speaker 2

Even with the slower than expected recovery observed during the Q3, remain on track with our target of reducing overall debt levels by $15,000,000,000 by the end of 2025. $10,000,000 of this will be achieved through amortization of debt and is net of new financing. Importantly, these debt reduction targets are based on a plan that assumes future deliveries are financed. Should we elect to use cash in lieu of financing aircraft, that decision would contribute to deleveraging and further accelerate the timeline to achieve these targets. Of the incremental $5,000,000,000 nearly $1,000,000,000 has already been actioned with the prepayment of the spare parts term loan we announced on the last call.

Speaker 2

As we look ahead, we will continue to focus our efforts on prepayable debt, which currently represents approximately 30% of our total debt obligations. In addition to deleveraging our balance sheet, this plan will allow us Smooth our near term maturity towers and free up high quality collateral. Assuming this level of debt reduction and continued margin improvement, Our plan is targeted to result in the best credit metrics in the history of post merger American by the end of the 4 year period. Looking into the Q3, the delay in the return of corporate travel and rising fuel prices will put pressure on our margins relative to the Q3. We expect our capacity to be down approximately 11% to 13% versus the Q4 of 2019.

Speaker 2

Based on current demand assumptions and capacity plans, We continue to expect a slight sequential increase in our revenues and expect total revenues to be down approximately 20% versus the Q4 of 2019. In total, we expect the pretax margin excluding net special items of between negative 16% and negative 18%. For the full year, we for the full year, our projected debt principal payments are expected to be $4,400,000,000 This includes the $750,000,000 Payment of spare parts term loan and the $550,000,000 prepayment of the term loan with U. S. Treasury that was completed earlier this year.

Speaker 2

We have $612,000,000 in scheduled debt principal payments in the 4th quarter. With respect to capital expenditures, we expect full year 2021 CapEx remain minimal with non aircraft CapEx at approximately $900,000,000 and net aircraft CapEx including pre delivery payments remaining an inflow of 900,000,000 We are still in the early stages of building our operating plans for 2022 and we'll have more to say on what our capacity and cost outlook will look like on our next earnings call. But at a high level, based on the demand trends we see today, along with the feedback from our corporate customers, We expect to slowly increase our capacity throughout the year and to have full year capacity very near 2019 levels. This of course is subject to the future demand environment and we will always retain the ability to adapt if demand conditions warrant. Lastly, I know a lot of investors are concerned about inflationary pressure in 2022 and beyond.

Speaker 2

We'll know more once we finalize our 2022 Budget, but we do see pressures in fuel prices, hiring and training for both new hires and existing crews as we ramp up our operation, Including on the regional side, where we recently announced the pilot retention program, we are also seeing increased starting wages for certain regional groups, including vendors. Even with these pressures, our fleet's implication strategy enables higher aircraft utilization And higher average gauge, both of which will help offset some of these unit cost pressures. As I said earlier, we will share more Specific details on these impacts to our cost structure as our 2022 plan on our next earnings call in January. So in conclusion, our team continues to do an amazing job of managing through the uncertainty, maintaining a strong liquidity position And driving efficiencies throughout the organization, and we are well positioned for the future. So with that, I will open up the line for analyst questions.

Operator

Thank you. Our first question comes from the line of Jamie Baker with JPMorgan. Your line is now open.

Speaker 6

Hey, good morning, everybody. So Doug, I think it was like 3 or 4 years ago, you had a slide at our conference. It was entitled There They Go Again. It was a list of airline behaviors that you were warning investors to keep an eye out for. It was a cool slide actually.

Speaker 6

So two bullets on that stood out, expanding service to markets that don't touch a hub and establishing new hubs. Could you help frame the Seattle expansion against that slide? It's not like the slide was written in stone and you Carried it down from Mount Sinai or anything. I'm just having trouble reconciling it in the current environment.

Speaker 3

Sure. I'll do it at a high level and then Vasu can chime in with

Speaker 4

more details if you'd like, Jamie.

Speaker 3

So yes, look, that's not a new hub is the answer. There is already a hub there. It's Alaska's, and they're our partner. And we are simply making that hub stronger by adding by having our alliance With Alaska, whereby, we can do things they can't do or that they wouldn't be able to do without investment that wouldn't make sense, By flying international because we have international aircraft and they can do things that we can't do, which is feed those flights With their already existing Seattle up. So it's not a new up.

Speaker 3

If it were yet, if you see that, be concerned. Happy to know that hasn't happened since we put that there. So anyway, that's the distinction.

Speaker 7

Yes. Hey, Jamie, this is Vasu.

Speaker 5

I'll add to that. Actually, We see Seattle as being really intellectually consistent with that. And growth is pretty simple that We go create value for customers by being relevant and being relevant in the biggest markets. And in order to go create a legitimate, Valuable and profitable international network, we need to be able to launch flights from international markets. And for us historically in the West Coast, we've had a very, very small presence, Most namely in the Pacific Northwest where we've had almost no presence.

Speaker 5

With this, which is a very creative deal, What we're doing is we're applying things like Seattle to Heathrow or Seattle to Bangalore, all of which feed off of that huge local market that Alaska has cultivated. It draws from the connectivity of the Seattle Hub. And we've been really encouraged with the results, not just across the West Coast, but really across the system. Alaska Airlines is increasingly emerging as one of, if not our largest codeshare partner. And we are seeing a huge customer All up and down the West Coast.

Speaker 5

Actually, as we look at it, we are creating close About 300,000 customers are now able to experience AA or Alaska where before they had no Competitive option or they have 1 or 2 competitive options in the marketplace and in the markets responding. We've set records for advantage enrollments, But the 2 markets where our enrollments are growing the most are all the markets in the West Coast partnership, Everything from San Diego North to Seattle and the other ones are New York and Boston. So we see it's actually being really consistent in a really effective And why is the way to go and develop a level of network comprehensiveness that would be too impossible to do on our own.

Speaker 6

Okay. That's really helpful. And then a follow-up, this one, a quick one on fuel, maybe for Robert or Derek. A question I repeatedly received is why haven't management's adjusted capacity to account for $2.50 jet, Carol? And I know you can't speak The industry, but for American, is there a certain period of time that you need

Speaker 7

to be

Speaker 6

convinced that Higher fuel is going to be sustained. Is there just too much uncertainty around 2022 revenue to be making capacity decisions today? Just looking for some color on how you would answer the question that I'm getting every day and I imagine my competitors are as well. Thanks in advance.

Speaker 3

Again, Jamie, I'll go first at a high level because you and I have been doing this a long time. Look, when oil prices move this quickly, it's really Responses, that's what's happened here. It's run up very quickly. We're already selling all the capacity that's out there. So What I know is, what I believe is, and it's been an industry in our business, is if this is the new normal, you will see adjustments.

Speaker 3

You'll see adjustments in capacity, Which will result in changes in price. These don't happen that quickly. And it also takes a while for everyone to come to the conclusion that this is real. But on a 2014 was a pretty good year in the airline business and Brent averaged $100 per barrel. So this is we all this is we'll adapt if this is the new normal.

Speaker 3

But right now, In the very near term, it's

Speaker 4

hard to do with that. Robert? Doug, this will come into balance and fuel prices run up Very, very quickly. As we take a look at things, there must be an impact on capacity and pricing in the long run.

Speaker 8

Yes. Got

Speaker 6

it. Thank you, all 3 of you. Take care.

Speaker 2

Thanks, Jamie.

Operator

Our next question comes from the line of Connor Cunningham with MKM Partners. Your line is now open.

Speaker 9

Hey, everyone. Thanks for the time. Hey, Connor.

Speaker 4

Hi. When listening to Delta and

Speaker 9

United's call, a huge portion of their script is about Premium products and how they think there's a structural change happening. I don't think you guys mentioned much about that. I was wondering if you could just speak to how your different products Performing right now. And do you actually agree that there is structural change happening where leisure travelers are trying to book up more towards premium seats?

Speaker 5

Yes. Hey, Connor, this is Vasu. I can start that one and others may chime in too. Look, we certainly most definitely see A change where there's customers who are much more willing to buy premium than before. Indeed, our premium revenue across our domestic system for much of the quarter Was actually higher than what it was in 2019, which is pretty promising.

Speaker 5

But we spent a lot of time looking at this and There's a component of it, which certainly seems very promising, but it still seems early to say whether this thing is structural or not. At least in our own system, we took a lot of wide bodies out of international fly and we deployed them into domestic. We were really encouraged by what we saw where There are a lot of customers with a lot more disposable income who would travel on leisure trips and they would not only pay for the lie flat product, It was pay a premium versus other non Lifecot products in the marketplace. And so that's certainly been an encouraging thing. But what we don't know is so much of that trip behavior also.

Speaker 5

It was people leaving on a Thursday coming back on a Monday. So we do think that with more disposable income, there will be some interest in the consumer to have more experiences to pay more for those experiences. We don't know how to size the magnitude of it, because there's a lot of things that certainly speaking for American Airlines that we did that was very unique to the last several months. And we don't yet know how much of a structural change that is. But to the earlier point, the beauty of the airline and we This pandemic has proved it over and over again is that we can change the where the airplanes go very, very quickly.

Speaker 5

And with that, we can also change The product design pretty quickly too. So this is something that we're looking at. It is a similar trend that we're seeing. I will tell how structural it is though.

Speaker 4

Hey, Vasu. I'll just add, hey, look, we're ready for it. We've been preparing for a long time, not just in selling the product, which Vasu has talked about, but the hard product as well. So the fleet is ready from a cabin configuration perspective, whether that's the business class cabins or premium economy that We put in to all of our wide bodies. And then just as we look at travel recovery and ways to service, You're going to see that we're adding back amenities that will allow us to sell and bundle in different ways.

Speaker 4

So everything from our 5 star service That's come back to the opening of our flagship lounges, which are best in the industry. We have a way to sell and to service Every customer

Speaker 3

that

Speaker 4

every end of the spectrum in terms of demand. So we feel really good about how we're set up To whatever environment that we find ourselves in.

Speaker 9

Okay. Appreciate it. And then Just on the cost structure, I mean, investors are trying to get comfortable with the stories on the cost side for the airlines in general. So I mean, clearly, inflationary pressures, but curious If you can talk to any of the tailwinds that you might be having that happened in 2022 outside of just bringing back capacity to 2019 levels. The reason why I asked is I would have thought given some of the structural changes you had within fleet simplification and so on

Speaker 5

that 4Q would have

Speaker 9

had a little bit So on that 4Q would have had a little bit more leverage to it. So, any details would be helpful.

Speaker 2

Yes. I think, Conor, in the 4th quarter, I mean, the story and I touched a little bit about here is, we built the airline to fly more in the 4th quarter without a doubt. 2 of the issues. 1 is the Boeing 787-8s, which are not here. We had assumed they were going to be In the schedule, so we have 787 pilots, we have crews ready to fly those aircraft, but we unfortunately had to pull them out of the schedule The Q4 and the Q1.

Speaker 2

The other thing from a capacity perspective, that we're all dealing with right now is on the regional side, Is pilot supportability on the regional side, which will resolve itself over time, but as the mainline is hiring up, A lot of places they go to get pilots is on the regional. So we're probably not flying as much regional as we would have flown. So I think From a CASM perspective, that's what drove it a little bit higher in the Q4 without a doubt versus where we had planned. So we're not flying exactly what we would have flown and where we would have got in the cost structures there. As we go forward, the tailwinds are really that I mean, the one point $3,000,000,000 worth of cost reductions is permanent.

Speaker 2

It's going to be in there. As we look into next year, We haven't done the plan yet, so that's why it's really hard for me to give any kind of guide on a CASM for next year. We do see these inflationary hits to mostly from a salary perspective, a vendor perspective, those kind of things, And fuel, as I talked about, that we'll have to overcome as we look at the plan for next year. And we'll do that as we dig through the process. But We'll have the tailwinds of the cost coming out that we did from an efficiency standpoint And also the number 1, getting out of the aircraft types and modifying the aircraft To be the same all across from the Oasis project will benefit us a lot as we go into 2022.

Speaker 3

Yes. And Conor, just because we haven't talked we didn't spend a lot of time talking about the 1,300,000,000 gigs we talked about a lot, but just for others who may not have And following closely, those are real. They're in the airline. The way we look at this is we go back in part of 2019 schedule today We produce the same number of AS and M to save that amount. It's a combination.

Speaker 3

I mean, it's a lot of things, but the largest ones are $500,000,000 or so in management payroll. And as Derek said, all the efficiencies you get from eliminating so many sub fleets Training otherwise. So those are in there as the tailwinds to offset the inflationary pressures you're talking about.

Speaker 9

Okay. Appreciate

Speaker 3

it. Thanks, John.

Operator

Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is now open.

Speaker 10

Hi, good morning and thank you for the time guys. Maybe if you could talk about the transatlantic market. It's begun to open up A little bit more and maybe heading into 2022, but your passenger revenues are still down about 75%. How do you think about the cadence of that recovery?

Speaker 5

Hey, this is Vasu. I can take that one. Look, we've been really encouraged by what we've seen over the last, Let's call it 3 or 4 weeks, international at large, but especially at transatlantic. Certainly, After the regulatory restrictions changed, we saw a big spike in bookings in the 2 or 3 days after it. What has which is not that surprising, what's been more encouraging to us is that it's really sustained itself.

Speaker 5

But what we are seeing out there is What you see from us right now is a little bit of cautious optimism. In November December, we are absolutely seeing bookings Coming in at a greater rate than what we saw in 2019, a lot of that though is pent up demand effect. As we get into next year with every passing week, we see our bookings step up more and more across transatlantic. And so we're really encouraged by that. But the big variable will be when corporate start returning back to office and start traveling again for business, which we anticipate being more In the Q1 time frame than in the Q4 time frame, all the more so for us, our transatlantic network is really concentrated around London.

Speaker 5

So we don't anticipate as much of a business recovery in Q4, but we are seeing a really, really meaningful leisure recovery, and all the more so as British Airways fills back its Connecting schedule, in Heathrow, we anticipate taking an increasing amount of demand, as Q4 goes along. So Though you see that number in aggregate, we see that something is changing a lot from where we are in October to November to January and beyond. Great.

Speaker 10

Thanks a lot, Fafu.

Operator

Our next question comes from the line of David Vernon with Bernstein. Your line is now open.

Speaker 7

Thanks, operator, and thanks guys for taking the question. So, Doug and Robert, we sat down a little bit before the pandemic, And you had sort of laid out a picture where American had been lagging on some of the customer facing information technology stuff that was Kind of constraining the operation in ways like not letting you book up to a higher load factor because of the design boarding practice, the ability to kind of pay for upgrades, Dynamic pricing on credit flyer tickets, all that stuff. A lot of it sounded like IT driven initiatives. And I was wondering Kind of coming out of the crisis as we start to look out over the next couple of years, is there still catch up work you need to do, to bring yourself at parity with peers in terms of the way they're monetizing Capacity or have you kind

Speaker 4

of closed that gap through this crisis? Hey,

Speaker 11

this is Maya. And I'm proud to say that over the last several years, we really have closed the gap on a number of our technology initiatives, including some of the ones that we rattled off like dynamic Pricing and allowing subs and higher load factors and a lot of standby on day of departure activity. So we've really Use the pandemic as an opportunity to really identify those gaps and to close them and really focus on a lot of the other things We've been talking about that. We'll detail wins for next year like our seamless partnerships and making that a better customer experience for our customers with our West Coast and Northeast Alliances.

Speaker 7

And is there a way To frame kind of what that uplift might be in terms

Speaker 1

of load factor or

Speaker 7

sort of ancillary revenue growth, it looks like the other revenue line is performing pretty well. Is there a way to kind of put a number around some of these things?

Speaker 5

Hey, this is Vasu. We're in the early stages of doing that as we build NextShares Plan, but I'll say, as these probably our top line initiative is making sure that All of these partnerships are really integrated and seamless for the customer that a lot of the long standing issues that have existed in co sharing relationships Really get alleviated pretty quickly. And we're pretty pleased with that. We've made a lot of progress with Alaska and JetBlue and what we're seeing is very encouraging. To my earlier comments, we're seeing a lot of customers come in, add a meaningful amount of revenue production that's there too.

Speaker 5

As we looked at it in Q3, it was a massive benefit to customers. We estimate its benefit in about 0.5% to A percentage point of system revenue, but something which is a lot more meaningful to New York and Boston and West Coast network, which was Operating at 50% of historical levels. So we think there's a lot of uplift to the whole thing without a lot of investment further.

Speaker 7

All right. Thanks a lot guys.

Operator

Our next question comes from the line of Dan McKenzie with Seaport Global. Your line is now open.

Speaker 12

Hey, thanks. Good morning, guys. The first question here is just a housecleaning question from a prior question. The Oasis Project, is that included in the $1,300,000,000 of structural cost savings or is that above and beyond? And Just related to that, if that had been fully implemented in 2019, how much would that have contributed to pretax income?

Speaker 2

Yes, it is included. It added more seats on some of the aircraft. And from an operational benefit, it will Help out a lot because as we swap the aircraft, they will both be in that. So it is in that Because we reduced the aircraft types, but it's included in that number. What it's going to do is benefit, number 1, from a CASM perspective because we'll have more seats And from a revenue perspective, because we'll be able to sell more seats.

Speaker 12

Yes, understood. Okay. Second question here, what is the aggregate wallet And say a Fortune 1,000 counts in the Northeast that American can now access for the first time as a result of the Northeast Alliance. So accounts that really where you had no shot at winning pre the relationship with JetBlue versus now, you walk in And you sit down with the corporate travel managers, you can actually put together a competitive network solution. And then just related to that Potential aggregate spend, what would American's fair share American JetBlue's fair share be of that?

Speaker 5

Hey, Dan, this Basu, thanks for the question. And I appreciate what you're trying to get at, which is effectively how much more market can we access And while I don't have specific numbers, in some cases, we got to be a little bit careful in what we share about it. For us, as we see it, in New York, historically, we might have been a 25% player, But we were competing for something which was actually like 10% to 15% of the available business travel market, not just the corporate market. And so in large part because we had a really great product in heat throw or in the transcon market. Yes, we couldn't get you very effectively to Toronto.

Speaker 5

At some point customers, especially larger accounts or power travelers, business style customers Just stop flying us. And now as we see it, we have the best network between A and JetBlue. We've gone from a world where we have Four trips a day at JFK San Francisco, one where we'll have 12, 13, 14 trips a day where all of our TransCon product is full flat. We've taken the 50 seat RJ out of New York altogether. So when you think about New York, it's a business travel market, which is not 2 or 3 times larger than the next biggest market, but several orders of magnitude more than that.

Speaker 5

And that's all in our market that we get to compete for. And when we get to compete for it, we see a New York, whose RASMs instead of underperforming the system by 10% to 15

Speaker 4

Dan, I just want to go back and just add one more point. Regarding The fleet harmonization project, which we're almost done with, we only have, I think, 60 of the 321s that Our remaining will be complete by the Q1. Derek mentioned that in the $1,300,000,000 So much of the savings in terms of actual commonality and what we can take out in terms of reduction of fleet sizes and being able to operate The airline more efficient, that's included in the $1,300,000,000 What's not though is, look, we are having seats. So at very, very low marginal costs. So you're going from 160 seats on the SEB 3s up to 172 And then on average adding a few seats to the 321s as well, that's benefit that will be seen in run rates going forward.

Speaker 12

And that actually was my question. From a revenue perspective. Yes. The incremental revenue that you gained, that was actually my question. That's what I was trying to get at.

Speaker 12

Thanks for the time you guys.

Speaker 3

Thanks, Dan.

Operator

Our next question comes from the line of Stephen Trent with Citi. Your line is now open.

Speaker 13

Good morning, gentlemen, and thanks for taking my question. I just had a quick one Looking at your investment, so you guys committed to invest in JetSmart and GOL in South America. You of course have this tie up with JetBlue in the United States. When you think about other international corridors, do

Speaker 2

you see

Speaker 13

any Opportunities for similar kinds of tie ups, for example, outside of the One World Alliance?

Speaker 5

Hey, this is Atu, Steve. I can start on that one. Look, we Ultimately, what we want to do is create the most comprehensive network for our customers. And whether it is a co chair, an investment, a joint venture, whatever it is, We don't see them as ends in themselves. Those are just simply means through which we can create something really comprehensive for our customers.

Speaker 5

And in many parts of the world, We would love to be able to do it all just organically with American Airlines Metal. That's not always possible from regulatory or other reasons. And so based on that, we made employee different mechanics, whether it is an investment, a co chair, a loyalty partnership. And so it'll change out there. But for us, the True North is creating the most comprehensive global network.

Speaker 5

And we see that whether it's We've seen the benefits of it for cut consumers in the Northeast and the West Coast. As we look at South America, really it has less to do with investments and more of that. The one thing we can't do for the South American customer is carry them within South America. And so we're always on the lookout for partners That can help us do that and create more value for the customer and how we go and stitch partnerships together as a sort of second order issue.

Speaker 13

I appreciate it, Vasu. And just one very quick follow-up. How are you guys thinking longer term about your pipeline of pilots? And when you think about retirement in the next 5 to 7 years and what have you?

Speaker 3

So Stephen, I'll

Speaker 4

take that one. Look, Pilot Profession has never been a better time to get into it. And what I'll tell you is, we will attract people to the profession given the kind of starting Salaries that we're offering right now and ultimately what pilots top out at. So I do see this as ultimately an economic issue that will be solved. You've seen us do some things recently with regional pilots, to make sure that they stay in position and progress, onto American Airlines, and we'll continue to monitor that.

Speaker 4

Over time, Just as we saw a few years back, this will be brought into balance, just simply based on economics. People will want to come into the profession.

Speaker 13

Okay. Appreciate that. Thank you for the time.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Chris Stathoulopoulos with Susquehanna. Your line is now open.

Speaker 14

Thank you and thanks for taking my question. Good morning. So on headcount, how should we think about FTEs in 2022 and if possible 2023, just could you run your network atorabove 2019 capacity on fewer FTEs relative to 2019?

Speaker 2

Yes. I think, I mean, we have Taken out a significant amount of headcount out of the company, that's part that's mostly what the $1,300,000,000 Cost reductions, permanent cost reductions are, as Doug alluded to, 500 of that is management headcount, $600,000,000 of it is productivity at the other areas throughout the company. So Yes, we will run I don't have a number for the 2022 plan because we haven't put that together yet, but that is the significant Portion of what this $1,300,000,000 worth of permanent cost reductions are, it's mostly in the headcount and the personnel Side of things at American Airlines.

Speaker 14

Okay. And the second question on the corporate side. So you mentioned a full recovery by year end 2022, just curious what the mix of users is here. I know you mentioned industrials, healthcare and I think one other group, but Are your surveys showing a mix similar to pre pandemic travel or is it shifted? And is your outlook contemplating The same type of travel, meaning both in user type and frequency.

Speaker 14

Thanks.

Speaker 5

Hey, this is Bob Salin, and I can help with that. Look, our as we see, you're exactly right, certain industries and verticals are traveling more than others. We do anticipate there being a rebound across all of them because at this point, all industry verticals are improving. They're just different points in the improvement curve. And more critically and more importantly to your question, what we see is that even In sectors where travel is less bad, that's the rate of progress we're seeing, is mirroring Those sectors where travel is more relatively more return.

Speaker 5

So we do think we have some real confidence that indeed Corporate travel is likely to come back. As Doug and Robert mentioned earlier

Speaker 4

in their remarks, there is an

Speaker 5

immense amount of pent up demand and we find that once people start to travel, They continue to do so. Very importantly though, for us and our system, we have a lot of a lot of our business style Demand is small and medium sized business, really across the Southeast and the Southwest. And already, I mean, we're seeing like on a traffic basis that is Very well recovered on a revenue basis. That'll start to recover as people come back and Yes, more and flies more frankly.

Speaker 4

Hey, Vasu, I'll add this. Alex and Taylor just held our Corporate Customer Advisory Board meeting down in Miami. I was able to attend as well for a part of it. And that brings together our top 50 corporate customers and those that are responsible for Procurement of travel at those companies. I was really pleased to hear just over and over again about, look, we have to get back to the office.

Speaker 4

And once we get back to the office, travel is going to come. So it's not surprising that the industrials and healthcare and pharmaceuticals Are leading us right now. They're back in the office. They've got to take care of us and put food on the table. So That's happening.

Speaker 4

What's going to come next is some of the other banking and financial services, entertainment, As those get back into the office in the start of the New Year, they're going to come back to just as we're seeing in some of these other sectors.

Speaker 3

And Chris, it's Doug. So just data around just supports on what Robert just told you. I talked about how In July, we were up to 64% of our 2019 levels in terms of business revenue. There's a big difference between Large companies, those that we have on corporate discount programs and our small and medium business. In that 64%, the large corporates are 35% On a year over 2 year basis and the small and medium businesses at 83%.

Speaker 3

So what it says to me is what I would just say. People that are back at work are traveling. When the large corporates get back to work, they'll travel. It's less about sectors, more about people just getting comfortable bringing people back to the office. Those companies that Don't have large headquarters and large HR departments are out flying because they need to across all sectors.

Speaker 3

Those companies that are larger organizations and need to worry about those things more aren't yet back. They were starting to come back, but they'll get up into the same ranges. That's where business wants to be.

Speaker 14

Great color. Thank you. Thanks.

Operator

Our next question comes from the line of Helane Becker with Cowen. Your line is now open.

Speaker 15

Thanks very much, operator. Hi, everybody. I hope you are all doing well.

Speaker 3

We are, Helen. How are you?

Speaker 15

I'm okay. I guess I'll see you tomorrow night. And by the way, congratulations. Thank you. So here's my question really for Derek.

Speaker 15

Interest expense, I think, in the 3rd quarter was $476,000,000 I want to say. Can you just talk about Debt pay down and the cadence of that and how it's going to look over the next couple of years in that Context of you going from $15,000,000,000 I think you said in the press release $15,000,000,000 of debt pay down by 2025.

Speaker 2

Yes. Well, I can give you what our scheduled debt paydowns are over the next few Yes. So we said we're going to pay down $4,400,000,000 this year. Next year is 2,500,000,000 The year after that, I would just say it's around $3,000,000,000 to $3,500,000,000 each year as you go forward. So But we will but we do plan just as I talked about on the call, we do plan on financing aircraft in this environment Going forward, so the net debt will be a little bit different than that.

Speaker 2

So the $10,000,000,000 will come off, let's just call it $2,000,000,000 $2,000,000,000 a year over the next 5 years, that will reduce that. What we do on the other 5, We had talked about $1,000,000,000 already went at in 2021. So we did the pay down of the spare parts loan. We also because of the recovery slowed a little bit, we are going to hold on to cash And hold on to cash where we're at today. Once we feel we're comfortable with that, I think we will quickly use the excess Cash to pay off most of the remaining $4,000,000,000 It just depends on where our cash balance is.

Speaker 2

It depends on how it will grow over time, but I would expect it to be sooner than later As long as the recovery happens, business comes back, and the earnings are there to do that. So the prepayment would be upfront. The debt pay down over time, the $10,000,000,000 will be over ratably over time. I don't think we have any Big huge debt payments. There's a $750,000,000 one in 2022 that we have, nothing huge going forward.

Speaker 2

So So I wouldn't look at it that way. It's pretty ratably the $10,000,000,000 over the next 4 years. And then We would try to attack the other $4,000,000,000 As soon as we feel comfortable and have excess cash that we can take it down to that We could use cash to pay for aircraft and just not add the debt instead of paying off any prepayable debt. So that's the plan that we have today.

Speaker 15

Okay. That's very helpful. Thank you. And then on the 787s, I think those were going to be leased in aircraft From BOC Aviation, are you does the delays change any of the financing arrangements for those aircraft?

Speaker 2

No, it does not change the financing of the aircraft. It's still leased in.

Speaker 15

Okay, perfect. Thank you.

Operator

Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.

Speaker 8

Hey, good morning. Question for Doug. I thought it was interesting in the prepared comments that more capacity versus peers And more revenue versus peers was called out. Is that the main goal of the company at this point, more revenue Or do relative margins matter? And to what extent is profitability a priority for the Board at all?

Speaker 8

Or does it not even come up in conversations given how high liquidity is? What is the Board trying to solve for?

Speaker 3

For relative margins, Dwight. And we feel really good about that. The reason I talked so much about the absolute growth at this point in time is because we're all working to add back capacity and to get to where we can meet the demand that we know is coming. So we're really proud of what the team has done to get more capacity than others, take care of more customers than others and to do so, obviously, safely and efficiently And to do so in a way that has us run an earlier great operation right now. But of course, that's not the goal of the company.

Speaker 3

It's just simply to be larger. The goal of the company is maximize shareholder value for the long term. And the way we'll do that is producing returns. And what we feel very good about is Our ability as we come out of this to improve our relative margins certainly versus Atlantic, I think probably where is everybody As you compare them back to 2019 or other years.

Speaker 8

And just a quick housekeeping and I appreciate you taking the questions. Just looking into the Q4, do you expect the operating cash burn to be larger than the $1,700,000,000 burn in 3Q? And I'm not sure if you have the calc, but can you speak to the daily cash burn estimate? Are we going to head back to there? Thanks for taking the questions.

Speaker 3

Go ahead. No, I was going to

Speaker 2

say we're not heading back there. The 4th quarter is a Seasonally, you do burn cash in the 4th quarter.

Speaker 8

I know, but I go back through every 4th quarter since you guys merged And there's no negative operating cash burn. Understand revenues depressed, fuel is a little bit higher, but operating cash flow is typically positive in the 4th quarter.

Speaker 3

Yes, Duane, I don't know we don't have the operating cash flow, but the seasonality does in Profitable years has cash declining, and we're exceptionally comfortable with where the cash is. That operational cash flow will track with the earnings estimate that Derek gave.

Speaker 8

Thank you for taking the questions.

Speaker 3

Thanks, John.

Operator

Our next question comes from the line of Andrew Didora with Bank of America. Your line is now open.

Speaker 16

Hi, good morning everyone. So as American keeps ramping up capacity maybe a little bit quicker than your network peers and With your vaccine mandate upcoming, just curious, are you planning your network or staffing any differently into peak holiday season? And how do you think about the operational risks around that?

Speaker 4

Hey, Andrew. It's Robert. We're getting ready for the holiday season. We expect a lot of passengers, tremendous pent up demand, especially as Vaccinations take hold and infection rates decline and we're going to be ready. Look, we have to get ready for Holiday is always and this year we're doing our best to make sure that we have right people in the right places at the right times.

Speaker 4

And that's the effort and we're taking the appropriate precautions where necessary, but we're flying a full schedule as we go into the holidays Looking forward to it.

Speaker 5

Andrew, this is Vasya. One important thing to note is to clarify on your question also is The absolute ASM production of American Airlines in any month in Q4 is actually less than the absolute ASM that we are producing in July, Right. So first, very much for where we have been, being able to go and get The big pools of demand that have been out there and geographies that are really favorable to us has really worked out. But as things shape up, what we are very much managing to is There's the relative profitability of the airline. So just to clarify, some of that gets lost in the year over year or the versus 2019 comparisons.

Speaker 16

That's a fair point. Thank you. Then just second, maybe to ask the fuel question a little bit differently. I think I know the answer to this, but over the past year, year plus, did you ever consider introducing a hedging policy? And do you think that this is an option you could rethink going forward?

Speaker 16

Thanks.

Speaker 3

Yes, Andrew. You've never seen that. We've been quite happy Being unhedged now for however many years it tends to be. Sorry, what? 2018?

Speaker 3

2018, that We stopped hedging. So and that feels right to us. What we find is what I said is over time, the industry adjusts. And what generally happens is we end up paying a premium for the hedge without much benefit at all. So anyway, like I said, I don't want to say we won't ever do it, but it's not something we've been look we've begun to look at In this run, if I can tell you that.

Speaker 3

So we prefer actually we think we have a regional economic hedge In terms of what happens with fuel prices in the economy as well. So all those things come together and have us telling you, not right now.

Speaker 16

Got it. Thank

Operator

you. Our next question comes from the line of Mike Linenberg with Deutsche Bank. Your line is now open.

Speaker 17

Yes. Hey, good everyone. Good morning, everyone. Hey, Derek, you talked about the delayed 787s as providing or Creating a bit of a CASM headwind in the 4th quarter. Can you just remind us how many airplanes, how many incremental 7.8s were you supposed to have in the 4Q?

Speaker 17

And how many percentage points of headwind is that, just roughly?

Speaker 2

Well, it depends on when we were thinking. But earlier, we were supposed to have all In 2021, that schedule has changed weekly. We had If you go back to last quarter, we probably had 6 of them built into the schedule, 6 ASMs, it's probably a point of ASMs that we had to take out of the schedule. But that's really what's driving A lot of this and then as I said the regional, we haven't had a pull down in ASMs from a regional perspective just to some pilot support ability, which we will Which we're getting all under control right now, but both of those have caused a reduction in the ASMs that we would have flown in the 4th quarter, Primarily driven by the 788s.

Speaker 17

Okay. And then just my second question and this is either Doug or Robert. Can you be willing to share with us where you stand on vaccinations across your employee work group? And then just Any thoughts on the testing, which it seems like every carrier is going to have exemption issues and they're going to have to test and we're hearing that the costs are high, they're not, you don't have Guidance from the government, is it a meaningful cost headwind that we have to worry about or anything that you can share on that topic would be Thanks.

Speaker 4

Hey, I'll start. It's Robert. Look, the vast majority of our team members are vaccinated And we're working through the process. We set a November 24 deadline for vaccination or Accommodation request to be provided. We don't expect anybody to leave American Airlines.

Speaker 4

And certainly, they're going to be Out there helping us during the holidays. So no issues there. We don't know what exactly an accommodation Would look like for the minimal number of people that actually apply for that, but it's likely to be some combination Of masking, self declaration and testing. And that testing, we don't know the details of. So we're working through that.

Speaker 4

And Yes. As time goes on, we'll be able to fill you in. Yes.

Speaker 3

Thanks, Robert. And Mike, look, I certainly wouldn't be adding any cost Your forecast for this. So to the extent there will be testing going on, it will be for those Who have chosen still not to be vaccinated, to have a religious or medical exemption and that we are accommodating while they're still at work. I don't suspect that will be an extremely high percentage of the employees, and I don't and I can't even imagine that, that's a material cost To test those individuals' medi OSHA standards once a week. So I don't know where we'll end up.

Speaker 3

We're working through the accommodation process with our unions. But Yes. That's I don't know. First I've heard this cost issue, I would do everything I could to try and let you don't have to worry about that piece. As to the again, just to follow just to reinforce what Robert said, and I think it was part a little bit of Andrew's questions.

Speaker 3

Certainly, when this was first announced, I think there were concerns about what it was going to mean for airlines and to get stay and others. That's we've all got extremely comfortable with that. I was happy to see yesterday the comments from the White House from Jeff Zients about Federal agencies, which of course includes the TSA, and about how the goal of this is to get everybody vaccinated, not to punish anyone. And You're going to have people if people have religious or medical exemptions, they will be accommodated and they'll be able to work. So that's the same thing you're going to see here from all the airlines.

Speaker 3

This is We're all well prepared to meet all federal mandates and meet all the customers that are coming to validate.

Speaker 17

Very good. Thanks guys.

Speaker 3

Thanks Mark.

Operator

Thank you. We will now take questions from the media. Our first question comes from the line of Alison Slider with Wall Street Journal. Your line is now open. Hi, how are you?

Speaker 18

Thanks so much. Hi. On the vaccine question, I'm just curious, I know you've talked a lot about the exemptions, but I'm just curious what sort of planning or strategizing you guys might be doing If there does end up being some portion of the workforce that just doesn't get vaccinated or has to be terminated or something like that, is there a kind of a plan Or a backup plan for how you'd handle that?

Speaker 3

Well, again, well, first off, let's start with what we know we know, which is, again, the vast majority of Employees already vaccinated. We're seeing that rise every day as the mandate has been put in place. So we're highly confident by the time we get to November 24, certainly by December 8, When the demand comes in place, we're going to be down to a very small number of people, if any, that are either not vaccinated or Don't have a valid medical or religious exemption. So I understand your question as well, that's not true. First off, I don't think that's going to be the case, and we know that based on the data we're seeing.

Speaker 3

But however, again, so So that's what I think the answer is. But even in the case that happens, we'll continue to work with those employees that have I've chosen to get that point. Again, I think it's going to be a really small number. But whatever that number is, we'll continue to work to accommodate those employees and make sure that they We're working together. Again, as Jeff's line suggested they'd be doing with government employees, we'll be doing the same with ours.

Speaker 3

So we have that flexibility, but I don't think we're going to need that.

Speaker 18

Okay. And I guess

Speaker 3

Hey, Ali, I'd add Hey, Ali,

Speaker 4

I'd just add that, of course, we're working with the team and we're working with Our labor unions as well to get everybody vaccinated right now. So you see us that we continue to provide an incentive for team members To get vaccinated turn in record of their cards and we're working with the entire team to collect that information As we speak and fortunately every day we see good signs that word is getting out and people are turning vaccination status We're confident of accommodation requests and we as Doug said, we're really confident that we'll be in great shape as we

Speaker 3

come into the holidays.

Speaker 18

Got it. And I mean your pilots have been saying that sort of the whole debate and controversy is becoming a distraction and leading to some potential safety issues. Are you seeing that in your data at all?

Speaker 3

Well, look, we have an obligation

Speaker 4

to make sure that we're focused on flying. So any type of distraction, whether it's vaccine or anything else, we want to jump on. And to that end, we're Again, we're working closely with our labor units to make sure that we're on top of anything that is potentially a safety concern. But we're I just got to find it very well and find it incredibly safely. We set very, very high standards, not just for the industry, but especially for American Airlines.

Operator

Okay. Thanks.

Speaker 3

Thanks, John.

Operator

Our next question comes from the line of Leslie Joseph with CNBC. Your line is now open.

Speaker 15

Hi, everyone.

Speaker 19

Hi. So I'm just trying to square this idea that you don't Any employees to leave American Airlines, but this week you told them again that they could be terminated if they don't comply with the mandate, either getting vaccinated or the exemption. And then how come the exemption or the mandate doesn't apply to your wholly owned subsidiaries? Can they fly those government contracts?

Speaker 4

Hey, Leslie. I'll just start. First off, look, we have an executive order. And so there's not

Speaker 3

a lot of debate

Speaker 4

or argument. We're trying to find out find the best ways to comply. And so all efforts are making sure that our team members get vaccinated. And to that end, as we've said, We're seeing the kind of results that we want. We have no desire to see anybody leave American.

Speaker 4

And through getting vaccinated, which we're making very available and easy for folks to get done, Or those that the small number that apply for accommodations, we will continue to work with people to encourage them to make sure that they take care of themselves. And we're working cooperatively with our labor unions as well. And we have different agreements that we have to follow in accordance with our collective bargaining agreements to make sure that we're doing everything possible to make sure We're working through that and we're committed to taking care of our team.

Speaker 19

And, Elythia,

Speaker 3

please? I'll maybe let's do the second. First of all, again, just a distinction, I think, Leslie, between where Early on in this process, there was concern about not having enough people and where you're seeing everyone get now is there was I think there was a view that does, at least Some airlines are TSA or other places, those who could not get vaccinated or chose not to get vaccinated We'd be on unpaid leave or something like that. That's not where we're going. So that's what gives us the comfort.

Speaker 3

We do know there will be some People at American Airlines who have reasons they can't get vaccinated, they will have exemptions. And but when they have exemptions, we're going to work to accommodate them, So they also can do their jobs. And that's better if anything, between a few weeks ago to now where you're hearing Extreme comfort around our ability to do it versus where we might have been when we first heard this. That's the distinction. And the exact same distinction, by the way, as I said, that we We heard yesterday from the administration about TSA and other agencies.

Speaker 3

So that's what gives us the comfort. That's why we think we're not going to see Anyone leaving American, I don't think anyone's going to want to leave American because they can't get back because either they just They choose not to get vaccinated. They don't have a relationship with their medicals. On the on our subsidiaries, just Like every other airline, the regional carriers are not subject to the mandate. I mean, they have to work through that themselves To see whether or not they deem themselves federal contractors, but to the extent they're not, they're not subject to the mandate.

Speaker 3

They will be subject To the OSHA requirement, when it's effective for airlines for companies that have 100 or more employees. So at that point, they will need to respond accordingly. But there isn't Certainly, I don't think between America and Delta United, none of the regional carriers that any of us use are Working toward a vaccine mandate at this point because they've concluded they don't have they're not covered by the mandate.

Speaker 19

Okay. And then for the exemptions, do you expect to approve all of them?

Speaker 3

No, of course not. It's not what it's not. Again, what I believe is what I really believe is we're going to get Whatever revenue exemption is going to be a small percentage of total workforce. Most everyone will get vaccinated. So but certainly, there are related to medical exemptions.

Speaker 3

And to the extent people have valid related medical exemptions, we're not going to put them on unpaid leave. We're going to make accommodations for them as we should, so they can continue to work.

Speaker 4

For those that don't receive approval for those exemptions, we fully expect them to get vaccinated.

Speaker 3

Great.

Speaker 19

Got it. Thank you.

Speaker 3

Thanks, Leslie.

Operator

Our next question comes from the line of David Koenig with Associated Press. Your line is now open.

Speaker 3

Hi, Doug. Good morning. Good morning, Doug.

Speaker 9

I have two follow-up questions, but I'll try

Speaker 3

and be quick. First, Sticking with the vaccination theme, United and Delta put numbers out there and why can't you tell us How many or what percentage of your employees are vaccinated? And secondly, and

Speaker 9

this goes back to something that came up

Speaker 3

a couple of times on the analyst section about flying a 4th quarter Schedule that's pretty close to 2019 levels and how you're going to do that with your current headcount. Why shouldn't passengers expect To see the same kind of disruptions that you had over the summer.

Speaker 4

Look, David, I'll take that. Look, we're we have done a tremendous job of making sure that we're set to find the schedule. As we've said in our comments, we flew most reliable in September in our company's history, and that's the kind of performance that you can expect from American going forward. We did a tremendous ramp up to get to where we were during the summer. And by the way, as Basu mentioned in some of his comments, the kind of schedule we're going to fly Around the holidays, is actually no larger than what we had flown during the summer.

Speaker 4

So we've and all we've done Since that time, has been able to add more resource to make sure our partners are better positioned and that we're better equipped to

Speaker 2

And I would add to that, Robert. David, the hiring this is Derek. The hiring we're doing now is to for the summer of next year. So we're very confident having enough Resources to run Thanksgiving and Christmas. We already have those people on board.

Speaker 3

He's asking in the next year though. Yes. In the next summer, again, that didn't point though. We're ramping up that. Again, the disruption we had at the end of June was Due to us, just not having as many parts through the training process as we'd expected, we've rectified that issue, and we're going to make sure that we have As we expand that we have the right number of employees, so that's not an issue at all.

Speaker 3

As to your first question, Yes. I guess the 2 airlines have released their numbers. Our number is still moving every day as more and more people are getting vaccinated in the case of both one of them put in place On a unilateral mandate for the team, so that and they're through with that. The other one put in place Requirement that if you're not vaccinated, you're going to pay more for your medical benefits and it's already in place. But I don't think any other airlines have talked about exactly where they are and Probably for the same reason we have, which is we had a voluntary program in place, and now we have a mandate in place.

Powered by Quartr
Earnings Conference Call
American Airlines Group Q3 2021
00:00 / 00:00