American Airlines Group Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Scott Long, Managing Director, Investor Relations
• Robert Isom, Chief Executive Officer
• Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle
• Vasu Raja, Chief Commercial Officer
• Maya Leibman, Executive Vice President and Chief Information Officer
• David Seymour, Chief Operating Officer
• Priya Aiyar, Chief Legal Officer
• Nate Gatten, Chief Government Affairs Officer
• Steve Johnson, Executive Vice President and Strategic Advisor

Analysts

• Jamie Baker, JPMorgan Chase & Co.
• David Vernon, Sanford C. Bernstein
• Savanthi Syth, Raymond James Financial
• Helane Becker, Cowen Inc
• Michael J. Linenberg, Deutsche Bank Aktiengesellschaft
• Daniel McKenzie, Seaport Global Securities
• Duane Pfennigwerth, Evercore ISI
• Catherine O'Brien, The Goldman Sachs Group, Inc.
• Conor Cunningham, MKM Partners
• Andrew Didora, Bank of America Merrill Lynch
• Alison Sider, Wall Street Journal
• David Koenig, Associated Press
• Mary Schlangenstein, Bloomberg Television
• Dawn Gilbertson, USA Today
• Leslie Joseph, CNBC TV18
• Niraj Choksi, New York Times
• Kathryn Krupnik, CBS News

Presentation

[Operator]

Good morning, and welcome to the American Airlines Group First Quarter 2022 Earnings Conference call. [Operator Instructions] And now, I'd like to turn the conference over to your moderator, Head of Investor Relations, Mr. Scott Long.

[Scott Long, Managing Director, Investor Relations at American Airlines Group]

Thank you, Catherine. Good morning everyone, and welcome to the American Airlines Group first quarter 2022 earnings conference call. On the call this morning, we have our CEO, Robert Isom, and our CFO, Derek Kerr. Also on the call for the Q&A session are David Seymour, Vasu Raja and a number of other senior executives. Robert will start the call this morning with an overview of the first quarter and our priorities for the year. Derek will follow with the details on the quarter and our operating plans and outlook going forward. After Derek's comments, we'll open the call for analyst questions, followed by questions from the media. To get in as many questions as possible, please limit yourself to one question and a follow-up.

But before we begin today, I must state that today's call contains forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity and fleet plans. These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning, as well as our Form 10-Q for the quarter ended March 31, 2022.

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

Thank you for your interest and for joining this morning, and with that, I'll turn the call over to our CEO, Robert Isom.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Thanks Scott, and good morning everyone. Thank you for joining us today. We're going to keep our comments brief this morning. I'm a strong believer that the results speak louder than words and I'm confident in the results the American Airlines team will produce.

I'll start by thanking our team. Day in, day out, they are on the front line taking care of our customers, no matter what comes our way and we have certainly seen a lot come our way over the past two years. The American Airlines team has worked hard to position us well for the recovery by simplifying our fleet, modernizing our facilities, fine-tuning our network, developing new partnerships, rolling out new tools for our customers and team, and hiring thousands of new team members, all of that while flying the largest airline in the world. I'm excited to see their work pay off for all of our constituents, our customers certainly, the communities we serve, our team, and notably our shareholders. It's an honor for me to have the trust of our team and to succeed Doug Parker as CEO, at the beginning this position as the industry rebounds and our company returns to profitability. I'm extremely grateful for the opportunity. That's fantastic time for the industry and for American Airlines in particular.

For the year ahead, we are working through to achieving two key goals above all else, running a reliable operation and returning to profitability. Our team is up to the challenge and we've already seen a lot of great progress. So let's talk about financials first. This morning, American reported a first quarter GAAP net loss of $1.6 billion. Excluding net special items, we reported a net loss of $1.5 billion for the quarter. Despite the quarterly loss and a difficult January and February, due to the effects of Omicron, March results were markedly different. In March, we saw what's possible, with surging demand brought on by reduced infection rates, relaxed restrictions and tremendous pent-up demand for people to travel. Despite a sizable increase in the cost of fuel during March, American achieved our first monthly net profit, excluding special items, since July of 2021.

Demand is as strong as we've ever seen it. American produced revenues of $8.9 billion in the first quarter, including industry leading passenger revenues of $7.8 billion. Domestic leisure travel continue to lead the way, far surpassing 2019 levels of traffic and revenue in the month of March. In addition, we saw strong quarter-over-quarter improvement in corporate and government travel, with revenue for this segment as a percentage of 2019, increasing 27 percentage points from January to March. So, I think that this demand is now about 80% recovered, with small to medium business revenue approaching a full recovery and corporate revenue now around 50% recovered. Corporate bookings are at the highest that they've been since the onset of the pandemic, and we expect that to continue as more companies reopen their offices. We anticipate overall business revenue to be around 90% recovered in the second quarter.

And finally, demand for international travel also picked up considerably during the quarter as travel restrictions were lifted in certain parts of the world. Long haul international revenue was around 50% recovered in the first quarter and around 60% recovered in March. So, there's still a lot of revenue upside as business in international travel continue to return.

The American team has done an incredible job of setting up the airlines to take advantage of the rebound. We are extending our network to where our customers want to fly, establishing partnerships in more challenging areas, and making sure efficiency is top of mind. As a result, we're very optimistic about the continued recovery, expect to be profitable in the second quarter based on current demand trends and fuel price forecast.

Turning to reliability. American ended 2021 with our strongest operating performance in the company's history. We committed to maintaining that momentum in the first quarter and we did. Despite two difficult winter storms in Dallas-Fort Worth, the team delivered a solid operating performance in the first quarter, leading the industry in on-time departures and finishing at a close second an on-time arrivals. And they did so by flying a considerably larger schedule than our next largest competitor.

More importantly, for the month of March, in the peak spring break demand and high load factors, we delivered our best ever combined March completion factor. Our operation in DFW and Charlotte, our two largest charts, met or exceeded our expectations and delivered their best on-time performance and completion factor in years. As a result of our team's hard work, our likelihood to recommend scores continue to track in line with plan and are near the top of our post merger performance.

Running a reliable operation this summer will be critical to the continued recovery and we have taken numerous steps to ensure we are well prepared to deliver for our customers. Our summer plan began last year as demand returned and we haven't slowed down. American has 12,000 more team members in place to support the operation this summer than in the summer 2021. We have already welcomed more than 600 new pilots this year, exceeding our goal, and we will continue to aggressively recruit, hire and train across all departments to develop the best pipeline of talent in the industry. We're ready for the summer, and we have sized the airlines for the resources we have available. Again, we have sized the airline for the resources that we have available. We've also made targeted investments in people, technology and resources that are yielding promising results for our team members and customers.

So, before I hand it over to Derek, I want to say that I'm really excited about the future of our industry and the future of American Airlines. There's still a lot of revenue upside look forward, given the industry revenues are still off from their historical relationship to GDP, domestic demand are following and business in international trends are promising. There are also certain industry constraints on growth in the near-term, notably, related to pilot and aircraft supply. And at American, we have completed a $1.3 billion cost reduction program and our unit cost performance will improve throughout the year as utilization approaches historic levels. No airlines is better positioned to operate in this environment than American Airlines, because of our fleet, our network and everything our team has accomplished over the past two years.

And with that, I'll turn it over to Derek.

[Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle at American Airlines Group]

Thanks, Robert, and good morning everyone. Before I review the results, I want to acknowledge Doug for his more than 20 years as an airline CEO. Doug's leadership revolutionized the industry and laid the foundation for American success going forward. I also want to thank the American Airlines team. Their hard work and commitment to our customers and each other is truly extraordinary.

This morning we reported a first quarter GAAP net loss of $1.6 billion or a loss of $2.52 per share. Excluding net special items, we reported a net loss of $1.5 billion or a loss of $2.32 per share. Revenue in the first quarter outperformed the initial expectations we outlined on our last call, despite flying less capacity than planned due to winter weather effect events that affected our largest hubs. Our first quarter revenue recovered to 84% compared to the same period in 2019 versus our original guide of 78% or 80% recovery. Demand recovery from the Omicron variant was swift, and while leisure demand remains very strong, as more companies return to their offices, business demand is growing quickly.

On the cost side, in addition to the efficiencies we've spoken about previously, we remain focused on keeping our controllable cost down, ensuring we are a more efficient airline as we return to normalized levels of capacity and utilization. In fact, in the face of increased fuel prices, we were profitable for the month of March, excluding net special items due to our strong revenue performance and cost efficiencies.

Our fleet remains the youngest and most fuel-efficient among the U.S. global network carriers. This month, we completed our narrow-body fleet harmonization project that covers more than 500 aircrafts and will ensure a consistent product and better experience for customers, along with the improved revenue generation and unit cost production associated with the new seating configurations.

In the first quarter, we took delivery of nine Airbus 321 Neos and reactivated seven previously stored Boeing 737-800. We also inducted eight dual class regional aircraft and parked three 50-seat Embraer 145. As previously disclosed, we made several updates to our fleet order book and the timing of future deliveries, allowing us to better meet the demand strength in domestic and short haul international markets. We previously announced our plans to exercise purchase options on 30 737 MAX 8s, 15 of these options are scheduled for delivery in 2023 and 15 in 2024. Additionally, with the continued uncertainty associated with our 787 deliveries, we are now planning for the delivery of only seven 788s in 2022, all after our summer schedule, with the remaining six 788 aircrafts being delivered in 2023. The four 789 aircraft previously planned in late 2023 are now planned to be delivered in 2024. With these changes, our expected total aircraft capex is $1.8 billion in 2022 and $2.2 billion in 2023.

We ended the first quarter with $15.5 billion of total available liquidity, significantly higher than our initial forecast due to ATL build of $2.3 billion in the quarter. We generated operating cash flow of $1.3 billion and free cash flow of more than $350 million in the first quarter. Deleveraging our balance sheet remained at top priority and we are committed to significant debt reduction in the years ahead. Even in this volatile environment, we remain on track with our target of reducing overall debt levels by $15 billion by the end of 2025.

During the quarter, we made $344 million of scheduled debt payments and completed $317 million in open market repurchases of our $750 million unsecured senior notes maturing in June. Today, we have reduced our overall debt levels by $4.1 billion from our peak levels in the second quarter of 2021. We expect to make $1 billion of scheduled debt payments in the second quarter, which includes the remaining outstanding balance of the unsecured senior notes.

Lastly, with cost efficient financing at place for all aircraft deliveries through the third quarter of this year, we are now beginning to evaluate financing options for the fourth quarter and first half of 2023. As we look at the second quarter, we expect to be profitable, despite the expectation of continued elevated fuel prices. Pre-tax margins are expected to be between 3% and 5% for the quarter, based on the current demand trends and our fuel price forecast. Based on current demand assumptions, we expect total revenue to be 6% to 8% higher versus the second quarter of 2019, and 6% to 8% lower capacity. That will be the first time we have produced total revenue greater than 2019 since the start of the pandemic. In fact, if we hit the midpoint of this revenue guide, the results would be the highest quarterly revenue in the company's history. On this revenue strength, we expect total revenue per available seat mile to be 14% to 16% higher in the second quarter versus the same period of 2019. We expect our second quarter CASM excluding fuel and net special items to be up between 8% and 10%.

Our current forecast for the second quarter which we pegged on Tuesday, assumes fuel between $3.59 and $3.64 per gallon, an increase of more than 60% versus the price of fuel in the second quarter of 2019. In the near-term, the demand environment is strong, but margins are lower than they otherwise would have been given the recent run up in fuel. Longer term, this industry has proven that it has the ability to recapture increases in the cost of fuel and be profitable at elevated fuel prices. We believe this time is no different.

As for full-year 2022 capacity, we now expect to be recovered to 92% to 94% of 2019 levels. The reduction in full-year capacity from our prior guide is largely due to to 788 delivery delays as I touched on earlier. This capacity guidance is of course subject to future demand environment and fuel prices. Consequently, with this lower level of capacity, we now expect our full-year CASM, excluding fuel and net special items to be up between 8% and 10% versus 2019.

In conclusion, with the actions we have taken and the commitment of our team, we remain very well positioned. We remain focused on running a reliable operation and returning to profitability, which we expect to happen in the second quarter.

With that, we'll open up the line for analyst questions.

Questions and Answers

[Operator]

[Operator Instructions]

Our first question comes from Jamie Baker with JP Morgan. Your line is open.

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

Oh, hey. Good morning. I guess you're starting in the order, the biggest second quarter miss. So great. Well, listen...

[Robert Isom, Chief Executive Officer at American Airlines Group]

We're also close Jamie.

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

Alright. So, we're familiar with that relationship between airline revenue and GDP. You brought it up. Doug, had a good slide on his deck last month. Have you looked at the relationship between leisure demand and GDP, and what that relationship might be telling us? I know we can try to back into this with some of the Form 41 data but I don't really trust it. There is a reporting lag. It just doesn't tell me anything.

[Robert Isom, Chief Executive Officer at American Airlines Group]

So, hey, Jamie. Thanks. I will let Vasu answer that, but don't feel bad. This is a long game. We know you're going to get it right over the long-term. So...Vasu?

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

Thanks for the endorsement.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yeah. Hey, Jamie. Thanks for the question. It's a very good one, one that we've actually spent a lot of time thinking about. And listen, what I'll say is you're right. in aggregate, I think historical relationship between airline demand and GDP is industry demand that is something around just under 1% of GDP, doesn't largely seem the whole and we're seeing that as things start to recover. We've spend a lot of time on this question about, what is the actual trip purpose and how does that change? And the reality is it's changing in a meaningful enough way where we no longer think as we previously experienced as the start of a trend. For example, historically only about 20% to 25% of the trips in the airlines were something that we call blended, where somebody was traveling from both business and leisure. Now for about five or six months, about 50% to 55% of the trips in the airlines are blended and as we look forward in the coming months, that continues to be the case.

And that play on a lot of different ways for us, which are both opportunities and a little bit unprecedented. Right. We are seeing different sales days becoming big sales days, different travel days becoming big travel days. So the nature of what we call leisure demand and business demand is changing and first thing is, better understanding exactly how that is, but still lot more promising. Those blended trips that we have in the system are coming in at yields that are 75% to 85% of what were true business only trips, but they are coming through lower cost sales channels and often negotiated discount. So the net yields of them are very often the best in the system. So this is an evolving thing and one that will keep coming back to you, but the relationship is indeed changing as you say, even though in aggregate, a lot of has transformed.

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

And just out of curiosity, how do you define or how do you tell that a trip is a blended trip? Is it somebody booking with a corporate discount and then bringing a family member on an adjacent PNR? Like how do you know that?

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yeah. So it's --- so over the years we are viewing this thing. We actually come out in few ways. One, we have a lot of models that go and actually predict whether the behavior is business or leisure and we survey customers going to calibrate the model. So over the time we got really good. Whenever we --- you hear us talk about business, we are talking about, for example, somebody who traveled, one person on the itinerary, no checked bags, things like that. Right. If this a profile, we calibrate again, surveys of what the customer actually told us. And so, one of the things that we found is that increasingly there is those surveys are starting to change because people are saying they're flying both for business and leisure or it's one person in the itinerary but they're leaving on a Thursday, coming back on a Monday and going in circle. So a lot of things are starting to change and that is pretty promising thing.

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

Yeah. Fascinating. Thank you for that. And then second and maybe for Robert, as we think about the steps that you're taking to protect the operation heading into the summer peak, is D0 still the metric that American tends to focus on? I think it was in the past, that since I got was that it wasn't hugely popular with the entirety of the airport staff. Just wondering if, with your background Robert and having ascended to the top seat, is that still the metric that you have prioritized let's say?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Jamie, I'll just start with this, which is the outcome, an on-time arrival, we know is, it is the biggest driver of customer satisfaction. As I've said before, it makes the food taste better, seats more comfortable, service more friendly...

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

Yeah.

[Robert Isom, Chief Executive Officer at American Airlines Group]

All that, and the best way to ensure an on-time arrival is actually depart on time. So there is no stepping away from it. But I'll tell you we have evolved over time and we really do want to take into account, making sure that things that we do to get it aircraft out of time don't compromise other aspects of the operation. So quite a congestion on the ramp or if we do have inclement weather, at the end of the day if we have flights that you may be able to get out on time but you ought to hold for connecting passengers, we do so. And so, we can go into a lot more detail on that, but the answer to it all is for the bulk of the airline, get it started right. No aircraft out of service in the morning, on-time departure, a fast turn and stay that way throughout the day.

[Jamie Baker, Analyst at JPMorgan Chase & Co.]

That's great. Thank you both. Appreciate it. Take care.

[Operator]

Thank you. Our next question comes from David Vernon with Bernstein. Your line is open.

[David Vernon, Analyst at Sanford C. Bernstein]

Hey. Thanks guys. We ended the other end of the spectrum, I guess. Could you talk a little bit about what you have in the forecast for business travel recovery as we think about this summer month? What are you seeing in the booking trends? I'm just trying to get a sense for kind of what the mix is within the guidance that you're giving us.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Hi, David. This is Vasu. I can help with that. Robert's comments at the beginning, as we close the quarter, system business revenues were about 80% recovered versus 2019. As we look at Q2, we anticipate that number will be about 90% recovered versus 2019. We have a level of confidence in it because indeed we're seeing many of those bookings start to come in from my comments to Jamie just now, but also the gap between 90% and 100% is really largely due to long haul international demand and in certain pockets of domestic demand. But we are continuing to see demand met.

[David Vernon, Analyst at Sanford C. Bernstein]

Okay. And then maybe just as a quick follow-up. I remember having a conversation with Doug and Derek, I know a couple of years ago now, around denied boarding, sort of involuntary denials, that kind of stuff and you guys have been working on some technology to help you guys to re-accommodate customers, work on this issue of not having enough seats on the plane, over selling, that kind of stuff. Is there any early indication during this period of demand here, that those efforts are paying off and the denied boardings are coming in a little bit in line with those expectations you set out a couple years ago?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Hey, David. Maya will start with that. Maya will talk about some of things we've done and if there is some add-on to that, Vasu will do it. Maya?

[Maya Leibman, Executive Vice President and Chief Information Officer at American Airlines Group]

Hi, David, this is Maya. Yeah, over the last several years we've really improved that technology around essentially pre-removing customers. So either, before they get to the airport, several days before their flight, we know that flight is at the risk of over selling, providing them an opportunity to bid or to either take compensation or even just move to a different place that is probably a little bit better than the flight that they were previously scheduled on, or it happens that there is a last-minute schedule change, a last minute equipment change. So we have to deal with it at the airport, which is in our goal. Really trying to deal with it before they get to the airport. We have some pretty neat option capabilities that allow the customer better opportunities to move around to other flight. And so all of those things together, have really helped improve our denied boarding statistics.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah. I will only add to that, that throughout the pandemic one of the hardest things to do, the predicted been the show rate of the airline understandably as the pandemic wore on. We would have periods of time where everybody showed for a flight and periods of time where the show rate could be as low as 70% of what was booked. But we're encouraged by in large part because of a lot of the technologies that we've got, not just in managing overbooking but it simply just forecasting show rate. We are getting to a place where we are a lot better at building and predicting what the variability is and with the technologies that we've got proactively moving customers off, so that we don't have the same level of denied boarding extent that we had in past and indeed able to generate more revenue through the overbooking of flight.

[David Vernon, Analyst at Sanford C. Bernstein]

Excellent. Thanks much. Thanks for the color, guys.

[Operator]

Thank you. And our next question comes from Savi Syth with Raymond James. Your line is open.

[Savanthi Syth, Analyst at Raymond James Financial]

Hey, good morning.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Good morning.

[Savanthi Syth, Analyst at Raymond James Financial]

I was wondering maybe Vasu, could you provide a little bit of color on what you're seeing across the --- on the long haul side across the different entities?

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Sure, Savi. Yeah, thanks for the question. Look we are really encouraged with how long-haul demand has come back, but it is indeed very different across the three long haul entities, long haul South America, Trans-Atlantic and Trans-Pacific. First, we are encouraged because --- and here we've seen bookings from maybe post up from low point in January. So, we're seeing in the last four or six weeks, it's improved by several factors. And South America, that's a factor of 2x to 3x and Trans-Atlantic at something materially larger than that, and in Trans-Pacific, it's grown quite a lot too, but still the bookings are pretty small and insignificant in the totality of all of our bookings.

But what we're really encouraged by is, the manner in which demand is returning. First in long haul South America, where we just --- where we have so much capacity, increasingly we are seeing, not just more customers simply sign-on for flight but we are filling premium cabins at a better and better rate. The same is true at Trans-Atlantic where so much of the airline that we brought back there is centered around our partner hubs and Heathrow, Madrid and we're encouraged because those are --- to make those flights go, they are very premium demand and some just and we are seeing a lot of premium demand, even though we aren't seeing large corporate travel quite come back into international the way we've seen before. And Trans-Pacific, it's understandably challenged because as long as there are entry restrictions, demand remains pretty stubborn to come back. But like I said, we're encouraged that once those restrictions are lifted, the demand improves pretty meaningfully.

[Savanthi Syth, Analyst at Raymond James Financial]

That's helpful. And if I might ask there. Just a quick question on the fuel is, you're going to fuel contracts based on kind of the forward curve then crack spreads. I think there is a right like spot prices, I mean. I think there's a little bit of confusion on what we're seeing on spot, and this is not unique to American, but what's being reflected in fuel guidances.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah. No, that's exactly --- we just hiked it two days ago. So, it was 107 and then we use the crack spread where that was in the crack spread has increased a little bit. So the difference may be crack spread and the dates that everybody takes the fuel thing. But we're straight off the fuel curve and then it's dependent on where are you buying your fuel? Are you buying your fuel more in the Gulf Coast, LA, New York. So there could be differences between each airline just where the where their bunch of the fuel comes from.

[Savanthi Syth, Analyst at Raymond James Financial]

Thank you.

[Operator]

Thank you. Our next question comes from Helane Becker with Cowen. Your line is open.

[Helane Becker, Analyst at Cowen]

All right. Thanks very much, operator. Hi everybody and thank you for the time. Just two questions. One is on minimum liquidity. Derek, have you thought about where you want that to go, other than get, I think you said what, pay down $15 billion of debt by 2026? And then the other question is I think related to the pilot training pipeline. You talked about a shortage of crew members and limits to capacity growth. So how are you thinking about catching up?

[Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle at American Airlines Group]

Yeah, I can do both and Robert can add on some of that. So as far as minimum liquidity, we're still in the same places we were a couple of calls ago. We're at about $15.5 billion right now. We are seeing this recovery. We'd like to see it actually be in the actuals. So I think this is a forward guide, which we think is where we're going to get and be profitable for the quarter. We maintain this level. What we have said is we would take it a step down somewhere in the $10 billion to $12 billion range and hopefully that happens sometime this year, which can accelerate the debt pay down and any further than that, we just haven't had the discussions through the Board and through the committees. We ran the company at $7 billion minimum --- not minimum liquidity, which I defined that was kind of our targeted cash level. Minimum liquidity is actually much lower than that, but our targeted cash level with that $7 billion. And so right now, we're holding out the cash and is when we see the recovery and it's holding up and the cash is holding up, we will use that cash to pay down debt and I think we'll take it down to something there were in the $10 billion to $12 billion range as we look forward.

On the pilot training pipeline, as Robert said, we've hired 600 pilots at the mainline. So it's --- it really is --- we have the pilots. I think the industry is, it's about trying to hire 2000 pilots this year versus the most we've ever hired in the past thousands. So we have the simulators coming in, we have the trainers coming in. So what it is, is trying to get everybody through the pipeline and I think we will be fully utilized and have all of our aircraft flying by the end of the year. The other side of it is of the regional carriers, which were, we're working on it. That hiring is going well also. So, we're hiring there. Just the attrition is much greater than the hiring at this point in time or getting people through the pipeline. That has slowed, which is good. So as all the mainline carriers of hired from the regional carriers, we all have a backlog to get through training. So the regional attrition has slowed, which will be good for regional capacity as we go forward. But we believe that by the end of the year, through the summer, we'll be back up and having all the airline aircraft line, which will be great for us from a utilization perspective. It will be great for us from a cost perspective to drive down the unit costs, as we bring back all of those aircrafts and get the pilot pipeline moving through.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah. Well said and I think other only other point that I would add is that look, over time it's supply and demand, and I'm confident that the quality of life and the compensation for pilots is something is going to track a lot of people in the industry. That may take some time to work through, but it will happen.

[Helane Becker, Analyst at Cowen]

Great. Could you, in the short-term bring back pilots who might have retired at say, 58 or 60, and just have them work for a couple of years to bridge the gap or once they retire, just that?

[Robert Isom, Chief Executive Officer at American Airlines Group]

I am going to ask David Seymour, our Chief Operating Officer to weigh in on that.

[David Seymour, Chief Operating Officer at American Airlines Group]

Yeah, I think the challenge with that is many of them have been retired long enough that they would have to go through a re-qualification, which would take one of those spot. So given that, as Derek talked about, we have the supply coming in and the schoolhouse is really running at full speed here and we're hitting the objectives that we set forward to reach the goal Derek talked about for the remainder of the year. So as much as I think it is going to be a great idea, it will just take away a spot for a new hire that's coming in.

[Robert Isom, Chief Executive Officer at American Airlines Group]

And overall as well and we have a great relationship with the APA and making sure that we're getting as many pilots onboard and creating as many capital positions as we possibly can. Anything that would alter something like retirement status would have to be something that they champion.

[Helane Becker, Analyst at Cowen]

Got it. Okay. Great. Thanks very much guys.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Thanks, Halene.

[Operator]

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

[Michael J. Linenberg, Analyst at Deutsche Bank Aktiengesellschaft]

Yeah. Hey, good morning. Just two here. I guess my first to Vasu. Vasu, historically I guess sort of the rule of thumb is that the run-up in energy prices, usually sort of find its way into the fare structure with like a lag of three to six months. It does feel like that it's getting recaptured far more quickly and I just wonder if it's any sort of structural changes and-or just by approaching this fuel price cycle with a bit less capacity which may give you some leverage in your ability to quickly offset that. Just your thoughts around that.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yeah. Hi. It's an excellent question and it looks like Jamie is one that we've actually spent a lot of time understandably, thinking about and look, it's really hard to tease out the different effects because you're right, there is high fuel prices, there's various limits on capacity as airlines try to size there airlines for the staffing that they can produce, and of course, demand, which just continues to accelerate it at a pretty unprecedented rate. So look, we look at actually the fare that we American Airlines are out there selling and we are encouraged that indeed month to month, we are seeing a greater increase in fares than certainly what we saw in 2019. But very importantly, one of the things that we've been looking at is how fares at large, I think how the rate of increase actually changing in 2019 to 2022 versus the last time the industry went through so many cataclysmic crisis, which were big fuel, the Great Recession, changes in the industry fee consolidation and the rate of the pace of change that we're seeing is growing much greater than what we saw before. Sure way to say it is, and we are seeing a lot of strength in fare environment with customers who frankly value quality of product that we have and are willing to pay out as well. So we're encouraged by that. We see those trends going forward into the summer. Of course, that's inherent in the revenue guide you see before you.

[Michael J. Linenberg, Analyst at Deutsche Bank Aktiengesellschaft]

Great. And then just my second, with respect to the NEA, and I guess the justices concern about potential consumer harm, have you put out any numbers about what you have done from a consumer benefit perspective, since it's now been up and running I think for some time, or is that something that we just won't find out about until September? Thank you.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Hey. I can start and others can add. Well, look, we can talk about consumer benefit of the NEA enough, and indeed if you can already see interest was published out there. In the first quarter, we brought in the Northeast back faster than any of our competition and arguably to bring it back have encouraged competition where there frankly wasn't any before. Where do we think that we have full flat beds on all of our TRANCOM markets, which is a thing that American Airlines has long dreamed, now through this partnership with JetBlue were able to make happen. We've got JetBlue into LaGuardia thing, which they have longed to make happen, putting a new level of price competition on the incumbent period there.

And so we're encouraged by the structural things there, but what we're really encouraged by, the way consumers are responding to it. So right now the --- for the first time in as long as we have reported, AAdvantage enrollments, our loyalty program enrollments are growing in New York and Boston at a greater rate than anything in the system and at an absolute size, which is greater than anything at the system. New York is, on a percentage of 2019, we're acquiring more credit card customers there than we did in 2019 and at a greater rate than any other parts of our system.

So, all of which is to say that the consumer is clearly responding to it and we see those the benefit and we keep rolling things out. We, there is a lot that we've kind of worked through as we have had staff up connecting operation at JFK. We've endeavored to go slow in order to make it happen. I hope for a minute, say that we are all the way to achieving what we want there to be, but we are really encouraged by what it's doing for consumers, the level of competition that it is bringing, and indeed, I mean, we can talk about it enough and maybe when you talk about it more.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Great, Vasu and I'll just add and I know our Chief Legal Officer, Priya Aiyar will agree with me. Look we welcome scrutiny. We know that this is producing the benefits we said it would and that it's doing exactly what we had hoped, and we're confident we're going to prevail, no matter what we think going forward. Priya, you agree with that?

[Priya Aiyar, Chief Legal Officer at American Airlines Group]

I truly do.

[Michael J. Linenberg, Analyst at Deutsche Bank Aktiengesellschaft]

Thanks everyone.

[Operator]

Thank you. Our next question comes from Dan McKenzie with Seaport Global. Your line is open.

[Daniel McKenzie, Analyst at Seaport Global Securities]

Oh, hey. Good morning. Thanks guys. A couple of questions here. First a clarification, the guide, maybe for Vasu, what level of restoration in international flying does the revenue guide in that? So does it include the relaxation of the 24 hours testing requirement in May some time and what conversations is the government having with you about the travel restrictions internationally?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Sorry, couldn't hear that first part and then let's have they covered --- pulled out of testing.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yeah. And thanks for the question. And look, we are --- at international largely, we broadly anticipated to be 100% recovered and indeed if I'm not far from that right now. But, so the question earlier from Savi, international is all a lot of different pace of play right now. Never forget that for us in the second quarter, roughly 90% of our airline is flying in the Western hemisphere at Heathrow. So a lot of that recovery is due to the fact that our short-haul international network is recovering at rates that are probably greater than what we see in domestic and those markets such as London and long haul South America recovered pretty quickly. I mean, that's where we have all of our capacity.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Vasu, just one note there. International revenue not 100% recovered and second, go ahead. Go ahead from a long-haul perspective.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Correct. Yeah. So yeah, I would say that long-haul revenue isn't all the way there but total international is. That's there.

[Daniel McKenzie, Analyst at Seaport Global Securities]

Okay. Okay.

[Nate Gatten, Chief Government Affairs Officer at American Airlines Group]

Yeah, this is Nate. I would just say on the regulatory side, obviously the testing is something that we continue to engage on with our industry partners. We believe that the U.S. can safely follow countries that are progressing through the pandemic, including Canada, the U.K. and Ireland, which have we think safely evolves the scope of their entry requirements and moved away from pre-departure testing. We've learned by this point, that pandemic however not to speculate on what may or may not happen. So we don't have specific time frame in mind. It is just something we continue to work on. Obviously, the decision is going to be up to the federal authorities and public health experts.

[Daniel McKenzie, Analyst at Seaport Global Securities]

Okay.

[Robert Isom, Chief Executive Officer at American Airlines Group]

And that it is Nate. Nate Gatten, Head of Corporate and Government Affairs. So, thanks, Nate.

[Daniel McKenzie, Analyst at Seaport Global Securities]

Yeah, thanks. Second question here, looking at Slide 5, the simple math is it looks like there's roughly $7 billion of revenue that was missing on an annualized basis relative to the first quarter. But I believe the headcount is already in place. So we're left with variable cost. I think so. But if you could flush this out, the fixed versus variable costs as you add back some of this higher margin international flying?

[Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle at American Airlines Group]

Yeah. Hi, Daniel, Derek here. As we have talked about, we have the airline and costs in place to run a much greater airline. So as we go and Robert said in his comments, our CASM will get better and better throughout the year as we head back to flying. An example is our salaries I think stayed pretty flat throughout the year even though we're growing ASMs throughout the year. So most everything is in place to fly. The example is the 787s. We thought we had the 787s coming in beginning of this year. So we have the pilots. We have the crews. We have everything ready to go. We're not going to train them back down to 73s or other aircraft, we're going to leave it there for when they come. So our expectation as we move forward and we bring back the aircraft and utilize our fleet and get us back to a 100% of 2019, that it comes at a significant reduction in the CASM calculation as we go forward.

[Daniel McKenzie, Analyst at Seaport Global Securities]

Thanks for the time, you guys.

[Operator]

Thank you. Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

[Duane Pfennigwerth, Analyst at Evercore ISI]

Hey, thanks. Good morning.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Hey Duane.

[Duane Pfennigwerth, Analyst at Evercore ISI]

Congrats. Congrats, Robert on the formal hand off. I wanted to follow up to Mike's question, just with respect to JetBlue's bid for Spirit, as it relates to the NEA, do you see any relationship between the two initiatives and what is American's perspective on the proposed acquisition?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Steve, do you want to comment here.

[Steve Johnson, Executive Vice President and Strategic Advisor at American Airlines Group]

Sure. Hi, thanks for the question. This is Steve Johnson. First, I think it's important to recognize that JetBlue's acquisition experience is not for conclusion. Those JetBlue experience as near as we can tell are discussing that now it will ultimately find out which direction that's going to go, but I would say that, Doug [Phonetic] and Robert were very quick to call Robert as soon as this the leaked in. They were steadfast in their view that NEA was extraordinarily important a priority to JetBlue and hence, to do everything they could to maintain and that part of their bid for Spirit contemplated keeping and even strengthening NEA

[Duane Pfennigwerth, Analyst at Evercore ISI]

Great. Thanks. Thanks for that perspective. With respect to the CASM guidance, Vasu, can you just contrast for us, maybe how leisure fares are tracking versus 2019 versus closing business fares and I understand regions etc. make that more complicated, but maybe if we just look at it on a cost per se domestic. is the closing zero to three getting better yet relative to '19. Thanks for taking the questions.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yeah, hey, thanks for the question. And I think when we look at very closely because it is kind of interesting. We look at it both, and what is out there selling but importantly what is netted back to us after we deduct the cost sales from it. And so we are seeing, first and foremost, we look at really outside of 14 versus inside of 14. Outside of 14, indeed there is a significant level of strength across any competitive OND grouping there might be. Inside of 13, we see the same level of fare strength. But as we look at right now, leisure trips or blended business leisure trips are coming in yield levels that are anywhere from 75% to 80% aggregate of what what it inside 14 corporate negotiated per se are coming in that, and that's a really meaningful number because that means on a net basis, sometimes \these fares, which are coming to us oftentimes through our direct channels, through some pretty unprecedented sources, on a net basis are actually really, really valuable to us and really valuable part and departure.

That said, though the fares are high, what we are encouraged by, as we roll through March, there is simply more demand inside of 14 and more business and business leisure demand. So, yes, we see a lot of strength in the fare environment, a lot more strength outside of 14 but progressively greater strength and greater demand inside of 14.

[Duane Pfennigwerth, Analyst at Evercore ISI]

Thank you for that. I guess maybe just to put a finer point on it. Do you think 0 to 3 is still an opportunity, and thank you for taking the questions.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yes, it is, but not in quite the same way that it was before.

[Duane Pfennigwerth, Analyst at Evercore ISI]

Thank you.

[Operator]

Thank you. Our next question comes from Catherine O'Brien with Goldman Sachs. Your line is open.

[Catherine O'Brien, Analyst at The Goldman Sachs Group]

Hey, good morning, everyone. Thank you so much for the time. So maybe just one on the 787. When we think about your capex over the next couple of years, as the 787 rolls in the future years, should we just be thinking about rolling forward that associated capex or are we reaching a point where we should be thinking about maybe some late penalties, potentially lowering your overall capex profile as we look across the next couple of years on an aggregated basis? I think you might have mentioned that what amount you paying in penalties the prior years. Just trying to get a sense to the read through to American free cash flow in future years. Thank you.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah, Catherine, I would --- just from a capex perspective, I would just roll it without a doubt. Any kind of settlement that we have will be separate. The Boeing management team have assured us that they will cover us for the damages, the 787s, of the deliveries of the 787s. How that comes, I don't know, because we haven't talked about it. There is no reason to discuss damages on 788, until they deliver and we know when those are going to be, so that can be calculated. So in the miles today, I would move the capex and just jump out the capex but I would, there is an upside to the cash flow or something for a settlement with the Boeing team as they've said they will cover the damages that we are incurring for those aircraft to be delayed and deferred.

[Catherine O'Brien, Analyst at The Goldman Sachs Group]

Okay. Got it. And then maybe one for Vasu to kind of a little bigger picture here. Can you just update us on the hub strategy you're working through pre-pandemic, your growth opportunities out the DFW, Charlotte do you see? As you add back capacity, are you adding proportionately more flying into those hubs that you had 2019 or do you need to first restore the pre-pandemic network overall, and then you look at those growth opportunities? Just trying to get a sense of I know those are the most profitable hub. So are we are already starting to blend in that higher proportion of more profitable fine or is that on the call? Thank you so much for the time.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

It's a great question. And yes, we are absolutely blending get it now. As you said, in the pandemic, we had no intention of wasting the prices and we didn't. We massively simplified the fleet, we reduced slightly a number of long-haul airplanes that were announced the some of our unprofitable routes. Last few partnerships, where we can create more value for the customer, offer more network in places like the West Coast and New York, where we are weaker. But very importantly, we've put a lot more capacity into our hubs in two ways. One we've concentrated more flying there but we've updated the airlines as well. We are 8% more seats per departure as we go forward than what we were at the same time last year.

But for us, I think the changes are indeed quite meaningful. Right now, if you go look in the published schedules, about 65%, 70% of the airlines flying, really what we call our Sunbelt hubs and short-haul Caribbean kinds of markets where the airline has unique level of strength. Just that to put that in perspective I was reading through everyone's print last night that in Q1 our core Sunbelt hubs, DFW, Charlotte, Miami, Phoenix, were somewhere between 70% to 80% of our competitors all network, but we're are producing unit revenues between 5% and 10% greater than those network. So, very much that is a major thing. A big part, as we've talked about here of returning to profitability and frankly running a better operation, is focusing hard in those markets where we create really unique and disproportionate value and really getting all of our assets working there.

[Catherine O'Brien, Analyst at The Goldman Sachs Group]

Thank you so much.

[Operator]

Thank you. Our next question comes from Connor Cunningham with MKM Partners. Your line is open.

[Conor Cunningham, Analyst at MKM Partners]

Hi, everyone. Thank you for your time. We have United and Delta talk to generating a profit for in 2022. Just given where demand is, and I realize you guys a stop short of saying that today, but the question that we're getting is just around the sustainability of like RASM production. So do you expect to generate a profit for the remaining three quarters of this year assuming like no massive change in oil or anything like that?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Hey Connor, I'll start. Derek can add into this. Look, we're really pleased to be here talking about record revenues and producing a profit in the second quarter, but those are forecasts and you know what our job here that, to make those forecast a reality. So wanted to get to that business. And both, to achieve profitability for the year, I guess I here, we need to be profitable in the second quarter and we're going to start on that and we'll update you as time goes on. Derek, if there is some add-on. Derek, would you agree to that?

[Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle at American Airlines Group]

Agree

[Conor Cunningham, Analyst at MKM Partners]

Okay. Okay, And I know you said you've size the airlines and the resources you have but there has been some struggles of operation as demand surged last year. Do you assume any incentive pay above and beyond what you've historically contemplated in your 2022 CASM that you are working and have you viewed incentive pay any differently than you have in the past, just given some of the staff initiatives pay in general. Thank you.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Okay. Connor, thanks for that. And I'll start with this, is that just like the rest of the world, we're all getting back up to speed. Fortunately for American we did what the government asked us to when they provided us with the payroll support program. We may now and we ran it to serve people that had to get to business and leisure activities and you name it. As we go forward, the jump that we have to take to get to the kind of capacity, the kind of capacity that Derek has mentioned in our forecast, is not that sizable of a jump. We're way ahead of it. We've certainly learned from issues. We're really focused on other parts of what I consider the airline supply chain and that's our partners, but we're very well prepared. We have topped out for more team members on our ready to fly the summer --- the spring and summer schedule. Feel really great about it, and I'm very, very confident that we're going to fly reliable airline as we did and we proved over the year-end holidays better than the a lot of our competition and as we have for the first three months of this year too.

[Conor Cunningham, Analyst at MKM Partners]

Great. Thank you.

[Operator]

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

[Andrew Didora, Analyst at Bank of America Merrill Lynch]

Hey. Good morning, everyone.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Good morning.

[Andrew Didora, Analyst at Bank of America Merrill Lynch]

First one for Derek. Just to confirm the updated CASM outlook that does not include any new labor deals using? And then just kind of a follow-up to that, given the labor market in your operational plans, where do you think CASM eventually shaped out relative to the 2019 once all is settled?

[Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle at American Airlines Group]

Yeah. One is our CASM guidance does not have any new labor deals and we're in negotiations with a lot of our unions at this point in time, but we don't --- but we will put those in CASM guide when they occur and when we know what those are. But that's not in the CASM guide for the rest of the year. Getting back to 2019 levels depends on going back and when do we grow back fully from a capacity perspective and also, as you alluded to, when do those labor deals go into effect. In 2019, we did the mechanic deal. We completed the mechanic deal during 2019, so that year-over-year is now into our numbers. So I think you know as we grow the airline back, getting ourselves back to 2019 CASM levels will take us to get our utilization back to where it was before and get all the aircraft back flying to get closer to that 2019.

[Andrew Didora, Analyst at Bank of America Merrill Lynch]

Got it. Thank you. And then Vasu, fully appreciate the historical relationship with GDP in response to one of the earlier questions. I guess we get a lot of investor questions on inflation and the health of the consumer. Yeah. Do you have any historical perspective on consumer demand at these levels of inflation and at what point do you begin to anticipate some sort of consumer slowing, if at all in this type of environment? Thanks.

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Yeah. It's an excellent question and look, there is a lot that we're seeing today which is kind of breaking from a lot of historical trends, much like the question earlier about how fuel prices are bleeding in the fare. It's --- right now, it's really difficult to tease out what is causing what. But, yeah, as an industry that hasn't been a great, great history of how inflation is turned into changes in demand, but we are so far encouraged by what we see right now in two ways. First, demand continues to grow and grow at a meaningful pace. How long lasting it is remains to be seen, but if we've learned anything in the last 20 or 24 months, we can adjust to just about anything and do it pretty quickly. And the other thing which is really encouraging is frankly spending by our co-branded credit cards. That is one where the --- throughout the pandemic even though airline revenues fell, our co-branded revenues never fell nearly to the same degree and indeed we're encouraged right now because their acquisitions are higher than before, and our spend on the cards is keeping pace with inflation. Indeed on our card with with Barclays, our spend is growing at a greater rate than inflation.

So we are encouraged by that. There's clearly a level of demand for our product and future anticipation of travel, which is very promising and we'll see how it plays out.

[Andrew Didora, Analyst at Bank of America Merrill Lynch]

Great. Thanks everyone.

[Operator]

Thank you. And that's all the time we have for analyst. We open the queue for the media. [Operator Instructions]

And our first question comes from Alison Sider with Wall Street Journal. Your line is open.

[Alison Sider, Analyst at Wall Street Journal]

Hi. Thanks so much. I'm just curious what you're seeing, any response to COVID cases starting to rise again. Are you seeing that reflected at all in consumer demands or in sort of your staffing, are you seeing higher rates of absences and if that's something you're kind of planning around?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Hey, Alison, it's Robert. Dave answered about this stuff.

[Alison Sider, Analyst at Wall Street Journal]

Okay. And I guess maybe on the math, I guess in a couple of days since that policy has changed, have you seen any evidence of any kind of shift in bookings, increased bookings or decreases or any evidence yet or if there will be any change to demand as a result of the [Indecipherable].

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

Hey, Al, this is Vasu. It's still very early to tell and really difficult to draw very much of a conclusion, but so far, there is nothing that indicate that it's materially up or materially down.

[Alison Sider, Analyst at Wall Street Journal]

Okay, so not like when other international travel restrictions get lifted in those and the media response...

[Vasu Raja, Chief Commercial Officer at American Airlines Group]

That's certainly not on that order of magnitude at all.

[Alison Sider, Analyst at Wall Street Journal]

Got it. Thanks.

[Operator]

Thank you. Our next question comes from David Koenig with Associated Press. Your line is open. One moment. Hey, David, your line is open.

[David Koenig, Analyst at Associated Press]

Yes. Hey, Robert and Derek, both address this. On the pilot --- you gave pilot figures for pilot hires. I was looking for a net number. Is 600 enough to offset the 865 requirements and other attrition? What's the net number and bottom line, are you going to have enough pilots to fly this summer?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Let me start and David Seymour can join in. The answer is yes. As I've said repeatedly, for sizing the airline for the resources that we have, from a pilot perspective, all of this hiring has been to match up to a schedule, but also a schedule that we are making sure that we've built-in safety factors. So we have tremendous confidence that we can fly. In addition to that, we're scheduling the airline, incurring tools that are different than we had before. And here my confidence only grows as I --- as we make our way in the year.

David, do you have anything else to add to that?

[David Seymour, Chief Operating Officer at American Airlines Group]

I will only just add that, I mean I think the numbers you're talking about the 600 that was this year alone. So last year we had a target of hiring 350. We hired over 500. So, the 600 is just for this year and that's well ahead of where we set our expectations to and in the pilot training right now, we are actually getting our goals and our throughput that we expect and don't foresee any problems going forward for making those numbers. So we can hit the goal to fly all of our aircraft by the end of this year.

[Operator]

Thank you. Our next question comes from Mary Schlangenstein with Bloomberg News. Your line is open.

[Mary Schlangenstein, Analyst at Bloomberg Television]

Hi. Thanks very much. I had a couple of quick questions. One, Robert you had said this morning, I think that you're not doing as much regional flying as you would like to be, and I wanted to see if you could comment in terms of, have you got planes pilots suspended any routes and is that all related to the shortage of pilots on the regional level?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah. So thanks Mary. Derek noted and we're not flying the full regional schedule we'd like to. We're going to get those aircrafts back up over time, but it's related to pilots being hired from the regional airline to an increased level of attrition and the time it takes to actually backfill those pilots. So while the regional carriers are able to source pilots at this time, we just can't get them up to speed it fast enough. Over the long term, we do need to work on regional pilot supply and we're on sort of that with our to that program and trying to satisfy people to come into the business. And I know, I'm confident, that over the long term, the prospects of quality of life and compensation or something they can attract people whose business. So it may take some time to work out, but as Derek said, over the course of the next year or so, we anticipate being able to get, not only mainline back up to full utilization by the end of the year, the regionals sometime thereafter.

[Mary Schlangenstein, Analyst at Bloomberg Television]

How much down is you're flying, your regional flying?

[Derek Kerr, Vice Chair, Chief Financial Officer and President, American Eagle at American Airlines Group]

Departures in the second quarter are probably down about 20% versus 2019 or the airline mainline is down about 5%. So maybe 15% different than ---- more than what the is.

[Mary Schlangenstein, Analyst at Bloomberg Television]

Okay.

[Robert Isom, Chief Executive Officer at American Airlines Group]

And then I want to note on that, we're not --- just look, while we have aircraft that we're not flying, that this may again do you like we were chasing that. We're simply side in the airlines as possible. And so our confidence in the summer is rooted in. We've already taken a look. We've already made sure that we have appropriate confidence levels in what we can do. So no need for any type of concern over the summer.

[Mary Schlangenstein, Analyst at Bloomberg Television]

Okay. And then the second question I had, if you could go back to the NEA for a minute. If the government, it tells JetBlue it can acquire Spirit but it want big changes in the NEA. What's the prospect for American at that time? Is that something that you could have to walk away from with JetBlue?

[Steve Johnson, Executive Vice President and Strategic Advisor at American Airlines Group]

Hey, Mary. Thanks. Speculation and speculation and speculation and speculation. Vasu is --- I think really articulate in his comments about how pro-consumer and pro-competitive the NEA is. I mean we could go on and on about that and if you assume that we will actually figure out a way to acquire Spirit and we get to that point, a JetBlue, Spirit combination doesn't change impact to consumers of the NEA. It's not going to change one bit the value that we create for consumers in New York and Boston. So I think it's --- there is a lot of water to go into the bridge, obviously with respect to Frontier and Spirit and JetBlue, but I think --- so that's kind of speculation is probably premature and we feel really I think excited about the prospects within our it with the DOJ and it will, looking forward to continue at the NEA just in perpetuity.

[Mary Schlangenstein, Analyst at Bloomberg Television]

Yeah. Steve, are there any discussions underway on settling with the DOJ over the NEA or do you expect that that's going to go to trial in September?

[Steve Johnson, Executive Vice President and Strategic Advisor at American Airlines Group]

I expect we'll go to trial in September.

[Mary Schlangenstein, Analyst at Bloomberg Television]

Thank you.

[Operator]

Thank you. Our next question comes from Dawn Gilbertson with USA Today. Your line is open.

[Dawn Gilbertson, Analyst at USA Today]

Hi. Good morning. I have two questions on masks. Do you foresee --- given the DOJ appeal, do you foresee any scenario in which the mask mandate on plane is reinstated as swiftly as it was removed. And the second thing is, how is American handling traveler request for refund given the how quickly the mask mandate was lifted? Are you --- if someone doesn't want to fly, they are immuno-compromised, are you just giving refunds? What's your policy? Thank you.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Thank you. I will take the first.

[Nate Gatten, Chief Government Affairs Officer at American Airlines Group]

Yeah, I can take the first part of that question. This is Nate. Obviously we're aware that the DOJ is appealing the Florida ruling, although they have not asked for a stay of the district court judge. Beyond that, as I mentioned earlier, we've learned throughout the pandemic, not to speculate on what the government may or may not do. I would emphasize, though, that in keeping with our commitment to creating a welcoming environment for everyone who travels with us, customers and team members, may of course choose to continue to wear masks at their own discretion and we expect that many will continue to do so, but especially considering the steps that we've taken for the last couple of years regarding cleanliness and airflow, we don't feel that reinstating of the mandate is necessary at this time.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah, and Dawn thanks for the question. Overall, just right we haven't had much interaction with customers that have said they want to do anything different. But like we do in all these events, we are taking a look at our policies and we are certainly with customers open and I'm asking them to get in touch with our reservations office and we'll make sure that we accommodate them in an appropriate fashion.

[Dawn Gilbertson, Analyst at USA Today]

Thank you.

[Operator]

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

[Leslie Joseph, Analyst at CNBC TV18]

Hi. Good morning, everyone. I was wondering how you guys are thinking about hire-offs during the summer. And if you have enough capacity and fare capacity to handle re-bookings and how you're addressing that? And just kind of how the overall labor landscape look, not just pilot, but customer service ground and another in place?

[David Seymour, Chief Operating Officer at American Airlines Group]

Yeah, appreciate the question. Certainly one that we spend a lot of time thinking through and working on. What I tell you we've actually implemented a number of tools, knowing that those are going to be high, as we go into the summer, welcoming back a lot more customers. And those tools, we could actually been utilizing and that's shown good promise here in terms of ensuring that we're not canceling and work in our airline through a delay as this weather does develop and we work our way through it and that's really the key for us, is making sure that we're cancelling as few flights as possible to allow the traffic to continue to move through. But we're --- again we're very focused on that. We know when this is going to be out there and we're certainly not taking anything for granted.

[Robert Isom, Chief Executive Officer at American Airlines Group]

You heard David. I'll just add, there was--- look, we have talked about new key team members. So I thought more than the 600 pilots that we have actually with that pumped out as net new and we hired I think almost 20,000 people. But those people, team members are working in reservations there at our airports throughout the system. So we picked up our capacity to be able to handle. And then Maya, do you want to say about anything more about other technology that we're using?

[Maya Leibman, Executive Vice President and Chief Information Officer at American Airlines Group]

Yeah. I think Dave, you hit on it. The goal is to prevent the cancellations in the first place, so that we don't have to re-accommodate people given the high levels that we expect at summer. And we've got some pretty cool new technology that really focuses on how we manage to do that. In addition, really helping with improving our technology around crew recovery and some optimization technology that will really help reduce our taxi times, our turn terms at airports and all of those things together are going to be in place by the summer in order to ensure that we have a better approach to irregular operations.

[Leslie Joseph, Analyst at CNBC TV18]

Okay, thank you. And then my second question is really quick. Does it still make sense for American Airlines to have an award chart just given where demand is and sort of how harder it is to find seats with awards these days with [Indecipherable].

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah, hey, thanks for the question. Actually, what's been really interesting to us, even though we are seeing an improving fare environment, is actually our redemptions are up both in margin as we go forward. And as far as the award chart goes, that is certainly something which our top-tier loyalty customers very much value and they see a lot of opportunities for it to go and secure our traffic, which many of them have been long anticipated due to pandemic. So as they were --- we are still really encouraged by having an award chart and encouraged, frankly, even though we aren't rising environment, we're creating the right level of availability for up for redemption.

[Leslie Joseph, Analyst at CNBC TV18]

Thank you.

[Operator]

Thank you. Our next question comes from Niraj Chokshi with New York Times. Your line is open.

[Niraj Choksi, Analyst at New York Times]

So I think most of my questions were answered already. I guess one question I had on masks was, do you anticipate that affecting hiring at all, maybe potential people you might hire might be nervous about sort of the shift, the drop of the requirement?

[Robert Isom, Chief Executive Officer at American Airlines Group]

Hey, Niraj. The answer is no. And then just so everybody is aware, if our customers and team members want to wear masks, we encourage them. We welcome that and we see that as a practice going to go continue forward.

[Niraj Choksi, Analyst at New York Times]

Thank you.

[Operator]

Thank you. Our next question comes from Catherine Group Nick with the CBS News. Your line is open.

[Kathryn Krupnik, Analyst at CBS News]

Hey, guys. Thanks so much for doing this today. I hope this is the last time that we have to talk about unruly passengers, but do you have accounts, and how many that American has banned? What are you going to do with those who are banned? Are you going to do what your competitors are doing and doing case by case basis?

[Nate Gatten, Chief Government Affairs Officer at American Airlines Group]

Yeah, Kate, this is, Nate. We don't give account for how many passengers we have banned, specifically for non-compliance. In most cases, the passengers who were added to our internal refused list as a result of mask non-compliance, will be permitted to resume travel at some point in time. In cases where it has simply with face masks compliance and escalated into anything involving something more serious or certainly assault on one of our team members or customers, those passengers are going to remain on our permanent internal refuse list and will never be allowed to travel with us. Again, I would just add in this vein, we're very grateful to our partners and the federal government who have prioritized the safety of our crews, both our ground crews and our crew in the air during this period and we are really appreciative of the announcement yesterday from the acting FAA Administrator, Billy Nolen, who said that the zero tolerance policy against unruly passengers it here to stay as we anticipate. Unfortunately that this cases will continue, although as Robert noted earlier today, hopefully with fewer instances

[Kathryn Krupnik, Analyst at CBS News]

Thanks.

[Operator]

Thank you. And that's all the time we have for Q&A. I'd like to turn the call back to Robert Isom, for closing remarks.

[Robert Isom, Chief Executive Officer at American Airlines Group]

Yeah. Thank you. I'll just close with this. That we worked really hard as a company to get this point. To be able to take advantage of an environment where demand is improving, utilized structured in a really great fashion. I want to thank our team members for working so hard to get us through the pandemic and to be in a position to actually realize on everything that we want to make about American. And in terms of the transition as well, this is my first earnings call, I want to thank our Board of Directors, especially Doug Parker for making things really work smoothly and put us in a position to be talking about things that are very, very favorable. And so for our team, you've heard from a lot of players here today, I couldn't be more proud and confident in the team that we have from a senior leadership perspective. You're going to hear more from them as time goes on and our job right now, to make the second quarter forecast reality. That is what we're focused on. So we're going to get out there and make it happen. And I want to thank you really for the time today.

[Operator]

[Operator Closing Remarks]