American Airlines Group Inc. (AAL) on Q3 2021 Results - Earnings Call Transcript

Operator: Good morning, and welcome to the American Airlines Group Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, all lines are on a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And now, I would like to turn the conference over to your moderator, Head of Investor Relations, Mr. Dan Cravens. Dan Cravens: Thanks, Sara (ph). And good morning, everyone. And welcome to the American Airlines Third Quarter 2020 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 on the line as well for Q&A session are several of our senior execs, including Maya Leibman, Chief Information Officer; Steve Johnson, our EVP of Corporate Affairs; Elise Eberwein, our EVP of People and Global Engagement and Vasu Raja, our Chief Revenue Officer. Like we normally do, Doug will start the call with an overview of our quarter and we'll update that to the actions we've taken during the pandemic. Robert will then follow some remarks about our operations, commercial, and other strategic initiatives. After Robert 's remarks, Derek will follow with details on the quarter and our operating plans going forward. After Derek 's comments, we'll open the call for analyst questions, and lastly, questions from the media. To get in as many questions as possible, please limit yourself to one question and a follow-up. Before we begin, we must state that today's call does contain forward-looking statements, including statements concerning future revenues, cost, forecasts of capacity, and fleet plan. 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 30th, 2021. 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 on 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 materials subsequently. Thanks again for joining us at this point. I will turn the call over to our Chairman and CEO, Doug Parker. Doug Parker: Thank you, Dan, and thank you-all for being with us. Good morning. Our third quarter started out very strong. Our domestic business revenue, which declined from 27% of 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 employees began to return to the skies. And as a result, we had American produce her profit in the month of July. But then the spread of Delta variant led to a rebound in pandemic fears, of course, companies deferred return to work plans, and that domestic revenue, the rest of business revenues fell back to 57% of 2019 in August and 47% in September. Now, I know some people will find that kind of discouraging, but we actually think it encouraging. Despite in business revenue in the month of July, it showed that business travel does want to return. It was enormous pent up demand. And once this pandemic behind us, it should resume its prior rapid trajectory to recover. And as to how it all gets reflected in the financial results, that profit in July, followed by larger losses in August and September, added up to a cumulative loss. On a GAAP basis, we actually reported a net profit of $169 million. When we exclude net special items, we recorded a net loss of $641 million. And while we obviously don't like reporting losses, this is our smallest quarterly loss since the pandemic began in early 2020. is how well the American Airlines team is performing. No one is managing through this pandemic and into the recovery better than people in America, that shows in the results. At a time when airlines are struggling to build back service and respond to demand, no one has dealt back further and faster than American. We feel greater than 80% of our 2019 capacity in the third quarter, or 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 transporting more than 48 million passengers in the quarter. And our team did this doing an excellent job of taking care of our customers. And we struggled with growth ourselves as we entered the quarter. But we responded quickly and aggressively. We ended the quarter flying by far the largest airline in the world with the best September operational performance in American history. Great performance by our team has led to a strong customer acceptance, as evidenced by our industry-leading passive accounts and our revenue trends. For the quarter, revenues were significantly improved over 2020, and we're down 25% in the third quarter versus the same compared to 2019, whereas they were down 37.5% in the second 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 with the other large international U.S. carriers, despite our higher capacity production. On the cost front, we've reshaped our network, simplified our fleet, and operational cost efficiencies into the business that will serve us well for years to come. We accelerated the retirement of more than 150 older aircraft, and American continues to operate the youngest, the most fuel-efficient fleet of the U.S. network carriers. And importantly, we've actually more than $1.3 billion of permanent annual cost reductions into the business through our green flag initiatives. And as we've 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 that strengthen the American Network and the additional utilities for our customers and long-term value for our shareholders. The most notable of these are our northeast alliance with JetBlue and our West Coast international lines in Alaska, which we continue to implement and grow in the third quarter. Looking forward, we feel great about where America is positioned. During business demand and the recent rise in fuel prices, the fourth quarter will be challenging. But that's a near-term issue finding a longer-term . 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 and 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. Robert Isom: Thanks, Doug. And good morning, everyone. I want to start by thanking the entire American Airlines team for their efforts in the third quarter 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 American. As we built back the operation, much like other businesses, we've managed through supply chain constraints, vendor staffing challenges, constantly changing travel restrictions, and a lot more. Through it all, we operate more flights in carrying more customers in any other U.S. Airlines. More than tripling our daily departures from May 2020, which is below for the schedule. And we're pleased with where we are. American recorded our most reliable September since the merger, based on completion factor, on-time departures, and on-time arrivals. We'll continue to focus on delivering a safe and reliable operations, and continuing the 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 third quarter in support of the U.S. Civil Reserve Air Fleet program. It was a tremendous honor for American to aid in the effort to bring more than 5,000 evacuees from Afghanistan to the U.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. We're grateful to our team members throughout the airline, and from all over the world who came together to support American 's craft activation. As we reported this morning, our third quarter total revenue was approximately 9 billion, up 1.5 billion from the second 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, half of the revenue in the third quarter was 72% of what it was in the third quarter of 2019, which is up 13% sequentially in the second Quarter. Revenue has now returned to pre -pandemic levels at 98%, 2019 levels in the third quarter. As Doug described, business revenue growth stalled in the quarter and set flat in the second quarter at around 50% of 2019 levels. Given recent booking trends with a Delta variant in the society and everything we're seeing, hearing from our customers, we're applying for a robust peak travel period in the fourth quarter, and we're excited about prospects for 2022. And here's why. We expected the domestic leisure revenues was the past 2019 levels in the fourth quarter and continue to that trends wrap 2022. Short-haul international revenues should follow that same pattern. And recent trends show that corporate bookings month - to-date have improved and accelerate significantly and are accelerating likely work earlier in the year before the Delta variant and associated restrictions were imposed. Our largest corporate customers staff will be returning to work 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 right away with our top corporate customers, almost all have resumed domestic U.S. business travel to some extent. As companies return to the office and lift out 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, were the first to return to starting to come back. Right now, almost two-thirds of our corporate customers are traveling internationally for at least essential business. And we expect international travel to improve significantly with easing of cross-border requirements and are encouraged by the recent views about the U.S. Government easing international travel up and entry restrictions starting in November. Following the 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 at Korea, and a 74% increase to Brazil. Clearly, there's significant end up demand for travel to and from the U.S. and many customers are eager to return to travel when it's permitted. Just focusing on the fourth quarter, we expect total revenue will recover to approximately 80%, 2019 levels, up approximately five points sequentially versus the third quarter, with the strongest performance in domestic and short-haul international markets. We continue to make significant strides in building deposit global network in the industry and reconnecting with our customers. Our partnerships with JetBlue and Alaska are delivering tremendous benefits for customers and enabling new that otherwise wouldn't be possible. 1 in 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 to Boston this -- New York and Boston this winter, including nearly 50 international destinations out of JFK. We also continue to create a seamless experience for our customers, including rolling app reciprocal lease benefits for AAdvantage and TrueBlue Mosaic members, and we expect to launch mileage reduction on JetBlue very soon. Our loyalty program continues to demonstrate its attractiveness to our customers and partners. Remember, acquisitions in the third quarter exceeded 2019 levels, despite the airline flying a significantly smaller schedule. As our customers continue to engage with AAdvantage, our co-brand Cash Payments were essentially fully recovered at 96% in the third quarter versus the same period in 2019. This was up from just 78% in the second quarter on the same basis. We expect this trend to continue as the network returns to a more normalized level. At the front. During the quarter, American became the first North American airlines to commit to developing a science-based target for reducing greenhouse gas emissions by 2035. We also agreed to turn to purchase more carbon-neutral, sustainable aviation fuel. American also became an anchor partner to breakthrough energy -- energy catalyst. And we're committed to invest $100 million and a groundbreaking collaborative effort to accelerate the Clean Energy Technologies necessary for achieving a net economy by . We're excited about this work and what it will mean for the future of aviation and 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 quite about how we're positioned the hard work and dedication in American Airlines team. And with that, I'll turn it over to Derek. Derek Kerr: 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 s. Their continued resilience in the face of uncertainty due to the Delta variant is commendable. This morning, we reported the third quarter GAAP net profit of $169 million or $0.25 per diluted share. Excluding net special items, we reported a net loss of $641 million or a loss of $0.99 per share. 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 third quarter results reflect this. Despite the Delta variant related volatility and demand and revenue trends that Robert discussed, our financial performance improved from the second quarter, but fell short of our initial expectations that we outlined in our last earnings call. While the slow down 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 third quarter pre -tax earnings, excluding net special items improved by nearly 600 million sequentially versus the second quarter. This makes it even clear to us that the steps we are taking over the past 18 months are working. As we have navigated the pandemic, we built back our network in a way that we'd keep our capacity aligned with demand, while giving us the ability to be flexible as conditions change. We've have also worked to keep our controllable costs down, and have action 1.3 billion in permanent annual cost initiatives this year alone. Based on our results, it's clear these actions are paying off, as our third quarter CASM, including fuel and net special items was up just 10.5% versus the same period in 2019, displaced by approximately 20% less capacity. On the fleet side, we moved swiftly to retire older aircraft and accelerate our fleet harmonization projects. 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 787-8 deliveries, so we expected to arrive in 2021. In the meantime, due to the continued uncertainty in the delivery schedule, we have proactively remove these aircrafts from our winter schedule to minimize potential passenger disruption. I'd also like to note that these delays have had an impact on our fourth quarter CASM since we built the cost structure to fly these aircraft during the fourth quarter. We ended the quarter with approximately 18 billion of total available liquidity, which reflects the 950 million in prepayment of our spare parts term loan made in July, and approximately 440 -- 649 million of scheduled debt payments made during the quarter. The scheduled debt paydown unencumbered 20 Boeing 777 aircraft. Further, in our unencumbered asset base d to 3.8 billion and our first lien capacity to more than 8.4 billion. And looking 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 to 12 billion at some point next year, when we are confident the recovery has taken hold, and we have returned to sustain profitability. The deleveraging of American's balance sheet remains a priority and we are committed to significant, steady and continuous debt reduction in the years ahead. Even with a slower than expected recovery observed during the third quarter, we remain on track with our target of reducing overall debt levels by $15 billion by the end of 2025. $10 billion of this will be achieved through amortization of debt and its 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 de -leveraging and further accelerate the timeline to achieve these targets. Of the incremental 5 billion, nearly 1 billion has already been actioned, with a prepayment of the spare parts term low we announced on the last call. As we look ahead, we will continue to focus our efforts on pre -payable debt, which currently represents approximately 30% of our total debt obligations. In addition to deleveraging our balance sheet, this plan will allow us to 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 this four-year period. Looking into the fourth quarter, the delay in the return of corporate travel and rising fuel prices will put pressure on our margins relative to the third quarter. We expect our capacity to be down approximately 11% to 13% versus the fourth quarter of 2019. Based on current demand assumptions and capacity plans, we continue to expect the slight sequential increase in our revenues, and expect total revenues to be down approximately 20% versus the fourth quarter of 2019. In total, we expect a pre -tax margin, excluding net special items of between negative 16% and negative 18%. For the full-year our projected debt principal payments are expected to be 4.4 billion. This includes the 750 million payment of spare parts term loan, and the 550 million prepayment of the term loan with U.S. Treasury that was completed earlier this year. We have 612 million scheduled debt principal payments in the fourth quarter. With respect to capital expenditures, we expect full year 2021 Capex to remain minimal with non-aircraft Capex at approximately 900 million and net aircraft Capex, including pre -delivery payments remaining an inflow of 900 million. 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 a full year capacity very near to 2019 levels. Conclusive courses 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, 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 operations, 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 simplification 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. inclusion 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 analysts questions. Operator: Thank you. Our first question comes from the line of Jamie Baker with JPMorgan. Your line is now open. Jamie Baker: Hey, good morning, everybody. So Doug, I think it was like three or four 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 cool slide, actually. So 2 bullets I met 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 outside or anything. I'm just having trouble reconciling it in the current environment. Doug Parker: Sure. I'll do it at a high level and then could chime in with more details if you'd like, Jamie. So, yeah, look, that's not a new hub, as you already have there, it's Alaska 's, they're our partner. And we're simply making net health stronger by having alliance with Alaska, whereby we can do things they can't do or 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 just be those flights with their already existing Seattle. So there's maybe peaking. That hasn't happened since we put that they're so it was nature. Derek Kerr: Yes, This is . I'll add to that. Actually, we see that as being really intellectually consistent with that. It's in , pretty simple that we go create value for customers by being relevant and being relevant, the biggest markets. And in order to go create a legitimate, valuable, and profitable international network, we need to be able to launch price for international markets. And brand, 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. With this, which is a very creative deal, deal. What we're doing is we're applying things like Seattle to keep grow or Seattle the handwork, all of which feed off of that huge global 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 its not our largest courtship partner. And we're seeing a huge customer benefit all up and down the West Coast. Actually, as we look at it, we're creating close to about 300,000 customers are now able to experience Alaska where before they had no competitive option or they had one or two competitive options in the marketplace. And the market is responding. We've set records for advantage enrollments, but the two markets where our enrollments are growing the most are all the markets in the West Coast partnership, everything from San Diego, North of Seattle. And the other ones are New York and Boston. So we see as actually to be really consistent in a really effective and wise way to go and develop a level of network comprehensiveness that will be too impossible to do. Jamie Baker: Okay. That's really helpful. And then a follow-up, this one, a quick one on fuel, maybe for Robert or Derek. The question I repeatedly receive is why haven't managements adjusted capacity to account for $2.50 jet kero. And I know you can't speak for the industry, but for American, is there a certain period of time that you need to be convinced that higher fuel is going to be sustained? Is there 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. Derek Kerr: Jamie, I'll go first, all because you and I have been doing this a long time. When oil price this quick, it's really have responses of what happened here. It's run up very -- it's run up very quickly. We're already selling all the capacities out there. So what I know is, what I believe is and this has been the history of our business, you will see adjustments -- you will see adjustments in capacity, which will result in changes in pricing. This don't happen that quickly. And it also takes a while for anyone to come to the conclusion that this is real. But 2014 was a pretty good year in the airline business, and Brent averaged 100 bucks a . This is . It doesn't . But right now, in the very near-term, it's hard to adapt. Robert? Robert Isom: This will come into balance and fuel prices running up very, very quickly. As we take a lot of things, there must be an impact on capacity pricing in the long run. Jamie Baker: Got it. Thank you. All three of you, take care. Derek Kerr: Thanks, Jamie. Operator: Our next question comes from the line of Connor Cunningham with MKM Partners. Your line is now open. Connor Cunningham: Hi everyone. Thanks for the time. Doug Parker: Hey, Connor. Hi. Connor Cunningham: When listening to Delta and United's call, a huge portion of their script is about premium products and how they think does better 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 are performing right now. And do you actually agree that there's structural changes happening where leisure travelers are trying to book up more towards premium seats. Dan Cravens: Hey, Connor. This is boss 2. I can start that . Look, we certainly as most definitely see a change where there are 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. But we spend lot of time looking at this. And there's a component of it which certainly seems very promising, but still seems early to say whether there's been a structure or not. At least in our own system, we took a lot of wide bodies out of international flight 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 incomes who would travel on leisure trip and they would not only pay for the lie-flat product, they pay a premium versus other non-life buy products in the marketplace. And that's certainly been an encouraging thing. But what we don't know is it's so much of that trip behavior also. It was people leaving on a Thursday coming back on 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. What we don't know is how to size the magnitude of it. Because there's a lot of things that certainly speaking for American Airlines that was very unique for the last several months. And we don't yet know how much of a structural change that is, but to the early point of the beauty of the airline and we've -- this pandemic has proved it over and over again, is that we can change where the airplanes go very, very quickly. And with that, we can also change the product design pretty quickly too. This is something that we're looking at. It is a similar trend that we're seeing. Time will tell how structural it is. Robert Isom: Thanks Vasu. And to understand, hey, look, we're ready for what we've been preparing for a long time, not just selling product which customers talked about at the heart products as well. So the fleet is ready from a cabin configuration perspective, whether that's business class cabins or premium economy that we put in top are wide bodies. And then just as we look at travel recovery, in 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. Everything from our 5-star service that this come back to the opening of our flagship lounges, which are our best in the industry. We have a way to sell into service, every customer, 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. Connor Cunningham: Appreciate it. And then just on the cost structure, I mean, investors are trying to get comfortable with different 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 bringing back capacity to 2019 levels. The reason why I ask is I would've thought given some of the structural changes you had within -- within fleet simplification and so on that 4Q would have had a little bit more leverage to it. So any details would be helpful. Derek Kerr: Yes, Connor, in the fourth quarter, I mean, the story and I touched a little bit about here is we built the airlines to fly more in the fourth quarter without a doubt, now 2 of the issues. One is the Boeing 7878, which are not here. We had assumed they we're going to be in this 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 in the fourth quarter and the first quarter. The other thing from a capacity perspective that we're all dealing with right now is on the regional side. As 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 regionals, 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 fourth-quarter without a doubt versus where we had planned. So we're -- we're not flying exactly what we would have flown and where we already got in the cost structures there. As we go forward, the tailwinds are really, I mean, the $1.3 billion worth of cost reductions is permanent, 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 will 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, 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. Doug Parker: Just because we haven't talked, we spend less on talking about 1.3 billion next we talk about barrel. But just for others remain confined closely, those are real, they're in the airline. When we look at this as we go back to 2019 schedule today, produces that amount. It's combination -- it's a lot of things, but the largest ones are $500 million or so management, payroll and as Derek said, all the efficiencies you get from eliminating somebody stuff, fleets, training and otherwise. So those are the tailwinds to offset inflationary pressures Connor Cunningham: Okay. Appreciate it. Doug Parker: Thanks, Connor. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is now open. Sheila Kahyaoglu : Hi. Good morning, and thank you for the time, guys. Maybe if we 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? Robert Isom: Hey, this is . I can take that one. We've been really encouraged by what we've seen over the last, let's call it, 3 or 4 weeks, an d 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. But what -- which is not that surprising. What's been more encouraging to us is that It's really sustained itself. But what we are seeing out there -- what you see from us right now as a little bit of cautious optimism. In November and 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 starts to returning back at office and start traveling again for business which we anticipate being more in the Q1 timeframe than in the Q4 timeframe. Follow more so for us where our transatlantic network is really concentrated around London. So we don't anticipate as much of a business recovery in Q4, but we are seeing a really, really mean of leisure recovery. And all the more so as British Airways builds back as connecting schedule in Heathrow, we anticipated picking an increasing amount of demand as Q4 goes along. So you see that number in aggregate, we see that something has changed a lot from where we are at October to November to January and beyond. Thank you, . Operator: Our next question comes from the line of David Vernon with Bernstein. Your line is now open. David Vernon: Thanks, Operator, and thanks guys for taking the question. Doug and Robert, we sat down a little bit before the pandemic and you had laid out a picture where American had been lagging on some of the customer-facing and 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 designed boarding practice, the ability to pay for upgrades, dynamic pricing on purifier tickets, all that stuff. A lot of it sounded like IT-driven initiatives. And I was wondering 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 are monetizing capacity or are you kind of close that gap through this crisis? Maya Leibman: Steve. Hi, this is Maya. And I'm proud to say that over the last several years, we really have close the gap on a number of our technology initiatives, including some of the ones that have leveled-up like dynamic pricing and allowing subs, higher factors, and product standby on safe departure activity. We've really used the pandemic as an opportunity to really identify those gaps and to close them and really focused on a lot of the other things that we've been talking about that we will be tailwinds for next year. team of partnerships, and making a better customer experience for our customers with our West Coast and Northeast alliances. David Vernon: Is there a way to frame what that outlook like be in terms of load factor or sort of ancillary revenue growth, it looks like the other revenue lines before you pretty well. But is there a way to kind of put a number around some of these things? Vasu Raja: Hey, this is Vasu. We're in early stages of doing that as we build next year's plan but probably our top-line initiative is making sure that all of these partnerships are really integrated and seamless for the customer. A lot of the longstanding issues that have existed in co-sharing relationships really get alleviated pretty quickly. And a little bit -- we're pretty pleased with that. We've made a lot of progress with the Alaska , and what we're seeing is very encouraging. To my earlier comments, we're seeing a lot of customers come in and a meaningful amount of revenue production that they're As we looked at in Q3, it was a massive benefit to customers. We estimated benefit and about a 0.5% -- half 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% historical level. So we think there's a lot of uplift to the whole thing without a lot of investments, further. David Vernon: 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. Dan Mckenzie: Hey, thanks. Good morning, guys. The first question here is just a house-pleading question from a prior question, the Oasis Project. Is that included in the 1.3 billion of structural cost savings or is that above and beyond? And then just related to that, if that had been fully implemented in 2019, how much would that have contributed to pre -tax income? Derek Kerr: Yes, it is included. It's just -- it added more seats in 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. Dan Mckenzie: Yeah. Understood. Okay. Second question here. What is the aggregate wallet spend, say a fortune with 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, free the relationship with JetBlue versus now, you walk in, 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 Americans ' fair share and American JetBlue's fair share be of that? Robert Isom: Hey, Dan, this is Bob too. Thanks for the question. I appreciate what you're trying to get out of it, which is effectively how much more market can we access than what American could access on it's own. And while -- I don't have specific numbers in some cases, but we got to be a little bit careful in what we share about it. I'm proud as we see it, in New York historically, we might have been at 25% player, but we were competing for something which was actually like 10% to 15% of the available business travel market at large, not just the corporate market. And so in large part because we had a really great product in Heathrow or in the Transcom markets, if we couldn't get you very effectively to Toronto, at some point customers, especially larger accounts or power travelers, business top customers, just applying us. And now as we see it, we have the best network between AL and JetBlue. We've gone from a world where we have four trips a day JFK, San Francisco, one we're we'll have 12,13, 14 trips a day where all of our Transcom product is full flat. We've taken a 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. And that's all out of the market that we get to compete for and compete where we see a New York who's instead of under-performing the system by 10% to 15%, can perform in line with the system. Vasu Raja: Hey, Dan, I just wanted to go back and just to add one more point regarding the fleet amortization project, which we're almost done with. We only have I think 60 of the 321s that are remaining and will be completed by the first quarter. Derek mentioned that in the 1.3 billion, so much of the savings in terms of actual commonality and what we can take out in terms of reduction of fleet side is the day of back rate, the airline more efficient. That's included in the 1.3 billion. What's not, though, is we are having seats. So, CapEx has very, very low marginal cost. So growth from a 160 seats on the threes up to a 170 and then on an average, adding a few seats to the 321 as well. That that will be seen in run rates going forward. Dan Mckenzie: That actually was my question -- Vasu Raja: From a revenue perspective. Dan Mckenzie: Yeah, the incremental revenue that you gave, that was actually my question, was that's what -- that's what I was trying to get at. But thanks for the time you guys. Doug Parker: Thanks Operator: Our next question comes from the line of Stephen Trent with City. Your line is now open. Stephen Trent: Good morning, gentlemen, and thanks for taking my question. I just had a quick one on looking at your investment. So you guys committed to invest in Jet Smart and Goal and South America. You of course have this tie-up with JetBlue in the United States. When you think about other international Carter's. Do you see any opportunities for the similar kinds of tie-ups, for example, outside of the Oneworld Alliance. Vasu Raja: Hey, this is Vasu, Stephen. I can start on that one. Look, ultimately, what we wanted to do is to create the most comprehensive network for our customers. And whether it is a codeshare, an investment, the joint venture, whatever it is, we don't see them in ends in themselves. Those are just simply means through which we can create something really comprehensive for our customers. And in many parts of the world, we want to be able to do it all just organically with American Airlines, that's not always possible from regulatory or other reasons. And so based on that, we made employee different mechanics, whether it is in an investment, a code share, a loyalty, partnership, until it will change out there. But for us, the true North is creating this comprehensive global network. And we see that. Whether it's -- we've seen the benefits of it for consumers in the Northeast and the West Coast. As we look at South America, really it has less to do with investments and more that the one thing we can't do for the South American customer is carried within South America. And so we are always on the lookout for partners that can help us do that and create more value for the customer. How we go in partnerships together is a second order issue. Stephen Trent: 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 in what have you? Vasu Raja: Stephen, I'll take that one. Our profession has never been a better time to get into it. And what I will tell you is we can -- we will attract people to the profession given the kind of starting salaries that we're offering right now. And ultimately, at what pilots top out at. So I do see this ultimately an economic issues that will be solved. You've seen us do some things recently with regional pilots to make sure that they stand position and progress onto American Airlines. And we will continue to monitor that over time, as we saw a few years back, this will be brought into balance simply based on economics. People will want to come into the profession. Stephen Trent: Okay. I appreciate that. Thank you for the time. Operator: Our next question comes from the line of Chris Delhopeles with Susquehanna. Your line is now open. Chris Delhopeles: 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? Could you run your network at or above 2019 capacity on fewer FTEs relative to 2019? Derek Kerr: Yeah. 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 $1.3 billion of cost reductions, permanent cost reductions are. As Doug alluded to, 500 of that is management headcounts, 600 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 that $1.3 billion worth of permanent cost reductions are; it's mostly in the headcount and the personnel side of things at American Airlines. Chris Delhopeles: Okay. And the second question on the corporate side. So you mentioned a full recovery by year-end 2022. Just curious with the mix of users is here. I know you mentioned industrial's 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. Thanks. Vasu Raja: This is and I can help with that. Look, our -- 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. There are 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 back, the rate of progress we're seeing is mirroring those sectors where travel is relatively more returned. So we didn't have some real confidence that indeed proper travel is likely to come back. As Doug and Robert mentioned earlier in their remarks, there's an 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 are already we're seeing on a traffic basis, that is very well recovered over revenue basis. That will start to recover as people come back and more flights, more frankly. Robert Isom: Hi, Vasu. Alison Taylor just held our corporate customer advisory board 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'm really pleased to hear just over and over again about, look, we have to get back to the office. And once we get back to the office, travel is going to come. So it's not surprising that this industrials and healthcare 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. That's happening, 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 are saying in some of these other sectors. Doug Parker: Hey, Chris, it's Doug. Just being around just to support some of 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 54%, the large corporates are 35% on a year-to-year basis, and the small and medium businesses at 83%. So 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 headquarters and large HR departments are out flying because they need to across all sectors. Those companies that are large organizations and need to worry about those things more aren't currently get back. They were starting to come back. But they'll get up under the same ranges. That's where business wants to be. Chris Delhopeles: Great color. Thank you. Doug Parker: Thanks. Operator: Our next question comes from the line of Helane Becker with Cowen. Your line is now open. Helane Becker : Hi, everybody. I hope you are all doing well. Doug Parker: We are, Helane. How are you? Helane Becker : I'm okay. I guess I'll see you tomorrow night. And by the way, congratulations. Doug Parker: Oh, thank you. Helane Becker : Here's my question really for Derek. Interest expense, I think in the third quarter was $476 million, 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're going from 15 billion, I think you've said in the press release, $15 billion of debt paydown by 2025. Derek Kerr: Yeah. Well, I can give you what our scheduled debt paydowns are over the next few years. So, we said we're going to pay down $4.4 billion this year. Next year is $2.5 billion, the year after that, I will just say it's around $3 billion to $3.5 billion 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. So the 10 billion will come off, let's just So, call it 2 billion a year over the next 5 years. That will reduce that. What we do on the other 5, we had talked about 1 billion already went at -- in 2021, so we did the paydown of the spare parts loan. We also, because of the recovery, slowed a little bit. We're 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 billion. It just depends on where our cash balances. 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, that $10 billion will be over gradually over time. I don't think we have any big -- huge debt payments. There's a $750 million one in 2022 that we have nothing huge going forward. So I wouldn't look at it that way is pretty ratably the 10 billion over the next four years. And then we would try to attack the other four billion as soon as we feel comfortable and have excess cash that we can take it down to that 10 to 12 billion. We're at 18 today. So we would -- we would most likely do it early, or as I said in the comments, we could use cash to pay for aircraft and just not add the debt instead of paying off any pre -payable debt. So that's the plan that we have today. Helane Becker : Okay. That's very helpful. Thank you. And then on the 77 I think those were going to be leased in aircraft from VOCV. Does the delays change any of the financing arrangements for those aircraft? Derek Kerr: No, it does not change the financing of the aircraft, still leased-in. Helane Becker : Okay. Perfect. Thank you. Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open. Duane Pfennigwerth: 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? Or does it not even come up in conversations given how high liquidity is? What is the Board trying to solve for? Doug Parker: For relative margins, Duane. 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
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American Airlines Posts Mixed Q1 Results, Pulled Outlook

American Airlines (NASDAQ:AAL) reported a smaller-than-expected loss for the first quarter of 2025 but missed on revenue and pulled its full-year guidance.

The airline posted an adjusted loss of $0.59 per share, outperforming analyst expectations of a $0.62 loss. Revenue totaled $12.6 billion, coming in just below the $12.68 billion forecast, and representing a modest 0.7% year-over-year increase.

Despite progress in narrowing losses, the company withdrew its full-year forecast, citing persistent economic uncertainty. For the second quarter, it expects adjusted earnings per share between $0.50 and $1.00—a wide range that straddles analyst estimates of $0.96.

International routes continued to perform well, lifting total unit revenue by 0.7% compared to a year ago. However, softness in domestic leisure demand, tied to broader economic concerns, remains a headwind.

On the financial front, American Airlines generated $1.7 billion in free cash flow and used part of it to reduce its debt by $1.2 billion, ending the quarter with $10.8 billion in available liquidity.

American Airlines Posts Mixed Q1 Results, Pulled Outlook

American Airlines (NASDAQ:AAL) reported a smaller-than-expected loss for the first quarter of 2025 but missed on revenue and pulled its full-year guidance.

The airline posted an adjusted loss of $0.59 per share, outperforming analyst expectations of a $0.62 loss. Revenue totaled $12.6 billion, coming in just below the $12.68 billion forecast, and representing a modest 0.7% year-over-year increase.

Despite progress in narrowing losses, the company withdrew its full-year forecast, citing persistent economic uncertainty. For the second quarter, it expects adjusted earnings per share between $0.50 and $1.00—a wide range that straddles analyst estimates of $0.96.

International routes continued to perform well, lifting total unit revenue by 0.7% compared to a year ago. However, softness in domestic leisure demand, tied to broader economic concerns, remains a headwind.

On the financial front, American Airlines generated $1.7 billion in free cash flow and used part of it to reduce its debt by $1.2 billion, ending the quarter with $10.8 billion in available liquidity.

American Airlines Group Inc. (NASDAQ:AAL) Misses EPS Estimates but Surpasses Revenue Expectations

  • American Airlines reported an EPS of -$0.23 for October 24, 2024, missing the estimated EPS of $0.13 but surpassed revenue expectations with $13.65 billion.
  • The company has released a promising fourth-quarter forecast, suggesting a potential strong performance in the upcoming quarter.
  • Despite mixed results in the airline industry, AAL's recent earnings report and future outlook are crucial for investors comparing its performance to competitors like United Airlines and Delta Air Lines.

American Airlines Group Inc. (NASDAQ:AAL) is a major player in the airline industry, providing passenger and cargo services across the globe. The company competes with other giants like United Airlines and Delta Air Lines. Recently, AAL reported an earnings per share (EPS) of -$0.23 for October 24, 2024, missing the estimated EPS of $0.13. However, it surpassed revenue expectations with $13.65 billion, compared to the anticipated $13.47 billion.

Despite the EPS miss, American Airlines has released a promising fourth-quarter forecast, exceeding analysts' expectations. This positive outlook suggests a potential strong performance in the upcoming quarter, as highlighted by CNBC. Such forecasts can influence investor sentiment and potentially impact AAL's stock price positively.

The airline industry has shown mixed results this earnings season. United Airlines saw a stock surge after an earnings beat, while Delta Air Lines fell short of expectations. Investors are closely monitoring AAL's performance to see how it compares to its competitors, as noted by Barron's. The company's recent earnings report and future outlook are crucial in this context.

Analysts had projected AAL's third-quarter earnings at $0.13 per share, a significant 65.8% decline year-over-year. However, revenue expectations were slightly higher at $13.49 billion, a 0.1% increase from the previous year. Over the past month, the consensus EPS estimate was revised upward by 43.1%, indicating a positive reassessment by analysts, which often affects investor reactions and short-term stock price movements.

Currently, AAL's stock price is $12.83, reflecting a decrease of 1.0031% or $0.13. The stock has traded between $12.66 and $13.035 today, with a 52-week high of $16.15 and a low of $9.07. The company's market capitalization is approximately $8.43 billion, with a trading volume of 29.69 million shares.

American Airlines Group Inc. (NASDAQ:AAL) Misses EPS Estimates but Surpasses Revenue Expectations

  • American Airlines reported an EPS of -$0.23 for October 24, 2024, missing the estimated EPS of $0.13 but surpassed revenue expectations with $13.65 billion.
  • The company has released a promising fourth-quarter forecast, suggesting a potential strong performance in the upcoming quarter.
  • Despite mixed results in the airline industry, AAL's recent earnings report and future outlook are crucial for investors comparing its performance to competitors like United Airlines and Delta Air Lines.

American Airlines Group Inc. (NASDAQ:AAL) is a major player in the airline industry, providing passenger and cargo services across the globe. The company competes with other giants like United Airlines and Delta Air Lines. Recently, AAL reported an earnings per share (EPS) of -$0.23 for October 24, 2024, missing the estimated EPS of $0.13. However, it surpassed revenue expectations with $13.65 billion, compared to the anticipated $13.47 billion.

Despite the EPS miss, American Airlines has released a promising fourth-quarter forecast, exceeding analysts' expectations. This positive outlook suggests a potential strong performance in the upcoming quarter, as highlighted by CNBC. Such forecasts can influence investor sentiment and potentially impact AAL's stock price positively.

The airline industry has shown mixed results this earnings season. United Airlines saw a stock surge after an earnings beat, while Delta Air Lines fell short of expectations. Investors are closely monitoring AAL's performance to see how it compares to its competitors, as noted by Barron's. The company's recent earnings report and future outlook are crucial in this context.

Analysts had projected AAL's third-quarter earnings at $0.13 per share, a significant 65.8% decline year-over-year. However, revenue expectations were slightly higher at $13.49 billion, a 0.1% increase from the previous year. Over the past month, the consensus EPS estimate was revised upward by 43.1%, indicating a positive reassessment by analysts, which often affects investor reactions and short-term stock price movements.

Currently, AAL's stock price is $12.83, reflecting a decrease of 1.0031% or $0.13. The stock has traded between $12.66 and $13.035 today, with a 52-week high of $16.15 and a low of $9.07. The company's market capitalization is approximately $8.43 billion, with a trading volume of 29.69 million shares.

American Airlines Slashes Full-Year Guidance Despite Slight Q2 Earnings Beat

American Airlines (NASDAQ:AAL) slashed its full-year earnings guidance, overshadowing a minor beat in second-quarter earnings.

The airline reported adjusted earnings of $1.09 per share, slightly surpassing the analyst estimate of $1.07. However, quarterly revenue fell short of expectations, coming in at $14.3 billion compared to the Street estimate of $14.39 billion.

Despite achieving a 2% year-over-year increase in second-quarter revenue, setting a company record, American Airlines revised its full-year earnings guidance significantly downward. The new range is $0.70 to $1.30 per share, starkly below the Street estimate of $1.81 and the previous guidance of $2.25 to $3.25.

The midpoint of the revised guidance, $1.00, indicates a much more conservative outlook from the airline. For the third quarter of 2024, American Airlines expects earnings per share to be approximately breakeven, reflecting the ongoing effects of its earlier sales strategy. CEO Robert Isom attributed the second-quarter challenges to the company's prior sales and distribution strategies, as well as an imbalance in domestic supply and demand.

American Airlines Slashes Full-Year Guidance Despite Slight Q2 Earnings Beat

American Airlines (NASDAQ:AAL) slashed its full-year earnings guidance, overshadowing a minor beat in second-quarter earnings.

The airline reported adjusted earnings of $1.09 per share, slightly surpassing the analyst estimate of $1.07. However, quarterly revenue fell short of expectations, coming in at $14.3 billion compared to the Street estimate of $14.39 billion.

Despite achieving a 2% year-over-year increase in second-quarter revenue, setting a company record, American Airlines revised its full-year earnings guidance significantly downward. The new range is $0.70 to $1.30 per share, starkly below the Street estimate of $1.81 and the previous guidance of $2.25 to $3.25.

The midpoint of the revised guidance, $1.00, indicates a much more conservative outlook from the airline. For the third quarter of 2024, American Airlines expects earnings per share to be approximately breakeven, reflecting the ongoing effects of its earlier sales strategy. CEO Robert Isom attributed the second-quarter challenges to the company's prior sales and distribution strategies, as well as an imbalance in domestic supply and demand.

American Airlines Shares Drop 7% on Lowered Q2 Profit Forecast

On Tuesday, American Airlines (NASDAQ:AAL) revised its second-quarter profit forecast downward due to weaker pricing power, causing its shares to drop about 7% in pre-market today.

The airline announced that Chief Commercial Officer Vasu Raja, who has been leading the new business strategy, will depart in June. American Airlines now anticipates second-quarter adjusted earnings between $1.00 and $1.15 per share, down from the previous forecast of $1.15 to $1.45 per share. The company also expects total revenue per available seat mile, an indicator of pricing power, to decline by 5% to 6% compared to a year ago, worse than the earlier projection of a 1% to 3% decrease.

Analysts have expressed doubts about American's strategy to differentiate itself from competitors. The airline has moved away from targeting corporate travel customers and is focusing on expanding its market share in smaller markets. Some analysts are skeptical that this approach will generate enough revenue to compete effectively with United and Delta Air Lines.

In the first quarter, American's business revenue increased by high-single digits year-over-year, compared to double-digit growth at Delta and United. Additionally, American's seat growth in the domestic market remains high, which analysts say is negatively impacting its pricing power.