American Airlines Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 19, 2023

There are 17 speakers on the call.

Operator

Thank you for standing by, and welcome to American Airlines Group's Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would now like to hand the call over to Vice President of Investor Relations and Corporate Development, Scott Long. Please go ahead.

Speaker 1

Thank you, Latif. Good morning, everyone, and welcome to the American Airlines Group Third Quarter 2023 Earnings Conference Call. On the call with prepared remarks, we have our CEO, Robert Isom and our CFO, Devin May. A number of our other senior executives are also here in the room this morning the Q and A session. Robert will start the call with an overview of our performance and Devin will follow with details on the Q3 We'll outline our operating plans and outlook going forward.

Speaker 1

After our prepared remarks, we'll open the call for analyst questions followed by questions from the media. Before we begin today, we must state that today's 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 September 30, 2023. In addition, we'll be discussing certain non GAAP financial measures this morning, which exclude the impact of unusual items.

Speaker 1

A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website. A webcast of this call will also be archived on our website. The information we are giving you on the call this morning is as of today's date, We undertake no obligation to update the information subsequently. Thank you for your interest and for joining us this morning. And with that, I'll turn the call over to our CEO, Robert Isham?

Speaker 2

Thanks, Scott, and good morning, everyone. Today, American reported an adjusted pretax Profit of approximately $362,000,000 for the 3rd quarter, an earnings result that was above the high end of our latest EPS guidance range. The American Airlines team continues to produce strong results. And as we look ahead to the rest of the year, we continue to prioritize reliability, Profitability, accountability and strengthening the balance sheet. We are also focused on taking care of the team.

Speaker 2

We are very pleased to have finalized a new contract with the Allied Pilots Association in August. The agreement delivers significant compensation and quality of life improvements to our pilots while allowing us to expand our training capacity to support underutilized aircraft and our future flying. We're also working toward new agreements for our flight attendants and agents. We're running a strong and reliable operation involving our commercial offerings, taking care of our team and customers, producing free cash flow and strengthening our balance sheet. All of this speaks to our steadfast focus on controlling what we can control and we are proud to say that we are delivering on our commitments.

Speaker 2

Now before discussing our results in more detail, on behalf of all of us at American, I want to say how shocked and saddened we are by the horrific attacks in Israel and we joined the international community in condemning these acts of hate and violence. We are devastated by the incredible loss of Innocent Life. We're making every effort to care for our team members who are impacted by this tragedy and to keep our team members safe while also working with the U. S. Government to help Find safe travel options for customers trying to depart the region.

Speaker 2

The safety and security of our team members, customers and their families remains our top priority. Turning now to our financial results. We produced record 3rd quarter revenues of approximately $13,500,000,000 driven by a resilient demand environment and record travel rewards program revenue. Domestic demand remains steady, While international demand continues to drive revenue growth led by the Atlantic, Caribbean and Central America. During the Q3, we saw year over year growth in corporate and government revenue with a return to more traditional seasonality trends.

Speaker 2

We remain encouraged by what we're seeing with demand and revenue from unmanaged business travel. Importantly, More customers than ever are choosing our travel rewards program by acquiring our co brand credit cards in record numbers, enrolling in the Advantage program and shopping for our products through our direct channels. Co brand mileage sales growth continues to outpace airline capacity and GDP growth, driving increased levels of loyalty and revenue production from card users. In the Q3, approximately 80% of our bookings These are the most efficient distribution channels in our ecosystem and we expect to see these trends continue into the Q4 and beyond. Looking forward, our network and travel rewards program will continue to be the primary drivers of value for our customers and for American.

Speaker 2

And we are focused on operating our business as efficiently as possible. Our simplified fleet remains the youngest and most efficient among the U. S. Network carriers These initiatives and our limited near and medium term CapEx requirements will allow us to continue to generate free cash flow that we can use to reinvest in the business and continue to pay down debt. Now turning to our operation.

Speaker 2

The American Airlines team delivered another quarter of fantastic operational results. Our team has produced stellar results for more than a year, including a record setting performance during the peak travel period this summer. American operated more than 515,000 flights in the 3rd quarter and we produced our best ever 3rd quarter completion factor of 98.6%. American ended the quarter with the best completion factor of the U. S.

Speaker 2

Network carriers, while maintaining our 1st place standing and on time departures through the 1st 9 months of the year. No network airline has operated more reliably than American over the past 15 months. Our operational performance is better than ever and it's because of our steadfast focus on reliability and strong execution in an increasingly complex environment. Our commercial and operations teams build a fantastic plan each month, we execute on it and we recover quickly during irregular operations. We're building on our momentum and we are committed to delivering a reliable operation for our customers as we approach the holiday season.

Speaker 2

And now, I'll turn it over to Devin to share more about our Q3 financial results and the outlook for the Q4.

Speaker 3

Thank you, Robert. I would also like to thank the team for delivering another outstanding quarter. During the Q3, the average price of jet fuel increased sharply. While the rapid increase in fuel prices resulted in lower earnings in the quarter, we continue to stay focused on our priorities. As Robert mentioned, in the Q3, we delivered a fantastic operation for our customers.

Speaker 3

We finalized a new contract for our pilots And we took further action to strengthen our balance sheet. Excluding net special items, we reported 3rd quarter net income of $263,000,000 for adjusted earnings per diluted share of $0.38 This is above the high end of our most recent guidance update, driven by slightly higher capacity and better ex fuel unit cost performance in the quarter. American produced record 3rd quarter revenue of approximately $13,500,000,000 This revenue performance led to adjusted operating income of nearly $730,000,000 resulting in a 3rd quarter adjusted operating margin of 5.4%. Our strong operational performance in the 3rd quarter resulted Unit revenue was down 6.3% versus a historically strong 2022. Unit cost excluding net special items and fuel was up 3.3% year over year, nearly a point better than the low end of our prior guidance range.

Speaker 3

This outcome was driven by higher capacity and some expenses that were pushed to the Q4. Our significant fleet investments over the past decade allows for relatively modest aircraft CapEx this decade. Year to date, we have taken delivery of 17 mainline aircraft and we expect 4 more aircraft to be delivered by year end. Two narrow body aircraft deliveries have been delayed into 2024, so we now anticipate taking delivery of a total of 21 aircraft in 2023. All of our 2023 deliveries have been financed.

Speaker 3

Given the continued supply chain challenges the OEMs are managing, We have been in the used market for younger vintage narrow body aircraft. We have signed an agreement with Alaska Airlines to purchase 10 Airbus A321neo aircraft that we expect to join the fleet in the Q4 of this year and the Q1 of 2024. Our 2023 aircraft CapEx is now expected to be approximately $1,900,000,000 which includes a portion of the Alaska A321neo deliveries. Our 2023 non aircraft CapEx is still expected to be approximately $800,000,000 We anticipate our 2024 total CapEx to be between $3,000,000,000 $3,300,000,000 slightly below our prior guide as we finalize our 2024 delivery schedules. Looking beyond 2024, we continue to review our medium and long term fleet needs and we are currently engaged with Boeing and Airbus for narrow body aircraft deliveries in the latter half of this decade and beyond.

Speaker 3

Due to the young age of our fleet, We do not have any planned aircraft retirements this decade. As a result, we continue to expect aircraft CapEx to average approximately $3,500,000,000 per year through 2,030. We are very pleased to have built our fleet in a low interest rate environment and at a time when the supply chain wasn't as challenged as it is today. Our relatively low capital requirements along with our free cash flow production has allowed for significant progress in strengthening the balance sheet. We've now reduced total debt by approximately $10,900,000,000 from peak levels in 2021 and we are more than 70% of the way to our goal of reducing and will be 77% of the way to our total debt reduction goal.

Speaker 3

In addition to paying down regularly scheduled debt, Year to date, we have proactively decreased our 2025 maturities by $2,300,000,000 through both the refinancing Of the $1,800,000,000 South American term loan in the Q1 and more than $550,000,000 of open market repurchases over the past 2 quarters. All three credit rating agencies recognize our progress with upgrades in the Q3 and we expect further ratings improvements in the coming years as we continue to reduce total debt levels. We ended the Q3 with approximately $13,500,000,000 of total available liquidity. And for the full year, we now expect free cash flow to approach $2,000,000,000 The reduction from our prior free cash flow estimate is due to slightly higher aircraft CapEx related to the Alaska A321 and lower earnings largely due to the recent run up in fuel expense. Now on to the outlook for the Q4.

Speaker 3

Post Labor Day bookings have been in line with expectations. We've seen steady improvement in business travel with encouraging signs from both managed and unmanaged corporate customers, Strong international demand and historically high premium revenue both domestically and internationally. Consistent with recent trends, we expect steady demand during coming peak holiday travel season. However, the strong unit revenue environment in 2022 continues to be a difficult comparison. As a result, we expect 4th quarter TRASM to be down 5.5% to 7.5% on 4.5% to 6.5% more capacity year over year.

Speaker 3

We expect 4th quarter CASM ex to be up 5% to 7% year over year. This step up in sequential year over year CASM ex is driven by the shift of some expenses from the Q3 to the Q4 and less year over year capacity growth. Our full year CASM ex guide remains unchanged, up approximately 3% versus 2022. Our current forecast for the 4th quarter assumes a fuel price of between $3.01 $3.11 per gallon. Based on our current demand assumptions and fuel price forecast, we expect to produce an adjusted operating margin of between 2% 4% in the 4th quarter.

Speaker 3

We continue to expect our full year capacity to be up approximately 6.5% versus 2022. Our full year forecast for TRASM is to be up approximately 1% year over year and as I just mentioned, we expect our full year CASM Ex to be up approximately 3% versus 2022. Our capacity, TRASM and CASM ex expectations for the year are all consistent with the guidance we provided in January of this year. This result speaks to the planning, focus and determination of our team. Based on our demand and fuel cost assumptions, we now expect to produce a Full year adjusted operating margin of approximately 7% and adjusted EPS of between $2.25 $2.50 Looking ahead to 2024, we continue to expect our capacity to be up mid single digits year over year, largely driven by better overall asset utilization.

Speaker 3

Increases in capacity will be oriented to our strength with our global partnerships complementing our own flying. In 2024, We will have the assets and resources to finally grow beyond our 2019 capacity levels, but we will be nimble and adjust capacity based on the fuel and demand environment we are operating in. We are pleased with the progress the American Airlines team has made in 2023 And we remain focused on delivering results and pursuing efficiencies to unlock additional value in 2024 and beyond. Now, I'll turn it back to Robert for closing remarks.

Speaker 2

Thanks, Devin. We're incredibly proud Everything the American Airlines team has accomplished over the past 18 months. We told you we were going to focus on reliability, profitability and strengthening our balance sheet And we've done just that. American had a great summer and has run the most reliable operation of the U. S.

Speaker 2

Network carriers over the past 15 months. We're consistently profitable and we've materially improved our balance sheet by reducing total debt by nearly $11,000,000,000 since 2021. We'll maintain that focus as we move through the Q4 and beyond. No matter the macroeconomic conditions we face or the variability of the operating environment, Our team is intent on controlling what we can control over the short term and setting our company up for success over the long run. I'm incredibly excited by what the future holds for American.

Speaker 2

Looking ahead, we will be much more efficient as an airline. As an example, even today, we could be flying 5% more with the aircraft we already have in our fleet. We're eager to restore regional service to the underserved smaller markets that are still feeling the effects of the pandemic. We're building back and expanding our network in an efficient manner that will lead to stronger revenue production. Our travel rewards program, Advantage, has already undergone significant change that is helping us grow high margin revenue at a greater rate than GDP, And we anticipate that to continue as we work to make our co brand credit cards even more valuable to consumers and our partners.

Speaker 2

On top of all that, we continue to innovate in creating a leading retailing experience, ensuring that anything we offer our customers can be shopped, Purchased and serviced digitally. It all bodes well for American, our team members, customers, the communities we serve and especially our investors as we enter 2024 and look to 2025 and beyond. And with that, operator, please open the line for analyst questions.

Operator

Our first question comes from the line of Helane Becker of TD Cowen.

Speaker 4

Thanks very much, operator. I'm not used to getting the first question. Thanks, guys. So here's my question. As you think about Your hubs, you've talked about SUE, you've talked in the past about New York and LA not really being profitable.

Speaker 4

You know, Philadelphia seems to me to be a good connecting hub. It looks like you're putting a lot of international capacity in the market. So it brings up a couple of points. One is, Are there enough captains to handle what you're thinking of doing around the network? Charlotte and Dallas have gotten a lot of attention.

Speaker 4

What about some of your other markets like Philly, Chicago and maybe your coastal locations?

Speaker 2

Hey, Helane. Let me start and Faasou can talk to you more about exactly where we're focusing our network and if we need some Real expertise, David Seymour can step in. I'll start with this. We're really pleased that we were able to Enter into a new agreement with the APA and our pilots back in August. It's a deal that whilst it certainly comes with increased Compensation and benefits and expense, but it also is something that puts us in a position where we can train our pilots in a much more efficient manner And more quickly, so one of the issues with getting our fleet fully back restored has been Just our ability to move pilots through the schoolhouse, but right now with some of the changes we've made in the contract, we have much more flexibility To actually grow the airline as we need.

Speaker 2

And so I don't see any issues with being able to support our fleet as we get into 2024 From a mainline perspective, on the regional side of the world, that is something that we're still working through. We've seen a lot of nice progress, But we're not fully restored. As we look into 2024, you'll see us do some things that I think that will hasten The progress to get our aircraft back up. And from a regional perspective, it's really not a pilot supply issue at this point. It's more of an issue of having first officers with the amount of time, the 1,000 hours that they need to graduate from right seat to left seat.

Speaker 2

And I'm encouraged by what I see on that front. So Vasu, what about how are we focused in the network?

Speaker 5

Yes. Look, just building off Robert's comments in the opening remarks, as we look forward, we think we have a lot of opportunity there. Our hubs and really all of our hubs, but especially our 4 of our largest and potentially highest capacity hubs in Phoenix, Dallas, Charlotte and Miami are located near what are Starting to turn out to be the some of the most economically resilient markets there are. And we still have opportunity To go bring back more fleet and we have infrastructure in those places to grow further. And as we see the future unfolding, To your point, Helane, we actually see a lot of opportunities to go and grow the performance of the coastal markets and Philadelphia and Chicago specifically In a way that's really complementary to that.

Speaker 4

Okay. And then just for my follow-up question on the domestic side. As I look at your numbers versus your 2 major competitors, you seem to be decelerating. And I'm just kind of wondering if that's just a function of the size of the aircraft you're flying not Having as many premium seats or is it just the markets that you're in? Although given what Basu you just said, It seems like the demand in those markets should still be pretty reasonable.

Speaker 5

Yes, Helane. Actually, it's none of the above That would be the answer to the question. Look, in this business of ours, from 1 quarter to another, It's easy to draw a lot of prognostications which probably aren't there. And as we see it right now, it's a particularly weird time. 1, because So much of the U.

Speaker 5

S. Airline business is still recovering their networks and the networks that are being recovered are probably never been more divergent, Never more different competitively, but also never more different than what was there 3 or 4, certainly 5 years ago. And so a little bit of what you see is that. And what I would actually say is we I'll echo the points I made and then Robert made in the opening bit, as we look forward, actually we see a lot of opportunity. First of all, with our network, as we look out there, we serve 300 cities in North America and 200 of them, we have a network advantage.

Speaker 5

As we bring back more of the regional jets as we upgauge the mainline fleet, that's a real advantage for us because so many of our competitors I really won't be there. The customers in those cities are about 50% of our customer base, but they produce about 60% of our revenues. They are the ones who are signing up for the program for Advantage and enrolling in the card. And then the other big opportunity we have Really across our enterprise, but it will play out most notably in the domestic system, It's really with Advantage, our travel rewards program. As we see it, our co branded credit card is the largest co branded credit card in circulation.

Speaker 5

Our program Is one of the maybe travel programs in the business. But if you look at us, we produce probably $400,000,000 less in frequent flyer revenue than what the industry leader does right now. So, the quarter to quarter trends are just a function of things like the recovery. The real thing that we're seeing is the opportunity in the quarters and years ahead.

Speaker 4

Thanks very much. Thanks everybody.

Operator

Thank you. Our next question comes from the line of David Vernon of Bernstein.

Speaker 6

Hey, good morning guys. So Devin, can you help try to shape the cost outlook and the cadence by quarter for 2024 or at least talk to some of the headwinds are out there? I know it's going to be pretty noisy just given The way the labor costs have layered in, can you kind of help us think about 2024 CASM ex sort of headwinds In relation to the higher level of CASMex that you're expecting now in Q4?

Speaker 3

Sure. And maybe I'll just start with 4th quarter performance and then we'll talk a little bit about 2024 and while we're not giving, Townsend guidance for the year, I can talk to you about some headwinds and tailwinds. So Starting with Q4 of this year, as Basu said, these numbers do shift around a little bit from quarter to quarter, but our full year CASM ex guide Has been unchanged since the start of the year. And we knew at the start of the year, the 4th quarter was going to be our toughest comp. Our capacity starts to decelerate, our capacity growth starts to decelerate a little bit as we entered the Q4.

Speaker 3

We also had a couple of one time credits that we got in the Q4 22 that aren't happening for us this year. And then there was a shift of some expenses from the Q3 into the Q4 adding a little bit more pressure. But We're still really pleased with our full year result, hitting the guide or the midpoint of the guide that we had at the very start of the year. As we look out to 2024, The headwinds are where you'd expect. It's largely around salaries and benefits.

Speaker 3

We have open contracts with our flight attendants and our passenger service and reservations groups. If we are able to achieve deals that match industry leaders for those work groups, it will add about a point of CASM pressure year over year. We also just have regular increases for other labor groups that are happening next year. But the tailwinds of what Robert talked about and what we're excited about actually Working towards full utilization of our fleet, and this operation we've been running has been incredible for the last year, year and a half. Now we have a real opportunity to go ahead and do some optimization work around this operation.

Speaker 3

So, we do have some headwinds on salaries and benefits. We have some real nice Tailwinds as well into 2024 and we'll be able to provide more guidance on what CASM will look like on the January call.

Speaker 6

Okay. Thank you for that. And then Robert or Vasu maybe, there's a lot of talk right now in the industry about how segmentation premium products Our changing the structure of the industry may be to the detriment of domestic oriented or discount carriers. Can you add your thoughts on this topic here and talk a little bit about you see American playing in this evolving structure? We didn't hear a lot about premium in any of the prepared remarks today.

Speaker 6

I'm just wondering how you guys are thinking about What some people are calling is a seismic change in the industry dynamic?

Speaker 5

Sure. This is Vasu. I can answer that. In fact, I'd be very happy to answer it. Look, what we see and we think the real causal thing that's happening is the customer itself as opposed to a Fair product or a cabin of service.

Speaker 5

And what we've certainly seen and Robert alluded to it is since 2019 Our Advantage customers are really driving the revenue production of the company and that's manifesting itself in a range of ways. So versus 2019, our membership is up 50%, almost 2 thirds of our revenue certainly in this last quarter came from Advantage customers. And what we're finding with them is that those customers are proving to be a much more resilient Pool of demand that indeed are willing to engage in behaviors that aren't just shopping for the fastest schedule or the cheapest price. We see that play out in a lot of different ways. One is premium cabin performance where our premium fare products revenue was up 7% from Advantage customers In keeping with our overall seat growth, 2, we see that remuneration on our credit card It's about 25% from these customers.

Speaker 5

And then importantly, we find that these customers want to shop with us directly. About 85% of all the Advantage member revenue in the system is coming through our direct channels. So We see the causal thing and that's why it was in our remarks is what's really happening is for our Advantage members there's a real desire to travel And they're coming to us because they want a great network and a program that rewards them for using it, delivered reliably over and over and over again.

Speaker 2

Hey. And David, I just want to add one thing to that. It's look, we're going to be part of and also a driver of premium revenue growth. So one of the things I think is noteworthy, our premium seating is going to grow by 43% between now and 2026. And that's as a result of bringing on the new XLR and Reconfiguring our 7 seventy seven-300s and actually taking a look at even some of the domestic fleet as well, where I know that we'll be adding more first class Product or at least reconfiguring to that end.

Speaker 2

And on that same front, we're really pleased with our regional aircraft. On that front, you take a look at the E175 and they have fantastic cabins that our every bid is nice Appreciated by customers is anything we fly in the mainline side. So, I look forward to participating and driving what's going to be going on in terms of premium products.

Speaker 5

All right. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Andrew Didora of Bank of America.

Speaker 7

Hey, good morning, everyone. Devin, maybe just digging into the 2024 costs a little bit. Given the changes in the pilot contract, I know kind of the new profit sharing that runs through the salaries and wages line. How should we think about Wage growth next year in relation to kind of the mid single digit capacity?

Speaker 3

We'll give more guidance on 2024 as we Savings benefits is an area we're going to see some pressure. As I just mentioned, we do have this open agreement with our flight attendants and our passenger service and reservations agents that We hope to get closed and we hope to be able to match industry leading contracts there, which will drive about a point of growth. And as we get into the year, there will be some lumpiness on year over year comps. In the Q1 of 2023, we didn't have an accrual for our pilot agreement. So we'll see a little more cost pressure in the Q1.

Speaker 3

But as we get into the last three quarters of the year, that cost pressure is going to ease. And then these efficiencies that we've been talking about I think are going to add some nice tailwinds as we go through the year. So let us get back to you in January with a little bit more detail, but

Speaker 7

And then maybe, Asu, Can you speak a little bit more in terms of what you're seeing on the corporate side, particularly as it relates to both kind of large and small corporates, Particularly, I know you've made some pretty big changes with your corporate sales force. Just curious if you've seen any sort of unexpected share shifts or Anything like that as we moved into this more seasonally stronger time period for corporate travel? Thanks.

Speaker 5

Yes. Hey, thank you, Andrew. It's another question which I know is on people's minds. I'm happy to address and I'll do it in this fashion. We have made a number of Changes with our selling and distribution strategy, the purpose of which is very simple.

Speaker 5

Our customers have been telling us for a very long time now That they want it so that anything that we offer them can be shopped, sold and serviced digitally. And we've been seeing that customer sentiment for a really long time and that's where we're out to serve. And our strategy is this simple, in order to go make that happen, We need to distribute our product exclusively through the Internet. And that's what you're seeing from us. We're shifting content, their product Things like that out of legacy technology where we can't provide customers the kind of shopping and servicing experience they expect and we're putting it Through technologies that can.

Speaker 5

And on that journey, we've certainly invited all of our retailers to come along with it, but that is a different world than what was there before. What we've seen before is really encouraging actually. In the quarter, our total business revenues were up 2%. We actually performed better year over year among contracted corporations than we had in a number of months prior to it. But very importantly, our cost of sale is down 13%.

Speaker 5

So we're finding that we're able to generate more revenues through less cost of sale, Which is very encouraging to us. And like I said, as we go forward, we intend to continue the momentum that we've got. We certainly invite any retailing partner to join us along the journey. And in fact, most recently, We launched a new business program called Advantage Business. And Advantage is very much the platform upon which we'll build all of our commercial programs.

Speaker 5

But through that through Advantage Business, companies of all sizes can access our content in a way that's cheaper, Simpler, better servicing, and in a way that's more rewarding for travelers. We'll accelerate their status. So, we're actually really encouraged by what we've seen, Encouraged by its revenue production and look forward to continuing the momentum.

Speaker 8

Great. Thanks for that.

Operator

Thank you. Our next question comes from the line of Michael Linenberg of Deutsche Bank.

Speaker 9

Hey, good morning, everyone. Hey, Vazu, can I just I know you Sort of called out what the revenue for premium for Advantage members was up year over year? If I look at in its entirety, What year over year was the gain in premium product revenue? And then when we think about sort of the split, Where are you as a percent of your passenger revenue, total passenger revenue, premium versus non premium? Even rough numbers would be fine.

Speaker 9

Thanks.

Speaker 5

Sorry, Mike. Shame on me, my microphone wasn't on. But I'll repeat. I'll answer the first question first. The premium cabin revenues are up across our system about 6% to 7% by Advantage members, whose revenue is up about 7%, non members are up about 5%.

Speaker 5

And then to your question Shati, about customer base, look, one of the things that we've certainly noticed is More importantly than segmenting based on fare product is by the customers themselves. And so what we do is we look at customers who are buying Non premium products, those are fares that are not eligible for discounts, mileage earned, things like that, our lowest selling products. And we look at it for customers who are non advantaged customers, who tend to be our most transitory customers. And what we find is those transitory customers Buying our lowest selling fares is about 30% of our system revenue. The other 70% is customers who are buying premium Quality Fares.

Speaker 5

And that number is disproportionately weighted to advantaged customers.

Speaker 9

Okay, great. And then Just my second question on, I saw that you're applying for, to fly from JFK Haneda. And I'm curious because sort of post NEA, I get the sense that maybe you were going to be sort of maybe I don't know if downsizing New York is the right thing, but the fact is wide bodies are scarce and For everyone, and that would take 2 frames. And you already have JAL in that market with the codeshare. So, what's the rationale behind that?

Speaker 9

Thanks for taking my questions.

Speaker 10

Yes. Hey, thanks Mike. And I'll answer it through

Speaker 5

the lens of New York, which I know is probably on a lot of our investors' minds. And I'll answer the Haneda question as part of it. At the time pre COVID and certainly prior to the NEA, American Airlines had a really fundamental problem in New York, which is we were losing our relevance to New York City originating customers. Every year we had Declining originating share, our advantage enrollments were declining year after year, simply because we didn't have a slot portfolio to compete with The 2 largest ones, and that was the reasons behind doing DNEA. Now in these last Several weeks months, what we've noticed is, actually, the New York originating customer has changed what they demand.

Speaker 5

Same day business trips are down a lot. There's way fewer people originating New York who are looking to take day trips to Boston or Chicago or Detroit. But that New York City customer is much more interested in flying long haul, internationally long haul for the West Coast All markets in Florida. That's a thing that our spot portfolio is much more built to do. And in these last few weeks since the NEA has been terminated, actually what we've seen is that Our originating share is stable.

Speaker 5

New York City continues to be the number one market in our system, both for advantage enrollments And for credit card sign ups and penetration. So we're encouraged by that and you see that. The last thing I'll mention about it is Through our global partnerships, we're able to offer a thing in New York, which is very unique, both in our T8 facility and also being able to go and Operate our major partners, major complexes, whether that's Heathrow or Haneda or Doha for that matter.

Speaker 9

Makes sense. Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Catherine O'Brien of Goldman Sachs.

Speaker 10

Hey, good morning, everyone. Thanks for the time. Devin, I just wanted to dig in a bit on the cost performance to date. You came in close to a point below the low end of your 3Q range. I know you mentioned some timing shift, but you're also sticking with your prior midpoint for full year CASM ex Despite the extra accrual for pilot retro pay since you last updated that full year cost outlook, I guess what has been going better than expected?

Speaker 10

And then can you just remind us what you had originally baked in for the open flight attendant contract in the second half? Did that have any impact on 3Q? Thanks.

Speaker 3

Thanks for the question, Katie. We do have it's largely timing and operational performance with higher Sam's is what benefited us in the Q3. In our prior guidance, we didn't have anything In the Q3 for our open labor agreements outside of the pilots, we did have some in the Q4 and we still have something modest In the Q4, just given the time it would take to reach and ratify an agreement. But generally speaking, everything this year has I'm in very much in line with what our initial guidance was, which is why for the full year, we're still right around that 3% number. We've seen a little bit of pressure on certain line items.

Speaker 3

We've gotten some benefits from others, but overall it's largely in line with our expectations. And like just generally speaking, we are pretty good at forecasting out expenses. And I think during the COVID years that became a little bit more challenging. But in 2023, we feel pretty good about our ability to forecast and deliver results.

Speaker 10

Got it. That's great. Thanks for the detail. And then maybe one for Vasu. Between the Q3 and Q2, you experienced D cell and RASM on year over year in 2019, totally understand there's so many moving pieces now As the network recovers and the shape of your network has changed a bit over the years, but your Q4 guidance implies things will stabilize in a year over year basis.

Speaker 3

Can you

Speaker 10

just walk us through what's driving that stabilization? Thanks so much.

Speaker 5

And for my clarity, you mean the quarter to quarter stabilization?

Speaker 10

Right. Just comparing the year over year to each other.

Speaker 5

Sure. I will do my best to do. There's a few things that are changing in our system Right now between 1 quarter to the next that has that effect. In Q3 what we find just in terms How we brought the network back, a lot of what we were flying were off time periods, like off peak flights. As we get into Q4, that starts to stabilize a little bit more.

Speaker 5

We regain a lot more regional supportability into the 4th quarter. And so a little bit of what you see there are just shifting year over year trends based on how we brought the airline back And then where the airline is oriented around flying. In the Q3, especially in the Trough seasons of August September, there are some strange year over year comps where the Northeast was performing better than Markets in the Sunbelt, when we get into Q4, that's when the Sunbelt and short haul MCLA start to change and you see that in our schedules. We have I think our biggest Miami operation in our history there. So a lot of what you see there is less a function of something fundamental, but some really unique quarter to quarter recovery trends.

Speaker 11

Great. Thanks for the time. Thank

Operator

you. Our next question comes from the line of Jamie Baker of JPMorgan.

Speaker 8

Hey, good morning, everybody. Vasu, an NEA question. We're obviously tracking some of the rebalancing between JFK and Philadelphia. I see that 787 Captains in Philly, that number is moving up quite a bit. Looks like JetBlue will continue to operate A portion of your slots through the end of IATA's summer season next year.

Speaker 8

So part of my question is, Am I right on that? But more importantly, I recognize networks are fluid. But when should we think about Philadelphia and New York Sort of reaching a steady state, is that a process that will wrap in time for next summer Or should we think of the NEA unwind as lasting longer than that?

Speaker 5

Hey, Jamie, thanks for the question. I guess We've all been around this business for a while and steady state is always a very difficult thing to prognosticate. But I will say this, the role of these hubs It's quite complementary and we're seeing it more and more from my comments earlier, where New York is a lot of New York originating When it goes international, domestic it's a mix of New York originating and as we call it, Smoke City, like outside of hubs originating in the New York. And Philadelphia is our largest connecting complex in the transatlantic. And so a lot of what you see is It comes back to what Robert mentioned.

Speaker 5

We're seeing actually a lot of traction in international and transatlantic Better than we have before. We're seeing it from both of these markets. For the first time since our Atlantic joint venture was created, We're pretty consistently the unit revenue leader amongst the group, which has been very unique in a long time coming. And so We think that these 2 hubs are very complementary. We see it every day that they're very complementary as we bring in the XLR that enables us to do some really Unique things in both of those markets and as we do things like improve the configuration on the 7 77-300 or bring in more 787 Nines that further augments that.

Speaker 5

So that's what you see and look in the world of network planning, we can move things around based on where the demand is. We'll continue to do it. There will be some of that rebalancing. And certainly as we go into next year, we do see a lot of opportunity to bulk up in Philadelphia As we get more supportability back as the regional comes back as we take wide body deliveries.

Speaker 8

Okay, fair enough. And then Second question for Devin, a clarification, the $3,500,000,000 CapEx figures that you gave or figure that you gave before, That was aircraft only, correct? So all in, we should be dialing in something closer to $4,500,000,000 going forward. I'm assuming I got that right. And if so, do you expect to generate cash next year at current fuel prices?

Speaker 3

Yes. So just 2 separate things. So for 2024, our Total CapEx is between $3,000,000,000 $3,300,000,000 Long term beyond 2024, you're right that the $3,500,000,000 number I gave was just Aircraft CapEx. So for 'twenty four, I think our capital requirements are such that we certainly have the ability to generate free cash flow and we're In a different position than some of our peers, just given where they are at in terms of fleet renewal program versus where we're at. We spent Over $30,000,000,000 from 2014 to 2019 on our fleet renewal.

Speaker 3

Now we're in a nice spot where our capital requirements are slightly less and it does give us the ability to produce Free cash flow going forward like we did in this year.

Speaker 8

Okay. Thank you very much.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI.

Speaker 12

Hey, thanks. Good morning. Appreciate the time. Kind of an industry question, but we'll go ahead and ask it of you. Just with respect to 4Q RASM guidance down 6.5% at the midpoint, which is actually a little bit better than what we were modeling.

Speaker 12

And the cost pressures you were outlining into next year, what needs to go right to get that unit revenue back to Positive territory. I mean, the 5% growth that you're outlining may or may not be crazy relative to GDP. If we're just thinking about it year over year, right, 5% doesn't sound crazy. But if we think about where your margins are exiting here, the exit rate on your margins, Any thoughts about how we get back to positive RASM, which it appears you'll need to stabilize your margins here? Appreciate the thoughts.

Speaker 5

Hey, thanks for the question. Look at the answers is both very simple and consistent with the stuff we've been saying. What we get to do is the stuff we have to do is our control, it's bringing back our regional jet network, which creates a lot of revenue benefits for us and a lot of unique markets for our customers. And 2, it's growing more, growing the revenues from Advantage, both through our brand of credit cards and how we go issue and enable the redemption of miles. Both of those things are tops on our plans for next year.

Speaker 5

We're excited to go and execute on that and we see a lot of upside.

Speaker 12

I guess just maybe thinking sequentially like how patient will you be with sort of breakeven ish negative margins? Is that a 1 or 2 quarter phenomenon? Is it a multi year phenomenon?

Speaker 2

Vasu, I'll take this. Hey, Duane, thanks. Look, We are going to be incredibly focused on making sure that we deploy assets where we can make money. The kind of things that we're talking about and focusing on our strengths

Speaker 3

are where we see that happening. And look, I think that

Speaker 2

we if Where we see that happening. And look, I think that we to the contrary, I think we carry momentum in. A lot of the work that we've done this year That Vasu has been at the center of in terms of making sure that we have the best network and we can sell And service it digitally is all groundwork for next year. And so as we take a look at not only the regional network, further enhancing premium product, what we will intend to do with advantage and less Variable revenue, I think that all plays into a lot of strength. And on top of that, look, we're in the midst of recovery still.

Speaker 2

And so, as we go from quarter to quarter, we know that there are things that we could have done differently over the past summer that we're going to make We're addressing in terms of where we're flying and how we're doing it, but we will have very little tolerance for what you would consider Kind of investment or development flying. We're going to fly where we make money.

Speaker 3

No, it's not

Speaker 12

an easy question, but I appreciate the thoughts. Thank you.

Operator

Thank you. Our next question comes from the line of Connor Cunningham of Melius Research.

Speaker 6

Hi, everyone. Thanks for the time. Just your capacity has been pretty stable relative to the industry and a lot of the constraints that we've talked about this year seem like they're going to carry forward next year if not And so at the same time, the domestic competitors are really struggling. So I'm just curious on how you may take advantage That situation next year if those themes continue to play out or are you just happy with the current execution of what you're doing right now?

Speaker 2

I'll start, Conor, and Vasu can join in. Look, when we talk about the kind of capacity that we are going to be putting back, We've described it over and over again. I think that first off, we've got assets that on hand today that provide some of that benefit. We're certainly going to make sure that, That gets deployed in a fashion that is productive. I do think that there are constraints out there, that continue on and whether that's ATC or it's some of the supply chain, both engines and airframers.

Speaker 2

I think that that kind of stuff We're going to have to work through. And then on top of that, look, we're all getting through the pilot shortfalls as well. So there's Ups and downs to that. But overall, you will see us we're going to play our game. And that means, find our Sunbelt hubs, strengthening the rest of our network through getting capacity Back up in the air and doing all the things that Vasu has talked about in terms of taking advantage of advantage and our co brand deals and then also modern retailing.

Speaker 6

Okay. And then you've executed pretty remarkably on your plan, but your margins, Maybe to Helane's earlier question, just continuing to lag Delta United and your operations have been better, all that stuff and I get it. But When you think about the opportunity ahead to close that gap, is it more a revenue equation or cost? I think historically, Americans talked a little bit about the revenue gap, but it seems to be that there's more of a cost opportunity here. Just curious on your thoughts there.

Speaker 6

Thank you.

Speaker 3

Hey, Connor, it's Devin. I'll take that. And listen, certainly, this isn't something we look at, at a Quarterly basis, but we do spend a lot of time on benchmarking. And if you want to talk about benchmarking margins, we do think it's important To look at it and look at it on a 12 month basis and the right margin to be using when you're comparing us to these other network peers is EBITDAR because it just takes out financing decisions. So aircraft rent versus depreciation interest expense and it takes out capital structure, which we just know right now we have a difference, but that's an area we also know we're going to improve on going forward.

Speaker 3

So let's talk about that. On EBITDAR margins, I think we stack up Really well with our competitors. If you look at 12 months ended Q3, I think we're right on top of one of them and maybe there's a small gap to the other. But I think our progress versus 2019 has been really good and the opportunity ahead is on both sides. I do think we're going to be able to produce Capacity at lower unit costs going forward or at least decelerate this unit cost growth and I do think we have top line opportunities as well.

Speaker 3

And then the only other thing I'd close on is, well, I think we're in pretty nice shape on margins, and there's opportunity ahead. When it comes to free cash flow, I think we are unique amongst our network peers with our capital requirements going forward and we should be able to out produce on free cash flow for most of this decade.

Speaker 2

Yes. Thanks, Devin. And Connor, I'll just underscore one more time. Please take a look at the past year. There's a lot of variability in quarters in terms of whose network is aligned to do better, one to the next.

Speaker 2

And also a lot of noise in the numbers in terms of just building back the airlines from the pandemic. We feel really confident about how we're

Operator

Our next question comes from the line of Savi Syth of Raymond James.

Speaker 11

Hey, good morning, everyone. I was kind of

Speaker 10

curious if you could provide

Speaker 11

a little color on the international entities. I know you mentioned And Transatlantic is really strong. It seems like LatAm was a little bit weak wondering what that is. And along those lines, when you're talking about growing into your strength, do you mean Next year kind of most of the growth will be domestic and not as much in the international?

Speaker 5

Yes. Hey Savi, this is Vasu. I can I'll take it in 2 parts. First, just around the world, yes, we see really strong long haul Revenue trends regardless of the entity, long haul Atlantic, long haul Latin America, long haul Pacific. And as I mentioned earlier, Versus any prior period of time, whether last year 2019 or really anything as far back as it goes, We've seen uniquely strong revenue performance, but what we're encouraged by is that our revenue performance, though it's not where we wish it to be, Has never grown at a faster rate than some of our international partners.

Speaker 5

And for many of them, flying to North America is the very best thing that they do. So we're encouraged by the journey we've been on. We see more opportunity ahead as we do simple things, configure airplanes smartly, Get low cost jets like the XLR. And so our future in international is one which is well within our control and Very practical. It doesn't involve any great prognostications of how the world would change.

Speaker 5

And then as far as next year goes, Look, a lot of our overall entity mix is largely to be similar. We're going to be about a 70% to 75% Short haul carrier and a 20% to 25% long haul carrier, but those two Areas would grow at a similar rate, which is why the mix stays constant.

Speaker 11

That's helpful. And If I might, just next year's growth, should we assume a lot more kind of regional like A mix next year just as that regional entity comes back versus mainline as we kind of think through maybe what the pressures on CASM might be, but maybe the kind of the benefits to RASM?

Speaker 3

Yes, it's probably a little early to get into too much detail. We do expect to build back the regional network. We're also looking at better utilization on the mainline side. So we'll give a little more detail as we get into January.

Speaker 11

Appreciate it. Thank you.

Operator

Thank you. Our next question comes from the line of Daniel McKenzie of Seaport Global.

Speaker 13

Hey, good morning guys. I wanted to see if I could put a bigger spotlight on the distribution strategy. So I guess, Vasu, building on the prior remarks around direct Distribution, what percent of Americans revenue has now shifted to direct channels versus say a year ago? How big a change has that been? What is it that American can do today that it couldn't do before?

Speaker 13

And then finally, if you can just help us frame what that revenue upside means, not just today, More importantly, for those investors that invest longer term, what that revenue contribution could look like, say, 3 years from now?

Speaker 5

Hey, Dan. I appreciate the question and I'll do that Your answer sequentially too. Look, 1st and foremost, like I said, we're very encouraged by The changes that we've gone through largely because they're simply responsive to the customers and we're retailing our product the way customers expect, which is really just Through the Internet. And unsurprisingly customers have responded. So what we saw as we were going through COVID Was already without American Airlines making any strategic changes, we went from about selling 50% direct to selling about 60% direct.

Speaker 5

And right now what we're intaking in terms of revenue is actually about 80% going through as we call it Internet based distribution Of which about 70 of those 80 points is going through our true direct channels, .com and app and the balance coming through New distribution technologies. In fact, our Internet based travel agency technologies is now a bigger source of bookings than any of the legacy Global distribution systems are. So we're encouraged by that, but also very candidly not that surprised. I mean Customers want that experience, which is the second part of your question. The very simple benefit is Through what we do, we can go and create more offers for customers that they value.

Speaker 5

We've seen this and we continue to see this that a number of customers Who come to aa.com or the app shopping for the cheapest fare that we have end up selling up. Like roughly 70 The customers who come to our website actually come looking for the lowest fare but buy something higher than that. And through these new tools They want to offer them a whole lot more that creates value for them. We can differentiate things like how they're able to redeem miles for different Their products or even how they're able to earn miles for different their products. And then the other thing that I would say is, Which is we're finding to be very, very impactful.

Speaker 5

As we shift to Internet based distribution, our servicing becomes a whole lot simpler. So it's hard to do what 3 years out looks like, but I can talk about the next several weeks quarters and what you will see from us are things where we do Much more consciously differentiate. All the content we offer will be through Internet based technologies. We will look to do things like Offering more miles for buying premium cabin, for shopping through our direct channels, for using our credit card, We will create more redemption opportunities. But then also, What will be at a place by the end of this year is that 100% of what we sell will be able to be serviced digitally, but only through Internet based technologies.

Operator

That's the

Speaker 5

thing which is hugely impactful to our customers. For any of you, if you're traveling on American Airlines, I encourage you if you're making changes, Please use the app to do so. I think you'll find it to be a much better experience in times past and an industry leading one as well.

Speaker 13

Very good. Okay. Second question here, for Devin. I know on Robert shared that 75% of the debt Is that a fixed rate? But just given the higher for longer interest rate regime today, how is that changing the way you think about the 3 year balance sheet targets and goals?

Speaker 13

And can American get to an investment grade rating at some point and what might a realistic timeframe look like to get there?

Speaker 3

Well, I'll just start with right now. Our focus on the balance sheet has been really on 2025. And our stated goal is that we are going to reduce $15,000,000,000 in total debt by the end of 2025. We still expect to do that at this point. And we think if we get there, that gets us to a BB credit.

Speaker 3

Beyond 2025, we'll see where it goes. But Right now, we're focused on the next couple of years.

Speaker 8

Okay. Thanks, guys.

Operator

Our first question comes from the line of Mary Schlangenstein of Bloomberg News.

Speaker 14

Hi, good morning. Thank you. I had two quick questions. The first is, when do you expect to start getting the XLR? My second question is, you mentioned that domestic demand is Steady, but I wanted to see if you could be more specific on that, like how it's increasing into the Q4 toward the winter holidays.

Speaker 14

I'm also wondering if on international demand, if you've seen the level of demand that's normally like a summer peak level, Has that continued, past October and through the end of the year, like some of the other international carriers have said?

Speaker 3

Hey, it's Devin. I'll just start on the XLR and then hand it over to Vasu. We expect our first XLR delivery to come late next year And then the order stream starts to really pick up in 20252026.

Speaker 5

Yes. And hey, Mary, I think that probably the best way to answer your question is kind of taking a long view look at it. And as we look at Just overall demand in our system versus 2019, we're seeing like revenue production which 15%, 20% higher than what was there before, not just across the industry, but for American Airlines specifically. So When you extract yourself from like the year over year, quarter to quarter changes, what you do see is that demand for travel is materially larger. Indeed, airline capacity is starting to catch up to what that is, but that's our reasons for saying that we see A lot of we see domestic on similar demand trend line as what's been out there.

Speaker 5

And we certainly see that as We're anticipating characteristically strong peak periods. And then as far as long haul international goes, Yes, we do continue to see strength in Q4. A lot of it is domestic was a marketplace that the customers opened up A lot sooner and a lot more completely and comprehensively than what many of these, well many countries outside of the U. S. Did.

Speaker 5

So we're still in a period where some of that demand is coming back and we as many are beneficiaries of that.

Speaker 14

Thanks a lot, Vasu. Can you just be more specific in terms of the upcoming demand domestically for the holiday period, I mean, really, I don't think there's a lot of interest now in what the comparisons are to 2019. Just are you seeing higher demand going into the holidays that you normally would? Is it slower? When you say steady, that doesn't Give a necessarily a very good impression in terms of what your holiday demand is.

Speaker 5

Well look, Mary, in our holidays we You routinely have far more demand than we have seats for whether you want to compare it to 2022, 2021, 2019 or probably 2009. So we're in a place right now where actually our holidays are very lightly booked because we know anytime we Create more availability in the holidays, the seats go very quickly. So we are anticipating continued like year over year Improvement in holiday performance. What we have been seeing are things like that the days around The big peak periods also are stronger on a year over year booking basis too. But still we're in a place where The entire month of November is less than 40% booked for American Airlines.

Speaker 5

That's deliberate because we're anticipating Really a lot of the continued strength around peaks.

Speaker 14

Great. Thank you very much.

Operator

Apologies. Again, at this time, we ask that you limit yourself to one question and one follow-up. Our next question comes from the line of Alison Slider of Wall Street Journal.

Speaker 14

Hey, thank you. Yes, I was

Speaker 10

curious if the latest Spirit issues with Boeing are impacting American at all, if you're expecting any kind of delays and if those will affect schedules and plans at all?

Speaker 2

Hey, Ali. Thanks for that. Look, we work closely with Boeing and I have to tell you that The Boeing team has been really, really forthcoming and cooperative with us. Certainly, they have some issues with supply chain And they're working with us on our order book. We probably anticipate seeing a little bit of slippage as we go into next year, But it's not something that is going to have a material impact on our capacity and we're working very closely with Boeing on that.

Speaker 10

And then I guess on pilots, some other airlines and unions have talked about Kind of like an unusual, maybe reluctance for pilots, 1st officers to upgrade to Captain, maybe more quality of life issues coming up. Are you guys seeing that at all?

Speaker 2

I'll ask David Seymour, our Chief Operating Officer to comment.

Speaker 15

Yes. No, I appreciate the I think you're probably focusing on the regional operations, where they're first off, I think probably the bigger constraint we have is Them getting the hours to be able to upgrade to Captain, but we're not seeing any reluctance really overall that First officers don't want to upgrade to captain.

Speaker 2

Yes. And hey, David, remind me, for same aircraft type, when we see first officers Upgrading from the FO position to capital position, the competition increases roughly 35%, 40%? That's correct. Yes. So, there's a strong incentive to become a captain at American Airlines.

Speaker 11

Thanks.

Operator

Thank you. Our next question comes from the line of Alexandra Skors of Dallas Morning News.

Speaker 10

Hi, good morning. Thank you for taking my question. I wanted to ask about inflation and how that's impacting American customers. And then my second question is what you're seeing in that same vein looking ahead to the winter travel season? Thanks.

Speaker 5

Sorry, we didn't hear you super well in the room. Did you say emissions?

Speaker 10

Inflation, sorry.

Speaker 5

Got it. Got it. Okay. Yes, look, right now, I'll say this, as I've said on a couple of these calls, Air travel remains an amazing bargain. Though indeed the price of gas or groceries or clothing or anything is up quite a lot.

Speaker 5

Air travel is not nearly as much. In fact, I think today in the fall you can fly to Las Vegas for less than $50 and my guess is Just about any place you go to eat, it would cost you more to eat there. So we have yet to see something where inflation is a thing that we could still point to as a Causal, headwind to demand.

Speaker 11

Thank you.

Operator

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

Speaker 16

Hi, good morning. We've been seeing a lot of discounts, a lot of double digit fares from you guys midweek anytime. Can you talk

Speaker 14

a little bit about how much have you

Speaker 16

had to discount this fall kind of coming off of the peak summer season to fill planes? And how confident are you in the Breakeven guide, just considering where fuel is now and whether you can drum up fair enough to cover that? Thanks.

Speaker 5

I'll answer the first part of it by just simply saying that we don't really comment on fair activity nor sale activity For any number of reasons, but I think others can talk a little bit more about kind of March performance.

Speaker 3

Yes. Our Q4 guide, we've done it the same way we've done for all the other quarters and throughout the year. We have Confidence in our revenue guide, we provide a range on it. We have a lot of confidence in our cost guide and fuel remains volatile, but we did put a range on that as well. So As it sits today, we feel really good about what we have out there for our Q4 guide.

Speaker 16

Okay. And then, I mean, I guess, if you can't comment on fares, but are you losing any Pricing power broadly compared with last year or even compared with competitors now?

Speaker 5

Well, that's probably an inadvertent way to comment on fares. And look, what we continue to see is a lot of the same overall demand trends Sequentially day to day, week to week, etcetera. And as I mentioned, air travel remains an amazing bargain for customers and Customers, as we've seen for several years, are keen to travel and traveling at a greater rate than what they were in 2019.

Operator

Thank you. I would now like to turn the conference back to Robert Isom for closing remarks.

Speaker 2

Thanks, Latif, and I'll close with this. There's obviously a lot of short term sentiment in thinking out there and we understand why. There's a lot going on in the world today. That said, the airline business is one that absolutely requires long term thinking As we navigate even as we navigate shorter term variability, the aircraft we buy today are going to be around for 20 years plus. The leases we signed at airports and the 100 of 1,000,000 and 1,000,000,000 of dollars we commit to airports.

Speaker 2

Those are leases that are 10 years plus in financings that go out A lot longer than that. And even the labor contracts that we sign are multiple years, 4 5 years. So we have to take that into account as we look to the future and all of us at American have worked tirelessly to set the airline up for success in this short term yet long term world. So as we look to 2024 and beyond, Look, we have an enviable fleet. We've gone out and spent $30,000,000,000 prior to the pandemic to put ourselves in a position where We are entering into capital spending that is real replenishing And we're doing it in an environment where others are facing rising interest rates and issues with suppliers.

Speaker 2

So, while there's a heading the other way, we're set up for success. And we look forward to putting all of our assets back to full utilization and we know we can optimize how we're running in the airline as we go forward. And all of that is while we build the best network and work with our customers to make sure that they are rewarded for using it. So we've got a great baseline and I'm very confident in the future of travel and demand. And I can't wait to talk to you more as we go out into the next quarters in 2024 about where American is headed and the story we have to tell.

Speaker 2

So thank you very

Speaker 3

much.

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Earnings Conference Call
American Airlines Group Q3 2023
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