The American Airlines Group held a Second Quarter 2023 Earnings Call with CEO Robert Isom and CFO Devon May, as well as other senior executives. During the call, Isom provided an overview of the company's performance and May discussed the quarter's operating plans and outlook. The call also included a question-and-answer session with analysts and media. The company warned that the call contained forward-looking statements and discussed non-GAAP financial measures.

American Airlines reported adjusted pre-tax earnings of $1.8 billion in the second quarter, exceeding the high end of their EPS guidance range. This marks their fifth consecutive quarterly profit, due to a reliable operation and a strong network. Total revenue was $14.1 billion, the highest quarterly revenue in the company's history, driven by broad-based demand, particularly for international travel. A webcast of the call was also archived on their website.

American Airlines has made structural changes to its fleet and network to better serve its customers and capitalize on demographic changes in the US. The airline has a comprehensive network and is investing in its travel rewards program, pilot training, and fleet utilization to generate free cash flow and strengthen its balance sheet. The airline achieved a record second quarter completion factor and 11 more combined zero canceled days than the year prior.

American Airlines reported strong financial results for the second quarter, with record revenue of $14.1 billion, an adjusted operating income of $2.2 billion, and an adjusted operating margin of 15.4%. Domestic unit revenue was down 1.9%, while international unit revenue was up 18.3%. Unit cost for the quarter, excluding net special items and fuel, was up 3.7% year-over-year. The airline experienced a successful Memorial Day weekend and Independence Day holiday with a record mainline completion factor and its largest mainline Memorial Day weekend schedule ever.

American Airlines is pleased with their fleet, which has been built in a low interest rate environment and provides network flexibility, enhanced efficiency, and an improved customer experience. This quarter, they have entered into agreements to purchase seven new Embraer 175 aircraft and seven used Bombardier CRJ 900 aircraft. Their 2023 aircraft CapEx is expected to be approximately $1.7 billion and their non-aircraft CapEx is expected to be $800 million. Their 2024 total CapEx is expected to be between $3 billion and $3.5 billion, and they expect their aircraft CapEx for the next several years to average around $3.5 billion. Fitch recently upgraded their credit rating.

The company has made significant progress towards their goal of reducing total debt by $15 billion by the end of 2025, with total debt already reduced by $9.4 billion from peak debt levels in 2021. The company has also seen strong bookings, with record revenue for the 4th of July holiday period and booked load factors for the third quarter in line with 2022. The strong unit revenue environment in 2022 presents a difficult comparison for the recovery.

American Airlines is on track to fulfill the full year guidance it provided in January, and expects to produce a third quarter operating margin of between 8-10%, and adjusted EPS of between $0.85 and $0.95. For the full year, capacity is expected to be 5-8% higher than 2022, TRASM is expected to be up low single digits, CASM-ex is expected to be up 2-4%, and fuel expense is expected to be between $2.70 and $2.80 per gallon. These expectations will result in a full year adjusted operating margin of between 8-10% and adjusted EPS of between $3 and $3.75.

American Airlines has made tremendous progress strengthening their balance sheet and will share more about their long-term strategy at an Investor Day. They do not anticipate New York being a margin drag due to changes in the demand for short-haul day trip business markets. Their slot portfolio is now better matched for Mid-Continental, Transcontinental, and Transatlantic markets.

American Airlines has changed its expense base at JFK, meaning customers don't have the same experience as before. However, the airline still expects to maintain its margin trajectory and has seen an increase in NEA enrollments, credit card acquisitions, and spending. The airline's full year cash flow guide includes retro pay for pilots, and its accrual for labor is based on the agreement in principle from May 1.

Robert Isom and Devon May of the company discussed their guidance framework for the back half of the year, which implies a deceleration in earnings. They note that the economy is strong and demand is good, but that there is seasonality involved. They also mention that they have increased their full year EPS to [$3 to $3.75], indicating their confidence in their performance.

Vasu Raja discussed the outlook for domestic travel in the 3Q, noting that there has been a shift in calendar and operational outperformance in the 2Q, as well as returning to normal seasonality. He also noted that, while there is some strange comparison to the recovery, they are still seeing strong demand and RASMs that are 15-20% higher than 2019.

Scott Group asked Robert Isom if there would be any earnings impact from losing the NEA, to which Isom responded that they were not anticipating any earnings impact. Vasu Raja then added that blended travelers and itineraries are now part of their base and they have seen a mix of 35% leisure style travel, 35% blended style travel, and 30% unmanaged and managed travel.

Vasu Raja explains that corporate customers who buy their travel centrally have recovered to 80% of historical levels, while unmanaged demand continues to grow. He also states that total business revenue has regained its 2019 composition and that the competitive landscape is viewed favorably as the airline network is creating more origin and destination markets than any other airline network.

Robert Isom of American Airlines is in discussions with the Allied Pilots Association to match the wages proposed by United Airlines. He has expressed his commitment to matching the wages, and they are trying to figure out if it can be done within the current timescale or if it will take more time.

Robert Isom is proud of the work the team has done over the last year, with a relentless focus on training and knowledge, and quick responses to any issues. This has resulted in the best Net Promoter Scores they have ever seen. Vasu Raja then addresses Brandon Oglenski's question about the long-haul strategy out of JFK, saying they have added a lot of international capacity, but not a lot of domestic connectivity.

New York City has seen significant expenses for operating out of JFK, and Spirit Airlines has done a lot to reduce those expenses to be more in line with their other low-cost hubs. The NEA has allowed more customers to experience their product, but most of the international flights' load factor is generated by international partners. Spirit Airlines believes they can replace a lot of the demand with their larger NYC originating customer base and their annual aircraft purchases of $3.5 billion.

American Airlines is looking to invest in larger narrow-body aircraft to fit their hub structure and to add more small markets to their great hub and spoke system. They are also looking to protect themselves and grow with the demand levels. The differences in American Airlines' transatlantic geography compared to their peers is not mentioned.

Devon May responds to a question about the CASM outlook for the year, clarifying that the outlook includes the step-up in pay rates from the TA beginning May 1, as well as step-up in profit share and work rules.

Robert Isom discussed American Airlines' plans for growth in 2024, expecting mid-single-digit growth. This would depend on the airline being able to get its regional fleet back up fully, increasing utilization of aircraft, and successful delivery of airframes from manufacturers. Vasu Raja discussed the airline's new distribution strategy, noting that the corporate piece was two to one unmanaged to managed.

American Airlines has been making changes to their selling and distribution process to make it easier for their best customers to shop and self-serve. They have seen encouraging results, with non-AAdvantage customers' total travel bell increasing by 5%, and AAdvantage customers' transactions and revenue increasing by 8% and 13% respectively. Additionally, there is a high level of attachment for AAdvantage customers, with $0.10 of other revenue generated for every $1 of flight revenue, and the cost of sale for AAdvantage customers is lower.

JetBlue is currently taking 70-75% of their revenues through direct channels and they plan to have 100% of what they sell available online by the end of the year. They are also winding down the NEA and transferring back the slots to American Airlines.

Robert Isom and Devon May are discussing the potential cost of the pilot deal, and how it may require some adjustments to wages. Robert Isom also mentions the heatwave that is affecting parts of the country and how it is impacting aircraft and people, as machinery is running harder and longer and it is difficult for people. David Seymour is present to help Robert Isom answer questions about the heatwave.

Vasu Raja explains that the airline has taken precautionary measures to prepare for the summer, such as conditioning the air at jet bridges and doing preventative maintenance on the APUs. Additionally, they are taking steps to ensure team members have access to ice carts and electrolyte drinks, and that aircraft are boarded only when they have appropriate air conditioning. In response to questions, he states that they are prohibited from leasing LaGuardia slots to JetBlue for their own use, and that they are reopening the pilot contract for discussion, including changes in pay.

Robert Isom and Vasu Raja answered questions about slots, routes, and pilots, with Isom committing to matching United's wages for pilots. Raja also noted the strength of premium cabin fares, with total premium seats up 5% year-over-year and total premium revenues up 15%. In London, premium seats were up 20% and premium revenues were up 25%.

Robert Isom, CEO of American Airlines, discussed the company's plans to match the United Airlines deal with the Air Line Pilots Association (APA) and how it will increase costs for the company. He noted that they will need to find ways to remain profitable while offering a compelling product to customers, and that the only way to cover the cost of the APA contract is by raising fares. He also noted that there are no other areas to generate revenue beyond what they have already discussed.

Robert Isom concluded the call by expressing his pride in American Airlines' reliable network and industry-leading rewards program, and highlighted the company's success in terms of reliability, profitability, and balance sheet strength. He pointed to the second quarter results as proof that their commercial offerings are registering with customers, and noted the 2-notch upgrade from Fitch as evidence that they are doing the right things. He concluded by saying that the outstanding second quarter results are proof positive that their efforts are working.

This summary was generated with AI and may contain some inaccuracies.