The operator introduces the American Airlines Group's second quarter 2024 earnings conference call and hands the call over to Scott Long, VP of Investor Relations and Corporate Development. CEO Robert Isom and CFO Devon May will give prepared remarks, followed by a Q&A session with other senior executives present. The call contains forward-looking statements and non-GAAP financial measures, with risks and uncertainties outlined in the earnings press release and Form 10-Q. Participants are asked to limit themselves to one question and one follow-up.

The paragraph discusses American Airlines' second quarter financial results and the challenges they faced, including a soft domestic revenue environment and an imbalance in supply and demand. The CEO acknowledges the need for improvement and outlines the actions they are taking to address these issues.

The company has adjusted its planned capacity growth in response to domestic softness and has implemented a new sales and distribution strategy. This includes changes in leadership, working with travel agencies and corporate customers, and reinstating fares in a traditional distribution channel. The company is also working with large TMC partners to restore its share in these channels. These actions are part of a recovery plan led by the vice chair of the company.

American Airlines has been making efforts to improve relationships with companies and agencies, including Amex GDP and TMC. They have eliminated plans to differentiate earning miles based on booking location and have expanded benefits for their AAdvantage Business Program. They have also added resources to their sales and sales support team and have received positive feedback from agency and corporate customers, with shares starting to shift back to American.

American Airlines recognizes the importance of repairing relationships with their partners and has been actively seeking feedback from customers and making changes accordingly. They are committed to winning back any lost customers and have already made progress, but acknowledge that there is still work to be done. In the second quarter, their unit revenue was down 5.6%, but domestic and international PRASM performed as expected and revenue from large managed corporations increased by 3%.

Despite recent challenges, American Airlines is confident in their ability to improve their distribution strategy and increase premium revenue. Their AAdvantage loyalty program is performing well, with growing membership and increased spending from co-branded credit cards. Despite difficult weather conditions and issues with suppliers, American's operational team has produced strong results and is prepared for the summer season.

The airline has regained its operational momentum and has shown strong resilience in recovering from unexpected disruptions. They have managed to quickly recover from a global strike and have reached a tentative agreement on a new contract with their flight attendants. The second quarter financial results show a record revenue and adjusted earnings per diluted share. Unit revenue was down compared to the previous year due to increased capacity. The adjusted EBITDA and operating margins were 15.7% and 9.7%, respectively.

The company's unit cost, excluding special items and fuel, decreased slightly and they expect to take delivery of 20 new aircraft this year. Their 2024 aircraft CapEx is estimated to be $2 billion and total CapEx to be $2.9 billion. They produced $850 million of free cash flow in the second quarter and reduced total debt by $680 million. They aim to reduce total debt by $15 billion by the end of 2025. The company's focus is on delivering a reliable operation, maximizing profitability, and re-engineering their business. They will remain flexible in their planning to ensure growth aligns with expected demand.

The company has adjusted their planned capacity growth for the third quarter due to lower demand and expects a decrease in TRASM compared to the same period in 2019. They are making progress in re-engineering their business and expect to achieve cost savings and working capital improvements. The CASMx is expected to be up, but the operating margin and adjusted earnings per share are not expected to be as high as previously forecasted. The company anticipates producing adjusted earnings per share of $1 and free cash flow of $500 million, which they consider to be insufficient.

The team is focused on delivering results and closing the margin gap with competitors. The foundation of the business is strong, with a reliable operation, a strong fleet, and a plan to reduce debt. The team is committed to maximizing revenue and profitability and making it easy for customers to do business with American. They expect to unlock significant value when they return to their previous level of revenue production.

The speaker, Michael Linenberg, is asking about the fourth quarter revenue forecast for the company. The company's CEO, Robert Isom, explains that the forecast is based on the current market conditions, which are still uncertain. The company's sales and distribution strategy has had a negative impact on revenue in the first six months, and they are working to win back their share. However, it is unclear how long this will take.

The company has seen some improvement in capturing share in the indirect channel and is working on renegotiating contracts and reaching out to corporate. There have been leadership changes and the most seasoned and experienced executive has been tasked with addressing and solving complex problems. Capacity growth is slowing but there was a lot of growth in the second half of last year.

The speaker is being asked about the company's capacity plans for 2025 and the potential to cut CapEx. He explains that they are adjusting capacity to address supply and demand imbalances and their growth in the third quarter will be less than in 2019. They will continue to assess the market and prioritize profitability. The company is also expecting to produce free cash flow this year and a modest amount in 2024, with a slight increase in CapEx for next year.

American Airlines' CapEx for aircraft is expected to be around $3 billion to $3.5 billion from 2025 to 2030, with 2025 possibly being slightly below that range. In response to a question about the optimal domestic to international balance for the airline, the speaker explains that there is no perfect world and the current network is based on years of building and fits well with population and economic demand. The strength of the domestic network allows for successful international operations, particularly in regional differences and partnerships with other airlines. The speaker is pleased with the current hub structure and short haul international operations.

The company is confident in their ability to build off of their strong demand and loyalty programs. They do not believe that their profit challenges will affect their ability to negotiate better deals with partners like Citi. They have seen an eight percent growth in loyalty revenue and believe they can do even better. They attribute their success in cost control to better execution and do not expect changes as they rebuild their sales force.

The speaker, Robert Isom, is proud of the company's cost performance and attributes it to a strong operation and focus on efficiency and technology. He expects some cost pressure as the company rebuilds its sales staff, but believes they are managing costs better than anyone. Another speaker, Devon May, adds that the company has also been the most reliable airline in terms of completion factor and has a strong fleet and low CapEx. They plan to renegotiate their co-brand credit card relationships and focus on regaining lost share in the agency and corporate market. They are confident in their ability to improve margins, free cash flow, and balance sheet strength.

American Airlines is seeing domestic capacity growth of about 3.5% in the third quarter and potentially 3% in the fourth quarter. They are focused on winning back passenger share on the business side by making their content available to all channels and establishing relationships with travel management companies. They also plan to have the right agreements in place with corporate customers to support them and make them feel valued.

The speaker acknowledges that the company has been focusing too much on direct revenue and needs to improve its presence in the indirect market. They are making changes to their distribution strategy and plan to improve their relationships with travel companies and agencies. The speaker also mentions that they have been successfully closing the margin gap with competitors, but the recent changes in sales and distribution have had a negative impact. However, they are confident that they can reverse this and continue to improve their profitability. The speaker also notes that the company's product and network are well-positioned, but the industry is currently facing a supply and demand imbalance.

The speaker discusses the company's actions to improve their financial situation and mentions their focus on margin expansion, free cash flow production, and maintaining a solid balance sheet. Another speaker addresses a question about the company's cash position and highlights their liquidity and debt reduction. The next question is about the company's PSP loans and their plans for refinancing. The speaker then switches to discussing the company's network and mentions the possibility of pulling back in some coastal gateway markets and the importance of their fortress hubs in Charlotte and Dallas-Fort Worth.

Robert Isom, the president of American Airlines, discusses the company's network strategy and growth in hubs like DFW and Charlotte. He also mentions plans to expand in Philadelphia and Chicago and notes the potential for business travel to rebound. He takes a moment to recognize Helane Becker, a former analyst, and wishes her well in her new role. The next question is about the mismatch of domestic supply and demand, and the questioner asks about the 9% domestic growth in the second quarter.

The company anticipated a stronger demand environment in 2023 and 2024, but the market couldn't absorb all the capacity. The company is making adjustments and is conscious of their sales and distribution strategy. The margins have been affected and the company is analyzing their network to find more profitable areas.

The company has experienced a slowdown in some hubs, but expects to improve profitability by shifting capacity to more profitable areas. They have seen pressure in certain regions due to missed premium revenue, but believe they can win it back.

The speaker notes that there is not much variation in terms of impact throughout their system. They also mention that the new flood attendance deal is not included in their guide for the first half of 2024. A question is asked about the decrease in free cash and the speaker explains that they are not updating their 2025 outlook but expect to perform better on top line. They also mention that they are on track to meet their $15 billion debt reduction target and have solid liquidity.

Robert Isom, President of American Airlines, responded to a question about the company's commercial strategy and the recent changes made by a competitor in Texas. He emphasized the importance of the premium business and the company's plans to invest in it, including adding new premium seats to their fleet. Isom also expressed confidence in their ability to compete against any competition in the premium market. The following question asked about the company's co-branded card agreement.

The company is currently in discussions with partners for a new co-brand arrangement, which is in the "fifth inning" stage. They are excited to finalize the agreement in the "eighth and ninth inning." The company was not significantly impacted by a recent global network outage, thanks to their strong operating capabilities and quick response to the situation. The Chief Operating Officer, David Seymour, explains that they were able to get their systems back online and resume normal operations within an hour.

The speaker discusses the key differentiators of their airline, which include swift recovery from disruptions and leading the industry in recovery. They also mention their partnerships with other airlines and their support in getting back on track. They touch on their sales strategy and the importance of having agreements in place to facilitate the sale of their product. The speaker also mentions the recent crowd strike and how their ability to move quickly set them apart from other airlines.

Robert Isom, President of American Airlines, responds to a question about the recent global internet outage and how American Airlines managed to keep their operations running. He credits their experienced team and technology for their success, and mentions the importance of communication and early action in times of disruption. He also mentions the need for continued resilience in technology. The next question asks for more details on the feedback received from partner airlines and corporate customers, to which Isom responds that it was similar to what they heard from corporate customers.

The speaker explains that they are in constant communication with their partners and have taken quick action to address revenue issues. They expect a $1.5 billion impact on revenue for the year, but are taking steps to reverse it and are confident they will recapture their share over time. They are focused on addressing the supply and demand imbalance for the rest of the year and planning for 2025.

The company is focused on improving their sales and distribution strategy and regaining their market share. They are confident that this, along with improvements in their plants, network, fleet, and product, will lead to improved margins, free cash flow, and a stronger balance sheet. They are committed to this goal and will start working on it immediately. The conference call has now ended.

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