We'll kick it off.
Perfect. Thank you, David.
Good morning, everyone. I just want to remind everyone that the presentation this morning contains forward-looking statements that represent our expectations of future events. Numerous risks and uncertainties could cause actual results to differ materially from these projections. Information about some of these risks and uncertainties is included in our SEC filings, and the information we're sharing today is as of today's date. We have no obligation to update it subsequently. Thanks.
All right. So, thank you for that, Scott. So, Robert, I know you've had some remarks following the pre-announcement last night, so, I'm going to let you open it up, and, we'll start from there.
Thanks, David, and I appreciate the chance to be here. The news we delivered last night, look, I'm disappointed in our results. I'm not pleased. So I'd like just like to start off with this. American is focused on delivering on our long-term objectives that we laid out at our Investor Day. Our operational reliability continues to perform at historically strong levels and among the very best in the industry. Our fleet is the best among the US network carriers, the youngest and most simplified, and it drives enormous value to the airline. This fleet puts us in a position where our CapEx is stable and very moderate through the end of the decade. This low relative CapEx has allowed us to make great progress in reducing our total debt and repairing our balance sheet.
We're on track to hit our target of reducing total debt by $15 billion by the end of 2025. Our network is well-positioned, and we're renegotiating our co-branded credit card relationships. We're reengineering our business to operate as efficiently and productively as possible, and I believe that we are managing our costs as well as anyone in the business. All of this positions us very well, and we're focused on delivering on our stated objectives of producing free cash flow, strengthening our balance sheet, improving margins. Also, we're seeing a number of positives in the business that are worth noting, which contributes to our confidence in the long term. Premium demand is stronger across all entities.
Premium cabin revenue for the year or year to date is up 20% or 10%, is up 10% year-over-year and in line with capacity growth. Long-haul international markets are performing well. We've seen significant improvements in regional pilot trends that are allowing us to return 50 more regional aircraft into our network in the second half of the year, and our ancillary revenues are up, too. In the first quarter of 2024, ancillary revenue was up 20% year-over-year, and second quarter is tracking similarly. That said, we adjusted our guidance today, and as I said, I'm disappointed in that. We now expect second quarter operating margin, our second quarter operating margin will be one percentage point lower than we originally anticipated.
This adjustment is largely due to a softer domestic revenue environment than we were expecting and our performance within that environment, partially offset by lower fuel and ex-fuel cost performance. Taking a look at our revenue production, our expectation for domestic performance has worsened materially since we provided guidance in April for a few reasons. First, we're seeing softness in close-in bookings relative to our expectations. That, we believe, is in part due to the changes that we have made to our sales and distribution strategy. To address this, we're evaluating our strategy holistically and piece by piece. We spent a lot of time listening to our agencies and our corporate customers, and we're hearing, and we hear their feedback.
We're taking some immediate actions to respond and adapt, and over the coming weeks, we'll be working to ensure that we're optimizing for our customers and American as we move forward. Just more on that in just a minute. Second, the domestic supply and demand imbalance has led to a weaker domestic pricing environment than we had forecast. There's more discounting activity than we saw a year ago. Now, industry capacity ex-American is expected to come down in the second half of the year, and that should help. Finally, we expected our own capacity growth would have been better absorbed as we moved into the higher-demand summer months of the second quarter.
We haven't performed as we thought, and given this performance, we're taking a closer look at our own growth plans in the back half of the year and are making adjustments to bring our capacity down versus our prior plans. At this point, we expect to slow our rate of growth from just over 8% in the first half of the year to approximately 3.5% in the second half of the year. Against this backdrop, American is taking action to address our capacity and adjust our distribution strategy, and we're going to be very attentive to the marketplace as time goes forward. We're adapting our distribution strategy.
While we all know that NDC, modern retailing, Internet-based channels for selling our product, is the future of airline distribution, but we moved faster than we should have, and we didn't execute well. We regret that and the difficulty that it created for our agency and corporate communities, so we are going to modify our distribution strategy. Specifically, we need to work closely with our agencies and partners to ensure that the transition that we're making is not disruptive to our end customers. And to that end, we're focusing on three key areas as we evaluate our go-forward plan. First, just in terms of content, we know that our products are more easily understood and valued by customers when distributed through modern retailing technologies.
But instead of removing content from agencies that are relying on legacy technology, we need to incent more to enhance and promote NDC. We've used a lot of sticks. We've got to put some more carrots in place and make sure that our product is available wherever customers want to buy it. Our agency and corporate relationships, we've made a lot of changes, and we're reviewing everything on that front, including how we pay those agencies and how we solve problems that our mutual customers may have. We need to make it easier to participate in our programs and easier to do business with American Airlines. For our end customers, those that fly every day, we want to make sure that no customer that's out there traveling is made worse off from the changes that we've made, that we make.
That's always been our priority, to treat our customers that are flying in our seats as best as we possibly can. So you're going to see us make changes. For example, next month, we were going to differentiate who earned AAdvantage miles and who didn't based on where they booked. That's off. We're not doing that because it would create confusion and disruption for our end customer, and we're going to make sure that we take care of it. We're listening to feedback. We're learning and adapting. We know that NDC, modern retailing, provides a better experience for the end customer, and we know that we will get there over time, but we have to go about it differently. We're going to make it easier, we're going to execute better, and we're going to do a lot more to try to bring people along with us.
To the degree our approach has driven customers away from American, we're unequivocally committed to getting those customers back. So there was other parts to the news, and before opening it up, David, to further discussion, I'd just like to address for a minute some of the other news that you've seen. So yesterday, we announced that Vasu Raja will be leaving the company in June. And I've known Vasu for a long time. He's a—I admire his creative thinking, his passion. He's been an innovator, a disruptor. He's a good friend. But sometimes we need to reset, and in this case, we do. We have to be better at executing those long-range plans. We have to be more attentive to the marketplace.
We have to be more detail-oriented, and we have to go forward as a team and really make it easy for American to do business with. So I am passionate about executing. We will absolutely innovate. We will swing for fences. It's essential in this business, but we have to produce in the short run to get to the long term. And right now, that means taking a look at our sales and distribution strategy and what needs to be done. That work is underway, and I'm really pleased with the team that we have that's out there taking it, taking this to task. We've worked hard to build a reputation of delivering on what we say we're gonna do. We've done it from an operations perspective.
We're gonna do it from a balance sheet perspective. We're doing it from a cost management perspective. We're gonna do it from a commercial perspective as well. There's a lot more that we are evaluating right now. We're focused on maximizing the opportunities ahead of us. We'll refine our plans and be able to provide more of an updated view on our full year guidance as we progress and as we get to July earnings, or as we get to second quarter earnings. So thank you for the chance to speak.
All right, so, and maybe let's just spend a little bit of time on some of the near-term stuff, just because I think it is important to help investors understand kind of the state of the market and how much of this is consumer weakness versus how much of this is sort of self-inflicted pain.
Right.
And then we get into some of the strategic stuff. So, you mentioned long-term, the full year guidance. That was not noted in the call-
Right.
or the update, so where does that stand? Is that on the table-
So-
off the table or?
So look, we're at where we stand right now. We know we've dug ourselves a hole in this, in the second quarter. You know, our operating earnings are going to be off by $200 million. We've got a lot of work to do to recoup that. There's absolutely, you know, marketplace dynamics that are involved as well. So let's take a look at the work that we have ahead of us. I believe that second quarter in this pull down is partially related to how we, it's partially related to the industry dynamics. You know, more capacity than the demand is out there and softer pricing environment.
But the other piece is how we've executed in that, and I think that's something that we can recover. So we've got work to do. We'll talk more in second quarter as we produce those results. We've got some work to do on building back from the hole we've created for ourselves. But I do believe as we take a look to the back half of the year, dynamics get better, capacity is much more moderated. You've heard us talk about pulling capacity down as well. The comps are certainly more favorable to American as we get out into the third and fourth quarter. So we're gonna keep plugging away, and we'll give you more information as we get to the second quarter.
As we think about that, the magnitude of the unit revenue that's kind of in the second quarter from April to here, things seemingly got a lot worse, right? So as you think about that step down, was that some of the things we noticed in the first quarter in terms of managed corporate bookings being a little bit weaker, accelerating and getting worse? Or like, how, like, is there any way you can help us understand how much of it is really just, you know, Southwest out there with $39 fares versus, you know, kind of shot ourselves in the foot and that got even worse through the quarter?
Right. Well, I just say this: We should have performed, you know, much more in line with our network peers in the first quarter. And so I know that that's an opportunity for us to recapture. But the marketplace has definitely gotten, you know, much more competitive and sale activity increased considerably after we put forward our guidance and talked about our first quarter results. I don't know if it's 50/50, 60/40, okay? But I'd tell you, I'd tell you that, you know, a portion of this is marketplace and I think that the dynamics in the industry get better from a capacity perspective as we move through the year.
And then I think that the other large portion is how we've reacted in that marketplace. And the weakness that you've seen in American is, you know, I do believe something that speaks to, you know, close-in bookings, the highest, you know, premium customers that unfortunately we haven't made ourselves as available and easy to work with as we can.
Okay. And as you think about that unit revenue weakness in 2Q, thinking about what that means for third quarter, right?
Right.
Now, the summer months are the time when we harvest-
Right.
And the winter months are the times when we get ready to harvest.
Right.
Do you think that the capacity adjustments you're making are gonna be able to start to offset that by third quarter, or is it gonna take longer?
No, as I said, as we look into the third and fourth quarter, capacity dynamics get, you know, considerably better. And for our own, while we grew first half of the year, about 8%, back half of the year is just gonna be about 3.5%. And I'll just say that we're gonna be really attentive to it, and then if we need to adjust capacity further, we will.
Yeah. Was it sort of yield driven or load factor driven? Just on a unit revenue basis.
No, I think there's-
A little bit of both.
Well, a little bit of both, but those customers that, that are out there want to fly. And so, we've seen loads, loads remain very, very strong.
Okay.
But there's work that we need to do to make sure that we're maximizing our ability to, you know, revenue manage off of that demand. And that's where it comes into American and our distribution strategy, and making sure that we're taking full advantage of those that really are booking, you know, close in.
And for us, that's a priority.
Okay. So, turning to the cost side of the equation, obviously, unit cost at fuel, everything was actually a little bit better-
Yeah
It seemed like in the guide. Bringing the capacity down to 3.5% the back half of the year, that's obviously gonna put some upward pressure on, on-
Right
on unit cost, or is there additional stuff you're working on right now to kind of accelerate and mitigate the downside risk as you pull them in it?
At our Investor Day, we talked about the reengineering efforts at American, and I'm really pleased with what I see on that front. So not only are we running the most reliable airline, I got to give a shout-out to our team for the incredible work that they've done. You know, the load factors over the Memorial Day weekend, but you also know the catastrophic weather that hit you know various parts of the country, especially Texas and you know Oklahoma. Our team has done a wonderful job on that front.
But as I take a look at, you know, our ability to reengineer, we're doing it in a fashion that preserves our ability to run a fantastic airline, and at the same time, also make sure that we have the right capacity in the right places for when we adjust our commercial strategy, and I know that we're gonna perform well. As we take a look at the potential to pull down any capacity, I do believe that we're going to be able to hold our costs in line. And that comes out of my confidence in the work that we're doing from a reengineering perspective. Capacity reductions always have some impact on costs. We're gonna do our best to make sure that we mitigate those to the greatest extent possible.
Everything that I see from our work on reengineering the company, making sure that we're making best use of our fleet, I'm very encouraged by it.
Okay, so let's talk about the network distribution changes and stuff like that. Obviously, it seems like from the outside looking in, and based on what you just said, you weren't getting the results you wanted from the steps you've taken.
Right.
Can you, at a very high level and briefly summarize kind of the changes that you made?
Yeah.
How long it's gonna take to undo them?
Okay. Well, let me just start first with this, just in terms of network. I believe that American has just a fantastic set of assets, and we talked about those. We've got a strong domestic presence, we've got this regional network that others can't duplicate. We've got partnerships and international network that fits very well with that. Now, there are dynamics in the industry that, you know, we always have to be conscious of. So, you know, for instance, we have a very large franchise that is based, you know, in the Sun Belt, and by Sun Belt, it's really, you know, Caribbean, MCLA, short-haul international. That has been an area that has had, you know, a lot of capacity growth over the last year, ours included.
And I do think it's something that's gonna shake out. When you take a look at that region, our unit revenue performance is down, have been down considerably.
But it's not something that we're, we're gonna abandon. We're gonna, you know, make sure that, that we're there when the, the dynamics change. But looking around the rest of the world, you know, transatlantic is, is, is doing, doing well. As we take a look down at South America and in Asia, we see unit revenue performance that is roughly in line year-over-year. And so I feel strong, I feel good about how American is set up to compete. I love our assets. In terms of the execution side of things, I'll tell you this: We have to make sure our product is available for sale in all channels, and we're gonna be making some changes very quick. So I think that that is something that is immediately reversible.
I believe that in terms of rebuilding relationships, I think our intermediaries, and these are the TMCs, and our corporate customers as well, I think that we're gonna have to get out there and really get on the road and make sure that we move quickly. That's gonna take a little bit of time.
So that's gonna require us kind of rebuilding that, that corporate sales team and kind of getting more feet on the street, or is it gonna be more managed from the, the corporate office? Like, how? Because I know you guys have, have made some changes to reduce expense in that area.
Yeah.
And supporting the distribution chain. I'm just wondering, like, directionally, are we changing that back?
No, no, it's what I would tell you is, it's gonna take a little bit of both. And to that end, I believe that we have the resources to actually manage and to correct quickly. You know, for instance, we have to make sure that when we're putting new technology out and asking our travel management companies to come along with it, we need to make sure that we have the technical capability to help them get there as well. We need to adjust things that, you know, I talked about, you know, fewer sticks and more carrots. We're not gonna be taking away the ability for any customers to earn mileage.
You know, those are the kind of things that I think are gonna have an impact very quickly. And I do believe that getting our product out, and available in all channels is something that we can do very, very quickly.
Okay, so then, last question on the sort of near term, and then we can talk about some of the bigger picture issues around the industry dynamic. You've made the decision to part ways with Vasu. Can you talk about your goals, expectations, what kind of mandate-
Yeah.
The new person's gonna have to come in? Is this someone that you want to come in and sort of redesign everything? Is it somebody you wanted to implement what you've already... Or adjust, adjust what you've already implemented? Like, how do we think about the, the mandate that you're, you're gonna be giving whoever? What's the, what's the kind of person that you wanna come in to take that job, and what's the mandate?
Okay, let me just start with this. First off, you know, our strategies are the company's strategies. Those are my strategies, okay? I'll leave any individuals aside from that. And I do believe that the strategies that we're pursuing, that we laid out in Investor Day are the absolute right ones. Now, one of the things that is very clear is that, you know, we've driven some customers away. We've restricted some customers from actually seeing our product. Those are kind of things that we have to be attentive to. It's one thing to have a plan, and that plan can be the greatest plan in the world. You can have the best people operating it, but execution is critical.
Being able to react to changes in the marketplace is critical. Attention to detail is critical, and operating as a team going forward is critical. I will tell you that my view is that we have done an exceptional job of running a reliable airline, and I know that that has been something that has been hard to do to get back after the pandemic, and we've held ourselves accountable to it, and we delivered. It's hard to run a very cost-efficient airline in this business. I've tasked our team with doing that, and they have, they have delivered. From a commercial perspective, we will do the same. We will deliver. We must be better at executing our strategies. It is the right thing to encourage our customers to avail themselves of all the products and services that American Airlines can offer.
That is something that does take technology. It does take modern retailing tools, but we can't be blind to that ultimate goal. We have to make sure we're reactive in the short run, and we can never be difficult to do business with. So the same expectation that I have from an operations perspective, the same expectation I have from a commercial, from a cost perspective, we have that same expectation from a commercial perspective, and I know that we'll be able to achieve it. In regard to how we do that, we don't need more strategies or new ideas. We need to execute on those ideas we want better. We have fantastic people. Vasu have recruited a wonderful team.
I feel very confident in that team, and I also feel very confident in our plan right now with Steve Johnson coming in and making sure that we're assessing and reviewing everything. I've been around this business a long time. You're gonna see me start to pay a lot of attention to how we produce revenue day in and day out. All of that is gonna bring about better execution and also guide us in terms of our thinking on what we need as we go forward.
Okay. And then as you think about coming out of this period of retrenchment or maybe kind of ratcheting down the growth, right?
Yes.
What should investors expect you to be looking for to when you feel like you have places to grow?
Yeah. Well-
What is that? Is there a metric you're running for? Is there a margin metric, return metric? What is the... Like, right now, obviously, the market conditions are great. You're one of the performing peers on a relative basis on the margin side.
Right.
You made the commitment here today to foreign capacity. When do you change that?
So first off, you know, we run this business, you know, for the purpose of producing profits, producing higher margins. That philosophy hasn't changed. We're not going to run an airline that's based on, you know, a lot of development flying and a lot of testing. We're gonna make sure that we run this airline for profitability, short run and long run. As we've grown back from the pandemic, I'll just say it's been, you know, a pretty interesting ride so far. There's been changes in terms of supply chain. There's been changes in terms of the operating environment and the capacity of the air system. There's been changes, positive changes, in terms of the way the customers come back....
I wanna be in a position to really take advantage of that. So what are one of the changes in the way that customers come back? There's a lot more demand for premium product, okay? Our fleet is set up to take advantage of that. Our network is set up to take advantage of that. We have to make sure as well that we are able to sell into that. And so as I take a look at our profitability, one of the things that we have to do is reestablish our competitiveness among the top network airlines. That's where we ought to be perceived and measured, and ultimately, that's gonna be the driver or the limiter on growth.
So where we've gone from, prior to the pandemic, through the pandemic, to where we are today, we know that we've grown, we've grown back finally to get to where we were in 2019. We've produced capacity that could really fill out those hubs that not probably put too much utilization in shoulder season flying in. We're gonna go and make adjustments on that. As I take a look out into next year, we have a very flexible fleet plan. My expectation is that we're going to regain our footing in terms of profitability, and that will be the driver in terms of growth that we produce in coming years.
That's a great segue into one of the bigger picture topics I wanted to dig into a little bit today around sort of premiumization, segmentation.
Right.
-and what that opportunity set looks like to you. I sort of view this as the industry capturing some of that consumer surplus that has been out there as you were just selling kind of one ticket to everybody, one price, and not being able to discriminate as much. When you think about the kind of runway that American has specifically to go after that, relative to peers who are enjoying a better sort of unit revenue performance as a result of that, what are the yardsticks or the benchmarks that we can look at to say how much opportunity there is for you to actually kinda close that gap?
Yeah, well, just in terms of premium revenue, I mentioned in my comments that, you know, we have been able to grow, you know, front cabin revenues at more or less the pace of our capacity growth. Clearly, others are doing better than that.
Okay, and that should be the expectation for us as well. So that, that is, you know, first and foremost, it's close in bookings, it's business, it's business travel, and it's those that want to do business with us and buy our premium product. We've got a great fleet. It's set up to be able to accommodate growth in the front cabin. As we take a look out through 2026, from our fleet overall, we have premium seating growing by about 20%. And if you take a look at our long-haul capability, our long-haul fleet capability, we're growing, you know, front cabin by about 30%.
We'll be ready to take advantage of that, and my expectations are that we're gonna be able to produce.
Do you look at it that way in terms of, like, unit revenue benchmark versus peers? Because obviously there's. It's a little harder to tease out some of the-
Yeah
... the segmentation of the, the publicly reported data. But, you know, how, how far behind do you think you guys are in terms of that unit revenue?
Well, I just look at first quarter results. And, you know, in those results, we had a material drop-off in terms of total overall unit revenue performance. You could see that. Others were much more stable, and our results look a lot more like theirs.
Okay. And then I guess at the low end, you know, with basic fares as a competitive weapon against some of the discount in the ULCCs, you know, it has that played out that way, given the rise in discount for the short term? Or, you know, is it helping to mitigate some of the competition from the discount?
Well, of course. And, and look, there's all kinds of change going on in the marketplace-
Yeah
Right, right now, and we have to be reactive to it. We have to do our own things as well. But the basic product has served us very well, and it's a superior offering to anything that the ULCCs can offer. And I say that because it's, you know, an offering that comes with earning mileage, being part of American's broader network. Our capacity to recover when things go wrong, you know, having more seating, more leg space, having drinks and having to pay fewer other upcharges. We have a product that is better in the long run.
I feel very comfortable in our ability to defend ourselves, and also to compete and to grow, among all segments of customers, including those that, you know, want a restricted product.
I mean, it seems like this is sort of a pretty weird cycle for the airlines, in that the ULCCs are traditionally lower cost-
Are the ones with the biggest profitability problem. Is that due to segmentation, in fact? Like, what do you think has driven that? Because normally, at the end of cycle, it's the higher-cost guys that have a problem and have to rationalize capacity, and to date, it's been the so-called lower-cost guys. What do you think has been the driver of that change in the network?
Oh, look, I can't speak for other carriers. I know this about us, that the kind of things we talked about at our investor day are the things that we're leaning into. We have a network that is really unique in its ability to produce connections and to be able to serve marketplaces. And with our partners, we can serve, you know, basically, I think, almost 90% of the world's, you know, O&Ds. We produce more origin and destinations than anyone else. That's not a... And we're incredibly strong within North America. That's something that built out. That's something that is very different than other carriers.
Now, in that, I believe that because of the work that we did over the pandemic in rationalizing our fleet and also, you know, rebuilding our fleet, I believe that the work that we're doing right now to run our airlines more efficiently. I think that we are a much more formidable carrier in terms of being able to produce really effective unit costs. Now, on top of that, we have to do a much better job of driving unit revenues, and we're gonna do that.
Okay. Turning to the rewards program, and sort of the idea of diversifying revenue. Your credit card relationship is 10 years old?
10 years old.
10 years old.
Right. 2 of them, 2 of them.
Right. So is there anything more you can tell us around what the opportunity set is in terms of, of, of bringing that contract to market?
What I'll say right now is we're working with our partners, and the reception that we've received is one of, you know, tremendous opportunity, one of a desire to partner in ways that we haven't and to really grow. Now, we take a step back. This is a fantastic way to engage our customers. It's in a different way, but ultimately, this is about, you know, creating another way for people to buy seats on American Airlines. And so we already have the largest loyalty program, airline loyalty program in the world. I know that we're gonna be able to grow and strengthen and offer opportunities for more mileage earn. That means, again, stronger demand for American's product. It's gonna fill up seats.
It's going to make everything that we do a little bit better. As I take a look at the long run, we have a way to connect with customers in a more engaged fashion, one that has a lot more stickiness to it. We have the ability to offer customers something that is incredibly valuable. Right now, what American has done is our miles are worth more than anyone else's in terms of being able to, you know, ultimately redeem. I know that our partners want to help us with that. They also wanna take advantage to encourage tremendous growth, which we have the ability to do.
So, in terms of the renewal itself, though.
Yeah.
Right? Is there anything you can do to help us understand what that step change in profitability would be based on your benchmark with peers? Fine, if it's-
Right.
We're at a stage where you can comment on it. I'm just trying to help investors understand, like, this seems like an undervalued part of the story, or an underappreciated part of the story.
And David, all I'll say at this point is that I believe that that's another aspect of underperformance versus our network peers. And we have parties that... You know, our partners have a strong desire to make sure that we don't underperform in that fashion. It's an incredibly valuable part of our network, you know, a really sizable revenue generator for us. It can do a lot more.
Okay. And then is that still out there in terms of, is there any timing time frame for that?
We're working on it. We're working on it right now.
Working on it right now.
Yeah.
Okay. And then, you know, one of the things that has certainly been a topic with investors has been this issue around supply constraints. And obviously, you know, the news today that supply and demand are a little bit out of sync is discouraging. But when you think about the rate at which the supply chain can produce aircraft, that engines are getting overhauled, like, how do you think about that impact on the industry growth in the next couple of years?
Yeah.
Is that a meaningful change in the amount of productive capacity that's out there, or is it kind of a side issue?
Well, I'll just start with this. Yeah, we've put back a lot of capacity this last year. We've got to make sure that it's fully absorbed. You know, demand, we know that people want to return to travel, so I expect, you know, great growth. I believe that the dynamics for the industry are in a really solid position. But some of that comes from, you know, your point about capacity, about, you know, drains on capacity as we go forward and supply chain constraints. It's a marketplace right now where, you know, aircraft production, I think, is gonna be limited. I think it's gonna be limited for a considerable amount of time.
You know, we've talked about, you know, our issues with Boeing, and there's still a lot more to go there. We have to make sure that we're delivering quality aircraft off the line every time. And what I've talked to Boeing about is: Hey, you know, in regard to producing aircraft, even for us, let's get the quality right, and take the lumps now. And I believe that Boeing will do that. But Boeing's not the only one that is out there. There are other suppliers, Honeywell, for instance. You know, there are other suppliers that have dramatic impact on the overall industry's ability to produce capacity, and they've fallen behind considerably.
It's not just the airframe manufacturer, the airframe, and engine manufacturers, it's also the providers of components. I think that that is something that is going to take a considerable amount of time to work through the system as well. So my view of, just, you know, in terms of the ability to produce new is limited, but then in terms of producing and operating capacity, I think that there are supply chain constraints that are impacting everyone. Now, I do believe that American is best positioned in this world of constraint, because we've done our fleet renewal program, right? We spent $30 billion on new aircraft. It's the reason we carry more leverage than anybody else.
But it's also, now that we have it, it's also the reason that I believe that our capital expenditure, our aircraft capital expenditure profile, as we take a look at towards the end of the decade, is incredibly reasonable. You know, $3 billion-$3.5 billion of capital expenditures, only $2.2 billion this year. I believe that American has done that heavy work so that we're not dependent on a lot of new deliveries. The other thing that I'll note is I believe American is incredibly well positioned in terms of being able to support our fleet, and others, I believe, are gonna run into real problems. We already have an incredible maintenance operation anchored on our Tulsa heavy maintenance base.
We employ more licensed mechanics than any airline. I know that we produce, you know, probably the most efficient overhauls of CFM56 engines in the world, which is by, you know, far the largest engine, you know, type that we operate. And I feel really good about American and our team members being able to support the airline we need to run. I don't believe that other carriers are in the same position. I do believe that even the supply network for overhauls, as you mentioned, on engines, probably the same for airframe. I think that's gonna be incredibly constrained, and those aren't easy things to fix. Of course, they'll all even out over time, okay? But I don't think that those are short-run problems.
As you think about some of the constraints beyond just the airframes and the engines, air traffic control was a big issue last year. Given that we're looking at 7% more travel in the summer based on February numbers anyway, do we expect that to be also an issue this year? And what do you think about the government's approach to solving the air traffic controller problem?
So first off, I really do wanna give a shout-out to Secretary Buttigieg, the administration, and, you know, our elected officials. We have an FAA reauthorized bill that gives us runway for the next five years. Constraint issues in regard to airspace are also not short-term problems. We, as a country, to address the problems that we have to be willing to step up and to make sizable investments. And while I love that we have a five-year plan out there, the kind of issues that we're talking about, they're decades-long initiatives, because they involve not only a lot of people in retraining, but it involves, you know, tremendous technology change. So I believe that we're doing the best we can with the system that we have. I...
You're aware that, you know, we have, you know, restrictions in the Northeast airspace, that we've put in, and we've had, you know, reductions in operating requirements for New York airports. Yeah, I don't know how long those will continue. I believe that we're doing everything we can to get the controller base that is necessary, but there are limits to airspace that are longer term in nature. And I think that that's another thing that is going to impact the business, and at least for us, look, constraints, you know, it's ultimately a supply and demand business. Constraints on your ability to, you know, on the supply side, as long as demand is strong, that generally, you know, bodes well.
That's the environment, whether it's from a supplier base or just, you know, operating limitations. You know, we talked as well, David, about, you know, the investments that are required in airports and new gates, even in places that you don't have space, you know, one new gate can cost $100 million, okay? That's just, you know, what we're gonna pay in DFW as Terminal F is thought about. In New York, you know, the rebuild of Terminal 1 in JFK, which, you know, was projected at about a $9 billion-dollar effort, I think it came out to, you know, being something that was a $400 million investment per gate.
Now, take that into account, and, you know, we can all say, "Well, that's just... It's, you know, that's, that's the government or that's the, that's the, the local airport." That is all paid for by airlines, okay? Ultimately, whether you, you know, amortize that over 20, 30, 40 years, it's still a really big number. And I think that that is also going to be something that has to build into, you know, the, the, the capacity environment in our larger, larger cities. You know, Los Angeles has a, a really large, capital development program going on, but it's not adding a lot of new gates. You know, we've got a lot of investment going on, going, going on in, in, in Chicago.
My belief is that there's gonna have to be a lot of rational thinking about putting new gates in place before people want to take on, you know, that kind of economic exposure.
Okay. So you talked about your network strategy and your firm conviction that, you know, American has the best network. And at your investor day, you talked about sort of rolling into the Sun Belt states, smaller cities, shorter hauls sort of traffic. There has been a lot of discussion in the market about whether that's the right strategy, given maybe the smaller revenue opportunity.... Right? They're less served, and it's a competitive advantage, but maybe there isn't enough to make that strategy be the right strategy long term. How do you think about that conversation? What's your input into that conversation?
My input is I just haven't seen anything that suggests that, you know, the Sun Belt cities, you know, aren't gonna continue to be, you know, a real economic engine in the United States. There's just nothing to suggest that it won't. In terms of our ability to serve, not just, you know, the Sun Belt regions, but also the catchment basins for, you know, all those hubs, our regional network is incredibly important. And one of the things I'm so proud of is we're the operator of the world's largest fleet of E175 aircraft. You're gonna see us taking on more of those. It's gonna help us to get a lot more efficient. It's a product that customers just love.
When one of those rolls up, you know, you're gonna get your bag on, you're gonna... You know, you're gonna have a comfortable seat and a very nice, you know, regional product. I see as we go forward that we're gonna actually get quite a bit more efficient. And one of the things I'd note is that, you know, with capacity constraints and with a moderating of growth overall, we're starting to see, you know, our ability to organically, you know, grow and produce, you know, pilots, moving them from right seat to left seat and being, you know, our first officers that come into our regional carriers and actually growing through the ranks as the demand for mainline pilots has slowed considerably.
That, I believe, as well, is going to bode well for us. We've had to spend a lot of money rebuilding those regional airlines and getting them back up to an appropriate footprint. But as time goes on, I believe that some cost pressures, namely related to, you know, getting pilots in seat, I think that those are gonna lessen. And so, the revenue environment is gonna be depend, you know, certainly, you know, on a lot of macro factors, but our ability to serve that demand profitably, I think is—it only improves. And as well, our position and our ability with our regional fleet, it's something that no one, no other carrier can duplicate. So, I'm incredibly bullish on where we're headed in that front.
We've got the right product, we're gonna have the right cost structure, and the demand environment, I believe bodes well for the future.
Okay. As you think about that, you know, the opportunity ahead for American Airlines and what you want American Airlines to be going forward, we've had this conversation in the past.
Right.
What is the identity? What is the idea? Like, I think with some of your peers, it's a little bit clearer in investors' minds around, you know, focus on experience or what have you, as far as kind of what that tagline could be. I'm gonna ask you the same question I ask you pretty much every year we're here. Like, what do you want American Airlines to be? What kind of—what is the vision for you in terms of where it's fitting in the marketplace—
Yeah
... With respect to your legacy peers, with respect to the discount airlines, with respect to the overall travel landscape?
Right. Well, when you fly American, you're gonna be able to get to where you wanna go. We're gonna serve more cities in a seamless fashion than anyone. You're gonna be able to take advantage of the product that you want when you get it, when you buy your product, and that's it. Look, we're a very large airline, and we're gonna serve all segments incredibly well. So from, you know, the most, from a Basic Economy perspective, all the way up to those that, you know, wanna fly international business class, we have a product offering for you. When you come fly American, you're gonna know that we're going to be reliable. We're gonna get you there. We're gonna be easy to do business with.
And in that, for our investors, I just look at this as tremendous upside. I hate what we've reported today, okay? We are going to make considerable changes, but that is upside. I know for a fact that we can recapture what we've ceded to others. Others are benefiting from what we've done over the last, you know, six months or so. We'll get that back. That's upside opportunity for us. Combine that with the other things that we talked about at Investor Day, American is on track, still on track, to not only have paid down total debt by $13 billion at the end of this year, but by $15 billion at the end of 2025.
We will make sure that our leverage continues to decline over the coming years. We've got a great fleet. We've got a great operating network. I believe that we have tremendous opportunity to engage our customers even further in a loyalty program that not only they want to be a part of, but one that I know benefits them in ways that distinguish us from our peers. And in doing all that, I believe we're already on the path. We're just going to continue to be exceptional at managing costs as well.
In all that, David, you know, if you said, "Hey, you know, Robert, in terms of operating an airline, what is it that you want to be known for?" I wanna be known for delivering on what we say we're gonna do. I mean, it's not just want. I know that we can produce a reliable airline. I know that we can manage costs. I know that we are going to get back on track from a commercial perspective. I know that we're gonna deliver for our customers and shareholders.
All right. Well, with that, I think we're coming to the end of the time. I wanna thank you guys for supporting the conference, coming out again. Always great to see you and good to catch up.
Thanks, Dave.
All right.