Thanks us here at Bernstein's 39th Annual Strategic Decisions Conference. We are privileged to have such a great group, privileged to have American Airlines joining us here on stage. Robert Isom and Devon May, recently appointed CFO, is joining us today. We're gonna do a fireside chat here. You guys should know the drill by now. You should have access to a Pigeonhole link in the written materials or the emails that have came to you with your meeting schedules, where you can go in. That'll show up on the screen here, as long as it's not as long as it's ready for work time, we'll try to work it into the Q&A.
Maybe as we kind of just kicking the discussion off, do you wanna give us an update on this morning's earnings update and kind of the state of business travel or state of travel right now?
David, first off, thanks for having us. It's good to see you.
Yep.
If you remember, it was just a year ago, and I think I had just taken on the CEO job. You know, at that time, we talked about what American's priorities were going to be. At that time, you know, we had come off some really, really tough times, and we hadn't produced a profit. It's great to be here with you today, not only because of the ASK and the guidance update, and I'm really pleased with that. You know, anytime you can come out and say that, "Hey, the midpoint of your second quarter guidance is improved by, you know, almost 20%," you know, that's a good way to start the day.
You know, I'm really pleased with how the company is performing on the things that we set out to do. First off, we said we're gonna be a reliable airline. We had to do that because, you know, let's face it, during the pandemic, it was hard. You know, even going into the pandemic, American wasn't, you know, known for its punctuality. We set off to do that, and look, as we've gone through the year, we certainly learned some lessons as the supply chains got back in play last year, as we got all of our staffing in place, you know, some rough lessons learned last summer.
Now here we are, and, you know, from that time last summer, you know, we've seen continued improvement up to this Memorial Day weekend, where we had the best performance, over, you know, a holiday weekend, a Memorial holiday weekend, that we've ever had, right? You know, you can count the number of flights that we canceled over the entire, you know, the really, really busy weekend on, you know, almost less than one hand. It feels like, you know, we're in a really good spot from that perspective. If you establish that baseline, and running a reliable airline, it really does improve your efficiency overall as well. That operational performance, and it's not just, you know, "Hey, we've improved." It's we've improved relative to others.
I don't think there's any other airline that has operated the way we have, you know, certainly over the last six to nine months. I'm really pleased with that. We also talked about, hey, look, you know, we took on a lot of debt over the pandemic, lost a lot of money, you know, $20 billion of losses. It was pretty sobering, but since that time, you know, we've now had four consecutive profitable quarters. You may say, "Well, hey, you know, the economy's rebounded," and that's true, but we were ready. I think that the decisions that we made prior to the pandemic, as we led into the pandemic, I think people are gonna take note that, look, we did the right things with our fleet.
We did the right things with our network. Ultimately, we're gonna be in a position where that profitability, it translates into free cash flow. You know, we talked, you know, about, you know, free cash flow production being used to strengthen our balance sheet, and we're in a position to be able to do that now. I like our progress that we've made in terms of reducing total debt, you know, by $15 billion. We're 60% of the way through. I think that there's gonna be more opportunity as we go through this year. As I take a look forward, look, it's all coming together. We've got assets that are not quite yet fully utilized. I would put them out there today if I could.
We've got some pilot sourcing issues that we still have to deal with on our, on our regional aircraft, training issues that we've got to get through on our, on our mainline aircraft. As I look to the, to the future, it's really positive. Revenues have been at record levels on a quarterly basis for four quarters in a row. We anticipate that for another quarter coming up in the second quarter. There's more to come.
I come here today with, you know, a lot of optimism for the future and a lot of pride for the kind of things that we've done, but also the knowledge that, look, every day in this airline business, it's competitive, it's hypercompetitive, and we're subject to what's going on in the world, and we've got to really make sure that we stay focused. American Airlines today, okay, it's gonna be a similar message. This is maybe a little bit better, you know, foundation that we have, but we are gonna be reliable, we're gonna be profitable, and we're gonna hold ourselves accountable to delivering on what we say we're gonna do.
All right, thanks for kicking us off with that.
Yeah.
I guess if we, start digging into a little bit of the demand outlook.
Sure.
We had the CEO of Hilton earlier today, and I had a chance to sit in on that fireside chat. His message was: We haven't seen any cracks in demand looking out as far as we can see.
Mm-hmm.
As you're sort of sitting there looking at how demand trends have developed, maybe from where you thought we were gonna be at the beginning of the year to where we are today, how is that demand picture sort of shaping up for American?
I just tell you that there's. Look, people want to travel. I think it's an innate desire, and, you know, the pandemic and coming through it is just showing that, you know, as a country, as a nation, as a world, you know, we wanna get out there and explore. We wanna go make connections. We wanna go do business deals, and that's coming to fruition. Demand, as I take a look at it, you know, prior to the pandemic, you know, we basically operated an industry that, you know, garnered, you know, 0.9% of GDP, you know, the to airline revenues. That's the right number, right? We're not recovered to that level yet, okay?
I think that that's upside. What I do know is this, is that the economy since 2019, you know, has grown considerably. Where we stand at American today, you know, let's face it, we're not quite yet to the capacity levels that we were flying in 2019. I think that there's, you know, a lot of positive coming, in that I do think that we will return to the historical relationship between airline industry revenues and GDP. I think that there are a lot of constraints out there right now that are affecting, you know, certainly American Airlines capacities and probably the industries as well.
That bodes well, for creating a business, you know, that can make a profit in, you know, a supply and demand imbalance.
Okay, I wanna get into those constraints in a second-
Yeah.
I also wanna ask a similar question on the demand side.
Yeah
... to the cost performance.
Uh-huh.
Obviously, today, you didn't, you kept your ASM guidance, your CASM guidance.
Yeah
... your unit cost guidance, relatively flat. As we've kind of gone from the beginning of the year to now, how are you seeing the underlying performance in the key cost buckets that aren't fuel?
Right.
'Cause obviously, the guidance lift today is mostly a lower fuel price. As you think about, you know, how you're controlling what you can control, what's kind of working in your favor? What are you most concerned about on the cost side right now?
Well, hey, I'll start. Devon can help me out. Look, we thought we were gonna run a reliable airline. That's what we built into our plan, you'll see that benefit. Now, where I look into the future. Look, in that cost profile, it's, you know, American, again, we made a lot of decisions prior to the pandemic, during the pandemic, to make sure that we, you know, had rationalized our fleet, to make sure that we had commonality among our aircraft configurations. That has allowed us to actually, you know, up gauge the airline. We're benefiting from that, and I think that that's gonna show, we'll carry forward as well.
Under that, I talked to you in my opening comments, I mentioned that we do have underutilized assets today, okay? We have about 150 regional aircraft that we would deploy, that we would deploy profitably to markets that aren't being served. We would do that today. It's just we don't have the pilots. When we get the pilots over the course of the next 18-24 months, for our regional network, those aircraft are gonna be redeployed, and they're gonna be redeployed in a fashion that is going to produce, you know, unit revenues that are very, very favorable.
From a mainline perspective, I think that we probably have another, you know, 2, 3% level of utilization that we can work out of, you know, our current existing fleet as well. From a cost perspective, you said, you know, put fuel to the side, look, we've just recently negotiated an agreement in principle with our pilots. We've built that into our guidance. We've, you know, have provisions for contracts that, you know, will be eventually negotiated with our agents and with our flight attendants. You know, we are absolutely, you know, including that as we look into the future.
We've done a really nice job of being efficient, but I'll tell you, at American, there's also one other thing that, we have opportunity and upside with, that is, we've gone into the pandemic, and that was a period of time in which we had just linked together, the last remaining work groups that were in separate contracts. We're really working as separate airlines, almost, our mechanics and our flight attendants. We're just now getting to the point where we can optimize those resources on an airline that is operating at scale. It's really exciting to be able to go back and say: Okay, what can you do on in supply chain?
What can you do in terms of how you use your, you know, your people throughout the airline? You know, what is it that we're doing with technology that we're just getting to? What are we doing with, you know, purchasing? All those kind of things, I think, are upside that, you know, look, we're gonna explore and will help us offset from a cost perspective. Devin, you wanna add anything?
Well, first, I agree, 2024 and beyond, there's a lot of opportunity.
Yeah
... to become more efficient. You know, specific to 2023, our unit cost forecast that we started the year with is the-
Yeah
exact same unit cost forecast we reiterated today. There's been no change in our expectations. That really starts, though, with capacity production. You know, we started the year saying we were going to grow capacity by 5%-8% in 2023 versus 2022. We're now 5 months into the year, we're still saying we are going to grow capacity by 5%-8%, 2023 versus 2022. I feel really good that we are delivering on the capacity guidance we started the year with. That's really helpful for our unit costs, is our unit costs are also coming in line or coming in very much in line with the forecast we started the year with. It's really starts with capacity. In terms of buckets of expense, there's been no real surprises.
The agreement principle we got recently with our pilots is very much in line with the guidance that we have out there. Really no change to our second quarter guide, and no change to our full year guidance, with that AIP.
Okay, one of the great things about this conference is we also get to hear from some of your suppliers.
Mm-hmm.
GE, in particular, was talking about constraints around engine maintenance. Is that something you're concerned about in the next sort of 12 to 24 months, as you think about some of the backlogs that are building out there?
Sure
... solving that issue around?
Yeah, no, I'll start with that. Look, we have the world's largest commercial aviation overhaul base in Tulsa, Oklahoma. We have, what? 4,500 mechanics, you know, based there, probably the largest, you know, collection of mechanics. We run our, you know, our own engine shops on some of the thinner narrowbody engines, and we've had long-standing agreements with, you know, GE and other suppliers. Look, we're the world's largest airline in many respects, and on that front, we're gonna be taken care of, whether we do it on our own or we do it with others. You know, certainly we have a great relationship with GE.
We operate, you know, CFM56s, the LEAP, you know, GE90s, you know, the GEnxs. I know that in our discussions with Larry and the GE team, that they plan on taking care of us. I feel good about where we stand, and that is probably a constraint out there, you know, for others, but another one where, hey, look, it's, you know, something that we've built over time, in terms of having the capability to service engines on our own, and we're gonna really make sure that we leverage that capability.
Just as we're kind of continuing to talk a little bit about the near term, we had a question from one of the participants here.
Yeah.
around the schedule reductions in September. How much of that is just adapting to maybe the plan you're actually gonna fly versus maybe starting to tweak down in response to demand signals? Like, I'm just.
Sure.
I think the point of the question is really, hey, you took 10,000 flights out of the schedule, is that because you're seeing demand falling off, or is that because?
Oh, no. Anything. Again, what Devin said, I think is really important to note. You know, we're delivering on the capacity we said we're gonna produce at the beginning of the year. We intend to do that throughout the remainder of the year. Anything that you see in terms of schedule changes is just, it's seasonality. Devin, anything else you wanna add?
No, that's all it is. It's just a cleaning up of some of the selling files. As schedules go final.
Yeah
... we replace whatever is out there selling with the final schedules. Certainly no change for capacity production for us, and that's what we reiterated this morning in the guidance.
There's no read across from that schedule change.
No.
to something in the demand signal response to it?
No. Absolutely not.
let's talk about the pilot constraint you mentioned.
Yeah.
I think you said 18-24 months, you're gonna be able to solve that.
From a regional perspective.
Okay.
Okay?
Is that just getting the check pilots to get the pilots certified? Or how should we think about what that bottleneck is?
Yeah
What brings that out?
You know, it's interesting, and Devin has managed to overseen the regional operations, so he can chime in here, too. Look, what we face now, at one time it might have been, you know, having the appropriate level of check pilots to handle all the training, but we've made contractual changes. American Airlines was, you know, I think, an industry leader in getting regional pilot wages to a level that it can really attract, you know, new talent from a broad set of communities that, you know, had been really, you know, never, you know, really in the airline business. We did that, and it's produced. Others have followed, and it's produced the kind of interest in aviation that we had hoped.
We're seeing, a tremendous, you know, interest and an increase in the supply of new pilots that'll become first officers. One of the things you have to do, though, is make sure that you can match up first officers with captains, obviously. You can't become a captain until you have 1,000 hours as a first officer. There was an imbalance between the number of captains that were flowing out of the regional airlines, okay? Because they were being recruited for, you know, mainline airlines, and the number of first officers.
What we've done is we've put in contractual provisions for check airmen and incentives for captains that have allowed us to build both of those, and over time, and that's why I say I'm kind of 18-24-month timeframe, I think that we're gonna be able to match up much better captains with first officers that will get all of these aircraft back up in the air. From a mainline perspective, it's a different story. It's just really, there have been, through the pandemic and where we were with just planned retirements, we had a lot of pilots, very senior pilots, leave the industry.
Mm-hmm.
We're just replacing those. There's been so much. At American, we're training double the number of, you know, new hire pilots than we've ever had in our history. The training resources, whether it's check pilots or simulators or whatnot, you know, they just take some time. For the mainline side of things, the new agreement in principle with the APA, that'll absolutely address any of the check pilot issues that we had been constrained with in the past.
As we think about, the industry's ability to get back to that traditional sort of percentage of a larger GDP, you know, how big of an issue is gonna be pilots to bring demand to that level?
Mm-hmm
... for the industry level? How does that differ for maybe American Airlines relative to, some of your competitors in the market?
I just think the overall pilot supply, it's a matter of economics. It's a matter of quality of life, and I think the kind of things that have been done, both at, from a regional perspective at American and a mainline perspective with the new agreement in principle, they address those kind of issues. I think that there's gonna be tremendous demand. For American, you know, look, we're a great place for pilots. Whether it's at the regional airlines, you know, flying the E175s or on the mainline, you know, look, we've got the youngest fleet, and, you know, we've got growth in 787s, and, you know, we're gonna be taking the A321, A321XLR.
You know, those are all really good things, and that is, you know, it makes for a good career for pilots. I think that at the end of the day, American is going to be able to offer best quality of life and a really, you know, competitive compensation as we take a look going forward.
Okay. Do you think the rest of the industry is gonna have it as easy, or do you think it's gonna be a little tougher in some places?
I think.
Industry.
Here's what I think. I think in a constrained world with pilots, I think American wins. American wins because of the aircraft, American wins because of the type of compensation and quality of life, and also the airline that we are, where we fly, and ultimately, you know, people that want to have a career that lasts, you know, 35, 40 years. You can get a 40-year career as a pilot, right? That's, you know, with retirement age at 65. You know, if you wanna have that kind of career, American's the place you're gonna come.
Okay. One of the other constraints that's popped up beyond just, you know, say, engine and equipment, which isn't a big issue for you right now, given where you are in CapEx.
Yeah.
Air traffic control.
Yeah.
Right? We've seen, and this is relatively new for me, I've been a very frequent flyer in my history. I've never really seen instances where the FAA is actually rerouting flights to get them into Miami, reducing capacity in New York. Is this a temporary issue from your perspective, or are we just at the point where there's just an awful lot of planes and not a lot of spread in the population density, and we're running into some real structural barriers to capacity?
Well, look, over the long run, okay, if
we, you know, we need to invest in our, you know, air traffic control capabilities. We just need to. I know we've got, you know, FAA reauthorization, you know, discussions going on right now, and I'm sure that we'll end up in a, in a place that, you know, we can operate effectively in the short run. Over the long run, we have to be able to invest in the industry and the FAA in a manner that is over the course of decades, okay? Not, you know, hey, funding for a year. The kind of systems overhauls that we're talking about are, you know, things that, let's face it, they've served us all really, really well.
We run the safest, you know, form of transportation, the safest, you know, airline industry here in the United States of anywhere else in the world, but it's been developed over years and years and years. The reinvestment that's necessary to take advantage of technology and take advantage of the technology that's actually in the aircraft and on the ground at airports, that is something that will take time. It will take a longer term vision. We're working with the DOT and FAA, and I know Secretary Buttigieg is really, you know, interested in that as well.
You know, I'll just take a chance to say, "Hey, look, the Memorial Day weekend results were not, you know, a fluke." It's because, you know, at least at American, you know, we really planned for it. It's because, whether it was the FAA or the TSA or any of the other supporting agencies, is that they made it a priority to make sure that we were set and ready to go. I have, you know, all the confidence that we'll have that same type of attitude as we go forward. Some of the points that you mentioned about, you know, hey, is it, this is, you know, air traffic control, is it a temporary issue? Is it a long-term issue?
I think we face the same issues as that we face with, you know, pilots and other technical, you know, positions. To become an air traffic controller, you know, that's an investment. It takes time, and then it takes experience once you get put into a center. All that is something that, you know, it's not measured in days. It's measured in months, in some cases, years. We do have an issue with getting air traffic controllers trained, deployed, and then experienced. That's something I think that we're gonna have to work through, and I think it's a result of the same type of things that we've all been dealing with, which is you had a lot of retirements.
Yeah.
You know, we've bounced back so much quicker. They're known problems, and I'm confident that we can work through them, but it will take a longer term mindset to it.
I'm hearing in the intermediate term, as a consumer in New York, that there's not gonna be much growth from what the capacity we have running right now.
I'm not going to comment on that. What I'll say is that we need to make that investment. Hey, just, David, a couple other issues, though. You know, we are doing work with the DOT to take advantage of everything that we possibly can. I don't know if you saw that there was, you know, some recent, you know, communications by Secretary Buttigieg that said, "Hey, look, we're actually gonna.
You know, constrain or control, you know, rocket launches, where, you know, possible, so that they don't have an inordinate impact on, you know, air traffic. We're not gonna put ourselves in a position where, you know, we delay, you know, quite frankly, hundreds of thousands of passengers, in a you know, in a way that, you know, could be avoidable. I'm really pleased that everybody seems to be engaged in really addressing problems in the short run and also, you know, with a mindset that for the long run, but we've got to get to longer-term investment.
Okay. The last couple weeks have been big. You've got the pilot.
Yeah.
that's in the guidance. You also heard from the DOJ that the Northeast Alliance-
Right.
with JetBlue
Right.
Has to be unwound in 30 days.
Right.
Could you help us understand at a high level?
Uh-huh.
for generalists, if we have to unwind the jet, the Northeast Alliance, what does that do near term, long term, from a growth and capital standpoint? Then, you know, what are your next steps as you think about the decision of the court?
Okay. Well, I just take a step back.
In any order.
Yeah. Well, right. Well, no, and I for me, this is, you know, I'm disappointed, and, you know, I quite frankly, you know, disagree with the ruling. Take a step back. You know, the reason for the NEA, at the end of the day, was to provide consumer benefit, to provide more competition, stronger competition, in an area that has entrenched carriers, and they could use it. A place where both American and JetBlue, you know, quite frankly, couldn't, you know, operate in a way that, you know, was going to offer that really, you know, viable alternative over the long run.
The NEA was a creative, you know, way to take a look at that problem, strengthen, you know, our positions, and offer our customers more options, you know, more cities, and, you know, a level of competition that wasn't there prior, previously. I think it was we entered into it for all the right reasons, and I think it was producing all the right benefits, quite frankly. Based on that, you know, look, we were sued by the DOJ, and, you know, the judge's ruling said that, "Hey, you know, the NEA can't go forward." On that, look, we've got a legal system that allows for appeal, and we're gonna do that.
As we look forward, you know, I think that, you know, the kind of benefits that we've proposed, will ultimately prevail. In the meantime, yeah, we're gonna have to work with the DOJ, work with JetBlue, to find out exactly what we do in the interim, and we're gonna do that. It's just a lot of work that's going on right now.
Okay, if we think about the, you know, getting it down to brass tacks, revenue, I don't know if you can get to EBIT and or share any of this stuff. Like, is it a material hit if you had to just turn the thing off in 30 days?
I'll hand that over to Devin, because he just commented at another conference. The fact of the matter is, look, this has always been about, you know, something that I think, you know, over the long run, produces tremendous benefits. For American, today, the joint bus- or the relationship was something that is very positive. It offered consumers, you know, tremendous benefits. For us, we have a lot of hubs, and, you know, the New York area is a place that we're gonna serve. We're gonna serve really well. And in terms of impact, it's just the New York region, you know, it...
For non-hub flying is less than 5% of our total flying. It's something that, we're really, you know, focused on. At the end of the day, it won't have material short-term impacts. Devon, anything you want to offer, add to that?
Yeah, no, I think Robert touched on everything, and that's probably the big number here is, while the NEA is big for New York, and it's big for American Airlines with our New York strategy, it isn't something that is really impactful to earnings because our non-hub flying out of New York is, you know, something less than or around 5% of our total system capacity. As you saw today, we've reiterated earnings for the full year.
Yeah.
We've upped our guidance for the second quarter.
Sure.
Yeah, for this year, we don't expect this to be a material impact to earnings.
I want to challenge you just a little bit.
Sure
... 'cause, you know, Vasu's been at conferences talking about...
Yeah
wonderful it was from a RASM perspective and from an earnings perspective. I mean, am I hearing that it's not impactful from an EBIT perspective, or because oil's lower, it's getting lost in the wash? I mean, is it a zero, or is it something that you can manage around? I'm just trying to make sure that we.
Yeah
kind of address this question because I get a lot of pushback when I'm trying to, you know, tell the American story.
Yeah
Well, the NEA is now gone there. That was part of their Northeast strategy. Now they're gonna lose a lot.
Yeah
I'm just looking for a little backup here, so.
That's fair. Listen, I'll just say, when you think about American Airlines, we have a really big network.
Yeah.
New York is an important part of that network, but it's a relatively small part of that network. If you look at the midpoint of our guidance, you know, we're projecting to earn somewhere around, I don't know, $3 billion or something like that of pretax earnings, 8% operating margin. The value the NEA brings is something, but it's not material to that operating margin.
Okay.
Yeah. David, I just I'll reiterate, you know, what Devin said about, you know, network, you know, overall. Look, American is flying to the places, you know, that, you know, quite frankly, really are, you know, optimal for us. We've trimmed away during the pandemic, you know, all the kind of the prospecting flying that, you know, you may have called, you know, kind of investment flying. We've pulled that back and really put it to the places that we can make the most benefit of it.
Our Sun Belt hubs, you know, whether it's, you know, Miami or Charlotte or DFW or Phoenix, you know, we're situated in the places that have so much potential for growth, so much growth that's going on right now, and so much, you know, a concentration of migration of, you know, people, you know, into those cities. I couldn't be, you know, more pleased with, you know, the network we have. Of course, I think that there's a lot more that we could be doing, especially in, if we can prevail with the NEA. At the same time, look, we react and, you know, we will make sure that we're optimizing, you know, where we fly and where we deploy our aircraft.
Understand you're going to appeal. If you, if it, this is the last one on the NEA, as you think about maybe that appealed out working for whatever reason. How does that change the investment requirements for you from an OpEx or CapEx standpoint, as you look at sort of addressing that, what is a smaller part of the market, but an important part of the market, given the hub to the transatlantic and that kind of stuff? Like what would be next? Would it be some reduced scale partnership with JetBlue, some more code sharing type of arrangement? Is there-
There's a lot to be worked out.
Okay.
You know, we'll leave it at that. Again, I'll tell you, that American Airlines right now, if we had more aircraft like I told you, we'd be flying them.
All right.
Okay.
Switching gears for a second, you mentioned earlier in one of your comments, that by putting together, the last of the work groups that had not been put together.
Yeah
... by rationalizing the fleet types, by getting onto one set of operating and IT systems. One of the things that we've talked about in the past is, you know, leveraging now the ability to not be working on that stuff.
Yeah
to maybe catch up in some areas in monetization of your existing capacity.
That's right.
Can you kinda give us in some broad brush strokes around, you know, what you're most excited about from a revenue management perspective, things that you see your competitors doing that you have not been able to do? I know most recently you've gone to dynamically pricing.
Right
the award tickets as an example of the types of things I'm trying to get you to maybe illustrate for investors to kinda help understand where the catch-up opportunity is when you look at the unit revenue premium that maybe a Delta gets out of its network versus what you would get out of your network today.
Sure. Well, I just, I start with that, with this, which is, you know, the core product that you offer, it has to be competitive. One of the things that had been problematic for us in the past is that we weren't as reliable as the industry leader, okay? We are now. So I think that that is, you know, something that, you know, we'll take note, it will show up, you know, over time. In that, okay, you realize that also it's the most efficient way you can run an airline.
The rework that comes out of, you know, the airline in terms of lost baggage and, you know, customers that have to be, you know, handled in, you know, separately, all of that kind of stuff works to our advantage. Also, running a reliable airline also then says you can actually then take a look at the airline and make sure that you're deploying assets in an optimized fashion, but also, you know, to be able to do more flying with the assets that you have as well.
As we get pilots back, as we're running a more reliable airline, you're going to see us be able to utilize those assets that we have and fly to, you know, places that, you know, produce, you know, decent unit revenues, but at a really low cost. I'm excited about that. Adding to that then is having this network that is in place that we're finally able to, you know, really manage from a revenue perspective. I love what we're doing with our RM and network team, led by Brian Znotins and Scott Chandler. Taking a look at, you know, a post-pandemic world that is different than, you know, we've experienced in the past. Demand is coming back in a different way.
We're flying to different places. All of that now is captured in terms of data in a way that we can bring technology to help us do things in a different way, both with our customers, both with any of the intermediaries in terms of agencies. I'm really excited about that from all fronts. Our revenue production today, you know, Vasu will, you've heard him talk. It's a combination of flying to the right places, having the right product for customers, also a loyalty program that really incents a connection in a way that allows us to offer ancillary products that people wanna be part of.
Whether that's, you know, our Citi and Barclays, you know, co-brand cards, or, you know, just the affiliation, you know, overall in terms of earning miles and then being able to ultimately burn those on other airlines, through our partnership network, which includes, you know, the Atlantic Joint Business, and, you know, carriers like BA and Iberia, or JAL, or Qantas, or Qatar. You know, look, American is the place you wanna be to go to the biggest business markets and have the biggest footprint in the United States in terms of, you know, really important growing markets, and that's exciting for us.
As far as kind of capability gaps.
Yeah
... on that monetization.
Yeah
... you know, the premium product-
Right
... or the international premium select product.
Mm-hmm
or the ability to charge for upgrades.
Right
... to just award them. Like, where are you in the state of the development of some of the basics in the market? I can know from my experience, it's like-
Right
... I get offered a lot of free upgrades.
Right
... that I, that other airlines make me pay for...
Right
... which is just 'cause of a legacy status.
Right.
Which is great.
Yeah
... it's a lost revenue opportunity. Where are you on some of those?
Well, I'll start with this. It first started with having the right hard product.
Mm-hmm.
Okay? The reconfiguration of our aircraft and the ability, especially on, you know, the international fleet, to have a premium and economy and a business class section, that really, you know, offers a hard product that is not just competitive, but in many cases, you know, what, you know, is considered, you know, best in the industry. That's been a starting point. Now, you know, you bring technology to bear on top of that. Yeah, you know, prior to the pandemic, limitations in terms of both aa.com and also, you know, our app. As we've gone forward, you know, we can do just about anything that we want to do.
There's more to it in terms of being able to really tailor product, exactly to customers and what they want, when they want it. All of that is. You know, we've got the technology and the tools, and now it's just more, designing the systems, and building the intelligence in to delivering that. I feel really good about where we stand right now, and I just think it's we're gonna get better and better in terms of tailoring our product to what customers want, when they want it, and for what they're willing to pay.
Okay. Turning to the balance sheet and CapEx for a little bit, you know, obviously, we're in a little bit of a CapEx holiday. How do we think about what a 5-year or a more normalized view of capital spending would be? For investors who may be not familiar with the story, American bought a lot of airplanes before the pandemic. Coming out of it's got a younger fleet, and it's got a lower aircraft cap requirement here for the next 1 to 2, 3 years-ish?
Right.
Like, if you can fill in that blank for me.
Well, this, let me start with this, is, you know, I'll just say this: I'm sure glad I'm not out there buying a lot of aircraft right now, okay? High interest rate environment, you know, production issues, which I'm sure our, I know our partners at Boeing and Airbus are going to work to correct. You know, it's a lot of work. You know, fortunately, we went through all of that, you know, prior to the pandemic and even during the pandemic, and we've gotten to a place where our fleet is, you know, the youngest in the business. Yeah, we had because of, you know, quite frankly, delivery delays, we have a little bit of a lull in terms of capital spending this year, but we're taking deliveries.
As we take a look out in the future, Devin can comment on this, I think we're going to get to a point where, look, we're going to need 30 to, you know, 40, 30 to 50 aircraft, you know, kind of a year to maintain, you know, our growth plans. You know, in that, it's a very reasonable level of capital spend that we are really interested in getting away from kind of these massive, you know, investments and really spread that out in a smooth way. As you look forward, I think we'll be in that kind of period, and you're going to manage the fleet in a way that allows us to really spread and even out, you know, those aircraft deliveries.
Yeah. Like Robert said, we're thrilled with the fleet we have today, and this CapEx holiday, as you called it, is, like, well earned. We spent well over $30 billion on aircraft CapEx between 2014 and 2020. We brought on 585 airplanes between mainline and regional over that period. This year, total CapEx is $2.3 billion, about a billion and a half of which is aircraft related. Next year, we have a guide out there for approximately three and a half billion dollars of CapEx. As Robert said, that should be, like, the normalized rate. It'll probably be somewhere between $3 billion, maybe it touches something slightly north of $4 billion over time.
You won't see us go from, you know, the level we're at today to some massive number because the fleet's in great shape. We have what's by far the youngest fleet amongst the network carriers. It's a simple fleet. All the airplanes we have in it today are core to the fleet, so it's A320 family, 737 family, and then 777s and 787s. It's a simplified fleet, it's young, it's efficient. At this point, we like the CapEx we have this year. Obviously, we would have liked to have a few more airplanes, but because of delivery delays, we didn't get them. Next year, $3.5 billion feels pretty good, and, you know, we'll be somewhere in that kind of $3 billion-$4 billion or so range of CapEx going forward.
What's the right number of aircraft you should be taking in to maintain your fleet age, given the size you are and your growth aspirations?
Well, we're not managing it for, you know, from a fleet age perspective. We want to have the right aircraft, you know, out there to serve the markets that we want to fly to, and then also meet any kind of growth, you know, requirements. At the same time, you know, we're really flexible. you know, as Devon said, we really like our fleet because, you know, hey, over time, you know, whether it's, you know, taking new deliveries, you know, adding, you know, used aircraft every now and then, or having the capability to, you know, change and ultimately, you know, retire some aircraft, we've got a really flexible fleet.
The other competing source of cash, obviously, the debt reduction and the deleveraging on the balance sheet.
Yeah.
You do have a fairly large set of maturities, if I'm right, coming up in 2024?
Twenty-five.
Twenty-five?
Right.
Could you maybe kind of give us a sense for, you know, how that looks in the next couple of years? You know, how do we manage that how do we either step over that cliff or restructure that cliff if we need to?
I'll start. Devon can fill in the blanks. Look, you know, the 2025 is something that we've been focused on. We actually, you know, earlier this year, you know, made a pretty big paydown on that of... What was it?
We did a refinancing of $1.75 billion, so it pushed out some of that.
Spread that out. You know, for us, look, at the end of the first quarter, we said we had, you know, $14.5 billion of cash on hand. You know, as the business stabilizes and, you know, really, you know, grows in the future, that's, you know, nearly it's more than double the level of cash that we kept on hand to run the business. I think that there's going to be an opportunity to use that, potentially to, you know, further strengthen the balance sheet. As we take a look at, out to 2025, you know, that's where we're going to be focused.
Right now, we don't see anything out there that is of, you know, outsized concern. The reason that I'm really positive on that is because, you know, we said we're going to pull down $15 billion of total debt by the end of 2025. We're 60% of the way through that. I just see us being able to hopefully accelerate from here.
Yeah. Listen, we said, I guess it's almost two years ago, we're going to do a $15 billion debt reduction program. We're 9 billion of the way through it. We've talked about by the end of this year, we'll be $10 billion-$11 billion of the way through that plan. As we get closer to 2025, we'll decide what of that debt stack we'll refinance and what we will pay down. It's nice to have a CapEx profile like we have today. It's great to be producing or expected to produce something close to $3 billion of free cash flow this year. We expect to produce strong free cash flow again next year. If we're able to do that, we're not concerned about meeting our obligations with the 2025 debt stack.
I mean, based on what we see today, I think that's evidently reasonable.
Yep.
As you think about maybe what a downside case looks like, right? I mean, this industry's been through a lot.
Yep.
If we end up in a weaker demand environment, obviously, you got a little bit of weaker oil to cushion that.
Yep.
How do you think about what a downside scenario might look like for American in an event where things actually did unwind? It's, you know, the way most investors look at the industry on a unit basis, you can get some very scary numbers very, very quickly by playing around with those metrics. Like, how do you think about what a reasonable downside case might look like for the year?
David, well, I'll start with this, which is, look, American Airlines is not back to capacity level that we flew in 2019. I'd start there. I said before that, you know, we would be able to profitably deploy more aircraft in our hubs today. You know, we've got, you know, growth over last year that we projected, and that we're, you know, more or less, you know, delivering on. We start from a position of, hey, look, we're not growing anywhere near what other airlines are, and we think that we have a core at the airline that we're planned to, that will be profitable.
We've just gone through, you know, the worst recession, you know, you can imagine, you know, look, we're out here, and we've got a plan that is really positive as we go forward. I have great confidence that no matter what, you know, comes our way, that we'll be able to manage. I think we're better situated than other airlines because we haven't been as aggressive with deploying growth or having to depend on growth to produce a margin. You know, ultimately, you know, we've got both a fleet, a network that I think is going to be, you know, profitable as we go through whatever comes our way.
To that end as well, is I do also think that there, you know, are still constraints in the industry, you know, certainly in the short run. Whether that's from an air-aircraft manufacturer perspective, from a pilot perspective, from an airspace perspective, I think all that, you know, is still working to keep, you know, a little bit of a supply and demand imbalance, you know, more so on the supply side. That's something we're gonna work through over time. You know, in terms of kind of short-term, you know, issues, American's really well prepared. Let's face it, though, you know, as we've seen this summer, and as we take a look, you know, even out further, there are no signs of a slackening of demand.
Okay. I do wanna congratulate you on the performance and the completion factor.
Yeah.
Right? We talked a lot when you took the job a little while back around, you know, that being the focus.
Yeah.
We just gotta block and tackle, block and tackle.
Right.
blocking and tackling, you know, can get you to a certain level of profitability. As you think about, you know, what you want American to kind of be known for, like, where does American fit in the constellation of airlines, right? You've got Delta over there with the Atlanta hub. You've got United.
Sure.
-with a lot of international capacity. What is it about American that is going to be, in a way, differentiated, a source of strength? How do you think about that, what that future vision kind of looks like?
Okay.
it's great to say, "Hey, we're not gonna be the guys with the worst completion factor anymore...
Yeah.
We're gonna run a better airline," and I think you've kind of proven that. I do sometimes get asked the question, like, what is American gonna be when it grows up? Is it gonna be a premium airline? Is it gonna be an international airline? Where does it fit in the constellation of the industry?
Okay. Well, yeah, the airline, the size we are as a global hub and spoke carrier, look, we're gonna have to serve customers that are at the highest level of premium end and also have a product, you know, for those that are, you know, very leisure oriented, and we'll do that. To serve any of those customers, Dave, you have to start with network, okay. On that front, you know, people are gonna know American, that you can look to American to have the best network, the best set of relationships that help you get to where you wanna go in a seamless fashion.
Now, that is something that, you know, I think is probably underappreciated today in that, you know, not only is our domestic network and the places that we fly, and the hubs that we fly and the partnerships that we have, I think that we already have, you know, a pretty winning hand in that. Then add to that, though, that in terms of loyalty programs and in terms of people wanting to be part of, you know, the American Airlines ecosystem, we're gonna have a winning loyalty program and relationships with partners that really help the advantage currency, you know, be something that is rewarding in a way for travel and, you know, also for, you know, being part of, you know, American.
The network, I think you talked a little bit about the Sun Belt hubs.
Right.
-and the strength there. You know, what's different about that than other airlines? What makes that a better place to be an airline than?
Well-
Brand X?
No, no, no, I... Look, I, we have, you know, large operations in, you know, everywhere throughout the country. I'm really proud of, you know, our regional network and the small cities that we can serve that gets into having this broadest network. I think that also to really be that airline that people wanna be a part of, you know, from a loyalty perspective or from a network perspective, you gotta be where they're living, too. You know, you'll see, we all know that, you know, both from a commerce perspective and also from a population perspective. You know, look, Dallas-Fort Worth and the Phoenix area, Miami, you know, Charlotte area.
These are some of the fastest growing parts of the country from a population perspective and from a commerce perspective, and that bodes well for the long run.
Excellent. We're coming at the end of our allotted time. I actually give you a chance to kind of give your message out to investors, what, you know, why American Airlines.
Yeah.
is a good place to put money to work, what's underappreciated about the story. It's kind of a free form, open ending for you.
Yeah.
Have at it.
I'll just say this. Look, I don't think American, and certainly, you know, our stock price reflects all that we've done so far, and I can't blame anybody, you know, for that. You know, look, we've shown that we can be profitable over this past year at a pretty material level. You know, we've proven that we can run a reliable airline, but it hadn't, you know, really made a tremendous impact yet in terms of how, you know, the company's being valued. For that, you know, we just must continue to deliver, and we're set to do that.
For those that, you know, are saying, "Hey, you know, I don't believe the story," you know, just wait. On that front, you know, we're gonna be continuing to really write chapters of the story, but then execute them. As I mentioned, what I'd like to be able to talk to you about at the end of this year, and I'm confident that we will, is that we've run a reliable airline over the summer. That we have, you know, fully negotiated and have a pilot agreement, you know, in place. That we've made additional progress in terms of strengthening our balance sheet. That we really have gotten the airline back on track to deploy assets, you know, at a more fully utilized level.
To add to that, though, I think that, for American, you also have to take a look at the fact that we're poised to take advantage of the footprint that we have in the United States and where we fly and how we connect with our partners. Also, there's opportunity as well with our co-brand partners. As we go forward, you know, we've got this great baseline. We add to it from a commercial perspective, but then the final kicker is that we can be much more efficient overall as a company.
You know, we are just now getting our hands into thinking about what we can do differently in terms of deploying technology, and we look forward to telling you more about that as time comes later this year.
Excellent.
Yeah.
Well, with that, I would like to thank you guys both for joining us on stage. Scott and Ilana from IR, from American as well, thank you for coming out. Thank you all for attending our Fireside Chat here today. We hope you enjoy the rest of our conference. Thank you.