Thank you everyone for joining us. My name is David Vernon, cover Air Freight, Surface Transportation, U.S. Airlines. We are pleased to have American Airlines with us today. Robert Isom, CEO, Devon May, the CFO, and Neil Russell from Investor Relations are with us today. You guys should know the drill by now. If you have questions you want to get up into the queue here for Pigeonhole, you can do it electronically. I'll try to work those into the conversation. We are delighted to have you back for the conference here. Thank you very much for the support. Anything you want to kick off with in terms of prepare tomorrow or you want to just dig right into the Q&A?
Well, David, I just thank you for having us here. Right. A lot going on in the industry today. I'd just like to start with this. American's set up really well for the future. We kicked off the first quarter and produced year-over-year revenue performance of up 10%-11%. We really felt confident about where the year is headed, especially from a revenue perspective. Look, oil prices, fuel prices are up considerably. First quarter, $400 million. Without that, we would've been profitable. Expected profitability, return to solid profitability for the year. But for fuel prices that we're now estimating up forward of $5 billion for the year, we would've been solidly profitable. What that suggests for us is look, we're doing the right things. Revenue production, we're anticipating revenue for the second quarter to be up 15% year-over-year.
To be in an environment where fuel prices have really spiked that much and still be looking at a year where we can repeat the profitability that we had last year, I feel really good about where we stand because I know that oil prices aren't going to be at these levels for the long term.
Okay. As you think about the state of the business today, against that $4 oil shock, I think coming into this year, we were looking for something in that 250-ish, $3 range-
Yeah.
-for EPS. We're kind of looking flat year-over-year
Right.
-based on your updated guidance. No changes to that, I'm assuming today?
Not making any changes, no.
Well, okay. Just wanted to make sure we're clear on that. As you think about that, kind of pushing the recovery year to 2027, right? Is that the right thing for investors to be doing? Is it the wrong thing for investors to be doing? How do you think about this year being a temporary blip versus something that maybe doesn't recover as quickly if oil does come down?
Again, I'm really confident that the recovery that we put in place is hinged on our revenue performance.
That's been just through dogged determination on pursuing our four pillars. Elevating customer experience, growing our network, driving premium revenue, and then leading in loyalty. All of those are really having impact. If you take a look at the first quarter with revenues up 10-11% year-over-year. We only grew 3%, that suggests 7% unit revenue growth. We're anticipating 15% growth for the second quarter on capacity growth of about 5%. 10% unit revenue growth. That is playing well. For American, I like what I see in terms of how we're doing versus competition. Five out of the last six quarters, American, in terms of unit revenue performance, beating our network peers. What we're doing is working, and you're right. Oil price shock, we're enduring it. We're expecting to repeat the profitability that we had last year.
When that evens out, American is set to really perform. I anticipate that happening.
Okay. When you talked about those four pillars that you stepped into the CEO role and laid out in terms of-
Yeah.
-your multi-year plan, which of those do you think the market is still underwriting the least?
Oh, all of them.
All of them?
Yeah. No, I mean,
Okay, the least.
No, David, what I'll say is American has tremendous upside.
Sure.
The upside comes from, look, we haven't performed that well the last couple of years from a comparative basis for a number of reasons. I feel great that each one of these pillars is addressing something that was potentially considered a weakness. In many cases, taking advantage of investments and initiatives that we've had in place that are just coming to fruition now. You put all these together, and I anticipate that we're going to be back on track with the margin commitments that we made several years ago. Nobody's giving us the credit right now for the potential of returning EBITDA margins into the mid to high teens. Nobody's giving us credit right now for producing pre-tax margins in the high single digits.
That's what's on the horizon for us, and it's because of the work that we've done in each of these strategic pillars that is really taking root. Our customers are responding to it well, and you put the commercial revenue benefits on top of, look, just an ethic at American Airlines of producing really efficient capacity. That means good things into the future.
Okay. As we dig into that a little bit, right, you mentioned these investments that you're making that are just coming into fruition. Maybe across a couple of the pillars, could you kind of dig into the two or three things that you're most proud of?
From a customer experience perspective, let me start there because this is work that has been going on for years. You don't just go out and order new aircraft today and have them show up next week. The 787-9s with the Flagship Suite. Okay. Those were ordered prior to the pandemic. Through a lot of work and a lot of working with our friends at Boeing and seat manufacturers, we finally have the 787-9s delivering. 12th is coming later this year. We have A321XLRs that are delivering, also with Flagship Suite. We're seeing the benefit of our 777-300 reconfigurations with a much richer premium cabin. At the same time, on our narrow bodies, some of our older aircraft are also getting the full benefit of a retrofit, the A319s and the A320s.
On top of that hard product that we're putting out in the marketplace, that is absolutely a driver for premium revenue, we've done the same thing from a facilities perspective. You look at what we've done and what we have coming up from a premium lounge perspective, there's almost an announcement made every few months. From that perspective, we were the first to have premium lounges out in the marketplace, and we're still the leader from that perspective. At the airports as well, whether it's the modernization that's going on in DFW, what's going to happen out in Los Angeles by 2028, a new regional terminal in Miami. Across our network, we're making sure that we have a product that's ready to go.
On top of that, some of the softer elements, whether it's new coffee partnership with Lavazza or champagne with Bollinger, all of those things are really appealing to our customers. From a customer experience perspective, absolutely love what we're doing, love what we're headed to. You need to do that because ultimately, to drive premium revenue, really take advantage of the network we have out there, you have to have something that really appeal to customers.
Okay. hard product investments. What else?
Hard product investments. What I'd say as well, in this environment, we have to be reliable. From that standpoint, at American, we've taken a tremendous amount of just history and redesigned our network and our schedule to make sure that we can be as reliable as possible. You've heard the things about the re-banking at DFW.
A 13-bank operation that spreads the operation out, or in Philadelphia with a new seven-bank operation. We've taken a surgical look at how we allocate flight times. On top of that, we're putting technology to play anywhere there's an optimization problem that goes along with disruptions. What we're doing is ultimately giving our customers more confidence that when they fly American, they're going to get where they want to go. If there is a disruption, we're going to make sure that they have the tools, they have the knowledge as well, to get where they want to go and back on track. Hard product reliability is really fantastic. Then on top of all that, you've got to be able to go to market.
The market side of things and selling, whether it's redesign of our Basic Economy fares, the buy-up that we're seeing from driving premium revenue, or what we've done in re-pivoting and really changing the way that we serve the Travel Management Companies and manage corporate traffic. All of those things have really performed well, and for us, because they're all coming to the marketplace right now, this is upside. It's upside for American. It's going to drive margins, and ultimately, driving margins is going to allow us to produce free cash flow. Free cash flow allows us to improve the balance sheet. Improving the balance sheet is good for everybody.
Okay. American Airlines just turned 100. Congratulations. Happy birthday. As you frame the next decade, what do you think is your one-sentence definition of what American Airlines is going to be? I've asked you this a couple times.
Yes.
Over the years, as you've been supportive of our conference. What is American Airlines? Where do you want to be in the marketplace? What isn't it relative to the Delta positioning or the United position?
Right. Well, I'm going to start with this. We're a premium global airline with the most comprehensive network in North America. We get more people in the U.S. to where they want to go than anybody else. There's a lot more to the story.
Okay.
Okay? I'm not going to let anybody just say, "Hey, American is a one sentence answer to that." That network that provides the most comprehensive coverage, it also allows us to be the best partner to any of the other airlines that we do business with. We've pioneered the joint businesses with IAG and BA and with JAL and with Qantas. We get people to where they want to go, and if you take a look at our network, it's also where the demographics are moving to. From an economic perspective and from a population perspective, you take a look at where we're at. We're in Florida. We're in Texas. We're in the Carolinas. We're in Arizona. American is in the heart of where real economic activity is happening. On top of that, we still have great presence in places like Chicago and New York and Los Angeles.
A lot that goes into everything, but I want to underscore it all with this. At American, we've never lost sight that we are a business that cares for people on life's journey. I have a great team behind us that serve +600,000 customers a day, and I'm really proud of what they've done and how they're setting us up for the next 10 years.
Okay. Let's dig into a little bit around some topics around demand and consumer health. The consumer signal right now is, at best, mixed. You've got a pretty K-shaped economy where the lower end has got to be feeling the pinch of the pump. The premium end is still continuing to travel, at least based on all the data that we're seeing. As you look through your booking curve, yield mix, what are you seeing across high-end leisure, middle income, basic? Where is the strength? Where is their weakness? Give us a cross-section of your demand outlook right now.
Okay. We're about 80% booked in the second quarter, so I can give you views on that. We're no different than the other network carriers in terms of where our customers come from. We have the same percentage of high earners and the mix throughout the entire population of travelers. What I would tell you is I feel great about demand overall. Okay?
Okay.
No doubt there is a K-shaped aspect to demand right now, but it is clear that no matter what end of the spectrum you're at, people want to travel. People want experiences. People want better service. Yes, top economic earners, in terms of overall growth, are outpacing the growth that you see for mid and lower tier. Okay? They're all up. For us different than last year where, let's face it, supply-demand balance domestically was more difficult. It was a more positive environment for international. Where demand is coming from now it speaks to our strengths. We have a very, very strong and the most comprehensive network in North America. It's centered on our domestic network. We're seeing really strong demand locally that complements what's going on from an international perspective.
Other color that we can give, London Heathrow is doing really, really well, even in comparison to strength around Europe. Asia's doing well centered on Japan. Again, a strength of ours. We see strength across the board and as we talked the other aspects of business, whether it's premium leisure, that's doing incredibly well, corporate travel up 13%, managed corporate 13% year-over-year, and again, strong domestic demand.
Are you seeing any sort of response across the spectrum around buy-ups maybe changing a little bit? I'm sort of interested in this idea that you've got this ability for customers to buy up, and in a worse market, maybe there's also a trade across. Are you seeing some of that as well? Are you seeing potentially corporates saying, "Hey, the first class seat to Europe is way too expensive. Fly Premium Economy.
First off, our Premium Economy and our Business Class product are absolutely the best performing of anything that we sell right now. Premium traffic overall still leads leisure traffic. I feel great about that. From a buy-up perspective, some of the things that we have done, whether it's more at the basic end of things, by quite frankly, giving people a reason to aspire for more and doing it in a way that people find great value, that's working really well. The redesign of our Basic Economy product. What I also say is that we've given people more choice, obviously, through our app, so that if corporate policy says Premium Economy across the Atlantic is all you can get, we've given customers a way that they can easily buy into a Business Class cabin as well. We're seeing great traction from that perspective.
I think technology has really allowed us to put an offering in front of customers that works with their corporate plans, works with their own desires, and across the board, it's absolutely one of the big drivers of American's performance.
Just to give maybe a follow-up on that, as you think about the technology and that in-app buy-up experience, that's something where I know just from my own experience, maybe a couple of years ago, it would seem like you guys were kind of far behind in terms of giving away the upgrades instead of asking to get paid for them. Do you feel like you've closed that gap relative to the peers in the last couple of years?
Absolutely. We've gone through a couple of phases of redesign. Most recently it definitely does a better job of laying out what's available and why there's benefit to potentially paying some more. Customers were getting great feedback, great traction. Whatever the criticisms were for our app in the past, we've certainly closed those gaps, and I really like what I see going forward. It even comes down to things that I think are going to be pretty sticky as we go forward. We have the ability to offer customers now to pre-purchase bags, checked baggage. We offer that at a discount, and customers are availing themselves of that.
We have much better technology in terms of making sure customers know where those bags are along their journey. Anything that we can do to give our customers the ability to see what we have to sell, and then also understand how they can control the process as they work through their travel experience, all that is an opportunity for us.
Okay. Looking at the broader marketplace, again, Spirit's liquidation pulled some capacity out of the domestic market.
Is there anything you've seen in your Basic Economy demand that recognizes that? Or how is that exit having an impact on your business?
Well, you mentioned Basic Economy, but I'd suggest that in a supply and demand environment where there's possibly more capacity than demand last year, this has been a good thing.
For American Airlines, let's face it, we competed with Spirit across the board. We service 70 of the 72 airports that they served. I think we competed on 67 of the markets they served. There's absolutely an impact. Realize this, though, at the time of their liquidation, they're only 1.5% of the marketplace. We saw an immediate blip up in terms of Basic Economy fare purchasing. We saw across the board improvement in all those places that we competed directly. While there may have been a lower end of that that benefited initially, it's evened out. I think one of the things that we have to take into account is that those Spirit customers, when they are able to avail themselves of a product like American, they see the benefit of some of the other offerings that we make.
It's hard to tell. You can't parse out exactly who was a Spirit customer and who wasn't. What we see now is just a return to the spread of demand that we had had before. Nothing really noticeable other than we continue to see strength in those places we competed directly with Spirit. I think that that bodes well for American in the long run.
Okay. I think you guys have mentioned that your recovery from the corporate sales step back-
Yeah.
-that's over with. We don't need to talk about that anymore.
No, I like to talk about it. I think we definitely needed to make a pivot. This TMCs and managed corporate business is a really important place for us to be able to play, especially with the kind of product that we have. Our intent when we adjusted our focus, was to regain the share that we had lost. Fortunately, over the last couple of years, we've been able to do that, but there's upside to it. The upside to it is that the mix of buying in the TMC and corporate channel has changed. There's more premium leisure that buys through those. Again, the reason we're so focused on it is that that channel represents, from a yield basis, probably double what a normal leisure fare would be. We're going to be a strong player in it.
Overall, the volume of passengers prior to the pandemic to where we're at now is still down probably about 20%, but we've made up for that much, much more in terms of.
The volume in managed corporate is still 20% lower than it was pre-pandemic?
Probably about 20% lower.
Okay.
The yields that we've seen on that business more than make up for it. Still really, really strong. For American, the next steps are, whatever share we had, there's much, much more upside. The things that we have been able to do is to get out there with the TMCs, and initially we'd set up some shorter term contracts.
We had to regain some trust.
Sure.
We've done that, fortunately. Now what we're seeing is just incredible demand for American to be out there, and a willingness to negotiate contracts that are longer term in length, that come with, quite frankly, greater share commitments. We're really pleased with it. Now, we're also really smart. We can't get back into a practice of overpaying for that share. We won't do that. It's really a smart thing for us to be a player, a big player. I really like what I see.
Can you help us calibrate that 20% relative to pre-pandemic? Is that consistent with your view of how the market has changed?
Well.
Have you lost share in that corporate channel?
No.
Oh, yeah.
Absolutely not. No. When we speak to regaining our share, it's share.
Yeah.
Okay?
In absolute terms, the market has shifted away.
The interesting thing there, though, is while prior to the pandemic, TMCs and managed corporates, but really it's corporate business versus premium leisure, that would've been more of a 50/50 split. Now, that premium leisure is more like 65%.
Yeah.
Okay. 35%. For us, it again, fits very well with the product that we have out there in the marketplace. It fits very well with how we go to market. That's a trend that I think speaks to the resiliency of premium traffic and our ability to continue to manage yields in a really positive fashion.
Okay. Turning to the $4 billion of incremental fuel that you're paying for.
Right.
Absorbing this year.
Right.
I think if anybody would put $4 billion of incremental revenue into the model, you went way above your $2.50-$3. Can you walk us through where that's coming from? Obviously, part of it is just straight fare hikes.
Right.
Part of that's going to be bags.
Right.
Part of that's going to be you've got more premium seats than you had before, so you've got some mix in there. If you think about that $4 billion, how much of it is due to the better product you have in the marketplace, just the mix change?
Right.
Versus the other components of it. Is there a way to think about that bridge because the question I get asked a lot is, unit revenue's up mid-teens, but when unit revenue goes down mid-teens, you're going to be back in the same place?
Okay. David, on that, I want to start with this, again, it's hard to split it out because I think that they're all leading in loyalty, brings customers back.
Sure.
The new Citi deal is-
Well, you've got the Citi deal that's carving off a piece of it, you've got the product.
The new Citi deal is product drive for premium, r evenue has been something that has been technology-enabled. Our network restoration has been about rebuilding in places like Philadelphia and Chicago, that we had left a little bit untended over the last few years. There's a combination of all that, but I think the important thing to recognize is that if you go look at the first quarter, before the fuel spike had really taken place. We were already looking at really super unit revenue performance. Okay? Even take a look into the second quarter, where look, we're 80% booked and you could slap a percentage on what we see so far in terms of fuel price recovery in the quarter.
Yeah.
Don't forget, a lot of that was booked as we were going through the early stages-
Sure.
-the shock. That first quarter revenue's up 10%, 11%. Second quarter, still on track for up 15%. I'm not saying we keep all of it, okay? I really do think the kind of things that we had done that were already beginning to take root in the first quarter are going to continue through. You're right. Increased bags fees, those are going to be pretty sticky. Let's face it. It's not just fuel that has been a cost pressure, okay?
Labor, everything, yeah.
There's been cost pressure in many other areas. American has done an incredible job of being the most efficient producer of capacity. I'm really pleased that we have labor contracts in place that we're not actively negotiating really anything sizable right now. What you've seen is really stress from on the ULCC business model. You've seen everybody trying to jump into the premium game.
Yeah.
I think the industry as a whole realizes that, look, to make a margin, there has to be something done differently. For us, having made the investment, being a premium global airline, and having so much coming to market, I think we're suited very well to retain quite a bit of what we've seen. That gives me a great confidence that not only would have we delivered what we had anticipated in the first quarter when we started earlier off, but that we would've beaten that. Again, as I look out into 2027 and beyond, I do think American Airlines is a carrier that will be able to produce pre-tax margins in the mid to high single digits and produce EBITDA margins in the mid to high teens. That's what's in our future.
Okay. The $65,000 question here is, though, how much of this fare spike are you going to be able to hold onto?
Right.
If you were going to talk to me or to an investor about, conceptually, what are the building blocks that would allow you to hold onto more of that than somebody else, which then allows you to have that better earnings leverage.
Right.
Obviously, some of it's going to come from the maturation of Citi.
Right.
What are the other Legos in?
We had more to catch up than others.
Yeah.
Okay? Yes, our sales and distribution strategy is going to be a player. Our ability to segment and to drive premium revenues through buy-up is absolutely going to be a portion of that. We're also really making great use of our network. Our network, we've reestablished our presence in Chicago. Philadelphia is really doing very well. Miami, same thing, doing very well. Phoenix is doing very well, complementing our DFW and Charlotte hubs. On top of that, last year, in the wake of 5342 and all the trouble with government shutdowns, DCA was not a fantastic performing hub for us. I've seen the return of all that. That is all here to stay.
I have great confidence of what we saw in that first quarter, where our unit revenue's up 7%, without the impact of fuel-
Sure.
-spike. I have great confidence that what we're seeing in the second quarter, where we anticipate year-over-year revenue growth of 15% on 5% capacity growth, I anticipate that much of that is something that we will retain. Five out of the last six quarters, American has outperformed, in terms of year-over-year performance, our network peers. That's what's in store for American, and it's based on those four pillars.
Do you think the retention level on this is going to be better at American than is going to be industry leading, or no?
Well, I just point to-
Yeah.
-again, first and second quarter.
Okay.
I see that trend continuing.
Spirit's exit is probably the biggest structural change we've seen in a while. You've been in the business for a long time, so I'd love to get your perspective on this. I think as an outside analyst looking in, the growth of supply and Basic Economy just having too many basic seats for sale that seemed kind of evident. When you operating within the business, were you surprised that the ULCC model has come under so much pressure from fare segmentation, or is this something that you had expected was going to be happening? It does seem like this is a permanent kind of change in industry performance.
Well, I think it goes back to the investment we made at American in developing a Basic Economy product and doing it in a way that it could really compete effectively. At the same time, making best use of our network, making really good use of our loyalty initiatives, making great use of just our scale. Today, we find ourselves in a position where customers want to be able to avail themselves of every range of the product. They want a carrier that can get them anywhere that they want to go in the class of service. They want a carrier that has partnerships that allow a great experience as well.
We offer all of that, and what you see from a ULCC perspective is everybody trying to get in the game, and Everybody is trying to manage up to offer a product, but I think it's just so hard. When you think about the network that we have, the lounge network that we have, the product that we have, the partnerships that we have, and still being able to offer a Basic Economy product, I think that that just bodes really well for us. Some other things are out there too, David. Let's face it. Aircraft aren't cheap. Okay? People need to be paid a decent wage. Okay? It's not easy to pick up gates in really desirable places to fly.
Yeah.
Those kind of issues from a cost perspective were eventually going to catch up with the ULCCs. On top of that, in that we can compete, and their customers would rather be flying American Airlines and rather be in our loyalty network, the world's largest. That all bodes well for us. I am not out here declaring ULCCs are dead. What I can say is the advantage that American has is really beneficial as we take a look where the marketplace is headed. I like what I see in terms of demand trends. I think that people will continue to spend on experiences. I think that demographics suggest that our network is in the right place. When you take a look at where people are in terms of their tastes, they want to take care of themselves. All that bodes well for us.
Okay. I guess as you think about from a network perspective, right? You guys had been down the path towards the Northeast Alliance with JetBlue that got unwound. Where do you see opportunities to improve the network?
Sure. Well, first off, we've done some really innovative things over the years. The NEA, which I think was wrongfully struck down, it benefited us. I know it benefited JetBlue. We've been able to do something out on the West Coast with Alaska. American's been really smart about the relationships that we've pursued. It's always been with super quality players. I love oneworld right now. I'm still the Chair of oneworld. Oneworld has enabled us to develop these joint businesses with the premier carriers in the leading business markets around the world. American, while every network, every airline has their strengths and weaknesses, ours I just wouldn't trade for the world. As I mentioned before, we have such strength where economic development is happening, where population is moving within the United States, across the Sun Belt, Phoenix and DFW and Charlotte and Miami. All that bodes really well.
We've got a great position in DCA. What we have in New York, while it may not be as large as others, we have a fantastic relationship through BA that allows us to be able to serve London Heathrow more than anybody else. We have a position in Los Angeles that today is very strong. But as we get to the completion of the Los Angeles construction by 2028, by the Olympics, American will be back again in terms of a gate position that allows us to have a larger footprint than anyone. From a network perspective, everybody has their strengths and weaknesses. But what I see, our relationship with Alaska, American's going to have the largest position in Los Angeles. What we do in Phoenix is fantastic. Miami's going to continue to grow with the new regional terminal that's being built out. DFW will continue to grow.
It'll be the largest single carrier hub in the world over the next three to five years with the construction of Terminal F. Philadelphia is being restored as a fantastic hub to all cities in Europe, especially secondary cities. Our fleet plan matches up really well with that. In New York, we've got a great position in LaGuardia. In JFK, we've done a nice job of making T8 a oneworld terminal, and the new concessions, if you haven't been through there yet, combined with our world-class lounges, it's a great customer experience. I feel great about it. Any places that we sense an opportunity, we've been creative in the past, and we'll do so again.
As you think about the investments you're making right now on the commercial side.
What's got you most excited over the next couple of years? Is it the hard product and the fleet, or is there additional stuff that's in the works, whether it's merchandising through the app or any of the-
Well.
-amenities you're providing on board?
Our vision, again, is premier global airline. With that comes an understanding that every element of our product really needs to hold its own. From that perspective, we've been skating to where the puck is headed for a number of years. I'm just going to start with, I really like where our fleet is. From a hard product perspective, I think that you're going to see more Flagship Suite. You're going to see premium seating growing at twice the rate of main cabin seating. You're going to see nearly a 50% growth of lie-flat seats coming up, which is over the next three years. All that's really exciting because I know that's where customers' tastes are, and it also fits with our ability to sell to customers.
That product in the sky, it has to be matched up with a product on the ground as well. From that perspective, what we're doing with all the local communities in developing airports, I'm super proud of. All that puts us in a position where we can take advantage of work that we've been doing for years. Not only that, but take advantage of it in a way that it doesn't require inordinate future capital spending. For American, we don't have retirements planned over the next five years. We've already baked in the cost of all these airport improvements. What that suggests is we're in the right places, we've got the right product offering. From a commercial perspective, we're going to outperform from a revenue production perspective. Match that up with the most efficient capacity producer in the business. It's upside for our customers.
Well, as you think about.
For our shareholders.
-as you think about some of those investments, whether it's on the commercial side, satellite is in there as well.
Right.
Obviously, that's got a little bit of a cost component to it.
Sure.
I'm sure re-banking DFW wasn't cheap.
Right.
You're adding a little bit of buffer into that capacity. How do you think about the cost drag of that as we come out to the other side, maybe claiming a share of that revenue upside that we've had here? Is that stuff that you would've expected to have been absorbed in normal pricing anyway?
Okay. Just from a product and amenities perspective. Whether it's satellite Wi-Fi, we made a decision years ago that we're going to be the leader in satellite Wi-Fi. We set out not only to deploy satellite Wi-Fi on our narrow body fleet, but to also do that from our regional aircraft perspective. I'm really proud to say that American offers more satellite Wi-Fi connectivity across our network than anyone. That continues, though. We know that we have to be really smart about where we go, and we have to offer a product that customers know and value. That's why I love what we've done with Starlink. I know that Starlink's going to be a great partner. They have a product that's out in the marketplace right now, really doing a nice job.
Given American Airlines, look, there's a lot of desire to associate with solid brands. You can assume that we do really well in terms of how we are able to get those services and price those services. What I tell you just on that alone, it's nothing material, just from a product upgrade. Whatever else we've invested in, we've been smart about it. It's baked into our planning. When it comes to reliability, I just underscore this, that the most efficient way to run an airline is by being as reliable as you possibly can be.
Yeah.
It means that you're retaining more revenue. It means that you're paying less in terms of customer inconvenience and doing things to make up for disappointment. What we've seen so far with the 13 bank is no degradation in revenue performance because I think also customers recognize the value in having a more reliable schedule and are willing to pay for that as well. We haven't seen any type of degradation there. Anything that goes forward, just think of the offsets. Misconnected customers, mishandled baggage, anything in terms of irregular operations recovery, the more that we can do to retain customers, to make sure that our team members aren't disrupted, to make sure that our aircraft are in the right position, it benefits us in the long run.
Okay. As you think about the trajectory for unit cost inflation coming out of this crisis, and if you are going to be a higher service, more-
Right.
-brand experience, is it right to think that there's a little bit more inflation in the business, or is it going to be the same sort of outlook?
Look, we've built our network, again, with no retirements, that any new aircraft deliveries can be put to growth. We're going to be smart about this. As I take a look over the long run from a capital expense, from an operating expense, I really like what we've done. In terms of compensation and benefits, we're already top of the industry. We're set with our fleet. We operate in some airports that really offer great economics in terms of cost per enplanement, underscore a place like Charlotte, for example. The communities that we serve understand that's important for really large connecting complexes. I think that we're going to continue to be the cost leader in terms of efficiency of production of capacity. I think it's something that based on the way that we've built our airline, based on where we'll have to deploy capital, I think it's sustainable.
It's something that we're going to be really attentive to. Let me tell you why I think also that it's grounded in the work that we've done. The reason we're as efficient as we are right now is because we've gone on two years, two phases of re-engineering the business.
That's the way we branded the work that's produced over $1 billion in operating expense savings and produced another $1 billion of working capital that's been freed up. The next stage of that is really putting an AI lens. As we look at re-engineering the business, part 3, it's going to be with that mindset. Whether it's offering our customers a better product, giving them more control, or helping us optimize how we do work, I think that there's tremendous opportunity to use that same process that we've put the company through the last couple of years, to execute and to deliver even more.
If we think about the balance sheet and capital allocation going forward, obviously you guys have gotten debt below $35 billion-
Okay.
-on a net basis faster than maybe you'd hoped, or at least on plan. How do you think about the next couple of years in respect to debt? Obviously, we're in a crisis right now. You got a lot of operating resource drag. Is there a potential that you might have to lean into some of those unencumbered assets to get through this current fuel crisis? As you get to the other side of that, when you get to a better rating, what should investors be expecting from a cash flow and capital return perspective?
Okay. Well, I think you can tell from what we've done over the last few years. You take a step back at the height of the pandemic, $54 billion of total debt. It's a remarkable story to be able to say that today, with $35 billion total debt and that expectation to end the year that way. It's a remarkable story to tell that we've been able to bring down debt that much. It's a tribute to our team. Earnings have not been fantastic the last year or so, and we've done that through being smart about how we spend, being really determined in terms of being efficient. Our focus going forward is continuing to whittle that down even further. It feels great we're the best total debt level that we've had in over a decade, but we're not stopping there.
When we get to those pre-tax margins of mid to high single digits, you can bet that margin performance is going to result in real free cash flow. Real free cash flow that I think will be different than others in the industry because we have the youngest fleet, because we've made the investments in our fleet, and because even with the reconfigurations that we're doing and the deliveries that we have, we don't have retirements over the next five years. Our ability to actually grow from this base that we're at right now, we can certainly match where demand is, and we'll be smart about how we deploy it. Ultimately, that means American is going to continue to improve our leverage story. We have a BB- flat target that is something I think that we will hit over the next few years.
That puts us in a really great spot, and then we'll have to talk about what happens beyond that.
Okay. We're coming up to the end here. I usually like to give you a chance to make the bull case.
Yeah.
Tell an investor who's maybe looking at the industry today why American is the right place to allocate that incremental dollar of investment.
There's more upside at American than any other carrier. We've weathered a tremendous amount of challenges over the last few years. I love where the demand environment is today. Really encouraged by what I see from a domestic perspective. American is focused on our four pillars. Those four pillars of elevating customer experience, really taking advantage of our network and the growth that remains, and looking at that network as being the most comprehensive, the best positioned of any carrier. It puts us in a really enviable position. We're able to match up that customer experience and net network with a drive to premium revenue, having a hard product that is really well configured for segmentation for our customers. We're bringing technology to use, wrapping that all into the industry's leading loyalty program. Everybody wants an AAdvantage mile.
They know that they're going to get more for it. The ecosystem has only been improved by what we've done with the launch of the Citi deal, which we're seeing acquisitions and spend hit the targets that we had established. We're off to a really fast start. Ultimately, that's going to lead to margin improvement. It's going to lead to free cash flow production, leverage reduction, and an investor story that, especially as this fuel spike evens out, it plays well for American. I'd just like to thank not only our customers, but also our team members. We've got a fantastic group of 130,000 team members that are out there every day. We're set up better this summer than we have ever been.
We're going to have difficulties with weather and whatnot, but I can guarantee you this, that our team members are set on getting people to where they want to go, find value in what they pay us, and really do a nice job for our customers. David, thank you for having me out here.
Thanks for joining us, and thank you for supporting the conference.
Thank you.
Enjoy the rest of your day.