On Tuesday, 11 March 2025, United Airlines (NASDAQ: UAL) presented at the J.P. Morgan Industrials Conference 2025, addressing both the challenges and opportunities facing the airline. United Airlines highlighted its focus on international and premium segments amid short-term demand weaknesses, while also emphasizing strategic aircraft retirements to manage costs.
Key Takeaways
- United Airlines is retiring 21 aircraft to reduce costs and improve cash flow.
- American Airlines is recovering from disruptions but maintains a strong balance sheet and aims for long-term growth.
- Both airlines are focused on enhancing loyalty programs and customer experience.
- United Airlines expects modest supply changes in the short term but significant adjustments post-summer.
- American Airlines plans to reduce its total debt by an additional $4 billion by 2027.
Financial Results
American Airlines faced a challenging first quarter, with setbacks from a tragic accident and economic uncertainties impacting earnings per share. Despite this, the airline achieved a record $2.2 billion in free cash flow in 2024 and met its $15 billion debt reduction target, setting a new goal to reduce debt by another $4 billion by 2027. United Airlines, meanwhile, noted a 50% drop in government traffic, affecting 4% of its revenue, and anticipates being at the lower end of its guidance range.
Operational Updates
United Airlines is retiring 21 aircraft, linked to reduced Canadian and government market traffic, and is adjusting its yield management to favor leisure bookings. American Airlines is dealing with pilot shortages impacting regional operations, with efforts underway to rebuild hubs in Philadelphia and Chicago.
Future Outlook
United Airlines aims to be the top airline for customer choice in major markets, with expectations of margin surprises even in downturns. American Airlines is focused on margin expansion and profitability in 2025, with limited capital expenditure due to its young fleet.
Q&A Highlights
Scott Kirby of United Airlines discussed the potential for industry consolidation, particularly mentioning JetBlue, and emphasized United’s goal of achieving an investment-grade rating. American Airlines is confident in recovering indirect market share through new sales and distribution strategies.
For a deeper dive into the discussions and strategies outlined, refer to the full transcript below.
Full transcript - J.P. Morgan Industrials Conference 2025:
Jamie, Conference Host: Good morning, everybody. Moving right along. Very excited to turn the stage over to United Airlines next. We’ve got Scott Kirby, the CEO.
And for the sake of people listening in at the table, we also have Andrew Nussella, Mike Leskin and Christina Munoz. I forgot that I wasn’t supposed to wear this blazer today because Scott always tells me that I look like a professor. So from this point forward, you have to address me as captain my captain.
Scott Kirby, CEO, United Airlines: I don’t think that. Yeah. Okay. That was a moot reference. But but mostly what you look is extremely hot to me.
That’s like a thick coat and a sweater, and I’m hot standing up here. Anyway, thank you all for joining us today. This is the one conference that I start every year with. So, Jamie, we go back a long way together. So and this is one of the highlights of the year.
I know everyone in the room is anxious to talk about the short term, especially with all the eight Ks that came out last night. And so
Christina Munoz, United Airlines: Can I give it a quick lead?
Scott Kirby, CEO, United Airlines: Oh, you can.
Christina Munoz, United Airlines: Today’s discussion may contain forward looking statements, which represent United’s current expectations based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our latest earnings release Form 10 ks and 10 q and other reports filed with the SEC by United Airlines for a more thorough description of these factors. We may also discuss United’s financial metrics on a non GAAP basis during this during this discussion. Please refer to the related definitions and reconciliations to the most directly comparable GAAP measures in our latest earnings release and investor update, which are available on the IR section of our website and are filed with the SEC.
Thanks.
Scott Kirby, CEO, United Airlines: All right. Thanks, Christina. So I will talk about the short term given I know it’s on everyone’s mind. But I want to start with the long term because the long term, everything that we’ve said for several years now, the industry and United Airlines are developing much like we expected there is. There’s certainly some short term macroeconomic issues, but that doesn’t change what’s happening, the structural changes that have happened in the industry or what’s happening in the long term.
So nothing that we’ve seen in the short term impacts what we think is going to be happening even a year from now. So I want to start there. And to start talking about the long term, there’s sort of been two ways to think about it. We have talked about an industry thesis and a United Airlines thesis for several years now that had been consistent and all the data points seem to be consistent with that. At an industry level, we thought that cost convergence broadly, all the supply chain issues, all the other FAA challenges, all the things airport costs going up dramatically, all of those things were going to drive what is effectively a supply response in the industry that more and more markets, particularly for low cost carriers, were going to become uneconomic.
They wouldn’t be able to be profitable. And that was going to drive supply out of the low end in particular of the industry. That is exactly what has happened. That is continuing to happen. I think that the near term economic pressures likely accelerate that.
I think you’ll see another really sizable drop in capacity as we move past the summer peak. So the August, you’ll see that same thing happen again for the exact same reason that we’ve been describing for years. So that industry thesis remains intact. I think that’s a lot of what the stocks moved on last year. That industry thesis remains firmly on track regardless of what is happening in the short term.
At United, I have described what is happening to United and our movement to the industry leadership position in terms of margins and with the customers as structural, permanent and irreversible. And what I mean by that is really two things. We have two things going for us that are hard to replicate if you don’t already have them. Number one is revenue diversity. We have international, we have domestic, we have cracked the code on the price sensitive customer with basic economy and higher yield.
We have cracked the code with the domestic Road Warriors, elimination of bag fees. There was another big change today that helps us, it’s going to help that airline more, but helps with that. And the premium we’ve always been good at and we have gotten better at. You add loyalty to that, and we have a diverse revenue stream that even when there’s weakness in some part of the business, as there is now, the other parts can at least cover for much of that. The second, and I think in some ways more important element is winning brand loyal customers.
And I’m going to start this. If you’re you need to think about why customers choose an airline. And broadly speaking, I think there’s two ways they choose. There’s a large set of customers who typically are infrequent, don’t travel a lot, they choose an airline based on schedule and price. That’s what we talk about in the industry a lot, schedule and price.
They’re much more commoditized customers. And there’s a large segment of the important to us. There are two we can’t ignore it. That’s what Basic Economy, in particular, has done for us. And we’ve gotten to a point where we win we’re going to win our fair share of brand of those price sensitive customers.
But the real game in airlines is to win brand loyal customers. What I mean by brand loyal, these are people that fly a lot. They’re typically not out price shopping on every flight. What do those customers care about? Well, first, they do care about schedule and price.
The price is generally on a large level the same on average, it’s the same at all the big airlines. So we kind of almost put that aside. They care about the schedule. So if you’re a brand loyal customer, you’re going to fly a lot, you live in Dallas, you may like or dislike things about American Airlines, but you’re going to be American Airlines brand loyal customer. If you live in Atlanta, you’re going to be Delta.
That typically is number one. But in all those competitive markets and most of the country is competitive, whether you’re in Chicago or New York or Los Angeles or Nashville or Grand Rapids, all of the other parts of the country that aren’t people that don’t live in those big hubs are up for grabs for brand loyal customers. What do those customers care about? Well, the schedule matters, but the schedule in most of those cases is equal between one or two airlines. So then their choice comes down to whose frequent flyer program do I like, whose club programs do I like, whose service do I like better, whose airplanes do I like better, I want to be on an airplane that has seatback entertainment, do I care about the Wi Fi.
All of those things go into the mix. And the important point about those those customers is that they are sticky. Once they decide to switch to an airline, they tend to stay there for decades or beyond. They get the credit card, they tend to stay. And the best example or a good example at least that I can use for brand loyal customers, two of the markets where we won well into double digit market share are Denver and Chicago.
And it’s not a knock on those airlines. United has done a lot of things to just win brand loyal share. But those also are two markets where we’ve had over 100% growth in credit cards from 2019 to today to last year. In five years, both well over 100% growth in credit card sign ups because as customers switch to us, they get the credit card, they’re sticky. The point of all that is those customers are sticky.
Those customers are typically choosing the best airline in any given market. If you live in Denver, you’re trying to choose the best airline. And And if you’re second place, you don’t get a fair share, you get dramatically less traffic if you’re second place. And so trying to be the number one airline for customer choice in each of the big markets we fly has been our strategy for brand loyalty. And I have lots of micro data kind of market by market where we’ve done that.
It’s the reason that Andrew talked about in our last earnings call that the difference between our most profitable and our least profitable hub is always six points. We are the only airline in the country that is even close to true that that all of our hubs are profitable. And it’s because we’ve won brand loyal customers. And so all of that, those industry trends and The United trends remain firmly in track. Now in the near term, we had the same newspapers, read the eight Ks this morning, there’s certainly we have also seen weakness in the demand at market.
It started with government. Government is 2% of our business. Government adjacent, all the other consultants and contracts that go along with it, probably another 2% to 3%. That’s running down about 50% right now, so a pretty material impact in the short term. I’ll talk about what we can do about that in the medium term.
And we’ve seen some bleed over to that into the domestic leisure market. Good news is that international, long haul, Hawaii, premium all remain really strong. We have seen government and some low end consumer leisure weakness, which also appears consistent to me with a lot of other data that I look at. We’ve had a fuel price benefit from that, but and our internal costs are also better. You put all that together, and we now expect to be at the low end of our guidance range.
We didn’t put in a payout, but we expect to be at the low end of our guidance range. So what do we do in response to that? At United, we looked at that and said what we’re doing, one of the things that we’re doing is we’ve early retiring 21 aircraft. That’s something that will be cash positive this year. We’d have to spend $100,000,000 on engine overhauls this year alone for those airplanes.
It will be CASM positive. Those are our most expensive aircraft. We built a plan. We told all of you, we built a plan with optionality and flexibility that if we see short term headwinds, we can make short term responses. And that 21 aircraft, by the way, sort of correlates with what we’ve seen from the government.
We’ve already started the process of where that capacity is coming out, a lot of it transborder, big drop in Canadian traffic to go into The U. S. So it’s going to come out in government markets where we’re seeing less demand. And we’re also going to cancel Redeye flying. Utilization flying is generally unprofitable at airlines even in good times, and it’s really unprofitable in bad times.
So we’re taking those proactive steps. Further, particularly with the government traffic, there’s a short term yield management effect. We see that kind of drop off effectively the yield management seat is in management system is saving seats for those customers. By the time we’re into April, we’re not doing that anymore. We’ve adjusted the yield management system.
We’re taking more leisure bookings instead of government bookings. So much of that kind of 45% or that 50% drop in government gets corrected by the capacity changes and by removing by the old management system. So that’s what United is doing. From an industry level, I expect that you’re going to see probably modest supply changes in the very near term. As we go through the summer, hope springs eternal and it is the summer peak.
So I don’t think you’ll see huge changes. But I think by the time we get to August next year, just like we got to August of last year, there’s going to be a huge every analyst is going to be writing about the capacity cuts and the supply changes. And it’s just economics. Like I said on the last call that airlines were moving to their markets where they have a comparative advantage. One of the big trends that’s happening is there are play I do the P and Ls for every airline for every route.
I know them. I probably know them better than some of the other airline CEOs. But where you see people cutting is the places that they’ve lost money, where they have a comparative disadvantage. You cannot be the number two brand loyal choice with customers in a market NCC. It’s not possible.
And so the industry is evolving to a place where people focus on their comparative advantage, where they focus on the markets, where they have the number one position with customer choice and moving away from others. And all of that, I think, is good. I think the short term turbulence is going to do the only thing it’s going to do is accelerate the endpoint. We’re going to end at the same endpoint from an industry supply perspective, but we’re going to accelerate that endpoint as we go through what looks like a tougher economic time ahead. So we feel really good at United about where we are.
We feel good about our ability to manage even through a downturn if it happens, having, I think, margins that are going to surprise to the upside even if there is a downturn and what all this means for the future outlook. So thanks, Jamie. Thank you guys for having us and Mark as well. And with that, open up to comments, questions.
Jamie, Conference Host: So, Scott, I think it was like three quarters ago that you really started deleting into the permanent structural and irreversible. Irreversible became part of the Kirby vernacular. And I don’t disagree with you, but I still, with your help, want to try to push back on that. So for example, is there a scenario where certain carriers could reestablish massive pilot pay differentials that would help some of those airlines like they’ve had in the past? Is there a certain you talk about cost convergence.
Is there any scenario where costs would begin to diverge?
Scott Kirby, CEO, United Airlines: Yes. That’s a fair when I talk about permanent structure and irreversible, I’m more focused on the customer side, the revenue side of the equation, where customer choice isn’t going to change. So you’d have to do something to really change that customer choice. And I think the structural costs labor is one where somebody could perhaps do that. But the structural costs that matter are much bigger than that.
Labor, I didn’t list labor in my list because I mean, airport costs are probably the most important one. You cannot be a low cost carrier and fly to the big three metro areas. You can’t. Like this is one of the fundamental things that happened with the low because the air cost is cost too much. Southwest, which is was the greatest airline in the history of global aviation, did more to change it than any airline in history and have immense respect for what they did.
But one of their foundational planks was we don’t fly we fly to cheap airports that are not crowded. And they and by the way, there’s one still one successful low cost ULCC in the world. It’s called it’s Ryanair. And they don’t fly to London Heathrow. And they don’t fly to Charles de Gaulle because those airports are too expensive.
And in The U. S, low cost carriers just wanted to keep growing. And so they plowed into New York and plus the LAX. And it doesn’t you can’t pay $50 in airport cost and charge $70 You cannot do it. The economics don’t work.
And so, look, maybe they’d be better at competing in Akron to Orlando if they had lower labor costs, but they can never compete in the New York Metro Area, in Chicago airports, in Los Angeles, in San Francisco. The airports are just too expensive. The airport costs I see Sean from Dallas. The airport authorities have killed the low cost carrier business model in big cities.
Jamie, Conference Host: So looking out five to ten years, do you think there’ll be more point to point service by some of those carriers?
Scott Kirby, CEO, United Airlines: No. I think five to ten years from now, you’re going to have airlines concentrated in the places where they’re successful. So you’re going to have United, you’re going to have seven hubs like that’s going to have aspirations beyond that, our seven hubs. Six of the seven, by the way, we’re the clear leader now in those hubs. We’ve won lots of market share.
I talked about Denver and Chicago. San Francisco and Newark are second or third and fourth largest increase in credit card sign ups, New York Metro Area and San Francisco San Fran Metro Area. LA is still a toss-up. It’s the only one that’s kind of a toss-up. It’s down to two it used to be four, down to two airlines that are sort of tied for the brand loyal customers.
But our focus is going to be there, for example. And I think other airlines, the other network, the big airlines are going to be focused there. There’s going to be a lot less low cost carrier capacity. I think there’s a niche that works for the low cost carriers of point to point, but the niche doesn’t involve a big city a big high cost airport at one end. And that’s just a smaller niche.
The reality is what happened to the LCC, ULCC business model is they outgrew their total addressable market size in The United States. And that got exacerbated when we all eliminated change fees. That was a huge, huge market share advantage. So in a place like Denver, United had change fees in place, there were a segment of customers that United was the brand loyal airline, the segment of customers. I’m not trying to knock on Southwest.
I see Doxy here. Hi, Tom. But he worked for me for a long time, so he has good training. We got to do well at Southwest. But and Southwest had a but those customers, those domestic road warriors, the biggest advantage that Southwest had over United was no change fees.
For customers that mattered, that was enough to overwhelm our frequent flyer program and first class and clubs and food and all the other stuff. But now that’s a tie. We’re not better, but that’s a tie. And all the other stuff that United wins. And so the brand loyal customers moved, not because Southwest did anything wrong, they didn’t.
But we just took a we just matched their one competitive advantage, and those brand loyal customers have switched. And so it’s just that’s the point about it, it’s sticky. Those customers are sticky. And as other airlines incrementally move closer to us, it’s not going to be enough that they pass us and an airline and a customer decides to switch. They’re just they’re sticky at United.
Jamie, Conference Host: And a couple of years ago, you made the point that you felt that there was room in The U. S. For two premium airlines, which I interpreted as a nod to Delta and maybe a swipe at American. But the question that I’ve gotten is that I mean, is that just something you said at the time? Or do you think that the premium market itself can’t actually support more capacity?
Scott Kirby, CEO, United Airlines: Well, the first time I actually remember saying that was 12/09/2013, which was the day the American Airlines U. S. Airways merger closed. And at the end of a successful day, I got everyone in the room and said there’s only room in the country for two successful premium airlines. We’re going to be it.
Here’s what we’re going to do. We’re going to see back entertainment. We’re going to sort of the same playbook. We’re going to do all this stuff. We’re going to push United out of the Transcom market, then we’re going to push them out of Los Angeles, then we’re going to push them out of Chicago.
I said that on 12/09/2013. So I’ve thought that for a long time. The airlines decided to flip the playbooks, but I still think there’s only room for two. It’s just the size of the market. You just look at the big metro areas like New York is big enough to have two.
It’s really hard to be three in there. It’s hard to have a competitive advantage. Here in New York, Delta is bigger on one side of the river, we’re bigger on the other. We can each kind of be number one, but it’s hard to be the real point is it’s hard to be number two. And you just run out of big cities where you can be number two.
You can be really big in a place that’s not New York or Chicago or Los Angeles, but it’s hard to be kind of global and comprehensive if you can’t be number one in those big cities. And there was always I thought there was always only room for two as you just look at the map. And I still think there’s only room for two.
Unidentified speaker: Couple of questions from me for Andrew. We already spoke with Delta this morning a little bit about their government exposure. Can you talk about your government exposure and specifically IAD in the Washington sort of catchment versus the rest of the network and how that’s been playing out?
Andrew Nussella, United Airlines: Sure. There’s no doubt with Adela Sub we have more exposure than they do. So roughly 2%, a little less than 2% of our revenue, and that’s true for both domestic and international, the level of exposure. And obviously, Dulles has the highest exposure at United. We’ve seen the fall off, as Scott said, of roughly 50%.
It’s more in far out bookings than close in bookings. The close in government bookings continue to be rather normal. It’s the far out stuff that has dissipated quite a bit. So we’ll see where it goes. As we hinted to earlier, our ability to refill the seats as we head into the Easter and spring break time period is much better than in February or March at this point.
So we feel bullish as we go forward that we’ll be able to recoup some of what’s been lost. But it is roughly 4% of our revenue when you take the direct and the indirect impact of what we think the government provides United.
Unidentified speaker: Any observations on other corporate sectors? We spoke with Delta a little bit about they cited aerospace and defense, autos, obviously the A and D has a government relationship. But just when you look at obviously you have a big tech exposure out of the West Coast and so forth, just any observations when you look at corporate travel trends?
Andrew Nussella, United Airlines: I think we’d reiterate what you heard this morning that as we ended the year and started this new year, the trends were incredibly strong and they have dissipated a bit, but they still remain, I think, relatively healthy in the corporate space, excluding the government part of it. So I’m pretty bullish that hopefully we get through this little rough patch and we see that traffic return to that fast pace that was just a few weeks ago when you add it all up. But I generally see similar trends across most of those businesses at this point. There’s nothing to point out that’s worse or better in my opinion.
Unidentified speaker: And a question maybe Andrew for you or for Scott or Mike. When you think about Southwest decision to eliminate bag fees, how do you compare that in terms of the impact on United as change fees or some of the other sort of barriers that have fallen to level the playing field?
Scott Kirby, CEO, United Airlines: I think it will be a really big deal for Southwest. It will be good for everyone else. It will make them more competitive. But it mostly impacted the low end customers. Our customers that have the credit card and the frequent flyer program get free bag fees.
It’s the reason we never worried about matching it. I think it will raise the tide for Southwest across the board. The relative margins will be worse in competitive markets because it will cause some customers at the margins to switch to competing airlines. But it will not be good for that. I think the far bigger thing is like it’s the slaying of a sacred cow.
It’s one of the two big things that gets Southwest back to industry leading margins that and stop flying places that lose money like you should be willing to slay one, you may be willing to slay two, I don’t know. But I view it as a big deal because it’s more it feels more a financially driven results driven airline than it’s ever been before.
Unidentified speaker: And Mike, I want to ask you a question about the balance sheet because under previous regimes at United, right, there was never a goal to be investment grade rated. It was always investment grade metrics and so forth. You’ve changed that up. You have a goal to be an investment grade rated airline. And we haven’t had a chance to discuss in a big forum like this.
And I just want to to ask you why that’s so important?
Mike Leskin, United Airlines: The best balance sheet to get to investment grade, it’s all about playing offense. You need to have strong P and L, you need to have strong margins. Otherwise, what you would have to do the balance sheet would just be exorbitantly expensive to get to investment grade. And so as we’re on this march to double digit margins, we now have that opportunity that I don’t think existed in previous regime at United. The brand loyalty, the resiliency of the business, the predictability of our margin, and along with having relative industry leading margins.
All of that is the foundation for investment grade. And so now we think about what we’re doing with operating cash and what we’re doing with free cash to bring down the balance sheet is at the same time we buy back shares. And we’re on a path right now to get to below two times net debt to EBITDAR. I’m not sure if we need to refine that a little bit lower than that. We’re going to work to see that.
But investment grade is really important for a ton of reasons for this business. The biggest reason is the optionality it creates in times of crisis. And so what we’re seeing in the market right now is the cost of borrowing unsecured is starting to become really tight with the cost of borrowing secured debt. And so as that continues to narrow, you should expect to see us evolve how we finance this business. I do think as we roll into 2026, we’ll be at investment grade metrics.
And we’ll see how long it takes to get from investment grade metrics to an investment grade rating. Just on that point, how does that interplay with the fleet strategy? So you sort of build up sometimes we heard from Delta big unencumbered assets. Historically, there was sort of a move to kind of balance financed aircraft and leased aircraft. How does United think about sort of that leased aspect vis a vis kind of the path to IG?
It’s a great question. The overarching principle is how do we optimize our overall cost of capital, debt and equity capital. And so as we think about mixing lease financing with more traditional WTC financing, it’s about what is the most cost effective at the time. And I think that what you’ll see more and more of is maybe we’ll start to tap into the unsecured market as well. So but it is really about optimizing overall cost of capital.
In the past, it was about minimizing cost of debt in a vacuum. And I want to minimize the cost of equity at the same time. Got it. Thanks.
Jamie, Conference Host: I’ve got one for Mike and then a follow-up for Scott, depending on Mike’s answer. I agree. I think it was the January earnings call last year, and then I asked you about the potential to do something with loyalty, some potential form to monetize maybe a portion of the program. And I remember I asked the question because it was two years prior that there were some Bloomberg articles on that topic. In any event, you really seem to lean into that question at the time.
And the impression that I got in the months after that was that it was something that was being seriously looked at internally. Then the stock started to work. And the impression that I’ve been left with is that any efforts in that regard were kind of pushed to the side. So I guess my first question is, is this a reasonable way to describe history? And is it just kind of a no brain?
I mean, with the stock under so much pressure, does that mean you potentially revisit some of those thoughts?
Mike Leskin, United Airlines: Jamie, you’re an astute observer of this industry. Look, I would say that we’re trying to optimize our balance sheet, optimize our cost of capital. And it was clear to me before I joined United that we had this hidden gem in the loyalty business at United and a couple of other airlines, three or four programs, that’s it. And in the pandemic, we tapped that to raise liquidity at a time of crisis at reasonably attractive rates. But in a time of strength, as the economy is stronger, what does that mean for our equity value?
And we weren’t getting any credit for that. We still aren’t getting sufficient credit for that. But the goal when we think talking about monetizing that loyalty program was about getting respect for our equity multiple. Trading at four times was just simply unjustified. As our multiple went from four to eight times, that didn’t say we stopped the process, but it meant that we could take our time.
Everything is everything all the work is being done. And so to the extent our multiple were to contract for an extended period of time, we would take that book off the shelf without question. Now that’s just part of the story though, because the other part of the story is we’ve got a business within the larger airline business that is high margin and low capital intensity. That should be a higher multiple business. And so we can get credit in the overall business for that.
But that business, we ought to be allocating more and more resources to, both operating expenses and CapEx. And so what you’ve seen is a pretty dramatic shift at United where we’re allocating more of those resources to that business to expand that low margin and that high margin low capital business. And so we’re not quite ready to unveil all of the details of that, but we have supercharged that business. You’re going to see an accelerated growth rate. And over time, you’re going to see additional disclosure, but we want to do it right.
There have been plenty of loyalty programs whether or not they’ve been spun out, where the relationship with the overall airline has been imbalanced and that creates a lot of disruption. So we’re trying to take our time and do it the right way. But make no mistake, I want to end on this, that there’s a ton of value there. And if the market sees that value, then we don’t need to do anything more but disclose. If the market does not see that value, then we have an obligation to shareholders to do something more to create that value.
Jamie, Conference Host: And my follow-up for Scott, you have very sophisticated internal systems for monitoring route profitability. You had your competitors. I assume that you’ve crunched whatever numbers you can on the City American deal and you have good line of sight into Delta Amex economics. You’ve expressed dissatisfaction with your Chase economics in the past. Certainly, some of the stories I’ve heard about you and Jamie Dimon are colorful, but I think that’s all in the past.
How would you describe I mean, are you operating at an economic deficit to where American and Delta currently are with loyalty returns?
Scott Kirby, CEO, United Airlines: I wouldn’t describe it that way that we’re we’ve not expressed dissatisfaction with Chase. We have great relationship. We have a great partnership with Chase. But like all of these deals, they’re sort of competitive in the market. Whoever has done the latest tends to jump to the top by at least a little bit.
And ours is the last ours was signed earlier. So I don’t think there’s anything Pilot contracts. It’s like pilot contracts. When you sign the next one, you jump to the front. And we have a great partnership with Chase at all levels of the company from me and Jamie, I’m seeing him later today, to with Andrew and his team, like all the way down.
We have a really solid partnership, and we know that we win together. And new contracts not up for a few years, but I would not describe it the way you said. I think those are probably a little better than ours, but just because they came after
Unidentified speaker: us. Tell Jamie we said hello. So Scott, you’re the only CEO that may give us a somewhat direct answer to this question, which is
Scott Kirby, CEO, United Airlines: You’re telling me you’re setting a trap and I’m going to walk into it anyway.
Unidentified speaker: I’m trying to egg you up with this question here, okay?
Scott Kirby, CEO, United Airlines: How do you know what it is?
Unidentified speaker: Excluding Spirit and Frontier, will we see or and or do we need more industry consolidation? And does United play a role in it?
Scott Kirby, CEO, United Airlines: I don’t know. I think it’s I probably think it’s less likely than others think. JetBlue is the obvious candidate. Joanna is going to be here later today. So you can ask her what she thinks.
She probably She’s not
Unidentified speaker: going to answer.
Robert Isom, CEO, American Airlines: That’s why we’re just
Scott Kirby, CEO, United Airlines: going to probably control of that decision. It’s possible. But there’s a lot of challenges, like I look at it from United’s perspective. We have a great plant that is working and mergers are so hard. They’re disruptive.
Your technology team spends two years on the sideline just integrating like I bet a lot of you use the United app. I bet you all think it’s the best app in the world in airlines because it is. Like that kind of investment just gets harder to do. We got some super cool stuff coming for customers this year. That stuff just gets harder and harder to do.
And at United, well, when the business based business plan is working, like the hurdle to go do it, we don’t need a deal for sure. The hurdle to go do a deal gets a whole lot higher. That said, at least at United, I would like to have a bigger I’d like to have a presence on the other side of the river at JFK. But man, all the headache, all the brain damage of buying a whole airline to get that, that’s a lot to do. So, yes, really, I think the ball is going to be in JetBlue’s court.
They’re working out a lot of respect for them. They’re working hard. They’re also an airline that focuses on brand loyalty. So from the customer perspective, they have a lot of those sort of core DNA things that are expected there. Also competing with another airline, JFK and Boston that has that too.
So it’s a tough position for it to be in. So it’s sort of their decision on how to sort through that. That’s the only one that I think really is potentially in play one way or another.
Unidentified speaker: Any hope that the change in administration in Washington, besides all the noise that’s out there right now, but leads to some beneficial improvements to United in terms of whether it’s air traffic control, FAA, what you’re hearing from the Department of Transportation?
Scott Kirby, CEO, United Airlines: Well, two things. First, I’m hopeful I think all of us think that there’s opportunity to make the government more efficient. And like I might go about Doge a little differently if I would go about it a little differently if I was running it a little more scalpel, maybe a lot more scalpel approach. But hopefully, the government a more efficient government, even if we pay some short term pain, which we’re going to go through some short term pain for that. Hopefully, we’re better on that in the long term.
But I think without question, the FAA is set up to be to finally fix the FAA. I think there that Secretary Duffy is focused on the I put it out of post yesterday. There’s three things they need to do to fix the FAA, get staffing back up to full staffing, technology and facilities and equipment investment. They’ve just got ancient facilities. They spend 92% of their budget repairing and maintaining existing facilities.
Like there’s no business business is the inverse. It’s literally the inverse. And we fix those three things. They’re not that complicated. They’re relatively they’re not easy, but they’re straightforward to understand.
And I think Secretary Duffy gets it, the administration gets it. I’m up on the I’m headed straight from here to D. C. I’ll see a bunch more people, but I’ve talked to all the people on both sides of the aisle. This is one that’s bipartisan, like Washington, God, it’s hard for me to understand it.
Like everyone agrees and they still don’t do it. But I think this time it’s going to actually I think the FAA, it won’t happen overnight, but I think FAA in a few years is going to be fixed. And that is an absolute upside.
Jamie, Conference Host: And for one more from the room.
Scott Kirby, CEO, United Airlines: The clock is going the wrong way. All right. Thanks, Jamie. Thanks, Mark. Thanks, everybody.
Robert Isom, CEO, American Airlines: Okay. You
Scott Kirby, CEO, United Airlines: Okay. Okay. Okay. Okay.
Unidentified speaker: Okay.
Robert Isom, CEO, American Airlines: Okay.
Unidentified speaker: Okay. Okay.
Robert Isom, CEO, American Airlines: Okay.
Jamie, Conference Host: All right, folks. Moving right along. Happy to turn the stage over now to the third of the big three, which we had presenting in order this morning. Very happy to have Robert and Devin and Gabriel here. I think you’re going to start out with the boilerplate stuff.
But thanks again for making the trip and taking the stage. Appreciate it. Thank you. Yeah.
Gabriel, American Airlines: Yeah. So just before we get started, I just want to make a reminder that today’s presentation contains a number of forward looking statements that represent our expectation of future events. Numerous risks and uncertainties could cause actual results to differ from those projections. Information about some of those risks and uncertainties is included in our SEC filings. In addition, we’ll be discussing a number of non GAAP financial measures.
Definition of these measures are available throughout today’s presentation. With that, I’ll turn it over to our CEO, Robert Isom.
Robert Isom, CEO, American Airlines: Gabriel, thank you, and good morning, everyone. Thanks for making time for us this morning. I’m going to start off with a quick presentation, and then we’ll get into Q and A. Forward looking statements, as we mentioned. And I have to start with this.
I’ve been in the business thirty years and there’s been a lot that’s gone on over those thirty years, but I can tell you that from a leadership perspective, none has been more difficult in this quarter. And it’s certainly been a difficult time for American Airlines in regard to Flight 5,342, the tragic accident that happened at the January. And I want to say a few words about this before moving on to anything else because this has been the primary focus of attention for American certainly since the January. Our efforts have been solely to make sure that we take care of the families of those victims, 70 in total. When you include the the those from the, the helicopter as as well.
And that means mobilizing, you know, just an incredible force of people. We train for this, and you never think you have to put it into action. But we have been we’ve had 200 and more people that have been deployed, through most of February, taking care of all of the victim’s family’s needs, you know, up into in in including, you know, travel and funerals and and any other type type of needs. Those 200 people, have been deployed in Wichita. They’ve been out DCA at our at our care center, and they’ve just done a tremendous job.
I couldn’t be more proud of our team and how we’ve responded. But it’s obviously taken a toll. We now still have some people that are deployed, and are bringing those folks back now that families have returned to their homes. But we’re going to continue focusing on that. One of the things that we’ve done because, you know, go back to nineeleven, you go back to the Colgan Air crash, these events, they stick with us forever.
So we’ve actually set up an office of continuing care and we’ve appointed a vice president that will be in that role of making sure that we care for families in their needs going forward. Now that said, there’s an investigation going on the NTSB, I think later today will issue a preliminary report. I’ve been working almost certainly weekly, if not daily with Chair Hamandy, Head of the NTSB. I want to give a shout out and thanks to them for the good work that they’re doing. We’re being cooperative in any way, shape, possible.
And with Chair Hamandy and also Secretary Duffy, we’re taking this as an opportunity to make sure that we’re doing everything possible to make aviation safe, even safer than it it has been, the safest form of transportation. I’m pleased with the efforts that secretary Duffy has has taken, right off the bat, and I’m confident and hopeful, that there will be some actions taken soon
Scott Kirby, CEO, United Airlines: that will
Robert Isom, CEO, American Airlines: further strengthen strengthen our air traffic control, and certainly prevent incidents like this from happening again. So at the end of this, it is something that has impacted American, I think, more than than anyone. That said, our attention has been making sure that we protect American over the long run and our reputation. I believe that we have done that. And I do not believe that this incident will have a long term impact on the industry or American.
Though that said, it has had a real impact on this first quarter. So I’ll go from there to, the first quarter revenue environment. You’ve heard a lot about this from others. You’re probably not going to hear a lot of new news. Everybody was impacted by the wildfires.
Sunbelt weather, impacted us in some of our big hubs, DFW and Charlotte, and certainly had an inordinate impact on American, I believe, as well. If those were the only two issues, we probably wouldn’t be talking about major adjustments. But when you combine fifty three-forty two with the uncertainty in the economy right now and then certain certainly domestic weakness in March, that’s the primary those are the primary reasons behind our adjustments to revenue. Fifty three-forty two is a big deal, economic uncertainty is a big deal, and we have really seen some weakness in March. So that has led to the guide that we issued earlier today.
And you’ve seen this. Ultimately, it means that we have extended the projected loss for the quarter on an EPS basis. This is disappointing. We had ended the fourth quarter with a lot of momentum coming into this. And it’s something that we’re certainly focused on addressing as we go forward and improving results from here.
And that’s where I’ll go. Again, the quarter is incredibly difficult for American because of 50 two on top of everything else that’s going on in the industry. But for us, no matter the revenue environment, I believe that American is set up very well. And from that perspective, we came into this year with a measured approach to capacity and one that I think was in tune with projected GDP growth. American has had a focus on making sure that we restore our network and I’ll talk a little bit more about that.
But we’ve built ourselves to be nimble and able to adjust to demand environments as they might change. Others have taken some different views in terms of growth, but for us, our growth for this year was estimated to be in the low single digits. And it’s something that I believe that we have the ability to adjust as we go forward. Now, American, I believe has the greatest potential for recovery as we go forward because of some of the actions that we took. Everybody is very well aware of our sales and distribution missteps.
We’re doing very well at recovering. And from that perspective, I feel great. As well, America was probably the slowest to build back our network. We prioritized where we were going to build back. It was in DFW and in Charlotte, our strongest hubs.
But we had probably the largest impact from a regional airline perspective due to pilot shortfall. That meant that we had up until last year, almost 150 aircraft on the ground and before that, I think almost two fifty aircraft. But we are working now to get our Northern Tier hubs rebuilt to back to where they were and that I’m very optimistic about that plus our sales and distribution work to get us back in line with expected performance. On top of that though, we’re set up as well because we’ve paid close attention to our capital outlays. And from a fleet perspective, we’re in really good shape.
We don’t have extraordinary capital requirements coming up. And on top of that, with the debt that we brought through the pandemic, we’ve done an exceptional job of making sure that that is addressable as we go forward. We don’t have debt towers or huge payments that are coming that are of concern. So as we go forward, our focus remains the same. And that is an effort to produce long term free cash flow.
Last year, American produced over $2,000,000,000 of free cash $2,200,000,000 of free cash flow. Record free cash flow a year, feel really good about that. 2025 is expected to be more of the same. That’s allowed us to strengthen our balance sheet with some other actions that we’ve taken. We’re a very different carrier than we were, you know, from debt peaks of total debt of of Devon fifty four billion dollars As we came out of the pandemic, we’ve hit our $15,000,000,000 total debt reduction target and we’ve set a new target and I feel really good about that.
It’s made sure that we’re in a position to take care of American going forward. And ultimately, right now, American is focused on margin expansion, profitability. And so as we look into 2025, how is that, how do we go about that? It starts with building off of what we’re really good at. We run a solid airline.
American Airlines has been second to none over the last couple of years in terms of operating an airline in any conditions, while other carriers have struggled in recovery from some crowd strike and weather issues. Look, we all get hit, but American, I think, has built a reputation to be able to manage through all of those and do it very well. I’m really proud of the team and the work that they do day in and day out, no matter the conditions. From a reengineering the business perspective, Devin, when he took on the CFO role, embarked on a path that was a multi year effort to reduce expense, make sure we’re as efficient as possible, free up working capital. And from that perspective, we’ve taken out almost 500 over $500,000,000 of operating expense, produce $500,000,000 working capital, nearing the business two point zero is in the works.
And we pride ourselves in being the best in the business at managing our costs. So to drive long term margin expansion, we build off of that and it really is delivering on a revenue potential. So we start with getting back from a sales distribution perspective, the indirect share that we had had back in 2023. We’re making great progress on that. As well, there’s opportunities to fine tune our revenue management, make sure that we’re revenue management systems that we’re merchandising effectively.
We have opportunities with our app. All of that is going on right now. That builds a baseline to ensure that we can capitalize on customer experience investments that we’ve been making. And then ultimately, the other points here that you’re well aware of, we’re rebuilding our network. And then the new Citi deal that we inched last year that comes into play in 2026 and we’re well on our path to getting that off to a great start.
So delivering on our revenue potential, this is from our year end earnings report. The progress continues and I’m pleased with what I see. And as we exit as we look to exiting 2025, I anticipate that we will have regained the share that we had lost. That’s important. It’s important right now.
Business has been holding up a little bit better than the domestic and from a high end leisure perspective as well, that’s beneficial to American right now. That’s the game that we that’s a game that we play in as well. From a customer experience perspective, we’ve made great investments over the years and we’ll continue to do so. We have a great international fleet, domestic fleet. We were the first with the Ulta Premium Lounges.
The investments in those will continue with our Philadelphia lounge that is opening up. There’s ways that we can monetize that and that’s the pursuit that we’re looking for. It’s anchored on having a hard product that people want to fly, and you’ll see the investment in aircraft for us coming in terms of growing international capable fleet. But it’s not just that, it’s also having international fleet that has the right mix of premium economy and business class and coach seats as well. And so I really feel great about where we’re headed with the introduction of our flagship suites, New XLRs coming this year, that will first be deployed from a transcom perspective and then ultimately, you know, being able to do some short haul, Europe and South American international overall.
We have the new seven eighty seven-9s that are coming and we’re reconfiguring our seven seventy seven-300ERs, A319s and A320 aircraft that will put more premium seating available on those aircraft as well. That’s all good news. We’re definitely in that market and poised to excel. And then from a network perspective, again, American has built our network based on a number of constraints that we had to get through. First was getting our regional fleet back up in the air, and also addressing our mainline pilots.
And unfortunately, we’ve been able to put in place a contract two years ago now that it’s allowed us to grow where we need to. And what you’ll see is our growth is primarily in 2025 going to be centered on our northern tier hubs, namely Philadelphia and Chicago. I anticipate great things from the growth plans that we put in place in Chicago right now. We see them booking to levels that we expect. And Philadelphia is coming back nicely as well.
It’s important because American was really hamstrung by the fact that we didn’t have a network that was quite capable of delivering to our most premium customers. So I feel good about the growth that we’re putting back in place. I’ve mentioned about the Citi deal, and we’ve talked about this before as this progresses over the next few years and as cash remuneration approaches $10,000,000,000 we anticipate another $1,500,000,000 of earnings to Americans. It’s something that has been a shortfall for us in comparison to other carriers. And I’m really pleased with the start here.
Citi is a fantastic partner and really invested in this effort as well. So I wrap it up with this, that the focus remains the same. From a margin expansion perspective, we’re going to continue to operate with excellence from a reliability perspective. That’s the best, most efficient way to run an airline. We’re reengineering the business.
Others that may be coming to this game, we’ve already started. We’re great at it. We’ve built labor contracts that are fully embedded into our cost projections. We don’t have anything new coming all the way out through 2027. That cost certainty is a real blessing right now.
And from a commercial initiatives perspective, I talked to you about restoring our sales and distribution share, renewing our focus on customer experience and monetizing that, strengthening our network and getting back to having full hub strength, and then enhancing the Advantage program and co brand cards. Ultimately, free cash flow generation, which we talked about record 2024 anticipate more of the same in 2025, limited CapEx exposure. Fortunately, we have the youngest fleet among the majors. We invested up to the pandemic over the prior seven, eight years, almost $30,000,000,000 in aircraft. We don’t have to go through that.
Others have a different path ahead of them. And ultimately, we’ve got a much stronger balance sheet and one that’s capable of weathering any type of storm that might be on the horizon. So I feel great about where American is. It’s a difficult, difficult first quarter for so many reasons. But we’ve got a great team and a path that’s clear and certain.
We’re ready to go and bring this all to light. So with that, I’ve got Devin, Gabriel, and we’ll be interested in any questions you have.
Jamie, Conference Host: I guess I’ll start. We have a shy audience this morning. So when Mark and I do these conferences, the goal isn’t to engage in tit for tat, he said, she said kind of stuff. But you were in the room, You heard what Scott had to say. He is still Scott Kirby, CEO of United for anybody listening.
He is still of the view that the market can support two premium airlines. And the implication is that American is not one of those two. I assume you disagree. Why are you right?
Robert Isom, CEO, American Airlines: So, I’ll just start with this. I I work for I work for Scott and with Scott for a long time. So, you know, I’ve seen him be right on a lot of stuff. He’s a brilliant man. I’ve seen him wrong in a lot of stuff.
And in this case, he’s dead wrong. And, you know, the the reason for that is is Americans been around for a long time. American probably had, you know, a weaker hand going into into the the pandemic. Certainly, we were hamstrung on the way out. We didn’t again, I mentioned that we had 200 aircraft over 200 aircraft that, we couldn’t fly because of regional pilot shortfall.
You know, I love our regional network. It flies incredibly well. We’ve got a great fleet. But by the same token, you have to have pilots to fly. You know what?
We’re back at. You know? Scott says that kind of stuff. I’m sure because he would like nothing better than to not have American as a competitor. He would guarantee he doesn’t like us being a competitor in his backyard in some places.
But to that end, we’re a premium product carrier. We’ve got a great fleet. We’re not dependent on a lot of the issues that Boeing or Airbus has to deal with. Our growth is fairly metered as we look at. We’ve grown in DFW in Charlotte.
We have an incredible position with, you know, Sunbelt position, hub position, enviable relationships. I see Luis Gallego here from IAG. Anyone would love, you know, to have a partner with, you know, Iberia and and and BA in their network of carriers. The same thing holds true across, you know, the Pacific with with with JAL, and and our other partners. American is not going anywhere.
American is recovering. And I can guarantee you that anything that you hear to the contrary is just concerned that we’re actually making a lot of progress.
Unidentified speaker: Robert, can you talk a little bit more about you had the bullet there on DCA and your market share. And can you talk a little bit about performance there in light of everything going on in Washington related to travel? That was also obviously where the accident was. And so the weakness that you’re seeing there, is some of it attributed to the accident? Is most of it attributed to the government, obviously?
And just how should we think about that and how is that playing out?
Robert Isom, CEO, American Airlines: Well, a couple of things. Devin can join me here. So first off, yes, the incident had a big impact on DCA shortly after the accident. DCA is also, you know, a center to a lot of government activity. And, you know, while corporate our our government contracted business for us is only 1.5% of of of our total revenues, there’s associated, you know, impact to that.
And whether it’s, you know, one and a half is just our straight government contracted, but there are government contractors, you know, that have been impacted. And anyone as well in that in in that area, you know, is feeling the, you know, the the concerns of of uncertainty. And so we know that there’s some follow on effect in terms of of of leisure travel associated with that as well. But I’ll note this, that DCA historically has been one of our most profitable hubs. We have an enviable position there.
And over the long run, I’m confident that it will return to its full share of profitability. But realize that it’s actually a fairly small part of our network. Total ASMs is 2%, so about 2%. I’d love to get it back to that profitability level that we had seen. We’ve taken some actions to address capacity.
But over the long run, that’s going to work out really well for us. Government travel has a way of coming back.
Unidentified speaker: So and can we take that and lead us to sort of corporate travel recovery on the network, the Vasu unwind, whatever we want to call it in terms of your attempts from over a year ago now, right, to disintermediate and sort of bringing back the direct booked corporate revenue. You’re recovering, you’re not yet fully recovered. Is the expectation that you will get fully recovered? Have you seen any is there any sort of do you think there’s any reasons for sort of permanent corporate share shift because of the experience that you’ve gone through?
Robert Isom, CEO, American Airlines: The answer to that is no. And the reason is I’ve been out there as much as any anybody else on on our team talking to, you know, CEOs and core corporate buyers and, the travel management companies and to a a person that all say, hey. We’d much rather have, you know, more competition till than than less. And so the door is open. Right?
And you have to come in there with with a compelling offering. And from that perspective, we’ve retooled our sales and and distribution teams. You’ve seen that, we’ve we’ve reorganized on on that front. And I feel great about the progress that they’re making. And the good news on that front is that you can see as you sign new contracts, as there are new commitments that are made, right, those take some time.
So when we talk about what we’re seeing right now, the seeds are planted. I know that we’re gonna harvest in this, you know, later on this year. And as as we talked about, as I I mentioned in my comments, as I take a look at exiting 2025, I think that we’ll be back to full share restoration.
Unidentified speaker: And last one for me, and turn it over to the crowd here hopefully for some questions. Northeast Alliance, there’s obviously some legal activity related to that, that I know you can’t speak to directly. But maybe just bigger picture, can you talk about where you stand with that process? How important is it to do something, whether it’s what the government allows or whether trying to rewrite what the government said was the path to go forward with that. You know, what sort of thoughts can you add for your presence in the Northeast?
Robert Isom, CEO, American Airlines: Well, I’ll I’ll just start with this. The the Northeast Alliance, it it benefited consumers. Plain and simple, it did. And, you know, it’s disappointing that, we, you know, had the the outcomes, from a litigation perspective. Disappointed that we had the, you know, the the judges that were were chosen in those those cases.
I think that, you know, different different courts, you know, probably different different verdicts. But at the end of the day, the reason that we continue to pursue, you know, efforts to is is just simply because I don’t like the precedent. It’s just it’s wrong. It doesn’t benefit anybody. Consumers, you know, had a much better opportunity to get where they wanted to go, at the price they wanted to go with three really strong competitors, in the New York region.
For us, in New York, look, we’ve got a great JFK hub for us from an international perspective. I mentioned again the relationship we have with IAG. We’ve got the premier New York to London franchise, and we’re going to continue to build on that. LaGuardia will be our largest operation since the pandemic this year, and and and we’ve seen some improvement in in business there. All carriers have their strengths, and and others and and all of us have, you know, areas where we need to shore up.
We’re gonna be focused on on the Northeast, and we’re going to make sure that we take care of ourselves. If there are partnership opportunities, we’ll pursue those vigorously. And if not, you’ll see us make sure that we leverage the assets that we have throughout the country and our just enviable domestic position, largest among the network carriers, and especially in those places that are growing the fastest in the country.
Jamie, Conference Host: So the last time I was at your headquarters was fall of last year, so you hadn’t inked the new loyalty contract yet. You were still pitting the two partners off one another presumably. But one of the questions I asked you at the time was that was whether it was a priority to also be able to improve and expand the disclosures of the program. And you kind of shot me down, you’re like economics first, you know, first and foremost. And you’ve certainly given us high level color on the improvements to the contract.
Were there any changes in terms of what you can ultimately disclose going forward that would better allow analysts and investors to actually begin modeling advantage returns. I know Chase still puts a lot of handcuffs on what United could say. So my question is, Citi and American, can you give us more data? Yes.
Devin, CFO, American Airlines: Well, I think we gave a lot when we announced the new agreement in December, probably more disclosure than there’s been, at least in our business, and maybe with any loyalty program. But what we announced in December, when we announced a new agreement is a couple of things. One, we expect this to drive a lot of growth in this part of the business. So we’d be growing by 10% a year for that ten year period. And that’s just remuneration.
What we also disclosed though effectively is the earnings from that remuneration. So for the year ended third quarter of last year, we had about $5,600,000,000 of remuneration. For the full year 2024, we’re a little over $6,000,000,000 that included a bonus in there. But let’s just go off that $5,600,000,000 base. We said we’d grow that by about 10% a year.
And as we approach $10,000,000,000 when you do the math, that puts you around the end of the decade, you’d be at around $10,000,000,000 remuneration. That marginal growth would drive an earnings improvement of about $1,500,000,000 So 33%, thirty five % type margin on that remuneration growth. I don’t know how much more disclosures needed beyond that, but it felt like there was a ton of disclosure at the time, more than anything I think that’s been done in our business, and it gives people a really good feel for just how valuable these programs are.
Unidentified speaker: Devin, we spoke a little bit with Michael Eskinen at United before your presentation about balance sheet strategy and the shift at United from not targeting investment grade to now targeting investment grade. The question I want to ask American about the balance sheet strategy is you set these deleveraging targets, yet if we run the math on your free cash flow, we’ve written about this and talked about a little bit, but there’s still some wiggle room in there for capital return to shareholders. So when you think about the industry environment, how you’re thinking about when is the right time to sort of flip the switch and how are you trying to balance those debt reduction goals? You’re going to have a choice whether to tighten those further or to turn that switch back on and return capital to shareholders. So what’s the debate like internally?
How are you thinking about it?
Devin, CFO, American Airlines: Well, it’s fun to start talking about it again. Like, we have been solely focused on repairing the balance sheet since we came out of COVID. We, in the middle of twenty twenty two, had $54,000,000,000 of total debt. We set a target that by the end of twenty twenty five, we’d reduce total debt by $15,000,000,000 We did that by the end of twenty twenty four. The latest target we put out there is that we would reduce total debt by about another $4,000,000,000 by the end of twenty twenty seven.
We had talked about that at our Investor Day. At that point in time, we said it would be by the end of twenty twenty eight. So we’ve brought that forward by year. But you’re right, if our free cash flow projections are right and we think we’re really well set up to produce really nice free cash given our capital requirements, we should have excess cash to do something else with. And we’ll have that decision to make and it’s something that Robert and I will talk about with our board, just do we want to continue to accelerate the deleveraging or do we want to do something else with that excess cash?
Obviously, first priority is investing back in the business and we think we’ve made the right investments there, but if there are great opportunities there, we’ll continue to do that. But we like the position we’re in. We have the lowest net debt right now that we’ve had probably since, I don’t know, for sure since 2019. By the end of this year, I think we’ll be in the lowest net debt position we’ve had since 2016. So I feel great about the progress, excited to have more of these conversations as to what to do with excess cash.
Unidentified speaker: And one question we didn’t get a chance to talk about with United that I want to ask you because you obviously have aircraft on order from both manufacturers. But with Boeing specifically out of Seattle, for you or Robert, are you reacting favorably to the change of regime there and what you’re hearing out of Seattle? Obviously, you’ve had seven eighty sevens that have been on constant delay. Are you feeling better about Boeing’s ability to deliver airplanes to you on time?
Devin, CFO, American Airlines: Yes. I think we’re seeing progress for sure on the 737s. We gave a range of deliveries this year of 40 to 50 aircraft. That’s really going to be dependent on how many airplanes Boeing can deliver. But I think on the narrow bodies, it feels like they’re making nice progress.
The wide bodies, we’re still waiting on a handful there. So we’d like to see progress there. We’re really excited about the product, as Robert talked about earlier. But yes, I think they’re doing a nice job right now. The wide bodies maybe are a little bit TBD for us.
Unidentified speaker: Given some of the pressure you talked about on the demand environment, would you think at all about accelerating any retirements?
Robert Isom, CEO, American Airlines: We feel really comfortable about the growth we have planned for this year. And I’d leave it at that. We’re building back our northern tier hubs, Philadelphia and Chicago. We were already very measured in our capacity growth for this year, low single digits. I think the question comes in is, what does the economic what economic conditions do we face later in the year and what kind of impact does that have on 2026?
And from that perspective, I’ll let Devin talk. I think we’ve got a tremendous amount of flexibility to do to meet whatever demand needs are out there.
Devin, CFO, American Airlines: Yes. That’s the greatest part about our capacity plan and our fleet plan right now. If we are headed into a softer demand environment, right now we’re growing low single digits. And if we need to pair that back a little bit, that’s pretty easy. It’s not like we’re growing at some multiple of GDP.
As we look out to 2026, we have a fleet that could allow us to grow 5% or 6%. More likely though, we’re going to grow in line with economic growth. And if that continues to come down or if that is showing any signs of weakness, then we can pull back on that growth through some retirement of older airplanes, return of leased aircraft, or we can work on our delivery schedule a little bit. But our fleet has a ton of flexibility to meet really any level of demand.
Robert Isom, CEO, American Airlines: Thanks, everybody. Take care.
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