American Airlines Group Inc. (AAL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the American Airlines Presentation for the 2020 JPMorgan Industrials Conference. I'll now turn the conference over to the JPMorgan team for introduction.

Good morning, everybody. Jamie Baker and Mark Streeter. I want to welcome you back. I trust that most of you were on the Delta call this morning. So you heard our prepared remarks for the day, my prepared remarks, which Mark said were a little bit corny. So I'm not inclined to rehash them at this point. Just wanted to express our collective gratitude to Doug Parker and the American team for remaining committed to this event given the somewhat clunky format we've had to adapt to. So let me turn it over to Doug. The slide deck is out at this point. And obviously, Mark and I will be handling Q&A, but feel free to send us some e-mails if there's anything pressing you'd like us to ask management. Doug, over to you.

Thanks, Jamie. I'm sorry, I missed the corny introduction. I wasn't on -- I wasn't with you on the Delta call. I'll get a rehash.

Fair enough.

Thanks, everybody. What's that?

Fair enough. I'll send you the rehash.

Thanks. All right. Look, good morning, everybody. Thanks for this opportunity to talk with you. Obviously, there's a lot going on in our industry at this point in time. So I want to start by addressing the coronavirus situation and its impact on our industry. Look, this is a very fluid situation and an environment in which it's incredibly difficult to forecast future demand. So given this uncertainty, we've suspended our financial guidance for the first quarter and the full year of 2020. Although there is much uncertainty, we're focused on ensuring that American emerges from the current environment in a stronger competitive position than we entered it, and we want to share with you today what we're doing to lead the challenge. Before I get into our slide, though, I want to make an important overview point. And that's this. We have restructured the U.S. airline industry, and our team has built American Airlines to be able to handle situations just like this. As something as significant as this coronavirus occurred any time before 2013, we would've already seen multiple restructuring firms higher, along with a frantic concerted effort from our industry for government assistance. Instead, well, in Washington, D.C. last week, not one CEO asked for government financial relief. Rather, we asked how we can work together with our government to help the United States avoid becoming paralyzed with fear. We'll let them know that our team members are out there ensuring customers are safe and keeping our country moving and that we intend to keep doing just that. Fact is our industry is exponentially more resilient today than it's been in the past. Our earnings base is well higher than any time before 2013, and our balance sheet have dramatically more liquidity and borrowing comp. So the U.S. airline industry will manage through this, and we at American will lead the way. This current crisis is a test of the ability of our restructured industry to withstand the types of shocks that we've never been able to withstand before. I know that American Airlines is positioned to pass that test, and I suspect the rest of the industry is as well. So with that, I will turn to the slides. Again, while it's difficult for us to speculate about near-term demand, so what I'd want to do is focus on facts, facts that we believe will be helpful to investors in assessing future scenarios and facts that are relevant to the statement I just made. Those include what we're seeing with loads and bookings, what we're doing with our schedule in light of the current demand, what we're doing to mitigate costs, our liquidity position and, of course, how we're taking care of our customers and team to ensure their safety. So on the demand side, again, rather than talking about future bookings, we thought, in terms of facts, the easiest way to show you what we're experiencing is to show you load factors by week, by entity versus last year. So that's what the chart lays out. The blue bars, of course, are the 2020 load factors by week, by entity. The red bar is what those were last year. What you see on the chart is through February, our unit revenue -- these loads and our unit revenue performance was on track to guidance, notwithstanding the collapse of demand to Asia and softening demand in Europe due to coronavirus concerns. As the virus has spread to other parts of the world, we did see some softening in the first week of March. We still ran a 77% load factor in the domestic community last week and a 76% load factor in the Mexico, Caribbean and Latin America region. We continue to build load factor, although definitely at a lower rate than previous years. Bookings for close in travel have been the most impacted as businesses canceled conferences and corporate travel edicts, limiting all nonessential travel were issued. To mitigate this drop off, last week, we were able to stimulate demand for further-out travel by relaxing some of our yield management controls. Turning to the capacity changes. We're aggressively adjusting our flight schedule. This morning, we announced additional capacity reductions, which will result in a 10% reduction in our international summer capacity versus our current schedule. That includes a 55% reduction in the Pacific. We also announced a 7.5% reduction in domestic capacity for the month of April versus our current schedule. These reductions are based entirely on customer demand, not safety concerns. And it's also important to note that these capacity reductions assume no slot waivers are in place. We've requested temporary relief from the usage requirement of several slot airports, such as those across Europe, Korea and Japan, so that we can better align capacity with demand and without the risk of losing valuable takeoff and landing spots for the future. We'll continue to review our network and make adjustments as needed, both based on demand and should slot waivers be allowed. Turning to costs. One large mitigating factor in the drop in demand is the drop in fuel costs over the past few weeks. Yesterday's fuel curve with a spot price of $35 per barrel, increasing gradually to $39 a barrel by year-end. With that curve, we would forecast a reduction in our annual fuel cost for 2020 of approximately $3 billion versus our previous guidance in January, and more than $2.8 billion of that comes in the months of March through December. I want to be clear, none of that forecast variances were due to fewer gallons of fuel being consumed due to less flight. This is simply the impact of the change in price per gallon since our January guidance, utilizing the current fuel -- the current forward curve. We're not relying on fuel price and loan, of course. We are aggressively reducing all costs related to capacity reductions. We deferred 6 of our new hire flight attendant classes for the remainder of the summer, and we're looking at pushing out pilot training classes as well. We're also looking at all of our airport costs and airport staffing to ensure we're properly staffed for this environment. Now we do all of this with an eye toward 2021 and with a recognition that we need to be ready when demand returns. We have every intention of flying a robust summer 2021 schedule, and we're confident we'll make the right decision in 2020 to ensure we are ready. In light of this environment, we're also placing the appropriate constraints on any and all discretionary expenses such as management hiring, outside consultant fees, nonoperational training and other such expenditures. And we're reassessing all capital expenditure projects with an eye toward deferring any projects that may be inconsistent with the current environment. Now as we do all this work, we're going to be particularly focused on opportunities and, not just defer costs in the interim, but to identify or accelerate efficiencies that will -- that can reduce our cost structure indefinitely. We have a number of projects on the list for long-term cost initiatives that we've been working on. We've been using this as an opportunity to accelerate many of those throughout the airlines so that we can get to them even sooner than we would have otherwise given that we've now have some excess capacity and resources to do so. Turning to liquidity. American Airlines has more liquidity than any other airline in the world, which is exactly where we want to be in an environment like this and exactly what -- why indeed we've held so much for so long. As of today, we have $7.3 billion in unrestricted cash and investments and undrawn revolver capacity, and that does not include the $500 million we recently raised in the public markets we still have on hand because we plan to use those proceeds to fund our pension plan. So that $7.3 billion is up from the $7 billion with which we entered 2020, and that has happened despite the fact that we used $500 million to retire a senior unsecured note that came due on March 1. On top of that $7.3 billion, we now have $10 billion in unencumbered financeable assets. In recent weeks, as you might imagine, we've been contacted by numerous banks and lenders that are interested in lending against those assets. We'll consider those opportunities as events unfold, but with a focus on short-term or prepayable financings. So it's not to add some long-term debt to address what is a short-term issue. Finally, we've made over $500 million -- we made -- having made our over -- our $500 million redemption on March 1, we now have no significant leverage finance maturities until 2022. In my view, this entire liquidity area is a great example of how we have worked to ensure that America is prepared to handle a shock like this. We own far more liquid assets than other companies our side -- size. We've built up over $10 billion worth of unencumbered assets on top of that liquidity, and we structured an exceptionally comfortable near-term amortization schedule for our existing debt. Lastly, and importantly, as it relates to the coronavirus, we are extremely proud of the American Airlines team and everything they're doing to take care of our customers. While much of our country seems frozen with fear, the American Airlines team is putting on their uniforms every day and coming to work to do what they do so well, connect the world and safely take care of our customers. It's thanks to them and their colleagues at other competitive airlines that our country is still moving, and we are immensely proud of them all. We've taken a series of steps to make sure both our customers and our team members who are working these flights are safe, educated and well cared for. We have a working group who is dedicated solely to this issue. This team of leaders from across the airline works in daily contact with the CDC, with TSA, with U.S. customers and border protection, Department of State, the World Health Organization and other government agencies to ensure we have the most updated information to guide our operation. In addition, we have a 24-by-7 resource desk in our integrated operations center, which acts as a central resource for our teams for any items that may come up either operational or specific to our team members. We also have a strong structured cleaning regimen that has always met or exceeded all CDC safety procedures, and we've taken additional steps to increase safety and peace of mind for both our team and customers, including enhanced cleaning procedures on international flights and aircraft that remain overnight at an airport so that every aircraft receives -- receive enhanced cleaning at least daily. Most of our aircraft are also equipped with high-efficiency particulate air filters that provide a complete air change once every 2 to 4 minutes, which is better than in other forms of transportation and office buildings and similar to the standard for hospitals. We've also made a number of adjustments across the operations that enhance our processes, including provisioning enhanced sanitizer and sanitizing wipes for crew members on international flights, changing how we deliver food in-flight to ensure only the crew is safely handling, allowing team members in the air and on the ground to use gloves and other safety-enhancing changes. And then lastly, to provide customers additional flexibility in this environment. Last night, we shared that we've waived change fees for tickets purchased prior to March 1 for travel through April 30. So those are my comments as it relates to the coronavirus. And obviously, they're substantial. But it is important in times like this that you all understand that while we are and will manage that near-term volatility, we remain focused on creating long-term value and not losing sight of the fact that we have real opportunities to do so. As we discussed before, those include, in the near term, driving operational excellence, pursuing efficient and profitable growth and generating free cash flow. So I also wanted to take this time to update you on where we are on those. First, on the operational excellence point. Just -- our team is just doing a phenomenal job of running a great operation, particularly considering what we went through this summer. Importantly, since we talked on our first quarter earnings call, we reached a tentative agreement with our mechanic and fleet service team members, which we're very pleased about. Those individuals will now, assuming it's ratified, will now have the contract they deserve that provides them an industry-leading contract. And that's something that we've been working on for a long time, as you know, and that had an impact on our prior operating performance. So -- but what you see on this chart is that for the last 6 months, this chart simply shows the 6 months ended February for each of the years shown. And what we see is for the last 6 months, American Airlines is now running the best operation we have run in our history. We can do even better than this as we go forward, but this isn't a gradual recovery. It's been a dramatic recovery. As you can see from this chart, again, either -- this is a 6-month period. It doesn't show the pain that we went through in the summer of 2019 where these numbers were a little bit worse than this, but I just wanted to show on an apples-to-apples basis, just in the last 6 months, how we compare on metrics such as on-time arrivals and completion factor. Every metric, by the way, looks like this. We're running as good an airlines we've ever run and feel -- and are -- we feel very good about our commitment to operational excellence as we move forward. Turning to pursuing efficient and profitable growth. Again, a reminder to everyone that we have a real opportunity at American that we're excited about. We have gates coming on board at our most profitable hubs, something that airlines don't often have the opportunity to do. We have added gates at DFW in the middle of 2019. We have gates coming on board in Charlotte later this year, and we have additional capacity able to add to D.C. into '20 -- in 2021. So the nice thing about all that capacity growth is, one, that type of growth, adding into our most profitable hubs, comes in at above average revenue per ASM because we simply had more flights into a hub that has so many flights that well, all we're really doing is creating an exponential number of connections, but it's also low cost and efficient. It's low cost and efficient because the growth is going to come through upgauging our fleet. It comes through the cabin standardization that results in us being able to also upgauge our fleet. And because as we produce this kind of operational excellence, that results in higher completion factors. All that growth is very low cost, efficient growth. So we are excited about this growth. And despite everything we just talked about in terms of schedule reductions, this growth will be done. We can talk about that more in response to questions, but we are not compromising the opportunity we have here as we're forced to compromise scheduling in other parts of the world as we go -- move forward. This next chart just shows what we experienced in Dallas as we ramped up Dallas from 2018 to 2019 with some real numbers, as shown, as usual, the charts across the bottom. Our phone capacity increased 9%. We took Dallas up from about 809 -- 800 flights a day to about 900 flights a day. That resulted in a 9% increase in ASMs, but that, of course, isn't -- that's not the real story. A 9% increase in ASMs into DFW, a large hub, resulted in a 21% increase in the number of available routes to consumers because of so many markets we connect those -- that 9% more ASMs to. And that 21%, that additional revenue came on at a 2% higher revenue than our average revenue. So this is powerful stuff, like I say. We're -- we have the year-over-year effect of that in Dallas, helping us at this point in time as well as some additional gains still to be added in Dallas, and we have Charlotte and D.C. to come, as I noted. Another thing we're really excited about is the work the team has done in terms of network enhancements, creating partnerships to allow our customers to fly to parts of the world that we don't cover as well ourselves, 3 large announcements that we've made since the earnings call. A new codeshare agreement with GOL Airways. As our LATAM relationship was terminated, we added this relationship with GOL Airways. I will note that as it relates to -- onto our financials, we had a codeshare in place with LATAM, and we have a codeshare in place with GOL. The -- this actually is a marginally positive financial trade-off for us. Again, we had hoped to get through a joint venture agreement with LATAM, which would have had some more upside on the codeshare versus codeshare just given GOL's network and the lack of overlap they have with us. This codeshare relationship actually results in a better financial situation than we have with LATAM. Also very excited to, not just to expand our relationship with Alaska that have been gradually contracting, and that situation -- as that alliance got to be further and further contracting, both airlines, I think, came to the view that, that didn't feel right. We have a great partnership. There -- we needed to figure out a way -- if there was a better way for us to continue that partnership. And thanks to some creative minds on both sides, we did. And we're really excited about this opportunity as well as I know our partners at Alaska are -- this allows us to again expand our network into places we can't find, allows expansion opportunities for American to places that we never would have been able to serve otherwise such as Seattle to London, and Seattle to India. And then lastly, we -- we've reinstated our codeshare agreement with Qatar, which I know is a big change from the situation that we've been working through over a number of years. But the fact of the matter is all the issues that we have been concerned about as it related to Qatar have been addressed. Thanks to this administration, a couple of years ago, the Qataris and the UAE signed agreements with our administration that Qatar has lived up to, most notably, including a side letter that says they don't intend to fly from outside the Gulf to the United States as well as some transparency agreements as they have done that, again, in the spirit of making sure we're doing everything to take care of our customers and to allow our network to expand even more. We reestablished that partnership. We're pleased to do so. And then others -- on the final point, on the free cash flow point, we -- that's driven largely by what is going to be a significant deceleration in CapEx at American Airlines. We came into this merger with a requirement to invest more than anyone has ever invested in capital expenditures. Some of that related to integration, but most of them are related to modernizing the fleet. We average, from the 2014 to 2019 period, $5.2 billion per year in CapEx. And as you can see from the chart, those numbers will fall off precipitously in the next couple of years and settle into a steady-state level around $3 billion. We expect this to be -- this will allow us to create real cash flow for our shareholders. Much of what we were generating in prior year's earnings was going back into CapEx as we move forward. That should generate real free cash flow certainly versus where we were in the past. And that will also allow us, of course, as we generate that free cash flow, to delever and to pay off debt as it comes due, debt that was largely put on the balance sheet to fund those aircraft that came on board. So look, in conclusion of all this, there's no doubt, the current environment has created a lot of uncertainty, but American is well positioned to manage through it. Indeed, we're excited about managing through it and passing the tests in front of us. We're going to emerge from this in a better competitive position than we entered. That's our goal, and that's what I -- that's where we are committed to make sure it happens because of everything I've talked about, not just the response to this current short-term issue, but because of all that we have that we're working on for the longer term. We're quite confident in our ability to do just that. So what we manage the near term, we're going to remain focused on those 3 key areas of value creation, driving operational excellence, pursuing efficient and profitable growth and generating free cash flow. So that concludes my presentation, Jamie. I am here as well as a number of the team. Since we're doing this remotely, that allows me to have more people with me than I normally do. So hopefully, we can answer any or all of the questions you'd have with subject matter experts. I'll rattle off just around, so you'd know who's here with me and in addition to me and Dan and the IR team, we have Derek Kerr, CFO, of course; we have Elise Eberwein; we have Don Casey, Robert Isom, Vasu Raja, Steve Johnson. So fire away.

That's great. Thank you for the prepared remarks, Doug. One question that we've already fielded this morning simply relates to the capacity cuts, not quite as steep as some of those at your competitors. I'm not suggesting that everybody's responses should be identical. Rather, the question I'm getting is whether there's something structural that potentially makes capacity cuts a little tougher for American to articulate perhaps a different view on the relationship between fixed and variable expenses. Any sort of operational color that you or maybe Robert could add in response to that investor question?

We -- I don't think it's anything like that. So what I think it is, is much more related to scheduling differences. I'll let Vasu answer that for you.

Yes. The first thing, whenever you're looking at all these cuts for us and the industry is comparing to the base. So what you'd noticed in our release is all of our cuts are versus our April selling schedule, right? So 7.5% domestic isn't versus a plan. It's not versus some alternative construct for the year. It -- our actual April schedule is going to be down 7.5% domestically versus what we had before with some pretty material cuts across the system. Also, actually, quite to the contrary of the point of structural changes, what you'll also see from us is we are also extending our scheduled cuts, probably the furthest of maybe anybody globally at this point. Our Asia cuts are not just through the end of April, which is what most people have announced. We've taken our cuts all the way through the end of the IATA summer, 25th October. And so we do see this as a chance to make more -- you see schedule changes a chance to make more meaningful adjustments to the P&L structure of the airline.

And Jamie, just one more thing. I'll also add, and this is just based on what we know. From first -- a first quarter look at what had been scheduled for airlines, American was growing a lot less than the other carriers, a lot less.

As a follow-up on that, and there was a bullet in Doug's presentation about changes that you could be making to the airline with the additional, well, ground time of aircraft. Could you expand a little bit more? I mean you talk about emerging stronger than you went into this crisis. Is that predicated on changes that American intends to make? Or is that simply an observation, which JPMorgan would share, which is that you may very well, we've potentially emerge with fewer competitors in the North Atlantic, for example? So is that an industry comment or a specific American comment?

Yes. That's a specific American comment. By no means does that mean to suggest that we're going to be helped by others going away. What we mean by that, and I'll let Robert and Vasu chime in with more detail, what we mean by that is what we view this as an opportunity to go -- to accelerate some of the opportunities we know existed and we think we can use it for that. And we think others have lesser opportunities in that regard. So we've -- that's what that's meant to describe all the things we've been talking about our ability to -- the initiatives we have in place to close the margin gaps that exist, this gives us an opportunity to do that faster than we would have otherwise is what we're talking about.

So Jamie, let me just add. As we take a look at into the future, we've talked about wanting to simplify our fleet. And we've had a number of programs go underway to reduce the number of different low cost that we have on our fleet, the number of different aircraft types. Right now, this is an opportunity for us to certainly fast forward any projects associated with those measures and also take a look at really where we want to be as we take a look out in the future with our fleet as a whole. You know that we're retiring our 190s, our 767s as well. There may be another fleet type that we can also accelerate the 757s, as I've talked about before and pushed that ahead. When that -- when you're able to make changes like that on a fleet basis, it also has dramatic impacts elsewhere, not just in terms of maintenance programs and engineering costs, but also in terms of simplifying how you route aircraft and how you schedule your crews. And so with that, if there's an opportunity, we intend to pursue it vigorously to make sure that we take advantage of those, and when we come out of this, to have those put in place and be able to benefit from them. So first is fleet. Others are airports as well. As we take a look at these scheduled changes and where we want to let -- I'll let Vasu talk about a future look to scheduling, we have the opportunity as well to make sure that we're as efficient as possible in terms of all of our utilization of ground assets.

Yes. And the only thing I'll add to all of that is just what's unique to American is the strength of both its organic and inorganic partnership network. But though we're seeing these really negative demand trends across the entirety of the system, domestic, international and whatnot, the complexion of those trends across our hubs is very different. The nominal yield and the load factors that we're taking over DFW and Charlotte continue to go and outpace all of our other hubs, and indeed, from what we can tell in early reads of industry that even outpace industry results. So we think this is an opportunity where the big hubs will perform better over the life of things. And then through our partnerships, we'll be able to go and create revenue opportunities that would otherwise not be available to a lot of our competitors, especially in places like the North Atlantic and the West Coast with Alaska and trans-Pacific with JAL.

That's great. I've got a couple of other investor questions, but let me pass the baton to Mark because I know he's got some inquiries first.

Hey, Mark.

Great. Thanks, Jamie. Hey, Doug. So let's talk about some of the cash flow items here. And I know you've got other guys in the room too who can address some of these. But can we talk about the $3.3 billion of CapEx for this year? What's sort of the low-hanging fruit to the extent that you want to conserve some money there? Have you made the phone calls to lose your Seattle yet about aircraft? Or is it still too early for that?

Yes. Let me start, and Derek can chime in if I -- it's not enough detail for you. But as it -- those are equipment -- that CapEx is primarily aircraft. The aircraft are fully financed at this point in time. So -- and as Robert and Vasu just talked about, we think we want those airplanes. To the extent we're going to end up with more airplanes than we want in the future, what we'd rather have is accelerate the retirement of older aircraft, replaced by new aircraft rather than deferring new airplanes. So anyway, we haven't had discussions like that, primarily because it doesn't do much of any help in near-term cash issue. And while those -- while we may emerge from all that with wanting fewer aircraft than we might have thought before this issue, if that's the case, we think the right way to do that for American is to accelerate retirement of older airplanes with new aircraft.

Yes. And I'll just add, the -- it's $1.6 billion in aircraft this year and $800 million next year. So we have $2.4 billion over both years. We have financing behind all of that today. We did not -- we have not changed the financing. Tom and his team have done an incredible job of getting really good financing in these environments. And as Doug said, and Robert talked about, is if we're going to do some accelerated retirement of 76s and maybe other aircraft types, these aircraft we'd like to take. We are keeping around 737NGs because of the delays from Boeing and Airbus that are -- have some expense in them on the engine side of things that we would like to avoid. So we would rather have these aircraft come in. Now on the $1.7 billion in nonaircraft CapEx, a lot of that is the Oasis project that we're trying to -- or the project that we're doing to modify the aircraft, and it's about 1/3 of that. So that we want to keep going. The rest of this, we will look at all CapEx items that are available for the rest of the year. So there might be $100 million to $200 million of CapEx out there that we could look at, but the rest of the stuff we want to continue going. And especially on the aircraft side, we'd actually like to get the manufacturers to deliver. So we're happy with the financing we have, and we don't want to change that as we go forward. And we'll get out older aircraft instead.

Okay. Great. And then just a few more cash flow items here. On the pension requirements, what is the absolute minimum that you have to pay for the remaining of this year? Or how should we think about any sort of required pension requirements?

Our pension requirement for the year was $193 million, but we did go raise -- as Doug said, we raised $500 million in the unsecured market to put into the pensions, which that's what we told the public we would do. So we need to do that. When that happens is something that we need to talk about. But we would just put in the $500 million and the $193 million that was earmarked to go in will not have to go in. So I think from where we're at today, and Doug said on the $7.3 billion liquidity, that doesn't include the $500 million. The $500 million is set aside to go in this quarter, but we'll -- we have the ability to look at that as we move forward.

Yes. We actually have $7.8 billion on hand today, but we're not including that $500 million for that reason.

Okay. Great. And how should we think about credit card partners in here in terms of Citi and Barclays? Is that a source of potential capital to the extent you need to lean on them? I know you're not doing it now, but if things get worse, how much flexibility do you have to sell miles forward?

Yes. Thanks, Mark. You're right. We're not talking to them, but we have great partners who have and are going to be with us for a long, long time, and the partnership is fantastic with both. That, obviously, is in addition to the existing liquidity of $7.3 billion and $10 billion of unencumbered assets. Just to give you some idea of the size, I mean, you probably remiss, Mark, but I'm told that American in -- back in 2008 or '09, the Great Recession wins and basically sold forward miles to Citi to the tune of about $1 billion of cash inflow. The program today is about 3x the size as it was in 2009. So that's certainly -- again, I -- we haven't pursued it at all. So -- and not sure we ever will. But you're right to point out that, that is a source of financing that's been used in the past, and it would be in addition to everything we talked about so far.

Well, yes, actually, we're breaking out the distress playbook here as you can imagine given the market reaction. So that's why we ask. Can we talk about...

Yes. No, no, no. Look, my point, Mark, is we're not breaking out a distress playbook. You're right to think about what might went ahead, but that's not where we are. So anyway, I agree with you that we all need to be prepared for that. But this is so much different than anything. It's so much different than anything you are used to seeing for this business.

Yes. And can we talk about share repurchases and dividends? I think it's the #1 question that Jamie and I are both getting from investors right now. You didn't say anything about share repurchases. What's your approach during the crisis?

We discontinued them.

Okay. To be...

Not because I have a view of the stock price, for God's sake, but it just didn't seem right given all that we're doing elsewhere. So we discontinued the program.

We would agree given the market reaction. And can we just -- final one for me, just to wrap up here, and I'll turn it back over to Jamie. I want to make sure that there's no sort of MAC clauses in any bank agreements or anything like that because you are still a high-yield borrower. Anything that could trip up your ability to draw down lines? And I do want to talk a little bit about the unencumbered assets, the $10 billion, and sort of what the composition is of those.

Okay. I'll start with the first one, and Derek will correct me if I'm wrong. We have -- the revolvers themselves have no MAC, no force majeure or anything that. So we have full ability to drawdown as needed and when needed. The -- I'll use this to sort of talk about all of our covenants in all of our debt. We talked about the $7 billion and I have always talked about $7 billion of liquidity, and I've been very careful to point out to everybody that we -- that's a lot more than this airline needs to run. We hold it exactly for reasons of things like this that we never can foresee that might happen. We don't have any covenants on this airline or debt until that liquidity number is down to $2 billion. So not that we intend to get down to that level, but the $7 billion number is not a target that we think we need to run the company. It's a target that we always wanted to have in place for times like this, but the company doesn't need be close to that, of course, and we don't have any covenant within the organization other than some of our loan facilities -- any of our loan facilities that do have a constrained covenant. That's what it is. It's a $2 billion minimum cash flow. Not a cash flow, of course, $2 billion of minimum liquidity.

Yes. And Mark, on the $10 billion, it's split up with slots, gates and routes still available that are unencumbered, continue to add aircraft into that. And then there's simulators, engines and other things that are unencumbered. So all $10 billion unencumbered and flow is about 70% of items that are either parts, slots and aircraft that are available -- fully available to go financing, I guess.

Free and clear, right?

Free and clear.

Derek, it's Jamie. How much CASM accompanies a 1 point reduction in capacity?

We're -- we've used about 35% is really variable in the short term. So if we cancel this flying in April -- March and April, we'll be able to get about 35% of the cost coming out early. Obviously, that grows as the longer. And as Vasu said, as we cancel into the summer, we should be able to get more of those costs out over the summer time frame.

Yes. And...

And that includes fuel, the fuel benefit?

Correct.

Right. And again, Derek was just talking in the really near term, of course. That's why in some of these -- on the international flying, we've canceled further out. Even though we're not certain that demand won't return further out, we did that so that we can get even more than that out as it relates to those aircraft that are not flying. Anything else?

Got it. Another question from the audience. The CDC issued a warning in regards to cruise ships. Have you contemplated what the impact would be if that happened for airlines? And in that event, any speculation on how the administration might potentially step up to mitigate those effects?

Yes. No, I'm not -- I don't want to speculate on that, Jamie. Certainly, entirely and consistent with what we heard last week, when we were there from the administration I can tell you that and from CDC, which is nothing close to that. So anyway, I'm not going to speculate on what the probability of that is, but certainly nothing close to what we've heard from the administration. Indeed, what we hear from the administration is a desire to keep the country moving and an appreciation of what the airline and its teams are doing to do that and encouragement to keep doing that because of what they view as a short-term issue that will -- that we don't want to let result in longer-term issue because we didn't keep the country moving.

And then last one, you talked in your prepared remarks about price stimulation helping passengers overcome their trepidation. I know the MAX, the 737 MAX isn't the primary discussion right now, unlike for the entirety of the past year. Is the lesson you hear that fear of commercial air travel can be overcome by discounting?

Yes. And I'll keep answering at a high level, and then Don can give you more stats on this. But anyway, we had a very interesting case study here on this point last week. We -- you fully understand that we, airlines, while we match each other's prices at all times, sometimes you'll see different prices because of what we actually allowed to be sold through our inventory management system. So our traditional inventory management systems, for example, would look to the summer and at this time of year and hold back our lowest prices, again, assuming may we sold a few of them. But at some point, we close off -- would start closing off lower-priced buckets in anticipation of more demand coming in the future. And indeed, that's what our systems were doing as they've been programmed to always do because it's the right way to maximize revenue in an airline business. That's really important. Given this environment, though, Don and team had the smart ideas, as always, in this business, it doesn't seem like a normal environment where if we can just release those kind of normal yield management constraints on the off chance that we end up selling too soon, as we call in the business, selling at a lower level in the future, then we end up being able to sell -- that will be a high-class problem because that will mean that demand has respond in the future. So anyway, in doing so, last week in releasing, again, not changing fare levels, but just opening up buckets, we experienced a large increase in bookings from consumers all outside 7-day -- or almost all outside 7 days, there were some actually stimulated inside 7. What it proves, of course, is that the American consumers has demand to fly. Again, you can see that in our current load factors. There's real demand for air travel. You can see it in what that experiment yielded. And as we said, what we're not -- what we are seeing the largest declines in bookings are inside 7, and that is absolutely driven by U.S. corporations putting in place travel advisories and travel restrictions and travel -- and canceling of travel. I mean there's no doubt that's having by far the largest impact on this. So I mean that is what it is. But it also at least would seem to indicate that once we get to the point where corporate America is ready to travel again, that will come back.

That's great. Doug, thank you very much to you and the team there. Good luck with your one-on-ones as the day progresses. And folks listening on the line can drop off, and we'll be kicking off with JetBlue in a couple of minutes. Thanks again, Doug.

All right. Thanks, Jamie. Bye, everybody. See you.

Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.