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

Hi, good afternoon. Welcome back to Bernstein's 36th Annual Strategic Decisions Conference. My name is David Vernon, I am the airlines and transport analyst for Bernstein. We are privileged to have the American Airlines team with us today. Doug Parker, Chairman and CEO; Derek Kerr, CFO; as well as Don Casey and Vasu Raja are joining us today for the Q&A. So Doug is going to start us off with a little bit of prepared remarks kind of coming into it, then we'll kind of go into Q&A. I would like to remind investors participating in the conference that to the left of your screen, you should see a button for something called Pigeonhole. That is a way to go ahead and either promote or demote some of the questions that we have on our Q&A roster as well as to add questions that you might want to have pose to the team. We will go through those to the extent that we can in the hour that we have. I'd also like to ask you to participate in the Procensus survey at the end of the session. That will give you a sense of real-time how other investors are also thinking about American, and will give you a way to level set your thoughts versus other interesting market participants. So with that, I would like to thank Dan Cravens, who's also on the team there for American for setting us up, and American analysts for joining us, and I will hand the mic over to you, Doug.

Great. Thanks, David, and thanks for having us. This conference is always a great event and one that we look forward to. We look forward to doing it next year in person again. But thanks, everybody, for your interest in being here virtually with us. We, I think, like most airlines, just recently announced earnings just a few weeks ago. So not a tremendous amount of change since then, but I just want to briefly touch on what -- how we're responding to this crisis and what we, as the industry, are doing. And we at American are doing to respond to the crisis. It's a challenge bigger than anything we've ever faced, and this virus, obviously, has had an impact on the globe. But probably no industry as much as it is the airline industry. In face of this adversity, we're really proud of what our team is doing. They're doing a phenomenal job of taking care of customers, and we're really proud of what they're doing every day, and will continue to do in the future. In light of this environment, we at American have acted quickly to take care of our team members and our customers and to reduce our costs and to improve our liquidity position. I'll touch briefly on all of those, and then obviously, we'll take any questions you want to have on it. We began by enhancing our cleaning procedures. We now require a mask for our customers and all customer-facing team members. We've also temporarily relaxed our seating policies and adjusted our airport procedures. And then just today announced that we will work to give prenotification to customers to the extent their flights are filling up more than others if that makes them uncomfortable. The net result of all this is making sure that people feel comfortable flying. More and more people are feeling more comfortable each day, but we need to get to a point where all Americans are comfortable flying as they should be. We're confident that what we're doing right now is working. We've seen that with a huge decline in active virus cases within our own team, particularly within our flight attendants. So these measures do work. But we need to get to a point where our customers recognize that as well. We're looking to reduce cost and rightsizing the airline for the current environment. We plan to reduce our 2020 operating and capital expenditures by more than $12 billion versus where they would have been otherwise. Most notably, we've cut our system capacity by approximately 80% in April and May, and 70% in June. And we've then -- we've accelerated the retirement of 4 separate aircraft types, the Embraer 190, the Boeing 757, the Boeing 767, and our Airbus A333-100 aircraft, along with a number of older regional airplanes that's all accelerated retirements, which will make us -- allow us to be much more efficient as we move forward. Since -- that was all announced at the earnings call, since then we've announced -- and that we announced was going to be over 100 aircraft fewer than we anticipated flying in 2021. Since that time, we announced that we're going to take the A330-200s, which are younger aircraft, but we're going to take those 15 aircraft and keep them in storage, certainly for the foreseeable future. So that's another 15 airplanes that we don't expect to be flying next summer as well as certain of our older 737NG aircraft, next generation aircraft. So as we look forward and as the demand environment continues to improve, but doesn't -- certainly don't have any view that it's going to get back to 2019 levels any time in 2021, we're looking to make sure we're right-sized and we'll continue to do so. These take out both operating complexity and they also bring forward cost savings, but also give us some optionality to efficiently bring back aircraft with those 330s and 767s -- 737s, I'm sorry, when demand does return. In addition to that work, we suspended all. We've done a lot of work on all of other costs as we should, suspended nonessential hiring, paused pay increases, reduced executive and board comp, deferred marketing, event and training expenses and implemented voluntary leave and early retirement programs to reduce all of our labor costs. We've taken a collaborative approach with our team and union partners, and we've had great success so far, nearly 40,000 of our team members have opted for an early retirement, a reduced work schedule or a partially paid leave. Importantly, we don't have any large non-aircraft debt maturities for more than 2 years. We had outside of $1 billion, 364 delayed draw term loan facility we arranged just in March. As to capital commitments, we pulled $700 million out of our non-aircraft CapEx plan over the next 2 years, and we're looking a hard look at -- taking a hard look at our aircraft capital, and we'll work with our aircraft partners to only take aircraft with financing in place as we move forward. So look, what we shared on our earnings call still holds true. We continue to expect to -- in the second quarter with approximately $11 billion in liquidity. That includes the assistance that we are receiving through the Payroll Support Program with the CARES Act, as well as an anticipation of receiving $4.75 billion in a loan from the Treasury Department that we are still working on. We're having productive conversations with the Treasury Department, and they've been very nice to work with, so far. So we anticipate we will have that done before the end of the quarter. But with that done, we still expect in the quarter with $11 billion in liquidity, which we think is a sufficient amount of liquidity. And importantly, with a significant amount of unencumbered assets after having done that to allow us to continue to raise more liquidity after. As to cash burn, we announced at the time of the call that our second quarter -- for the second quarter, we expected to average $70 million a day in cash burn for the second quarter, but -- and that we expected that number to decline to approximately $50 million per day by the month of June. We're right on track for all that. That's still our anticipation as of today. On the revenue side, some update from the earnings call over the last couple of weeks, we definitely have seen some improved demand environment. I mean we're really careful when we talk about this because we are still flying only 20% of our schedule. But on that much reduced schedule, we are definitely seeing more demand than we've seen in prior months. The month of April, for example, we flew with a 15%, not 50%, 15% load factor in the month of April. This past Memorial Holiday weekend, we flew with a system load factor of 56%. So we're certainly seeing improved demand on a much reduced schedule. So anyway, when we are flying 20% of our schedule, even at 15% load factors, we're down 90% of our revenue still. So these are early returns, but they are encouraging. This is much better than it was than a few weeks ago, and it looks better as we look out into June. So we recognize we're a long way off from a full recovery, but we certainly believe the worst is behind us and we're on the uptick. We have a lot of difficult work ahead, but our team is fully engaged and focused on getting through this period of uncertainty. We're confident that through the dedication of our team and the actions we've taken, that American will emerge from this crisis in a strong competitive position, and that's what we intend to do. So those are my remarks, David. We're happy to answer any questions you or others may have.

Great. I will probably try to focus the early part of the discussion on sort of survivability, right? And then later in our discussion maybe on what the day after might look like for you guys. But I do think there are some important questions around how flexible the cost structure could be kind of post the second quarter $50 million a day exit burn rate. As you're thinking about sort of looking out to the end of the year, steady improvement in demand, can you give us any added insight into where you might be able to get that burn rate down, assuming not a fast recovery, but a relatively slow recovery?

Derek, do you want to do that?

Yes. I think, David, as we look at it, if there's -- since you don't know what the recovery is going to be or what the revenue is going to be as you look out, we talked about a minimal recovery in April, May and June -- or actually in May and June, to get to that $50 million that we talked about from a June perspective. If we go in, we got a lot of work going on the cost structure. The third quarter, obviously, with the CARES Act, there won't be any -- you won't do anything with the cost structure from a people perspective, right? That's -- everybody will be on from that perspective. So if we just take a no revenue environment and a $50 million cash burn, we can get that into the $45 million, $40 million range just by itself, okay? So that's the way I'm focused on it is to make sure that, from our costs, how can -- where can we get our cost with 0 revenues, right? And how low can I get with 0 revenues? Now there's going to be recovery on that, and in a slow recovery, how much revenue are we going to have in the third and fourth quarter and each month of those in the third and fourth quarters to get us to have that cash burn be in the $10 million to $20 million range, or $20 million range, right? And I do believe from what we see and from what a recovery is and what we think from an ASM perspective, we can get it down to that level in the back half of the year, but that's all dependent on recovery. So the real focus is how do we get our cost down? How do we get them into that level with 0 revenue? And how low can we get it with 0 revenue? And that's what the team is working on and making sure that, that's the process we go through from a cost perspective, to stop everything we don't need to do, slow every bit of CapEx that we have out there, not take any aircraft deliveries that don't have any financing on them so cash doesn't go out the door. And so we're trying to drive that $50 million with no revenue down as low as we can. And you can't get that down to the $20 million because of the fixed costs that we have as a company, but can I get it in the $45 million, $40 million range, that's the goal that we're trying to shoot for to make sure with a no revenue environment, that's where we're at. And then the revenue on top of that is gravy that gets us into the -- lowering that cash burn into the $20 million range or hopefully down even lower than that as the revenue recovery comes back.

And I want to ask this in a way that's respectful because you're managing a down business and having a hard decisions on things like workforce. Is it fair to say that as the CARES Act expires, you guys are working on ways to rightsize that fixed component of the cost that maybe you can't work with under your view of the CARES Act restrictions on deferrals?

Of course, we have to. So you get -- what that number ends up being, none of us knows for certain right now. But what we do know is, until October 1, we are being compensated for all of our teams. So there's -- so as a result, we're required to keep all of our team onboard. That goes away. Those payments go away as of October 1, and we -- then the restriction goes away. We will need to make sure that we rightsize our company accordingly. And we will do that. We're going to work really hard to make sure that we do that in a way that is -- that takes care of our team as best we can. So we're going to try to do that in a way that hopefully, we wouldn't even have to furlough anyone. I know that sounds like a stretch, it's a goal, it's not a commitment to the team, but it's a goal for our team, because -- and given what we've seen in things like the early out and leaves that we've seen already, where we have 40,000 people taking those today, I'm not sure we can't do that. So -- but know this for our investors, we know that we need to get the airline in the right cost structure in line with the capacity, and that means our team as well. So we're going to work to figure out how we do that, and in a way that it gets those costs out -- does -- we're going to try and do it in a way that CARES right here is on the same side, if we can, we'll do it with deferrals.

And David, there's 2 points in time that we're really looking at, right? You have an October point in time that is, we will fly lower capacity than we will next summer. So you got to look at 2 points in time. One is where we're going to be in October? Where we're going to be next summer? And how do we get to that? But we are going to do everything, as Doug said, to get where we need to be in the fall to rightsize it from a management perspective, rightsize it from a worker perspective, to make sure that we get that level where it needs to be in October by doing all the right things. And then how do we build it back up to and be flexible enough for whatever that growth needs to be in 2021 and have a plan for that coming back at that point in time or keeping -- if the demand does not come back, the fact that, that -- you don't bring all those workers back unless you need to. So both of those are being worked on, both of those estimations are being worked on as we work with Vasu's team for a schedule, not only in what the schedule is going to be in the fall, October, November, December, but what's the schedule going to be next summer, that is helped by taking out the aircraft, right? So we've taken out 157 aircraft. We've taken out fleet types, that will really help us from that perspective and tie us into what -- where we're going to be next summer to make sure that we rightsize from a people perspective, the entire organization.

Okay. And then maybe just to talk a little bit about the balance sheet in the context of all this, right? Coming into the crisis, Doug and Derek, you guys had taken a different financing and pull strategy, I think, with many of the other airlines about to in a more levered position. And since the crisis, you guys have taken a fairly different tack towards raising capital where some of your peers may have been quick to the short-term market or to the secured markets even some raising equity, you guys are taking a slightly different tack. Can you talk from your perspective about what makes your situation with the balance sheet and approach to raising liquidity different than maybe peers in the industry? And why you're doing it? Why you're taking the steps that you're taking in terms of prioritizing, for example, the CARES loan over finding a way to add leverage to the unencumbered assets that you do have?

Sure. I'll do that. Again, rather than -- I don't know that I can't contrast it everybody else you asking them why they're doing it -- I can tell you what we're doing and why we think it makes sense. We did it -- first off, I don't think we're that dramatically different in terms of how we all went into this. We -- first off, we did -- we closed an unsecured deal just before all this in -- sometime in February, at 3.75%, a $500 million unsecured deal in February that we've closed on with Derek's good leadership. Then as the virus spread to the United States in March, we, like, I think, most others in the industry wouldn't use the swap gates routes, 364-day delayed draw of $1 billion facility we put in place. So that's the $1 billion that I said we have still amortized. We did that next. And since that time, we have indeed focused our attention on the CARES Act proceeds.

We started at a higher liquidity position.

Yes. Fair enough. And we did -- we ended the year with more liquidity -- or ended the quarter with more liquidity than others because of our higher debt loads, we always carry more cash than others. So as we look to what made sense for American given all that, with the CARES Act, which, again, I think is going to the next most efficient proceeds, first was the PSP banks, of course, which we all avail ourselves of, but that was $5.8 billion for American. So the question then really is, what do you do next? We find ourselves with something in the order of $10 million of unencumbered assets, excluding the value of the AAdvantage program, and a commitment from the Treasury Department to loan us $4.75 billion at LIBOR plus 350. So that seems like the next best place to go with the assets we have and to figure out having done that, do so with a goal of raising that $4.75 billion, and still having significant unencumbered assets left rather than trying to -- anyway, not suggesting the others did something different and they were wrong, but from our perspective, it didn't seem to make sense to go use some of those assets and not have them available to have in the conversation with Treasury, rather the fact that I say, this is the next best opportunity, certainly from an interest rate perspective and in size. So that's where we are. That's going well. Like I said, we expect to close that sometime certainly in June, and having done so, expect to have significant unencumbered assets behind it to go do other things with. So I like what we've done. I'm sure others like what they've done, but I don't think there's anything pretty different about American versus others, it's just sequence.

Okay. I guess as you think about the value of these unencumbered assets and the loan-to-value that you can get, I mean, are you concerned at all that given where your debt is trading in the public markets that you may not be able to get as favorable terms against those unencumbered assets? Or are you optimistic that maybe if you were to go trying to tap into those 6, 9 months from now that the demand environment is a little bit better, and you're just going to get a better deal on whatever debt you do raise?

Yes. Another part of the sequencing -- it's a fair point. I think, our perspective is, whatever the market reception is to those assets, it will be improved once the government loan -- proceeds are in. As much as we have extreme confidence of that $4.75 billion is coming in, there's still -- intel is done, I'm sure there's some question amongst them as to where it is. So we think that confidence will help the debt markets with whatever comes behind.

Okay. The other thing that I wanted to kind of approach head on with you, if we can, if we look at where the credit default markets or look at your debt and the probabilities of default and pretty seems like every the day, there's an article highlighting that American is levered and is going to head to bankruptcy. How do you -- how are you and the team thinking about bankruptcy as a tool to manage this debt crisis? Is this something that is even on the table? Like, what is the market sort of reading into the situation that is not correct from your point of view?

Well, let me start with this. The bankruptcy as a tool thing is what's resonating in my head, look, I've heard people say that. And I'd just tell you this, I've been doing this for a bunch of airlines for a number of years now, whatever it is, 30-something years in the business, 15 years as a CEO, one of the things I'm most proud of is that I've never worked for a bankrupt airline, which anyway, that's in the airline business, that's actually a real accomplishment as you know. So look -- and the reason that is because I don't think people should view bankruptcy as a financial tool. I think it's failure. I think our job is to preserve shareholder value, and that's what we're going to do. That's how -- that's what we've done from the time we've all been working, and that's what we're going to do in this case. We don't look at that as an option. That's failure. So anyway, that's what I think. And when I think about our industry in that regard, by the way, I mean, there's -- I will say this, what's different about this crisis versus some other crises, is that, in the past, we'd find ourselves where it really didn't matter if maybe somebody went away. That would be helpful to the cost, in the less rational business that existed in the '90s and the 2000s, running faster than the other guy for you to call but it barely mattered, because their capacity would go away, and all of a sudden, your revenues go up. That's not the case here. There's no one trying to push anybody else out of business because none of us -- it is a demand problem, not a capacity problem. It's all about demand. We need demand to come back. So at any rate, so that's the one way I would characterize this as different, it's all about demand. But I come back to -- irrespective of what it is, bankruptcy is a failure, we're not going to do that. What I think is going to happen as a result of all this, for what it's worth, is while everybody's -- while some like to play the game of GE who might be in trouble. I don't -- I think we're all going to be fine. I think we're all going to go raise enough liquidity to get ourselves through this wall and to all come out with more debt than we had before and to work on that over time. But I don't think you're going to see any airlines go by the way side as a result of this crisis because, again, it's a demand crisis, and one that will be resolved by all of us doing what we need to survive long enough to have -- until demand returns. What I do think, though, is the effect is going to be as though a large airline went away. I mean I -- what I think you're going to see is in the summer of 2021, the collective U.S. airline business, 10% to 20% smaller than it was in 2019, which is a really big airline. So I think it's a positive. And so anyway, a long way we're saying, we're in this for the long haul. I think we're all going to be in it for the long haul. But don't take that to mean, we're all going to be flying the same number of airplanes, and therefore, we got to figure out a way to have 2021 revenues -- I'm sorry, 2019 revenues in 2021. I think we're all building our airlines in a way that doesn't anticipate having 2019 revenues in 2021.

So I'm sure you guys have been through the gauntlet a little bit at other investor conferences and talking to your shareholders. As you look across the past month or two's worth of engagement that you had with investors, what would you say are the 2 or 3 most overlooked point to the American story that points your ability to survive this crisis?

Okay. I'll give you a short-term and a long-term. In the short-term, I think most definitely, the questions you were just asking, which are perfectly fair, I mean we need to go further, but just the ability of the company to raise liquidity I think is underestimated, but fair enough, we'll go prove it. We do get some investors asking us to whether or not we were actually going to get the $4.75 billion loan, which again, we certainly believe is the case. And then having done so, will you be able to raise financing behind that? We believe that's the case. So again, I'm not asking you to believe that other than just to know that we need to prove that. But that certainly feels that the market's questioning that more than -- and certainly, we believe will be our ability to go raise capital in the future. So that's one big one. The longer-term is a number of things. I guess I could point out there, which just feels like and we can probably do that better through a series of different questions, but what I know is this, the combination -- we're going to come out of this with an airline that is -- that does have a much more rationalized fleet. The fact that we were flying all the aircraft we were flying because we needed them because they were all generating returns, this is allowing us to accelerate a retirement program that's going to nicely make our airline more efficient. That's a big deal. I think we're going to go through it. We all, American included, but I know at American are using this to find ways to get ourselves even more efficient, and we're not going to go add back efficiencies that used to exist. In terms of American ourselves, I think we are -- I know that we are a good -- better built for what it feels like the recovery is going to be, that is more domestic, less international, certainly versus our 2 other larger peers. We have something like 70% of our flying is domestic or short-haul international, that's more than others, and that's -- and that I think any of us would agree that will come back before the long-haul international. All those things come together, and again, things we need to go and prove. But we feel good about the long term. We know we can get to the near term. But as we get to the long term, we feel good about where the airline is going to be positioned, certainly vis-à-vis others, and get ourselves in a position, where even an airline -- even to the extent we have revenues well below 2019 revenues in 2021, we can get the airline in a position where it could be profitable in 2021, even at much lower revenues than we had in 2019.

And then just like 1 or 2 more on the liquidity stuff, and then we start talking about the more, I guess, optimistic or happy part of it when things are [indiscernible].

This is happy.

It's got to be like a trip to the dentist.

No, I'm smiling.

So when you think about the unencumbered assets that you do have, it does look to us like, at a moderate rate of recovery, bridging to next summer, you might actually, post the CARES loan, still need to raise additional capital. Can you talk at all about what kind of loan-to-value you might expect on those assets? And how the AAdvantage program could play in to a potential source of liquidity in the future?

Yes. I'm going to just going to wait on that one, if you don't mind. Because again, we -- that will be much easier to answer once we have the government loan behind us, because -- again, and I don't want to prejudge that process. So -- but I will tell you what we've been saying, and say today with as much confidence as ever, that we are confident that we'll be able to raise the $4.75 billion and still have significant ability to raise capital beyond that. Exactly how much, I know you want to know? We could do that better when we're done with this process, and we know exactly what collateral has been used and what of this still available.

Just one significant digit. That's all.

But I mean, David, just in a couple of numbers, right? I mean we talked about the AAdvantage program, we talked about having over $10 billion, even the 364-day term loan has about $4.4 billion against that one -- against that loan, which you're going to have to repay and it's underutilized. So if you add that $4.4 billion to the $10 billion, you have somewhere between $14 billion to $15 billion of the unencumbered assets to use. And even if you get a 33% loan-to-value on that, that's another $5 billion that you could go out and do against that from that collateral. So there's a significant opportunity to go do those things, and other markets or other people that you touched on before with equity and converts and all those kind of things that if we need to go do that, we can go to those markets, which would have a significant amount there. We haven't -- and the other thing you haven't even touched on -- or what we haven't touched on is talking to our credit card companies, Citi and Barclays and others that are great partners of ours and want to stay great partners of ours, and the ability to work with those guys to do something even add to that possible liquidity pile that we could do after the government loan is done.

And would that be something along the lines of like a presale of miles? Or would you think about a co-investment in that part of the business?

Either one of the two. Could be any of the kind.

Okay. I know you're not going to unveil your strategic plan to me, so I won't keep asking the same question. If we think about the demand sort of recovery story, and Doug, you touched on this a little bit, how do you see the shape of that demand recovery? Domestic versus international business versus leisure? And how might that impact the way the network comes back into existence?

Yes. And I'll let Vasu and Don chime in after this, but I'll just give you a couple of data points. I told you about the load factors being up first this April. The other thing -- well, anyway, the short answer is, it's leisure right now. We believe leisure is coming back sooner. But we need -- and what will make the difference when the business starts to come back, but I can also give you some data on that, which is encouraging on the trend, discouraging on the absolute numbers, but encouraging on the trend. So we survey our -- a large number of our corporate clients on a regular basis. They've agreed to participate in a survey, so we can see where trends are going. Seven weeks ago, the number of those clients who said they had no restrictions on travel for their team was 8%. Today, it's -- or last week, so 6 weeks later, it's 18%. So that number -- the number of unrestricted -- companies with no restrictions on their team has more than doubled. The more depressing number is the number of companies who ban travel for their team. That number was 66%, 7 weeks ago, which is, like you say, the depressing number. But it's 47% now. And equally -- a somewhat depressing number, but it's going in the right direction. That's -- when we get to where half of the companies in the United States aren't banning their people from flying, then you'll start -- then we will start to see, I think, a more robust recovery. But that's where we sit right now. That's the environment we're working in. So anyway, that's my attempt to answer your question by plan. Right now, it's definitely leisure leading, but we need business to really make it to recovery. Business isn't there yet, but business is getting there gradually. And again, I don't want to sound too bullish on things none of us know. But what I do believe is once business starts to return, that's not going to be that gradual. Once business starts to return, business will return. It may be every business returns but they don't fly as much as they used to for quite some time, but once companies get comfortable and taking -- and not having bans on flying, that -- it won't be long before all of them have eliminated those restrictions. So that, I think, will be really important thing to watch. We're -- it's -- the numbers I gave you have gotten gradually better each week, by the way. It's not -- there was no step function there. It's just gradually coming back. So I don't know. Vasu, Don, why don't you guys...

I'm just going to say that, clearly, domestic is coming back sooner, right? Short-haul international is going to be next, followed by long-haul international. If you go and look at our network coming into this, we were the largest U.S. carrier in the domestic business, and we're also -- we're the largest U.S. carrier in the short-haul international business. So I think we feel like our assets are really in the right spot. And our capacity recoveries in the model that has.

Yes. The only thing I'll add to what they said is, you asked a question about how does it shape our long-term thinking about the network. And what we're trying to do is build the airline to be very flexible, which is no easy task in an airline that has really long planning horizons. All airlines do, right? 18 to 24 months to get an airplane, and 12 to 15 months to build crews to fly the airplane and a certain amount of time to even source the infrastructure to house the airplane. So what we are endeavoring to do is, first of all, be really conservative in how we think about long term demand, especially in long-haul, which given the comments you just heard, it was already showing really kind of protracted weakness even headed out into 2021. And so by being conservative on how we think about demand, we're erring to the side of taking more capacity out and taking out the expenses that go with that. But building the lever such that if indeed demand comes back, we can respond to that pretty aggressively and really play to our strength, which is the huge connectivity of our domestic and short hauls.

And then, I guess, as you think about this process of the data points getting better, how are you and the team thinking about safe traveler protocols? Or what are you hearing from customers about safe traveler protocols having an impact to sort of maybe accelerate that demand recovery? I mean, is it realistic in any way to think that the prohibition on middle seat sales could last into a better demand environment? Or are we looking at a time in the future where we're going to have to submit a temperature record to buy a ticket? Like how should we be thinking about the safe travel protocols? And how the industry is going to maybe help facilitate the demand recovery?

Yes. Well, again, first off, incredibly important, of course, and American and all airlines, people have to feel safe when they travel, we know that -- we know they are safe, but we need to make sure people understand everything we're doing to ensure they are -- that indeed that's the case. It starts with cleanliness. We at American, and again, this isn't something we compete on as an industry. We all are doing amazing jobs and making huge increases in the amount of cleanliness done on airplanes before customers arrive. So the aircraft are clean as customers arrive. What we also has always been the case, but I don't think people understand well enough is how well circulated the air is, how clean the air is. It's replaced every 20 to 30 seconds on an airplane with altitude air. And it's -- every 2 or 3 minutes, like I said, at altitude air, and it goes through these HEPA filters, which are kind of hospital-type standard filters of air. So the air is clean, the airplane is clean, we know that social distancing, the traditional social distancing that we've all come used to, 6 feet of space is a hard thing for us to deliver on aircraft. We are doing a number of things, including restricting loads to make sure that there's the opportunity to provide social distancing, but the main thing we can do in this environment is what we all do when you can't guarantee social distancing, is to wear facial covers. Our flight attendants wear facial coverings, our customers are required to wear facial coverings in flight. And by the -- and we also make sure that we don't have interaction between people in flight, so we don't take carts down the aisle and things like that as we used to. All these things work, by the way. Again, the evidence that we know for certain is that the active coronavirus cases of our flight attendants in American is down something in the order of 90% from where they were as a peak before we were doing all these things in early March. So it does work. But we -- again, we need to work as an industry to make sure that our customers understand all these things and until we do, we're going to have a huge amount of the population that's not willing to fly and that's not acceptable. So we will keep working it -- we're working it as an industry through A4A, we have a lot of our partners working to help us to do that, as well manufacturers like GE and Boeing who agree with everything I've just said. But know that we need to get some consumer some more medical data out there for others. So we will keep working it to ensure that's the case. But that's the -- anyway, it's a layered approach, that we go about to make sure that at the end of the day, customers know that they would be safe flying.

And I guess, if you think about coming out of the crisis and assuming demand starts to recover a little bit, you're at that level of next flying -- next year, summer flying that you think you're going to be at, the airline is going to look very barren, right? You're going to have a smaller number of production platforms, I would imagine some of the older pilots would have retired. Is there a way you can help us think about the -- how efficient the post-COVID American is going to be relative to the pre-COVID American because of some of this simplification?

Yes, I'll try. And again, it's a -- yes. One will be more efficient. We will -- in addition to having what you just mentioned, which is having the -- having downsized the airline and making sure we have -- don't have excess assets and resources, including team members, we'll work to do that in a way that, for example, its pilots, it would be better if we could do that through early outs than through reducing at the bottom. Those who are paid less or as people retire, not replacing them immediately with those at higher rates. So there'll be some efficiencies that way. Most of the efficiencies, though, will come from one that what we talked about in terms of having this -- the much more efficient fleet, retiring fleet types has -- makes a big difference, and being more efficient with the team, not just having, if we're 20% smaller, having 20% fewer people, we can have -- we can do better than that. We certainly know that within management, and we will do that, that we can use this. And when we're able to use this crisis to figure out things that we can do more efficiently, we simply won't add back some things that we had in the past. But that we also know we can do that, we're finding we can do that in other parts of the operation, and without getting into all those. This is providing a nice time for us to go do that work and to go do kind of things that we've been thinking about at some point, we needed to get to over time. We now, as we've eliminated so much, we're going to work to make sure we don't add it back. So all those things add up, we think, to a real reduction in the cost structure, certainly in the same size we were in the past. And hopefully, at a lower cost, keeps the CASM somewhat in line with where it used to be, even though the capacity is going to be 10%, 20% lower.

Yes. I think, David, a couple of -- I mean, this is just one number on taking out these aircraft and pulling that down, our projected maintenance cost next year is down over $700 million just from the fact that those aircraft are going away, and they would have required overhauls and engines and a lot of stuff, just that alone. The other thing that we've done is from a capital perspective, we've relooked at all the capital plan and everything that we're going to invest in has to be paid back pretty quickly, paid back from an efficiency standpoint, and driving cost efficiencies is where we're going to go on a lot of that stuff. The only real big projects we've left in there is the -- putting the seats together -- putting the aircraft together, the 737, the A321 that we've talked about, where we make commonality on those aircraft. That will not only help our airports, that will help cost structure, because we're putting a few more seats on those aircraft. But the bins are going to be new. Everything is going to be new. That's kind of the only thing -- and that will help us be more efficient as we go forward. So it's a relook at not only all the cost structure and what we have, it's to look at the capital structure to understand what we do from a capital perspective and how do we drive efficiencies through capital versus just nice to have projects and capital projects that don't drive efficiencies.

Yes. I think just for what it's worth, what investors are trying to dimension really is sort of like the run rate cost per hour for whatever, to try to take away the volume out of it. I know maintenance is going to be down a lot next year, because you're flying fewer aircraft. But is there a way to think about that run rate level of OpEx efficiency gain that could come out of this? Because I kind of imagine that a more -- a simpler array of aircraft is just going to get you much better crew and much better staffing, much better -- just labor productivity on a...

Yes. And I would just say that it's a hard thing to do today because that's what we're working through. These decisions, like Doug just said, of taking the 332s out was made like 2 weeks ago, right? And that really does help from a -- all 330s are gone now, right? So that helps the efficiency from a parts, from an engineering -- the entire organization. So what we're doing is working through that process today with the finance group and going through project by project, line item by line item to drive those efficiencies out. So more to come on it. Hopefully, by the fourth quarter, we should have those answers and where we need to be by next year.

Great. And then, I guess, as you think about CapEx levels, right? You were coming off of the completion of the very large fleet buy-in the last couple of years. How should we be thinking about CapEx, both fleet and non-aircraft CapEx over the next couple of years as demand recovers and assuming the survival of the industry and all of the other stuff?

Yes. And non-aircraft CapEx, we did take non-aircraft down from $1.7 billion to $1.2 billion this year and down from $1.2 billion to $1 billion next year. And the reason it's still up a little bit is just due to the project I talked about with the fleet modification, because that's a huge NPV project that we want done, and we're actually speeding it up a little bit to have it done by next year. So that one, we want to keep in place and get done. From an aircraft perspective, we're at about $2 billion this year and $1 billion next year, but we are relooking at all of that. We want to make sure that every aircraft that comes in has financing on that. Now we had a -- we're pretty good through 2020. 2021, some of those aircraft don't have financing on it, so we need to work with Boeing and Airbus to make sure that, that is the case, that we go forward and make sure that they're fully financed. We're not putting a lot of cash out for those aircraft. If we go forward to 2022 to 2024, I think the run rate from a non-aircraft CapEx is going to be $1 billion to $1.2 billion. There may be a little bit pent-up demand because of the fact that we're going to keep it down for the next 2 years. And from an aircraft perspective, we run those years in the $1.5 billion to $2 billion range because we don't have a lot of aircraft coming in '22, '23, '24. Now that could change if we shift aircraft or do something like that, but we'll keep our CapEx even for the next year, it's about $2.1 billion, and then -- in 2021, and that it's only $3 billion, $3.2 billion, $2.7 billion, $3.2 billion. So it's in that $2.5 billion to $3 billion range combined that we believe we can run from a CapEx perspective over those few years. But it will be significantly down in the next 2 years.

And is there any sort of change in the way you're thinking about ownership versus lease? Obviously, you're going to be tasked with trying to get that debt reduction going?

Yes. Not really. I mean I think, the perspective is, because when you look at what our -- when we count our debt number, leases are now put in that number. You take your 9x leases are in there, we really look at that to be what is the most efficient financing out there? Is it WTCs? Is it sale leasebacks? Is it bank debt? We really look at most efficient financing. Sale leasebacks were, for the last 6 months, have been hugely beneficial, so we went down the sale-leaseback route. That market has changed a little bit today, Would we go WTCs? The difference what the MAX is today, you can't do a WTC on the MAXs until that gets back up in the air. So we just really look at all of the options and try to do the best financing possible as we go forward. And in the world we've been in, we've been able to finance aircraft in the 3% to 4% range. We felt like any of those options have been beneficial and more beneficial than using our cash to do that. And that's how we ended up where we're at today.

And I guess is from a network standpoint and spending that capital and also using the planes that you've got in reserve and maybe in storage in the next couple of years, should we be expecting American to kind of regrow into its pre-COVID footprint? Or are you looking at things that you would have done differently within the way the network is structured over the course of the next couple of years?

Well, look, it's a great question, David. And a lot of that is going to be shaped by customer demand and how it comes back and where it comes back. Look, we do believe, as Don and Doug and even Derek have mentioned, that the core strength of American Airlines is our domestic and short-haul network. It has been for a long time. We've been able to sustain a RASM premium through years. And so the first order of business is to ensure that, that is intact, and that's our base with which to continue to grow margins from. But what happens globally with demand remains to be seen. I think that can create opportunities that don't exist today. And in other cases, things that had otherwise worked may need to change. And it's early to tell and really give you a solid answer to your question.

Okay. I think one of the things that investors are working through or trying to get smart on is how this demand recovery takes place, right? Is this a situation where, if you want to think about a prior cycle where demand starts to grow and it's a lease fall? Or is it really that you guys each had your territories and maybe staying out of each other? I don't want to kind of put it in a competitive light, but like how worried do you get at that during this demand recovery, some other airline just decides to, I don't know, build a hub in Charlotte?

Well, look, here's what I'll tell you, is we've seen this time and time again through any number of airline downturns, that big hubs win. And big hubs provide so much utility to customers at such low marginal costs that the more -- to keep those things big is really to keep your value to customers intact and also to be able to create a basis for growing margins. So what I like to use is, for example, is take any city in America, take -- earlier, I used the example of Nashville, Tennessee, there may be 2,000 people that go from Nashville to somewhere. Even if that number falls, let's say, there's 1,000 people that go from Nashville to somewhere, half of them go to New York and Florida. For that other half, it's a long tail of 200 markets that they go to, and without a hub, there's really no good way to go and serve that market. And indeed, that market -- most of that market is very inelastic and will continue to be inelastic. And so operating big hubs enables you to go and create utility to the customer. And the bigger your hubs are, the more successful you are in doing that. We are absolutely benefited by the fact that 2 of the 3 biggest hubs on earth are ours, which is Dallas-Fort Worth and Charlotte. There's one thing which we can say without question, is that coming out of this, DFW and Charlotte will remain 2 of the 3 biggest hubs on earth. And indeed, that's critical to us for serving customers, let alone what happens in the competitive marketplace. That's key to our recovery in any which way in which we look at it. So having big hubs is going to be as important as ever, no matter what might happen with demand. We're fortunate that we have such big ones, and so much of the airline will be built around that going forward.

Okay. And then I want to touch on one other issue here that I think is also pretty important. When you think about the state of labor relations at American, obviously, working with the workforce to manage what costs you can pre-expiration of CARES and then after is going to be critical. You guys are coming off of a period where the tensions were maybe running a little bit high with the maintenance group. What's the state of the state today? And how do you feel about your ability to work proactively to make the types of changes and make such hard decisions that you need to make to keep American in good shape coming out of this crisis?

Yes. Thanks. I think it's one of the silver linings of this crisis, it's got us working so closely with our labor unions, because we're all in this together. And we, as a team, have, for a while, been working very hard to change some of the history that's been in place at American over time, rightly or wrongly, and make decisions that show that we really do care about and support the team, those have had a positive impact, but what's -- but they're making a big difference now, because as we go talk to the team about this, and how we hope to manage through it, I mean, all you can do at this time is be sharing that you're letting people know everything you know as you know it, which we're trying to do, letting them know what you don't know, which we're trying to do mostly about what demand is going to look like in the future, and then letting them know, given that uncertainty, what we're all going to need to working through together. So we'll continue to do that. Right now, the relationships are as good as they've ever been. We hope to keep it that way, because we need to because we all need to work in this together.

And coming into the crisis, I think one of the biggest issues on everybody's mind was a new pilot deal and then the impact of sort of a stepped-up level of profiteering. I mean, is it realistic to think that the pilot contract negotiations are going to be happening through this thing? Or is this going to be something that's going to be pushed off for a time being just as you get the airline to right size?

Yes. At this point in time, we're -- as far as I know, there may actually some big negotiations going on. But I don't think either of us nor APA are spending our time worried right now about getting that contract done anytime or in the near-term as I assume is the case is. The other airlines that have open contracts right now are amendable contracts. So anyway, we'll get to that at the right time. This is not the right time to be trying to close negotiations for long-term contracts. This -- it's just too uncertain.

Okay. And then, I guess, as you think about kind of moving beyond the pandemic, how are you -- how do you think your priorities are going to shift from either a cost or investment level going forward? Like is there things that you have identified through this crisis that are things that you want to do differently? Or your capabilities that you want to kind of build into the network. How does that -- how do you think about managing the business post-COVID?

Yes. Look, in the immediate term, we -- again, I touched on some of those, we will indeed go through and get some efficiencies, which this has facilitated, indeed required. But if I -- the short answer to your question of how we manage differently, is we're going to come up with -- as we emerge from this, we're going to be managing for cash flow, because we need to manage for cash flow in order to pay down the debt that we will have occurred because of all these losses. So that's where the focus will be, not that it wasn't fully there before, but it will be singularly focused on doing that as we emerge because that's what we're needed to do.

Okay. And then I guess as you think about the longer-term sort of capital structure for the airline, is there a change in the way you're thinking about the amount of leverage you want to have on the business longer term? Are we going to be coming out of this and really under -- really paying down the leverage? Like how should we -- or how are you guys thinking about that?

Yes, again, I think we're thinking about this. Every one of this business is we're all going to be more levered than we were before, and there's no doubt about that. Because these are huge losses that we're all going to largely fund by incurring more debt. So we're all going to come out of this more levered, and therefore, you're going to see, I think, every one of us looking to delever as quickly as we can. As American being more levered than others, it's -- we were already working on a delevering plan. It becomes -- that -- as much important. So anyway, I think absolutely. I don't know where we all end up. Does that -- do we end up in -- once we get back to where we were, do you keep going on the delevering or not? I don't know. That will be a high-class problem to deal with at some point a few years from now. Right now, I think we're definitely are going to come out of this a lot more levered. And as a result, we'll all be working to get back to where we were.

All right. Well, we're coming up to the end of our sort of a lot of time here on the presentation side, I want to thank you and the team for joining us. Is there anything you'd like to leave us with or leave investors with as a message about sort of the opportunities for American? The survivability of American here before we wrap up?

Sure. Well, I'll give a global thing, and then I left out a little nugget that Don wanted me to share that I forgotten, so I'll do that too. But on the -- look, globally, on the global message, that message is, like I said, we know where we are in the situation. We understand investor concerns. We are confident that we will do all the things we talked about to ensure that our shareholders are taken care of, and their debt holders are taken care and that our team is taken care of. And we know what those issues are, and we have the team in place to do it, and we have an attitude to do it, and you'll see the actions from us to do it. So we appreciate the interest. The little nugget that I left out, and again, I don't -- now that I'm closing with, there's not that big a deal, but I should -- but I meant to have my introductory comments because it's one of these airline fun facts. On the green shoots, we, about 2.5 weeks ago, went from this, receipts actually went positive. That is the refunds that we got that we had issue where -- had been greater than the receipts. About 2.5 weeks ago, we crossed that line. The interesting piece is we look at better Don but said anyway, on advanced purchase buckets, and what we've seen is, where we were growing those receipts or things outside of 90 days or a little -- a good inside of 6, 7 days, people either needed to travel quickly or stimulated to travel because of fares inside that, or people are willing to make reservations 3 months out. We're now positive in every single one of these fare classifications. And the 14 to 31 was really was the hardest one. What that says to us is people are now sitting down and making plans, not being stimulated by a fare to go tomorrow, but saying, I'm going to travel 2, 3 weeks from now. That's encouraging. That hasn't been the case up until -- and we've now had 8 days in a row of every single fare, every one of those advanced purchase buckets, having been positive. Now again, in the old days, they're always positive and they're allowed to be positive. But that's another indication that feels to us like things are -- they're definitely getting better. We're still down 90% from about where they were. But it feels much better across the board, and that as well as some other things are things we all need to be looking at to figure out when things really do return. So again, thanks for your interest. We'll keep plugging away.

That's a great note to end it on. Thank you guys very much again for your time. Thanks, Dan, for setting everything up. Investors, please participate in the Procensus' poll, and we will be in touch next time.

Thanks, David.

Thanks, David.

Thank you.