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

Everyone, welcome to day 3 of the 38th Annual Strategic Decisions Conference. We are live and in person here in New York. We are pleased to have Robert Isom from American Airlines as well as Scott Long and the rest of the...

Alana.

Alana, sorry. I forgot the name, from the IR team here with us. We're going to jump right into Q&A. You guys should be familiar with now -- by now with the Pigeonhole technology. If you want to scan that QR code, you can blast a question up to me here, and I'll try to work that into the conversation.

So just to kick us off here. I would like to maybe give you a few moments to tell us about how things are going? You, obviously, guys did in the 8-K this morning. I assume you want to give us an update on the current business trends, that would be great.

David, thanks, and I appreciate the time this morning. It's a great time to be at American Airlines, right? It's interesting to say that coming out of the pandemic, but we've worked really hard to make sure American is in a position to really capitalize as demand returns. So our focus areas right now, David, are just 2 things, just very simple: number one, run a really reliable airline; and then number two, return to profitability. Pandemic has been hard, right? A lot of value has been eroded. So we know the priority for returning to profitability. Best way we can do that is by running a solid airline. We've worked tremendously hard over the pandemic to make sure that we're in a position to size the airline for the resources that we have available. Proof is and actually running the airline is as we've gone through the year-end holidays and then actually gotten into the summer, we're running exactly what we had hoped, a really reliable airline. Of course, there's always weather challenges like we've had out in the East Coast the last couple of days, but we're recovering from those faster than we have in the past. And one of the things that I think is interesting about American is that we're really find the same type of size of schedule that we have been for months and months now. Other carriers, I know have some lifting to do to get up to scale as they get into the summer, but more or less, we've been flying the schedule and size to the resources we have for some months now. I think our summer tick up in this next schedule is just a couple of hundred flights. So I feel very, very good about where we stand in terms of delivering for our customers. Then how that translates into profitability, running more flights and completing more flights in this revenue environment, is a good thing. We've never seen a revenue environment like this, led by the domestic leisure business, of course. But then on top of that, we see large corporates coming back in small and medium-sized businesses have been really off the charts for a number of months now. So we feel really good about the demand environment. And as you saw in our release today, that revenue is offsetting some real cost pressures out there. But all of that, though, has ended up where we can actually look at the second quarter where I'm proud at 2 months into the CEO job to be able to say that we're looking at profitability. And as we go further out, I'm confident that American is in a position to react quickly to whatever comes our way.

Are you surprised at the rate at which you've been able to get back to some sort of like mid-single-digit pretax profit level? I mean the Street and consensus forecast have been kind of being pulled along with the improving revenue environment. Have you also been surprised about how quickly the revenue environment has been come? Or has this been kind of as expected?

Well, I've known that there have been -- there's been pent-up demand for travel. Okay. I never stopped. American Airlines, everybody has worked throughout the pandemic. And you just know that over a period of time, people want to get out of the house. So the proof of that has been every time that there has been some just small just pull down in restrictions to travel, whether that be masking or in international locations, some testing requirements, you've seen an almost immediate rebound in demand. So we felt it has been out there, it's been one of, hey, when is it going to happen? When is it going to happen? And we hope we're in that period right now where really COVID is being managed and it's something that doesn't have the dramatic peaks and valleys now associated with infection rates. So we've seen it. And then in terms of sizing the airline and getting back to profitability, that's the part that I don't know if people are aware of, right? We can fly what we did in 2019 with 10% fewer aircraft in terms of producing capacity. We really did take $1.3 billion of expense out of the P&L during the pandemic. We have gone out and created relationships that have augmented parts of our network that have been historically less strong. So out on the East Coast with the Northeast Alliance and out on the West Coast with the West Coast International Alliance. So we've done the things that I think put us in a position to outperform.

Okay. So you mentioned that you've been running a bigger schedule. How has that affected your financial performance maybe back before when demand was a little bit weaker? And now what opportunities does that create for you as this demand sort of wave hits us. How differently should we be expecting American to perform relatives to maybe peers that have either kept the schedule low or maybe to kind of jump for the loose ball but didn't quite get it by scheduling too much capacity?

All right. Well, we made a commitment to the government when we took the payroll support program and kept our team members in place. We flew a big skid, we flew a larger schedule than others did. Throughout the pandemic, we flew one out of every 3 customers that flew within the United States and had a schedule that was 25% larger than our nearest competitor. What that means, though, is the demand is returned, we have the resources in place. So while others are possibly having to scale to get where they need to go, we're doing a great job of really looking out further and further into the future to make sure that we have resources in position. And that's what you're seeing going on right now. So as demand has returned, we've had the schedule out there, and it's now accommodating the customers that are getting out there and flying. So I think that, that's a nice story in terms of cost pressure right now because you can see that from a unit cost perspective, we didn't really make that much of an adjustment in our projections. And my hope is, is that we're in a good position to take advantage of those resources throughout the summer. A couple of points, though, and maybe these are questions that will come up. We've had the resources to fly even more in position. So 787s, as you're aware, we've had the resources to fly potentially up to 14 more aircraft as soon as Boeing is capable of delivering them. But that's another, I think, element to take into consideration that when that capacity is available for us to fly, we can put it out there without a lot of tremendous additional unit expense.

So as you think about the ability to flex up, some of it is a bit fleet constrained. But even within the existing aircraft right now, do you think you feel like you can pushing schedule up a little bit more? Or you are going to be kind of flying at this level?

Look, we haven't changed any guidance in terms of capacity for the year and that, I think, is a smart move. We know that there are constraints out there in terms of aircraft. There are constraints around pilots from the perspective -- on a mainline perspective, and through training, we're hiring 2,000 pilots this year, getting them all through training is a real task. And on the regional side, there is pressure. We don't have the pounds that we need to fly a full regional schedule. So I think that capacity is going to be something, at least from an American perspective, is we've got to fly within the resources that we have.

So there's a lot to unpack in that from cost to revenue. I want to focus on some of the cost sides because you guys -- we're one of the lower-margin airlines precrisis. You guys did take a lot of cost actions. And one of the things you also did in terms of just pulling out cost simplifying the fleet. Can you help us understand at a very simple level, how that reduction in number of platforms is impacting your productivity metrics internally and hopefully, give us some quantitative measures around the levels of productivity you're getting out of this instead of dead ending the wrong equipment just because of Apollo to tell us all things like that?

Yes. Well, I'll do my best. Just really simply, going into the pandemic, American had a mixed bag of fleet we had probably just about every variant of aircraft type out there. One of the things that we said is we're going to be come out of this and be really efficient. And I'll tell you why that's really important. We went about it and said, okay, we're going to get down to 2, basically 2 types of aircraft for narrowbody fine: 320 family and the 737 family. And then from a widebody perspective, 787s and 777s. Now the reason that, that is important, you can just take maintenance, for instance, you have to have parts. You have to have repair. You have to have training that all goes into maintaining. You have to have fleet captains. You have to have all the infrastructure just to fly one aircraft as if you would -- as you would 10 or 100 or 200. So from an on-the-ground perspective, it's really important that you're able to utilize your assets to the greatest level of productivity. But as you fly as well, there is real benefit. So having different aircraft types means that pilots will have the ability to go from one seat to the next, one aircraft type to the next and create a lot of training turn as well. So from an expense perspective, whether it's the parts that you have to supply for aircraft, whether it's the pilots, the training, the simulators that you have to put it in place, that's all an opportunity for us to capitalize on. But then on top of that, in terms of actually running the airline, right, you also have to have aircraft in reserve, spare aircraft. You have to fly the airline. And the more different types of aircraft you have, the more spares that you have to have throughout the system. So that has also been part of the simplification effort from a fleet for an overall a rationalization perspective from overall fleet, part of our ability to take out 150 aircraft and being able to fly the same level of operations has been that we can do it with fewer aircraft part of that being that we don't carry as many spares. So on all of those fronts, that is just P&L positive.

So is it right to think then that some of that unproductive capacity that was constrained because of the heterogeneous fleet types has been unlocked and you're able to kind of flex into that, and that's helping you basically deliver the schedule without having the same resourcing problems that maybe some of your peers have been having?

Exactly. And at least from American, as you look back through history, it does mean that we are going to be able to fly our aircraft, have higher levels of utilization for the aircraft that we have.

Okay. And the pilot shortage has been coming up more as part of a discussion around the thesis for the sector. You mentioned you're training 2,000 pilots right now. Is that just kind of replacing pilots to maybe lost to early retirement? Is it meeting demands for new growth? Or is it also a function of having to maybe staff bit deeper lines because of call outs and things related to COVID?

Yes, a combination of all, but largely making sure that we have the right number of pilots given the high level of attrition that we've had and namely retirements over the years. So we are flying today with more pilots basically per aircraft than we have in the past. Some of that is related to COVID and having a higher level of basically absenteeism. But that's kind of COVID impact throughout the airline. As we've progressed and come down the slope of infection rates, what we've seen is productivity levels are getting back to where they were in 2019. We're not all the way there yet, but I really do see people coming back to work, and I applaud our team. They're doing a fantastic job. So a little bit of that, a lot of replacing from an attrition perspective and then just making sure that we have the capability as we get new aircraft delivered that we're ready to fly and well in advance.

Okay. I was talking to one of your former colleagues and now, I guess, competitors talked about this topic yesterday. And one of the things I took away from that was maybe the idea that because of COVID moving from pandemic, endemic. You are going to have a higher reserve ratio. You are going to have to be thinking about staffing the airline a little bit differently to maintain the high levels of completion factor and all the things that you need to do to service customers. What's your perspective on that?

Yes. I think that as we look out into the future, we have programs in place to really take care of our team members. There may be a little bit of inefficiency or getting back to normal. But everything that I see is just month after month, we're getting back to the type of levels of people showing up for work that we've experienced in the past. So I'm hopeful. There may be a little bit, but I don't see it as something that is a big driver of expense.

And you guys are relatively unique in the way you run your regional operations. That seems to be the crucible for where the pilot short is probably going to be the worst. How are your regional airlines faring with this? And what are you -- what steps you taking to make sure that they can staff their operations to support your operations?

Well, there's a supply and demand imbalance right now. And it really is at the -- within the regional carrier ranks. And we have probably 100 aircraft or almost 100 aircraft that aren't productive right now, that aren't flying. We've been able to manage that fairly well because we have a fleet that has 50 seaters and 65 and 76 seats on different aircraft. And what that's allowed us to do is to make sure that we're putting the resources to where they can be most productive and find the most seats. So just like we have done some upgauging on the mainline side of things, we've done that on the regional side too. So we've been able to offset quite a bit of the loss of pilots. But as we go forward, I look at this as something where, look, if there are the appropriate incentives and there is the kind of compensation that attracts people to the industry, this is something that can be remedied and remedied over a fairly quick period of time and quick -- at least to me. It might be a couple of years. But let's face it, at some point in time, the prospect of being a pilot, okay, is going to be very, very compelling, if you can think about this as a profession. For those of us that have kids that may be looking for something to do, you can go and get your -- basically be equipped to fly at a regional over the course of a couple of years. And yes, there is expense that comes with that, but no more than you would find from just a normal college degree, that puts you on a path to start out making $80,000 a year, $70,000, $80,000 a year and on a path to making hundreds of thousands dollars a year. So over time, I do think that there is a really compelling argument that attracts people into the business and certainly, the training resources are out there. So we may have a period of time here for the next 2 or 3 years where we have to work through this in balance. But I do think it is a profession that is attractive enough that people will come in. Now all that said, there's going to be cost pressure. And that will, I do, I think, have an impact on regional carriers and other carriers that rely on lower cost labor.

So that sort of feeds into the next point I wanted to ask around this issue of our pilot shortage. How does it affect the industry dynamics right? Obviously, we have settled on a structure where we've got 3 big national networks, the biggest discounter Southwest and then the premium value guys in there. Do you see any groups of those airlines is differentially exposed to this inability to attract pilots or this -- the pressure in having to pay more for pilots? Like how do you think about this? How do you think about this issue, not just affecting capacity for you or your cost for you. But how do you think about this affecting capacity and cost and the competitive dynamic within the industry?

Yes, David, on that, I really stick to what I see at American and how we look to size our airline. Ultimately, it's a supply and demand question, the number of seats that are out there and the number of people that want to fly and then ultimately, what they're willing to pay. In America, we have to size the airline to produce a profit. And that's something that we're dedicated to. And I know that others in the business that if you're going to put capital to use, you better have that same kind of mindset. So I'm of the belief that ultimately, this does settle, and there's going to be a supply and demand balance that produce produces revenues that are going to support a certain level of flying certain level of service. And for those that don't have the network that can't achieve the kind of the revenue growth that is going to be required to offset cost, I think it's going to be problematic.

Okay. Let's turn over to the commercial side for a second. Obviously, the leisure has been the big driver, right? We look at the headline rates of inflation and the knee-jerk reaction, I think, from a generalist could be, hey, wow, things are great now. Unit revenues are up 20%, 30%, whatever they are. But how durable is that? How do you think about, not only like just the impact of higher fares on demand and potentially someday demand destruction, how do you see your fare increases increasing the cost of the average traveler and the average part of your network? Is the headline number higher because of changes in mix? Is the actual level kind of at a base level, a little bit more manageable, do we think about the sort of the effective rate of inflation as opposed to the headline rate of inflation we read from the BLS data?

Well, I just start with -- I'll start with this. I believe, and I think history will show that travel is still an incredible bargain. And I think people want to get out there. I think that there is a change in consumer behavior and definitely moving from kind of cocooning in a house and spending on home improvement and moving out to life experiences. So I think that, that is a phenomenon that is out there and that we're seeing take place. And I don't think that, that's going to change. I think people are going to really react to the pandemic in a fashion I want to get out there. But going beyond that, look, the economy has grown for the last 3 years. And while there may be some concern about leveling off of growth rates right now, the airlines have not participated for the last 3 years in any of that growth, obviously, right? We're now just getting back to as an industry within 10% of where we were in 2019. So when you ask about, hey, are you concerned? At this point, absolutely not. Again, I see a demand for travel. I see an industry that has been more or less constrained and now trying to size back up and still facing those kind of constraints. And in terms of pricing, we're now just getting back to where we were in 2019, and barely there. And that's all said, again, with the backdrop of, hey, there are other pieces of the puzzle that are still coming we have not returned to where we need to be from an international perspective, and I know we're going to talk about that. While small- and medium-sized businesses have been off to the races for months and months, we're still not all the way back from a corporate perspective. And I see in international and larger corporates, I see that there is also a pent-up demand that we're still going to have the opportunity to take advantage of. So my perspective is, is that there's a lot of runway. And from where I sit, I've got to make sure I deliver.

So as you think about that -- the performance of the premium cabins in the pandemic, one thing that's come out of every conversation I've had with your peer group is that the performance of premium has been really surprising. Where are you guys on that journey from introducing the premium products inside of your aircraft, having the technology and capability to maximize that capability? And what -- and how much -- and I'll start with that, and then I'll ask you a question on runway.

Sure. Well, on that front, I think we got a little bit earlier than others, and that goes with fleet. So American has had the chance over the last 5, 6 years to invest $25 billion plus in terms of renewing our fleet and with each of those investments. We've been able to go out and say, "hey, let's make sure the aircraft are doing what we want them to do." So we were early investors in premium economy sections. We spent the -- we just finished up over the last year, the consistency program that we had in place to actually upsize the cabins on our 737 fleet and our 321s. We brought in new configurations of 787s going in -- going 5, 6 years ago, we changed the cabin configurations under 777-200s. So just about everywhere you look, we've put in place, brought in new aircraft or reconfigured. And I think we're in a position to really take advantage of that. One of the terms that I'm sure you've heard from others is this phenomenon of leisure travel. And it's true. We have the leisure travelers that probably are doing a little bit of business that are definitely treating themselves. And so we're seeing higher first-class cabin bookings than we had seen in 2019. And as we think about European travel coming up, I think that there's also going to be more of feeling for even leisure travel to, hey, I'm going to take care of myself on that point of travel.

And so the fleet reconfiguration, that was Oasis, right?

Right.

That's all done.

Done.

And did you accelerate that during the pandemic?

We did. Yes.

So that's a little bit of a pull forward on some of those things.

Exactly. And another reason why we can fly the kind of schedule that we are with fewer assets.

So as you look at the historically kind of maybe going back, that premium or that buy up from sort of a basic economy to an economy to a premium economy to a business class fare. Can you talk a little bit about how maybe those buy-ups have changed or those numbers have changed in absolute terms for you guys? And then when you benchmark yourselves against your peer groups, which I'm sure you've got an army of people in Dallas doing it. How does that look on a relative basis?

Well, I think over time, we've underperformed. But just like the work that we've done on our fleet and getting the operations set up. We've also spent a lot of time investing in technology to make sure that we have point-of-sale offerings for folks, right? That really allowed them to buy the type of service that they feel is appropriate and to do it in a fashion that is value producing for American. So whether it's first-class buy-ups, whether it's offerings that we're making within our loyalty programs, all of that has been work that we've, I think, really excelled on. So as we go forward, David, you will see that as something that not only are we able to true up versus competition but also outperform as well.

Any way to dimension that how far behind you are in some of those things? Because obviously, I'm not bringing it out as a point of weakness. I'm more pointing it out as a potential opportunity. And then if you think about how -- if you can quantify what that gap is, can you help us understand what it is you need to actually do to close it?

Well, I think what I would start with is this just on an overall unit revenue perspective, okay, we feel really good about where we're at right now and then where we're headed. And so the emphasis that we've had within our team is, look, as we come out of the pandemic, we're going to outperform. All the tools, all the systems that we put in place are directed to that, and we'll talk more about that as we get into some of the quarterly earnings releases as well.

Well, we can also go long term, if you want.

Yes, yes.

So the business travel, you mentioned, your early indications are pretty good. SMBs are pretty good. Can you frame up kind of where we are in the business recovery?

Yes. Let's talk about that. After we came out of first quarter earnings, we had said that we're going to be back kind of -- we were back at roughly 80%, again, largely driven by our performance with small- and medium-sized businesses. Yes, it would be worth -- we probably update that as almost 90% as we're coming out of the second quarter. But now I'd tell you that we're seeing much more as we come out of the second quarter being back up to where we were in 2019 from a business perspective as we come out to the second quarter. It's still led by small and medium-sized businesses corporates are not back up all the way, but I think that gives you some perspective that there is more to go because I do think that the corporate and government travel will get back to 100%. So my hope is as there's more to that. Now I do want to add in here, though, a big component of business travel is international. And that, while it's coming back, and it's largely led by European travel and then also to South America for American, we still have more to go. There are restrictions in place with testing requirements that for coming back into the United States, which I think are depressing not only leisure travel, but business travel as well. And that is something that, as an industry, as a country, we just -- we've got to get beyond. I was in D.C. yesterday and spent a lot of time with some of our politicians talking about that. And it doesn't make sense that you can cross a land border without testing yet. To fly into the country, you have to test. That's something that we absolutely positively have to get our arms around. And I think we'll be very, very beneficial to travel.

Any sort of takeaways from those conversations around when those testing requirements or what the process is even? Because I imagine it's not just the politicians in D.C., it's also the politicians on the other side at the bilateral.

No. That's not the case. 75% of the countries that we serve don't have testing requirements to travel into. And why the U.S.? Again, it was an interesting anecdote that I think you might have seen where I think it was the Red Sox are playing the Blue Jays. They're able to fly in, but they had to take a bus coming back because they wanted to make sure they didn't leave anybody behind, okay? That's just nonsensical. And so is there a process? I think we're all frustrated. We're really frustrated. And this is something that is damaging not only U.S. travel, but it just doesn't make sense.

Okay. Now think about -- as we think about that the corporate side of the house, maybe being a little bit behind the SMB side of the house. As you look inside of the -- your relationship with your corporates, is that starting to accelerate now? I mean I'd sort of been expecting that as we got past spring break period and things started to come back a little bit normal, we'd start to see a pickup in corporate travel. Is that starting to happen from your perspective?

It is. And I won't speak any specific company names, but just about every CEO that I meet with in consulting and financial services, all the audit firms have said we have to get back out and make relationships because while we've been able to harvest a lot of the business over the last couple of years, people have changed. We're hiring 2,000 pilots, that there's been a lot of attrition with that. I'm a new CEO. If you haven't been out to see me, chances are, you're not going to be doing business with me. And that kind of same phenomenon is going on everywhere. So I do think this is another area where there's pent-up demand. And we've struggled in some of the big corporate marketplaces, Chicago, East Coast and certainly West Coast. I think people are waking up that, hey, we got to catch up with the rest of the country.

Well, so there has been sort of like a hobby industry developed over the pandemic around trying to quantify what the long-term impact on business travel demand could be because of changes in behavior from Zoom to remote work to whatever. And one of the biggest ESG initiatives we probably would have had would be to stop printing those reports. That's an aside. When you think about the conversations you've had with CEOs over the period, right, because I imagine you guys have been having these conversations throughout the whole time. How has the conversations with like a big consulting firm change? Has it gone from, well, we're not sure to, God, we got to get it back out there? Or has it gone from, no, we're not going to get out there, but maybe we have to a little bit? Like how do we think about -- if you have any color you can share with us on of those conversations. And how they've changed as we've gone through the pandemic, that would be super interesting?

Oh, yes. I think there was a tremendous amount of reticence of "hey, I don't want to get out in front of things." This is clearly a safety and a health issue, and we're managing really big companies, and we're influential within the country. And I think that, that had been an overriding mindset. But again, as treatments have developed as the availability of vaccinations has been near universal. There's a get back to work, hey, we have to be out there or we're going to lose business attitude. And I see that with everyone I'm talking with.

Okay. And as you think about that, that happening now. I'm imagining the planes are pretty full, just given the unit revenue you have right now, is there any room at the end?

So that's a great question. It's one that we look at all the time. As we take a look at how we're shaping up for the second quarter, one of the first things that I do every morning is, okay, have we sold out? Is there any -- is there truly anything left? And what you see is booking patterns, while there's tremendous demand, I think, at any price level, what we're seeing in terms of our intakes and how we're revenue managing, we're doing a great job of making sure that there's plenty of capacity still to be bought quite likely at higher prices. So what we're seeing is really yield driven. And that is -- that's, I think, a good place to be for the business. There are enough seats out there. We're booking to fairly normal patterns, and we're able to reserve enough to ensure that we're able to take advantage of closer demand.

Okay. Turning to the international markets. Obviously, Atlantic has got a attract a bunch of capacity. Asia is going to be way behind Latin America, maybe somewhere in between. Is that a fair kind of phrasing of -- right, obviously not short see, but...

Right. So in terms of demand overall, just -- I think that there's tremendous demand. But I think in terms of the capacity to be able to serve that, the same type of issues that we're dealing here within the U.S. and the American dealt with last year as we tried to grow to scale. Those same type of growing pains are being felt throughout the world. So I think that whether it's aircraft availability, maybe not pilots and flight attendants, just even getting ground resources in position. I think is limiting international capacity from coming back maybe as fast as it otherwise would. You just can't -- you can't go from walk-in to a full-out sprint with a snap of a finger. So I see that there are going to be -- continue to be constraints in terms of airlines being able to get to the signs that they want to -- but in terms of demand overall, the big business centers within Europe, I think are going to produce -- South America is going to produce. Asia is another question. Korea is really starting to rebound and take off again. There's been some reduction in restrictions on travel in Japan. I'm really following that closely. And then China is really a wildcard. I don't see much happening there for months. American is in a really good position, though, to take advantage of the variability of demand in all these countries because of the relationships that we've set up. A lot of this flying will do organically as demand returns. But because of the joint businesses that we've set up, where -- with the IAG Group, BA and Iberia, where we really do pool our revenues and talk about how we're going to fly and bring back same type of relationship with JAL. We're poised to make sure that we're using capacity in the best places and do it in a mindset of, hey, we're going to be profitable when we deploy it.

So as you think about the recovery of the international markets, obviously, the U.S. airlines getting back to profitability relative to your -- relatively more quickly than your competitors in major international grades. How do you think that sets up the U.S. carriers versus the rest of the world kind of going forward? And do you think there's going to be some change in the competitive dynamic on the international flying long term because of it?

So I don't know about the change in competitive dynamic. But I will say that as we've come through the pandemic. I know that there are a lot of our partners that are really looking to us because we've been able to come through in such strong fashion. We've got the high liquidity balance. We're returning to profitability. I think faster than others, we're certainly at a scale that is important to others. And I do think that, that changes things a bit. You've seen that even today that we've announced and are launching a new flight from JFK to Doha, right? That's -- we're able to do that because of our relationship with Qatar and also because of the Northeast Alliance. It's a great step, but it shows, again, we have this network, the world's largest network. We could connect more city pairs than anyone else. There's great interest in partnering with American. And I do think that, that does change things a bit from where we were prior to the pandemic, which was all about finishing off the merger and getting ourselves kind of set up from a fleet perspective, that works all behind us. So I feel good about where we are on a world stage.

And as you think about that -- those international markets starting to reopen, allowing you to flex some of your widebody capacity a little bit differently than you have now. I understand this is true for most airlines. I'm not going to words in your mouth as far as kind of repurposing aircraft you would normally not task to a domestic route into the domestic market just because you can because you have it. That reallocation of capacity, how is that going to affect your earnings as international markets reopened? Am I right in thinking there's going to be a little bit of capacity coming out of the domestic going back in international? Or are you going to -- is this just going to be taking capacity on the ground and bringing it up?

Well, again, that one is, I think, nuanced. We've been making sure that we're deploying aircraft appropriately. And certainly, we've moved some international, what had formally been longer haul international back within the U.S. But let's face it, flying widebodies on the domestic routes, okay? There's -- there are issues with that. There's a heck of a lot of expense. They're meant to...

It's not free.

It's not free. They're meant to fly long distances. So as we deploy optimally, I think what you're going to see is that we're certainly able to maintain profitabilities and hopefully improve them. But as we talk about where American goes next, again, realize that from an international perspective, there have been constraints in terms of widebodies and widebody deployment. So for American, we're not going to be able to do a heck of a lot more than we're doing until those Boeing 787 deliveries start back up again.

Okay. So let's talk about partnerships for a second in the Northeast Alliance, in particular. Obviously, DOJ now has an active lawsuit going against you. I know you can't necessarily comment about the lawsuit itself. But I want to talk a little bit about why American made the decision that extending its capacity through partnership with the NEA and the West Coast Alliance is better than putting iron into the sky with the American logo on.

Well, that's a great question. It all starts with doing -- being in the places where customers really want to go. And for us, we've historically been challenged out on the East Coast, both in New York and Boston as well. But in New York, we've had a position where the kind of network that we've been able to fly has been inferior to that, which our 2 largest competitors, Delta and United, have been able to do at a much greater level. So we've had this historical weakness. And it's something that coming out of the pandemic to remedy it, it's because of gates, because of slots. It's not something that you can just simply magically make happen. So working with JetBlue and seeing their needs as well as being a very constrained carrier and a third or fourth competitor to the entrenched carriers. What we've been able to do is really come together and offer a product that is a true third competitor. And the proof is that we've been able to launch more routes, the more frequencies, new cities, and there's been tremendous customer approval for every step that we take. We truly have put together a network that can serve customers. And the more that we are able to do to make that seamless for our customers, the more that it really will be something that takes up the marketplace and is good for customers.

So when you think about the DOJ sort of pushing back on this Alliance, can you bring it to us in some very, very simple terms, what's the point of controversy? Not what's your perspective on the controversy, not what's their perspective, but if you were to kind of bring it down to a very general level, what is the -- what are the one or 2 big points of debate around what makes this alliance different than the other codeshare alliances and therefore, susceptible to this challenge in the DOT?

And David, on that...

I know it's complicated.

It's complicated, but I would really tell you, I don't know. Because at the end of the day, we truly are coming together in a way that forms a real competition for entrenched positions, something that we couldn't do on our own. And on top of that, it's something that, given that we've been working on it now for a number of months, it's proving itself out. So when you ask that question, I don't know. But I do know that we're going to prevail, and I do know that this is something that the facts prove it out. So I feel good about where we are. And JetBlue has been a fantastic partner and at the same time, an incredible competitor in those places that we don't have aligned interest.

Okay. And let's say -- and again, this is -- it's a hypothetical, but it's more of a question, right, because there's not only the DOT challenge, but there's also this issue developing with JetBlue's pursue to Spirit. And the NEA gets thrown in there a lot. It's part of one of the reasons why somehow these other 2 small airlines were in shouldn't be going to happen when this other one should. If for whatever reason the NEA alliance weren't happening. Does that change your capital allocation priorities for the next 5 years?

Well, that's a very hypothetical question. And just to lay groundwork here, the one thing I do know and committed to by the CEO and the President of JetBlue is that they are committed to the Northeast Alliance, plan is simple. So we aren't working on alternative plans because we know that this -- and no matter what JetBlue does, that's up to them. They've committed that the Northeast Alliance is something that they want to be part of long, long into the future, and that's what's important to me.

Okay. So one of the things that's fairly unique about American is having spent a lot on aircraft over the last 10 years.

I think a lot.

You're maybe in a better position on a capital setting point. Can you give us a sense for kind of what level of CapEx you need over the next couple of years? What are your priorities for capital as we kind of come through this recovery period?

Okay. So you've laid the groundwork there very well. We've spent a lot over the last 5, 6 years. And that is largely why we carry a higher level of leverage than others. But that -- those are real assets. Those are things that are productive that we're flying. And we are fortunate to be in a position where the kind of aircraft capital expenditures that we have are very reasonable. And again, I know we've talked about the couple of billion dollars of expenditures that are on a go-forward basis. And that flex up and down as we go out. But -- and on top of that, the non-aircraft capital expenditures are very reasonable. We're in a period where as we take a look out into the future, that, that is very, very manageable. The debt and debt amortizations that we see coming, very manageable. And as we take a look out into the future, it's not until 2025 that we have something that we really have to make sure that we are smart about. And even then, we're going to have quite a bit of collateral that's coming off and all that debt is basically secured in some fashion. So I feel great about where American is in terms of being able to manage. While others are now hitting this cycle where they actually have to really invest in their product again. So no easier way or no better way for me to tell you is I feel great about what we have done. Now it's time to actually make sure those assets are really sweated, and that's what we're intended to do.

And as you think about that point of focus, the things that you're spending in the majority of your time on right now. Are there projects in the pipeline that are top of mind? Or is this more about just reinforcing the focus on execution and aligning a culture behind your vision for the company at this point?

American's position as we take a look at the future. We are bolstered by an incredibly strong domestic network, probably it's certainly the best of the network carriers and in places where there is tremendous growth. Our hubs are just front and center for where there's growth going on within the United States. The metro regions are going to do very well and as well, servicing the rest of the country, they're geographically located in the right spot. We have augmented that domestic network with relationships, both in the U.S. and then outside and I think the best partners. So as we take a look forward, I don't see a lot of tremendous strategic issue going forward. And for that reason, everything that we're doing right now, okay, is running a reliable airline and making sure that reliable airline produces a profit. Doing that is, I think, the turnaround story at American proving that when I go out and say we're going to be profitable in the second quarter -- that we're profitable in the second quarter, that's the work that we have to do right now.

Okay. In my conversations with investors, there's sometimes a little bit of a reticence to buy into that longer-term vision of getting ahead of 2019 EBITDA margins in the next several years. What do you -- how do you react to that when people just look at it and say, it's American, they didn't really do it before, they're not going to do it after. Like what is the reason to believe that you guys are now in a position to be able to kind of really deliver and execute on that?

Yes. We've got to prove it. Plain and simple. And that is where I am as a new CEO. I want to make sure that when we go out and we say we're going to do something that we actually execute upon it. And the confidence in that is that, number one, I see what's going on. I know that we're running a reliable airline. I know that it's competitive to those that are in the business. So I have great confidence there. And then I also know that the work that we put in. I know that the expense reductions that we've taken on during the pandemic are real. I know that the fleet simplification is real. I know that the issues that we faced going into the pandemic, whether that was dealing with the MAX, finishing off our integration, right? I know that that's all behind us. It's hard for a casual observer, not on the inside to be able to see that. I see it. I see us being able to put our assets to work in the places that are going to be really profitable. And I see a leadership team that is composed of a bunch of people from new to the business, but also some real veterans that have been with American and with other airlines. I see that all coming together with a tremendous amount of energy to say, we're going to outperform.

So I want to talk a little bit about that team and the culture side. Obviously, you've just stepped into the CEO role. Can you talk a little bit about what level of turnover has been in your direct reports? How are you energizing that team? And what's going to be different about who's in what seat to kind of maybe get us to some different outcomes?

Well, the challenges that we faced in the past, okay, are different challenges that we have going forward, okay? Putting together an airline, the world's largest airline out of 2 very different carriers, it's really, really hard work and took a talent level that has been extreme and dedicated and just fantastic. But as we go forward, putting all those assets to work now, I do think requires different voices at the table. And one of the things that we have done is make sure that we have just incredible talent within our commercial organization. So whether it's our revenue management, our network planning group and then the overall leadership through Vasu, I think we've got the best in the business now. To that, we've had incredible strength built over time within our operations group. And now that we've put together a set of aircraft in a system that we're getting in front of, I think you're going to be able to -- you'll see that we'll outperform on that. And then to that, look, it's a digital world. It's a world that moves so quick. We have augmented the team with bringing in folks from the outside. I think we have the best people and recruiting department in the company. I'd like to call myself at least the Co-Chief Recruiting Officer of the company because I think people are the biggest issue that we're all going to face as we go forward. So we strengthened our team there. And similarly, from relationships within Washington and from a legal perspective to face all the onslaughts of whatever comes our way, I think we're really well positioned.

Excellent. So we're coming up on the end of our time here. I want to thank American for coming out for the conference. Thank you all for joining us here live. Any parting comments, any sort of ending thoughts on why putting capital to work in American Airlines is the right choice?

Well, first off, it's a good time to travel. Get out of the house, get moving. And if you're going to, American is going to be a carrier that can take you to where you want to go. And what you're going to find is you're going to have a really reliable operation. And then from an investor perspective, all the things that we've talked about. We've sized ourselves to be out there. We're not trying to figure out how we get another couple of hundred departures into the system. We know that we can run it. We have the ability to cover the capital expenditures that are coming our way to service the debt that we have. And then ultimately, as we've talked about, I'm really proud to show you the kind of guidance that we released today. That's -- it's our job to get out there and prove it, bring it home, and you're going to see that as we go forward. So thank you.

Excellent. Well, thank you again for coming out.

Thanks, everyone.