American Airlines Group Inc. ($AAL)

I think we are on. All right. Thank you, everyone, for joining us. My name is David Vernon. I'm a airfreight service transportation, U.S. Airlines. We are Pleased to have American Airlines with us today, Robert Isom, CEO; Devin May, the CFO; and Neil Russell, from Investor Relations are with us today. So you guys should know the drill by now. If you have questions, you want to get up into the queue here for pigeon hole, you can do it electronically. I will try to work those into the conversation. We are delighted to have you back for the conference here. Thank you very much for the support. Anything you want to kick off with in terms of prepared remarks? Do you want to just dig right into the Q&A?

Well, David, I just -- thank you for having us here, right? A lot going on in the industry today, but I'd just like to start with this. Americans set up really well for the future. We kicked off the first quarter and produced year-over-year revenue performance of up 10%, 11%, really felt confident about where the year is headed, especially from a revenue perspective. Look, oil prices, fuel prices are up considerably. First quarter, $400 million. Without that, we would have been profitable, expected profitability, return to solid profitability for the year, but for fuel prices that we're now estimating a $4 billion to $5 billion for the year, we would have been solidly profitable. Now, what that suggests for us is, look, we're doing the right things. Revenue production, we're anticipating revenue for the second quarter to be up 15% year-over-year. And to be in an environment where fuel prices have really spiked that much and still be looking at a year where we can repeat the profitability that we had last year, I feel really good about where we stand because we know that oil prices aren't going to be at these levels for the long term.

Okay. So as you think about the state of the business today against that $4 oil shock, I think coming into this year, we were looking for something in that $250-ish $3 range for EPS. We're here -- we're kind of looking flat year-over-year based on your updated guidance. No changes to that, I'm assuming today.

Not not making any changes. No.

Okay. Just wanted to make sure we're clear on that. But as you think about that kind of pushing the recovery year to 2027, right? Is that the right thing for investors to be doing? Is it the wrong thing for investors? How do you think about this year being a temporary blip versus something that maybe doesn't recover as quickly, if oil does come down?

Well, again, I'm really confident that the recovery that we put in place is hinged on our revenue performance. And that's been just through and determination on pursuing our 4 pillars: elevating customer experience, growing our network, driving premium revenue and then leading in loyalty. All of those are really having an impact. If you take a look at the first quarter with revenues up 10%, 11% year-over-year, we only grew 3%. That suggests 7% unit revenue growth. We're anticipating 15% growth for the second quarter on capacity growth of about 5%. So 10% unit revenue growth, that is playing well. For American, I like what I see in terms of how we're doing versus competition, 5 out of the last 6 quarters, American in terms of revenue performance beating our network peers. What we're doing is working. And you're right, oil price shock, we're enduring it. We're expecting to repeat the profitability that we had last year. But when that evens out, American is set to really perform. And I anticipate that happening.

Okay. When you talked about those 4 pillars that you stepped into the CEO and laid out in terms of the multi-year plan, which of those do you think the market is still underwriting the least?

All of them.

All of them.

Yes. No. I mean, American...

No, the least.

No. But David, what I'll say is American has tremendous upside. And the upside comes from, look, we haven't performed that well the last couple of years from a comparative basis for a number of reasons. But I feel great that each one of these pillars is addressing something that was potentially considered a weakness, and in many cases, taking advantage of investments and initiatives that we've had in place that are just coming to fruition now. So you put all these together, and I anticipate that we're going to be back on track with the margin commitments that we made several years ago. Nobody is giving us the credit right now for the potential of returning EBITDA margins into the mid- to high teens. Nobody is giving us credit right now for producing pretax margins in the high single digits. That's what's on the horizon for us. And it's because of the work that we've done in each of these strategic pillars that is really taking root. Our customers are responding to it well. And you put the commercial revenue benefits on top of -- look, just an ethic at American Airlines of producing really efficient capacity, that means good things into the future.

Okay. So as we dig into that a little bit, right? You mentioned the investments that you're making there are just coming into fruition. Maybe across a couple of the pillars. Could you kind of dig into the 2 or 3 things that you're most proud of?

So I'd love to. From a customer experience perspective, let me start there because this is work that has been going on for years. You don't just go out and order new aircraft today and have them show up next week. The 787-9s with the Flagship Suite, okay, those were ordered prior to the pandemic. And through a lot of work and a lot of working with our friends at Boeing and seat manufacturers, we finally have the 787-9s delivering, 12 is coming later this year. We have 321XLRs that are delivering also with Flagship Suite. We're seeing the benefit of our 777-300 reconfigurations with a much richer premium cabin. At the same time, on our narrow bodies, some of our older aircraft are also getting the full benefit of retrofit 319s and the 320s. On top of that hard product, that we're putting out in the marketplace, there is absolutely a driver for premium revenue. We've done the same thing from a facilities perspective. So you look at what we've done and what we have coming up from a premium lounge perspective. There's almost an announcement made every few months from that perspective. We were the first to have premium lounges out in the marketplace, and we're still the leader from that perspective. But at the airports as well, whether it's the modernization that's going on in DFW, what's going to happen out in Los Angeles by 2028, a new regional terminal in Miami, across our network, we're making sure that we have a product that's ready to go. And on top of that, some of the softer elements, whether it's new coffee partnership with or champagne with Bolger, all of those things are really appealing to our customers. So from a customer experience perspective, absolutely love what we're doing, love where we're headed to. And you need to do that because, ultimately, to drive premium revenue, really take advantage of the network we have out there, you have to have something that customers that really appeal to customers.

Okay. So hard product investments and what else?

So hard product investments. What I'd say as well, in this environment, we have to be reliable. And from that standpoint at American, we've taken a tremendous amount of this history and redesigned our network and our schedule to make sure that we can be as reliable as possible. You've heard the things about the rebanking at DFW, a 13 bank operation that spreads the operation or in Philadelphia with a new 7 bank operation. We've taken a surgical look at how we allocate flight times. On top of that, we're putting technology to play anywhere there is an optimization problem that goes along with disruptions. And what we're doing is ultimately giving our customers more confidence that when they fly American they're going to get where they want to go. And if there is a disruption, we're going to make sure that they have the tools, they have the knowledge as well to get where they want to go and back on track. So a hard product reliability is really fantastic. And then, on top of all that, you've got to be able to go to market. And the market side of things in selling, whether it's redesign of our basic economy fares, the buy-up that we're seeing from a driving premium revenue or what we've done in repivoting and really changing the way that we serve the travel management companies and managed corporate traffic. All of those things have really performed well. And for us, because they're all coming to the marketplace right now, this is upside. It's upside for American. It's going to drive margins. And ultimately, driving margins is going to allow us to produce free cash flow. Free cash flow allows us to improve the balance sheet. Improving the balance sheet, it's good for everybody.

Okay. So American Airlines has just turned 100. Congratulations. Happy birthday. As you frame the next decade, what do you think is your 1 sentence definition of what American Airlines is going to be? I've asked you this a couple of times over the years as you've been supportive of our conference. Like what is American Airlines? Where do you want to be in the marketplace? What isn't it relative to the Delta positioning or the United position, right?

Well, I'm just -- I'm going to start with this. We are a premium global airline with the most comprehensive network in North America. We get you more people in the U.S. to where they want to go than anybody else. But there's a lot more to the story, okay? I'm not going to let anybody just say, "Hey, American is a one-sentence answer to that". Now, that network that provides the most comprehensive coverage, it also allows us to be the best partner to any of the other airlines that we do business with. We've pioneered the joint businesses with IAG and BA and with JAL and with Qantas. We get people to where they want to go. And if you take a look at our network, it's also where the demographics are moving to from an economic perspective and from a population perspective. You take a look at where we're at. We're in Florida. We're in Texas. We're in the Carolinas. We're in Arizona. American is in the heart of where real economic activity is happening. And on top of that, we still have a great presence in places like Chicago and New York and in Los Angeles. So a lot that goes into everything, but I want to underscore it all with this, at American, we've never lost sight that we are a business that cares for people on life's journey. I have a great team behind us that serve 600,000-plus customers a day, and I'm really proud of what they've done and how they're setting us up for the next 10 years.

Okay. So let's dig into a little bit around some topics around demand and consumer health, right? So the consumer signal right now is at best mixed, right? You've got a pretty case shaped economy where the lower end has got to be feeling the pinch of the pump. The premium end is still continuing to travel, at least based on all the data that we're seeing. As you look through your booking curve, yield mix, what are you seeing across high-end leisure middle-income basic? Where is the strength? Where is the weakness? Give us a cross-section of your demand outlook right now?

Okay. So we're about 80% booked in the second quarter. So I can give you our views on that. We're no different than the other network carriers in terms of where our customers come from. We have the same percentage of high earners and the mix throughout the entire population of travelers. What I would tell you is I feel great about demand overall, okay? No doubt, there is a K-shaped aspect to demand right now. But it is clear that no matter what end of the spectrum you're at, people want to travel. People want experiences. People want better service. And so, yes, top economic earners are out in terms of overall growth, are outpacing the growth that you see from mid and lower tier, okay? But they're all up. And for us, different than last year where, let's face it, supply-demand balance domestically was more difficult. There's more positive environment for international. Where demand is coming from now, it speaks to our strengths. We have a very, very strong and most comprehensive network in North America. It's centered on our domestic network. We're seeing really strong demand locally that complements what's going on from an international perspective. Other color that we can give, one in Heathrow is doing really, really well, even in comparison to strength around Europe. Asia is doing well, centered on Japan, again, a strength of ours. So we see strength across the board. And as we talked, the other aspects of business, whether it's premium leisure, it's doing incredibly well, corporate travel, up 13%, managed corporate 13% year-over-year. And again, strong domestic demand.

And are you seeing any sort of response across the spectrum around sort of biops maybe changing a little bit? I've sort of interested in this idea that you've got this ability for customers to buy up and then the worst market, maybe there's also a trade across. Are you seeing some of that as well? I mean, are you seeing potentially corporate saying, hey, the first-class seat across to Europe is way too expensive, fly economy.

Well, first off, our premium economy and our business class product are absolutely the best performing of anything that we sell right now. Premium traffic overall still leads leisure traffic. But I feel great about that. And from a buy-up perspective, some of the things that we've done, whether it's more the basic end of things, quite frankly, giving people a reason to aspire for more and doing it in a way that people find great value, that's working really well. So the redesign of our basic economy product. What I'd also say is that we've given people more choice, obviously, through our app. So that if corporate policy says premium economy across the Atlantic is all you can get, we've given customers a way that they can easily buy into a business class cabin as well. And we're seeing great traction from that perspective. So I think technology has really allowed us to put an offering in front of customers that works with their corporate plans, works with their own desires. And across the board, it's absolutely one of the big drivers of American's performance.

And just to maybe kind of follow up on that, as you think about the technology and that in-app buy-up experience, that's something where I know just from my own experience, maybe a couple of years ago, it seemed like you guys were kind of far behind in terms of like giving away the upgrades instead of asking to get paid for them? Do you feel like you kind of close that gap relative to the peers in the last couple of years?

Absolutely. We've gone through a couple of phases of redesign most recently. It definitely does a better job of laying out what's available and why there's benefit to potentially paying some more. And customers were getting great feedback, great traction. Whatever the criticisms were for our app in the past, we certainly closed those gaps. And I really like what I see going forward. It even comes down to things that I think are going to be pretty sticky as we go forward, we have the ability to offer customers now to prepurchase bags, check baggage. And we offer that at a discount, and customers are availing themselves of that. We have much better technology in terms of the banking customers know where those bags are along their journey. Anything that we can do to give our customers the ability to see what we have to sell and then also understand how they can control the process, as they work through their travel experience, all that is an opportunity for us.

Okay. So looking at the broader marketplace, again, spirits liquidation pulled some capacity out of the domestic market. Is there anything you've seen in your basic economy demand that recognizes that? Or like how do you -- how are you -- how is that exit having an impact on your business?

Well, you mentioned basic economy, but I'd suggest that in the supply and demand environment where there's possibly more capacity than demand last year, this has been a good thing. And for American, let's face it, we competed with Spirit across the board. We service 70 of the 72 airports that they serve. I think we competed on 67 of the markets they served. So there's absolute impact, but realize this, though, at the time of their liquidation, they're only 1.5% of the marketplace. So we saw an immediate blip up in terms of basic economy, fair purchasing. But we saw across-the-board improvement in all those places that we competed directly. And while there may have been a lower end of that, that benefited initially, it's evened out. And I think one of the things that we have to take into account is that those Spirit customers, when they are able to avail themselves a product like Americans, they see the benefit of some of the other offerings that we make. And it's hard to tell. You can't parse out exactly who is the Spirit customer and who wasn't, but what we see now is just a return to the spread of demand that we had, had before. And nothing really noticeable other than we continue to see strength in those places we competed directly with Spirit. I think that, that bodes well for American in the long run.

Okay. And I think you guys have mentioned that your recovery from the corporate sales kind of step back that's over with. We don't even talk about that anymore.

No, I'd like to talk about it because I think it's -- we definitely needed to make a pivot. This TMC is a managed corporate business is a really important place for us to be able to play, especially with the kind of product that we have. So our intent was when we adjusted our focus was to regain the share that we had lost. And fortunately, over the last couple of years, we've been able to do that, but there's upside to it. The upside to it is that the mix of buying in the TMC and corporate channel has changed. There's more premium leisure that buys through those. And again, the reason we're so focused on it is that, that channel represents from a yield basis probably double what a normal leisure fair would be. So we're going to be a strong player in it. Overall, the volume of passengers prior to the pandemic to where we're at now, it's still down probably about 20%, but it's been -- we've made up for that much, much more in terms...

The volume and managed corporate is still 20% lower than what it was.

Probably about 20% lower, but the yields that we've seen on that business more than make up, still really, really strong. So for American, the next steps are, whatever share we had, there's much, much more upside. And the things that we have been able to do is to get out there with the TMCs, and initially, we'd set up some shorter-term contracts. We had to rebuild some -- regain some trust. We've done that, fortunately. And now what we're seeing is just incredible demand for American to be out there and a willingness to negotiate contracts that are longer term in length that come with, quite frankly, greater share commitments. And we're really pleased with it. Now, we're also really smart. We can't get back into a practice of overpaying for that share. We won't do that. But it's really a smart thing for us to be a player, a big player. I really like what I see.

Can you help us calibrate that 20% relative to pre-pandemic? Is that consistent with your view of how the market has changed? Or have you lost share in that corporate channel?

No. Absolutely not. No. Whenever we speak to regaining our share, it's share. Okay. So I'm...

But in absolute terms, the market has shifted away.

But the interesting thing there, though, is while prior to the pandemic, TMCs and managed corporates. But really, it's corporate business versus premium leisure that would have been more of a 50-50 split, now that premium leisure is more like 65%, okay? 35%. And so for us, it fits -- again, fits very well with the product that we have out there in the marketplace. It fits very well with how we go to market. And that's a trend that I think speaks to the resiliency of premium traffic and our ability to continue to manage yields in a really positive fashion.

Okay. And turning to the $4 billion of incremental fuel that you're paying for and absorbing this year, right? Because I think if anybody will put $4 billion of incremental revenue into the model, you went way above your $250 million. But -- can you walk us through kind of where that's coming from? Obviously, part of it is just straight fare hikes, right? Part of that is going to be bags, right? Part of that is going to be you've got more premium seats than you had before, so you've got some mix in there, which -- if you think about that $4 billion, like how much of it is due to the better product you have in the marketplace, just the mix change versus the other components of it? Is there a way to think about that bridge? I think -- because the question I get asked a lot is, okay, revenue is up mid-teens, but when you net revenue goes down mid-teens, like you're going to be back in the same place.

Okay. So David, on that, I just want to -- I want to start with this. And again, it's hard to split it out because I think that they're all leading loyalty brings customers back the new city deal.

You got the city deal that...

You've got the new city deals, product drive for premium revenue has been something that technology-enabled our network restoration, okay, has been about rebuilding in places like Philadelphia and Chicago that we had left a little bit untended over the last few years. So there's a combination of all that. But I think the important thing to recognize is that if you go look at the first quarter, before the fuel spike had really taken place, right, we were already looking at really super unit revenue performance, okay? Even take a look into the second quarter, where look, we're 80% booked and you could slap a percentage on what we see so far in terms of fuel price recovery in the quarter. But don't forget, a lot of that was booked, as we were going through the early stages of the shock. And that first quarter, revenues up 10%, 11%. Second quarter, still on track for up 15%, and I'm not saying we keep all of it, okay? But I really do think the kind of things that we had done that were already beginning to take root in the first quarter, okay, are going to continue through. So you're right. Increased bag fees, those are going to be pretty sticky. Now, let's face it. It's not just fuel that has been a cost pressure, okay? There's been cost pressure in many other areas. American has done an incredible job of being the most efficient producer of capacity. I'm really pleased that we have labor contracts in place that we're not actively negotiating really anything sizable right now. And what you've seen is really stress from on the ULCC business model. You've seen everybody trying to jump into the premium game. I think the industry as a whole realizes that, look, there to make a margin, there has to be something done differently. So for us, having made the investments, being a premium global airline and having so much coming to market, I think we're suited very well to retain quite a bit of what we've seen. And so that gives me great confidence that not only would have we delivered what we had anticipated in the first quarter when we started earlier off, but that we would have beaten that. And so again, as I look out into 2027 and beyond, I do think American Airlines is a carrier that we'll be able to produce pretax margins in the mid- to high single digits and produce EBITDA margins in the mid- to high teens. That's what's in our future.

The $65,000 question here is, though, like how much of this fair spike are you going to be able to hold on to. So if you were going to talk to me or to an investor about conceptually what are the building blocks that would allow you to hold on to more of that than somebody else, which then allows you to have that better earnings leverage? Like obviously, some of it is going to come from the maturation of city? What are the other legos in there?

We had more to catch up than others okay? And so yes, our sales and distribution strategy is going to be a player. Our ability to segment and to drive premium revenues through buy-up is absolutely going to be a portion of that. We're also really making great use of our network. Our network, we've reestablished our presence in Chicago. Philadelphia is really doing very well. Miami, same thing, doing very well. Phoenix is doing very well, complementing our DFW and Charlotte hubs. And on top of that, last year, in the wake of 5342 and all the trouble with government shutdowns, DCA was not a fantastic performing hub for us. I've seen the return of all that. That is all here to stay. So I have great confidence of what we saw in that first quarter, where our unit revenue is up 7% without the impact of fuel spike. I have great confidence that what we're seeing in the second quarter, where we anticipate year-over-year revenue growth of 15% on 5% capacity growth. I anticipate that much of that is something that we will retain. 5 out of the last 6 quarters, American has outperformed in terms of year-over-year performance, our network peers. That's what's in store for American, and it's based on those 4 pillars.

And do you think the retention level on this is going to be better American than is going to be industry leading or no?

Well, I'd just point to, again, first and second quarter I see that trend continuing.

Okay. Spirit is probably the biggest structural change we've seen in a while. You've been in the business for a long time. So I'd love to get your perspective on this. I think as an outside analyst looking in, the growth of supply and basic economy just having too many basic seats for sale. That seemed kind of evident. When you're operating within the business, were you surprised at the ULCC model has come under so much pressure from fair segmentation? Or is this something that you had expected was going to be happening? Because it does seem like this is a permanent kind of change in industry performance.

Well, I think it goes back to the investment we made at American in developing a basic comedy product and doing it in a way that could really compete effectively. At the same time, making best use of our network, making really good use of our loyalty initiatives, making great use of just our scale. And so today, we find ourselves in a position where customers want to be able to avail themselves of every range of the product. They want a carrier that can get them anywhere that they want to go into class of service. They want to carry that has partnerships that allow a great experience as well. We offer all of that. And what you see from a ULCC perspective is everybody trying to get in the game and whether it's everybody is trying to manage up to offer a product. But I think it's just so hard. When you think about the network that we have, the lounge network that we have, the product that we have, the partnerships that we have and still being able to offer a basic economy product. I think that, that just bodes really well for us. But some other things are out there, too, David. Let's face it. Aircraft aren't cheap, okay? People need to be paid a decent wage, okay? And those kind of costs, it's not easy to pick up gates in really desirable places to fly. Those kind of issues from a cost perspective, we're eventually going to catch up with the ULCCs. But on top of that, in that we can compete, and their customers would rather be flying American Airlines and rather be in our loyalty network, the world's largest. That all bodes well for us. So I am not out here declaring ULCCs are dead. But what I can say is the advantage that American has is really beneficial, as we take a look at where the marketplace is headed. I like what I see in terms of demand trends. I think that people will continue to spend on experiences. I think that demographics suggest that our network is in the right place. When you take a look at where people are in terms of their taste, they want to take care of themselves, all that bodes well for us.

Okay. And I guess, as you think about from a network perspective, right, you guys had been down the path towards the Northeast blue that got unwound. Where do you see opportunities to improve the network?

Sure. Well, first off, we've done some really innovative things over the years, the NEA, which I think was wrongfully struck down, it benefited us. I know it benefited. We've been able to do something out on the West Coast with Alaska. American has been really smart about the relationships that we pursued. It's always been with super quality players. I love 1 world right now. I'm still the chair of 1 world. But that 1 world has enabled us to develop these joint businesses with the premier carriers in the leading business markets around the world. So American, while every network, every airline has their strengths and weaknesses. Ours just wouldn't trade for the world. As I mentioned before, we have such strength where economic development is happening, where population is moving within the United States across the Sunbelt, Phoenix and DFW and Charlotte and Miami, all that bodes really well. We've got a great position in DCA. What we have in New York, what may not be as large as others. We have a fantastic relationship through BA that allows us to be able to serve London Heathrow more than anybody else. We have a position in Los Angeles that today is very strong. But as we get to the completion of the Los Angeles Construction by 2028 by the Olympics, American will be back again in terms of a gate position that allows us to have a larger footprint than anyone. So from a network perspective, everybody has their strengths and weaknesses, but what I see our relationship with Alaska, American is going to have the largest position in Los Angeles. What we do in Phoenix is fantastic. Miami is going to continue to grow with the new regional terminal that's being built out. DFW will continue to grow. It will be the largest single carrier hub in the world over the next 3 to 5 years with the construction of Terminal F. Philadelphia is being restored as a fantastic hub to all cities in Europe, especially secondary cities. Our fleet plan matches up really well with that. And in New York, we've got a great position in LaGuardia. And in JFK, we've done a nice job of making T8, a One World terminal and a great -- the new concessions, if you haven't been through there yet, combined with our world-class lounges, it's a great customer experience. So I feel great about it in any places that we sense an opportunity, we've been creative in the past, and we'll do so again.

Okay. As you think about the investments you're making right now on the commercial side, what's got you most excited over the next couple of years? Is it the hard product in the fleet? Or is there additional stuff that's in the works, whether it's merchandising through the app or any of the you're providing on board?

It's again, our vision, again, is premier global airline and with that comes an understanding that every element of our product really needs to hold its own. And from that perspective, we've been skating to where the puck is headed for a number of years. And so I'm just going to start with. I really like what -- where our fleet is. From a hard product perspective, I think that you're going to see more flagship suites, you're going to see premium seating growing at twice the rate of main cabin seating. You're going to see nearly 50% growth of lie-flat seats coming up, which is over the next 3 years. All that's really exciting because I know that's where customers tastes are, and it also fits with our ability to sell to customers. But that product in the sky, it has to be matched up with a product on the ground as well. And from that perspective, what we're doing with all of the local communities and developing airports, I'm super proud of. All that puts us in a position where we can take advantage of work that we've been doing for years. And not only that, but take advantage of it in a way that it doesn't require an inordinate future capital spending. So for American, we don't have retirement plan over the next 5 years. We've already baked in the cost of all these airport improvements. And what that suggests is we're in the right places. We've got the right product offering. From a commercial perspective, we're going to outperform from a revenue production perspective, match that up with the most efficient capacity producer in the business. It's upside for our customers.

As you think about some of those investments, whether it's on the commercial side, satellite is in there as well, right? Obviously, that's got a little bit of a cost component to it. I'm sure rebanking DFW wasn't cheap, right? So you're adding a little bit of buffer into that capacity. How do you think about the cost drag of that as we come out to the other side, maybe claiming a share of that revenue upside that we've had here? Or is that stuff that you would have expected to have been absorbed in normal pricing anyway?

Okay. So just from a product and amenities perspective. So whether it's satellite WiFi, we made a decision years ago that we're going to be the leader in satellite -- and we set out not only to deploy satellite WiFi on our narrow-body fleet, but to also do that from a regional aircraft perspective. And I'm really proud to say that American offers more satellite WiFi connectivity across our network than anyone. That continues, though. We know that we have to be really smart about where we go, and we have to offer a product to known value. And that's why I love what we've done with Starlink. I know that Starlink is going to be a great partner. They have a product that's out in the marketplace right now, really doing a nice job. And given American Airlines, it's -- look, there's a lot of desire to associate with solid brands. And you can assume that we do really well in terms of how we are able to get those services and price those services. And what I'd tell you just on that alone, I don't -- it's nothing material just from a product upgrade. Whatever else we've invested in, we've been smart about it. It's baked into our planning. And when it comes to reliability, I just underscore this, that the most efficient way to run an airline is by being as reliable as you possibly can be. It means that you're retaining more revenue. It means that you're paying less in terms of customer inconvenience and doing things to make up for disappointment. And so what we've seen so far with the 13 bank is no degradation in revenue performance because I think also customers recognize the value in having a more reliable schedule and are willing to pay for that as well. So we haven't seen any type of degradation there. And anything that goes forward just think of the offsets, misconnected customers, mishandled baggage, anything in terms of irregular operations recovery. The more that we can do to retain customers, to make sure that our team members aren't disrupted, to make sure that our aircraft are in the right position, it benefits us in the long run.

Okay. So as you think about the trajectory for unit cost inflation kind of coming out of this crisis, if you are going to be a higher service, more sort of brand experience, is it right to think that there's a little bit more inflation in the business? Or is it going to be the same sort of?

Look, we've built our network, again, with no retirements that any new aircraft deliveries can be put to growth. We're going to be smart about this. So as I take a look over the long run from a capital expense, from an operating expense, I really like what we've done. We're already in terms of compensation and benefits, we're already top of the industry. We're set with our fleet. We operate in some airports that really are -- offer great economics in terms of cost per employment, underscore a place like Charlotte, for example, the communities that we serve understand that's important for really large connecting complexes. So I think that we're going to continue to be the cost leader in terms of efficiency of production of capacity. I think it's something that based on the way that we've built our airline, based on where we'll have to deploy capital, I think it's sustainable. And it's something that we're going to be really attentive to. But let me tell you -- it's going to be with that mindset. And whether it's offering our customers a better product, giving them more control or helping us optimize how we do work, I think that there's tremendous opportunity to use that same process that we've put to the company through the last couple of years to execute and to deliver even more.

Okay. If we think about the balance sheet and capital allocation going forward, obviously, you guys have gotten debt below $35 billion adjusted on a net basis at least on plan. How do you think about the next couple of years in respect to debt? I mean, obviously, we're in a crisis right now. You've got a lot of operating resource drag. Is there a potential that you might have to kind of lean into some of those unencumbered assets to get through this current fuel crisis? And then, as you kind of get to the other side of that, when you get to a better rating, what should investors be expecting from a cash flow and capital return perspective?

Okay. Well, I think you can tell from what we've done over the last few years. You take a step back, and height of the pandemic, $54 billion of total debt. It's a remarkable story to be able to say that today, with $35 billion of total debt and that expectation to kind of end the year that way, it's a remarkable story to tell that we've been able to bring down debt that much. And it's a tribute to our team. Earnings have not been fantastic the last year or so. And we've done that through being smart about how we spend, being really determined in terms of being efficient. And our focus going forward is continuing to whittle that down even further. It feels great to be we're the best total debt level that we've had in over a decade, but we're not stopping there. When we get to those pretax margins of mid- to high single digits, you can bet that, that margin performance is going to result in real free cash flow, real free cash flow that I think will be different than others in the industry because we have the youngest fleet, because we've made the investments in our fleet and because even with the reconfigurations that we're doing and the deliveries that we have, we don't have retirements over the next 5 years. So our ability to actually grow from this base that we're at right now, we can certainly match where demand is, and we'll be smart about how we deploy it. But ultimately, that means American is going to continue to improve our leverage story. We have a BB flat target that is something I think that we will hit over the next few years. That puts us in a really great spot. And then, we'll have to talk about what happens beyond that.

Okay. So we're coming up to the end here. I usually like to give you a chance to make the bull case, tell an investor who's maybe looking at the industry today, why American is the right place to allocate that incremental dollar investment.

There's more upside at American than any other carrier. We've weathered a tremendous amount of challenges over the last few years. I love where the demand environment is today, really encouraged by what I see from a domestic perspective. And American is focused on our 4 pillars. Those 4 pillars of elevating customer experience, really taking advantage of our network and the growth that remains and looking at that network as being the most comprehensive, the best positioned in -- of any carrier, it puts us in a really enviable position. We're able to match up that customer experience and that network with a drive to premium revenue, having a hard product that is really well configured for segmentation for our customers. We're bringing technology to use and then wrapping that all into the industry's leading loyalty program. Everybody wants an AAdvantage mile. They know that they're going to get more for it. And the ecosystem has only been improved by what we've done with the launch of the Citi deal, which we're seeing acquisitions and spend hit the targets that we had established. We're off to a really fast start. Ultimately, that's going to lead to margin improvement. It's going to lead to free cash flow production, leverage reduction and an investor story that especially as this fuel spike evens out, it plays well for American. And I'd just like to thank, not only our customers, but also our team members. We've got a fantastic group of 130,000 team members that are out there every day. We're set up better this summer than we have ever been. We're going to have difficulties with weather and whatnot, but I can guarantee you this that our team members are set on getting people to where they want to go, find value in what they pay us and really do a nice job for our customers. So David, thank you for having me out here.

Thanks for joining us, and thank you for supporting the conference. Enjoy the rest of your day.