American Airlines Group Inc. (AAL) Q3 2011 Earnings Report, Transcript and Summary

Derek J. Kerr - Chief Financial officer, Chief Financial officer of America West Airlines Inc, Executive Vice President and Principal Accounting officer William Douglas Parker - Executive Chairman, Chief Executive Officer, Chairman of Labor Committee, Chairman of US Airways and Director of AWA J. Scott Kirby - President Daniel Cravens - Director of Investor Relations Stephen L. Johnson - Executive Vice President of Corporate & Government Affairs and General Counsel

William J. Greene - Morgan Stanley, Research Division Josh Freed - Associated Press Kevin Crissey - UBS Investment Bank, Research Division Helane Becker - Dahlman Rose & Company, LLC, Research Division Garrett L. Chase - Barclays Capital, Research Division Hunter K. Keay - Wolfe Trahan & Co. Mary Schlangenstein - Bloomberg News Will Randow - Citigroup Inc, Research Division Michael Linenberg - Deutsche Bank AG, Research Division Jamie N. Baker - JP Morgan Chase & Co, Research Division Glenn D. Engel - BofA Merrill Lynch, Research Division Ted Reed - TheStreet.com Daniel McKenzie - Rodman & Renshaw, LLC, Research Division Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Good day, and welcome to the US Airways Third Quarter Earnings Conference Call. Today's call is being recorded. [Operator Instructions] And now I'd like to turn the conference over to your moderator, Director of Investor Relations, Mr. Daniel Cravens. Please go ahead.

Thank you. And welcome, everybody to the US Airways Third Quarter 2011 Earnings Conference call. In the room with us today in Phoenix are Doug Parker, our Chairman and CEO; Scott Kirby, our President; Derek Kerr, our Chief Financial Officer. And also in the room with us for our Q&A session are Robert Isom, our Chief Operating Officer; and Steve Johnson, our EVP of Corporate. Like we typically do, we're going to start with Doug, and he will provide an overview of the third quarter financial results. Derek will then walk us through the details of the quarter including our costs and liquidity. Scott will follow with commentary on the revenue environment and our operational performance. And then after we hear from those comments, we will open the call for analyst's questions, and lastly, questions from the media. But before we begin, we must state that today’s call does contain forward-looking statements, including statements concerning future revenues and fuel prices. These statements represent our predictions and expectations as to future events, but numerous risks and uncertainties could cause actual results to differ materially from those projected. Information about some of these risks and uncertainties can be found in our earnings release issued this morning, our Form 10-Q for the September 30 quarter, and also our 2010 Form 10-K. In addition, we will be discussing certain non-GAAP financial measures this morning, such as net loss, CASM, excluding unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings release, and that can be found on our website at usairways.com, under the Company Information/Investor Relations section. A webcast of this call is also available on our website, usairways.com and will be archived for approximately one month. The information that we're giving you on the call is as of today's date and we undertake no obligation to update the information subsequently. Thanks again for joining us. At this point, I'd like to turn the call over to our Chairman and CEO, Doug Parker.

Thank you, Dan. Thanks, everyone, for being on. As I'm sure you've seen by now, we reported net profit for the third quarter of $95 million. That is down from third quarter of 2010 profit of $243 million on the same basis. That decline probably really was driven by 44% increase in our average fuel price. Had average fuel prices remained at the third quarter 2010 levels, our third quarter 2011 fuel expense would've been approximately $360 million lower. So the fuel price increase alone drove an increase in our year-over-year expenses of $360 million, our net income declined by only $150 million. And that is due to some really nice work by our team. In particular, our revenues were up 8% to a record $3.4 billion and our total revenue per ASM was up 9% to a record $0.1502. So while everyone continues to talk about economic weakness and uncertainty, we haven't seen it. And in fact, we are experiencing our company's best ever revenue performance both in total and per unit, and Scott will talk more about that in a minute. We're also doing a really nice job of keeping our non-fuel expenses in check. Our unit cost, excluding fuel and special items was up only 1.7%, despite a 0.6% reduction in ASMs. And Derek will talk more about that and other financial issues in a moment. But before I turn it over to Scott and Derek, I do want to talk about what these results say about our industry, and one continuing major threat to our industry. First of all, as I pointed out on our second quarter call, the fact that US Airways and most other airlines are able to produce profits with fuel prices this high, indicate how much progress our industry has made in the past few years. The average fuel price per gallon paid by US Airways in 2011 will be almost exactly the same as it was in one of our industry's worst year ever, 2008. In 2008, US Airways lost about $800 million. So far in 2011, we've made nearly $100 million. That major improvement is certainly not due to improvements in the global economy, it's been a lot of hard work at US Airways and a real industry transformation. Their consolidation, capacity constraint, cost control and management teams who care more but returns on invested capital than they do about growth or market share. As a result, I think we're well on our way to finally getting the airline business to be like other businesses, and that's great news for our employees, our investors, our customers and all the communities we serve. Unfortunately, there's one important area that haven't been able to transform yet and it's hurting all of us, and that's government policy. The need for a national airline policy, I think is the final frontier in transforming this industry. But we got a long way to go on this one. And I could talk about it for a long time, but I just ask you consider the following: When ranking industries on contribution to GDP, aviation is third, just behind energy and farming. But in profitability, we're last. And we have the most taxes and fees imposed by the federal government. There is definitely a correlation between being the highest taxed and the least profitable. And when that happens to one of the largest contributors, it clearly hurts the economy, and that is bad policy. Worse yet, there are efforts in Washington to make the problem much worse. The administration wants Congress to double the passenger and security tax, $5 per one-way trip and triple it to $750 by 2017. They have also asked Congress to impose the new $100 tax for every aircraft departure. These taxes alone would cost airlines and our customers $36 billion over the next 10 years. That's $3.6 billion per year on average, and for US Airways, it's about $350 million per year on average. And remember, our company, our best profitability year ever is $500 million. So you might wonder why I'm taking the time on our earnings call to talk to you about the taxes, but hopefully those figures explain it. We have questions on these calls about important issues all the time, like unit revenue forecast. But none of those issues come close to being worth $350 million per year. These new taxes would mean lower earnings for airlines, less services in small communities and many fewer jobs. But if you care about these things, we ask you to visit the Air Transport Association's website at stopairtaxnow.com. We know, we as an industry need to work over time to help our elected officials understand the need for a national airline policy. But in the near term, we need your help. Letting them know that we can't take anymore taxation. So with that said, I will turn it over to Derek to start with our financials.

Thanks, Doug. This morning, we reported on a GAAP basis a net profit of $76 million or $0.41 per diluted share. This compares to a net profit of $240 million or $1.22 per diluted share in the third quarter of 2010. When you exclude net special charges, the company's net profit, as Doug said, for the third quarter was $95 million or $0.51 per diluted share versus a net profit of $243 million or $1.23 per diluted share in the third quarter of last year. The decline in profitability was driven by a 44% increase in consolidated fuel price, which I will talk about a little later. During the quarter, the company recognized approximately $19 million of net special charges, operating special charges totaled $13 million, which were primarily legal costs incurred in connection with the Delta slot transaction and auction rate security arbitration, as well as severance costs. In addition, the company incurred a $21 million noncash charge in connection with the sale of our final investment in auction-rate securities during the third quarter of 2011. These changes were offset in part by a $15 million special credit from the cash award received in an auction-rate security investment arbitration. For the third quarter, total capacity was 22.6 billion ASMs, down 1.2% from 2010. Our Mainline capacity for the quarter was 19 billion ASMs, down 0.6% from a year ago. Express capacity was 3.6 billion ASMs, down 4.6% from 2010. We ended the quarter with 339 Mainline aircraft during the quarter. We took delivery of 3 A321 aircraft and returned 2 737-300 aircraft to lessors. For the remainder of 2011, we plan on retiring 8 more 737-300s and taking delivery of 9 A321 aircraft. As I said last time, the entire 737-300 fleet will be retired by the end of 2012. The 2011 A321 aircraft deliveries are all financed, and will be financed using a combination of previously arranged debt and lease financing. We continue to maintain our previous ASM guidance. Mainline ASMs are projected to be 27.6 billion this year, which is up approximately 1.4% versus 2010, with domestic up slightly and the international up 3% year-over-year. These estimates take into account fourth quarter Mainline capacity at 17.4 billion ASMs, a reduction of 0.2% versus 2010. Express capacity for the fourth quarter will be down 7.3% year-over-year. We're still completing our 2012 planning process, so formal ASM guidance for 2012 will come at a later date. This time, we expect total 2012 capacity to be up less than 1%. This increase is largely the result of 2012 being a leap year, thus adding a day and from replacing the 12 older 737-300 aircraft with new A321s that have a higher seat count. A robust demand environment and strong passenger yields led to improved revenue performance. Our revenue management team continue to do a tremendous job during the quarter. Total operating revenues and unit revenue for the quarter were new records, with total operating revenues of $3.4 billion, up 8.1% from the same period in 2010, and total revenue per available seat mile of $0.1521, up 9.4% versus the same period last year. These increases were driven primarily by a 7.8% increase in passenger yield on a 1.2% decrease in total ASMs. Mainline passenger revenues were $2.3 billion, up 9.7% during the quarter, other operating revenues were up $3 million, up 1% versus 2010 and cargo revenues were up $3 million or 8% driven by increases in yields. Our third quarter results were significantly impacted by the high cost of jet fuel. The airline's operating expenses for the quarter were $3.3 billion, up 13.7% compared to a year ago due mainly to a $356 million increase in consolidated fuel expense. Higher fuel costs also drove a 13.7% year-over-year increase in Mainline cost per ASM, excluding special items, to $0.1287. Our consolidated average fuel price including taxes was $3.14 per gallon for the third quarter of 2011 versus $2.18 per gallon in the third quarter of 2010. So a 44% increase. As Doug said, had average fuel price remained at third quarter 2010 levels, third quarter 2011 fuel expense would have been approximately $360 million lower. For the full year 2011, we are forecasting Mainline fuel in the range of $3.09 to $3.14, that's based on the October 24 forward curve. For the fourth quarter 2011 based on the same curve, we expect to pay $3.10 to $3.15 per gallon. Using these forecast prices, we anticipate that our full year 2011 fuel expense will increase by about $1.3 billion versus 2010. Higher revenues driven by a strong pricing environment and continued cost focused by our entire team allowed the company to offset much of the fuel price increase. Excluding fuel, special items and profit sharing, our Mainline cost per ASM increased year-over-year by 1.7% to $0.806. This increase was driven primarily by revenue-related expenses and increased benefit costs. The express cost per ASM, x fuel, was $0.1463 for the quarter, up 9.8% versus 2010. As previously discussed, this is due to certain CRJ aircraft operated by PSA, coming off their maintenance honeymoon and also a reduction in express ASMs of 4.6%. We believe it is imperative for us to maintain our unit cost advantage and have maintained our full year cost guidance. For the full year, our CASM x fuel and special items and profit sharing guidance at Mainline, flat to up 2% versus 2010. For the fourth quarter, we expect CASM x fuel special items and profit sharing to increase by 3% to 5% due again primarily to year-over-year increases in benefit costs and revenue-related costs. Express CASM is forecast to be up 6.8% in 2011. As I mentioned earlier in the call, we are just starting our 2012 budgeting process, and we'll have estimates for next year's unit cost on our next call. We ended the third quarter with $2.4 billion of total cash, of which $2 billion was unrestricted. This is the company's highest third quarter cash balance since 2007. During the quarter, we completed EETC offering in the aggregate face amount of approximately $53 million. This offering was an issuance of Class C certificates under the company's 2010-1 series EETC issued in December 2010. Going forward, we will focus on continuing to build cash through operations. For the first 9 months of this year, the company has generated $465 million of cash flow from operations and $149 million of free cash flow defined as operating cash flow less capital expenditures. During the quarter, we did have scheduled debt payments of $91 million. For the next couple of years, we have modest debt payments and the majority portion of our debt being the $1.14 billion Citi term loan, which is not due until 2014. Looking at CapEx. Our third quarter non-aircraft CapEx was $58 million. This was a little bit higher than our previous quarter due to 2 aircraft interior projects. We are adding first class on all of our large RJ aircraft, which should be complete by the end of the year. And we're also upgrading our Envoy product on our A330-300 aircraft to the lie-flat product currently used on A330-200 fleet and that project will be complete for the next summer. We now forecast total net CapEx to be $191 million in 2011, an increase due to the timing of these interior projects, which are currently ahead of schedule. This includes non-aircraft CapEx of $180 million and net aircraft CapEx of $11 million. For 2012, we expect non-aircraft CapEx to be in the $150 million to $175 million range, and I will give more guidance on that after we finish our planning process. So in summary, I'd like to thank all of our 31,000 team members for all they have done to achieve profitability in a period of high fuel prices, continued cost discipline, aggressive cost control and a focus on outstanding operational reliability has us well positioned for 2012. And with that, I'll turn it over to Scott.

Thanks, Derek. Before discussing the revenue environment, I'd like to thank all the employees of US Airways for all their hard work during the quarter and the great airline that they're running today. Turning to the revenue environment. We were pleased with our 10% year-over-year increase in RASM, in spite of the negative macroeconomic headlines that we all read. This strong revenue performance allowed us to recover most, but not yet all, of the increase in fuel prices during the quarter. During the quarter and even through yesterday's data, we just didn't and still don't see any evidence that the revenue environment is slowing. We've seen consistently strong demand from both leisure and business customers. On our last earnings call, we were cautiously optimistic that June represented the low point for industry revenue, and that appears to have been the case. For some geographic color, domestic and transatlantic RASM were each up over 10%, and transatlantic actually outperform the domestic by a very small margin. If you take a step back, I think the macro headlines are actually worst than the underlying economy. Certainly, airline revenues are performing as if we're in a very strong economy, and from a broader perspective, corporate earnings remained generally good, and most of the economic data is okay. It feels like we're muddling along in a weak recovery, not the robust recovery we've experienced historically after recessions, but also not the doom and gloom that you feel if you watch CNBC. The largest specific macroeconomic risk seems to be Europe, which while maybe it's going to become a big problem at least comes with the silver lining of likely lower oil prices. Second is the unemployment in the U.S., which is one statistic that is consistently weak. But employment generally has a low correlation with airline revenues. And finally, the media talks about risk of a slowdown in emerging markets. Maybe that's going to happen and impact our revenue some, but I expect the positive impact on oil prices will greatly outweigh the negative impact on revenue. On the outlook going forward, we haven't yet seen any change. The demand environment remains strong. Capacity actually declining into the fourth quarter as compared to the third quarter, and as a result of the strong demand environment, the pricing environment remains strong. Regionally, we expect the Atlantic to outperform domestic because capacity growth is flowing so much across the Atlantic. Before I give you specific numbers, you should keep in mind that September had several onetime benefits. The residual impact of the Hurricane Irene, the ticket tax expiration helping September and the movement of Yom Kippur from September into October, which helped September and negatively impacts October. The combination of all these factors is a little over 3% difference between September and October. We currently expect October RASM to be up 10% and fourth quarter RASM in total to be up about 10%. It's worth noting that based on this guidance and based on the current forward curve, we'll be recovering most of the increase in fuel prices on a year-over-year basis. Thus far, this year, we in the industry have done very well in responding to the increase in fuel prices. And while it hasn't been instantaneous, it's nice that we've been able to pass along most of the increased fuel price. I know that many of you on the call are looking for the canary in the coal mine that indicates airline revenues are turning down, but we just don't see it yet. So in conclusion, we really haven't seen any sign of a slowdown in demand. In fact, it's quite the opposite, with the robust pricing and demand environment. I suppose they could change in the future but for now, all the data we have leaves us optimistic about the demand outlook. And I think we're ready for questions.

Thanks, Scott. Operator, we're ready for any questions.

[Operator Instructions] And first in line, we will go to Hunter Keay with Wolfe Trahan. Hunter K. Keay - Wolfe Trahan & Co.: Scott, thanks for the color on the pricing stuff. Can you help us out a little bit with what happened in the most recent -- the industry's attempt at a fare increase. I know there's one about a week and a half week ago, and I think, I read that you guys had rolled some of the second one back a little bit. But it got confusing with some of the length of haul stuff. And I don't know, maybe an update on where we stand with that, and maybe what specifically happened this time versus previous industry attempts to raise fares?

Well, I don't think I can give you a lot of specifics because my General Counsel is sitting a few chairs away from me telling me not to. Although I think I've already have that ingrained anyway. But what I would say about the fare increases is that the pricing environment is strong. The pricing environment is strong because the demand environment is strong for the industry and whether any specific increase goes through or not, I think those have about a 50% success rate. It's more complex to have that happen when there's -- in this case, there's actually 3 different increases going on at the same time, and so that makes it more complex. But it's indicative of an environment of strong demand that I think you see across-the-board, low-cost carriers, legacy carriers, all of us see it. Certainly, inconsistent with the macroeconomic headlines, but just indicative of a strong demand environment. Hunter K. Keay - Wolfe Trahan & Co.: Okay. And maybe this is one for Doug or Scott, I'm not sure. But let me tee up the requisite M&A question. I know you said in the past, Doug, that you'd probably be involved if there was M&A between network carriers. But how can I reconcile the feasibility of that given the amount of scrutiny that a seemingly simple slot swap transaction just basically guarded from the regulators, would it take a crisis scenario for the current Federal Government to approve any kind of M&A involving you guys?

I'll let Steve Johnson do that one.

I don't think that you should assume that the difficulty we've had with the Department of Transportation and the Department of Justice on the slot transaction is indicative of their view of a merger. I think you've seen what -- the United Continental merger for instance had a small remedy to take care of some concentration at Newark. But in general, I think that the government has recognized the value of these mergers that have occurred and have allowed them to go through. I think that if there was another transaction, you'd see a similar result.

And at this time, we will move to Jamie Baker with JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: First quick question for Scott. Continental cited strength in the pharmaceutical sector. That's an area of strength for the Philadelphia hub, I would imagine. I'm curious if you concur in that regard?

I do. And I've heard the other questions, so for a broader answer to the question, our corporate revenues are strong. They were up 23% year-over-year in the third quarter. Mostly strong across the board, some weakness in banking. The banking sector, as opposed to sector weakness, is much more tactical, where we had one large corporate account that was down. But broadly across the board, all other sectors were up. And obviously, with the corporate revenue in total up 23% in the quarter, even the drag of 1 or 2 corporate accounts in banking wasn't enough to overcome the general strength in business revenues. Jamie N. Baker - JP Morgan Chase & Co, Research Division: And, Doug, follow-up to your prepared remarks, you commented on recent industry improvement. Your views are consistent with our own, and I'm sure most everybody in the call. But I still think there are a couple of bad actors out there. I personally think that the pricing department at Southwest and the marketing department at JetBlue stand in the way of even higher industry margins. I guess, my question is, aside from further consolidation, has the structural change that you cited largely run its course? Or is there anything else significant that the industry needs to do differently than it already is? I mean, changes in ticket construction, further unbundling. I mean, anything else potentially radical that pops into your mind? Or is it pretty much just a question of whether management stay on cruise control from here?

What I think is what I've said in my comments. First of all, I want to make sure I'm not -- by not commenting, I'm not endorsing the comments you made. Jamie N. Baker - JP Morgan Chase & Co, Research Division: That's fair.

So at any rate, so I'm not going to comment on that, but also I'm not endorsing by not commenting on it. But at any rate, what I think, Jamie, is basically what I said, and what we've been saying for a while now. I don't know, 3 or 4 years ago, we started saying this industry -- what I viewed by far as the best thing for our shareholders, at US Airways, a number of years ago, was for the industry to get well. We obviously worked very hard to make sure we do as well as we possibly can in the industry. But the real value to our shareholders is to see this industry get well, and of course you can always do better. But there were a number of things that needs to be addressed. Fragmentation was a huge one. That's been largely addressed. Even labor, which we still all have our issues. But the reality is I think it's fair to say that the employees of airlines understand, for the most part, that the best way for them to do as well as they can is for the industry to be as strong as it can be for each of the airlines they work for, to be as strong as they can be. And then management. The focus on management. As I said in my comments, I feel -- I think that people that are running the airlines now are certainly as good as we are right now in terms of focus on return on capital instead of market share and things like that. So all that feels good. What I really think is left, by far the biggest one left, if you're asking for what's the big one left, it's this national airline policy. We have a long way to go there. But that's -- we get that one fix, you always have things you wish that can maybe be a little better. But that -- this will be an industry like other industries. It should be able to produce returns like other industries do. But that's the one almost back now. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Okay. I certainly appreciate it, and I wasn't trying to put you on the spot before. Sometimes I just like to think out loud.

I know you weren't, and I just need to say what I said. So thanks, Jamie. Jamie N. Baker - JP Morgan Chase & Co, Research Division: I know, you got lawyers in the room.

We will move along to Bill Greene with Morgan Stanley.

Scott, a question for you. You've made a lot of sort of clear comments here on the revenue environment. On the ancillary side though, it doesn't seem like the growth is keeping up at all, it was sort of stalled here. Is that because we're so far along serving the ninth inning here in ancillary? Or is there a room for yield management or something to do to raise the ancillary side in terms of the pricing? Is there another opportunity? Or is this kind of steady-state, low single-digit growth is where we'll probably be?

Well, again, I got to be a little careful in terms of talking about pricing initiatives. I think there are opportunities and you see those opportunities occurring as airlines make smaller changes. They aren't the step function kind of increases that's going from no bag fees to having bag fees. But adding bag fees on second bags to Europe and all the other initiatives like that lead to more ancillary revenue opportunities. I think the next step function increases in ancillary revenues are related to selling new products as opposed to bag fees or there's probably some increase on bag fees. But new products like the Choice Seats products that we talked about. We're not the only airline that's going to do something like that. But charging more for a better seat on the airplane, having products that allow our customers to move to the front of the line, whether it's going through security or getting on the airplane first, are opportunities. Those opportunities are more complex, and they're more complex partially because of the GDS relationship that they need to be able to sell those products to the GDS. So they are going to be longer in coming. But once they are input, those can be in the -- I think, hundreds of millions of dollars revenue opportunity, but they're not going to happen tomorrow.

Okay. And then, Doug, you guys have done a pretty good job sort of going to areas of core strength, right? Sort of the slot swap transaction is probably the best example of changes that you've made. But something that sort of strikes me as kind of a lingering question, at least in my mind, is the shuttle. It's not clear to me why that sort of core and an area of strength, and I would think that a monetization of that or some sort of change there would actually be positive for US Air, unless I misunderstand what the shuttle does for the network.

Well, the shuttle is independently profitable as opposed to doing something on a grander scale for the network. So we're very happy with the shuttle service. The shuttle also, 2/3 of the shuttle in terms of number of flights, and probably 3 quarters in terms of actual capacity is to and from DCA, one of our core cities. So the shuttle remains profitable and very important to us. So we're happy with it, and don't think of that as something that we need to change in any way.

Moving on, we'll go to Michael Linenberg with Deutsche Bank.

I have 2 questions here actually. Scott, can you talk about in some of your core markets, what other competitors are doing with capacity? It looks like Southwest is pulling down a bit in Philly and I realized when Southwest comes on and says that they're going to de-hub Atlanta, I realized some of these markets are on a -- city-to-city aren't the same. But you would think that there are a lot of secondary and tertiary markets in the Southeast that you serve out of Charlotte that probably don't make sense to be served out of Atlanta anymore if you're going to de-hub that hub. What -- maybe some color on that?

Okay. The competitive capacity environment for US Airways moving into 2012 is pretty positive as you point out. Without talking about specific markets, this is just one of those things that ebbs and flows in 2011. We had more competitive capacity coming into our markets in 2012. That reverses itself somewhat. So I don't think it's any seismic shift that's occurring, but it will be a tailwind for us in 2012. And I think it's yet to be seen what's going to happen with Southwest and AirTran in the Southeast. There's some positive to that, but there's also -- Southwest is a fantastic competitor and a strong competitor. And so there's probably some offsetting negatives to that. So I think it remains to be seen. But it is pretty clear that the competitive dynamic for US Airways is good relative to the rest of the industry in 2012.

Okay. And then just my second question and this is, Scott, for you or Doug or maybe even Steve. It was -- I think Bloomberg had an article out recently, maybe it was last night about Republic looking to sell some DCA slots to raise some money. And I realize this transaction was done before your time. But from what I know, I believe that you do have a call option on that. So if, for some reason, you weren't to exercise that, could they sell them away from you or they have -- they can only deal with you? Can you just give us some color on what they can and can't do?

I'd just say that you're right. We have a call option on those slots.

And leave it at that?

Yes.

Moving along, we go to Helane Becker with Dahlman Rose. Helane Becker - Dahlman Rose & Company, LLC, Research Division: Actually Mike just asked my question. I was wondering if you would be interested in buying those Republic slots at DCA but I think you just...

I would also add that, I think, the slots we're talking about, we fly today as US Airways. They fly a US Airways slot, and this was essentially a financing transaction that Airways did in bankruptcy to raise financing from Republic. But they have always been flown as Airways slots, they still are. When we filed our slot swap transaction with the DOT and the DOJ, we treated these as US Airways slots.

And so do they.

And so do they. I think we're getting much ado about nothing.

And moving along, we'll go to Gary Chase with Barclays Capital.

I apologize, we actually had a little bit of difficulty hearing some of the prepared remarks, you were cutting in and out. And, Derek, I did hear you, at least I thought make a comment about 2012 capacity with all the ins and outs in the swap of aircraft. Would you mind just repeating that?

Sure. Yes, I think what we're expecting is up less than 1%. The fleet we are going to -- we still have 12 deliveries, A321 deliveries next year and we're going to replace older 737-300s. So the capacity being up less than 1%, is driven by that. Just seat count on those aircraft, plus there's an extra day in the year with leap year. So both of those are where we think we're going to come out from a capacity perspective, it's just less than 1% due to those 2 factors.

Surprisingly, despite the call quality issues and Scott's penchant for subtlety, we did pickup on the idea that he was feeling pretty good about revenue. But I wanted to see if you could discuss what -- we're all kind of familiar with the Mainline restrictions. Where are you on how you could react if necessary on the express side? Could you just walk us through a little bit of that?

We've got long-term equipments for most of the aircraft. The first aircraft that come off, well, we have a handful next year, although we've done a deal with SkyWest already to replace those, it's 2014. We don't have any -- we don't have for the most part, minimum utilization, so we could ground a number of our regional aircraft if we wanted to. I think it's highly unlikely we would do that because we would incur still most of the cost. So we have some flexibility, most of it comes in reducing utilization, which you should think about as mostly unlimited. But I wouldn't expect that we have meaningful capacity flexibility in the regional fleet until we get to 2014.

The cost saves there would just be fuel, Scott?

Fuel. There's some others. There's fuel and labor and such, but not -- you'd still be paying to own the aircraft, you still have a lot of fixed costs. I think we'll probably save 50% of the cost, but you still have 50% of the cost that is fixed.

Okay. And then if I could just ask one last one, it just feels like there's a lot of chatter about peak and offpeak. And it certainly feels like some of these offpeak months or shoulder months have felt stronger. I'm wondering if you have a view, is that just a function of a better capacity dynamic? And I guess, really, what I'm after is, do we need to be thinking that months with more of a peak in them would feel a little softer than what we saw in, say, in September?

Well, probably it won't surprise you that we do have a view. I think there's a simpler explanation, which is most of the fare increases have been either eliminating fare sales or dollar-based increases. So when your -- a percentage increase on high-priced fares is therefore lower, because they're the same dollar amount. When you look at peak periods, we typically already sold more high-fare tickets and had fewer fare sales available. So as the pricing environment has improved, these fares have gone up by a consistent dollar amount, and these fare sales have been eliminated. The percentage increase in peak periods is less in non-peak periods. I look at Thanksgiving as a perfect example. Our bookings are really strong for Thanksgiving. In some ways, too strong. We're booked for the whole Thanksgiving period over 4 points ahead of load factor, but our yield is up 9%. For the full month, for the first half of the month, our yield is up double digits. And the reason for that is because Thanksgiving has the highest yield of anytime of the year. We sell mostly structure fares, we sell high-priced tickets. We did last year. We will again this year. And those have gone up by the same dollar amount as the tickets that we're selling at the beginning of November, which is just a bigger increase. So it's really just a function of higher fares not -- increasing by the same dollar amount, which is a lower percent.

Is this relatively new? I mean, is it something we should expect to have a little bit of leg? We should be looking for more strength in some of those periods or we kind of coming upon...

As long as the -- I mean, because of what happens to the pricing environment. One, if the pricing environment stays kind of -- the changes stay the same, then I think it will continue. As long as there's kind of these constant dollar increases, then that's likely to continue.

Moving forward, we'll go to Kevin Crissey with UBS.

Can you give an update on Sabre and maybe where the online travel versus website direct has been in recent times?

On Sabre, given the loss here, I don't think we can say much about it. And on OTAs versus usairways.com. usairways.com it continues to grow. I think it was up a little over 2 points in the quarter to about 26%, and OTAs were down about the same amount. usairways.com is now larger than the total number of OTAs, and that's a recent -- that's recently flipped.

What's causing that? I mean, it seems like a strange behavior from a customer perspective with the booking fees being eliminated and so forth? Is there any offer that has changed from your website versus an OTA?

I think that more consumers -- there's not special offers on the website, but more consumers shop at OTAs and more and more consumers shop at OTAs and go directly to the airlines. While there's not more bonus miles or lower fares than there are at the OTAs. One, customer service is better and easier to deal with, particularly if you have a change or flight issues along the way. And 2, we've got a website that's really functional and creates a lot more benefit for the customer beyond just the price and frequent flyer mile, many more benefits. And so you just naturally see customers migrating to usairways.com instead of the OTAs.

Okay. And I guess, last question if I could. I know you're talking about strong revenue continuing and kind of what I thought you'd say. On the corporate accounts, if you surveyed them, did you mention whether you've surveyed them and what they're thoughts are in the next few years, if you have, I apologize.

We hadn't mentioned them. We don't formally survey them. But we get feedback from them. And I think the feedback is consistent with everything else we've said, which is most corporations are looking out and their businesses still look good. They're cautious because they all read the newspaper, but no changes planned to corporate demand or corporate travel yet. Although everyone is cautious because they do read the newspapers.

Moving forward, we'll go to Dan McKenzie with Rodman & Renshaw. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Scott, when does the impact of the slot swap begin showing up in the schedules data? And then related to that, is there any revenue risk in the transition that we need to worry about?

It's not in the schedules data yet because the deal isn't closed. It won't be in the schedule data until the transaction closes, and after it closes, we have to wait 90 days to effectuate the first half of the slot, 210 days for the second half. So it won't get loaded until the deal closes. And there certainly shouldn't be any material revenue risk. There'll be some costs associated, there will be costs more than anything associated with the move that will be onetime. I don't know if they can charge us onetime, but they'll be onetime in nature, and then we should be full speed ahead.

Yes. Steve, do you want to talk -- I'm sorry, Dan. Do you want update people on the closing and where we think we are? Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Yes, please.

Sure. I'm sure everybody saw that we did get approval from the Department of Transportation and the FAA a couple of weeks ago. To get the transaction closed, we still need to get the consent of the Port Authority of New York & New Jersey, and we need to get a greenlight from the Department of Justice. The port authorities, we hope, that the Port Authority will give us consent very quickly after the divestees are identified. You understand that there's a part of the deal with the DOT is to divest some slots at LaGuardia and Washington National. That's going to be done by an auction run by the FAA, and we hope that auction will take place just before or just after Thanksgiving. And we hope the ports approval would be forthcoming right after that. With respect to the DOJ, they issued a press release on the day we got DOT approval saying, that they were continuing their investigation or something to that effect and we're hopeful that after 26 or 27 months of investigation, that they'll get that completed in time for our closing this year. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Okay, that's helpful. And then as a follow-up here, Scott, AMR is seeking from its pilots the flexibility to add more domestic codeshare relationships. So I guess, my question is, does your involvement in the Star Alliance permit either a partial or a full codeshare with AMR domestically?

I believe we have some carve-outs, but we couldn't do a meaningful codeshare or a large codeshare with American given our commitments both in the Star Alliance and our labor agreements. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: And can you share what those carve-outs are?

I don't remember all of the details of what we can and can't do.

And at this time, we invite any media groups to ask questions. [Operator Instructions] Moving forward, we will go to Will Randow with Citi.

For the fourth quarter, the pricing guide is about 10%, sounded pretty healthy. Can you give us a sense for the monthly cadence or by month, and also kind of a sense of where bookings stands? You said, Thanksgiving was quite strong but how full are you -- is each month?

You broke up a little bit. I mean, we said October '10, and full quarter '10. So I assume November and December, I guess, similar to '10. And then bookings, we're booked ahead. We're booked, I don't know 3.5 points ahead for November and 2 points ahead for December right now. But I would caution you, that data is -- you shouldn't take much solace or concern in that data one way or another because what matters is the combination of bookings and yield. And on those 2 fronts, the book yields, they'll remain quite strong going forward and the bookings are strong. So as long as they're both good, that's a good sign and they both are.

And I was hoping you could share with us when you think you'll have more clarity from your corporate customers on their budgets for next year? And do you view international bookings as somewhat of a leading indicator compared to the system? The reason I ask is looking back to the end of October 2008, bookings look pretty solid and obviously, we found out what happened thereafter.

Well, first, I'd say back in October of 2008, bookings had started to turn down. If you go read the transcripts which one of the analyst published actually. I thought it was very interesting. The transcripts are commentary from all of our conference calls in 2008. All the airlines were sounding cautious, we clearly had seen some slowdown in demand, but it did accelerate at the beginning of 2009. I think that contrasts with this earnings season. But that doesn't mean it won't change. We can't change in a hurry. But it's certainly, a different tone today than it was 2011. As to corporate demand, I guess to be -- I guess, my view is we will get good feedback -- or the only feedback that we will get from corporate accounts that matters is what they do as opposed to what tell us. I answer the question on what people tell us because someone asked it. But what people are planning and what they actually do are not highly correlated. Because they do -- they make their plan and make someone happy, they do this on a realtime basis. And we're not going to know that corporate revenues are going to accelerate or slowdown until they start accelerating or slow down.

At this time, we'll move to Jeff Kauffman with Sterne Agee. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: This corporate travel question has been asked a lot. So I'm going to come back to it. You responded that watch what they do, not what they say. But in terms of your discussions with your corporate customers, are they asking you about anything different? I know you said they read the paper, they're nervous. But what's changing in the tone of the discussions? Anything?

I don't think anything. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Okay. That's all I got to ask about that. Slot swap, I apologize, you were fading in and out a little bit during the call. You mentioned there's going to be some costs associated with the slot swap, onetime nature. What should change in yours cost structure on a going forward permanent basis once the slot swap hopefully becomes effective.

I would say -- this is Derek. And on a permanent nature, I don't think it's anything. There'll be some reduction in cost at LaGuardia, but we will have increased cost at DCA. The aircraft are still the same. We're just really shifting those aircraft and flying them down in DCA. So I think the onetime costs are really buildout costs and things at airports to handle more flying at DCA and also a club we need to put in at LaGuardia, because Delta would take over our club there. So there's an amount of capital that were going to spend when we get the transaction done. But from a cost perspective going forward, it shouldn't be any meaningful difference from a cost perspective because we're still flying the same fleet.

And the capital expenditure will not be a number you include in your spread sheets, if we are rounding it.

Right. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: All right. And then lastly, with the DOJ, they're still studying it. In theory, you could proceed even if DOJ was still studying it. They would have to make a decision whether or not to try to block it. But if DOJ can study, you could proceed in theory, right?

Well, I don't know. I... Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Ideally, you don't want to do that. But in theory, that wouldn't stop it from happening, would it?

Well, in theory, you're correct.

Moving forward, we'll go to Glenn Engel with BoA.

A question on economy plus or Delta's economy comfort. So both those airlines seem to be Continental switching over to United's model Delta. What does it makes us or them but may not make sense for you to have more room in coach product?

Well, I'll be careful about, I guess, contrasting between the 2. We're selling a product called Choice Seats, where customers get a better seat and the better seat means that it's the front of the cabin, it's an aisle, it's a window, they get to board first and we're having great success selling that product, and we aren't taking 6 to 12 feet off the airplane to do it. So we just, I guess, have done the analysis different or reached a different conclusion. I don't think there's anything different between our 2 networks. I think we've just reached a different conclusion about those economics.

And on the share shift from OTAs to usairways.com, is the introduction of ancillary fees or the proliferation of them one of those factors?

I don't know. I don't think so. I think it really is just that the usairways.com is a better website and has more functionality, and particularly has more service functionality for customers. And I read a number of complaint letters from customers who bought tickets through an OTA and then had some kind of issue come up and had extreme frustration dealing with it. And those customers tend to switch to going direct to the airline website in the future.

And finally, your transatlantic RASM seem to be much stronger than your competitors. Any reasons you can give?

Well, was it stronger in the quarter? Or is our forecast stronger?

Stronger in -- both actually.

I'm not sure, why. I mean for a little more color on and, I guess, the weakest part of the transatlantic network was -- for us was Great Britain. Even though in total capacity there was not as -- not much different than it was off of the continent, or maybe it depends on where their geographic distribution was. But we continue to do well. We've added a number of corporate accounts that partly helps us outperform and we've put an emphasis on growing our corporate revenue originating out of Europe and added sales staff there, that helped. All of that has helped us, I suppose to outperform.

This concludes the analyst section of the call. We're now moving to the media portion. [Operator Instructions] We'll move now to Mary Schlangenstein with Bloomberg News.

Guys, I have 2 quick questions. One was on the divested slots in the slot swap. Who gets the cash for those when they're auctioned off? And the second question is, even though you theoretically could move ahead without the DOJ approval first, will you do that? Or will you wait until you have that approval on hand?

Delta gets the money for the slot there, they're Delta slots and Delta will sell them to divestees and they're entitled to that cash. With respect to the second question, we have some optionality on that point and we'll make a decision at the time.

So all of the slots being divested are currently held by Delta?

That's correct.

Moving along, we'll go to Josh Freed with the Associated Press.

So compared to a year ago, you guys have endured this huge run-up in fuel costs and you're still in the black this quarter. But what more can you do to get to the stage where rather than just being profitable after that, you're actually able to have a year-over-year increase in profits? I mean, is there more that you can do or have you done everything you can do, and now what you just need is a better environment in order to have an increase in profits rather than a decrease?

Well, I mean, you expand, I don't like those options, really. I think what I'd tell you this, Josh. The fuel prices ran up very quickly and they ran up a lot, it's our largest expense, gone up by 44%. That's obviously something that takes a while to adapt, to adjust to. But what I believe is, if this is the new normal, that is where fuel prices were going to stay, which is what it appears to be by the way and certainly, what we're assuming. As fuel prices are going to remain as high for the foreseeable future, if not higher. I think what you'll see is continued revenue strength that gets the industry and therefore, US Airways, to a point that we're seeing margin expansion even at these fuel price levels. It just takes a while to get there. So if this is where we're going to stay, I think what you'll see is continued capacity constraint amongst -- certainly, US Airways, and I would expect amongst all of our competitors. That appears to be what they're saying. And I can't imagine they would say anything different with fuel prices this high. So that over time, would result in even better revenue strengths. So anyway, that's a long way of saying, I think you would see -- even -- if this is the new environment, I think you'll see margin expansion going forward because the industry has got itself to where it can adjust. It just happened too quickly. As to your -- aren't there things you can do better right now? Obviously, there are all sorts of things, we work on them all the time, to try and figure out ways to do even better and our team definitely is doing a nice job of that, but there's no silver bullet out there. We would've shot at it a long time ago. This is business, just go fight it out everyday and find things you can do. But there's things like the slot swap with Delta we think are extremely important. But other than that, I mean there's not -- like I said, there's nothing out there that we're working on that is going to be a big game changer because we would have changed the game a long time ago, if we could have.

At this time, we will go to Ted Reed with TheStreet.

I thought by now somebody would've asked you, Doug, to talk about consolidation a little bit but nobody has. So I would like to ask you this, is this the worst time for consolidation then because so much capacity has been taken out now, there's less benefit left, isn't there?

Here is what I'd say, Ted. I spent, and as I said earlier, we spent a lot of time in the past talking about the need in the industry for consolidation because we believe it to be true. That has largely happened. We were down to, what, 4 major hub and spoke airlines, 2 national low-cost carriers and I don't want to -- and Alaska Airlines, which doesn't fit really into either of those categories, but does extremely well. So that's much different than the industry that we had when we started to talk about the need for consolidation. So consolidation has occurred, it's been one of, if not, the most important reason that the industry can withstand what we're going through now and can produce profits in 2011 when we had enormous losses in 2008. So that's -- anyway, that's what I think. That doesn't mean there aren't tactical opportunities and consolidation that make sense. But the big strategic reason for the industry to need to consolidate, it doesn't exist anymore. And it's happened and we're extremely happy about that.

All right. I'd also like to ask one question about national. When it finally happened, it's going to be a big boost for US Airways, isn't it to have so much presence at national?

Well, we said publicly that it's going to be worth $75 million a year for us. It will be good for US Airways. It's one of those rare transactions that's going to be good for US Airways, good for Delta and good for consumers as we have a larger operation with more connectivity at national airlines -- national airport.

Scott, I jump in if I could. But if you want to add anything, but what I'll tell you, Ted, is the main -- the biggest reason that helps us is because we're able to get out of unprofitable flying in LaGuardia and put it into a place where we have strategic advantage, where there's also going to be additional competition other than national as a result of these divestitures. So that $75 million Scott talks about is a lot more about getting out of some unprofitable flying and putting it to a place, where we have a competitive advantage and compete well. And we'll do that against the increased competition now to the divestitures. But that's more what it's about than getting that much stronger in these states. Just getting out of some really bad stuff that we have going on at LaGuardia right now.

And this does conclude the question-and-answer session. At this time, I'll turn things back over to our host for any additional or closing remarks.

We're done. Thank you all very much for your time. Thanks for listening in. We appreciate any questions. I think you know who to call. Call Dan Craven if you're an investor. Call our Corporate Communications folks if you're in the media and we'll be happy to answer any questions we didn't address already. Thanks for your time. Goodbye.

And again, this does conclude today's conference call. Thank you all for your participation.