American Airlines Group Inc. (AAL) Q4 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 Daniel Cravens - William Douglas Parker - Executive Chairman, Chief Executive Officer, Chairman of Labor Committee, Chairman of US Airways and Director of AWA J. Scott Kirby - President Stephen L. Johnson - Executive Vice President of Corporate & Government Affairs and General Counsel

Ted Reed William J. Greene - Morgan Stanley, Research Division Kevin Crissey - UBS Investment Bank, Research Division Helane R. Becker - Dahlman Rose & Company, LLC, Research Division Garrett L. Chase - Barclays Capital, Research Division Hunter K. Keay - Wolfe Trahan & Co. Raymond Neidl - Maxim Group LLC, 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 Daniel McKenzie - Rodman & Renshaw, LLC, Research Division Daniel McKenzie - Hudson Securities, Inc., Research Division Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Good day, and welcome to the US Airways' Fourth Quarter Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] And now I would like to turn the conference over to your moderator, Director of Investor Relations, Mr. Daniel Cravens. You may begin.

Thanks, Andrea, and welcome, everybody, to the US Airways' Fourth 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 for our Q&A session are Robert Isom, our Chief Operating Officer; Steve Johnson, our EVP of Corporate; and Elise Eberwein, our EVP of People and Communications. Like we typically do, we're going to start the call with Doug and he'll provide an overview of our fourth quarter financial results. Derek will then walk us through the details on the quarter including our cost liquidity and then provide some color on our 2012 guidance. Scott will then follow with commentary on revenue environment and our operational performance. And then after we hear from those comments, we'll open the call to analyst questions and answers and lastly, questions from the media. Before we begin, we must state that today's call does contain forward-looking statements, including statements concerning future events, our future revenues and fuel prices. These statements represent our predictions and expectations as to future events but numerous risk 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 press release issued this morning, our Form 10-Q from the quarter ended September 30, 2011, and our 2010 Form 10-K. In addition, we will be discussing certain non-GAAP financial measures this morning such as net loss and 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 and will be archived for 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, and at this point, I'd like to turn the call over to our Chairman and CEO, Doug Parker.

Thank you, Dan. First off, I’d like to congratulate Dan. Dan was named investor -- Institutional Investor's Top IR Director, which he definitely deserves. So thanks for all you did to name Dan that. We're certainly proud of him and our program was named Best Investor Relations program thanks to Dan. I think it's because of how well you read that thing, Dan. But anyway, let's get started with our call. We posted our earnings this morning, a fourth quarter profit of $21 million, a full year profit of $111 million. Now that's down from the full year 2010 profit of $447 million, but considering where fuel prices are, we're extremely pleased with these results. Indeed as we noted in the release, had average fuel prices just remained where they were in 2010, our 2011 fuel expense would have been $1.2 billion lower. So fuel expense was up $1.2 billion, but our profits were only $330 million lower. That's due to some very strong revenue growth and some impressive control of our nonfuel cost, and Scott and Derek will talk more about that in a moment. Now before I do that though, I do want to take a moment and thank the hard-working team of 32,000 employees here at US Airways that made these results possible. The team did a phenomenal job. In the fourth quarter, we produced our best ever fourth quarter on-time performance, our highest completion factor, our lowest mishandled baggage ratio, and they did all of that, while we had record high load factors. So all in all, we are extremely happy with how we ended 2011 and 2012 is off to a great start. We're encouraged by continued strength of demand for our product, and we believe we are very well-positioned for the future. So with that said, I'll turn it over to Derek to take you through some more detail of the numbers.

Thanks, Doug. As announced in our press release earlier this morning, Doug said we recorded a fourth quarter net profit of $18 million or $0.11 per diluted share. This compares to a net profit of $28 million or $0.17 per diluted share a year ago. When you exclude the special items, the company's net profit for the fourth quarter was $21 million or $0.13 per diluted share versus a net profit of $28 million or $0.17 per share in the fourth quarter of last year. For the full year 2011, the company recorded a net profit, excluding special items, of $111 million or $0.68 per diluted share versus a net profit, excluding special items, of $447 million or $2.34 per diluted share in 2010. We are very pleased to report our second consecutive profitable year, and this is particularly impressive in the context of fuel costs having risen by almost $1.3 billion versus 2010. Please refer to the tables included in our press release for the details on the special items. For the remainder of this call, I'll exclude the impact of special items for a more accurate reflection of our performance for the quarter. Total capacity for the quarter was 20.8 billion ASMs, down 1.3% from 2010. Our mainline capacity for the quarter was 17.4 billion ASMs, flat from a year ago. Express capacity was down 7.2% from 2010 to 3.3 billion ASMs due primarily to the completion of the Express first product on our large RJ fleet, reducing seats on each aircraft. We ended the year with 340 mainline aircraft in our fleet, and we plan to reduce the fleet count by 3 in 2012, returning 15 older 737 leased aircraft and adding 12 new A321 aircraft. Our entire 737-300 fleet will be retired by the end of 2012. The 12 A321 aircraft are scheduled to be delivered in the third and fourth quarters, 6 in the third and 6 in the fourth. While all aircraft have backstop financing available, we plan to use market financing sources similar to the way we did in 2011. We expect Express fleet count will be reduced by 1 aircraft as SkyWest begins flying CRJ-200 aircraft out of Phoenix in place of Mesa's CRJ-200 and Dash 8 flying. Total operating revenues for the quarter were $3.16 billion, up 8.5% from the same period of 2010. Mainline passenger revenues were $2.05 billion, up 11.3%, driven by higher yields as a result of the strong pricing environment and industry capacity discipline. Cargo revenues improved slightly to $43 million, as domestic mail revenue increased -- increases offset lower international cargo deliveries, driven by the condition of the European economy. Other operating revenues were flat in the fourth quarter of 2011 versus 2010. Versus the fourth quarter 2010, total RASM -- passenger RASM was up 11.1% in 2011 to $0.1349. For the same period, combined yields increased 9.4%, and our combined load factor was 81.9%, an all-time fourth quarter record. Total RASM in the fourth quarter was up 9.9% versus 2010, and Scott will talk in more detail about our strong revenue performance and the robust demand environment we continue to see in early 2012. The airline's operating expenses for the fourth quarter were $3.04 billion, up 8.8% as compared to a year ago due mainly to a $232 million increase in consolidated fuel expenses. Mainline operating cost per ASM excluding special items was $0.1316, up 9.5% year-over-year driven by a 29.2% increase in fuel prices. Our average mainline fuel price including taxes for the fourth quarter of 2011 was $3.10 per gallon versus $2.40 per gallon in the fourth quarter of 2010, which drove a $183 million increase in year-over-year mainline fuel costs. A strong pricing environment, the ability to keep our costs in check through outstanding operational reliability and continued cost diligence allowed the company to offset the higher fuel prices. The team did a terrific job managing our expenses, which is especially noteworthy in an environment where we reduced capacity. Excluding special items, fuel and profit sharing, our mainline cost per ASM was $0.0849 in the fourth quarter of 2011, an increase of 1.1% versus 2010. Express operating cost per ASM excluding special items and fuel was $0.1494 for the quarter, which was 8.2% higher than 2010 due to the previously announced increase in maintenance cost related to our PSA-operated CRJ-200 aircraft and an Express ASM reduction of 7.2%. Excluding special items, fuel and profit-sharing, our mainline CASM went up only 0.6% in 2011 versus 2010, and our combined CASM was up only 1.9% year-over-year. The strong operational and financial performance allowed our team members to earn approximately $25 million in combined operational incentive payouts and profit-sharing in 2011. We are pleased to be able to recognize our team's accomplishments throughout the year with these incentives. We ended the quarter with $2.31 billion of total cash and investments, of which, $365 million was restricted. This was our highest year-ending cash balance since 2007. The year-end total cash and investments balance was up from $2.28 billion in the end of 2010, of which $364 million was restricted. During the quarter, we completed the slot transaction with Delta Air Lines, whereby, we received certain slots at Reagan National Airport, the right to provide new service to Brazil and a cash payment of $66.5 million in return for certain slots at New York's LaGuardia Airport. Under the provisions of our Citi term loan, net cash was restricted from use by the company for 1 year unless we pay down the term loan or replaced the cash with eligible collateral. Subsequent to closing, the company was able to post unencumbered collateral in the Citi loan which allowed the majority of the $66.5 million in cash to become unrestricted. During the quarter, we also exercised our call right to repurchase 113 slots from Republic for $47 million. These slots have been pledged as collateral for $44 million borrowed from Republic period during the company's bankruptcy in 2005. These slots were already being operated by the company and are now free and clear. For the fourth quarter, the company generated $23 million of positive cash flow from operations and used $42 million of free cash flow to find its operating cash flow less net capital expenditures. We paid down $159 million in debt during the quarter. For the full year 2011, we generated $488 million of operating cash flow and $286 million of free cash flow. Looking forward in 2012, we will continue to remain disciplined about capacity. As I mentioned on our last call, we plan overall capacity in 2012 to be up approximately 1%. The increase is largely a result of new A321 aircraft with a higher seat count replacing older 737 aircraft. Domestic mainline is expected to be up only 0.5%, while international is forecasted to be up approximately 3%. Total mainline ASMs are projected to be approximately 73.5 billion for the year. The ASMs breakdown by quarter is as follows: at approximately 17.5 billion in the first quarter, 18.9 billion in the second quarter, 19.3 billion in the third and 17.7 billion in the fourth. Express capacity in 2012 is planned to be down slightly year-over-year. We're forecasting mainline fuel prices to increase slightly in 2012. Based on the January 23 fuel curve, we expect fuel price to be in the range of $3.14 to $3.19 for 2012. Forecast breaks down by quarter as: $3.13 to $3.18 in the first and second quarters; and $3.14 to $3.19 in the third and fourth quarters. In terms of CASM guidance for 2012, we intend to maintain our cost advantage versus other major carriers. For the full year 2012, we are forecasting mainline CASM x special items, fuel and profit-sharing to be up 1% to 3% versus 2011. First quarter mainline CASM is forecasted to be up 0% to 2%; second quarter up 1% to 3%; third quarter up 2% to 4%; and the fourth quarter up 1% to 3%. Express CASM is forecast to be down approximately 1% in 2012, consolidated forecast to be up approximately 1%. Looking at CapEx. We continue to make important investment in our product and operations with a focus on interior upgrades, customer self-service projects, airport automation and recovery tools. We are forecasting total cash CapEx to be $289 million in 2012. This includes non-aircraft CapEx of $170 million and net aircraft CapEx of $119 million. In summary, I'd like to thank all of our employees for their hard work and dedication. During 2011, we recorded our second consecutive fourth quarter and full year profit, despite fuel prices that increased our cost by almost $1.3 billion. It took a tremendous effort by all 32,000 team members to manage through this challenging time, including reducing capacity, controlling costs and maintaining a commitment to exceptional operating reliability. We believe we are well-positioned to maintain that momentum into 2012. With that, I'll turn it over to Scott.

Thanks, Derek. Before discussing the revenue environment, I'd like to also thank all of the employees of US Airways for all their hard work and the great airline that we’re running today. We had our best-ever operational results over the holidays and ran a great airline throughout the entire fourth quarter. Turning to the revenue environment. I'll probably sound like a broken record from our last 2 earnings calls. We're pleased with the 11% year-over-year increase in passenger RASM. Both leisure and business demand were strong throughout the quarter. We simply did not see any evidence of macroeconomic weakness in our business. And that was true even across the Atlantic, with transatlantic RASM up 12% year-over-year, which slightly outpaced the strong domestic performance. As we’ve speculated on our last 2 earnings calls, if you take a step back, it appears that the underlying economy is better than the macro headlines would lead you to believe. Certainly, airline revenues are performing well, and from a broader perspective, corporate earnings remain generally good and most economic data is okay. Turning to the outlook going forward. The new year has started off strong for both leisure and business demand. As an example, the second week of January is typically the largest booking week of the year, as leisure travelers begin planning spring break and summer vacation, while business travelers return from the holidays and make their initial plans for business travel in the new year. Our booked revenue was up 35% year-over-year in that week. Additionally, booked corporate revenue is up almost 30% year-to-date in 2012. Business demand, in particular, remains quite strong. If anything, the new year has seen a step-up in business demand from the already strong levels that we saw in the second half of 2010 -- or sorry, 2011. As a result of the strong demand environment, the pricing environment also remains strong and the industry is successfully recovering high fuel prices. Regionally, we expect the Atlantic to continue slightly outperforming the domestic entity for US Airways. As we move forward, we're overlapping numerous fare increases from last year, but the year-over-year comps do start to get a little more difficult. That said, we expect both January and February RASM to be up about 10%. With the tougher comps and higher leisure focus, we'd expect March RASM to be up a little less but still in the high single digits. So in conclusion, we really haven't seen any signs of a slowdown in demand. In fact, it's quite the opposite with the robust pricing and demand environment. With that, I'll turn it back to Doug.

Thanks, Derek. Thanks, Scott. Look, before we get into questions, I am aware that there’s a good bit of speculation about our company, and as it relates to AMR's bankruptcy and I’m aware that there are therefore, questions you guys may want to ask because indeed, many of you are paid to speculate. But in an effort to head some of that off and keep us on the focus of the day, which is our earnings and not speculation, I'm going to just -- I got a little statement here to read that I'll do and tell you what I can. And if you guys would hopefully use that as the answer to all the questions you may have, because that's going to be my answer to all the questions you have. We'll try to do it that way and head off any questions. So at any rate, I mean, part of the reason -- I know part of the reason for speculation has been US Airways' historical comments on consolidation and being such proponents of consolidation, and the fact is we have been on record for a long time, about the needs for this industry to start earning a fair return on invested capital, and we've been on record that one of the ways to fix this problem is through consolidation. That being said, the reality is a large amount of consolidation has already occurred in our business. We have a much less fragmented industry than we did when we merged America West and US Airways in 2005. And that industry consolidation has been a major contributor to the improved results that you see today at US Airways and throughout our industry. And furthermore, as today's results show, US Airways does not need to participate in consolidation. Our employees are running a terrific standalone airline, and we're generating financial returns that are similar to or better than our larger peers. We're extremely proud that the hard work of our team has gotten us into a position where we can control our own destiny. We can now decide whether it's best for US Airways to operate as a stand-alone company or participate in further consolidation over time, and that's what we intend to do. So while it's no longer imperative that our industry consolidate and it's definitely not imperative that US Airways participate in consolidation, we are of course always interested in studying potential in value-enhancing opportunities, and part of studying these opportunities is ensuring we have good counsel. Therefore, as has been reported, we have indeed retained Barclays Capital, Milstein & Co. and Lathan and Watkins to help us explore our options as they relate to AMR's bankruptcy. We expect AMR will remain in bankruptcy for quite some time, and therefore, we anticipate that we and our advisors will be studying the situation for quite some time. And while we're studying the situation, we do not expect there will be any major developments, and we certainly have nothing to report today. What we are here to do is discuss our fourth quarter and full year results, and we appreciate it if you could these focus your questions on those results. So we'll see how that works. With that said, questions please.

[Operator Instructions] At this time, we'll go to Michael Linenberg.

Two questions here. When you guys announced the slot deal with Delta back a couple years ago, I think the number that you threw out was that the benefit was something like $75 million of annual, maybe it was improvement to the operating level, operating offered level. A lot has changed since then. Is that still the right number or how have things shifted? Can you just give us an update on sort of how you think maybe even some of the early reads on some of the new routes being implemented?

Okay. Yes, we think $75 million improved P&L is still a good number. That starts once the full Washington schedule is implemented, which happens in June. So it’ll take a little – it’ll take a short while to ramp. But it’ll ramp up pretty quick. So mostly by the third and fourth quarter, we'll have that full benefit in. And it's really early to say what's going to happen in terms of the new routes. They're mostly business-oriented routes out of Washington D.C. and they have a booking curve that's very close in. So we aren't really into the booking curve for those routes yet. But I feel pretty confident that we'll achieve the $75 million in annual improvement that we forecast 3 years ago.

It seems like it’s amazing it’s taken us that long. Actually, and then a second question. This is for you, Scott, as well is with -- I believe Southwest is out on record saying that they're going to de-hub Atlanta, and obviously that's going to help Delta with -- from a flow traffic perspective. What about US Airways in Charlotte? Because when you sort of think about the Southeast outside of Atlanta, you really are the next hub that would be well-positioned. Are there -- does that open up some additional connecting opportunities for you? And maybe are you even starting to see anything because we've started to see departures start to get cut back in the Atlanta market?

The big schedule changes that Southwest is making in Atlanta haven't happened yet. I think though to the extent they do de-hub Atlanta, that is beneficial to us for connecting traffic, equally beneficial to Delta, but to both of us, because we compete for those same traffic flows in the Southeast. But we haven't really seen much change yet, although anticipated. There's 6 cities that Southwest has pulled out of entirely. So I anticipate that, that will be a positive benefit for us. But it's a little early to have actual results yet.

Our next question will come from Jamie Baker. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Scott, we've tried our best to focus on domestic fare activity. There hasn't been much lately in terms of across-the-board increases and yet RASM is doing what RASM is doing. Can you point to anything in particular that we might be missing with fares? Is it simply tighter RM control? I don't know, changes in overnight stays, APs, that sort of thing? I mean, pretend I don't know anything about pricing and I probably don't. What's been going on lately?

I do know you know a lot about pricing, Jamie. There's been at least one substantive increase this year where fares over 1,500 miles went up $10 one way, $20 round-trip. That's one of the larger increases that's gone through in the past 18 months. So that was significant. But probably even more important has been the more muted fare sale activity. And while it’s hard to see, a newspaper article written about there's no fare sale this year on January x and there was last year. The fact that there is no fare sale or it's at higher prices had a much larger impact on yield and RASM than simply having a fare increase. So I think the continued yield increases and RASM increases are at least somewhat attributable to a strong demand environment, which is leading to a more muted fare sale environment.

And next we'll go to Bill Greene.

Scott, one of the things that Delta did was they kind of talked about some of the industries where they were seeing some changes. Is there any color you can provide around that corporate travel commentary you gave, either strength or weakness?

We're seeing strength largely across the board. The financials have been a little weaker for us than the others, though booked corporate revenue is still up. But really, we're seeing strength across the board both in terms of same-store sales and in growing corporate revenue. One particular success story for us is across the Atlantic where our corporate revenue originating out of Europe was actually up just under 50% in the last quarter. So we've done a fantastic job of winning corporate market share out of Europe, but we're really seeing strength across the board from an industry perspective.

Okay. And then if we broke down markets into sort of the markets where you compete aggressively with carriers like Southwest versus markets where you don't, have you seen any greater ability to push on revenue in the non-Southwest markets?

I don't think so. I mean, I think we're seeing really, strength across the board. And if we looked at market by market, whether it was corporate revenue or RASM in total, it's much more driven by capacity and what's happening from a capacity perspective at an industry level, without saying there's been a change in the competitive profile of one airline versus another.

And with, next, we'll go to Hunter Keay. Hunter K. Keay - Wolfe Trahan & Co.: Scott, how are you doing that in the transatlantic, 50%? I mean, you've got less than 5% of that market, you're not involved in A++. I mean, I realize that you put more boots on the ground in EU, but I mean, is there any some sort of unintended consequence benefit-type thing where maybe the broader Star Alliance program is driving people to have more frequent flyer redemptions on your program? How is that actually happening, and how is this sustainable?

I think it's a tribute to the entire sales team. Our new -- or not really new at this point but the Senior Vice President of sales, Andrew Nocella who took over running that group a couple of years ago, convinced us that we needed to invest more in Europe, and it became clear that it was going to take longer, that United and Continental had a lot of work to do on their merger and it's going to take longer to begin substantive JV discussions. We made more of a push to rely on our own sales force, so doing it through the Star Alliance. And then finally, the new lie-flat envoy seats that we have, have been a huge hit with customers and are starting to move market share as well because of the quality of the product. Hunter K. Keay - Wolfe Trahan & Co.: Okay. Yes, that makes sense. And with regard to load factors in 2011, you guys did, I think, 9 record loads including, I think, 8 straight to close the year and I hate to get greedy on this but is there any sense that maybe you're not getting as much yield as you could? I mean, are you spilling traffic? Or is this maybe too much of an old-school way to think about it because of bag feeds? I mean, is that -- are we shifting now more to a load factor first model because of that?

There's no conscious shift to load factor first model certainly at US Airways nor do I think that's true at an industry level. I do think the industry would probably have higher RASM if we ran slightly lower load factors. That said, I don't think it's going to change. I think we're going to continue to squeeze out ever-increasing load factors. Loads are at a level today that a decade ago, I think, none of us would have said was possible to achieve on a full year basis. But I think loads are going to continue to go up along with yields. Some of that is better yield management and ability -- and better rightsizing of the network to demand, both in terms of mix of fleet, which we do and others do as well, but also, putting the right kinds of airplane on the right routes. And finally, I'd add one thing that we and the industry have done is the difference between our peak and trough capacity is much larger today than it ever was historically. We used to basically just run the same schedule 7 days a week with a few cancellations on Saturday. We have much more variability in our schedules, and we fly a lot more capacity on peak days and in peak months than we did historically and we fly less in the off peaks. And so that's also helping raise load factors across the industry.

We will move next to Dan McKenzie.

I always have to start with capacity here, and Charlotte ranks #1 for most capacity growth of any U.S. city versus 4 years ago. And Atlanta earned some mention here as well, but essentially I'm looking at capacity at 2 nearby airports that has not been particularly restructured versus just about every other market across the country, and I wonder if you can talk about your thoughts whether or not there's some low-hanging fruit in the region from improving returns or what is it that I might be missing here?

Well, I think if you went and ranked hubs by profit margin or even dollar profitability perhaps, Charlotte and Atlanta -- Charlotte for us and Delta -- Atlanta for Delta are almost certainly in the top 10, if not, top 5. So very successful hubs. And ones that do well and continue to do well even with the capacity. They're the 2 hubs that serve the large Southeast region so there's a much larger catchment area than just Atlanta and Charlotte and those hubs have done really well. What we've done is redeployed capacity from non-core markets, places like Pittsburgh, Las Vegas, LaGuardia, Boston into our other hubs, in our focus cities, and mostly that has gone into Charlotte, and that's been a big success for us and we're very happy with that. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Okay. Second question is, I’m just wondering if you can talk about the status of JV discussions with Star Partners. I know that, that's been something that's been delayed, and I think you kind of alluded to it earlier. But is it logical to assume that the M&A chatter could accelerate those talks?

I don't know. We haven't really focused on it. We’ve mostly focused on our own standalone prospects, and we have a great relationship with Star, and it's very positive and beneficial to US Airways, and we think we bring also a lot of value to our Star partners. And we're pretty happy with where we are today to the extent that there is an opportunity for us to join the JV, and that makes economic sense better for US Airways and for our partners as well. I mean, that's something we'd do, but it's not the top priority.

We will go next to Gary Chase.

Just a couple for Scott. Number one, I wanted to see if you could elaborate on the booked revenue that you described, because obviously, 30% revenue growth without much capacity growth would make for a pretty nice year for you guys. What’s sort of the more elaborate version of that? Are people booking further out? Are they getting used to the fact that capacity is tighter and that there isn't as much off-peak capacity? What's driving some of that and how do you read it from a behavior perspective? How should we think about that plus 30% or 35%?

Well, the plus 35% in terms of bookings, I just used, because it's illustrative. Obviously, we're not going to continue to run up 35% going forward. That was a booked yield that was up about 10% and the rest of it came in terms of booking volume, which was spread out across the booking curve. I read that as indicative of an economy that is stronger than any of the media give the economy credit for, both in terms of leisure demand which obviously, to be up 35%, we had bookings spread across the entire booking curve that was strong on demand. And then also for business demand, which has been particularly strong, I mean, is more near term-oriented. So as we've come into the new year, historically, we’ve seen in the new year that sometimes businesses -- new budgets come out, and they have retrenched in the past so they've stepped up. If anything, it feels like they've stepped up this year. So I just view that more not as a specific numerical target that you could use to come up with a forecast or an analysis of what demand is going to be this year, but more a qualitative indication that demand is very strong and continues to be strong.

And I guess why I'm asking, I'm not trying to be cute with it, the reason that I'm asking is it almost feels like you're trying to suggest that people got over some hump psychologically, and they started to think we -- the demand started to crystallize for a reason. I'm wondering if you saw booking activity that was slow in December, just how do we come into the year and suddenly everybody decides that they need to travel again? I'm just trying to think about what would have driven that and how to think about it.

Well, I think one, you look back at the back half of the year, demand was strong across the board for us and for all airlines. So demand was strong across the board. If anything, I think you could make a case coming into the new year that corporate demand is -- in particular, is taking a step up and that is consistent with new budgets coming out. And we've seen that in the past that either they took a step down or a step up as you moved into new year. And so perhaps you've seen that. I think it's a little too early to say that definitively. But certainly, the early indications are that corporate demand may have taken a step-up as we've come into the new year.

Okay. And then I wanted to see as well, if I could just get your thought on this concept of -- you alluded to it a little bit in an answer to I think Hunter's question a while ago about off-peaks and peak periods, and just wondering how we should read the strength that we're obviously seeing in January and February. Should we be thinking that the summer months are going to be considerably harder comps and we'll be able to look better again as we move into the fall?

The comps do start to get harder really every month as we move forward. There's a little bit of up and down variation. I'm going from memory, I think June was a weaker comp than May and July of last year, but the comps do start to get harder. There were a number of fare increases that were going through in rapid fire succession at this time last year. So that's going to be harder, but the fundamental demand environment remains strong. So I'd be reluctant to give a precise forecast, but I think we're going to continue probably not to see double-digit year-over-year increases in RASM but very strong high single-digit year-over-year increases in RASM kind of for as far out as we can forecast.

And then just one last one, if I could. I mean, I'm wondering to get your perspective on why you seemingly have not been more affected by consolidation of larger rivals that Doug was talking about in his statement before? I think certainly, a lot of folks believe it's having an impact on parts of the industry, notably AMR. What is it about Airways that has allowed you to -- and I guess I should say this is my interpretation of your results; maybe you do think you've been affected but it doesn't appear that way in the numbers to us. Why not?

Yes, I think we've done a good job of maintaining and growing our corporate and elite travelers share. And I think the data supports that. Some of that is specific to things that we've done at US Airways, running a great operation, improving the product, envoy seats. And some of that is because you don't have to be the largest, necessarily, global airline to be successful, but you need to be #1 in your local markets. This is a network business, and in a network business, if you're #2 in a local competitive market, that's a really tough place to be, because you're competing with an airline or a competitor that has a few extra connections on that flight, which means they have a few extra customers. And in a low-margin business, having 1 or 2 more customers, connecting customers per flight makes a huge difference. And we’re fortunate in that we're #1 in all of our focus cities. And that helps us compete for corporate accounts. And while we can't beat everything to a corporate account and take them everywhere in the world as perhaps, Delta and United can, for many corporate accounts, we can be by far the best option for them. And so the fact that we're strong where we fly has been a big help to us.

Gary, it's Doug. Where Scott ended, I think is the key. We bought, we say all the time now that we fly 99% of our flights. Now with this thought swap done, we have 99% of our flights flying in and out of either Charlotte, Phoenix, Philadelphia, DC or the shuttle. Those are markets where we have a competitive advantage. And there are some other airlines using the 99% number for where they fly, but they don't mention that they don't have competitive advantage in those markets. So we're flying where we have strength. And while the others have gotten bigger, they haven't gotten bigger where we're strong, and we know what we do well and we're going to keep doing what we do well and that makes a huge difference. Those who are exposed I think have been shown to be exposed. And those who got to where they had -- where they were sticking to their knitting and having competitive advantage do well.

Moving next to Kevin Crissey.

I'm trying to figure out how much of this improvement that we’ve seen is more just normal cyclical results rather than the industry having changed. Now don't get me wrong, I do think the industry has improved and the capacity discipline and so forth, I do believe in that argument. But when you look at corporate travel recovery, it seems kind of maybe even more aggressive but certainly, typical of an overall cyclical recovery. Can you talk about where you think we are maybe in the cycle and if that's a true argument?

Let me start, Kevin, and then Scott can talk more about the demand. But I would just start by saying I disagree. I mean, this doesn’t feel anything like a cycle, this is a transformation of an industry over a relatively short period of time. I mean, just look at -- the easiest example for me anyway is if you look at 2008. Our oil prices in 2008 and 2011 are almost -- our jet fuel prices, US Airways, almost exactly the same, pennies apart. 2008, we lost $800 million; 2011, we just reported today, we earned $100 million. The economy -- that is not a cycle. The economy hasn't grown enough between 2008 and 2011 to drive that kind of change in performance. That's driven by a lot of things that we have done, the industry has done to make this a different business. Those include consolidation, flying to where you actually have competitive advantage and not flying we're you don't, capacity constraint, cost control, x fuel cost control, changing the pricing structure, all those things that make this businesses dramatically different than it was just 3 years ago. Having said that, I mean again, Scott can talk to where things could have a cycle [ph], but I think you’d be hard pressed to find businesses that have their highest cost component exactly the same as where it was 3 years ago, but are producing margins that are 10 points higher than where they were 3 years ago. The economy hasn't driven that. We have transformed the business.

Yes, I agree with Doug that this has been a transformation of the business. And to the extent -- you talked about the cycle. Look at where the economy was in 2010 and 2011, and US Airways in an industry that produced, would be probably 15%, 16% increase in RASM over the last 2 years. So huge increases in revenue, far outpacing the change in GDP in the U.S. And I have a chart somewhere that details this. I don't have it sitting in front of me, so I apologize if these numbers aren't exactly right, but I think if you go back and look at it from a broader perspective, at the time of de-regulation, airline revenues were something like 1.5% of GDP. They declined all the way down to almost 0.6% of GDP in 2009. They’ve now bounced back to 0.67% of GDP. But still, very far below what I would argue is the industry potential, which is -- the potential is a closer to where it was at the time of de-regulation. And look, we're never going to get back to 1.4% of GDP, I don't think. But 0.67%, which is where we were in 2011 is the third lowest year on record. And I think you're seeing an industry that's more return-oriented, less market share-oriented. And as a result, we’re starting to return to recover some of that revenue potential that the industry has sacrificed over the past few years. To the extent you want to talk about cyclicality, I would say one, 2011 was a weak year for GDP and so hard to ascribe that to cyclicality. Perhaps the step increase that we're starting to see in 2012 is cyclicality and recovery in business traffic. I think you can make the case for some of that step-function increase is maybe an improving economy in 2012, but the results to-date I think are not. And hopefully, that's right that the economy is improving and revenues are going to improve at an even faster clip than they did last year.

And we'll move next to Helane Becker. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: So one question is this: Can you say – and maybe that’s the 99%, what percent of your capacity actually competes against ultra-low-cap cost competition?

What do you call ultra-low-cost? Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Yes, I don't now. I mean, like you don't really compete that much with airlines like, I don't know, Spirit or Allegiant or something like that, right? I mean, a lot of your capacity being the 99%, you really have no competition. I guess just maybe that's the question.

We have competition, but I would -- don't hold me to these numbers because I'm going to do it off the top of my head. But we have very little nonstop overlap with those 2 airlines, Allegiant and Spirit. But I would guess that 2% to 4% of our revenues are impacted by them. So the pricing is affected by those 2 airlines in probably 2% to 4% of our market -- of our revenue base. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Okay. And then my other question is, I don’t -- and again, I don't know if I'm going to ask this correctly, but you have a very young fuel-efficient fleet at this point, and you're going to eliminate all those 737s by year end. So can you say, or do you know what percent that the fuel efficiency of your fleet benefits your fuel cost structure, like sort of acts as a natural hedge I guess, against higher fuel prices?

Well, Helane, it's Derek. The fuel burn is not actually that much different, and the only reason is because the 737-300 has much less seats and weighs a lot less. So from a fuel burn perspective, they're pretty similar, but we're getting a benefit of having a lot more seats, lot more ASMs, and so you have a benefit on the revenue side. So from a fuel perspective, it's not that much different but on a revenue and a cost per ASM side, it is -- it does benefit. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Okay. And then my last question is with respect to the new fare rules and the way the government kind of gets very intrusive into the industry. So the industry is managing to change and we're reporting really great numbers for 4Q and the outlook for 1Q seems to be pretty good as well as for maybe a better part of the year. So as the industry is profitable and returns capital to shareholders, there's obviously this huge risk that the government re-regulates or somehow legislates profitability to decline, because of whatever rules or regulations they choose to put in. So is there a way you can aggressively or with A4A, lobby more aggressively to truly de-regulate the industry?

Well, we get frustrated with some of the provisions like the fact that we're having to display our fares inclusive of taxes. One of the only products at least that I ever buy that includes the taxes in the fare. But I don't think those things are nearly as dramatic as what you suggest. The more worrisome thing that happens with government is taxes and already, one of the most heavily taxed industries and remarkable because it's an industry that does so much for -- is a facilitator of economic growth and activity around the country. And the fact that there are proposals to increase taxes on the industry seem backwards to us and to A4A, because they'll do -- have exactly the opposite impact on the economy that we want to have and cost jobs and retard the economy as opposed to allowing it to move forward. But that's the area I think that we would be most concerned about from a regulatory perspective.

Next, we'll move to Ray Neidl.

Yes, Scott, you're talking about the taxes there and with the recent changes here on how you can advertise your fares that now have to include taxes, I'm not sure what the total breakout will be. How is that going to affect what you just said? It's going to move your prices up higher and maybe drive away some customers and make increased taxes by the government a little bit more -- less transparent to the customer?

Yes, I mean, what I worry the most about on that is that because the onerous and very high taxes are no longer explicitly laid out for the customer, it becomes a lot easier for the government to raise the taxes, because it's the airlines that look bad and not the government. And so I worry less about the price elasticity effect, because that's already embedded. Customers already pay those taxes, so I don't think it dramatically changes customer demand. But it just makes it easier for the government to raise taxes because the airlines are the ones that look like the guys raising fare as opposed to the government.

Yes, it's almost like a value-added tax.

Yes.

The other thing is, since -- I know it's still early but since the AMR bankruptcy, have you been seeing any industry changes in patterns of pricing or discounting or route changes or customer behavior?

No.

Okay. And last quick thing is congratulations in completing your switch with the slots at LaGuardia, and you pretty well pulled down I guess, the New York market including LaGuardia except for the shuttle. Might it be worth your while just to get out of your terminal there and move over to the marine terminal?

Actually we'll still be a very large carrier in LaGuardia. I think we'll have -- we estimate we'll be 11% of LaGuardia, although I'm doing that number from memory from when we started this transaction which is 3 years ago, so it could be wrong. But we'll still be a very large carrier. And from a facilities perspective, we're giving, or part of the transaction Delta is taking over part of our terminal, but we're going to stay there and we'll be there for the long term.

We will go to our next question from Glenn Engel.

Two questions. One on PRASM, can you give us the PRASM? You gave 12% for Atlantic. Can you give PRASM for domestic and Latin? And 2, can you go over labor? I thought you were hoping to have a flight attendant deal done by year end?

Latin was up 15%, which -- and domestic was up close to 12% as well. It's a mix of length of haul and growth rate that gets you to 11% overall. But those are the numbers.

On labor, Glenn, we are in negotiations with our flight attendants, with the NMB's assistance and we're not done yet, but we're encouraged by the progress that both sides are making with NMB's help and we hope to have something done here before too long, but we're not done yet.

And any other groups can you talk about?

We have contracts with every other group that are in place with the joint contracts, and that have been in place for a while and some of them are starting to expire but nothing is – nothing that...

And there is still no movement in the pilots fighting amongst each other?

Yes, those are your words, not mine. But the pilots, yes, the one that's still open that -- the 2 are still opens are pilots and flight attendants. Flight attendants I talked about, and pilots, we're not making much progress, unfortunately because there’s a seniority dispute that still is being litigated between the 2 pilot groups and until we get that resolved, it's hard to get to a joint contract.

And we'll take our next question from Jeff Kauffman. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: A lot of my question's been answered, so I guess I'll come at it a different way. You mentioned 99% of your capacity now is Charlotte, Phoenix, Philadelphia, DC and Shuttle. At this point, have you kind of done what you can except for maybe turning over aircraft into better markets? Or are there still underperforming parts of the network that are more kind of 2012, 2013 priorities at this point?

Well, there's constantly opportunity to optimize and improve the network and demand is changing, and competitive capacity is changing. So I think there's always opportunity to improve. There's not likely to be anything like the DCA slot swap because we were down to our core competitive capacity. But I think our team has done a fantastic job of optimizing capacity, not only where we fly, but also getting the right aircraft on the right route and getting the best economics for various fleet types and that’ll continue going forward. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Okay. Have you started to accrue for a new FA or labor deal at this point, or you're just going to kind of wait till you got a TA in hand?

No, we have not started to accrue for any new labor deals.

Ladies and gentlemen that does conclude our analyst portion of today's question-and-answer session. We would now like to invite the media to ask questions. [Operator Instructions]

Before they do, I just want to thank all the analysts who, by our request, didn't ask anything on -- so thank -- I really do appreciate it. And that's going to -- but we appreciate that, and remind the media of the same request.

And with that being said, we will go to Mark Velco [ph].

I had a question about the situation with the airport expansion project in Philadelphia. What potential do you see for US Airways to move, perhaps move connecting traffic to Pittsburgh, if you don't reach a deal in Philadelphia and your costs go up significantly?

Steve Johnson is here to answer that question.

I know that there's been a lot in the paper, particularly in Philadelphia about the discussions about airport expansion there. And as we've said in the paper, and we'll say again here, our objective is to reach an agreement with the city of Philadelphia that works for the city and works for the airlines and put us into a position to continue to expand our hub in Philadelphia. That's our plan.

We’ll go next to Ted Reed [ph].

I think my first question was answered. I have impression you're close to a flight attendant deal, but I wonder if you're going to say anything else about that. But secondly, I was just on the Delta call, and they were talking about how they're going to have enough capacity now at LaGuardia to really operate 2 hubs in New York and how much that will be a fantastic benefit to them. So I'm wondering, did you make a good deal with Delta? They got so many more slots at LaGuardia, and it seems like they got such a important presence in New York, and I know you are able to increase your market share at National, but was that a good deal for you? Would you do the same deal again?

We're extremely happy with the transaction. I mean, Scott earlier said where we -- what we thought it would do to the combined P&L of the company, which is a material increase. Look, I mean, this is -- I think -- I'm happy it's good for Delta as well. It's what happens when airlines are doing what they're supposed to do, which is focus their assets on areas where they have some advantage, some competitive advantage, not at -- have some strength to compete as opposed to being the smaller player. It's where we were in LaGuardia, it's where they were in DC. Both of us still obviously have tons of competition in those markets, but we are stronger in those markets relatively in each -- we in DC, they in LaGuardia than we were before and that makes us -- makes it easier to compete. Scott, you want to add anything?

Yes. I’d just say, Ted, this is not a 0 -- your question implies that this was a 0 sum negotiation. It was not 0 sum deal. This is one of those cases that’s a win, win, win. Delta is better off, because of their -- because of the network effects in LaGuardia. We are better off because the network effects in DCA and because of that, consumers are also better off. This is one of those situations, and it happens mostly in network businesses, where a trade like this is a win for both of our companies and a win for consumers.

All right. It just seems like they got so much that was so important to them. But I realize it's good to expand in national but they were pretty happy on the call.

As are we.

We're elated.

Okay. And on flight attendants, are you close to a deal?

I answered that already, Ted.

We'll go to our next question from Mary Schlangenstein.

I had 2 quick questions. One was for Derek on the RJET slots that you mentioned. What was the price on that?

Mary, this is Steve Johnson. What was your question?

On the Republic slots that you purchased, the ones that you've been flying but they held?

Did we talk -- I think we talked about this on the last earnings call where there was a question raised because Republic had just made some announcement with respect to this. But you remember that what we said then and the transaction was originally a loan by Republic to US Airways, I think, the actual pre-merger US Airways. And that loan was collateralized by 113 slots at Washington National and some other stuff. And what we did in December was to pay off that loan and release the collateral. So we paid -- we repaid the $48 million loan to Republic and the collateral was released, and we now have it free and clear.

Okay, I misunderstood earlier. The second question was are you going to reallocated the flying out of LaGuardia once the slot swap deal is done, or is that flying just going to go away?

It’ll be mostly be reallocated. A lot of it goes in DC and there's a few more flights in Charlotte. So it's being reallocated.

And that does conclude our question-and-answer session for today. With that, I'd like to turn the call back over to our presenters.

All right, great. Well, thanks, everybody, very much. We appreciate your interest and thanks again for listening in. If you have any further questions, just contact us on your Quickcomm or Investor Relations. Thanks very much.

And again, ladies and gentlemen, that does conclude today's call. Thank you for your participation and have a wonderful day.