American Airlines Group Inc. (AAL) Q2 2012 Earnings Report, Transcript and Summary

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

Michael Linenberg - Deutsche Bank AG, Research Division Jamie N. Baker - JP Morgan Chase & Co, Research Division Glenn D. Engel - BofA Merrill Lynch, Research Division Hunter K. Keay - Wolfe Trahan & Co. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division Basili Alukos - Morningstar Inc., Research Division Savanthi Syth - Raymond James & Associates, Inc., Research Division John D. Godyn - Morgan Stanley, Research Division Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division Kevin Crissey - UBS Investment Bank, Research Division Helane R. Becker - Dahlman Rose & Company, LLC, Research Division Raymond Neidl - Maxim Group LLC, Research Division David E. Fintzen - Barclays Capital, Research Division

Good day, ladies and gentlemen, and welcome to US Airways Second Quarter Earnings Conference Call. Today's conference 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. You may begin, sir.

Thank you, Keith, and welcome, everybody to the US Airways Second Quarter 2012 Earnings Conference Call. Joining us in the room today are Doug Parker, our Chairman and CEO; Derek Kerr, our Chief Financial Officer; and Steve Johnson, our EVP of Corporate. Also dialed in on the call remotely are Scott Kirby, our President; and Robert Isom, our Chief Operating Officer. Like we typically do, we're going to start the call with Doug. He'll provide an overview of our second quarter financial results. Derek will then walk us through the details on the quarter, including our costs, liquidity and provide some color on our updated guidance. Scott will then follow with commentary on the revenue environment and our operational performance. Then, after we hear from those comments, we will open the call for analysts Q&A 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 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 press release issued this morning, our Form 10-Q for the quarter ended June 30, also issued this morning, and our 2011 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 to these -- those numbers to the GAAP financial measures is also included in the earnings release and that can be found on our website at usairways.com. A webcast of this call is also available on our website and will be archived for approximately 1 month. The information that we're giving you on the call today 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, we'll turn the call over to our Chairman and CEO, Doug Parker.

Thanks, Dan, and thanks, everybody, for being on -- it is a great day for us. We are certainly pleased to report the highest quarterly profit in US Airways history. As you saw on the release, our earnings excluding special items was $321 million, that's over 3x last year's profit of $106 million. These results aren't just great compared to US Airways' past history, but they're also great versus our competitors in the industry. Our pretax profit margin of 8.6% is well above any other network airline that has reported, and second only to Southwest, amongst those airlines who reported, and they were just slightly higher than US Airways at 9.6%. So these are not just great for us versus our past but versus other network airlines. The best by far and the industry-leading within the industry. We couldn't be happier. We couldn't be more proud of the team. The credit, of course, goes to the team. 32,000 hard-working employees made this happen. And you see that not just in the financial results but also in the operating reliability results. We produced records in the -- we produced records so far this year in on-time arrivals, baggage handling, completion factor. And for US Airways to produce records, that's really saying something, because we have been the industry leader amongst the network carriers in metrics like on-time performance and U.S. baggage mishandling for the last 5 years. So for us to be doing even better than we've ever done, is true testament to the great work that our team is doing and we can't thank them enough. So with that said, I'm going to turn it over to Derek who'll give you more details on the number -- I'm sorry -- yes, Derek will give more details around the numbers, followed by Scott, who will give you some more revenue guidance and outlook. And then we'll come back to me and we would get some questions. Derek?

Thanks, Doug. We just filed our second quarter 10-Q this morning. And as Doug said, in that quarter we reported our highest quarterly profit in company history, a net profit of $306 million or $1.54 per share. This compares to a net profit of $92 million or $0.49 per share a year ago. When you exclude special items, the company's net profit for the second quarter was a record $321 million or $1.61 per diluted share versus a net profit, excluding special items of $106 million or $0.50 per share in the second quarter last year. We are pleased to have accrued $33 million during the quarter for our annual employee profit-sharing program driven by these record results. The company did recognize $15 million in net special charges in the second quarter of 2012. This included $9 million in net operating expenses, expense primarily related to corporate transaction and auction rate security arbitration costs and a gain on a vendor settlement and a $3 million charge associated with the ratification of a new fleet and passenger service contract at Piedmont, a wholly-owned Express subsidiary. In addition, the company recorded $3 million in nonoperating expenses related to debt prepayment penalties and noncash write-offs of certain debt issuance costs as part of our W.D.C. we completed during the quarter. For the remainder of my comments, I will exclude special items. For the quarter total capacity, mainline and Express was 23 billion ASMs, up approximately 1% from 2011, primarily due to a 1.4 point year-over-year improvement in our departure completion factor. Our mainline capacity for the quarter was 19.4 billion ASMs, up 1.4% from a year ago. Express capacity was 3.65 billion ASMs, down 1.1% from 2011, again, mostly due to the installation of our Express first product, which has proven to be very successful for our customers. Thanks to the efforts from all of our employees, US Airways achieved our best ever year-to-date completion factor, on-time performance and bag handling ratio. Our employees have earned additional $10 million in incentive pay thus far in 2012 for this excellent operational performance. In the second quarter, we reduced our mainline fleet by 1 aircraft end the quarter -- to end the quarter with 339 aircraft. For the remainder of 2012, we plan to return 7 737-300 and 7 737-400 aircraft and take delivery of 12 A321 aircraft, with 6 deliveries in each of the third and fourth quarters. Also in July, we reached an agreement in principle with Republic to reacquire 5 Embraer 190 aircraft, which will be flown at the mainline and used to replace regional aircraft that will be returned or retired in 2013. This aircraft acquisition is subject to, among other things, definitive agreements and final approvals of the parties. We anticipate the first 2 deliveries will go into service in the fourth quarter, with the final 3 expected in early 2013. We're maintaining our previous ASM guidance. Mainline ASMs are projected to be 74 billion this year, up approximately 2% versus 2011, primarily due to this higher seat count on A321 aircraft, which are replacing 737 aircraft, as well as our higher completion factor in the first half of the year. Domestic ASMs are expected to be up approximately 2%, while international is up less than 1% year-over-year. Mainline ASMs by quarter should be 19.4 billion in the third and 17.5 billion in the fourth. Express capacity for the year is forecasted to be 14.22 billion ASMs, up approximately 1% from 2011. For the quarter, passenger load factors remained strong, and record passenger yields resulted in improved operating performance. Total operating revenues for the quarter were a record $3.8 billion, up 7.2% from the same period in 2011 on a 1% increase in total ASMs. Total revenue per available seat mile was a record $0.163, up 6.1% versus the same period last year. Mainline passenger revenues were $2.4 billion, up 7.3%. During the quarter, our other operating revenues were up $8 million or 2.7% versus 2011. Cargo revenues were down 4% driven by lower international volumes. Total passenger RASM in the second quarter increased 6.8% to a record $0.1459 in 2012, with mainline up 5.8% and Express up 10.8%. For the same period, combined yields increased 7.4% to $0.175, while our combined load factor was 83.4%, down 0.4 points versus last year. Other operating expenses for the second quarter were $3.4 billion, up only 0.7% compared to a year ago, as higher salaries and related costs were offset somewhat by lower expenses for consolidated fuel, maintenance and other rents and landing fees. For the quarter, we saw higher salaries and related costs due to increased profit sharing and other incentive compensation expenses, driven by our record second quarter profitability. A 76% increase in the price of our common stock during the quarter also resulted in higher stock compensation expense for cash settled equity plan awards. Mainline cost for ASM, excluding special items, increased only 0.2% in the second quarter to $0.1309. Fuel prices drop modestly during the quarter but overall, fuel costs remained at historically high levels. Our average mainline fuel price included taxes for the second quarter of 2012 or $3.17 per gallon, which, I believe, will be the lowest price in the industry for the quarter. This is versus $3.29 per gallon in the second quarter of 2011, a decrease of 3.9%. For the full year, we are forecasting mainline fuel price in the range of $3.07 to $3.12 based on the July 23 forward curve, which is slightly higher than our previous guidance. Our forecast breakdown by quarters as follows: $2.94 to $2.99 in the third quarter, $2.98 to $3.03 in the fourth quarter. Using these forecast prices for the remainder of the year, we anticipate that our fuel cost for 2012 will increase by only about $40 million versus 2011. Continued discipline by our entire team kept our costs in check, as our mainline cost per ASM, excluding fuel, special items and profit-sharing increased year-over-year by only 1.1% to $0.825. For the first half of the year, we have increased the cost per ASM by only 0.3%. Express operating cost per ASM x special items and fuel was $0.1419 for the quarter, down 0.1% versus 2011. Combined year-to-date cost per ASM, excluding special items fuel and profit-sharing is flat year-over-year. Our fuel -- our full year fuel cost guidance remains unchanged for the last quarter. For the full year, our CASM x fuel in profit-sharing guidance has mainline flat to up 2%. We expect both the third and fourth quarters to be up 1% to 3%. Express CASM is forecasted to be flat to down 2% in 2012. We ended the quarter with $2.91 billion in total cash and investments, of which $2.52 billion was unrestricted. Total cash has increased about $370 million since March 31, and this is the company's highest quarter-ending total and unrestricted cash balance since the fourth quarter of 2007. The company generated $436 million of cash flow from operations and used $140 million for debt payments in the quarter. During the quarter, we were able to complete financing arrangements for all -- for our 12 deliveries in 2012 and our first 4 deliveries in 2013 on efficient terms. We finalized previously announced sale leaseback transactions for 2 aircraft and debt financing for 2 other deliveries in 2012. The company also completed a $623 million offering for an enhanced equipment trust certificate that included Class A, B and C series certificates. The net proceeds from this offering were used to refinance 2 owned Airbus aircraft and prefund the debt financing for 12 Airbus aircraft scheduled to be delivered from September 2012 to March 2013. During the quarter, we extended our credit card processing agreement with Bank of America merchant services for an additional 5 years. Under the terms of the new agreement, we have qualified for a lower level of holdback, which will reduce collateral held by BAMS by approximately $45 million in the third quarter. Total net CapEx was $78 million in the second quarter. And for the full year 2012, we forecast total net CapEx to be $308 million. This includes non-aircraft CapEx of $170 million and net aircraft CapEx of $130 million, primarily due to predelivery deposits on future deliveries. So in summary, I'd like to thank all our 32,000 employees for their efforts, which produced record profits in this high fuel cost environment. Our financial and operating results are not only best in the company's history but also among the best in the industry, proving we are well-positioned for the remainder of 2012 and beyond. And with that, I will turn it over to Scott.

Thank you, Derek. Before discussing the revenue of our environment, I'd also like to thank all of the employees of US Airways for all the hard work and the great airline that we're running today. As both Doug and Derek said, and as we've been doing for several years now, we once again have record operational results in the second quarter. Turning to the revenue environment. I'll start with a review of the second quarter and then give you a little bit of commentary on the outlook going forward. We were pleased with our 7% year-over-year increase in passenger RASM. Both leisure and business demand were strong during the quarter. Domestic RASM was up 8%, transatlantic was up 3% and Latham RASM was up 7%. Progressing [ph] through the quarter, April was strong and consistent with our expectations. Towards the end of May, we did see some modest slowdown in business demand that happened at the same time as the macroeconomic headlines worsened. And of course the same macro effect caused oil prices to decline. As we've seen historically, bad headlines can translate into business demand, temporary pulling back a little bit until the fog of uncertainly begins to lift. Leisure demand, which tends to be less susceptible to short-term headline volatility remained strong and unchanged. That same modest slowdown in business demand but strength in leisure demand continued in June and resulted in overall demand that remained strong with RASM up a solid 6% year-over-year. Turning to the outlook going forward. The year-over-year RASM comps continue to get more difficult this quarter, and that's particularly true for US Airways as we outperformed the industry by a wide margin last year. Additionally, the year-over-year comps will be impacted by the year-over-year ticket tax expiration. Last year, the ticket tax expired from July 22 to August 7, and this led to a onetime RASM benefit of about 0.5% in July, 2.5% in August and 0.5% in September. The demand environment in July continues the trends we saw in May and June. Demand is still strong but while there is macro uncertainty in the world and bad headlines, the modest slowdown in close-end bookings has continued, so leisure demand remained strong. We currently expect July RASM to be up 1% to 2% year-over-year and August and September to be up 0% to 2% each even with the more difficult comps in the year-over-year ticket tax impact. So in conclusion, we continue to run the best operation in the country and the demand environment remains good. The near-term business demand is being impacted by macroeconomic peers. And with that, I'll turn it back to Doug.

Thanks, Derek. Thanks, Scott. All right, before we get to questions, as has been the case in the last couple of earnings calls, I imagine many of you have questions related, not so much to US Airways earnings, but about American Airlines, and what's going on with US Airways and American. As we've done in the last past couple of calls, what we'd like to do is just tell you what we can tell you in regard to that, which I'll do here in a second. And then if you would, please keep your questions to US Airways issues, because I would have already told you what we can and plan to tell you we can -- can and plan to tell you about what's going on with American. So let me do that and then we'll turn it over to questions and we appreciate all of your understanding on this point. So as evidenced by our record second quarter results and how well they compare to the other airlines, it's quite clear that US Airways has a great business model that works and we certainly don't need to merge with another airline. However, we do believe a combination of US Airways and AMR is in the best interest of both -- of AMR and its stakeholders, US Airways and its shareholders and the employees of all companies. All 3 of Americans unions, representing over 55,000 employees agree and support a merger of AMR and US Airways. And last week, APFA joined APA and TWU in sending AMR's offer to its union members for a vote. So if, as the 3 unions, and we have been advised, those labor agreements are a prerequisite for the AMR's strategic alternative process to move forward. We welcome those efforts. AMR recently announced they would open merger talks with interested parties in the near future. And as indicated, that is actually open to considering mergers while in bankruptcy. That would be dramatic and welcome shift from the company's posture during the last 8 months, and we are anxious to learn more about the process. We're hopeful there will be a meaningful, fair and transparent process by which AMR would evaluate its merger options. Because we're certain that any objective analysis will conclude the best plan for the creditors, employees and customers of AMR in the merger with US Airways during the bankruptcy process. So we've been told that we will receive a nondisclosure agreement or NDA shortly, and we believe that will provide a first assessment of AMR's intentions with respect to the review of strategic alternatives. So if after reviewing the NDA, it turns out that this is not the start of the full and fair process we hope for, we'll have to evaluate our options to ensure that the real parties in interests, AMR employees and creditors get the chance to evaluate the merits of an AMR-US Airways merger. So that's where we are. We are currently awaiting more details about the process and we'll know much more about next steps after that happens. Irrespective of what we learned, we believe we'll ultimately be successful in combining AMR and US Airways, and the result will be the creation of the best airline in the world. That's what the employees and the owners of both companies want, and we don't intend to let them down. With that, we will now open the floor to questions. And again, if you all would please keep your questions to US Airways earnings, we would appreciate it. Operator, we are ready for questions.

[Operator Instructions] We will take our first question from Michael Linenberg from New York.

Guys, a couple here. Your profits or margins for the quarter were superb, and I know June seasonally is one of your strongest quarters. And the fact is -- I mean, obviously, maybe not having a hedgy benefit but even then it seemed like the industry as a whole really didn't get so much of the fuel drop benefits since it happened so late in the quarter. So I'm curious how much of your improvement is really a function of the restructuring? The ramp up of DC, the scale back of LaGuardia, and the fact that you have a competitor in Atlanta deemphasizing that, that city as a hub, is that helping Charlotte? Any color you can give on that -- on those topics would be great.

First, as Dan noted, Scott and also Robert Isom are off -- are not here in Tempe with the rest of us, so you may hear me turning things to Scott. So anyway, but that -- anyway, what I know Michael is that's going to be hard for us to give you -- certainly give you a quantitative numbers on that, but Scott want to give a shot at -- anything you can help Mike with.

Well, we have actually done some work on the DC-LaGuardia slot swap. And we think in the second quarter, it was worth $14 million penal improvement. And remember that, that was only half implemented. The remainder -- the second half of the slot swap was implemented in July. So it appears that at least from 1 quarter's worth of data that our $75 million in annual improvement was conservative. So we feel good about that. Charlotte, the rest of the network sort of, I think, I would say, performed consistent across the network. Charlotte is a fantastic hub. It's been our best hub. It's one of the best hubs in the country for any airline. That continues to be the case, and we continue to actually to add ASMs there particularly with small city service, and all of that has just done quite well. So Charlotte has had margins that improved their rate similar to the rest of the system, but they obviously started at a higher level than the rest of the system. And we have more capacity growth in Charlotte.

Okay, good. And then just my second question, the purchase or I guess repurchase of 5 Embraer 190s from Republic, is that a straight CapEx-type deal and, therefore, what is the increase in CapEx? Or is there something else tied to that purchase and your agreement with Republic? Is there some sort of maybe nonmonetary consideration, and it has to do with, maybe, a revising of the contract that you have with them?

So, Mike, this is Derek. It does nothing to do with any revising of any contract. It is just we are going to take the 5 aircraft on. The financing that we previously did, it's been modified very slightly, but it's a very good financing. We will take the financing back on those aircraft, and there'll be a slight monetary payment as we go forward. And that is built into my guidance on the non-aircraft CapEx. So a very small cash out the door, and we take over the planes and the financing for those 5 planes.

Mike, and you raised a good point actually about maybe we should -- I should have made more clear my comments which is we did get some benefit from fuel, but as Derek noted, the -- if fuel price had stayed the same quarter-over-quarter, we've -- our fuel price would have been about $40 million higher, and we had, what, $215 million of improvement in year-over-year earnings. So fuel helped, but fuel is not the driver of this improvement. The driver of this improvement was revenues and that's what's getting us here. So thanks for noting that, Mike.

We'll take our next question from Jamie Baker, New York. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Doug, the issue with deposit snapback has garnered some increased attention as of late. I'm sure you're aware that AMR has been bringing the issue up a little bit more vocally. Could you update us on your current thinking on that topic and importantly, what sort of progress, if any, you may be making with your own pilots as it relates to potential consolidation?

It doesn't sound like a standalone US Airways question, Jamie. Jamie N. Baker - JP Morgan Chase & Co, Research Division: You really don't think so?

I didn't -- it relates to US Airways contracts. Look, the -- that provision is public provision. You can go read it yourself. It's quite clear that it doesn't apply to anything where US Airways is the acquirer or the US Airways is the surviving entity. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Okay. Well for my follow-up, I'll definitely mix US Air with consolidation. My question, Mark and I, we're actually both wondering -- and maybe this is also for Derek, what sort of strategy you have for refinancing the -- what is it, $1.6 billion, I believe, in bank debt that's due in March of 2014? What sort of strategy is in place and is that impacted at all by the developing situation with AMR? So that's pretty standalone. Isn't it, Doug?

We can refinance it today. I mean, we can go out, and we have proposals, and we work with banks, and we've gone through the process. And we can refinance it today. We have a very good collateral behind it, and we can use that collateral to refinance it. So it just really is a timing issue of whether we want to do that now. The rate is a very good rate on that loan. So the rate will go up. There's no doubt about it when we do it. So it's just a strategy, internal strategy of when do we want to do it, when do we want to complete it, but it's not whether we can get it done or not. We have a very good collateral behind it, and we will look at refining some of that. It doesn't need to be refinanced for 1.5 years, so we have a fair amount of time. And so there's no real reason to go out and do it today unless we find a favorable proposal, and that's what we're working with the banks on right now.

We will take our next question from Glenn Engel from New York.

First question is on the cost side. If I look at the 2 quarter, even if I stripped out the profit share, labor was up about 11%. Can you help us with how much the stock options cost? And to -- how much did the greater in-sourcing, I know you took some -- brought some work back home and how much of that had an increase?

Yes, I think -- overall, of the items that I talked about, the profit sharing, incentive comp and also stock-based compensation, I mean, our salaries were up some $96 million, and $88 million of it is that. So the rest of our salaries, they're only up by $8 million or $9 million. None of them up, from a CASM basis, up at all. Reservation agents is up a little because we did in-source res but that is the only area and it was only up about $1 million or 14%, really driven by FTE volume, by the fact that we brought in reservations. We have a significant savings in -- or cost savings in outside services. But from a salary perspective, almost everything increase is really due to those items.

The landing fees were down 9%, what drove that?

The landing, it was really the aircraft rents that was -- I mean, airport rents that was down, driven by a onetime credit. We get them certain times of the year and we got one. Our Charlotte ranked credit this month versus -- or this quarter versus getting it in the first quarter last year.

And finally, a question for Scott. If you're looking for about a 5-point deceleration in PRASM from the June quarter, is domestic evented [ph] it, or are you seeing a deceleration really across-the-board?

We still think domestic will outperform. You look at that at our full quarter guidance and that would be domestic up about 3% and transatlantic and Latham, each about flat.

We will take our next question from Hunter Keay, New York. Hunter K. Keay - Wolfe Trahan & Co.: Derek, can you give us maybe an early read on how you're thinking about nonfuel CASM going into next year? I assume that we're just going to be pretty much be run-rating all of that capacity changes and probably not anticipating much more about a 1 percentage-ish increase in capacity. So if I make that assumption, do you have any levers that you can pull that we might not be aware of, that might be able to get consolidated x or mainline CASM x down by more than just capacity increases next year?

We haven't really -- normally, we don't give out any guidance for next year until we put our plan together, so we can really look-through where we're at. I think as we go through our 5-year plans, we have no big jump in CASM or big jump in expenses that we expect next year. So I would believe it'd be similar. The last 2 years, we've been up 0% to 2%. I think we would be similar to that range next year if we went through and really did a budget today. But we really don't normally give out that guidance until the first quarter next year. Hunter K. Keay - Wolfe Trahan & Co.: Okay, no. Yes, I understand that. That's helpful.

There's nothing big jumping out as we look at the 5-year plan. Hunter K. Keay - Wolfe Trahan & Co.: Yes. It was great. And I guess, in other words, if you dare to -- as you look at this cash position that your building, I mean, it's pretty strong, as measured by a few different ways. What is excess cash in your mind? And do you feel that the lack of a hedge will forces you to hold onto more cash than, say, some of your competitors? And I guess, part of that as well, might you consider some new ways to deploy it, if you will, in the sense that maybe you have lower LTVs and some of your financing terms to get a better rate? Is there anything that you haven't really done in recent years with the cash that you might consider?

Right now, I mean, I think we're still in the mode of building cash. I think we're up to $2.9 billion. I think you do drain cash in the back half of the year just seasonally. So as we look at things, and we've continued to look at it, we'll continue to build cash and not use it to pay down debt at this point in time. And that has been our strategy for the past few years, and I think we're going to maintain that strategy as we move forward into 2013.

But it's nice that you're asking those questions again, and we're certainly asking ourselves. And so we're looking at it ourselves to make sure -- Derek's obviously right. Right now, we've chosen that the right -- we think the right thing to do is just given the dynamics of this business to continue to build. But we agree, and we're now reaching the point, which we're happy about, of asking ourselves those same question, which is how much is too much? But right now, we're planning on building.

We will take our next question from Dan McKenzie, West Palm Beach. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Doug, setting aside AMR for the moment, investors are concerned that it's either US Airways standalone, if it's not US Airways-AMR. And just setting aside AMR, I wonder if you can help us think about US Airways down the road. And I appreciate you can't be too specific, but are there other strategic opportunities and can you help us understand how open you would be to those other strategic options if we take AMR out of the picture?

Yes. Well we can leave them in the picture. I just will tell you what we always have as planned, what we said consistently for a long period of time, which is we have an airline that works and a model that works. And these results prove it better than anything else I can say. So I think we all know that, and we've established that. We're -- we can continue to do or do it on a standalone basis. That model is different than others. It's a model that works with a network that is very, very strong but not quite as strong as -- not as strong as United and Delta's. And therefore, it doesn't generate the same revenue per ASM as they do. So we offset that me having a cost per ASM that's lower than theirs, and we do that with a labor cost structure that is lower than theirs. And that results in -- sometimes some extended labor negotiations, but we get them done, because we know that's the only way the model works, and our employees know it's the only way the model works and as do those that regulate labor negotiations. So all those things come together, and that's how it works. It doesn't mean we can't have nice pay increases for our people. It doesn't mean it can't be great place to work. It can be all those things, and it will be. So that model works but that's the model. There is another model that might work even better and that would be -- that may be better for our shareholders and better for our employees and that would be to combine our existing strong network with another strong network and getting our revenue-generating capabilities up to those similar to United and Delta's. So that -- you know you'd have strong revenue-generating capabilities, and you also would, therefore, allow some of the benefits of that to accrue to employees and the shareholders as well. So we look at those opportunities all the time. We always look at those opportunities and those opportunities I think would exist with any other 3 network airlines other than US Airways. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Okay. I appreciate that. And then Scott, I guess if I could just turn back to some of your revenue commentary. Given the kind of the barrage of negative economic data points, we seem to get getting here on a daily basis. I wonder if you can help us peel back the onion a little bit more on the forces that are driving revenues. Specifically, I'm thinking of elasticity of demand versus restructuring of industry capacity. So we have seen industry capacity restructured, but I wonder if you could talk about to what extent, if any, we've seen a change in demand behavior versus 3 or 4 years ago, if, I guess, if any?

I think -- if you just want to talk about price elasticity of demand, it remains consistent with every analysis I've seen going all the way back to the days with Civil Aeronautics Board, with leisure demand about a minus 0.7, and business demand about a minus 0.3. So meaning it's about 50% of our traffic in business, 50% leisure, that it -- a 10% increase in fare as a result in 5% increase in revenue, approximately. And I don't see any evidence that, that long-term price elasticity of demand is any different. If we see anything that's different, it is, I think, that businesses are more quick to react to forward-looking risks in the economy. So while corporate results might still be strong, when I pick up a newspaper and read about what's going on in Europe, there are more quick to react and say, "We're just going to keep our travel budget where it was, but we're going to slow down travel or until we get more certainty on the outlook going forward." So they're more quick on the trigger than they were in the past. They're more quick to come back. Since 2008, I think we've seen several cycles of this happen where headlines get bad, we see a short-term slowdown in demand, things resolved one way or the another and it bounces right back. And so if there's been any change, I think that's where it is. I'd also add that leisure demand, I think, is a better proxy for what is happening certainly with the U.S. economy. It's a lot less short-term volatile based on the headlines. And so it's more representative, I think, of the underlying economy. And that would tell you that the underlying economy continues to behave much like it has the last -- in 2010 and '11 and the first half of '12, which is an economy that describe as, okay, not good but modeling along and from an airline's perspective, the capacity discipline on an environment that's leading to good results for airlines.

We will go next to Basili Alukos from Chicago.

Kind of just to ask my question, but I guess maybe if I can come at it a little differently. If I think about your 3 major competitors, 2 of them are involved right now in integrating, and I'm just wondering how much do you think your kind of revenue performance or your business performance relates to your competitors dealing on their own internal integration situation rather than just the overall network.

Scott?

Yes, for us, we know the challenges, the point of integration, I mean, we had them ourselves at American West, US Airways. And I'm certain that our partner, United, is going to get through those and certainly has made progress in that. I think, while there may be some impact, some short-term impact to revenues that the industry benefit from, from that, for US Airways, it's probably small. And that's particularly because we are a codeshare partner of United. And so if something bad -- when something is causing issues for them, it causes issues for us as well. So others probably benefit a lot more than we do from that. In any event, still I don't think it's really affecting our current near-term results compared to the industry. And it's something that I think they're going to get through and its a temporary effect in any event.

Okay. So then I guess just projecting that outlook going forward, then once those integrations are done kind of trying to understand how US Airways would fit into the picture as a separate entity looking out, call it, 3 to 5 years. I mean, how do you view the network evolving as your 2 competitor or as 2 competitors finished their integrations, and then ultimately AMR right now is dealing with bankruptcy, once they emerge.

Well, I think, Doug said it earlier, and we feel really good about the network that we have. And as Doug said, it will generate on a standalone basis lower revenues than Delta and United. And that's because we can't offer comprehensive service to customers to get them everywhere in the globe, around the globe. American will be in that same position if they emerge, if they were able to emerge on a standalone basis, but they also couldn't compete with Delta and United in offering comprehensive service around the country and the globe. And so both of us will have to have cost advantages to be able to be competitive with those airlines. But on US Airways, on standalone basis, we have fantastic hubs in all of our markets and because we're #1 in those markets in Charlotte, DC, Philadelphia, Phoenix, that is a sustainable position. It's a position that's worthwhile for -- for ever since the merger of US Airways and American West since 2005, you can go back and just look at the fact. We've produced margins that are at or near the top of the industry. And that position -- that continues. We have not seen this kind of -- we have not been deterioration that Delta and United got together, and I think we can continue to compete successfully in our niche. We have a niche that works. It's a niche that works with lower revenues but also lower cost. That's the way to expand out of that niche and be a global carrier is obviously through consolidation. But if we stay in the niche, we feel very good about where we are.

We will go next to Savi Syth with St. Petersburg. Savanthi Syth - Raymond James & Associates, Inc., Research Division: What was ancillary revenue in the second quarter? Ancillary revenue?

Second quarter is $154 million. Savanthi Syth - Raymond James & Associates, Inc., Research Division: All right. And with the kind of fleet changes you're doing with the 195, kind of surprised that you're bringing on to the mainline. Is that just so that you're kind of hitting mainline minimums and you need to increase it, or what was the decision behind that?

All right. Scott?

I'm sorry. I didn't hear a question.

I can answer it. Those airplanes are by contract, formed by mainline. They're part of the mainline. Per existing contract we have -- the ones we already have in the fleet are formed by a mainline parts and the ones will come in and be formed as well. They come in at -- they're formed at a lower rate. This was done at a time we did the merger, request of our pilots. We had proposals from other airlines, and our pilots asked that we could -- if we bring them in and have them be mainline -- the pilots at a time, the old US Airways was coming out of bankruptcy, and had a lot of pilots on furlough, so we were happy to do that under those rates. But that's how it works. Those are mainline airplanes. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay. So it seems like that you're getting the 195, be getting some larger gauge aircraft as well next year. So are we going to see more ASM growth then in 2013 and/or is there kind of enough offsets?

You -- we will see some ASM growth. But as you said, it's driven by the aid still by the A321s coming in and replacing smaller aircraft. We will have A330s coming in next year and replacing some smaller aircraft. But the fleet count, mainline fleet count next year will go up by 5 just because of these Embraer 190s that come to the mainline. The rest of the fleet will stay flat but the ASM growth will be due to higher gauged aircraft. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Is there a target that you're hoping to stay within or...

We have not gone through the plan for next year. So I think if we went straight off of just straight shell for shell and we proceed, we'd be in the 2% to 3% range, I think.

We'll go next to John Godyn from New York.

Scott, I just wanted to follow up on some of the PRASM commentary. I think some investors are looking at it and sort of saying, "Your PRASM commentary contrast out of the Southwest and Delta." And as a result, they're concluding that the fastest thing that sort of decelerating on the margin is domestic business travel. I know you don't know everything about what's driving Southwest or Delta PRASM, but based on what you guys do know, is that a fair characterization of what's changing on the margin fastest?

I don't think so. I mean, we also look at a lot of share data. And so I think what's happening in US Airways is consistent with what's happening around the industry. As I just read -- I haven't actually read Delta's transcript yet, but I've read Southwest. It was perhaps less specific guidance than ours and more qualitative than quantitative. But I don't think there's anything unusual at US Airways or domestic versus international. There might be some of the -- the comps may get a lot more difficult for US Airways in the third quarter of last year. We outperformed Delta, I think, by 3.5 margin points on year-over-year RASM. They've been doing really well this year, that's not at all a criticism. But our comps are difficult. I don't think there's anything unusual, though, impacting the US Airways network as compared to the industry at large.

[Operator Instructions] We'll go to Jeff Kauffman from New York. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: A lot of my questions regarding the use of cash have been answered. But I guess let me ask it this way, if you weren't thinking about some kind of strategic transaction, what would be your cash use priorities?

Yes. Look, where we are doesn't have anything to do with our strategic options. If we were -- where we are, we think is right for the company on a standalone basis. And so our cash options really -- the options are: Do you continue to build cash even though it feels like you may be reaching a point where you have enough or do you use it to pay down some debt, is really the option for us. I mean, it's not as if there's any capital we're looking to acquire that were -- that we haven't acquired. It's really a balance sheet issue of why do you hold cash and get very low returns and then payout higher interest rates of the debt. So that -- again, that's a judgment call that we have to make all the time. It's one -- it's not one that we've had to make in the last few years because we gotten to a level where we knew we wanted to get to the point of paying -- building cash. Now we got to the point where we're asking ourselves those questions. One of the things that matters on that point is where other airlines are. You don't want to get yourself in a position where if things do happen to turn down, you're the one that gets yourself into a bad situation first, because we've all seen how that works. So it does also matter where those are and frankly, relative -- some of the other airlines have built-up relatively even more than we have. So I think we're all probably asking ourselves these questions not. It certainly is inefficient to hold as much cash as the industry is holding and gain the returns on that cash we're getting. But given what we've all been through in the past, I think we all are trying to be extremely prudent to make sure we don't get our -- we don't put our companies at risk until we're absolutely certain that the industry's restructured in a way that we won't have those kind of changes in the past. I have to believe it has by the way. But you'd like to see a little more -- you'd like to see 1 year or 2 more this kind of performance and particularly in difficult year like we saw in 2011, before you start believing that the whole industry has gotten itself to where it can really handle the cycles, the business cycle. And again, I think we have -- I think eventually you'll see us get there. But I think, probably, all of us right now are in a wait-and-see mode rather than going out and getting ourselves into a more risky position.

We'll go next to Kevin Crissey from New York.

Doug, I know you talked in the past about how the industry has improved and have the financial numbers behind that. I guess the question would be is, have we improved to the point where in a U.S. recession, the industry doesn't lose money on a -- we're not seeing negative earnings?

Well, Kevin, you can probably do that analysis better than I can. But here's what I know. I mean, 2011 was not a good year. Oil prices were as high as they were in 2008. The economy 2008 pre-recession 2011, we modestly recovered post-recession, seemed pretty similar to us. And 2008, the industry lost billions and billions of dollars. I can't remember the exact number, but it was several billion. I know US Airways lost $800 million. And in 2011, the industry was modestly profitable. So those years feel really similar to me in terms of what should have happened. And 3 years later, the industry was in a position where you're actually made money and still loosing it. I think that is extremely telling. Now clearly, you're going to have worst years than 2008 and 2011. But 2008 was about as bad as it got in our industry for quite some time. And what you saw was once that happened, the industry responded. We got capacity in check. There were mergers that made airlines more efficient, and we did things to the pricing model to make sure that we were maximizing our ability to collect revenues. And all those things occurred, and it's a dramatically different industry. Again, it's hard for me to say for certain that there couldn't be a year where the industry loses money but I don't know. If there was going to be one, I think 2011 would have been it of what we've seen so far, and the industry did quite well. And again, 2012 is not kind of a peak earnings year for other industry, but here you have us producing record profits. So I don't know. It feels very, very much different to me. I'm not -- I can't go out on the line now, Kevin, and tell you we've gotten to a point where we won't see declines. What I definitely believe is you're not going to see the kind of wild throws that we used to have when the economy turned down and all of a sudden airlines we're all running around figuring out if they're going to be able to make it through or not. I think we've all gotten ourselves in a position where we can. We got one more to get out of bankruptcy and then hopefully they'll get to those condition, if they don't have -- if they don't find themselves in that situation anymore. But it sure doesn't -- it sure feels like a completely different industry.

Okay, great. And maybe for Scott, how do your revenue management practices change in light of the leisure business mix? And I think maybe if you could give us capacity change by month that might help people appreciate that your RASM is naturally lower if you get some growth versus, say, Delta's shrinking?

Well our revenue management practices, we adjust demand pretty quickly, and we have adjusted our demand forecast, but mostly what -- you just adjust the model forecast for demand, and that has the effect of opening up more seats for further in advance for leisure demand, because if you're forecasting lesser business demand you wind up opening more seats for leisure demand. And so that's a pretty straightforward effect. I'm trying to put my numbers here. Derek, do you have the month by month -- month-over-month capacity there?

Yes. System total capacity?

Yes.

You want month by month in the third quarter?

Yes, please.

0.8% in July, 4.4% in August and 0.6% in September.

Is it 4.4% in August?

4.4% in August.

[Operator Instructions] We'll go next to Helane Becker from New York. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Doug, might I point out that you can never be too rich. So my one question really is, you guys have been delivering a really good on-time performance, great operation, your people are really coming through. So it's a kind of a 2-part question. One is, can you quantify at all how much either revenue benefit or cost savings that has done for driving costs and driving the improvement in the numbers that you're reporting?

Sure. The revenue benefit I know is hard, because what you don't know is customers that if you weren't reliable you wouldn't -- that wouldn't return. So that one's harder to ascertain, but we do a lot of work on the cost and Robert Isom's on the line.

Helane. Yes, when you take a look at the benefits of the approved operation, you can take a look at US Airways from where we were a number of years back. So simple things like not losing bags, there's a price tag on each of those that every bag we lose costs -- the company pay $50 in terms of additional rework. Now when you take a look at cancellations and all that goes into that, you're also taking a look at multiples of bags and employees expense. And so when we add all this up, we can definitely come up with numbers that are in the tens of million dollars a year in terms of overall benefit. And it really comes down to the rework. You're not paying overtime. You're not losing bags. You're not having to handle passengers in a fashion that cost you money or has to off-line them. So I'd love to give you a firm number but what I can tell you is that we see tens of millions of dollars of benefit a year in terms of running the type of airline we are right now.

And, Helane, I'll just -- I'll give a little color for the quarter. We have a line of passenger inconvenience, which includes interrupted trip expense, hotel vouchers, mishandled bags, everything that Robert just talked about. Year-over-year that was down $4.7 million. It's almost $5 million just in that line. And that doesn't include overtime and other things that go on. So if you annualize that, that's $20 million just from year-over-year, running a better airline. And if you go back as Doug said, our operation has gotten better year-over-year-over-year. So if you go back a few years, it's even much more significant than that. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: From -- so more significant than, say, $20 million or $25 million -- from the worst year to the best year?

Correct. But I think just last year to this year, we're at a run rate from those type of items of about $20 million a year.

We'll take our next question from Ray Neidl from New York.

Basically, just to go over some of the things that you've been talking about, one of your competitors said that your labor costs are going to take a shot up sharply shortly when you have to do contracts. So you have some cost pressure in that area. And we maybe heading into a steep recession here, and with US Airways smaller system compared to the other legacy carriers, you have less flexibility in maybe cutting capacity along with your union contracts, your mainline aircraft, for sure, they're regionals. And I'm just wondering if, in fact, you're going to face cost pressures in the labor side and if we are heading into a really economic downturn, what is your options? Do you have the flexibly to adjust to a much slower economy?

Yes. Okay. I'll start again by noting we're producing the highest profit margin in the industry right now, so there's a lot of room there to fall down where the others are. As to the labor cost pressures, I don't know, they're exactly the way -- we've been -- since the merger in 2005, with these types of labor cost, they do, indeed, as I said in response to an earlier question, result in sometimes some protracted labor negotiations. But we end up in the right spot in all cases, because we understand that we -- this airline, the model that works for us, allows for nice increases and pay for our employees. But we cannot let ourselves get to our cost structure that is the same as airlines that have network generating capabilities that are bigger than us. That's what other airlines have done in the past and found themselves in bankruptcy including US Airways. We've never done that. We won't do that. We haven't done it for the last 7 years and it's not going to happen going forward. So what will happen is we'll go contract negotiations with our employees. We will get to pay rates that are fair and consistent with our revenue-generating capabilities. Those would be nice increases for employees. We got negotiations going on. We haven't had it for quite some time with our pilots. We have an offer for quite some time with, I would say, that would increase our cost. We are working still with our flight attendants on a proposal. We got one with the NAB's help through the approval and negotiating committee but flight attendants chose not to ratify it. We're back talking to them again along similar terms and hopefully we get that one back out for ratification before too long. But anyway this is -- your premise is incorrect. So on the capacity front, Scott?

Well, we do have the restrictions in our labor contract. We've had those for a while on minimum fleet and minimum utilization. We've managed well through the downturn, the very severe downturns in 2008 and 2009. And the reality is it's less about what is US -- less important about what US Airways specifically can do, and more important about what happened at an industry level. We -- if you go back further in time, the 2005, 2006, we have reduced capacity as aggressively as the industry. And while we can't go further, I'm confident that an industry response to another fuel or recession would -- on a fuel price sector or recession, as Doug mentioned, and talking of one of the other questions, I think that the industry response would be adequate to deal with that, and 2011 was the perfect example of that.

Okay, great. Now the results are very good. I didn't mean to imply that you're not good producing good results. But the thing is the flexibility that you have versus the bigger carriers, that's what I was trying to get at. The second thing, just to verify, these 195s coming back from Republic, you will be operating a fleet of regional jets, large regional jets at mainline, by mainline lane pilots even though the rates are lower. Is that something that's in the future? Are you going to be operating a bigger fleet of r jets going forward and deemphasizing US Air Express and the partnership there?

First of all, Ray, Embraer 190s, these are aircraft that we had in our fleet before, so and we've run them at our mainline. They're just coming back to the fleet. So Scott, do you want to talk about how that affects the regional carriers?

Well, I think similar -- I don't know a specific example or where it will shake out in regional carriers, but the same industry trends certainly impact us, which is 50 seaters and 50 seaters at least under today's economics with today's aircraft ownership rates, are not economic compared to larger regional aircraft. And so I think you will either see 1 or 2 things happen, a sharp reduction in the cost of 50 seats left, or moving to larger gauge aircraft as those contracts expire.

And we'll take your next question from David Fintzen, New York.

Just a quick question on the slot swap and your relationship with United and Star. I'm just curious how you think about your role in DC and sort of how your national hub versus the Dallas hub, do they complement each other or is it viewed within alliance as kind of a competition? I mean, I'm thinking kind of similar to what a merge between Delta and Continental in New York. Or is it as United look at it, it's sort of bolstering their presence in DC even further.

Maybe we help each other a little bit in terms of frequent flyer program. But in Washington, we're mostly competitive with each other. We don't codeshare in most of those markets. And while maybe there's some frequent flyer benefit, I think it's probably mostly competition there.

And is that big enough to create strain between the 2 of you, or is it small in the context of everything that you both bring to the alliance?

I don't think it creates strain. I mean, we don't talk about it being strain. So on our side, I don't believe it create strain. And I expect they view it like we do, which is just normal competition.

And ladies and gentlemen, we will now take questions from the media. [Operator Instructions] We' take our first media question from Josh Freed, Minneapolis.

Just going back to the consolidation comments, I won't ask you to plow any new ground, but I do have to ask you to clarify, Doug, what you meant when you said that basically you're looking to see whether -- sorry, getting back to it here, whether it turns out that this is a full and fair process, and then you said something about kind of looking at what your options are. Could you explain maybe a little more precisely what you meant when you said that?

Josh, look, what I meant to convey and hopefully I'm trying to convey was that, where we're sitting right now is we're awaiting to see more details and when we do, we'll know more. And given what we've seen so far, we're anxious to see what happens. And we hope it's a fair and balanced process. And if it is, that's great. If it's not, we'll have to figure out something else to do. But either way, we think we're going to be ultimately be successful in getting this done, so.

What makes you think that it wouldn't be a fair process? I mean, what's the alternative to a fair process?

One that makes -- that disadvantages those who are not the debtor. One that, for example, ties up, it slows down review of merger alternatives to the point that you get to a point where the merger alternative hasn't gotten very far and the header's standalone plan is ready to emerge and better says to the creditors, "Geez, that might have been a really good idea, but we're ready to go with this one and that one is not ready yet, and we'll go work on that later maybe. So let's do ours instead." That's not a fair process, for example.

We'll take our next question from Jack Nickies [ph] from Chicago.

Just wanted to sort of on your comment just now, are you -- if this nondisclosure agreement contains a standstill agreement, sort of, I mean, you can't accumulate any more data or go off style or anything like that, if it does, would you plan to sign it?

Yes. We can't give you the details of what we would or won't sign because we haven't seen anything yet. Again, what we're interested in is making sure that it allows us to do what we need to do, to make sure that the process is fair and balanced. So given what's we have seen and what's been said to date, we're as we've said looking at this somewhat skeptically, but really hopeful that we're on and really hopeful that the process, when we see it, is fair and balanced. And that's what we hope happens. So if we find there's things in there that are -- that we're being asked to sign things that we think puts us at a disadvantage, we obviously won't sign it. If we don't we will. There are all sorts of things that could overcome things we don't like. And we'll see when it gets here.

Great. Just real quick, I also want to get the opportunity. AMR has kind of a lot of disparagements about US Airways lately about being highly leveraged airline and facing willing debt repayment, things like that, producing less revenue, but obviously, we saw the results today and AMR's results, well, sort of your response to their disparaging remarks?

No, we have no response.

We'll take our next question from Mary Schlangenstein from Dallas.

I wanted to ask you, Horton mentioned that they think they can get through this process of sending out the NDAs and giving feedback and making a decision by the fall. Do you think that is a really rushed timeframe? Or do you guys have any thoughts at all in terms of how quickly that process might move?

We haven't seen any details in the process.

Okay. And then my other question was to Scott on fares. It seems like the first quarter would have been a great time to be able to push-through more fare increases with capacity being tight and demand still being strong. But yet there weren't any broad-based fare increases for the industry that went-through. I wondered if you could comment on that and the potential, as much as you can, for the industry's ability to boost fares going forward. And I mean -- so there weren't any fare increases in the second quarter not the first quarter.

Scott, if you could. And I will just let you know that if you were sitting here with us, Steve would be glaring at you. So go ahead.

Well, I guess I'd say we had record results in the second quarter not just the US Airways, but the industry record certainly revenues results. So I think it's a very strong demand environment with healthy yields. And you have to look beyond just the headline fare increases. While there's a lot of publicity and analysts write-ups about structural fare increases, I've said many times, what matters far more is the things that you don't read about. The difference between not running a fare sale when you ran a fare sale last year, is a much bigger fare increase than raising the fare by $3. And you could just see the results in the second quarter was a very strong demand environment with strong yield growth.

We'll go next to Ted Reed from Charlotte.

I've a few brief items. When you say this was the best quarter ever, what was the best quarter before this one?

Go ahead with your next question.

Derek, is digging through his archive.

All right. My next question is you haven't talked about Europe, but have you been impacted by the bad economies in Europe?

Scott?

Well, we did say that domestic RASM was up 8% in the second quarter and Europe was up 3%. So I think there is some impact there. I don't think that it's been huge yet, because most of the majority of our business is origin U.S., it's people from the U.S. going to Europe and for the European-originating business, it's mostly northern tier. So we have a lot smaller originating business out of Greece and Italy and Spain and Portugal. And so the impact has been somewhat muted. We did have a currency impact in the quarter as well, and we've seen a slowdown in cargo demand. But all things that I think are consistent with what you read in the newspaper about Europe.

So flying to the strong economies like, I guess, Germany, that's not impacted so much, especially since you don't have much origin traffic in Germany.

Well, we had a lot actually in a country like Germany. It's in the southern tier countries that we don't have much. And those are less impact, I wouldn't say they're not impacted at all. But they are much less impacted at least so far than what you see in the southern tier countries.

Ted, to answer your question from a GAAP basis, the second quarter of 2006 was $302.9 million and from an x charge basis, the second quarter of 2006 was $312.8 million, both of those were the highest.

All right. And last thing, are you going to restart -- are you going to talk again or you're planning to talk again with the flight attendants, what's going on there? And I know you expected something on Friday that didn't happen, so are there new talks coming up soon?

Steve?

Yes, I think we're at a stage with the flight attendants where we're talking all the time, Ted. I mean, sometimes formally at the table like you saw last week and sometime informally, so stay tuned.

All right. Last thing, what about IAM talks?

IAM talks have been under way for, well, more than a year. The 2 big contracts with the IAM are -- were originally agreed the single agreements were originally agreed not long after the merger, and those contracts have become amendable again, and we're engaged in talks there. These are, what I would call, more traditional Section 6 talks where there's a lot of issues on the table that need to be worked through. We have regular meetings with the IAM, and we're progressing at, I think, what is pretty much a normal rate for Section 6 discussions like this.

All right. I guess, I will ask one more, which is can pilot talks proceed with -- without regards to merger and no merger? Is it possible to continue -- to talk to the USAF pilot merger aside?

Sure. I mean, we've talked to the USAF pilots all the time.

What about -- about a contract?

Yes.

And we'll take our next question from Ely Portillo from Charlotte.

I heard you talked about adding ASMs for Charlotte mostly in the form of smaller plane. Do you see any capacity growth from Charlotte with larger market and especially international in the short to mid future?

We've added a lot of international as well with all of the European service. And we -- the next big market that we are going to add in Charlotte, as soon as we get the slot and facility and all the other regulatory hurdle, is Charlotte to São Paulo and Brazil. So in short the answer is...

What's the earliest you can have that? Because I know that's been pushed back.

I think we're now into the first quarter 2013, that's the earliest.

And we'll take the next question from Mary Schlangenstein from Dallas.

I just had a quick follow-up. Doug, You guys haven't really talked about American Eagle. Can you tell me what you're thinking there, what you're looking at there? If you do a deal with American, would you include Eagle?

Did you listen to the start of the call when I said we're...

I thought maybe you were worn down by now.

I'm still awake. Yes, we have no color on that, Mary.

And we have no further questions in the queue at this time.

Perfect. All right. Thanks, everyone, very much for your interest. Again, we couldn't be happier with today's results. We appreciate your interest and if you think you have any other questions or need more information, please contact Dan from Investor Relations or our corp comp people for the media and thanks again. We are signing off.

Ladies and gentlemen, this does concludes today's conference. We appreciate your participation. You may disconnect at this time.