Good morning, and welcome to the American Airlines Group Second Quarter 2021 Earnings Conference Call. Today’s call is being recorded. At this time, all participants’ lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] And now I would like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens.

Thanks, Jerome, and good morning, everyone, and welcome to the American Airlines Group second quarter 2021 earnings conference call. On the call this morning, we have Doug Parker, Chairman and CEO; Robert Isom, President; and Derek Kerr, Chief Financial Officer. Also on the call for Q&A session are several of our senior executives, including Maya Leibman, Chief Information Officer; Steve Johnson, our EVP of Corporate Affairs; Vasu Raja, Chief Revenue Officer; Elise Eberwein, Chief People & Communications Officer; Alison Taylor, Chief Customer Officer; and Devon May, our Senior VP of Finance. Like we normally do, Doug will start the call with an overview of our quarter and update to the actions we’ve taken during the pandemic and through the recovery. Robert will then follow with some remarks about our operations, commercial and other strategic initiatives. After Robert’s remarks, Derek will follow with details on the quarter and our operating plans going forward. After Derek’s comments, we’ll open the call for analyst questions, and lastly, questions from the media. As a reminder, to get in as many questions as possible, please limit yourself to one question and a follow-up. Before we begin, we must state that today’s call does contain forward-looking statements, including statements concerning future revenues, costs, forecast, capacity, fleet plans and liquidity. These statements represent our predictions and expectations as to future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release issued this morning and our Form 10-Q for the quarter ended June 30, 2021. In addition, we’ll be discussing certain non-GAAP financial measures this morning, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financials is included in the earnings release, and that can be found on the Investor Relations section of our website. A webcast of this call will also be archived on the website, and the information that we’re giving you on the call is as of today’s date and we undertake no obligation to update the information subsequently. Thanks again for joining us. At this point, I’d like to turn the call over to our Chairman and CEO, Doug Parker.

Thank you, Dan. Good morning, everybody, and thanks for joining us. This morning, American reported a second quarter net profit of $19 million. Excluding net special items, it was a net loss of $1.1 billion. This loss, while large, is the smallest we've had since the start of the pandemic as demand for air travel has improved significantly throughout the quarter. Our revenues in the quarter were 87% higher than they were just last quarter. At the beginning of this year, we outlined our Green Flag plan, a set of initiatives that we have focused on to reset the airline and make American stronger as we come out of the crisis. As a reminder, this work focused on four key objectives: doubling down on operational excellence, reconnecting with our customers, building on the positive momentum with established spreadsheet and passionately driving vision. And keeping our focus on these areas, we knew that while the pandemic starts to recede and the green flag drop, that American will be ready. Robert and Derek are going to share a lot more details, but the short story is the green flag has dropped. We are indeed ready, and the American Airlines' team is delivering results and a return. We've flown more customers than any other airline in the second quarter. Our team safely transported more than 44 million passengers on nearly 470,000 flights. It's more than five times the number of passengers we carried in the second quarter of 2020 and more than two-and-a-half times the number of flights. We've ramped up the operation dramatically in response to customer demand, and our operational performance continues to improve as we grow in scale. Our team has done a phenomenal job of taking care of our customers. Our on-time performance and our completion factor for the…

Thanks, Doug, and good morning, everyone. First, I want to acknowledge the tremendous efforts and resilience with the American Airlines team, but we're still in the early stages of the rebound, we feel really good about the result – the progress that we've made to build back our business differently and the results it's producing. This progress was only possible because of the outstanding work of our team. This quarter, we rebuilt the operations up from pandemic-level flying, effectively adding an airline the size of the old U.S. Airways over the course of just a few months. We were able to fortify our staffing by completing all the required recall pilot training, bringing back more than 3,000 team members from leaves with thousands more flight attendants returning from leaves this fall and hiring nearly 3,500 new team members throughout the operation. We also plan to hire 350 pilots this year and more than 1,000 pilots and 800 flight attendants next year. As Doug noted, in the second quarter, we operated more than two-and-a-half times the number of flights we operated over the same period last year. We had a second quarter completion factor of 98.6% and an on-time arrival rate of 82.1%. That represents our best-ever performance for those two metrics in the second quarter, and the momentum has continued into July. Demand for our product remains strong and we're very encouraged by the trends we're seeing in the revenue environment. The recovery is happening. Our second quarter passenger revenue more than doubled sequentially to $6.5 billion as demand surged. On a unit revenue basis, our second quarter PRASM was up 42% sequentially from the first quarter and a 44% sequential increase in capacity. Despite the industry-wide increase in service, this marks the fourth quarter in a row that we've…

Thanks, Robert, and good morning, everyone. Before I begin my remarks, I want to echo Doug and Robert's comments and thank our team members for their hard work over the past quarter. We've significantly grown our airline since the first quarter, and the process of bringing the world's largest airline back online was not an easy task, but our team made it happen. This morning, we reported a second quarter GAAP net profit of $19 million or $0.03 per diluted share. Excluding net special credits, we reported a net loss of $1.1 billion or $1.69 loss per share. With the rapid return of demand that Robert discussed, our financial performance has continued to improve. This trend started in March when we began to see a significant acceleration in demand that continued throughout the second quarter and drove net bookings to 2019 levels. This improvement in demand led to an 87% sequential increase in total revenue versus the first quarter. Even more encouraging is that we were able to capture this additional revenue while remaining focused on our cost and efficiency initiatives. As we have articulated in the past, our goal throughout the pandemic was to prudently keep our capacity aligned with demand while being flexible enough to adapt as needed. We've done just that and moved swiftly to lower our cost structure and drive efficiencies throughout the organization with more than $1.3 billion of permanent cost reductions. This includes $500 million in management headcount reductions, $600 million in labor productivity initiatives, and $200 million in other efficiencies. Based on our results, it's clear these actions are beginning to pay off as our second quarter CASM, excluding fuel, net special items of $0.1261, was up just 11% versus the same period in 2019 despite flying 25% less capacity. Looking at this…

[Operator Instructions] Your first question comes from Catherine O'Brien with Goldman Sachs. Your line is open.

Hey, good morning, everyone. Thanks for the time.

Hey, Catherine.

Hey. So first question on the deleveraging plan. For your plan to prepay, I guess, it's $5 billion to $7 billion through 2025 on top of that $8 billion to $10 billion in scheduled amortization. Can you just help us think – can you tell us about the pacing of that prepayment? Of course, assuming it will be tied to free cash flow ramp other – for profitability metrics. Do you see the gating factor or other capital allocation requirements we should be thinking about that might influence that pace? And then I guess maybe like a quick secondary question on the back of that also, could it actually be more front-end loaded as you step down your minimum liquidity next year? Thanks.

Yeah. Thanks, Catherine. Yeah, it's all going to depend on that as you just said at the end. It's - as we step down our cash requirements, we will use the cash to pay off the debt. So the way we're looking at it is if we can – we're at 2021 now, we just paid down $1 billion in 2020. We'll take that down to $10 billion to $12 billion sometime in 2022. So when we do step it down, we will use all of that excess cash to pay off of the debt. We have a significant amount of debt that is pre-payable. A lot of that is efficient debt, but we still believe it's the right move to do. So I do think it will be front loaded. As we look at the amortization today, it's pretty even throughout the four years as we look at it. There is more out in probably 2023, 2024 because the AAdvantage loan does start to amortize out in those years. So that adds to the amortization. But I do believe, as we step down from where we're at today to the $10 billion to $12 billion, and then if we do step down again over time, that all of that cash will go to debt. So I would believe that it would be more front-end loaded as we think about it.

Okay. That's great. Thanks. And then a question just maybe on the codeshare agreements. As codeshare demand is starting -- excuse me, corporate demand is starting to rebound here, obviously, still in early innings. But can you just talk about how adding a new JetBlue codeshare or to enhance the last codeshare has influenced your discussions going forward, either with corporate accounts where you might have overlap, or in regions where your partners have had a stronger presence than you have had historically? Thanks.

Yeah. Hey, Catie, this is Vasu. I can handle that. We are really encouraged, both with the progress and the results that we've seen from both of our domestic partnerships, even though it's really only been -- the better part is six to eight weeks where elapse has been up and running and really three or four weeks, where the JetBlue codeshare has been up and running. But very much the design of this partnership is to go shore up on two parts where -- of the domestic system where our network was structurally weaker. One is the West Coast and the other is the Northeast, both of which are the largest originating market for business travel, for corporate travel, for small mid-market travel, however, it might otherwise be. And so we've had a really encouraging response from corporate customers. We continue to have one. There’s a lot of integration work that must be done still, and that's a major focus of us. But we're encouraged by what we see in both cases. First, in the case of Alaska. Again, while the results are early, the key indicators, when we put it together, was to ensure, one, more long-haul -- a successful long-haul franchise off the West Coast; two, a better network for the West Coast originating customer, again, that's a business customer; but three, more utility for all of our customers who are in the Midwest and the Southeast and are looking to go West. And though we haven't seen long-haul emerge just because of the trends that are there, from what we see right now, about 20% or so of the bookings in the public data is all from the Intrawest customer, which is exactly the kind of business customer that we weren't getting before. We're also encouraged that 80% of the bookings way, way overperformed our expectations are from customers looking to go West. And we've been able to go and put more demand through these codes, while fulfilling the organic network through DFW in Chicago. So we’re encouraged by that and we continue to be as we go and scale up in Northeast partnership with JetBlue us well.

Hey, Alison, why don’t you give a flavor for what you’re hearing directly from the corporate as you've been out on the road?

Yes, just to add on what Vasu said Robert, having just talked with most of our large corporate account. I just see it is simplicity of our network arrangement and contracting with us, as we do that together with our new alliances is something that really assists the truck manager and the travelers. We have been able to sign our largest, most complex global accounts to both Alaska and JetBlue. It just makes it easier and more seamless for them to have a great network and have great offerings through our joint loyalty partnerships as well and through having a one-stop shop for the sales side of us as well.

And your next question comes from Andrew Didora with Bank of America. Your line is open.

Great. Good morning, everyone. Thanks for the questions. I guess, Derek, on the deleveraging plan, can you maybe just help us a little bit with maybe the free cash flow build beyond this year? Can you give us a general idea of kind of what level, I guess, net CapEx can be beyond 2021? And can you remind us what your pension contribution requirement is this year and next?

Yes. Well, firstly, with the pension is going to -- I mean, with the paydown, it’s going to be using the excess cash that we have as we go forward. So just, we'll have a significant amount of that used to prepay the debt. But as we move forward, next year in 2022, we only have about $2.6 million of CapEx, about $1 billion -- we're forecasting about $1 billion in non-aircraft CapEx for the next four years, so we've kind of left it back. It might have come in a little bit below, a little bit above that. From a gross aircraft CapEx, we have about $1.5 billion in 2022 and $1.8 billion in 2023. And then the other thing to look at is debt payments in 2022, we only really have one significant debt payment, which is the unsecured. So, we only have about $2.5 billion of debt payments in 2022, steps up to about $4.4 billion in 2023. So, each of those two years are going to be significant as -- if the earnings are where we believe they are, we'll have more free cash flow to pay that off. From a pension perspective, we really don't have any pension contributions in 2022 or 2023 necessary. So, there's a small one, we think, in 2023 of about $50 million, but zero in 2022. So, not a lot of cash requirements for either capital, debt paydown, or pension contributions over the next couple of years, which will enable us to have significant free cash flow to start to delever along with the excess liquidity that we believe we will have over that time period.

That's great color. Thank you for that. And then my second question, maybe Robert or Vasu, in your down-20% revenue outlook for 3Q, can you maybe provide us a little color on how you see the domestic yield environment progressing throughout the quarter? And if you can, can you give us what percentage of your expected 3Q revenues are already booked now? And how does that compare to pre-COVID levels? Thanks.

Yes, this is Vasu. I can help with both. Look, as we look into 3Q really, we continue to see a lot of the same trends that we're seeing in June and July and the first half of August. As schools go back to return in the second half of August and following Labor Day, there's a natural lightning in the leisure demand that we're seeing. And so, as we look out there, we're actually really encouraged by the yield environment. We're seeing yields that are in that period, 95% to 105% of where they were in 2019. As far as how much their bookings, as we get out into September, we're still only about 35% to 40% booked out there. So, there's yet a little bit of room out there. And the way we consciously built the airlines as we go into that period. It is very much that it will be maybe a little bit less of the opportunistic leisure stuff that we've been doing a little bit more starting to orient that what we're seeing is the return of business travel. So, we're encouraged by the trends that we see out there, but we really are planning that a material amount of business travel won't come back until after the October period.

And your next question comes from David Vernon with Bernstein.

Hey good morning guys. Thanks for the time. Vasu, maybe could you talk a little bit about how the dynamic on business fairs are -- is behaving kind of relative to a normal pre-COVID level? I'm just trying to get a sense for whether you're starting to see some close-in bookings or I know the activity levels have improved, but how is the fair dynamic working in there? And if you could also comment a little bit on kind of where you are in getting the traditional sort of revenue management algorithms to kick in?

Yes. That's an excellent question. And probably the second one helps give context for the first one, so I'll answer them in reverse order. When the pandemic began, we talked about this thing as a reset. We – for planning purposes, we take that very, very seriously that we describe the business on a year over 2 years basis. When it goes to planning the business, we work here and now. And one of the benefits of having more capacity out there is this enabled us to go and observe demand. So, we realized in the early days of this that the pandemic was going to be so big and so devastating that our historical demand forecast wouldn't work for probably a few years into the future. So, we've been pretty actively over the last year rebuilding our forecasting system. And clearly, through our Q3 results, there's some great effect and to the great work of our revenue management team. When we came in, in January and there is still a lot of uncertainty, one of the things that they noticed was that every single peak period we had more travel demand than what was there before. And it was actually, the booking curves are actually shifting further and further out with more people willing to pay also high fares closer in. So very actively set up the summer for that. And if you go and just look at the public data that's there, we very consciously built the airline and try to take as much demand as we could close to departure. And indeed, our market share inside of 14 days in the Q2 period was much greater than what it was outside of 14 days. So even though the fare environment was depressed, right, even though yields were at 80% to 85% of historical levels, we were taking a lot more share of inside 14 demand where we did indeed observe higher fares, more willingness to pay, more business style itineraries that were there. And that led to a lot of the results that you see where even though we have more capacity than others, we also have higher loads and high rate. And look, it's also enabled us to do -- we've got a much better handle on the nature of business travel. And we do see a lot of changes in trends and patterns that are there. And we believe that that’s really well-positioned into the fall. But we haven't seen the booking curve shift outward. We do see people engaging in business style itineraries, single-day trips overnight with no bag, things like that, and we're encouraged by that return. So with that in mind, we remain encouraged for how much business travel can start to rebound. And certainly, when we -- when more corporations return to work, we think there will be a four to six-week lag and a pretty material pickup there as well.

That's extraordinarily helpful. Thanks for that detail. I guess, maybe just as a quick follow-up. If you think about the partnerships with JetBlue and Alaska, obviously, that executive order came out. There was some commentary in there on the airlines and slots and things like that. Have you guys been directly approached by the DOJ to revisit any of that stuff, or are you worried about that happening? Can you comment on the partnership in the context of the recent executive order?

Steve Johnson will answer that.

Hi. Thanks for the question. As we've said, we've been in discussions with the DOJ about the NEA really since we announced it. And I think the real answer to this question is Vasu’s and Allison's comments earlier, but let me just summarize and refrain those. We designed the NEA for our customers. We designed it to be competitive. We designed it to allow us to do things to allow JetBlue and American to do things in the Northeast and in particular, in Boston and New York that we couldn't do on our own. And we designed it to allow us to grow and offer options to our customers that otherwise wouldn't be available. We're committed to that idea. I think what we've done with the NEA so far demonstrates that, that is going to be the case. I just -- we're really excited about the announcement that we made earlier this week about the NEA. And we're confident that at the end of the day, the regulators are going to see the value to customers and really the increase in competition that results from it. A couple of quarters ago, I was asked a similar question. And I said that we -- with the DOJ, in this case, doesn't have a deadline for taking action like they would in the case of a merger, and that we expected them to watch as the NEA was implemented and over time, make a decision about whether it was in the best interest of consumers. That seems to be what they're doing now, and we expect that to continue.

And your next question comes from Savi Syth with Raymond James. Your line is open.

Hey, good morning everyone. Could you provide on the fleet harmonization side, with this kind of the success you're having with getting that done, just wondering if you could share with the cost and revenue benefit timing? And what that might look like relative to 2019?

Yeah. Savi, this is Derek. I think the – I mean, the cost is all built into the capital plan. So what we've done with all of those projects within the $900 million non-aircraft CapEx because, as you can imagine, most of that stuff was purchased earlier, and now we're just putting it in the aircraft. All the 737s are done. And as Robert said, the A321s will be done by the end of the month. So the cost perspective is already in and it's already complete. What it will do is from an ASM perspective is it will increase ASMs. So, it should help the CASM as we go forward because we're adding those extra seats to the aircraft and that is all built into the CASM guidance that we have as we go forward from a revenue perspective.

Just again, remember that on the 737s, we effectively took the seat count from 160 to 172 seats. And on the A321s, which we still have, 100-plus left to reconfigure. We're taking the configuration up to 190 seats from either 187 seats or 183 seats. So, it's -- again, I'll reframe this in terms of those aircraft have all new seats, all new bins. They have new wide-wings [ph]. They have power. Of course, they already have the best in terms of satellite Wi-Fi. So, we have more seats to sell. It's a better product for our customers to win overall. It's something that we really haven't had the ability to go out and market over the last year. So this is something we're excited to do as we finish off 2021 and move into 2022.

Yes. And Savi, from an operating perspective, for the airports to have the consistency of aircraft to swap and the move around has been very, very helpful from an operating perspective also.

Got it. So we should see some kind of margin benefit as we head into next year...

Yes, into--

All of those combined. Thanks.

Correct.

Great. And if I might quickly just follow-up on the business corporate demand recovery, appreciate kind of thinking of full recovery next year. Curious what you're thinking you might see kind of exiting this quarter and into the fourth quarter?

This is Vasu. Really, as we go through 3Q, we're not seeing a big alteration to the trends that we've seen sequentially so far. And if we're about -- if the corporate revenues are at 45% of where they were in 2019, from January to June, we've seen that build about seven to 10 points sequentially kind of month-to-month. And we don't really see anything between now and September, where seven to 10 points will either be materially higher or lower. In October, where we believe -- presently believe there's going to be a change that as we've seen companies return to work, especially across the Sun Belt, typically in a four to eight-week lag period after that, we start seeing them come back to travel. And with so many areas right at some of the lowest booking points of commencement are the New York corridor, D.C., and the Greater Chicago area with them, both returning back to school and back to work around Labor Day we anticipate that really it will be early to mid-October when that demand starts coming back. And Alison could add more, but that's so far is pretty consistent with what we're hearing from our corporates.

Absolutely. 50% of our corporate customers have already listed their travel restrictions, and two-thirds have already planned to return to the offices by the end of 2021. So, this bodes well for a continuing uplift in corporate travel. And what we saw in Q1 and Q2, for our largest corporate accounts, we saw an 80% increase from Q1 to Q2. So, it's been a steady recovery. And it's been interesting for us to see some travel patterns that remain different than they were pre and some of that remain the same. For example, those that are different is that our travel remains less concentrated on peak days of the week, but the booking curve of corporate traffic continues to normalize towards 2019 levels.

And your next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Hey thanks. Your revenue outlook and margin outlook is better than what we were hoping for, which is consistent with peers that have reported thus far. I wanted to ask you about your ability to influence relative margins. you're guiding to kind of mid-single-digit negative pretax margins in the third quarter. Both of your network peers are guiding to positive, at least one is guiding to mid-single-digit positive. So just thinking back to 2019, you're starting from a lower margin baseline. So the same RASM and the same CASM trajectory is going to result in the same ranking on the other side of this pandemic. My question is, what is your plan to change the ranking? Do you expect American to be an industry plus RASM story or an industry minus CASM story? And I appreciate your thoughts.

So first off, I mean, as I know, looking at relative margins right now, it's hard to do. It's so volatile around how small the profits are and one airline is driving versus another and how fast revenues are going. For example, while you are right, I guess our 2 large competitors are forecasting to have the margins better than our forecast in next quarter. The actuals this quarter were 10 points better than United, for example. So – but one should not take that domain that we think we're going to have 10-point better margins. And going forward, my point is just that, that whether or not – some of it may be forecast plans. Who knows? So maybe forecast -- not so maybe more concerned and others don't know where is talking about we speak. But to your broader question as to going forward and what we think about relative margin performance, I firmly believe what you're going to see from us is when you look – when we all get to a real profitability and where you can actually compare these types of numbers, say, 2022, American's margin versus our 2 large competitors versus where it was in 2019 will be there, if not exceeding one of them. So that's what we certainly would expect. We expect that -- given what we're seeing today, we expect that given the $1.5 billion of cost efficiencies that we felt into the airline today. So anyway more to come on that, but I would really caution anybody from trying to look at margins today and comparing relative margins as to any sort of indication of where they're going to be in the future because they're moving every quarter. But anyway, it's been 3 quarters now that we've been well ahead of United, but we don't take huge comfort in that. There's just tons of noise in there.

Appreciate the thoughts, Doug.

And your next question comes from Helane Becker with Cowen. Your line is open.

Thanks very much operator. Hi everybody and thank you very much for the time this morning. As you guys start to think about opportunities to grow the network, where do you think the next – and as the new aircraft come in? Because I think you're still getting a few new aircraft, especially 787s. Where do you think the next best markets are for those aircraft?

Helane, thanks. I'll start, and Vasu can add on. So look, we've done some great work to put in place some new partnerships that have been talked about. That allows us to really optimize the fleet overall. And as we take a look at the growth, you'll see that some of the things I talked about, new gates in Charlotte, new gates at DFW, the upgauging of 14 regional gates in DCA, those are going to be first on the list for us. And we're really happy with the set of assets that we have, because they do enable us for some growth in some of the fastest-growing metro areas. But in addition to that, they are really efficient connecting operations as well. So that's first order of business. Vasu?

Yes. Robert said it really well. And what I'd say very simply is, some of this pandemic and everything we've seen for the vast majority of cities all across domestic U.S. and even South America, too, the American Airlines has the best network, the best globally ubiquitous network. And -- so, we envisioned a lot of where we would organically put assets is there. And then as we start building back international, we built it back in a way where it really grows off of where we're strongest organically, places like Chicago and Philadelphia and Miami and Dallas-Fort Worth. But also we envision being able to launch flights out of New York and Seattle. And we've been really encouraged so far with what we've seen through those partnerships. So a big chunk of our growth, wherever it is, is going to be focused on things that really drive the performance of this company and are positive for us and our customers.

Okay. That's very helpful. Thanks, Vasu and Robert. And then the other question I had and I think you may have answered this, but I might have missed it. Is the revenue being driven by higher load factors or higher yields or a combination thereof?

Yes, Helane, this is Vasu again. And the reality is both. But as we go back and look at -- look at this, when we look at it internally, we actually index at March 2020 when things kind of were at their lowest point. And if you look at that and just index our results coming out of there, our traffic -- like our traffic just slowly filled capacity. And the next thing -- the next effect that we've been seeing, as you look at that sequentially, is growth in yield. So the reality is both, but what we have been more encouraged about, to my earlier comments, too, is that, as we get into peak days of week peak travel period, things like that, we are able to go and drive yields in a way that really was nonexistent to us in 2020. So the reality is it's both, but increasingly, yields are taking over. And that's very encouraging for us because, of course, in the way our ASMs are distributed, the more and more we see domestic yield recoveries, the more our business has large recoveries.

Thank you.

And your next question comes from the line of Mike Linenberg with Deutsche Bank. Your line is open.

Yes. Hey. Just two here. Robert, I want to go back to the point that you made about a full business travel recovery in 2022. Now are you specifically referring to your domestic business revenue, which I think is about 25%? Are we looking at, on a system-wide basis, which is probably a number that's probably 10 to 15 percentage points higher than that. I just want a clarification on that.

Hey, Mike, domestic.

Okay.

International, as we said in our comments is still ways off. But as Vasu and Alison have talked, everything we see in terms of trends from a domestic business perspective and boding-well for international as well as we go out and we talk to CEOs and in insurance and in financials and in consulting and accounting firms, everything tells us that business is going to come back to where we had seen it before. Maybe in some different ways, but feel really confident starting with domestic in 2022.

Great. Very helpful. And then I just -- Vasu, I want to ask you, not that long ago, I want to say a few months back, I think you were out publicly saying that you were bracing for maybe a bit of a falloff in demand when we got into the fall largely kids back-to-school, families or parents back to work that you would see some impact on one hand. On the other hand, when you think about maybe Europeans coming to the U.S. getting pushed back into the fall, the cruise industry just starting to reopen, Broadway opens, I think, on September 14th, are we going to see a potential leisure bump because of just re-openings that are happening around the world? And have you rethought that prognostication about a potential demand sluggishness maybe on the leisure side when we get into September, October. What's your latest thoughts on that? Thank you.

Yeah. Thanks, Mike. Well, let me clarify my prognostication. I think it's taken on colors that I didn't originally meet it for the investor conference. But really, what it is, is that first and foremost is long-haul international, consistent with Robert's comments a moment ago. Right now, as I'll use Europe as the example, as markets there have reopened, we saw a lot of bookings come in, what would be historically late in the European booking curve, which is great. But the vast majority of them are sales represent relative style bookings, or leisure-oriented bookings. And so as we look out there, there's really not a lot to indicate that real long-haul business travel is going to be coming back following Labor Day. And again, to continue my European example, really what buffers the European network into the fall is indeed business travel. Now what is unknown to us is if these reopenings continue, there probably is going to be some more marginal demand for Europeans coming to leisure markets in the U.S. and Latin America. But for all intents and purposes, we're presuming that, that's going to be relatively small. We've seen very little to occur otherwise or to comments Alison made and Robert made. And then as we think about our short-haul network, both in domestic and added Mexico, Caribbean and Latin America, there, we do indeed anticipate that visiting friends and relatives style markets will actually be seasonally and sequentially stronger than what it would have been in 2019 or 2018. We do anticipate there's going to be more weekend-oriented leisure demand, three-day weekends, things like that than what we might have otherwise seen. But the reality is what we have in June and what there's going to be in September is likely to be really different. Right now in June, we see travel where people will go to Missoula, Montana on a Tuesday and return the following Wednesday. It's pretty unlikely that a trip like that is going to happen with the same degree of frequency when you get -- when people are going back to school. But that's okay, we can go and configure our airline network to go and match the demand that's there. And that's indeed why certainly in our published schedule, you see us flying more things into D.C. and New York and starting to add back multi-frequency business markets and in three-day weekend patterns and things like that.

And your next question comes from Jamie Baker with JPMorgan. You may now ask your question.

Hey, good morning, everybody. My first question related to when Broadway is going to open, but might be busy lunch. So a question probably for Robert. So the third quarter capacity guide down 15% to 20%. That's a bit more aggressive than some of your competitors. It is what it is. But what internal calculus went into that. I mean, is that a function of loss minimization. Is it driven by the maximum amount of staffing that you have particularly on the pilot side, is that what you need to operate to avoid ceding share to competitors, just curious why that figure is down 15% to 20% as opposed to something different?

I'll start, and Derek can join in as well. But look, we're planning the airline for where demand is. We're planning the airline to maximize profitability. And it doesn't make sense right now to have assets on the ground. We've got the staff to go out and fly them. And we think that what we're doing is, is profit maximizing for – or loss minimizing for the airline right now. Vasu, go ahead.

Yes. Jamie, this is Vasu. I'll pick up right where Robert left off. He's exactly right. We plan to maximize the marginal economics of the business. And you see that. This is – a lot of what we see in Q3 is extension, quite frankly, of Q2. So if you look at Q2, for example, I was reading through other airlines print. And for the best-performing airline, their domestic PRASM, we produced the exact same domestic PRASM they did, but our airline was 65% or 70% larger or 6% [ph] more capacity. So to be able to be that much larger and produce the exact same revenue is a really, really great marginal economic decision because in our system, we're able to go and create that kind of leverage. And so the only difference between for us flying at 80 and something more or less than that is the – as we go out there, it's a continuation. And you can see it in the published schedules of exactly what's there right now, where about 90-ish percent of the ASM capacity of the company is doing the things that are really working right now, which is flying a lot in the Americas, both in North and South America, of the remaining 10% is flying Transatlantic and Transpacific. And that's the best marginal economic decision to make right now. And should that change? We have ample ways to go and respond to that.

Okay. That's helpful. And then on Slide 16, you talked about steady state CapEx. I think the problem American had and I guess now the challenge United is facing is that CapEx really runs through peaks and valleys. So sort of a theoretical question. Is there a way to smooth those trends over time, or are airlines simply perpetually beholden to the product cycle from the OEMs? I'm trying to understand if $3 billion is truly a steady state number, or if that's just shorthand for short-term run rate until the next cool sunny thing comes along? That's my question.

No. Jamie, I was going to say, I think it maybe fluctuate up and down, a little bit on that, but you know, if you have a – to not get into the state of where we did before where we had $5 billion, $6 billion, and we were taking 100 aircraft, a year, we need to try to smooth it out a little bit better. But the other way to do that is take that -- take new aircraft, take older aircrafts, do different things like that. So, as you look at that, but we're to take -- I don’t think there's anything to do with manufacturers. It has to do with how do we want to smooth things out over the next 20, 25 years from an aircraft capital perspective because, as you know, aircraft, they can only last a certain point in time. So, our view is that we're going to need to replace some each year. We're going to need a little bit for growth each year, and that's where that CapEx comes from. I don't -- yes, it's harder to go, okay, we're going to order a bunch and get them all within a three or five-year period. We'd like to smooth that out a little bit more. So Doug, do you have anything to add to that?

I was just going to add, Jamie, that I think what you're seeing is that pent-up replacement issue that's driving this right now largely. So, given what's happening is airlines need to eventually replace aircraft, of course. And American did that pretty margin America deal with a big order, whenever that was, 2012 or 2013. US Airways already was in the middle of that. So combined, that's why we do have the debt. We have because we have much newer and better aircraft and assets than some of our competitors, and they now have to go through the same thing. So -- and while we were going through the troubles of the industry was going through, people held on to airplanes longer than we have in the past. So, all things -- anything related to the OEMs and entirely related to airlines who now have just held on to airplanes long enough that they have to be released. American's is not in the situation anymore. You know Delta are. And so you're seeing us now with lower CapEx in the future. You'll see them with larger in the future. That's the cycle. But once we get through that, you'll see us all get to, as Derek said, much more steady and kind of adding capital for growth as opposed to adding capital for replacement.

And then your next question comes from Hunter Keay with Wolfe Research. Your line is open.

Thank you. Good morning. By the way, Doug, that aircraft order was almost 10 years ago almost to the day, by the way.

Wow.

I know. Time flies. I know. Derek, are you planning on revenue in 2022 to be above or below 2019?

Revenue above or below 2019?

Yes.

Above. What do you guys think?

Above.

I just want to clarify that question. You're planning on 2022 revenue to be above 2019?

Number one, we haven't done our plan yet. So, a number -- so we haven't figured out -- I do -- I think from a -- what we do know is we will probably have growth a little bit. We should be back to 2019 levels from a growth perspective in 2022. CASM should be lower than where we are from a 2019 perspective, and revenue is going to be dependent on the recovery. So, I would -- I will take back my comment and just say it depends on the corporate recovery, it depends on international coming back to see whether we can get to that level. But I do know from a cost perspective and a planning perspective from an ASM, we would plan to be pretty close to 2019 levels. From an ASM perspective and CASM, pretty flat on those levels.

Okay. All right, cool. And then another question for you, Derek. On the $1.5 billion in gross CapEx next year and I think you said $1.8 billion in '23, is there a 787 gross CapEx in that, or are those just operating leases? And what is the latest on the expectation of timing and delivery on those 19 planes? Thanks.

Yes. The 787, there's -- the only gross CapEx. We only have a few left in 2022. So there's no gross CapEx in that number. That's all other than x 787. We have 14, 788s that are – 13 that are still left to deliver this year, but 8 of them are delayed at this point in time. So we really don't know the timing of those coming. 12 of them were supposed to come in 2021 -- or 11, excuse me, were supposed to come in 2021 and only 2 in 2022. So the CapEx for those 2 aircraft is very small in 2022. And as you noted, we do have sale-leaseback financing, and they're all financed in there. So the CapEx would be very minimal. We're still working with Boeing on those deliveries. Unfortunately, a lot of them were delayed. We don't quite know when they'll come in, but we're working with Boeing to try to get those. And we'd like to get them as soon as possible, but I know they're having issues trying to get those aircraft out.

Got it. Thanks Derek.

Your next question comes from Connor Cunningham with MKM Partners. Your line is open. Q – ConnorCunningham: Hi everyone. Thanks for the time. This might be a strange question. But does your acceleration of debt paydown allow you to be a little bit more aggressive with your network. Those things then pushed back in the past just like that your debt burden has hurt you guys are being a little bit more tactical. So I'm just curious if you can be, if you're going to be more nimble kind of going forward as you start to repay debt?

Yes. Thanks for asking anyway. I can't think of one decision we've ever made around here that we said, 'Oh, we can't do that because we have more of that.' Indeed, we haven't made one. So not to extend the thought we are being less nimble because we are burned with we certainly ever felt so. So, what we have or we – prior to 2020, as I stated, given the fleet modernization, the airline has gone through a fairly rapid fleet modernization the airline had gone through, we got to a position where we had more debt on the balance sheet than we thought made sense on a going-forward basis. So we had stepped forward a plan to reduce that debt over time. As we went into 2020, the pandemic obviously not only delayed the ability to do that, but made it even -- just added more to that as we had to add debt to fund operating losses. So now that we can begin to rebuild our efforts, we're excited that we're going to do that. But not one decision that we stepped gosh, we can't grow. We can't do what others are doing. We can't do what we want to do because we have a debt burden.' We've never found ourselves in a situation where we couldn't go finance more, if we need, if we wanted to or invest in the business where we wanted to, and we've been doing that and is certainly the case going forward. Q – ConnorCunningham: Great. And then just a couple of months ago, you were at a conference – or I think it was Vasu that was there. And you talked about how you weren't going to bring back international less the returns or similar to your domestic market. And I thought that was somewhat interesting. So, should we assume that the 60/35 split that you've historically had is going to skew more domestic on the other -- well, I mean, obviously, when things start to normalize and everything is open, like how do you view your international network going forward?

Hey, this is Vasu, and thanks for the question, and I'll clarify that. To my earlier comments, this pandemic was a big reset for us. And prior to the pandemic, our margins internationally were -- certainly trailed our competitors and struggled a lot, especially outside of the time we got to peak summer. And a big part of it was that we had a lot of widebodies that, though they were put to really good use in the summer, really could not earn their carrying costs as we got in the trough season. A major part of that is that we didn't have big gateways in markets such as New York or the West Coast to be able to launch flights. A big part of it was just the nature of the unique and very expense and small fleet of widebodies that we have. And so when we -- when I say that a lot of coming back -- or a lot of what the pandemic has been changing that materially. We have some 80 fewer wide-body-capable -- or long-haul capable airplanes in the fleet as we enter the fourth quarter. And as we start to go and build it back, the things that we're focused on, things that can produce real annual returns much as we do with our short haul and narrow-body fleet. And we're seeing that increasingly as you go out there. If you look out at our -- just in published schedules, we've never been larger in Mexico, Caribbean and Latin America. Indeed, we are almost twice as large as any of our traditional network competitors in the area, and we see more opportunities to be able to grow. Indeed, were it not for restrictions on customer entry, we'd be a lot bigger in just about every one of the countries in South America than what we are today. Similarly, we see a lot of opportunities through partnerships that we've envisioned and created since the pandemic with -- not just with JetBlue and Alaska, which create really great jump-off points for international, but also with Qatar Airways, who's very quickly become our largest long-haul codeshare partner. And we think that will continue beyond and do that partnership that will open up new markets for us that wouldn't have been viable for our customers or for us financially prior to this. So when we talk about bringing it back, we do anticipate growing in long haul, but we need to be able to grow in long haul where we can earn the kind of returns that we earn in the domestic business.

Ladies and gentlemen, we will now take media question. [Operator Instructions] All right. And your first question comes from Leslie Josephs with CNBC. Your line is open.

Hi. Thanks everyone for taking my questions. When you started this big hiring push in the last few months, are those employees coming in at lower average pay rates for the people that left the company to buyouts, et cetera? And then can you talk a little bit about the booking pace for post-peak summer? I think someone mentioned 35% for September. I wasn't sure if that was just business travel or what. And then through the end of the year, what you're seeing there? Thanks.

Hey, Leslie, it's Doug. I'll take the first one. Indeed, yes, the people come back will come in by definition at lower pay rates. Still very high pay rates, by the way. But yes, we're 90% united [ph], so they come in on a union. On the contract scale is based upon seniorities. So people are coming back on lower seniorities. They come in at the lower end of that scale and progressing throughout -- progressing on through time. Second one?

Yeah. Leslie, could you just repeat that question? I want to make sure I understood it right. This is Vasu.

Yes. If you can just give some detail on what you're seeing with bookings post the peak summer period. So I don't know if that's like half mid-August and then through the ends of the year. I think you had mentioned before, 35% for September. I don't know if that's 35% booked network-wide or just business travel or what you compared to [Indiscernible]

Yeah. Okay, thank you for that. That context is super helpful. Yeah, look, we're continuing to be encouraged by the booking trends that we see. September, of course, as we go beyond Labor Day, September is our most booked month, and it's booked at about 35% full. That's not all that surprising to us. And in fact, it's by design, because, for us, at this point, though booking curves have expanded, still about 50% to 60% of our demand comes in inside of 45 days. So it's going to be a while before we really see how the booking curve shapes up. But we are very much encouraged at what we see. We think that traffic will continue to recover. And critically, we've been encouraged that as markets reopen, as companies return to work, then shortly thereafter, business travel comes back, especially business travel for short-haul sectors. So we're encouraged as we go Labor Day and beyond and cautiously optimistic for what lies head.

Okay. Thanks.

Thanks, Leslie.

And your next question comes from Mary Schlangenstein with Bloomberg News. Your line is open.

Thank you. Good morning. I wanted to see if you could give us an update on your vendor staffing situation. I think you had talked before about maybe having shortfalls on provisioning and perhaps airport employees in certain job categories. And I wanted to see if you could give us the current status of that, and whether you're still asking employees to volunteer for any jobs.

Mary, thanks. It's Robert. So, hey, the great news is that we're running a really nice operation in July. And so some of the places that were the most difficult to hire in and some of the things you speak of, like catering and people that assist with wheel shares, we've had really great luck with our vendors to get back on track. And so, when we take a look at the catering issues, we're right where we need to be. We have the airport staffed fully above and below the wing. And we're going to keep it that way. So we've been working closely with our vendors and feel good about it.

So are you then not having any further issues, especially as pertains to the catering on your aircraft? I mean, is that back to 100%?

So, yeah, we're back to where we need to be. As I said, there's always issues in certain places throughout the system, but we've -- we're running the airline that we need to right now. And as I said, we're going to -- we'll continue to work with vendors on any potential shortfall. Certainly, from an airline perspective, American has a great ability to attract team members. We pay great wages and have great contracts and benefits. And so, we've been able to get back to where we need to go. And June was a month in which we saw the issues associated with trying to ramp up as quickly as we did, but we've addressed those, and we're on the right track.

And our next question comes from Alison Sider with Wall Street Journal. Your line is open.

Hi, thanks. One of your competitors has started talking about focusing more on the premium side of the business. And I guess, just given that, I'm curious, where you see yourselves like positioned? And whether you have any concerns about your product? And specifically, seatback screens, if there's been any regret about taking those off or any reevaluation of that?

Okay. I can start, and we can all chime in here. But I'd really like to focus on what we've done, which is really exciting. Over the last five years or so we've brought in, nearly 600 new aircraft so, while others may be talking about, what they might do, we have that on. We've already brought that in. And as well, any – in our narrow-bodies, we talked about with our 737 and A320 category configuration programs, that's all about making whatever else wasn't already new go back into really great shape. We've done a similar thing on the regional side where we brought in new double class, dual class RJs, especially the E175s, which get a really great reviews from our customers. And with all that, we've had an attention to making sure that we've got the right product, no matter where it's at in the cabin. We were one of the first carriers to get out there and provision our wide-body aircraft with premium economy seats, which is some of the most profitable real estate on the aircraft. Alison, as we take a look going forward. In regard to the product in-flight, we feel really good about focusing on what customers want most. And so to that end, we were the first in the business to get out and make sure that our aircraft are equipped with the highest-speed WiFi, satellite WiFi that offers full streaming capability on our narrow-body -- on all our narrow-body aircraft. We've got it on our WiFi-ed aircraft as well. Even on our 2 class regionals, we have ground-based WiFi. So we feel great about that because customers have said, 'We want to stay connected in flight.' And as we take a look going forward, we're intent on making sure that our store content product on the aircraft offers customers the ability to pull whatever they want to. And we're also going to be getting back into live entertainment as well. So from a technology perspective, we know that customers bring – just virtually everybody, 90% of our customers bring their own devices. Those devices have capabilities and higher definition in terms of screen capabilities, then we can put on aircraft right now. And as we take a look going forward, we're going to stay abreast of whatever it is that our customers need. And every day that we take a look going forward, technology improves. And we're going to be at the forefront of whatever comes. So right now, we feel really good about where we're at. I like what our product does for customers. I like what it means from a sustainability perspective, what we're doing in terms of our in-flight entertainment and making it satellite and WiFi-based. It's lighter. It's more efficient. And ultimately, it can keep up to speed with what customers want. So we feel really good about it.

Thanks.

Thanks, Alison.

And your next question comes from David Koenig with Associated Press. Your line is open.

Hi. Hi, everybody. Hey, Robert and Vasu and Alison touched on this. But I wonder on business fares, if you have tried -- in business travel, I wonder if you can say whether business yields -- whether business passengers will be paying the same level of fares they paid before the pandemic or something more or less and how quickly that's going to happen?

Dave, this is Vasu. And the short answer to your question is that right now, what we observe, business customers are paying a similar fare. But very importantly, as we're building this airline, we want to make it as easy as possible for our customers to return to travel and fly with us. And that means that the more value we give them through our product, the more willing they are to go and pay more for the product. And so while fare is the same, the reality is that the product that the business customer is going to come back to you in the fall is going to be way different. And for us, the big part of the product is the network. And the network that we'll be selling and marketing to customers, which is not just flight AA flies, but those that JetBlue flies and Alaska and Gol and Qatar Airways, in just North and South America alone, that network is two times larger than what any of our competitors offer. So, that's already a much more compelling thing. And so the simple way to think of it is for paying the same payer in 2019, you get a much more expansive network. And we are working really, really actively and diligently to ensure that that's delivered in the most reliable way in a way that's really easy for customers to go and understand and do business with.

I guess I was wondering if you're having to offer concessions on price to bring them back.

No. No, that's not been part of it. For us, it's about building confidence and returning to travel and make it easy for them to book and have their travel journey with us. And so we work with all our travel partners and with travel managers to get that done.

And your next question comes from Dawn Gilbertson with USA Today. Your line is open.

Hi, good morning. This question is for Doug or Robert. I'm wondering if you could give us an update on what you're hearing on the federal mask mandate? And whether the tone of those conversations have changed given the spike in cases? And also, I'm curious as to what your stance is on that? Do you think it should stay or be lifted? Thank you.

Dawn, it's Doug. So, we're -- we haven't been involved in any conversation. The mandate is in place through September 13. It's put in place by the federal government that gets a specifically. And that's where we stand today. I don't know if -- what their view is on to whether it will be extended or whether they will let it expire on September 13. Whatever they decide, we'll enforce. And we'll continue to do so. It's not for us to opine as to whether or not it should be extended or not. That's their job. It's a federal mandate, and we will enforce whatever they put in place.

If I could do one quick follow-up. Say, you lifted, Vasu or anybody, is there any concern at all if it's lifted that especially as we look ahead to holiday travel that maybe families with -- that could hurt bookings with families with unvaccinated children that maybe don't want to get on an airplane without a mask mandate?

Yes, we're not going to speculate on that. We don't know if it's going to look or not. I don't -- again, I -- we certainly haven't seen any -- seen or heard any of our customers indicate that they have any sort of use. So, we certainly don't know, but it's really hard to speculate on something until we get to that line.

And your next question comes from Edward Russell with Skift. Your line is open.

Hi, thank you. I was wondering, Doug, if you could comment on the American view of the payroll support program. Are those coming off? I know last year, you were talking about how it would allow American keeping staff, as well as ramp up quickly in the recovery, yet we've seen some operational issues this summer. So I just wanted to get your view on the relative success or otherwise of the program?

Yes. I think it's an overwhelming success. And to the extent there have been issues on growth, I think those are indicative of how successful the program was. Because had it not been for a PSP, you wouldn't see airlines trying to grow like we are 45% in the quarter. You're going to see airlines shut down and it's an industry shutdown. And I don't know when – where we'd be at this point. I don't know where we'd be in terms of our economy at this point. But it literally could not have been able to continue flying virtually the entire industry without the support of the Cares program. And by having it in place and by keeping it in place as the pandemic continued, what it allowed all of us to do was to keep our team employed. Now they went off flying, of course, but they're being paid. We were being paid to pay them at our government. So as we needed, we need to, of course, get them back into training. But they were ramped down and void, getting put back into training. And there were people that were on leave that we have recalled from leave. So, if it weren't for PSP, no that wouldn't make it. Obviously, it would flow have been not looking for the new employees as they would have gone up to do other things. I can't imagine how relative it would be, in terms of not just the airline industry but for our entire economy, if it weren't for the PSP program and what it did to maintain the infrastructure necessary to meet the demand that's down here.

Great. Okay. Thank you very much.

And that concludes the media question-and-answer session. I would now like to turn the conference back to Chairman and CEO, Doug Parker, for any closing remarks.

Okay. Thanks, everybody. Just -- look, we are just really excited about the momentum we're seeing. It's in the numbers that you see today, 87% of revenue growth versus last quarter, 45% ASM growth versus last quarter; cash of $21 billion, 3x where it was when we ended 2019. And that continues into – and it continue into this quarter. And we just couldn't they're doing to take care of people. And I just -- I can't think of a better indicator of how quickly and drastically the world has changed to the point out that American Airlines today prepaid $1 billion of low interest notes that aren't due for 2 more years, after all we've been through for the last year or so, looking to go raise money wherever we could to make sure we had enough to fund the operating losses that we saw going forward. We've now got ourselves to a position where we're using cash to pay off debt that doesn't come due for 2 more years. It feels really good. And so we're excited about where we are. We're really excited about the future, and we look forward to talking to you as we go forward. Thanks.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.