American Airlines Group Inc. Q2 FY2021 Earnings Call

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 on 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 spreadsheets, 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 quarter was the best in our history, despite the significant ramp-up in operations. The increases in demand in flying have led to a considerable increase in our revenues. This is the fourth consecutive quarter that American has outperformed our large competitors on passenger unit revenue production. Importantly, while we're producing industry-leading unit revenues, we're also controlling our costs. All of this has led to a dramatic narrowing of our losses, as I noted at the beginning. Notably, we were profitable, excluding net special items for the month of June, the first such month since December of 2019. We expect our losses to narrow even more in the third quarter as we continue to march back to sustained profitability. As to our balance sheet, we entered the second quarter with more than $21 billion of total available liquidity, by far the highest in American's history. We generated a cash build in the quarter for the first time since the pandemic. With this record liquidity and our confidence in the future, we've begun the deleveraging of American's balance sheet. This morning, we prepaid the entirety of our $950 million term spare parts term loan, which was scheduled to mature until April 2023. Derek will talk more about our deleveraging plans during his remarks, but I'll just say it feels great now being in a position of prepaying debt well before the term is due rather than continuing to incur it. In summary, I couldn't be prouder of this team. In response to demand, we're building back on our network faster than our largest competitors. We're serving far more customers than any other airline, and our team is doing so safely with great care for our customers. We've reshaped our networks, simplified our fleet, and built efficiencies into the business that will serve us well for years to come. And today, as the recovery continues, we've begun the deleveraging of our balance sheet. So, thanks for the hard work and dedication of the American team. And because of that, we are in the midst of an unprecedented recovery, and it shows in our results. And with that, I'll turn it over to Rob.

Thanks, Doug, and good morning, everyone. First, I want to acknowledge the tremendous efforts and resilience of the American Airlines team. While we’re still in the early stages of the rebound, we feel really good about 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 operations 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 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 outperformed our peers on a passenger revenue unit basis. Our net bookings have recovered and are fully recovered, and we're focused on yield managing demand while bringing back the network in full. We've seen no degradation in bookings related to the recent uptick in COVID infection rates. Leisure demand continues to outperform, and in many areas, it has surpassed 2019 levels. Even more encouraging, as vaccinations have increased, business travel has started to return in a meaningful way. Domestic business revenue was approximately 20% of 2019 levels in March, but it more than doubled to approximately 45% in June with revenue from small and medium-sized businesses recovering at a faster pace than large corporate accounts. Looking forward, we expect business recovery to continue and accelerate. In the coming months, our share of bookings in key business channels remains ahead of 2019. Customers are telling us that they're eager to travel, and some of our largest corporate accounts have already lifted all travel restrictions, and many have already returned to the office. Critically, the majority have shared their expectation for travel to pick up moving into the fall. We now expect a full business travel recovery in 2022. All of this is great news. And the American team is ready and excited to welcome back our corporate customers. We still expect international travel, particularly long-haul international travel, to be slower to fully return. The reality is many countries have not rolled out vaccines as quickly as the U.S., so travel restrictions and quarantine requirements are still in place in many locations. Whenever restrictions are lifted, we see a quick and dramatic increase in bookings, demonstrating that there is significant pent-up demand for international travel. For example, demand for travel to Europe has increased considerably in recent weeks with the reopening of the EU. Our book load factor across the Atlantic is approximately 35 points ahead of the same time last quarter, and it continues to strengthen. We're committed to building the best and most convenient global network for our customers as they return to this path. This includes making improvements in our key hubs, bolstering our partnerships, growing the AAdvantage program, harmonizing our fleet for a consistent customer experience, and reopening our clubs and lounges.

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 from another angle, despite a 44% sequential increase in total capacity, our second quarter total operating expense, excluding fuel and net special items, increased by only 11% versus the first quarter of 2021. In addition to our improved financial results, we also saw improvements in our cash position and liquidity. For the first time since the pandemic began, we produced a quarterly positive cash build in the second quarter of $1 million per day. While $1 million per day doesn't sound like much, we've come a long way from our peak cash burn of approximately $100 million per day early in the pandemic. As a reminder, our definition of cash build includes approximately $12 million per day of regular debt principal and cash severance payments. As a result, we ended the quarter with approximately $21.3 billion of total available liquidity, which was higher than our original forecast due to the increase in revenues and forward bookings during the quarter. As we look ahead, we feel confident that our record level of available liquidity is more than enough to allow American to navigate the recovery. In the near-term, we plan to keep liquidity at elevated levels but expect to step down our target liquidity to approximately $10 billion to $12 billion at some point in 2022. We will continually assess this liquidity target as we make further progress in the recovery, the company returns to sustained profitability, we reduce our net debt levels, and we increase our unencumbered asset base. As we have said previously, all liquidity in excess of these targets will be applied to accelerating our deleveraging plans for the foreseeable future. As we discussed on our last call, American will pay down $8 billion to $10 billion of debt by the end of 2025 through amortization of our existing debt in excess of any additional debt we expect to incur. However, because of the debt we needed to take on during the pandemic, our plan is to accelerate the reduction of debt beyond that natural deleveraging that will occur. We now forecast reducing our debt levels by more than $15 billion by the end of 2025 by using excess cash and free cash flow to pay down pre-payable debt, even though most of it is efficiently priced, and by not adding to our debt levels by potentially using cash instead of debt for some future aircraft deliveries. This reduction in debt level will be facilitated by the relatively low capital expenditure profile we have had over the next several years because our fleet modernization program is now behind us. In addition to deleveraging our balance sheet, this will allow us to smooth our near-term maturity towers and free up high-quality collateral. With this level of debt reduction and continued margin improvement, our plan is to achieve the best credit metrics in the history of post-merger American by the end of that four-year period, if not sooner. As evidence of our commitment to delever and our confidence in the future, this morning, we prepaid the entirety of our $950 million spare parts term loan that was scheduled to mature in April 2023. This note had a coupon rate of only LIBOR plus 200, but prepaying it sets the stage for future optimization of our unencumbered collateral pool. The prepayment also results in an improvement of our first lien capacity from $7.5 billion to $8.4 billion. The $950 million prepaid today is in addition to $985 million of debt amortization and prepayments that we made during the second quarter. During the third quarter, we will also free up 20 Boeing 777 aircraft that will be released out of the 2013-2 and 2013-1WTC transactions, further improving our unencumbered asset base. The deleveraging of American's balance sheet has begun, and we are committed to significant steady and continuous debt reduction over the years ahead. Looking to the third quarter, we expect our capacity to be down approximately 15% to 20% versus the third quarter of 2019. Based on current demand assumptions and capacity plans, we expect another significant sequential increase in our revenue and expect total revenue to be down approximately 20% versus the third quarter of 2019. In total, we expect a pretax margin, excluding net special items, of between negative 3% and 7%. For the full year, we project debt principal payments are expected to be $2.8 billion, excluding the repayment of our revolving credit facilities that we completed earlier this year. With respect to capital expenditures, we continue to expect full-year 2021 CapEx to remain minimal. Non-aircraft CapEx remains at approximately $900 million and net aircraft CapEx, including PDPs, remains an inflow of $1 billion.

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.

Thank you. I have a question regarding the codeshare agreements. With corporate demand beginning to recover, albeit still early in the process, could you discuss how the addition of a new JetBlue codeshare, or the enhancement of an existing one, has impacted your conversations moving forward? This includes discussions with corporate accounts where there may be overlap, or in regions where your partners historically have had a stronger presence. Thank you.

We are very encouraged by the progress and results from our domestic partnerships, even though they have only been operational for about six to eight weeks, with the JetBlue codeshare running for around three to four weeks. The design of this partnership aims to strengthen two areas in our domestic network where we were previously weaker: the West Coast and the Northeast. These regions are significant for business and corporate travel. We have received a positive response from corporate customers, and while there is still much integration work to do, we are optimistic about the developments in both partnerships. With Alaska, although it's early in the results, our focus has been on establishing a successful long-haul operation from the West Coast, improving the network for business customers originating from that area, and providing better options for customers in the Midwest and Southeast traveling to the West. While long-haul routes have not yet fully materialized, we observe that around 20% of bookings come from the Intrawest customer, which is the type of business customer we previously didn't attract. Additionally, 80% of the bookings have significantly exceeded our expectations, originating from customers wanting to travel to the West. We have successfully driven demand through these codes while maintaining our organic network in Dallas/Fort Worth and Chicago, and we remain optimistic as we expand our partnership with JetBlue in the Northeast.

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 accounts, I just see it as 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.

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. Firstly, regarding the pension, the excess cash we have will be used for the paydown as we move forward. A significant portion will be allocated to prepaying debt. Looking ahead to 2022, we expect around $2.6 million in capital expenditures and forecast about $1 billion in non-aircraft capital expenditures over the next four years, which may vary slightly. For gross aircraft capital expenditures, we're estimating $1.5 billion in 2022 and $1.8 billion in 2023. In terms of debt payments, we only have one major debt payment in 2022, which is unsecured. Overall, we will have about $2.5 billion in debt payments for 2022, increasing to approximately $4.4 billion in 2023. If our earnings meet expectations, we anticipate having more free cash flow to address these obligations. From a pension standpoint, no contributions are needed in 2022 or 2023, with a small estimate of about $50 million in 2023 but none required in 2022. Consequently, we will have limited cash requirements for capital, debt reduction, or pension contributions in the upcoming years, allowing us to generate significant free cash flow to begin deleveraging alongside the excess liquidity we expect during that 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 lightening 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 and 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.

Good morning, everyone. I appreciate your time. Vasu, could you discuss how the business fare dynamics compare to pre-COVID levels? I'm trying to understand if you're observing any close-in bookings, as I know activity levels have improved. How is the fare dynamic functioning? Also, could you provide an update on the progress of implementing the traditional revenue management algorithms?

Yes, that's a great question. I'll answer the second part first, which provides context for the first. When the pandemic started, we referred to it as a reset. For planning, we take that very seriously, analyzing the business on a two-year basis. In our current planning, having more capacity allowed us to observe demand closely. Early on, we realized that the pandemic would greatly affect our historical demand forecasts for the foreseeable future. Over the last year, we’ve been actively rebuilding our forecasting system, as evidenced by our Q3 results, thanks to the efforts of our revenue management team. When we started in January amidst uncertainty, they observed that our peak periods consistently showed higher travel demand than before. We noticed booking trends shifting to further out, with more people willing to pay higher fares closer to their departure dates. We've actively organized for the summer accordingly. Public data indicates that we've strategically built the airline to capture as much demand as possible just before departure. In fact, our market share for bookings within 14 days during the Q2 period was significantly higher than for those outside that window. Despite a depressed fare environment, where yields were at 80% to 85% of historical levels, we successfully captured more short-term demand, which often had higher fares and more business-oriented trips. This contributed to our positive results, with our increased capacity correlating with higher loads and rates. Additionally, we've gained a better understanding of business travel trends, which we believe positions us well for the fall. We haven’t observed a shift in the booking curve; however, we are seeing more business-style itineraries such as single-day, overnight trips without luggage, which is encouraging. Given this, we remain optimistic about the potential rebound in business travel. We anticipate a four to six-week delay once more corporations resume normal operations, leading to a notable increase in travel.

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. Thank you for the question. We have been in talks with the DOJ regarding the NEA since its announcement. The key points were addressed by Vasu and Alison earlier, but let me summarize and clarify those. The NEA was designed with our customers in mind. It was created to be competitive and to enable both JetBlue and American to operate in the Northeast, specifically in Boston and New York, in ways we couldn't do independently. It allows us to grow and provide additional options to our customers that wouldn’t otherwise be available. We are committed to this vision, and the progress we have made with the NEA thus far reflects that commitment. We are enthusiastic about the recent announcement about the NEA and are confident that the regulators will recognize the benefits to customers and the enhancement in competition that it brings. A couple of quarters ago, I was asked a similar question. I mentioned that the DOJ doesn't have a fixed deadline for taking action like they do in merger cases, and we anticipated they would observe the implementation of the NEA over time before deciding what’s best for consumers. It appears that is their current approach, and we expect this to continue.

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.

On the 737s, we increased the seat count from 160 to 172 seats. For the A321s, of which we still have over 100 to reconfigure, we're raising the configuration to 190 seats from either 187 or 183. These aircraft feature all new seats, new bins, new wide wings, and power. They already provide the best satellite Wi-Fi available. This means we have more seats to sell and a better product for our customers. We haven't had the opportunity to market this over the past year, so we're excited to promote it as we wrap up 2021 and head 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.

This is Vasu. As we progress through the third quarter, we are not noticing significant changes in the trends we've observed sequentially. Corporate revenues are currently at 45% of where they stood in 2019 from January to June, and we've experienced an increase of about seven to ten points month-over-month. We do not expect any substantial fluctuations in these points between now and September. In October, we anticipate a shift as companies start returning to work, particularly in the Sun Belt, typically a four to eight-week period following that, which leads to a resurgence in travel. Areas like the New York corridor, D.C., and the Greater Chicago region are currently at some of the lowest booking levels. With schools and workplaces reopening around Labor Day, we expect demand to pick up in early to mid-October. Alison can provide further insights, but this aligns with what we are hearing from our corporate clients.

Absolutely. 50% of our corporate customers have already lifted 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.

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.

First, as I see it, assessing relative margins is challenging due to the volatility surrounding small profits and the varying performances of airlines in terms of revenue growth. While it’s true that our two major competitors are predicting better margins than we are for the next quarter, our actual results this quarter were significantly better than United's by 10 points, for instance. However, this shouldn't imply that we expect to maintain a 10-point margin advantage going forward. My main point is that some of these figures may be based on forecasts which can be uncertain. To address your broader question about future margin performance, I believe that when we achieve real profitability and can make meaningful comparisons—such as between our margins in 2022 versus those of our two largest competitors and how they stood in 2019—we will either match or surpass at least one of them. We are optimistic about this, especially considering the $1.5 billion in cost efficiencies we've integrated into our operations. However, I advise caution when trying to analyze current margins in relation to future expectations, as they're subject to change each quarter. For the past three quarters, we've consistently outperformed United, but we don't derive significant comfort from that due to the substantial variability in the data.

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 the first order of business. Vasu?

Yes, Robert articulated it well. To put it simply, much of what we experienced during the pandemic applies to most cities across the U.S. and even in South America. American Airlines possesses the strongest and most widespread network globally. We plan to allocate our assets primarily in those areas. As we begin to re-establish our international presence, we will focus our growth in regions where we have a solid foundation, such as Chicago, Philadelphia, Miami, and Dallas-Fort Worth. Additionally, we plan to introduce flights from New York and Seattle, and we are encouraged by the progress made through our partnerships. A significant part of our growth strategy will concentrate on initiatives that enhance the company’s performance and benefit our customers.

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. We haven't engaged in any discussions about the mandate, which is effective until September 13 as mandated by the federal government. That's our current position. I'm not aware of their perspective regarding whether it will be extended or allowed to expire. Regardless of their decision, we will enforce it and continue to do so. It's not our place to express opinions on whether it should be extended; that responsibility lies with them. It’s a federal mandate, and we will adhere to whatever is established.

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 question. Yes, the returning employees will be coming back at lower pay rates, although they are still quite competitive. Since we are 90% union, their pay is determined by the union contract based on seniority. Therefore, those returning have lower seniority and will start at the lower end of the pay scale, but will progress over time. What's your second question?

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

Thanks, everybody. We are really excited about the momentum we're experiencing. The numbers reflect this, with 87% revenue growth compared to last quarter and 45% ASM growth compared to last quarter. We have cash of $21 billion, three times what it was at the end of 2019. This trend is continuing into this quarter. We are very proud of the American team for their hard work. The recovery is underway, and we are optimistic about the future. Thank you for joining us today.