Thank you, Katherine. Good morning, everyone, and welcome to the American Airlines Group first quarter 2022 earnings conference call. On the call this morning, we have our CEO, Robert Isom; and our CFO, Derek Kerr. Also on the call for the Q&A session are David Seymour, Vasu Raja and a number of other senior executives. Robert will start the call this morning with an overview of the first and our priorities for the year. Derek will follow with the details on the quarter and our operating plans and outlook going forward. After Derek's comments, we'll open the call for analyst questions, followed by questions from the media. To get in as many questions as possible, please limit yourself to one question and a follow-up. Now before we begin today, I must state that today's call contains forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity and fleet plans. These statements represent our predictions and expectations of 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 that was issued this morning as well as our Form 10-Q for the quarter ended March 31, 2022. In addition, we'll be discussing several non-GAAP financial measures this morning, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website. A webcast of this call will also be archived on our website. The information we are giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thank you for your interest and for joining this morning. And with that, I'll turn the call over to our CEO, Robert Isom.

Thanks, Scott, and good morning, everyone. Thank you for joining us today. We're going to keep our comments brief this morning. I'm a strong believer that the results speak louder than words, and I'm confident in the results the American Airlines team will produce. Now let's start by thanking our team. Day in and day out, they're on the front line, taking care of our customers no matter what comes our way. And we've certainly seen a lot come our way over the past 2 years. The American Airlines team has worked hard to position us well for the recovery by simplifying our fleet, modernizing our facilities, fine-tuning our network, developing new partnerships, rolling out new tools for our customers and team, and hiring thousands of new team members. All that while flying the largest airline in the world. I'm excited to see their work pay off for all of our constituents; our customers, certainly; the communities we serve; our team; and notably, our shareholders. It's an honor for me to have the trust of our team and to succeed Doug Parker as CEO and to begin in this position as the industry rebounds and our company returns to profitability. I'm extremely grateful for the opportunity. It's a fantastic time for the industry and for American Airlines in particular. For the year ahead, we are resolute in achieving 2 key goals above all else: running a reliable operation and returning to profitability. Our team is up to the challenge, and we've already seen a lot of great progress. So let's talk about financials first. This morning, American reported a first quarter GAAP net loss of $1.6 billion. Excluding net special items, we reported a net loss of $1.5 billion for the quarter. Despite the quarterly loss in a difficult January and February due to the effects of Omicron, March results were markedly different. In March, we saw what's possible with surging demand brought on by reduced infection rates, relaxed restrictions, and tremendous pent-up demand for people to travel. Despite a sizable increase in the cost of fuel during March, American achieved our first monthly net profit, excluding special items, since July of 2021. Demand is as strong as we've ever seen it. American produced revenues of $8.9 billion in the first quarter, including industry-leading passenger revenues of $7.8 billion. Domestic leisure travel continued to lead the way, far surpassing 2019 levels of traffic and revenue in the month of March. In addition, we saw strong quarter-over-quarter improvement in corporate and government travel with revenue for this segment as a percentage of 2019 increasing 27 percentage points from January to March. System business demand is now about 80% recovered, with small to medium business revenue approaching a full recovery and corporate revenue now around 50% recovered. Corporate bookings are the highest that they've been since the onset of the pandemic, and we expect that to continue as more companies reopen their offices. We anticipate overall business revenue to be around 90% recovered in the second quarter. And finally, demand for international travel also picked up considerably during the quarter as travel restrictions were lifted in certain parts of the world. Long-haul international revenue was around 50% recovered in the first quarter and around 60% recovered in March. So there's still a lot of revenue upside as business and international travel continue to return. The American team has done an incredible job of setting up the airline to take advantage of the rebound. We're entering our network to where our customers want to fly, establishing partnerships in more challenging areas and making sure efficiency is top of mind. As a result, we're very optimistic about the continued recovery and expect to be profitable in the second quarter based on current demand trends and fuel price forecast. Turning to reliability. American ended 2021 with our strongest operating performance in the company's history. We're committed to maintaining that momentum in the first quarter, and we did. Despite 2 difficult winter storms in Dallas-Fort Worth, the team delivered a solid operating performance in the first quarter, leading the industry in on-time departures and finishing a close second at on-time arrivals. And they did so while flying a considerably larger schedule than our next largest competitor. More importantly, for the month of March, the mid-peak best-ever combined March completion factor. Our operation in DFW and Charlotte, our 2 largest hubs, met or exceeded our expectations and delivered their best on-time performance and completion factor in years. As a result of our team's hard work, our likelihood to recommend scores continue to track in line with plan and are near the top of our post-merger performance. Running a reliable operation this summer will be critical to the continued recovery, and we have taken numerous steps to ensure we are well prepared to deliver for our customers. Our summer planning began last year as demand returned, and we haven't slowed down. American has 12,000 more team members in place to support the operation this summer than in the summer of 2021. We've already welcomed more than 600 new pilots this year, exceeding our goal. And we will continue to aggressively recruit, hire and train across all departments to develop the best pipeline of talent in the industry. We're ready for the summer, and we have sized the airline for the resources we have available. Again, we sized the airline for the resources that we have available. We've also made targeted investments in people, technology and resources that are yielding promising results for our team members and customers. So before I hand it over to Derek, I want to say that I'm really excited about the future of our industry and the future of American Airlines. There's still a lot of revenue upside going forward, given industry revenues are still off from their historical relationship to GDP, barriers to demand are falling, and business and international trends are promising. There are also certain industry constraints on growth in the near term, notably related to pilot and aircraft supply. And at American, we have completed a $1.3 billion cost reduction program. And our unit cost performance will improve throughout the year as utilization approaches historic levels. No airline is better positioned to operate in this environment than American Airlines because of our fleet, our network and everything our team has accomplished over the past 2 years. And with that, I'll turn it over to Derek.

Thanks, Robert, and good morning, everyone. Before I review the results, I want to acknowledge Doug for his more than 20 years as an airline CEO. Doug's leadership revolutionized the industry and laid the foundation for American's success going forward. I also want to thank the American Airlines team. Their hard work and commitment to our customers and each other is truly extraordinary. This morning, we reported a first quarter GAAP net loss of $1.6 billion, or a loss of $2.52 per share. Excluding net special items, we reported a net loss of $1.5 billion or a loss of $2.32 per share. Revenue in the first quarter outperformed the initial expectations we outlined on our last call, despite flying less capacity than planned due to winter weather events that affected our largest hubs. Our first quarter revenue recovered to 84% compared to the same period in 2019 versus our original guide of 78% to 80% recovery. Demand recovery from the Omicron variant was swift. And while leisure demand remains very strong, as more companies return to their offices, business demand is growing quickly. On the cost side, in addition to the efficiencies we've spoken about previously, we remain focused on keeping our controllable costs down, ensuring we are a more efficient airline as we return to normalized levels of capacity and utilization. In fact, in the face of increased fuel prices, we were profitable for the month of March, excluding net special items, due to our strong revenue performance and cost efficiencies. Our fleet remains the youngest and most fuel-efficient among the U.S. global network carriers. This month, we completed our narrow-body fleet harmonization project. It covers more than 500 aircraft, and will ensure a consistent product and better experience for customers, along with the improved revenue generation and unit cost reduction associated with the new seating configurations. In the first quarter, we took delivery of 9 Airbus 321neos and reactivated 7 previously stored Boeing 737-800s. We also inducted 8 dual-class regional aircraft and parked three 50-seat Embraer 145s. As previously disclosed, we made several updates to our fleet order book and the timing of future deliveries, allowing us to better meet the demand strength in domestic and short-haul international markets. We previously announced our plans to exercise purchase options on 30 737 MAX-8s. 15 of these options are scheduled for delivery in 2023 and 15 in 2024. Additionally, with the continued uncertainty associated with our 787 deliveries, we are now planning for the delivery of only seven 788 in 2022, all after our summer schedule, with the remaining six 788 aircraft being delivered in 2023. The four 789 aircraft previously planned in late 2023 are now planned to be delivered in 2024. With these changes, our expected total aircraft CapEx is $1.8 billion in 2022 and $2.2 billion in '23. We ended the first quarter with $15.5 billion of total available liquidity, significantly higher than our initial forecast due to an ATL build of $2.3 billion in the quarter. We generated operating cash flow of $1.3 billion and free cash flow of more than $350 million in the first quarter. Deleveraging our balance sheet remains a top priority, and we are committed to significant debt reduction in the years ahead. Even in this volatile environment, we remain on track with our target of reducing overall debt levels by $15 billion by the end of 2025. During the quarter, we made $344 million in scheduled debt payments and completed $317 million in open market repurchases of our $750 million unsecured senior notes maturing in June. To date, we have reduced our overall debt levels by $4.1 billion from our peak levels in the second quarter of 2021. We expect to make $1 billion of scheduled debt payments in the second quarter, which includes the remaining outstanding balance of the unsecured senior notes. Lastly, with cost-efficient financing secured for all aircraft deliveries through the third quarter of this year, we are now beginning to evaluate financing options for the fourth quarter and first half of 2023. As we look at the second quarter, we expect to be profitable despite the expectation of continued elevated fuel prices. Pre-tax margins are expected to be between 3% and 5% for the quarter based on the current demand trends and our fuel price forecast. Based on current demand assumptions, we expect total revenue to be 6% to 8% higher versus the second quarter of 2019 on 6% to 8% lower capacity. That would be the first time we have produced total revenue greater than 2019 since the start of the pandemic. In fact, if we hit the midpoint of this revenue guide, the results would be the highest quarterly revenue in the company's history. On this revenue strength, we expect total revenue per available seat mile to be 14% to 16% higher in the second quarter versus the same period of 2019. We expect our second quarter CASM, excluding fuel and net special items, to be up between 8% and 10%. Our current forecast for the second quarter, which we pegged on Tuesday, assumes fuel between $3.59 and $3.64 per gallon, an increase of more than 60% versus the price of fuel in the second quarter of 2019. In the near term, the demand environment is strong, but margins are lower than they otherwise would have been given the recent run-up in fuel. Longer term, this industry has proven that it has the ability to recapture increases in the cost of fuel and be profitable at elevated fuel prices. We believe this time is no different. As for full year 2022 capacity, we now expect to be recovered to 92% to 94% of 2019 levels. The reduction in full year capacity from our prior guide is largely due to 788 delivery delays that I touched on earlier. This capacity guidance is, of course, subject to the future demand environment and fuel prices. Consequently, with this lower level of capacity, we now expect our full year CASM, excluding fuel and net special items, to be up between 8% and 10% versus 2019. In conclusion, with the actions we have taken and the commitment of our team, we remain very well positioned. We remain focused on running a reliable operation and returning to profitability, which we expect to happen in the second quarter.

I guess you're starting in the order of sort of the biggest second quarter miss. So, great. So listen, we're all…

Not quite, but close, Jamie. Not quite but close.

All right. We're aware of the connection between airline revenue and GDP, which you mentioned. Doug highlighted this in his presentation last month. Have you examined the link between leisure demand and GDP and what it could indicate? I know we could deduce this from some of the Form 41 data, but I have my doubts about it. There's a reporting delay, and it doesn't provide clear insights.

Hey, Jamie, thanks. I'm going to let Vasu answer that. But hey, don't feel bad. This is a long game. We know you're going to get it right over the long term. So…

Yes. Jamie, thanks for the question. And it's a very good one, one that we've actually spent a lot of time thinking about. And what I'll say is, you're right. In aggregate, like historical relationship between airline demand and GDP, let's call it industry demand, at something around just under 1% of GDP, does largely seem to hold. And we're seeing that as things start to recover. We spent a lot of time on this question about what is the actual trip purpose and how does that change? And the reality is it's changing in a meaningful enough way where we no longer think it's pretty at the start of a trend. For example, historically, only about 20% to 25% of the trips in the airline were something that we call blended, where somebody was traveling for both business and leisure. Now for about 5 to 6 months, about 50% to 55% of the trips in the airline are blended. And as we look forward into the coming months, that continues to be the case. And that's playing out in a lot of different ways for us, which are both opportunities and a little bit unprecedented, right? We are seeing different sales days becoming big sales days. Different travel days becoming big travel days. So the nature of what we call leisure demand and business demand is changing. And the first thing is better understanding exactly how that is. But so far, it's been promising. Those blended trips that we have in the system are coming in at yields that are 75% to 85% of what were true business-only trips, but they're coming through lower comp sales channels and off of negotiated discounts. So the net yields of them are very often the best things in the system. So this is an evolving thing and one that we'll keep coming back to you. But the relationship is indeed changing, as you say, even though in aggregate, a lot of the trends won't.

And just out of curiosity, how do you define or how do you tell that a trip is a blended trip? Is it somebody booking with a corporate discount and then bringing a family member on an adjacent PNR? Like how do you know that?

Yes. Over the years, we've developed two main approaches for understanding travel behavior. We utilize various models to predict whether a trip is for business or leisure and conduct customer surveys to calibrate these models. Over time, we've become quite accurate in our assessments. For instance, when we refer to business travel, we mean trips where there's typically one person traveling without checked bags. We base our profiles on customer feedback from these surveys. Recently, we've noticed a shift in survey responses; many customers now indicate they're flying for both business and leisure. For example, a traveler might have an itinerary for one person, departing on Thursday and returning on Monday for a trip to Pensacola. These changes are significant and present a promising trend.

Yes. Fascinating. And then second, and maybe for Robert, as we think about the steps that you're taking to protect the operation, heading into the summer peak, is the zero still the metric that American tends to focus on? I think it was in the past. The sense I got was that it wasn't hugely popular with the entirety of the airport staff. Just wondering if with your background, Robert, and having ascended to the top seat, is that still the metric that you have prioritized, let's say?

Jamie, I'm going to start with this, which is the outcome in on-time arrival we know is the biggest driver of customer satisfaction. As I've said before, it makes the food taste better. It seems more comfortable. Service more friendly, all that. And the best way to ensure an on-time arrival is to make sure you depart on time. So there's no stepping away from it. But I'll tell you, we have evolved over time. And we really do want to take into account making sure that the things that we do to get an aircraft out on time don't compromise other aspects of the operation. So couldn't congestion on the ramp. Or if we do have inclement weather, at the end of the day, if we have flights that you may be able to get out on time, but you ought to hold for connecting passengers, we do so. And so we could go into a lot more detail on that. But the answer to it all is, for the bulk of the airline, get it started right. No aircraft out of service in the morning, on-time departure, a fast turn and stay that way throughout the day.

We are into the other end of the spectrum, I guess. Could you talk a little bit about what you have in the forecast for business travel recovery as we think about the summer months? What are you seeing in the booking trends? I'm just trying to get a sense for kind of what the mix is within the guidance that you're giving us.

David, this is Vasu. I can help with that. For Robert's comments at the beginning, as we closed the quarter, system business revenues were about 80% recovered versus 2019. As we look at Q2, we anticipate that number will be about 90% recovered versus 2019. We have a level of confidence in it because, indeed, we're seeing many of those bookings start to come in from my comments that Jamie just now. But also, the gap between 90 and 100 is really largely due to long-haul international demand and certain pockets of domestic demand. But we are continuing to see demand come in.

Okay. And then maybe just as a quick follow-up. I remember having a conversation with Doug and Derek in LA a couple of years ago now, around denied boarding sort of involuntary denials, that kind of stuff. And you guys have been working on some technology to help you guys reaccommodate customers work on this issue of not having enough seats on the plane overselling that kind of stuff. Is there any early indication during this period of demand here that those efforts are paying off and the denied boardings are coming in a little bit in line with those expectations you set out a couple of years ago?

David, we're going to start with Maya Leibman talking about some of the things we've done and if there's some add-on to that, Vasu will do it.

Hey, David, this is Maya. Yes. Over the last several years, we've really improved our technology around essentially pre-removing customers. So either before they get to the airport several days before they fly if we know that flight is at the risk of overselling providing them an opportunity to bid or to either take compensation or even just move to a different place that's probably a little bit better than the flight that they were previously scheduled on. Or if it happens that there's a last-minute schedule change, a last-minute equipment change, so we have to deal with it at the airport, which isn't our goal. We're really trying to deal with it before they get to the airport. We have some pretty neat auction capabilities that allow the customer better opportunities to move around to other flights. And so all of those things together have really helped improve our denied boarding statistics.

Yes. I'll only add to that. Throughout the pandemic, one of the hardest things to do, to predict has been the show rate of the airline. Understandably as the pandemic wore on, we would have periods of time where everybody showed for a flight in periods of time where the show rate could be as low as 70% of what was booked. What we're encouraged by, in large part because of a lot of the technologies that we've got not just in managing overbooking but it's typically just forecasting show rate, we are getting to a place where we are a lot better at predicting what the variability is. And with the technologies that we've got proactively moving customers off so that we don't have the same level of denied boarding expense that we had in times past. And indeed, we're able to generate more revenue through the overbooking flights.

I was wondering, Vasu, could you provide some insight on what you're observing in the long-haul segment among the various entities?

Sure, Savi. Yes, thanks for the question. We are really encouraged by the return of long-haul demand, although it varies significantly among the three long-haul areas: South America, Transatlantic, and Transpacific. We have seen bookings improve from the low point after Omicron in January, with substantial growth observed over the last 4 to 6 weeks. In South America, bookings have increased by two to three times, while in the Transatlantic market, the growth is even more pronounced. Transpacific bookings have also grown, but they still represent a small and insignificant portion of our total bookings. We are particularly encouraged by the demand returning first in South America, where we have ample capacity. We are observing not just an increase in customers signing up for flights, but also improved filling rates for premium cabins. The same trend applies to the Transatlantic market, where much of our revived operations are linked to our partner hubs in Heathrow and Madrid. We are seeing strong premium demand there, even if corporate travel has not yet returned to previous international levels. As for the Transpacific sector, it faces challenges due to ongoing entry restrictions, which keep demand from improving significantly. However, we remain optimistic that once those restrictions are lifted, demand will rebound considerably.

That's really helpful. If I could ask, Derek, could you clarify if your fuel contracts are based more on the forward curve rather than crack spreads or spot prices? There seems to be some confusion regarding what we are observing in the spot market, and this issue is not exclusive to American, but relates to what's being represented in the fuel guidance.

Yes, we just set it two days ago. It was at 107, and we took into account the crack spread, which has increased slightly. The difference may be due to the crack spread and the timing of fuel payments, but we are directly referencing the fuel curve. Additionally, it depends on where you are purchasing your fuel—whether from the Gulf Coast, L.A., or New York—as there can be variances in pricing depending on the source of the fuel for each airline.

Just two questions. One is about minimum liquidity. Derek, have you considered where you want that to go, aside from the goal of paying down $15 billion of debt by 2026? The other question is related to the pilot training pipeline. You mentioned a shortage of crew members and limitations on capacity growth, so how are you planning to address that?

Yes, I can address both points, and Robert can elaborate further. Regarding minimum liquidity, we are still at approximately $15.5 billion, the same as in previous calls. We are observing a recovery and hope to see it reflected in actual results. We believe this is a forward guide towards profitability for the quarter. If we maintain our current level, we expect to reduce liquidity to a range of $10 billion to $12 billion, hopefully within this year, which would help accelerate our debt repayment. We haven't discussed any levels beyond that with the Board and committees. We previously operated with a targeted cash level of $7 billion, which is significantly lower than our minimum liquidity. Currently, we are holding cash, and as we see recovery, we will use that cash to pay down debt, aiming to reach the $10 billion to $12 billion range moving forward. Regarding pilot training, as Robert mentioned, we have hired 600 pilots at the mainline. The industry is looking to hire about 2,000 pilots this year, which surpasses our prior record of 1,000 hires. We have the simulators and trainers in place, and our focus is on efficiently moving everyone through training. By the end of the year, we expect to have all airline aircraft fully utilized, which will benefit us in terms of operational efficiency and cost reduction as we bring all aircraft back online and enhance pilot training throughput. On the regional carrier side, hiring is progressing well, although attrition rates are higher than the rate of hiring at this time. We are working to push candidates through training, and while this process has slowed, it’s a positive development. With mainline carriers hiring from regional sources, we all face a training backlog. The slowing attrition rates among regional pilots will improve regional capacity in the near future. We believe that by the end of the summer, all airline aircraft will be flying, which will be beneficial for our overall operations and cost management.

I would add that over time, it's all about supply and demand. I'm confident that the quality of life and compensation for pilots will attract many people to the industry. It may take some time to resolve, but it will happen.

Right. Could you, in the short term, bring back pilots who might have retired at, say, 58 or 60, and just have them work for a couple of years to bridge the gap? Or once they retire, that's that?

Yes. The challenge is that many retired pilots have been away long enough that they would need to be requalified, which would occupy one of our available slots. Considering that, as Derek mentioned, we have a steady supply coming in and our training facilities are operating at full capacity. We're meeting the objectives we set to achieve the goals Derek discussed for the rest of the year. While I believe it would be a great idea, it would also mean taking away a slot for a new hire.

And look, overall as well, we have a great relationship with the APA and making sure that we're getting as many pilots onboard and creating as many captain positions as we possibly can. And anything that would alter something like retirement status would have to be something that they champion.

Just two here. I guess my first to Vasu. Vasu, historically, I guess, sort of the rule of thumb is that the run-up in energy prices usually sort of finds its way into the fare structure with like a lag of 3 to 6 months. It does feel like that it's getting recaptured far more quickly. And I just wonder if it's any sort of structural changes and/or just by approaching this fuel price cycle with a bit less capacity, which may give you some leverage in your ability to quickly offset that? Just your thoughts around that?

Yes, Mike, that's a great question. We've spent considerable time on this topic. It's challenging to identify the various factors at play. You mentioned high fuel prices and the limits on capacity as airlines adjust to their staffing levels. Additionally, demand continues to rise at an unprecedented rate. We are monitoring the fares that American Airlines is offering, and we're pleased to see that month-to-month, our fare increases are outpacing those from 2019. Importantly, we are also analyzing how fare increases from 2019 to 2022 compare to previous periods when the industry faced significant crises such as fuel spikes, the Great Recession, and industry consolidation. The pace of change we are experiencing now is much faster than what we observed in the past. In short, we're seeing strong demand for our fares, as customers appreciate the quality of our services and are willing to pay for them. We are optimistic about these trends continuing into the summer, which is reflected in our revenue guidance.

Great. And then just my second, with respect to the NEA and I guess, the Justice's concern about potential consumer harm, have you put out any numbers about you have done from a consumer benefit perspective since it's now been up and running, I think, for some time? Or is that something that we just won't find out about until September?

I can begin and others can contribute. We can't emphasize enough the consumer benefits of the NEA. You can already observe these benefits in the data being published. In the first quarter, we revitalized the Northeast quicker than any of our competitors, and this revival has sparked competition where there previously was none. We are implementing initiatives like offering full flat beds on all of our Transcon markets, something American Airlines has aspired to for a long time, and we are now able to achieve this through our partnership with JetBlue. We welcomed JetBlue into LaGuardia, fulfilling their long-held desire, which has introduced a new level of price competition against the incumbent carrier there. We are optimistic about the structural changes in play, but what truly excites us is the positive response from consumers. For the first time since we started tracking, enrollments in our loyalty program, Advantage, are increasing in New York and Boston at rates higher than anything else in the system. In New York, on a percentage basis from 2019, we are acquiring more credit card customers than we did then, and at a higher rate than any other region in our system. All of this indicates that consumers are responding positively, and we continue to introduce new offerings. We have been cautious in staffing our connecting operations at JFK to ensure everything runs smoothly. While we are not yet at the ultimate goal we envision, we are truly encouraged by the impact this is having on consumers and the enhanced competition it generates. We can't stress it enough, and perhaps we should talk about it even more.

Vasu, I'll just add, and I know our Chief Legal Officer, Priya Aiyar, will agree with me. Look, we welcome scrutiny. We know that this is producing the benefits we said it would. And it's doing exactly what we had hoped. And we're confident we're going to prevail no matter what we face going forward.

A couple of questions here. First, a clarification to guide, maybe for Vasu. What level of restoration in international flying does the revenue guide embed? So does it include the relaxation of the 24-hour testing requirement in May sometime? And what conversations is the government having with you about the travel restrictions internationally?

So Vasu, you can take care of that first part. Let's have Nate pull data on testing. Yes, Dan, thank you for your question. We generally expected international travel to fully recover, and we are close to that now. However, as Savi noted earlier, the international situation is quite varied. It's important to remember that in the second quarter, around 90% of our airline operations are in the Western Hemisphere and at Heathrow. Much of our recovery is driven by our short-haul international network, which is recovering at a faster rate than domestic travel. Markets like London and long-haul destinations in South America are also bouncing back quickly. That's where we are focusing our capacity.

International revenue has not fully recovered yet. Please continue from a long-haul perspective.

Correct. Yes, correct. So yes, I would say that the long-haul revenue isn't all the way there, but total international is, and that's...

Yes. And this is Nate. I would just say on the regulatory side, obviously, the testing is something that we continue to engage on with our industry partners. We believe that the U.S. can safely follow countries that are progressing through the pandemic, including Canada, the UK and Ireland, which have, we think, safely evolved the scope of their entry requirements and moved away from predeparture testing. We've learned by this point in the pandemic, however, not to speculate on what may or may not happen. So we don't have a specific timeframe in mind. It's just something we continue to work on. Obviously, the decision is going to be up to the Federal authorities and public health experts.

Yes. Thank you. Second question here. Looking at Slide 5, the simple math is it looks like there's roughly $7 billion of revenue that was missing on an annualized basis relative to the first quarter. But I believe the headcount is already in place. So we're left with variable cost, I think so. But if you could flesh this out, the fixed versus variable costs as you add back some of this higher-margin international flying?

Dan, this is Derek. As we have talked about, we have the airline and costs in place to run a much greater airline. So as we go and as Robert said in his comments, our CASM will get better and better throughout the year as we add back to flying. An example is our salaries, I think, stay pretty flat throughout the year, even though we're growing ASMs throughout the year. So most everything is in place to fly. The example is the 787s. We thought we had the 787s coming in beginning of this year. So we have the pilots. We have the crews. We have everything ready to go. We're not going to train them back down to 7-3s or other aircraft. We're going to leave them there for when they come. So our expectation as we move forward and we bring back the aircraft and utilize our fleet and get us back to 100% of 2019, it comes at a significant reduction in the CASM calculation as we go forward.

Congrats, Robert, on the formal handoff. I wanted to follow-up to Mike's question. Just with respect to JetBlue's bid for Spirit, as it relates to the NEA, do you see any relationship between the 2 initiatives? And what is American's perspective on the proposed acquisition?

Sure. Thanks for the question. This is Steve Johnson. First, I want to emphasize that JetBlue's acquisition of Spirit is not guaranteed. JetBlue and Spirit are currently in discussions, and we'll see how that unfolds. However, Joanna and Robin were quick to reach out to Robert as soon as the news broke. They were firm in their belief that the NEA is extremely important to JetBlue's priorities and they intend to do everything possible to preserve it. Their bid for Spirit included plans to maintain and even enhance the NEA.

Thanks for that perspective. With respect to the RASM guidance, Vasu, can you just contrast for us maybe how leisure fares are tracking versus 2019 versus closing business fares? And I understand regions, et cetera, make that more complicated. But maybe if we just look at it on a cut per say, domestic, is the closing 0 to 3 getting better yet relative to '19?

Thank you for the question. We closely monitor this area because it's quite fascinating. We analyze both the fares that are being sold and, importantly, what we earn after deducting sales costs. Currently, we observe strong fare levels outside and inside a certain range. Outside that range, there is significant fare strength across competitive groupings. Inside the range, we notice similar fare strength. However, leisure trips, particularly blended business and leisure trips, yield around 75% to 80% of the value of corporate negotiated trips within that range. This is significant since it indicates that the fares received through our direct channels are quite valuable to us. We're encouraged that as we've progressed through March, demand has increased within that range, especially for business and combined business-leisure travel. Overall, we see considerable strength in fares, particularly outside that range, but also greater demand within it.

So maybe just one on the 787. When we think about your CapEx over the next couple of years, as the 787 rules into future years, should we just be thinking about rolling forward that associated CapEx? Are we reaching a point where we should be thinking about maybe some late penalties potentially lowering your overall CapEx profile as we look across the next couple of years on an aggregated basis? I think you might have mentioned that Boeing was already paying penalties to prior years. Just trying to get a sense to the read-through to American free cash flow in future years.

Yes, Catherine, from a CapEx perspective, I would definitely roll it forward. Any settlement we have will be separate. The Boeing management team has assured us they will cover the damages related to the 787 deliveries. However, we haven’t discussed how that will happen yet because there's no need to talk about the damages on the 787s until they are delivered and we know when that will be, so that can be calculated. In the current models, I would push out the CapEx. There's potential upside in cash flow from a settlement with Boeing, as they have stated they will cover the damages we are incurring due to the delays and deferrals of those aircraft.

It's a great question. Yes, we are absolutely integrating it now. As we mentioned during the pandemic, we were determined not to waste the crisis, and we succeeded. We significantly simplified our fleet by reducing the number of long-haul airplanes that were among our most unprofitable routes. We also launched new partnerships to create more value for customers and expand our network in weaker areas like the West Coast and New York. Importantly, we've increased our capacity in our hubs in two ways. Firstly, we've focused more flights there, and secondly, we've updated the airline as well. We are currently offering 8% more seats per departure compared to this time last year. These changes are quite meaningful for us. Currently, if you check the published schedules, about 65% to 70% of the airline’s flying is in what we call our Sunbelt hubs and short-haul Caribbean markets, where we excel uniquely. For context, in the first quarter, our four Sunbelt hubs—DFW, Charlotte, Miami, and Phoenix—accounted for 70% to 80% of our competitors' full networks but generated unit revenues that are 5% to 10% higher than those networks. This is a significant factor in our return to profitability. We are focusing on these markets where we create unique and disproportionate value and ensuring our resources are fully utilized there.

I know United and Delta have discussed generating a profit for 2022, given the current demand. I understand that you haven't explicitly stated this today, but we're receiving inquiries about the sustainability of RASM production. Do you anticipate generating a profit for the last three quarters of this year, assuming there are no significant changes in oil prices or similar factors?

Conor, I'll start. Derek can add into this. Look, we're really pleased to be here talking about record revenues and producing a profit in the second quarter. But those are forecast. You know what our job here is to make those forecasts a reality. So we're going to get to that business. And fourth, to achieve profitability for the year, I get I guarantee it, we need to be profitable in the second quarter. And we're going to get started on that, and we'll update you as time goes on. Derek, anything else you want to add?

Agree.

Okay. Okay. And I know you said you've sized the airlines and the resources you have, but there has been some struggles with operations, demand surge last year. Do you assume any incentive pay above and beyond what you've historically contemplated in your 2022 CASM outlook? And have you viewed incentive pay any differently than you have in the past, just given some of the staffing issues the industry has faced, in general?

Thanks, Conor. To start, just like the rest of the world, we're all getting back on track. For American, we followed the government's guidance with the payroll support program. We operated the airline to serve people for both business and leisure activities. Looking ahead, the increase we need to make to reach the capacity that Derek mentioned in our forecast is not significant. We're ahead of that goal. We've learned from our past issues and are now focused on other aspects of the airline supply chain, particularly with our partners. We are well-prepared with 12,000 additional team members ready for the spring and summer schedule. I feel confident that we will operate a reliable airline, as demonstrated during the year-end holidays and in the first few months of this year, outperforming many of our competitors.

First of all, for Derek, just to confirm the updated CASM outlook that does not include any new labor deals. And then just kind of a follow-up to that, given the labor market and your operational plans, where do you think kind of CASM eventually shakes out relative to 2019 once all is set and done?

Yes. Our CASM guidance does not include any new labor agreements. We are currently in negotiations with many of our unions, but we will incorporate those into the CASM guidance when they occur and once we have clarity on them. For now, they are not included in the CASM outlook for the remainder of the year. Returning to 2019 levels hinges on fully recovering from a capacity standpoint and the effective date of those labor deals. In 2019, we completed the mechanic deal, which is reflected in our current numbers. Therefore, as we restore the airline, reaching our 2019 CASM levels will depend on increasing utilization and getting all aircraft back in service to approach that 2019 level.

Yes, that's an excellent question. We're observing many factors today that are diverging from historical trends, similar to the earlier question about how fuel prices are affecting fares. Currently, it's challenging to determine the precise causes of these changes. However, as an industry, we don't have a strong history regarding how inflation influences demand adjustments. That said, we are encouraged by two key observations. First, demand continues to grow significantly, though its longevity is uncertain. What we've learned in the past 20 to 24 months is our ability to adapt quickly. Secondly, spending on our co-branded credit cards is encouraging. Throughout the pandemic, while airline revenues decreased, our co-branded revenues remained relatively stable. Presently, we see higher acquisitions and spending on the card that matches inflation rates. Specifically, with our card from Barclays, our spending is increasing at a rate that surpasses inflation. This indicates a solid demand for our offerings and a positive outlook for future travel. We'll monitor how this unfolds.

I'm curious about what you're observing regarding the rise in COVID cases. Are you noticing any impact on consumer demand? Additionally, are you experiencing an increase in staff absences, and are you preparing for that?

Hey, Al. It's Robert. The answer to both is no.

Okay. And I just had a couple on the masks. I guess, in a couple of days since that policy has changed. Have you seen any evidence of any kind of shift in bookings, increased bookings or decreased? Is there any evidence yet that, that there will be any change to demand as a result of the mask mandates being lifted?

Hey, Al, this is Vasu. It's still very early to tell and really difficult to draw very much of a conclusion. But so far, there's nothing to indicate that it's materially up or materially down.

Robert and Derek both addressed this on the pilot. You gave pilot figures for pilot hires. I was looking for a net number. Is 600 enough to offset the age 65 retirements and other attrition? What's the net number? And bottom line, are you going to have enough pilots to fly this summer?

Let me begin, and David Seymour can contribute. The answer is yes. As I've mentioned multiple times, we're adjusting the airline according to the resources available to us. From a pilot standpoint, all of this hiring is intended to align with our schedule, which we are ensuring includes safety considerations. We are very confident that we can operate effectively. Furthermore, we are utilizing different tools to schedule the airline than we did in the past. My confidence continues to strengthen as we progress through the year. David, do you have anything more to add?

Robert, let me just add to that. I mean, I think the numbers Derek talked about the 600, that was this year alone. So last year, we had a target of hiring 350, we hired over 500. So the 600 is just for this year, and that's well ahead of pace where we set our expectations to. In the pilot training right now, we're actually getting our goals and our throughput that we expect and don't foresee any problems going forward of making those numbers so we can hit the goal to fly all of our aircraft by the end of this year.

I had a couple of quick questions. One, Robert, you had said this morning, I think, that you're not doing as much regional flying as you would like to be. And I wanted to see if you could comment in terms of have you got planes parked? Have you suspended any routes? And is that all related to the shortage of pilots on the regional level?

Yes, thank you, Mary. As Derek mentioned, we're not able to operate the full regional schedule we desire. We will gradually bring those aircraft back into service. This situation is linked to the hiring processes at regional airlines, which are seeing a higher rate of attrition and delays in training new pilots. While regional carriers can find pilots currently, we are struggling to get them trained and deployed quickly enough. Long-term, we need to address the supply of regional pilots. We are proactively tackling this with our cadet program and incentives aimed at attracting new talent to the industry. I believe that, over time, the quality of life and compensation will entice more people to join. It may take time to resolve these issues, but as Derek pointed out, we expect to restore mainline operations to full utilization by the end of the year, and to improve regional operations thereafter.

Departures in the second quarter are probably down about 20% versus 2019, where the airline mainline is down about 5%. So maybe 15% different than lower than what the mainline is.

And Mary, I want to emphasize that while we have aircraft grounded, we are not pursuing that issue aggressively. Our focus is on evaluating the airlines and the products we offer. Our confidence for this summer is based on thorough assessments we've already conducted, ensuring we have the necessary confidence in our capabilities. There is no reason for concern as we approach the summer season.

Mary, that’s a lot of speculation. Vasu articulated well how the NEA is beneficial for consumers and promotes competition. If JetBlue manages to acquire Spirit, the JetBlue-Spirit combination won’t change how the NEA impacts consumers. The value we create for consumers in New York and Boston will remain unaffected. There are many variables with Frontier, Spirit, and JetBlue, so that kind of speculation seems premature. We are quite optimistic about winning our lawsuit with the DOJ and look forward to continuing with the NEA indefinitely.

Yes. And this is Nate. We would just say on the regulatory side, obviously, the testing is something that we continue to engage on with our industry partners. We believe that the U.S. can safely follow countries that are progressing through the pandemic, including Canada, the UK and Ireland, which have, we think, safely evolved the scope of their entry requirements and moved away from predeparture testing. We've learned by this point in the pandemic, however, not to speculate on what may or may not happen. So we don't have a specific timeframe in mind. It's just something we continue to work on. Obviously, the decision is going to be up to the Federal authorities and public health experts.

Thank you. I'll just close with this. Look, we've worked really hard as a company to get to at this point to be able to take advantage of an environment where demand is improving. The airline is structured in a really great fashion. I want to thank our team members for working so hard to get us through the pandemic and to be in a position to actually realize everything that we want to make about American. And in terms of the transition as well, this is my first earnings call, I want to thank our Board of Directors, especially Doug Parker for making things really work smoothly, putting us in a position to be talking about things that are very, very favorable. And so for our team, you've heard from a lot of players here today. I couldn't be more proud and confident in the team that we have from a senior leadership perspective. You're going to hear more from them as time goes on. And our job right now is to make the second quarter forecast a reality. That is what we're focused on. So we're going to get out there and make it happen. And I want to thank everybody for their time today.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.