American Airlines Group Inc. Q4 FY2022 Earnings Call

Thank you for joining us for American Airlines Group's Fourth Quarter 2022 Earnings Call. I will now pass the call to our Managing Director of Investor Relations, Scott Long. Please proceed.

Thank you, Atif. Good morning, everyone, and welcome to the American Airlines Group fourth quarter and full year 2022 earnings conference call. On the call this morning, we have our CEO, Robert Isom; our Vice Chair, President of American Eagle and Strategic Advisor, Derek Kerr; and our new CFO, Devon May. A number of our other senior executives are also on the call for the Q&A session. Robert will start the call this morning with an overview of our performance and our 2023 priorities. Derek will follow with details on the fourth quarter and full year, and Devon will then outline our operating plans and outlook going forward. After Devon'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 one follow-up. And before we begin today, we must state that today's call contains forward-looking statements, including statements concerning future revenues, costs, forecast of capacity and fleet plans. These statements represent our predictions and expectations of future events, and 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 September 30, 2022. 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 financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website. The webcast of this call will also be archived on our website. The information we're giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thanks for your interest and for joining us this morning. And with that, I'll turn the call over to our CEO, Robert Isom.

Thanks, Scott, and good morning, everyone. Thanks for joining us. This morning, American reported a fourth quarter GAAP net income of $803 million and a full year net income of $127 million. Excluding net special items, we reported a fourth quarter net income of $827 million and a full year net income of $328 million. Our performance in the fourth quarter and for the full year was driven by continued strength of demand and the revenue environment and incredible efforts of the American Airlines team. We're tremendously proud of what the team has accomplished over the past year. We're committed to running a reliable operation, and we're delivering. Coming out of the holidays, American had the best completion factor of any major U.S. airline. We also said we would return American to profitability, and we've done that as well. Our team has delivered a third consecutive quarterly profit and fourth quarter margins that are higher than the fourth quarter of 2019 despite our fuel price increasing by approximately 70%. We generated nearly $2.4 billion in pre-tax profits over the past three quarters, and we're pleased to report a full year profit for the first time since 2019. In addition to running a reliable operation and generating sustained profits, we're making significant progress on repairing our balance sheet. We recently prepaid a $1.2 billion term loan a year before the scheduled maturity date, and we have now reduced our total debt by more than $8 billion from peak levels in mid-2021. This puts us well past the halfway point of our $15 billion total debt reduction goal only 18 months into the program. Derek will talk more about our deleveraging plans in just a few minutes. Let's talk more about the fourth quarter and full year results. We produced revenues of $13.2 billion in the fourth quarter, an increase of 16.6% versus 2019, and the highest fourth quarter revenue in company history. Notably, we achieved this record revenue while flying 6.1% less capacity than we did in the fourth quarter of 2019. American also produced record revenues of $49 billion for the full year, which is a 7% increase over 2019, while flying 8.7% less capacity. Demand remains strong, and our revenue performance is in line with our expectations following our strong holiday performance. Post-holiday bookings are off to a strong start. In fact, this is our best ever post-holiday booking period with broad strength across all entities and travel periods. Demand for domestic and short-haul international travel continues to lead the way. We expect a strong demand environment to continue in 2023 and anticipate further improvement in demand for long-haul international travel this year. Now turning to the operation. The American Airlines team delivered a fantastic performance in the fourth quarter. We operated more than 475,000 flights in the quarter with an average load factor of approximately 84%, and we ranked first in completion factor among the nine largest U.S. carriers. Our team delivered an even stronger performance over the holidays, despite challenging conditions in many parts of the country. American outperformed the industry over the December holiday period, ranking first in completion factor. Key to our success has been sizing our airline for the resources we have available and the operating conditions we expect to encounter. And we will continue to do that going forward. We're doubling down on our efforts to run a reliable operation in 2023, including investing in our team, our fleet, and technology to support our operations, and we're seeing this work pay off as our operation is off to a strong start just a few weeks into 2023, including the best on-time arrival performance of the nine largest U.S. carriers so far this year. American is proud to operate the simplest, youngest, and most efficient fleet among U.S. network carriers. In August, we began taking deliveries of new 788 aircraft from Boeing for the first time in 15 months. In the fourth quarter, we took delivery of five 788s, and we expect to receive the remaining four in the first half of 2023. Our Boeing 789s are expected to be delivered starting in 2024. During the fourth quarter, we also took delivery of seven A321neos, three 175s, and five 737-800s from long-term storage. Devon is going to talk more about that. But what I'd like to say is that the results the American Airlines team produced in 2022 and what we are projecting in 2023 are proof positive that the actions we have taken in the recent years have put us in a position of strength and allowed us to take full advantage of the recovery. We spent more than five years on the most complex integration in the history of the airline industry, three years navigating the pandemic and making the airline more efficient. And now we're poised to drive the business forward in 2023 and beyond. We have simplified and harmonized our fleet, modernized our facilities, fine-tuned our network to focus on the most profitable plan, developed new partnerships, introduced new tools for our customers and team, and hired tens of thousands of people. During all, the American Airlines team has gone above and beyond to deliver strong operational and financial results. Now before I turn it over to Derek to provide more detail on our 2022 financial performance, I want to thank him for his partnership over the past 20 years as CFO. He is a great friend, and he's been a trusted advisor throughout my career. Quite simply, he's the best CFO in the history of the airline industry. This financial leadership has helped create the largest airline in the world through the mergers of America West and U.S. Airways in 2005 and U.S. Airways and American in 2013. Derek was instrumental in raising $25 billion of capital during the pandemic to ensure American would not just survive but also be in a position to thrive on the other side of it. And I'm very pleased that Derek will remain as American's Vice Chair and continue to lead our American Eagle and cargo teams and serve as a strategic advisor to the company.

Well, thank you, Robert. Thanks for your kind words. I really appreciate it. It's been an honor, a tremendous honor to serve as CFO of American, U.S. Airways, and America West over the past 20 years. I'm incredibly proud of what the team has accomplished in that time. Now on to the business of the morning. Excluding special items, we reported a fourth quarter net income of $827 million or earnings of $1.17 per diluted share. We produced our best fourth quarter pre-tax margin since 2016 when we produced roughly the same results at fuel prices that were nearly double the price per gallon lower than 2022. Throughout 2022, you heard us talk about our focus on returning the airline to profitability, and we have done that. We achieved a full year profit due to continued demand strength and the hard work of our team, despite a $1.9 billion pre-tax loss in the first quarter. Excluding net special items, we produced a full year net income of $328 million or $0.50 per diluted share. Fourth quarter revenue far exceeded our initial guidance due to continued strong demand. Revenue in the fourth quarter was higher than any fourth quarter in company history. As Robert mentioned, the domestic and short-haul international entities continue to lead the way, and we expect further improvement in long-haul international as we continue to grow back our capacity. Costs for the quarter, excluding fuel, came in at the high end of our initial guidance range, primarily due to higher profit-sharing expense driven by higher earnings in the quarter. American is proud to operate the simplest, youngest, and most efficient fleet among U.S. network carriers. In August, we began taking deliveries of our new 788 aircraft from Boeing for the first time in 15 months. In the fourth quarter, we took delivery of five 788s, and we expect to receive the remaining four in the first half of 2023. Our Boeing 789s are expected to be delivered starting in 2024. During the fourth quarter, we also took delivery of seven A321neos, three E175s, and reactivated five 737-800s from long-term storage. In 2023, we expect to take delivery of two A321neos, and we plan to reactivate nine more 738s from long-term storage. Based on our latest guidance from Boeing, we now expect to take delivery of 17 737 MAX 8s in 2023 compared to Boeing's contractual commitment of 27 deliveries. This change in timing will shift planned CapEx out of 2023 and into future years. Our 2023 aircraft CapEx is now expected to be approximately $1.5 billion. Repairing our balance sheet remains a top priority, and our actions in the fourth quarter show our commitment to debt reduction. In the fourth quarter, we repaid a $1.2 billion term loan secured by domestic slots. This prepayment increased estimated first lien borrowing capacity to $10.3 billion and addressed our most significant 2023 maturity. With the actions we have taken, we have now reduced our total debt by $8.2 billion, or more than half of our goal to reduce total debt by $15 billion by the end of 2025, only 18 months into our deleveraging program. We ended the year with $12 billion of total available liquidity. We will continue to balance both debt reduction opportunities and investments in the business while meeting appropriate target liquidity levels. We will target $10 billion to $12 billion of total liquidity in the medium term and intend to utilize excess liquidity to accelerate our deleveraging initiative at the appropriate time. With no meaningful maturity towers until 2025, we have the flexibility as to how and when we begin to address those instruments. With that, I'm happy to turn the call over to our new CFO, Devon May, who will share our outlook for 2023. Devon has more than 20 years of airline industry experience across finance, operations, network planning, and alliances, and he is the perfect person to lead our finance organization going forward. He has been an integral part of our executive team for more than a decade and has built a great team around him. The CFO transition has been and will continue to be a seamless one. With that, I'll turn it over to Devon.

Thank you, Derek, and good morning, everyone. Before we get into our guidance, I want to start by thanking Derek for his leadership over the past 20 years. I've had the privilege of working with Derek since 2002 when I joined America West Airlines. He has been a close friend and mentor during this time, and our airline is set up well for the future because of his leadership. I'm honored to be taking on the CFO role and being part of an incredible senior leadership team. I look forward to leading the finance team and building on the progress we've made on our financial priorities. For 2023, we will continue to size the airline for the resources we have with a focus on reliability and sustained profitability. We continue to expect to produce capacity that is 95% to 100% of 2019 levels, or up approximately 5% to 8% year-over-year. We are on track to hire over 2,000 mainline pilots in 2023, and we expect to achieve our run rate level of training throughput in the back half of this year, allowing for further aircraft utilization improvements in 2024. We continue to expect regional pilot affordability to be constrained throughout this year and next. Demand for air travel strengthened as we went through 2022, and we expect industry revenue will return to its historical share of GDP in 2023. Given our level of capacity production, the strength of our network, and industry supply constraints, we expect total unit revenue to be up low single digits year-over-year. For the full year, we expect CASMx to be up 2% to 5% versus 2022. These projections include the estimated impact of anticipated labor agreements, which account for roughly 3 points of CASMx fuel. For the full year, we expect to produce earnings of $2.50 to $3.50 per diluted share. Using the midpoint of that EPS guidance, we are forecasting operating cash flows of approximately $5.5 billion and free cash flow of nearly $3 billion. Looking to the first quarter, we expect to produce an operating margin of between 2.5% and 4.5% based on our current demand and fuel price forecast. And while we are eager to get new labor agreements ratified, given where we are at in the quarter and the time required for ratification, we do not anticipate ratifying new contracts prior to the end of the first quarter. If that does occur, we will update our guidance accordingly. In the first quarter, continued strength in demand is expected to result in total revenue per available seat mile that is 24% to 27% higher year-over-year. Our first quarter CASM, excluding fuel and net special items, is expected to be flat to down 3% year-over-year. The current fuel forecast for the first quarter assumes a fuel price of between $3.33 and $3.38 per gallon and a full year price of between $3 and $3.10 per gallon. As Derek noted earlier, we'll continue to focus on debt reduction, and I'm proud of the progress we have made to date. In 2023, we expect to make further progress on our $15 billion debt reduction goal. We will use our free cash flow to pay down $3.3 billion in debt amortization this year, and we expect that by the end of 2023, we will have reduced total debt by $10 billion to $11 billion from peak levels in mid-2021. Based on the forecast I just provided, we expect that by the end of the first quarter, we will have lower net debt and better net debt to EBITDAR than we did at the end of 2019. And by the end of the year, we anticipate having the lowest net debt-to-EBITDA ratio we have had since 2017. In conclusion, in 2023, we will continue to focus on delivering on our stated objectives. We are set up to run a reliable airline, grow margins and strengthen the balance sheet. Importantly, American is uniquely positioned to deliver substantial free cash flow in 2023. The confidence in our ability to execute on these goals is due to our world-class network and incredible team. With that, let's open the line for analyst questions.

Our first question comes from Helane Becker of Cowen.

Derek, I'm going to miss you, but good to know that you'll still be at the company.

Thanks, Helane.

Sorry about Michigan. So here's…

Just business, Helane.

Yes. So I have a question. The first one pertains to CapEx. The guidance you provided for CapEx seems low considering you're bringing in four 787-8s this year. Can you clarify whether this involves a mix of leased versus owned aircraft?

Hi, Helane. Yes. This is Devon. That is what's happening with CapEx this year. So we're taking delivery of 23 airplanes, four of those are 788s, which are direct leased. So those four are not included in the CapEx guidance.

Okay. That's very helpful. For my follow-up question, as you consider long haul international, do you notice that your bookings are improving? You mentioned it might get better as the year progresses. Are you seeing any signs of that in bookings already happening in the first or second quarter?

Hi, Helane. This is Vasu. Yes, the short answer is that we definitely see it reflected in our bookings. We began noticing this trend in the fourth quarter of last year, and in the first quarter, we're observing continued strength across all our geographies, which is expected to carry on into the summer. We're very encouraged by these trends, especially since they often come with a lower cost of sale, and we're still successfully filling business class cabins.

Our next question comes from the line of Catherine O'Brien of Goldman Sachs.

I also want to add my congrats to Derek on a wonderful career. And then just on your operational performance really stood out during the issues the industry experienced over the holidays. Obviously, it wasn't anything geographical considering what happens to some of your peers. So can you walk us through what you think drove it? Were there investments being made behind the scenes over the last couple of years that maybe just got smaller billing in the aircraft investments?

Catherine, thanks. Hey, we're really proud of the operating performance. I'll tell you, it's something that we've been working on a long time. And it starts with making sure that we have the resources available to fly the schedule and we don't put out a schedule that we're not confident that we can really fly. That's where we start. And then, yes, it's investments in so many different places. We benefit from having the youngest, most efficient fleet of aircraft. We spent a tremendous amount of time investing in technology to make sure that we can identify where our crews and our planes and our maintenance requirements are. But really, I want to give credit to the team here. We have so much experience on board that we're just really watchful, and it all came together over the holidays. The investments that we've made, the team that we have out there, making sure that we have the right schedule. I've got David Seymour here as well. I probably want to add to it. Look, there's a lot of good decision-making going on out there, too.

Yes, Robert, I want to emphasize what you mentioned. Another important aspect regarding the storms is our strong focus on recovery, which is crucial for us. Throughout this year, we've been improving, and we demonstrated this during the holiday season. Alongside adding new positions specifically for storm situations, we have revised many of our processes and procedures related to storm management. We've also collaborated with our IT department to enhance our technological capabilities to navigate these rapidly changing events. The key aspect is recovery; we began developing our recovery plans even before the storm hit, and we are dedicated to that focus. As Robert pointed out, I am very proud of the team and the collaboration across the airline, as it's not just about operations but also involves critical support groups. They've done an excellent job, and we plan to keep enhancing our efforts.

Catherine, this highlights our future focus on reliability and profitability. We aim to improve daily. Currently, we are managing over 5,000 flights and half a million customers. Our commitment is to take care of people every day, and we are fully operational again.

That's great. That's great color. If I could just sneak one more in. Maybe for Vasu. Can you just help us think about some of the assumptions that drive your full year revenue outlook? Like what are the assumptions on business international recovery? Is there an assumption in there that the industry is going to pass on higher prices of labor and fuel on a one-to-one basis? Just any thoughts to drive the full year revenue outlook?

Absolutely, I'm happy to do that. In our revenue forecast, we do not assume any change to the fundamentals of airline demand. We expect airline industry revenues to regain their historical relationship with GDP, which is about a percentage point. We also expect the same historical relationship between revenue and fuel prices. Importantly, as we've discussed, we've used the last few years to significantly change our network, partnerships, and fleet, which reflects in our forecast for next year. If you compare our capacity mix in our upcoming schedules to what we had in 2019, we've removed five percentage points of capacity from our lowest RASM, lowest-margin long-haul flights and added five percentage points of capacity to our highest-margin short-haul flights. Additionally, within the short-haul system, we've shifted five percentage points of capacity from some of our lowest performing markets to our Sunbelt hub, which are among the highest RASM markets in the industry. This means we've effectively shifted ten percentage points of capacity from the lowest RASM margins to the highest. You're already seeing some of this trend in 2020. This change was present in our past schedules, is visible in our first quarter schedules, and is a key driver of our revenue performance. To put this in perspective, ten percentage points of capacity in an airline of our size is comparable to almost any airline hub, except for DFW, Charlotte, and perhaps a couple of others that our competitors have. This represents a substantial restructuring of our airline network over the past few years. Equally important is how we've achieved this, mainly through significant fleet simplification. Over the last few years, we've eliminated 50 long-haul capable airplanes, particularly the inefficient ones like the 757 and 767. We've increased the gauge of both our regional jets and mainline aircraft, streamlining the fleet down to four types. This allows us to dynamically adjust schedules based on demand, enabling us to create schedules that are much more efficient and operable, as David and Robert mentioned. We have already seen the benefits of this approach in our recent revenue performance and expect to see continued advantages in the coming year.

Our next question comes from the line of Jamie Baker of JPMorgan.

First, Derek, what a run you've had, just wanted to wish you the very best from the JPMorgan team as you transition. I still remember hanging up on you on October 24, 2003. Apologies again for that.

Thanks, Jamie.

I have a question for Vasu. Southwest mentioned that passenger cancellations did not book away as part of its first quarter guidance this morning. I’m curious about what the benefits for American in Dallas and Chicago might look like. Do you see market share returning to pre-December levels in March, or do you think there could be a longer-lasting advantage from Southwest's situation that you might be experiencing? After all, your on-time performance and completion factors clearly reflect the improvements over the holiday season.

Yes. Hey, Jamie, thanks for the question. Look, we don't see any recognizable benefit from what other airlines are doing. For us, it really is as simple as when we go put the flights in places people want to go and operate it well. The bookings come, and the revenue materializes. And there's really not a lot of facts that we can point to beyond that very simple truth.

Okay. Fair enough. And a follow-up, Doug wasn't shy in discussing hub profitability, L.A., Miami, and JFK being the real drags on margin, D.C., Charlotte, Dallas, the obvious standouts. And L.A. has obviously seen some rationalization. You have NEA contribution up here in my neck of the woods. I'm just wondering whether your internal model shows the range between your most and least profitable hubs narrowing? And if so, what the specific drivers might be?

Yes, we do see improvements in many of our hubs due to our network restructuring. Regarding partnerships, we view them similarly to our own airline network, as codeshare flight numbers or American Airlines-operated flight numbers enhance customer options and benefit our service. Two factors are significant here: First, we are experiencing substantial growth in the interior of the country, and second, a key driver of our hub profitability is that American Airlines offers the best network for many customers in a large number of cities. We currently serve 300 cities, roughly the same number as in 2019, while most competitors have reduced their city counts. Furthermore, in about 200 of those 300 cities, we have a considerable scheduling advantage over other airlines, which positively impacts all our hubs. The dynamics of hub profitability and interconnectivity among hubs have changed significantly due to the pandemic, which is a major reason for our extensive network restructuring. Jamie, you mentioned Los Angeles, so I'd like to let you elaborate on that. In Los Angeles, we have a limited number of gates that we need to utilize effectively and profitably. We have examined this situation and can share the changes we are making. In L.A., similar to New York, our partnerships have allowed us to create great offerings for customers. In the past, we operated 50-seat planes and small regional jets in markets without a solid schedule for customers. In both L.A. and New York, we have transitioned from these less efficient 50-seat planes to larger, long-haul 777s that travel much further. This up-gauging in those markets has allowed us to create a broader network for customers through partnerships. As a result, we are launching a third L.A.-Heathrow route, which is an efficient way to utilize our gates and improve customer service. In New York, much of our growth is driven by long-haul flights under our partnerships with Qatar and British Airways, resulting in positive financial outcomes reflected in our revenue trends. For the first time, our top two markets for AAdvantage enrollments are New York and Los Angeles, where we're also signing up more credit cards and increasing our market share. Overall, we have focused on up-gauging in those markets, becoming smarter about how we serve customers while expanding partnerships to offer even more.

I'll sound like a broken record, but thank you yet again for such a thorough response.

Our next question comes from the line of Scott Group of Wolfe Research.

So if I just look at the first quarter TRASM guide versus Q4, it implies a much sort of bigger drop than normal sequentially Q4 to Q1. And just any thoughts, color there? And then I want to kind of ask that in the context of fuel. So spots obviously a lot higher than what you're guiding to. What's your confidence that you can recapture fuel with higher TRASM than you're already guiding to for the year?

Yes. Scott, this is Vasu. I'll start. I think Devon will finish this one out. Look, first and foremost, as we're starting this year, we have been really encouraged by demand trends. Historically, the first three weeks coming out of the holiday season are our strongest sales weeks these first three weeks have been the strongest that we've seen in the post-merger airline. And we're really encouraged by that. And you see that, of course, in our TRASM guide out there. Now what is interesting, though, is as we are building first quarter, what is different from times past is we have been very conscious in Q1 about how we use the airlines' resources. It's people, it's planes, it's facilities, everything, largely so that we can have as much of that capacity for the summer peak as possible. So when you look at our Q1, we have peaked the airline a lot less than what we had historically. It's at a lower percentage of Q2 than what it's historically been. And that's really a conscious design. And to my earlier point, we don't presume any change to the historical relationship between airline revenues and fuel prices. But Devon may want to add more to that, too.

Just really quick other comment on fuel price. So our fuel price forecast is based on Friday's close, where Brent was trading almost exactly where it's at today and then using the forward curve for Brent and the crack from there. So I think our forecast that we have delivered today is pretty much in line with where you always have or feel that today.

Okay. And then just separately, can you just give any color on what you're assuming for the cargo and other revenue and then the non-op expense is up a good amount from the Q4 run rate? Any color there?

Yes, this is Devon. So just on cargo revenue, we are expecting it to be down slightly year-over-year. When it comes to non-op, the largest change we're seeing in non-op is due to a noncash pension credit that we got last year based on the prior year's market performance of our pension assets, and what were relatively low interest rates. This year, we saw interest rates increase. Pension assets came down, and so this noncash credit that was fairly significant in 2022 is much smaller in 2023. And that's something that I'm sure you're hearing from other companies and seeing in other industries.

Our next question comes from the line of Michael Linenberg of Deutsche Bank.

Hey, Derek. I'm going to miss you. I know you're going to still do the company, but we've had a lot of fun over the years. Anyway.

Thanks, Mike.

Next drink is on me.

Boston trip, never forget the Boston.

I have a question for Vasu regarding the increase in fuel costs and how it might affect revenues. Delta has indicated that they expect more than 60% of their revenue to come from premium and ancillary sources, and currently, they are at about 55%. Many of these revenue segments are less sensitive to price changes, meaning they can implement fuel surcharges. So Vasu, could you estimate what percentage of your routes might have fuel surcharges, whether they are on international long-haul flights or premium corporate routes, as well as cargo? How much of your revenue do you believe has a strong potential to pass on the full horizon fuel costs? Any additional insights would be appreciated.

Yes. It's a great question, Mike. To simplify, in the airline network business, if you provide something unique to customers, they'll pay more for it. We see this repeatedly, especially since the pandemic; our unique offer is taking customers to places our competitors can't and having better schedules. This means that those routes consistently yield higher results, whether customers choose first class, economy, or travel for leisure or business. In fact, in 200 of the 300 cities we serve in the Western Hemisphere, we have a significant scheduling advantage. This represents around 65% to 70% of our origin and destination markets, giving us a competitive edge. This drives our revenue performance. Demand for airline products in general is relatively inelastic, and in many of those locations, it remains so. We also benefit from broader trends in the economy, particularly in Sunbelt markets and the interior of the country, rather than the coastal areas, which is advantageous for American Airlines. We are likely to maintain this unique service. As fuel prices rise, we can easily manage capacity, allowing us to continue producing effectively.

Very good. And then just a second question for Robert. There has been a lot of discussion about capacity constraints within the aviation sector. When considering American, it seems that issues related to pilots and mechanics might not be a concern. So, what are the primary challenges you face regarding constraints? Is it simply that you don't have enough wide-body airplanes, leading to delays in deliveries from the manufacturers? Or is it related to air traffic control? Where are the main obstacles you're encountering in relation to constraints within the aviation sector?

Yes. Mike, thanks for that. And yes, we're in an environment of a lot of constraints coming out of the pandemic. We certainly saw everything last year, it's just things that we never thought we would have issues with, pillows and links in food and fuelers and things like that. We've gotten our arms around a lot of that. But what we have now is aircraft manufacturers that are just starting to get their feedback under them. I mentioned that Boeing is starting to deliver aircraft to shout out to the Boeing team and Dave Calhoun; we need them to keep it up. But there's constraints out there in terms of engines and aircraft. At American right now, we have really an issue with regional aircraft and then some issues with mainline aircraft. On the regional side, it's largely a pilot constraint. And we're not flying the fleet that we'd like to. Vasu would actually like to deploy more aircraft. Now on that front, it's pretty explainable. It's just a shortfall in pilots. We didn't attract people into the business for a couple of years, and we're working our way through that as we have retirements that are coming out the other side. American took the monumental step last year of greatly increasing regional pilot pay. And I think that, that is the biggest thing that any company can do and has done to actually get the pump prime and people flowing back in. And we're seeing that. We're seeing that we've stabilized the pilot ranks at our regionals, and we see potential growth as we come through the end of the year. Now from a mainline perspective, look, we're going through the greatest training cycle of pilots that we've ever experienced. We had, I think, almost 900 retirements last year, probably nearly the same number this year. So we're stretching our training resources like we've never before. But fortunately, we plan for this. And so from an equipment perspective, like simulators, we've got those in place. One of the things that we're really working on is to make sure that we have the people resources and having the check pilots that we need to really address all of our training needs. And I'm hopeful that as we work with the APA and we get a new contract, we'll be able to give even more flexibility. But overall, I do see from a mainline perspective, we should be through the constraints that relate to pilots as we progress through the year. Regionals probably take a couple of years. But as we said, we have aircraft that we can deploy and will, and it's going to be done in a very efficient fashion. You mentioned some other areas that are absolutely positively out on the horizon, the large airports all have constraints, whether that's at the gate or on the airfield. And then we have aerospace issues. That clearly, we need to address. And that's going to take leadership. And fortunately, we're working with the DOT and FAA. And I know that the Secretary Buttigieg has an interest like we all do in making sure that we can invest for the future. And it's going to take a long-term view. But overall, look, these constraints right now are things that we're managing through. I think it bodes well, at least from a demand environment and being able to ensure that we can achieve profitability. And over the long run, we're going to make sure that we have a business model that works in any demand environment with any set of constraints.

Our next question comes from the line of Conor Cunningham of Melius Research.

Thank you. And congrats, Derek and Devon. It's great to hear. Just back to Jamie's question on the operation and maybe some of the Southwest issue. I'm just curious if you could speak to the converse, how your conversation with your corporate partners has evolved given your operational strength. Like I would imagine it would be a lot easier in these days, but can you just talk about how that's changed at all and what your expectation is for new contracts and so on?

Conor, I'll start, and I'm going to hand it straight off to Vasu. But I'll tell you what. One thing that hasn't changed is that reliability translates into likely to recommend. It translates into Net Promoter Scores. And we see it over the holidays, and as we really progressed through last year and got reliability to a really high level, our scores have improved to the highest levels that we've seen. So those are the kind of things that I think that our corporate customers are interested in as well. Vasu?

Yes, Robert is absolutely correct. To begin with, our customers overall are benefiting from improved operations, and as Robert mentioned, we achieved our best likelihood to recommend scores significantly since the merger. This is due to our operations, not any specific actions. It's important to note that while many of our corporate partners are encouraged by this, the marketplace has also changed significantly. As I highlighted in our last call, about 30% of our revenue is now from what we traditionally referred to as leisure travel, approximately 45% from blended trips, and only about 25% from what we used to categorize as business trips. This is down from around 35%. Moreover, within that 25%, only about 5 to 7 percentage points are coming from contracted corporations, while the majority is from unmanaged businesses using our services. Notably, many corporate contracts are not being fulfilled for understandable reasons; with many companies finding it challenging to bring employees back to the office, it's difficult to encourage them to take day trips to cities like Chicago or New York. Broadly speaking, even though many customers and corporate travel buyers report satisfaction with our service, same-day corporate business trips, which used to make up 3% to 4% of our traffic, have now dropped to less than 1%. This trend has been evident for some time, and we anticipate it will continue.

Okay. Our next question comes from the line of Ted Reed of Forbes.

My question is for Robert. Robert, we've been hearing you say for a long time that you're going to make a reliable airline and a profitable airline, and you seem to have done that this year or last year. So now I want to know what is the vision for the future? Can American be restored being the greatest airline as it once we perceive? And do you have a path to do that now that you've started to accomplish your other goals?

Ted, great to hear from you. Let me just start with this. I'm really pleased with profitable quarters and producing a profit for the full year in 2022. The things that we've talked about doing are the right things. Getting customers to where they want to go, having the broadest network, and doing it in a fashion that can produce profits, pay down debt is exactly where we need to go. And off of that platform, I see great things. But what you're going to see from us, as certainly in the near term, is more of the same, intense focus on reliability and profitability and accountability. And for our customers, that's going to mean we're going to deliver for them, deliver with the best network that Vasu has talked about, making sure that we have a travel rewards program that's best in the industry. We're going to operate with excellence, and it's going to require even greater planning and day-to-day execution. And when things don't go right, and let's face it, we're in a business where all sorts of things can happen. We got to be the best at recovering, and you're going to see us continue to invest in that. And along the way, we have the opportunity to really make better use of technology to further digitalize our operations and our customer experience. Ganesh Jayaram, who's our new CIO, has been charged with executing exactly that. And ultimately, put this all together in a business model that is incredibly efficient, improves margins, and reduces debt. That's what we're focused on right now. I want to keep the team and their head in the game every day. And really excited about what that means for the future because I do think it means that American is not just more competitive out in the marketplace, but we're going to be more competitive in terms of stock performance as well. Let me just ask a follow-up to that. When you look back at the history of the industry, the people who've been considered the greatest leaders have been the ones who have expanded the airline wolf candle. And going forward, I don't mean right away, but over the years, can this airline expand maybe more in Asia or places where you're perceived? Ted, just first off, in terms of ego around here, look, we are focused on business and really making sure that we have the capacity to address the opportunities in the marketplace. American has been around for 96 years now. We're coming up on our 100th anniversary in 2026. And I want American to be the airlines that meet the needs of our customers, our communities, and our shareholders as well. And so we're focused on that right now. And look, we're really encouraged by what we're seeing.

Thank you. That concludes the media Q&A. I will now turn the call back over to Robert Isom for closing remarks.

Thanks for that. Thanks, everybody, for listening in. Look, American is in a position of strength, especially as we take a look at coming out of the pandemic. We're poised to recover. We're going to focus on our goals, reliability, profitability, making sure that we reduce our leverage and put American in a position to take advantage of opportunities that come about. We're really encouraged by the results and excited about the opportunities ahead. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.