Okay, I think we are on. All right, thank you everyone for joining us. My name's David Vernon, I cover Air Freight Service Transportation, US Airlines. We are pleased to have American Airlines with us today. Robert Isom, CEO, Devin May, the CFO, and Neil Russell from Investor Relations are with us today. So you guys should know the drill by now. If you have questions, you want to get them into the queue here for Pigeonhole, you can do it electronically. I'll try to work those into the conversation. We are delighted to have you back for the conference here. Thank you very much for the support. Anything you want to kick off with in terms of Prepare to Mars? You want to just dig right into the Q&A? Well, David, I just thank you for having us here, right?
A lot going on in the industry today. But I'd just like to start with this. Americans set up really well for the future. We kicked off the first quarter and produced year-over-year revenue performance of up 10%, 11%. Really felt confident about where the year is headed, especially from a revenue perspective. You know, look, oil prices, fuel prices are up considerably. First quarter, $400 million. Without that, we would have been profitable. Expected profitability, return to solid profitability for the year. And but for fuel prices that we're now estimating, you know, up four to five billion dollars for the year, we would have been solidly profitable. Now, what that suggests for us is, you know, look, we're doing the right things. Revenue production, we're anticipating revenue for the second quarter to be up 15% year over year. And to be in an environment where fuel prices have really spiked that much and still be looking at a year where we can repeat the profitability that we had last year, I feel really good about where we stand because I know that oil prices aren't going to be at these levels for the long term.
Okay, so as you think about the state of the business today against that $4 oil shock, I think coming into this year we were looking for something in that $2.50-ish, $3 range for EPS. We're kind of looking flat year over year based on your updated guidance. No changes to that, I'm assuming, today? Not making any changes, no. Okay, just wanted to make sure we're clear on that. But as you think about that, kind of pushing the recovery year to 2027. Is that the right thing for investors to be doing? Is it the wrong thing for investors to be doing? How do you think about this year being a temporary blip versus something that maybe doesn't recover as quickly if oil does come down?
Well, again, I'm really confident that the recovery that we put in place is hinged on our revenue performance. And that's been just through dogged determination on pursuing our four pillars. elevating customer experience growing our network driving premium revenue and then leading in loyalty all of those are really having impact if you take a look at the first quarter with revenues up ten eleven percent your year over year you know we only grew three percent you know that suggests seven percent you know unit revenue growth we're anticipating fifteen percent growth for the second quarter on capacity growth of about 5%, so 10% revenue growth, that is playing well. For American, I like what I see in terms of how we're doing versus competition. Five out of the last six quarters, American in terms of unit revenue performance beating our network peers. What we're doing is working, and you're right. You know, oil price shock, we're enduring it. We're expecting to repeat the profitability that we had last year. But when that evens out, American is set to really perform. And I anticipate that happening.
Okay, when you talked about those four pillars that you stepped into the CEO roof and laid out in terms of your plan, which of those do you think the market is still underwriting the least? All of them. All of them?
Yeah, no, I mean, America- Okay, the least least. No, but David, what I'll say is American has tremendous upside. And the upside comes from, look, we haven't performed that well the last couple of years from a comparative basis for a number of reasons. But I feel great that each one of these pillars is addressing something that was potentially considered a weakness. And in many cases, taking advantage of investments and initiatives that we've had in place that are just coming to fruition now. so you put all these these together and I anticipate that we're going to be back on track with the the margin commitments that we made several years ago nobody's giving us the credit right now for the potential of returning EBITDA margins into the mid to high teens nobody's giving us credit right now for producing pre-tax margins and the high single digits that's what's on the horizon for us and it's because of the work that we've done in each of these strategic strategic pillars that is really taking root our customers are responding to it well and you put the commercial of the the commercial and revenue benefits on top of what just a just an ethic at American Airlines of producing really efficient capacity that means good things into the future okay
we dig into that a little bit right you mentioned these investments that you're making they're just coming into fruition maybe across a couple of the pillars could you kind of dig into the two or three things that you're most proud of
so I'd love to from a customer experience perspective let me let me start there because this is work that has been going on for it for years you don't just go out and order new aircraft today and have them show up you know next week uh you know the seven eight seven nines with the flagship suites okay those were you know ordered prior to the the pandemic and you know through a lot of work and a lot of you know working with uh you know our our friends at boeing and seat manufacturers we finally we finally have the seven eight seven nine uh peas delivering 12th is coming uh later this year we have 321 xlrs that are that are delivering also with flagship suites we're seeing the benefit of our triple 7 300 reconfigurations with a much richer premium cabin at the same time on our narrow narrow bodies some of our older aircraft are also getting you know the the full benefit of retrofit 319s in the 320s on top of that hard hard product that we're putting out in the marketplace with it is absolutely a driver for premium revenue we've done the same thing from a facilities perspective so you look at what we've done and what we have coming up from a premium lounge perspective there's almost an announcement made you know every every few months you know from that perspective we were the first to have premium lounges out in the marketplace and we're still the leader from from from that perspective but at the airports as well whether it's the modernization that's going on in DFW, what's gonna happen out in Los Angeles by 2028, a new regional terminal in Miami. Across our network, we're making sure that we have a product that's ready to go. And on top of that, some of the softer elements, you know, whether it's, you know, new coffee partnership with Lavata or champagne with Bollinger. All of those things are really appealing to our customers. So from a customer experience perspective, absolutely love what we're doing, love where we're headed to. And you need to do that because ultimately to drive premium revenue, really take advantage of the network we have out there, you have to have something that really appeal to customers. Okay, so hard product investments. What else? So hard product investments. What I'd say is, well, in this environment, we have to be reliable. And from that standpoint at American, we've taken a tremendous amount of history and redesigned our network and our schedule to make sure that we can be as reliable as possible. You've heard things about the rebanking at DFW, a 13-bank operation that spreads the operation out, or in Philadelphia with a new seven-bank operation. We've taken a surgical look at how we allocate flight times. On top of that, we're putting technology to play anywhere there's an optimization problem that goes along with disruptions. What we're doing is ultimately giving our customers more confidence that when they fly American, they're going to get where they want to go. And if there is a disruption, we're going to make sure that they have the tools, they have the knowledge as well, to get where they want to go and back on track. So hard product, reliability is really fantastic. And then on top of all that, you've got to be able to go to market. And the market side of things in selling, whether it's redesign of our basic economy fares, the buy-up that we're seeing from driving premium revenue, or what we've done in re-pivoting and really changing the way that we serve the travel management companies and manage corporate traffic, all of those things have really performed well. And for us, because they're all coming to the marketplace right now, this is upside. It's upside for American. It's going to drive margins, and ultimately driving margins is going to allow us to produce free cash flow, Free cash flow allows us to improve the balance sheet. Improving the balance sheet is good for everybody.
So American Airlines just turned 100. Happy birthday. As you frame the next decade, what do you think is your one-sentence definition of what American Airlines is going to be? I've asked you this a couple times over the years as you've been supportive of our conference. You're like, what is American Airlines? Where do you want to be in the marketplace? What isn't it relative to the Delta positioning or the United position?
Well, I'm going to start with this. We're a premium global airline with the most comprehensive network in North America. We get you more people in the U.S. to where they want to go than anybody else. But there's a lot more to the story. I'm not going to let anybody just say, hey, American is a one-sentence answer to that. That network that provides the most comprehensive coverage, it also allows us to be the best partner. to any of the other airlines that we do business with. We've pioneered the joint businesses with IAG and BA and with JAL and with Qantas. We get people to where they want to go, and if you take a look at our network, it's also where the demographics are moving to. From an economic perspective and from a population perspective, you take a look at where we're at. We're in Florida. We're in Texas. we're in the Carol Carolinas we're in Arizona American is in the heart of where real economic activity is happening and on top of that we still have great presence in places like Chicago in New York in Los Angeles so a lot that go a lot that goes into everything but I want to underscore it all with this at American you know we've never lost sight that we are a business that cares for people on life's journey. I have a great team behind us that serve 600,000 plus customers a day and I'm really proud of what they've done and how they're setting us up for the next 10 years.
Okay, so let's dig into a little bit around some topics around demand and consumer health, right? So, you know, the consumer signal right now is at best mixed, right? You've got a pretty K-shaped economy where the lower end has got to be feeling the pinch of the pump. The premium end is still continuing to travel, at least based on all the data that we're seeing. As you look through your booking curve, yield mix, what are you seeing across high-end leisure, middle-income, basic? Where is the strength? Where is the weakness? Give us a cross-section of your demand outlook right now.
Okay, so we're about 80% booked in the second quarter. So I can give you views on that. We're no different than the other network carriers. in terms of where our customers come from. We have the same percentage of high earners and the mix throughout the entire population of travelers. What I would tell you is I feel great about demand overall. No doubt there is a K-shaped aspect to demand right now, But it is clear that no matter what end of the spectrum you're at, people want to travel. People want experiences. People want better service. And so, yes, top economic earners are out in terms of overall growth, are outpacing the growth that you see from mid and lower tier, okay? But they're all up. And for us, you know, different than last year where, let's face it, supply-demand balance domestically was, you know, more difficult. You know, it was more positive for international. Where demand is coming from now, it speaks to our strengths. We have a very, very strong and most comprehensive network in North America. It's centered on our domestic network. we're seeing really strong demand locally that complements what's going on from an international perspective other color that we can give London Heathrow is doing really really well even in comparison to strength around Europe Asia's doing well well centered on Japan again you know a strength of ours so we see strength across the board and as we talked the other aspects of you know business whether it's premium leisure it's doing incredibly well corporate travel up 13% manage corporate 13% year-over-year and again strong domestic
demand and are you seeing any sort of response across the spectrum around sort of biops may be changing a little bit I'm sort of interested in this idea that You've got this ability for customers to buy up, and in the worst market, maybe there's also a trade across. Are you seeing some of that as well? I mean, are you seeing potentially corporate saying, hey, the first class seat across to Europe is way too expensive to fly a premium economy?
Well, first off, our premium economy and our business class product are absolutely the best performing of anything that we sell right now. Premium traffic overall still leads your traffic. But I feel great about that. And from a buy-up perspective, some of the things that we've done, whether it's more at the basic end of things, by quite frankly giving people a reason to aspire for more and doing it in a way that people find great value, that's working really well. So the redesign of our basic economy product. What I'll also say is that we've given people more choice, obviously through our app, so that if corporate policy says premium economy across the Atlantic is all you can get, we've given customers a way that they can easily buy into a business class cabin as well. And we're seeing great traction from that perspective. So I think technology has really allowed us to put an offering in front of customers that works with their corporate plans, works with their own desires, and across the board, it's absolutely one of the big drivers of Americans' performance.
And just to maybe kind of follow up on that, as you think about the technology and that in-app buy-up experience, that's something where I know just from my own experience, maybe a couple years ago, it seemed like you guys were kind of far behind in terms of like giving away the upgrades instead of asking you to get paid for them? Or you feel like you've kind of closed that gap relative to the peers in the last couple of years?
Absolutely. We've gone through a couple of phases of redesign. You know, most recently, it definitely does a better job of laying out what's available and why there's benefit to potentially paying some more. And customers, we're getting great feedback, great traction. whatever the criticisms were for our app in the past, we've certainly closed those gaps, and I really like what I see going forward. It even comes down to things that I think are going to be pretty sticky as we go forward. We have the ability to offer customers now to pre-purchase bags, you know check baggage and we offer that at a discount and customers are availing themselves of that we have you know much better technology in terms of making sure customers know you know where those bags are along their journey anything that we can do to give our customers the ability to see what we have to sell and then also understand you know how they can control the process as as they work through their travel experience, all that is an opportunity for us, okay?
So looking at the broader marketplace, again, Spirits liquidation pulled some capacity out of the domestic market. Is there anything you've seen in your basic economy demand that recognizes that? Or how is that exit having an impact on your business?
Well, you mentioned basic economy, but I'd suggest that in a supply and demand environment where there's possibly more capacity than demand last year, this has been a good thing. And for American, let's face it, we competed with Spirit across the board. we service 70 of the 72 airports that they served I think we competed on 67 of you know the markets they served so there's absolutely an impact but realize this though at the time of their liquidation they're only one and a half percent of the marketplace so we saw an immediate blip up in terms of basic economy, fair purchasing. But, you know, we saw across the board improvement in all those places that we competed directly. And while there may have been a lower end of that that benefited initially, it's evened out. And I think one of the things that we have to take into account is that those Spirit customers, when they are able to avail themselves of product like Americans, And so they see the benefit of some of the other offerings that we make. And it's hard to tell. You can't parse out exactly who was a Spirit customer and who wasn't. But what we see now is just a return to the spread of demand that we had had before. And nothing really noticeable other than we continue to see strength in those places we competed directly with Spirit. I think that that bodes well for America in the long run.
And I think you guys have mentioned that your recovery from the corporate sales kind of stepped back. That's over with. We don't need to talk about that anymore?
No, I'd like to talk about it. Because I think we definitely needed to make a pivot. TMC and managed corporate business is a really important place for us to be able to play, especially with the kind of product that we have so our intent was when we adjusted our focus was to regain the share that we had lost and fortunately over the last couple of years we've been able to do that but there's upside to it the upside to it is is that the mix of buying in the TMC and corporate channel has changed there's more premium leisure that buys through those and and again the reason we're so focused on it is that that channel represents from a yield basis you know probably you know double what a normal leisure fare would be so we're gonna be a strong player in it overall the volume of passengers prior to the pandemic to where we're at now is still down probably about 20% but it's been we've made up for that much much more in terms of volume and managed corporate is still 20% lower than it was probably about probably about 20% 20% lower okay but the yields that we've seen on that business more than makeup more than makeup for it still really really strong so for American the next steps are hey whatever share we had there's much much more upside and the things that we have been able to do is to get out there with it with the TMC's and initially we'd set up some shorter term contracts you know had to rebuild some and regain some trust sure we've done that fortunately and now what we're seeing is you know just incredible demand for American to be out there and a willingness to negotiate contracts that are longer term in length that come with quite frankly you know greater share commitments and we're really pleased with it now we also really smart we can't get back in into a practice of overpaying you know for that that share we won't do that but it's really a smart thing for us to be a player a big player i really
like what i see can you help us calibrate that 20 percent relative to pre-pandemic is that consistent with your view of how the market has changed well or have you lost share in that corporate channel
no absolutely not no when we speak to regaining our share it's share okay so I'm very but in absolute terms that the market has shifted but the the interesting thing there though is while prior to the pandemic TMC's and manage manage corporate manage corporates but really it's it's you know corporate's business versus premium leisure that would have been you know more of a 50 50 split now that premium leisure is more like 65 percent yeah okay 35 percent and so for us it fits again fits very well with the product that we have out there in the marketplace it fits very well with how we go to market and that's a trend that I think speaks to the resiliency of premium traffic and our ability to continue to manage yields in a really positive fashion.
And turning to the $4 billion of incremental fuel you're paying for and absorbing this year, because I think if anybody would put $4 billion of incremental revenue into the model, you would end way above your $2.50 to $3.00. But can you walk us through kind of where that's coming from? Obviously, part of it is just straight fare hikes. Part of that's going to be bags. Part of that's going to be you've got more premium seats than you had before, so you've got some mix in there, which, if you think about that $4 billion, how much of it is due to the better product you have in the marketplace, just the mix change versus the other components of it? Is there a way to think about that bridge? I think, because the question I get asked a lot is, okay, unit revenue's up mid-teens, but when unit revenue goes down mid-teens, you're going to be back in the same place.
Okay. So, David, on that, I just want to start with this. And again, it's hard to split it out because i think that they're all you know leading loyalty you know brings customers back the new city deal well you got the city deal that's carved out a piece of it you've got the new city deal is you know product uh drive for premium uh premium uh revenue has been something that you know has been technology enabled uh our network restoration okay has been about rebuilding in places like philadelphia and chicago you know that we had left a little bit untended uh you know over the last few years so there's a combination of all that but I think the important thing to recognize is that if you go look at the first quarter before the the fuel spike had really taken place right we were already looking at really super unit revenue performance okay even take a look into you know the second quarter where you know look we're 80% booked and you know you can slap a percentage on you know what we see so far in terms of fuel price recovery in the quarter yeah but don't forget you know a lot of that was booked you know as we were going through the early stages of the shock and you know that first quarter revenues you know up ten eleven percent second quarter still on track for up 15%. I'm not saying we keep all of it, okay? But I really do think the kind of things that we had done that were already beginning to take root in the first quarter, okay, are going to continue through. So, you're right. You know, increased bag fees, those are going to be pretty sticky. Now, let's face it. You know, it's not just fuel that has been a cost pressure, okay? there's there's been cross pressure in many other areas American has done an incredible job of being the most efficient producer of capacity I'm really pleased that we have labor contracts in place that were you know not actively negotiating you know really anything sizable right now and what you've seen is you know really you know stress from you know on the ULCC You've seen everybody trying to jump into the premium game. I think the industry as a whole realizes that, look, to make a margin, there has to be something done differently. So for us, having made the investment, being a premium global airline, and having so much coming to market, I think we're suited very well to retain quite a bit of what we've seen. And so that gives me a great confidence that not only would have we delivered what we had anticipated in the first quarter, you know, when we started earlier off, but that we would have beaten that. And so again, as I look out into 2027 and beyond, I do think American Airlines is a carrier that will be able to produce pre-tax margins in the mid to high single digits and produce EBITDA margins in the mid to high teens. That's what's in our future.
And the $65,000 question here is, though, like how much of this fair spike are you going to be able to hold on to? So if you were going to talk to me or to an investor about conceptually, what are the building blocks that would allow you to hold on to more of that than somebody else, which then allows you to have that better earnings leverage? Like, obviously, some of it's going to come from the maturation of city. right what are the other what are the other legos in the we we had we had more
to catch up than others yeah okay and so yes our sales and distribution strategy is going to be a player our ability to segment and to drive premium revenues through through buy-up is absolutely going to be a portion of that we're also So, you know, really making great use of our network. You know, our network, you know, we've reestablished our presence in Chicago. Philadelphia is really doing very well. Miami, same thing, doing very well. Phoenix is doing very well, complementing our DFW and Charlotte hubs. And on top of that, you know, last year in the wake of 5342, and all the trouble with government shutdowns. DCA was not a fantastic performing hub for us. I've seen the return of all that. That is all here to stay. So I have great confidence of what we saw in that first quarter where our unit revenue is up 7% without the impact of fuel spike. I have great confidence that what we're seeing in the second quarter where we anticipate year-over-year revenue growth of 15% on 5% capacity growth, I anticipate that much of that is something that we will retain. Five out of the last six quarters, American has outperformed in terms of year-over-year performance our network peers. That's what's in store for American, and it's based on those four pillars.
And do you think the retention level on this is going to be better American than is going to be industry-leading, or no? Well, I just point to, again, first and second quarter. I see that trend continuing. You know, Spirit's Exit is probably the biggest structural change we've seen in a while. You've been in the business for a long time, so I'd love to get your perspective on this. I think, you know, as an outside analyst looking in, you know, the growth of supply and basic economy, just having too many basic seats for sale, that seemed kind of evident. You know, when you're operating within the business, Are you surprised that the ULCC model has come under so much pressure from fair segmentation? Or is this something that you had expected was going to be happening? Because it does seem like this is a permanent kind of change in industry performance.
Well, I think it goes back to the investment we made at American in developing a basic economy product and doing it in a way that could really compete effectively. at the same time making best use of our network, making really good use of our loyalty initiatives, making great use of just our scale. And so today we find ourselves in a position where customers want to be able to avail themselves of every range of the product. They want a carrier that can get them anywhere that they want to go in the class of service. They want a carrier that has partnerships that allow a great experience as well. We offer all of that. And what you see from a ULCC perspective is everybody trying to get in the game. And whether it's, you know, everybody is trying to, you know, manage up to offer a product. But I think it's just so hard. When you think about the network that we have, the lounge network that we have, the product that we have, the partnerships that we have, and still being able to offer, you know, a basic economy product, I think that that just bodes really well for us. But some other things are out there too, David. Let's face it, aircraft aren't cheap, okay? People need to be paid a decent wage, okay? And those kind of cost, it's not easy to pick up gates in really desirable places to fly. Those kind of issues from a cost perspective, we're eventually gonna catch up with the ULCCs. but on top of that in that we can compete and their customers would rather be flying American Airlines and rather be in our loyalty network, the world's largest, that all bodes well for us. So I am not out here declaring ULCCs are dead. but what I can say is the advantage that American has is really beneficial as we take a look where the marketplace is headed I like what I see in terms of demand trends I think that people will continue to spend that to spend on experiences I think that demographics suggest that our network is in the right place when you take a look at where people are in terms of their tastes they
want to take care of themselves all that bodes well for us okay and I guess as you think about from a network perspective right you guys had been down the path towards the the Northeast Alliance of JetBlue that got unwound where do you see opportunities to improve the network sure well first off we've done some
really innovative things over over over the years you know the NEA which I think was wrongfully you know struck down it benefited us I know it benefited Jeff we've been able to do something out on the west coast with Alaska Americans been really smart about the relationships that we pursued it's always been with super quality players I love I love one world right now I'm still the the chair of one world but that one world has enabled us to develop these joint businesses with the premier carriers in the leading business markets you know around the world so American well you know every network every airline has their strengths and weaknesses ours you know just wouldn't trade you know for the world as I mentioned before we have such strength where economic development is happening where population is moving within the United States, across the Sunbelt, Phoenix, and DFW, and Charlotte, and Miami, you know, all that bodes really well. We've got a great position in DCA. What we have in New York, what may but not be as large as others, we have a fantastic relationship through BA that allows us to be able to serve, you know, London Heathrow more than anybody else. We have a position in Los Angeles that today is very strong. But as we get to the completion of the Los Angeles construction by 2028, by the Olympics, American will be back again in terms of a gate position that allows us to have a larger footprint than anyone. So from a network perspective, everybody has their strengths and weaknesses. but what I see our relationship with Alaska Americans going to have the largest position in Los Angeles what we do in Phoenix is is fantastic Miami is going to continue to grow with the new regional terminal that's that's being built out DFW will continue to grow it'll be the largest single carrier hub in the in the world you know over the next three to five years with the construction of Terminal F, Philadelphia is being restored as a fantastic hub to all cities in Europe, especially secondary cities. Our fleet plan matches up really well with that. And in New York, we've got a great position in LaGuardia. And in JFK, we've done a nice job of making T8 a one world terminal and a great, the new concessions if you haven't been through there yet, combined with our world-class lounges. It's a great customer experience. So I feel great about it in any places that we sense an opportunity. We've been creative in the past and we'll do so again.
Okay, as you think about the investments you're making right now on the commercial side, what's got you most excited over the next couple of years? Is it the hard product in the fleet or is there additional stuff that's in the works, whether it's merchandising through the app or any of the activities you're providing on board?
it's again our vision again is premier global airline and with that comes an understanding that you know every element of our product really needs to hold its own and from that perspective you know we've been skating to where the puck is headed for a number of years and so I'm just gonna start with I really like what what where our fleet is from a hard product perspective I think that You're going to see more flagship suites. You're going to see premium seating growing at twice the rate of main cabin seating. You're going to see nearly 50% growth of lie-flat seats coming up, which is over the next three years. All that's really exciting because I know that's where customers' tastes are, and it also fits with our ability to sell to customers. But that product in the sky has to be matched up with a product on the ground as well. And from that perspective, what we're doing with all the local communities and developing airports, I'm super proud of. All that puts us in a position where we can take advantage of work that we've been doing for years and not only not only that but take advantage of it in a way that it doesn't require in an inordinate future capital spending so for American we don't have retirements plan you know over the next five years we've already baked in the cost of you know all these these airport improvements and what that suggests is you know we're in the right places we've got the right product offering from a commercial perspective We're going to outperform from a revenue production perspective. Match that up with the most efficient capacity producer in the business. It's upside for our customers and for our shareholders.
As you think about some of those investments on the commercial side, satellite is in there as well. Obviously, that's got a little bit of a cost component to it. I'm sure rebanking DFW wasn't cheap. Right. So you're adding a little bit of buffer into that capacity. How do you think about the cost drag of that as we come out to the other side, maybe claiming a share of that revenue upside that we've had here? Or is that stuff that you would have expected to have been absorbed in normal pricing anyway?
Okay, so just from a product and amenities perspective, so whether it's satellite Wi-Fi, we made a decision years ago that we're going to be the leader in satellite Wi-Fi. And, you know, we set out not only to deploy satellite Wi-Fi on our narrow-body fleet, but to also do that, you know, from our regional aircraft perspective. And I'm really proud to say that American offers more satellite Wi-Fi connectivity across our network than anyone. That continues, though. We know that we have to be really smart about where we go. and we have to offer a product that customers know and value. And that's why I love what we've done with Starlink. You know, I know that Starlink's going to be a great partner. They have a product that's out in the marketplace right now, really doing a nice job. And given, you know, American Airlines, it's, look, there's a lot of desire to associate with, you know, solid brands. And you can assume that, you know, we do really well in terms of, you know, how we are able to get those services and price those services. And what I tell you just on that alone, I don't – it's nothing material just from, you know, a product upgrade. Whatever else that we've invested in, we've been smart about it. It's baked into our planning. And when it comes to reliability, I just underscore this, that the most efficient way to run an airline is by being as reliable as you possibly can be. It means that you're retaining more revenue. It means that you're paying less in terms of customer inconvenience and doing things to make up for disappointment. And so what we've seen so far with the 13 Bank is no degradation in revenue performance because I think also customers recognize the value in having a more reliable schedule and are willing to pay for that as well. So we haven't seen any type of degradation there. And anything that goes forward, just think of the offsets. Mishandled customers, mishandled baggage, anything in terms of irregular operations recovery. The more that we can do to retain customers, to make sure that our team members aren't aren't disrupted uh to make sure that our aircraft are in the right position it benefits us
in the long run okay so as you think about the the um the trajectory for unit cost inflation kind of coming out of this crisis and if if you are going to be a higher service more more sort of brand experience is it right to think that there's a little bit more inflation in the
business or is it going to be the same sort of look look uh we've built our our network again with no retirements that any any new aircraft deliveries you know can can be put to growth we're gonna be smart about this so as I take over look over the long run from a capital expense from operating expense I really like what we've done we've we're already in terms of compensation and benefits we're already you know top at the top of the industry you know we're set with it with our fleet we operate in some airports that really are you know offer great economics in terms of cost per employment you know underscore a place like like Charlotte you know for example you know the communities that we serve understand that's important for you know really you know large connecting complexes so I think that we're going to continue to be the cost leader in terms of efficiency of production of capacity I think it's something that based on the way that we've built our airline based on where we'll have to deploy capital I think it's sustainable and you know it's something that we're going to be you know really attentive to but let me let me tell you why I think you know also that yeah it's grounded in you know the work that we've done we the reason we're as efficient as we are right now is because we've gone on two years two phases of re-engineering the business you know that's the way we branded the the work that's produced over a billion dollars in operating expense savings and produced another billion dollars of working capital that's been freed up. The next stage of that is really putting an AI lens. And so as we look at re-engineering the business, you know, part three, okay, it's going to be with that mindset. And whether it's, you know, offering our customers a better product, giving them more control or helping us optimize how we do work I think that there's tremendous opportunity to use that same process that we've put to the company through the last couple years to execute and to deliver even more okay
if we think about the balance sheet and and capital allocation going forward obviously you guys have gotten debt below 35 billion and adjust on a net basis faster than than than maybe you'd hoped or at least on on plan how do you think about the next couple of years in respect to debt I mean obviously we're in a crisis right now you got a lot of operating resource drag you know is there a potential that you might have to kind of lean into some of those unencumbered assets to get through this current fuel crisis and then as you kind of get to the other side of that when you get to a better rating you know what should investors be expecting from a cash flow and capital return perspective okay
Well, I think you can tell from what we've done over the last few years. You take a step back and, you know, at the height of the pandemic, $54 billion of total debt. It's a remarkable, you know, story to be able to say that today, you know, with $35 billion total debt and, you know, that expectation to kind of end the year that way, it's a remarkable story to tell that we've been able to bring down debt that much. And it's a tribute to our team. Earnings have not been fantastic the last year or so. And we've done that through being smart about how we spend, being really determined in terms of being efficient. And our focus going forward is continuing to whittle that down even further. It feels great to be where the best total debt level that we've had in over a decade. but we're not stopping there when we get to those pre-tax margins of mid to high single digits you can bet that that margin performance is going to result in real free cash flow real feet free cash flow that I think will be different than than others in the industry because we have the youngest fleet because we've made the investments in our fleet and because even with the reconfigurations that we're doing and the deliveries that we have. We don't have retirements over the next five years. So our ability to actually grow from this base that we're at right now, we can certainly match where demand is, and we'll be smart about how we deploy it. But ultimately, that means American is going to continue to improve our leverage story. We have a double B-flat target that is something I think that we will hit over the next few years. That puts us in a really great spot. And then we'll have to talk about
what happens beyond that. So we're coming up to the end here. I usually like to give you a chance to make the bull case. Tell an investor who's maybe looking at the industry today why American is the right place to allocate that incremental dollar investment.
there's more upside at American than any other carrier we've weathered a tremendous amount of challenges over over the last few years I love where the demand environment is today really encouraged by you know what I see from a domestic perspective and American is focused on our four pillars those four pillars of elevating customer customer experience really taking advantage of our network and the growth that remains and you know looking at that network as being the most comprehensive the best position in of any carrier it puts us in a really enviable position we're able to to match up that customer experience in that network with a drive to premium revenue having a hard product that is really well configured for segmentation for our customers we're bringing technology to use and then wrapping that all into the industry's leading loyalty program everybody wants you know an advantage mile they know that they're going to get more for it and the ecosystem has only been improved by what we've done with the launch of the city deal which we're seeing acquisitions and spend you know hit the targets that we had established we're off to a really fast start you know ultimately that's going to lead to margin improvement it's going to lead to free cash flow production leverage reduction and an investor story that especially as this fuel spike evens out it plays well for America and I just like to thank not only our customers but also our T our team members we've got a fantastic group of 130,000 team members that are out there every day we're set up better this summer than we have ever been we're gonna have difficulties with with weather and whatnot but I can guarantee you this that you know our team members are set on getting people to where they want to go find value in what they pay us and really do a nice job for our customers so David thank you for having me out here thanks for joining us and thank you for supporting the conference enjoy the rest of your day