American Airlines Group, Inc.

Good morning and welcome to the American Airlines Group First Quarter 2020 Earnings Call. Today's conference call is being recorded. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Craven. Please go ahead, sir.

Thanks, Cindy. Good morning, everyone, and welcome to the American Airlines Group first quarter 2020 earnings conference call. With us in the room this morning, we have Doug Parker, our Chairman and CEO, Robert Isom, our President, and Derek Kerr, our Chief Financial Officer. Also on the call for our Q&A session are several of our senior execs, including Maya Liebman, Chief Information Officer Steve Johnson, our EVP of Corporate Affairs, Don Casey, our Senior Vice President of Revenue Management, and Vasu Raja, our Senior VP of Network Planning. The focus of today's call will be our response to COVID-19. Like we normally do, Doug will start the call with an overview of our order and the actions we're taking. Robert will then follow with commentary about our team members, customers, and network. Derek will then walk us through the details on our fleet, cost outlook, and liquidity. And then after we hear from those comments, we'll open the call for analyst questions and lastly, questions from the media. To get in as many questions as possible, please limit yourself to one question and a follow-up. Before we begin, we must state that today's call does contain forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity, police plans, and liquidity. These statements represent our predictions and expectations as to future events but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings release that was issued this morning along with our Form 10Q as of March 31, 2020. In addition, we will be discussing certain non-GAAP financial measures this morning, which exclude the impact of unusual items. A reconciliation to those numbers to the GAAP financial measures is included in the earnings release and that can be found on our website. A webcast of this will also be archived on our website, and the information that we're giving you on the call is as of today's date, and we undertake no obligation to update the information subsequently. So thanks again for joining us. At this point, I'll turn the call over to our Chairman and CEO, Doug Parker.

Thanks, Dan. Good morning, everybody, and thanks for joining us. Before I get into the numbers, I want to offer a few thoughts on the challenging times that we and our entire industry are facing. The spirit and efforts of the American Airlines team during this crisis have been nothing short of extraordinary. The human and economic toll of COVID-19 has been enormous, and like others, we've lost members of our own team, and our hearts are heavy for their families, friends, and coworkers. But in the face of this great loss, the American team continues to rise to the challenge and meet the needs of our customers and the communities we serve. They're putting on their uniforms every day and transporting first responders to where they're most needed, and other Americans to where they feel most safe. Our team members are frontline heroes in this battle, and they are what makes America great. So on behalf of the entire leadership team, I want to thank our team for what they continue to do every day. Turning to this quarter's results, by far the most important recent event for our industry's long-term viability has been the passage of the CARES Act, which provides up to $50 billion of much-needed liquidity to U.S. airlines. This unprecedented assistance recognizes the value that commercial airlines provide to our country and is designed to keep our hardworking team members employed and ready to serve the flying public whenever we start moving again. So I want to again thank the administration and Congress for their exceptional support of airlines and our employees. And I think it's important to note that this would not have been possible without a tremendous amount of work and advocacy on behalf of airlines and our team members. So I'd also like to thank Nick Calio and his team at A4A, as well as my fellow A4A CEOs, Ed Bastian, Robin Hayes, Peter Ingram, Gary Kelly, Oscar Munoz, and Brad Tilden. We work in an intensely competitive business, but in response to this crisis, we pulled together to save our industry and save jobs, and I'm proud to have been a part of it. We also had great support from our team members and the unions that represent them. I'd like to also publicly thank all of our American Airlines union leaders, as well as those who represent other airline employees. We absolutely could not have gotten this done without their leadership and a joint desire from all of us to fight for our team. So as important as the CARES Act is, it certainly doesn't solve everything. CARES provides the industry the breathing room we need to manage through the worst parts of the crisis and to pay our team members that we otherwise would have needed to furlough. But it does not fix the core problem that all of us have, which is revenue generation. Industry revenues have fallen an estimated 95% year-over-year in April. And while no one has a perfect crystal ball, I think we all expect that recovery will be slow and demand for air travel will be suppressed for quite some time. So in this environment, there are three critical issues that any airline must manage. First, ensuring the safety and comfort of team members and customers. Second, maintaining ample liquidity to ride through a sustained crisis. And third, planning for an uncertain future. We at American are taking aggressive steps in each regard. I'll provide a quick overview, and then Robert and Derek will provide more detail on each. First, as it relates to safety, we've dramatically increased the frequency and intensity of our aircraft cleaning. We're limiting seat sales on every flight, including not allowing half of the main cabin middle seats to be assigned. We've reduced food and beverage service on flights to limit contact with others. As of May 1st, we will begin the gradual ramp-up of providing customers with PPE kits, which include masks and sanitizing wipes, as well as requiring our flight attendants to wear masks in flight Turning to liquidity, these efforts for all airlines come in two sets of initiatives, raising cash and conserving cash. On the first, America's absolute liquidity position is very strong. We ended the first quarter with $6.8 billion in liquidity, and America's share of the CARES Act proceeds is $10.6 billion, which results in $17.4 billion when you combine our quarter in liquidity and CARES Act access. And importantly, outside of our recently arranged $1 billion 364-day delayed draw term loan, we do not have any meaningful non-aircraft debt amortization payments for more than two years. So we feel confident with that level of liquidity, but in this uncertain environment, we'll continue looking for additional sources. We have more than $10 billion of unencumbered assets at our disposal, and that excludes the value of our advantage program. Our plan is to first work with the Treasury Department to secure our CARES Act loan of $4.75 billion at attractive rates and then explore other initiatives as needed from there. As to conserving cash, Derek will describe our initiatives in more detail. We've enacted a comprehensive cash conservation plan to eliminate all unnecessary operating and capital expenditures. We expect this will reduce our daily cash burn rate from the expected average of $70 million per day in the second quarter to approximately $50 million a day for the month of June. As a result of all that, we expect to end this quarter with approximately $11 billion of liquidity and a significant amount of unencumbered assets still in place. And that forecast assumes little to no increase in demand for air travel throughout the quarter. Third, and perhaps the most difficult thing for airlines to do at this time, is to properly plan for the future. We're using this opportunity to make our airlines stronger in a number of ways, and we expect to emerge a more efficient and more streamlined airline. And to do that most efficiently, we need to begin making decisions soon about how large an airline we want to run in the summer of 2021 and beyond. As you all know, things like aircraft availability, pilot training, and maintenance programs do not have short planning horizons. Now, that's always been an issue in our business, but today those capacity plans are severely complicated by the extreme uncertainty regarding the anticipated level of demand for air travel, not just for the next few months, but for the next few years. So we at American decided to err on the side of being smaller than we might like rather than larger. As Derek will describe and as our first quarter financials indicate, we made the decision to retire our entire 757, 767, A330-300, and Embraer 190 fleets, as well as certain regional aircraft. These decisions alone will reduce our 2021 fleet count by approximately 100 aircraft versus our prior plans, and we will continue to assess further reductions as we move forward. So, in conclusion for me, these are unprecedented times for our world, our country, and our industry. The uncertainty about the future weighs on everyone, and for good reason. There is no way to overstate the gravity of the situation for the airline industry, and difficult decisions lie ahead for all of us. But in the end, the leadership that got us through the CARES Act process will be the leadership that gets us through the coming months and years. Leaders who understand the importance and the nobility of what our people do, and therefore work selflessly in support of the and side-by-side with them. I'm confident our industry will fight through this successfully, and I'm particularly confident that American Airlines will be among those leading the way. I am humbled and honored to be a part of the American Airlines team, and I'm incredibly proud to stand alongside them today and into the future. With that, I will turn it over to Robert.