American Airlines Group, Inc.

Thank you for standing by and welcome to American Airline Group's third quarter 2022 earnings call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. And now I'd like to turn the call over to your moderator, head of investor relations, Mr. Scott Long. Please go ahead.

Thanks, Lateef. Good morning, everyone, and welcome to the American Airlines Group Third Quarter 2022 Earnings Conference Call. On the call this morning, we have our CEO, Robert Isom, and our Vice Chair and CFO, Derek Kerr. 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 the third quarter, and Derek will follow with details on the quarter and our operating plans and outlook going forward. After Derek's comments, we'll open the call for analyst questions, followed by questions from the media. To get in as many questions as possible, please limit yourself to one question and one follow-up. Before we begin today, we must state that today's call contains forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity, and fleet plans. These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning, as well as our Form 10-Q for the quarter ended 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. A webcast of this call will also be archived on our website. And the information we're giving you on this call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thank you for your interest and for joining us this morning. And with that, I'll turn the call over to our CEO, Robert Eisen.

Thanks, Scott. Good morning, everybody. Thanks for joining us. This morning, American reported a third quarter GAAP net income of $483 million. and excluding net special items, a third quarter net income of $478 million. We produced revenues of $13.5 billion, which sets a new record for any quarter in the history of American Airlines. When I took on the CEO role in March, I told you American was going to do two things this year, run a reliable operation and return to profitability. It's taken us a bit longer than we would have liked to get where we want on the operations side, But we're pleased with how the airline is performing today, and we know we're on the right trajectory. As far as profitability, we've now delivered two profitable quarters in a row, and we're forecasting a profitable fourth quarter with continued strength in demand. We could not have made either of those commitments or ensure we delivered on them if it weren't for the hard work of the American Airlines team. They do a phenomenal job every day at taking care of our customers and each other. Their teamwork, resiliency, and determination allow us to continue our focus of running a reliable operation and sustaining profitability. We keep that focus because in our business, reliability is everything. It's the foundation of the service we provide our customers. A predictable, solid operation changes the entire work experience of our team. Reliability also enables our long-term profitability. And achieving sustained profitability is how we will meet our debt reduction targets and continue to invest in our team and deliver the network products and services our customers want. With that in mind, let's talk more about the third quarter specifically. Our record quarterly revenue of $13.5 billion is a 13% increase over 2019. Notably, we achieved this record revenue by flying nearly 10% less capacity than we did in the third quarter of 2019. We're pleased to have exceeded our initial guidance on both revenue and pre-tax margin in the third quarter despite constraints still facing American and the rest of the industry. American's third quarter results, including our record revenue performance, are significant considering their macroeconomic uncertainty facing so many people. Demand remains strong, and it's clear that our customers in the U.S. and other parts of the world continue to value air travel and the ability to reconnect post-pandemic. Importantly, many of the demand trends we saw emerge during the pandemic are becoming more consistent and shaping our commercial focus for 2023 and beyond. Leisure and business revenue remain incredibly strong, again surpassing 2019 levels in the third quarter. Demand for small and medium-sized businesses and customers traveling for a combination of business and leisure continue to outpace the recovery of managed corporate travel. As that revenue continues to build, it will be additive to an already strong base of business demand, led by small and medium business and blended trips. That, as well as a return of long-haul international travel, leaves us very bullish about overall demand, even in an uncertain economic environment. The changing nature of demand provides an opportunity to rework our commercial offerings to better meet the needs of all customers and create a more resilient and profitable business. We continue to develop the most comprehensive airline network in the world. As we have shared on previous calls, over the past few years we have made the decision to greatly simplify our fleet and network, focusing our flying on where we can create outsized customer value and working with our partners to create choices and value in areas where it's cost prohibitive to do so ourselves. This means prioritizing the flying that can best generate a return today, not bringing back flying that was only marginally profitable before the pandemic or that we had hoped would one day generate a return. It also means using our partners to fill in the gaps and deliver a seamless network to our customers. That work continues, particularly with our Northeast Alliance with JetBlue, our West Coast International Alliance with Alaska, and our Atlantic and Pacific joint businesses. To better match our product offering to customers and network, we recently announced enhancements to our long-haul fleet that will give American an unrivaled premium experience among U.S. carriers. Starting in 2024, customers will see new flagship suite seats on our Boeing 777-300ER aircraft, as well as on our new Boeing 787-9 and Airbus A321 XLR deliveries. With these new interiors, premium seating on our long-haul aircraft will grow by more than 45% by 2026. We're working to give our customers better choices and more access to the world's largest and best travel rewards program, and that's Advantage. It's clear that customers want more when they shop for travel, more choices, more ways to earn and use miles, and more incentives to earn miles even when they don't travel. So turning to our operation, as I mentioned at the outset, operating reliably is critical to everything we do. We have the youngest fleet and the best network and partners in the industry, but we can't take full advantage of those assets if we aren't running reliably. That's why we continue to invest in our operation with additional resources and new technology, and those efforts are paying off. Despite a challenging operating environment, with hurricanes in Florida and the Caribbean and flooding in the Dallas-Fort Worth region, we restored our operating reliability to pre-pandemic levels in the third quarter. And we did it while flying a schedule that was 25% larger than our closest competitor. We have delivered record on-time arrival rate and completion factor so far in October and expect to carry that momentum through the upcoming holiday season and beyond. Hurricane Fiona and Ian were devastating for so many, including the communities we serve and the places our team and customers call home. The American Airlines team stepped up in amazing ways to take care of our customers and each other during very challenging circumstances. Through our Advantage program and the partnership with the Red Cross, almost $4 million has been raised to support victims of the storms, and American continues to support our team through the American Airlines Family Fund. The storms moved through quickly, but they had an outsized impact on American given the size of our operation in Florida. We had to cancel more than 1,500 flights the last four days of September, given the impact of Hurricane Ian. We estimate right now that these storms reduced revenue by about $40 million. As we close out the year and look to the first quarter, we continue to size the airline for the resources we have available and the operating conditions we face. This approach and our strong operational performance in September and so far in October give us a lot of confidence as we head into the busy travel holiday season. In closing, we remain very encouraged by the continued strength and demand and the trends we're seeing across the business. American has the best team and most efficient assets in the industry, and we have built an airline that can be successful in many different demand and economic environments. Looking ahead, we're focused on investing in our operation, our network, and our partnerships to ensure we can continue to deliver for our customers. And, of course, we'll do so while remaining focused on achieving sustained profitability and reducing our debt. And with that, I'll hand it over to Derek.