American Airlines Group, Inc.

Thank you for standing by, and welcome to American Airlines Group's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speak presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Scott Long, VP of Investor Relations and Corporate Development. Please go ahead.

Thank you, Lateef. Good morning, and welcome to the American Airlines Group second quarter 2024 earnings conference call. On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devin May. In addition to our Vice Chair, Steve Johnson, we have a number of other senior executives in the room this morning for the Q&A session. Robert will start the call with an overview of our performance, and Devin will follow with details on the second quarter, in addition to outlining our operating plans and outlook going forward. After our prepared remarks, 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 June 30, 2024. In addition, we'll be discussing certain non-GAAP financial measures, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the investor relations section of our website. A webcast of this call will also be archived on our website. The information we are giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thank you for your interest and for joining us this morning, and with that, I'll turn the call over to our CEO, Robert Isom.

Thanks, Scott, and good morning, everyone. This morning, American reported an adjusted pre-tax profit of $1 billion for the second quarter, driven by record quarterly revenue of $14.3 billion. We finished the quarter in line with our revised guidance, with second quarter adjusted earnings per diluted share of $1.09, despite the impact of significant weather events on our operation in May and June. Before I get into more detail on our second quarter results and outlook, I want to first acknowledge that our current revenue performance is not where we want it to be. In May, we made a sizable adjustment to our revenue and earnings expectations for the second quarter, driven by an imbalance in domestic supply and demand and our prior sales and distribution strategy. We know we can do better, and we will rise to meet this challenge. I'll begin with an update on those two key areas that are impacting our results, the softness in the domestic marketplace and our sales and distribution strategy. I'll also outline the clear and decisive actions that we're taking to course correct. First, on the softer domestic revenue environment. In the second quarter, we saw the impact of too much industry supply in the domestic market, especially in regions of the country where we have larger operations. That excess capacity led to a higher level of discounting activity in the quarter than we anticipated. As we said we would, to address the domestic softness, we pulled down our planned capacity growth in the back half of the year. To better align our growth with demand expectations, we now plan to grow capacity by approximately 3.5% in the second half of the year. Second, our sales and distribution strategy. In late May, I said our sales and distribution strategy was not working and we needed to make a change. We're taking actions that will improve our performance, but a reset will take some time and we will continue to feel the impact of our prior sales and distribution strategy on revenue and earnings through the remainder of this year, which is reflected in our updated full year guidance. Let me outline the three key parts of our plan in leadership and organization. in working with the travel agency community, and in addressing the needs of our corporate customers. With regard to our commercial organization, we immediately took action and changed senior leadership. Steve, our vice chair, second in command, and most seasoned and accomplished executive, has taken charge of our commercial efforts, reorganized the team, completed a deep dive on issues and opportunities, and laid out a recovery plan that we are executing on quickly. We have also strengthened our revenue forecasting processes. Our near-term actions are concentrated on winning back customers in our share of revenue in agency and business channels. To that end, in June, we reinstated fares in the distribution channel traditionally used by travel agencies and corporate managed travel programs. Approximately $14 billion of our annual revenue was booked through this system in 2023. This action ensures our product is available wherever customers want to buy it and removes the most objected-to pain point of our previous distribution strategy. Next, we engaged our large TMC partners to put in place new incentive-based agreements to restore our share in those channels. Those efforts have been well received, and we are having good conversations with companies including Amex GBT, with which we have a longstanding relationship. We expect agreements with TMC soon, and we will then work to re-engage the broader business and leisure agency community. Additionally, we have eliminated plans to differentiate how customers earn miles based on where they book their travel, removing another significant obstacle impacting booking behavior and business relationships. Our products need to be attractive and easy to engage with. A significant piece of that is our Advantage Business Program, which replaced our previous unmanaged programs for business travelers. Those previous programs generated more than $2.5 billion in revenue in 2023, nearly 75% of which was booked through travel agencies. With recent changes, we have now expanded the Advantage Business Programs benefits so that participating companies will earn miles and end travelers will earn loyalty points wherever they book, including through travel agencies. Several more improvements are on the way to make the program easier for travel matters to use, and we have established a dedicated help desk for Advantage business customers. Our agency and corporate partners have made it clear they want additional support as they do business with American. We have prioritized adding resources to our sales and sales support team and have made good progress already. In addition to the dedicated Advantage business desk, The team has hired new account managers for our corporate customers, with more to come as we evaluate the appropriate level of staffing going forward. In August, we will significantly increase resources dedicated to sales support to give customers the assistance they need. The agency and corporate customer response to these changes has been positive, and we are starting to see shares shift back to Americans. Our partners are incredibly important to American and we recognize we have a lot of relationships to repair. I have spoken with more than 30 of my counterparts that are largest corporate customers to get honest and candid feedback. And these meetings and calls are occurring in parallel with our team's efforts to engage with customers at the travel manager level. The feedback we've heard demonstrates that changes we have made are focused on the right areas and that agencies and corporate customers want to work with us as we continue to adjust our strategy. We will continue to listen and further refine our plans as needed. All of these actions and more to come are a sign of our commitment to win back any customers we have lost. We've made a lot of progress from where we were in late May, but we still have a lot of work ahead of us. Success will ultimately be measured by improved revenue performance and earnings, but it will take time. In the near term, we will measure success by tracking our agency and corporate share performance and the adoption of advantage business. and by the feedback we are hearing from our agency partners and corporate customers. I'm confident we'll regain the standing in the agency and corporate channel, and that, combined with our direct distribution strength, will put us back on track to producing revenues that will meet and exceed our long-term financial targets. Now, I want to spend a few minutes discussing our second quarter revenue performance in more detail. Our unit revenue was down 5.6% year-over-year in the second quarter, in line with our revised guidance. Domestic PRASM in the second quarter was down 6.4% year-over-year. Both short-haul and long-haul international PRASM performed in line with our initial expectations, with transatlantic unit revenue up year-over-year on 6.3% higher capacity. Revenue from our large managed corporations was up approximately 3% year-over-year in the second quarter. This performance is not reflective of our fair share of corporate revenue, and we're addressing it with the actions we're taking. We have work to do to get our distribution strategy back on track, but as a global network carrier, we have access to premium and loyalty revenue streams that will continue to perform well. Demand for our premium product and overall engagement with the Advantage Program remain strong. In the second quarter, premium revenue, or revenue from customers seated in first, business, premium economy, and maiden cabin extra, increased 9% year-over-year. Paid load factor in our premium cabins remained historically high and was up more than six points year-over-year, with strength in both domestic and international cabins. With the planned refresh of existing aircraft and the expected deliveries of new aircraft, premium seating on American's fleet is expected to grow by more than 20% by 2026. Advantage program membership continues to grow. Loyalty revenues were up approximately 8% year over year, and Advantage members are responsible for 74% of premium cabin revenue. Total spending on our co-branded credit cards was up double digits year over year, in the second quarter, once again highlighting the value of American's loyalty program. Turning now to our operation. In the second quarter, the American Airlines team produced strong operational results, despite some of the most difficult spring weather conditions we have ever faced and continued challenges with several of our suppliers. Spring is always a good test for our summer preparedness, and the weather we encountered in May and June tested us like never before. Just as we'd ramped up to summer-level capacity in mid-May, we were faced with severe weather that affected operations at multiple hubs and impacted our operational performance, and the volatility continued into June. By mid-June, we'd regained our operational momentum, and it's clear our underlying resilience is strong, and we've made further strides in our ability to recover swiftly from these events. We've done an outstanding job of managing through unexpected weather disruptions, and our frontline team deserves tremendous credit for their efforts to get the airline back on track again and again. Speaking of disruptions, I'd be remiss if I didn't take a moment to applaud the entire American Airlines team for their work last week to quickly recover from the global CrowdStrike outage that hit businesses and governments worldwide. By Friday evening, American's operation had recovered and was set up for a strong weekend. On Saturday, we ran a near 99% completion factor and were fully recovered, the best operational performance among US network carriers over the weekend. American recovers from irregular operations better than anyone in the industry, and that was certainly the case following Friday's unprecedented disruption. Finally, and importantly, We're pleased to have reached a tentative agreement on a new contract with our Association of Professional Flight Attendants. Upon ratification, this contract will provide immediate financial quality of life improvements for American flight attendants, one that we're proud of and one our flight attendants have earned. I'll come back in a few minutes for some final thoughts, but now I'll turn it over to Devin to talk more about our second quarter financial results and the outlook for the third quarter and full year.