American Airlines at 18th Annual Global Transportation Conference: Strategic Insights

On Thursday, 22 May 2025, American Airlines (NASDAQ:AAL) participated in the 18th Annual Global Transportation & Industrials Conference, where CFO Devin May outlined the company’s strategic positioning amidst a challenging year. While 2024 has not met initial expectations, May highlighted the airline’s robust network and significant debt reduction efforts, positioning it for profitability and free cash flow generation if demand stabilizes.

Key Takeaways

• American Airlines reduced its total debt by $16 billion since mid-2021 and aims to lower it below $35 billion by 2027.
• The airline experienced an 8% capacity growth in Q2 2024, with plans for continued expansion, particularly in international markets.
• American Airlines is focused on recovering market share lost in previous sales and distribution strategies, aiming for full recovery by year-end.

Financial Results

• RASM Performance: American Airlines outperformed its peers in Q1 2024, driven by sales and distribution recovery and network expansion.
• Debt Reduction: The airline has successfully reduced its total debt by $16 billion and targets a debt level below $35 billion by 2027.
• Profitability: The company anticipates profitability and positive free cash flow for the full year if demand trends stabilize.
• Cost Management: Q2 CASM ex is projected to rise by 3% to 5%, with full-year guidance in the mid-single digits.

Operational Updates

• Capacity: Capacity grew by 8% in Q2 2024, with annual growth expected in the low single digits. The Chicago hub is expanding to 480 departures this summer.
• Fleet Expansion: American Airlines received two 787-9s in April and plans to add another 28 787s and 40 a321 XLRs over the next five years.
• Sales and Distribution: The company is working to recover from a 7% market share loss in Q1 due to past strategies, targeting a full recovery by year-end.

Future Outlook

• Demand: Although current demand is lower than expected, there is potential for improvement, which could enhance RASM.
• Fleet Expansion: Plans to expand international routes with new aircraft deliveries, with approximately 70 new aircraft on order.
• Credit Card Deal: Anticipates earnings improvement from a Citi co-brand credit card deal starting in 2026, with expected 10% annual revenue growth.
• Margin Improvement: Aims to close the EBITDAR margin gap with competitors through sales and distribution recovery, network restoration, and the credit card deal.

Q&A Highlights

• Premium vs. Main Cabin: The premium segment continues to outperform, prompting fleet reconfiguration for more premium seats.
• Capacity Adjustments: The airline is monitoring demand trends to adjust capacity, particularly for August.
• Chicago Hub: The hub is growing back to around 480 departures a day.
• Newark Issues: Some modest benefits from booking shifts from Newark to LaGuardia, JFK, and Philadelphia.

In conclusion, American Airlines remains committed to its strategic goals despite a challenging year. For a more detailed analysis, readers are encouraged to refer to the full transcript below.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Unidentified speaker, Interviewer: All right, we’re going get going with our next session. We’re in the home stretch here, last few sessions of the conference. Really happy to have Devin May, CFO for American Airlines, back with us this year.

Devin, thanks for being here. And maybe I’ll pass it to you just for some opening thoughts and lots to discuss.

Devin May, CFO, American Airlines: Yes. No, absolutely a lot to discuss. I’ll just start by saying probably what you’re

Unidentified speaker: hearing throughout the day.

Devin May, CFO, American Airlines: Like, this year has not unfolded like we would have expected back in January. But like we said last month, we feel we are really well positioned in any demand environment, in any economic environment. And it’s, like, it’s really across the board. I think we have the network and the product that people want. We’ve done an incredible job with the fleet over the past several years.

We’re in this spot right now where our CapEx is pretty modest, but still have the fleet coming in that we can grow the airline pretty meaningfully over the next handful of years if we choose to do so. We think we’re better than anybody in terms of the efficiency of our business and how we manage cost right now. And we’ve done a ton of great work on the balance sheet. When you compare our balance sheet today versus where it was back in mid twenty twenty one, we’ve made a ton of progress, reduced total debt by $16,000,000,000 and we continue to progress on that front. So not the year we expected to start, but still really pleased with the outlook.

And we spend a lot of time, you know, fortunately, given where we’re at today, thinking about the future. It’s also exciting for us that, you know, in this environment with all the uncertainty here about, we’re still able to make the statement that if demand trends just stabilize, we’ll be profitable for the full year. We’ll produce free cash flow for the full year. And as you come out of 2025 and look longer term, that’s what we’re excited about. We talked over a year ago on our Investor Day about the potential for really meaningful free cash.

We still expect that. We talked about the potential for margin expansion. We still expect that. We love the demand trends that are starting to work in our favor as well. So not the year we expected, but still really excited about the longer term outlook.

Unidentified speaker, Interviewer: Okay, great. So I’ll start. If people have questions, raise your hand. We’ll get you involved. You said a couple of times sort of not the year you expected.

I think back to the beginning of the year, and I think people were getting pretty excited about an environment of demand outpacing capacity and really strong pricing environment, which lead to margin and earnings growth and free cash flow and all that. And now, we’re sort of back in an environment where RASM is down for the industry. And I’ve I’ve asked this to everyone, I’m just going ask it to you just to get your perspective. Is this a demand issue that has creeped up on us? Or is this still an oversupply, overcapacity issue?

Devin May, CFO, American Airlines: Yeah. And then maybe I’ll just go back a little bit because you’re probably asking similar questions a year ago. As people were planning 2024, I think there was an expectation that industry revenue would continue to grow and would continue to regain its share of GDP. So going from ’23 to ’24, That was the expectation. So you saw a lot of capacity come online throughout 2024.

You know, we look at our second quarter twenty twenty four. I think we grew the airline by about 8%, and, you know, that was less than some of our larger competitors. What happened, though, is industry revenue was a little flatter than that. And maybe it was a mix of the supply and demand environment, but industry revenue did stay flatter, and so you started to see some softer performance last year. The industry did react pretty quickly.

Like for us, we made capacity decisions. We flew less capacity in the fourth quarter last year than what we would have initially expected, and we ended up having a really nice fourth quarter. This year, like you said, as we started the year, we looked at our capacity growth, pretty modest capacity growth, effectively at low single digits. We saw the industry, and we thought the industry was going to come out at around 2.5% as well. So we did think capacity was largely in line with real economic growth, that felt like a good spot to be in.

We had a demand issue. Like, think what you’ve seen with this uncertainty over the past handful of months here is demand has come down fairly materially relative to the supply that’s in the marketplace. So I I don’t think the supply that was in the market was out of bounds in any way. I actually thought it was very much in line with economic growth. But just the uncertainty that really started in March, it’s probably eased over the past month or so, has resulted in demand coming down versus initial expectations.

Unidentified speaker, Interviewer: Okay. That makes sense. And I’ve been the follow-up I’ve been asking everyone is sort of, you know, a lot of people are saying took a step down and it’s stabilizing. Yep. Some people are saying took a step down and now it’s recovering.

Right? And then some maybe somewhere in the middle. Yeah. Right? How how would you sort of no one is saying, by the way, it’s getting worse.

Yeah. Right? But Good. How would you characterize

Devin May, CFO, American Airlines: I the environment? I would say, like, everybody’s probably right on on maybe maybe a different day. You know, and and I I feel that even internally. You know, some days you you run a nice bookings week. You’re you’re feeling better about things.

I I think in general, though, it absolutely has stabilized. We are seeing some nice booking trends, but for the most part, they’re largely in line with the conversations we were having on our earnings call in late April that We had guided to our total revenue to be down 2% to up 1% for the quarter. That’s still where we expect things to come out. But I think it’s all just perspective. I think everybody’s right.

It’s just kind of a matter of timing and when they’re looking at bookings.

Unidentified speaker, Interviewer: And then, maybe just take us, you know, a look around the globe and

Devin May, CFO, American Airlines: Yeah.

Unidentified speaker, Interviewer: You know, parts of the world are are doing best versus what you thought, what’s doing worse what versus what you thought, and then maybe also we can weave in premium versus main cabin and Yeah. Any differences you’re seeing

Devin May, CFO, American Airlines: there? Yeah. No. Sure. I’ll I’ll say again, pretty consistent with where we were a month ago.

International trends continue to be strong. We’re, long haul international is doing well. Transatlantic continues to perform well. We’d expect positive unit revenues there in the second quarter. You go around the rest of the entities.

We talk a lot about Latin America. It’s just such a big part of our network. We serve it so well out of hubs like Miami, of course, but also Charlotte, Dallas, even Phoenix. All of these hubs serve short haul Latin incredibly well. We saw a nice performance there in the first quarter.

We don’t have a whole lot of capacity growth. I think we might be down a bit of capacity in the second quarter, and we think we’re going to see some nice trends there. Deep South, we have some markets that are just doing really, really well for us, but overall it’s a really important entity to us and it continues to hold up pretty well. Pacific, a smaller part of our network overall. But again, like the rest of the long haul, it continues to do well for us also.

It’s really a domestic marketplace. And when you talk about premium versus leisure, it’s more on the leisure end. That’s what we’ve been talking about for the past couple of months. That’s where we are seeing softness. Your point earlier, has it stabilized?

Yes, it’s stabilized, but stabilized at a lower level than what we’d expect at the start of the year.

Unidentified speaker, Interviewer: And one of the things we heard from one of the other airlines about this premium versus main cabin phenomenon domestically is maybe it’s we’re now seeing something similar transatlantic where premium transatlantic is still holding up really well, but main cabin transatlantic showing some weakness. I don’t know if you would echo those comments or no or No.

Devin May, CFO, American Airlines: Yeah, I don’t know if I’d go into that much detail on it right now. At this point, we feel really good about the Transatlantic market.

Unidentified speaker, Interviewer: Okay, great. And when you look back at Q1, your RASM outperformed peers. I think that was sort of the message heading into this year that, hey, we’ve got some catch up opportunities on RASM as we regain some of the corporate share. Felt like we saw some signs of that in Q1. Is that something sort of you started the beginning saying, hey, irrespective of the environment, we’ve got some things that we feel good about, right?

Is that part of that? Do you do you think that’s something that should continue?

Devin May, CFO, American Airlines: Yeah. Absolutely. And and that was, you know, how we talked about this year unfolding. We actually started to see it in the fourth quarter of twenty twenty four, where we did outperform on unit revenue when you add it all up. I think we outperformed on unit revenue in almost every entity.

There may have been one entity that somebody outperformed us on a year over year basis. But our unit revenue performance in the fourth quarter was stronger than our network peers. It continued into the first quarter. And that’s in an environment where we are seeing this international long haul international strength, that’s just not as big a part of our portfolio as it is for other carriers. So that’s actually a bit of a relative headwind for us in the first quarter, but we still outperformed.

So on a relative basis, we are pretty pleased with the performance we’ve had the past couple of quarters. To your point, I do expect that to continue. That’s our objective at this point anyways. We think we have some pretty unique tailwinds in the near term. Part of it’s sales and distribution recovery.

Part of it’s just the build back of our network. It’s been a little bit slower to come back in certain areas, and we think that’s going to be a positive thing for revenue and for earnings. Longer term, obviously, we think a lot about our co brand credit card deal with Citi. We’re doing a lot of planning for 2026 and beyond on that, and we think that’s another area, both for earnings and revenue, where we think we have a nice tailwind.

Unidentified speaker, Interviewer: Okay. A few things I just want to follow-up there. You mentioned, hey, we’re smaller in transatlantic, and that’s been a headwind to us. Is there an opportunity to catch up on transatlantic?

Devin May, CFO, American Airlines: Yeah. Like, we are we’re bullish on international. You see it in our fleet plan. So right now, we we took a couple of seven eighty seven dash nines in April. It’s a high premium seven eighty seven product.

It’s gonna be a fantastic product for our customers. But when you think longer term, we still have another twenty eight seven eighty sevens on order. We have 40 a three twenty one XLRs. We have options behind both of those. So today, we have a fleet of long haul aircraft that’s probably a 25 aircraft or so.

So we’ve got about another 70 on order to grow that over the next five years with options as well. So yeah, we think it’s an opportunity to expand and we’ve got a fleet to support it.

Unidentified speaker, Interviewer: Okay. And then you mentioned sales and distribution. Yeah. As part of the RASM outperformance, just give us an update where we stand there.

Devin May, CFO, American Airlines: Yep. It’s something that we’re now reporting on quarterly. When we first talked about it about a year ago right now, we were down about 11% in market share from where we were in the quarters, you know, prior to to launching the sales and distribution strategy. Since we reversed that strategy, said, know what? We’re gonna report on it every quarter and just talk about the progress we’re making.

We went from down 11% to down 10% in the third quarter last year, down 9% in the fourth quarter. A lot of work was being done at that point in time, but not a lot of progress in share recovery. We did see some nice share recovery in the first quarter. So first quarter share was still down about 7% from historical levels. We’ve guided to it being down 5% here in the second quarter.

And our objective here is at the end of the year, we’re not talking about this anymore, that we’ve effectively regained our share and it’s not something that we’re having to worry about as we head into 2026.

Unidentified speaker, Interviewer: What are we doing to get back first six and now the full 11 points of share? Do we have like, what are we having to give back?

Devin May, CFO, American Airlines: Well, a lot of it’s just getting back in the market. Okay. Getting the right content, surely have the right contracts.

Unidentified speaker, Interviewer: Your point sorry to interrupt. Like, you’re just saying this is just

Devin May, CFO, American Airlines: natural share. Absolutely natural

share. You know, when we stepped into the other sales and distribution strategy, obviously, it was it didn’t work for a lot of our customers. But there’s a reason they were our customers. We had a better network or a better loyalty program. Whatever it might have been, we had a lot of customers that wanted to fly American.

And we had a lot of corporate customers and agencies that wanted to have the third big network carrier delivering in this channel. And so a lot of that, yeah, it just comes back. It’s natural share. It’s not without a ton of work. It’s not without organizational changes.

So we we’ve seen really material changes in our commercial group. It’s led by Steve Johnson who’s doing a fantastic job with it. He’s also hired a new set of head of sales who is doing really nice work building back his staff. He he’s got a fantastic plan going forward. So a lot of structure, a lot of process, a lot of work to get here, but we feel really good about our ability to get the rest of the share back.

Unidentified speaker, Interviewer: Okay. And then the other thing that you said was one of the drivers of RASM outperformance was building back the network. Yep. So maybe take a couple minutes and talk about that.

Devin May, CFO, American Airlines: Yeah. Maybe I’ll start by talking about it just from a fleet perspective. On the regional side of our business, I think everybody knows regional is maybe not a huge component of the business when it comes to ASM capacity, but when you talk about filling out the hubs being able to offer really deep schedules into a lot of these small and medium sized communities, it is a really important part of the business. And that was slow to come back because of the pilot shortage that we had for the past several years. By the time we got to the fourth quarter last year, we were effectively back to full utilization across the regional fleet.

We don’t produce as many ASMs as we used to on the regional side of the business. We definitely don’t have as many departures. We’ve upgauged some of these departures into mainline. Even within the regional fleet, we’ve upgauged 50 seaters to large RJs, but we’re fully utilizing the fleet again. And as we roll into 2025, you saw a lot of regional capacity growth in the first quarter of this year.

That’s effectively just getting that utilization back to run rate. It came back throughout last year. So we feel really good on that front. That’s allowing us to fill in some of these hubs where we’ve been a little slower to build back. So last year, we had a lot of growth in Philadelphia.

It did really well for us from a revenue perspective, from an earnings perspective. We expect we’re going to continue to grow that market back. This year, you’ve seen a lot of comments around it, but we’re growing back Chicago. It’s long been a huge hub for us. It’s our third largest hub in terms of departures.

We used to operate somewhere around 500 departures a day. Last summer, we were only operating about 400 departures a day. So this year, we’re building it back. We’re we’re not quite at 500, but I want to say we’ll be around four eighty departures as we head into that or this summer. So we we feel good about the progress that we’re making there.

And then I think you know the rest of the network pretty well. You know, we’re we’re slot constrained here in the Northeast, but still have a really nice presence in JFK and LaGuardia. Our Southern Tier hubs in Charlotte, Miami, Phoenix, Dallas continue to do really well for us. And then once we get through construction in Los Angeles, think there’s a real opportunity to grow there as well.

Unidentified speaker, Interviewer: You mentioned just very quick near term question. You talked about JFK, LaGuardia. Obviously, there’s a lot of issues at Newark. Is there a book away benefit that you’re seeing right now that we should be thinking about? Or is it too small to really matter?

Devin May, CFO, American Airlines: Yeah. Well, maybe I’ll just start by saying we are really appreciative of all the focus that Secretary Duffy, the Department of Transportation, the FAA have had on modernizing ATC and hiring up with air traffic controllers. It’s something that needs to happen, and, you know, we forward to getting the funding for it so we can move forward on it. What’s happening right now in Newark though, yeah, there probably is some amount of book away from Newark flights over into LaGuardia, JFK, maybe Philadelphia to a lesser extent. I’ll just say, given the breadth of our network and, you know, on the other side, probably the breadth of United’s network, you may not see it a whole lot at a macro level.

There’s something happening there, but I I think it’s, you know, relatively modest when you think of the broader network.

Unidentified speaker, Interviewer: I want to talk about capacity a little bit. Yeah. You entered the year talking about low single digit capacity. Yep. So, we shouldn’t be sort of blaming you for sort of anything.

Right? But, as Q1 earnings, you know, happen, right?

Devin May, CFO, American Airlines: Yeah.

Unidentified speaker, Interviewer: You generally heard from airlines, hey, we’re revisiting some capacity plans, particularly in the back half of the year.

Devin May, CFO, American Airlines: Yep.

Unidentified speaker, Interviewer: We didn’t really hear you say sort of anything about back half of the year.

Devin May, CFO, American Airlines: Yeah.

Unidentified speaker, Interviewer: As we’re getting closer to the back half, what should we know about back half capacity plans? Have you changed those in any way? Well,

Devin May, CFO, American Airlines: right now, we’re probably not quite there yet with our schedules. Right now, I think the team is effectively working on an August schedule. And August, you know, just think of the third quarter, and especially relative to history, August is probably a bit of a softer month than it used to be. So they’re lining up capacity with the expected demand that they’re seeing based on current trends for the month of August. We got a little bit of time for the rest of the back half.

But to your point, started the year with a pretty conservative capacity plan. We are a company though that stays really close to demand trends. Like we did last year, we acted pretty quickly with our fourth quarter capacity. So we’ll continue to stay really close to demand trends and make sure we’re adjusting capacity accordingly.

Unidentified speaker, Interviewer: Do you feel like, as you look at the capacity in the market, you’re saying you’re close to demand trends, do you feel like the pieces are there to get back to a positive RASM environment in the back half of the year?

Devin May, CFO, American Airlines: I like some of the statements that are coming out. Like I do think some carriers that are growing at some multiple of GDP, they’ve probably had decisions to make earlier on capacity. It’s just it’s a bigger adjustment if you’re growing at a much higher rate in a softer demand environment. So some of the commentary I think has been helpful, I think if people are making public comments, I think we can bet on that, right? So you’re starting to see some capacity come out of the market.

Like I said, we’re working on August schedules. When you look beyond August, it’s hard to really tell what’s going to happen. But the commentary is good. I like the fact that as an industry, we’re starting from a spot where you’re only looking at low single digit capacity growth to start with. But to get to positive unit revenue, one of two things have to happen, either demand needs to do better than just stabilize, it needs to start to return, and I think there is potential for that, or capacity has to come out of the market.

And based on the comments that we heard publicly over the past couple of months, I expect that’s going to happen.

Unidentified speaker, Interviewer: By the way, if there’s questions in the audience, raise your hands. We’ll get we’ll get involved. You mentioned Chicago. Obviously, that gets a lot of focus from people in the competitive capacity dynamics going on. Give us sort of your perspective you know, what the strategy is in Chicago right now?

How big of a deal should we be making about this?

Devin May, CFO, American Airlines: I’d say nobody should be surprised by it. Like, it’s a huge part of our network. It’s our third largest hub. As I mentioned earlier, we used to have something north of 500 departures a day at peak times in Chicago. So, you know, the fact that we’re growing back to something close to that shouldn’t be a surprise to anyone.

It just it came later than we would have liked given some of the constraints I mentioned earlier. So we have a a huge customer base there. We’ve been serving Chicago for, you know, probably something close to a hundred years. We feel really good about the growth opportunities. That’s that’s one of the benefits you see of the economics of the hub that as you grow it back and develop better patterns of service, you’re able to have really nice unit revenue performance.

You’re able to get the scale economies you would expect when you’re fully utilizing the infrastructure. So we we feel really good about Chicago growth. You know, and like I said, it shouldn’t be a surprise to anyone that we’re growing it back.

Unidentified speaker, Interviewer: And is the reallocation process in Chicago such that, like, this becomes like a perpetual, we wanna grow, and then we wanna grow, then we wanna grow, then we wanna grow setup? And is Yeah. Is there a better outcome that I don’t yeah.

Devin May, CFO, American Airlines: Without going into too much detail on reallocation, because I I think there’s still just more to be decided on that front. Our goal there, though, is to fully utilize our airport assets. And, you know, we’re doing a really nice job of that this year. I think there’s still more opportunity ahead for us. But we’re happy to be growing it back pretty materially this year.

Unidentified speaker, Interviewer: Let’s go back just for a minute to premium versus main cabin. And how different is this than prior cycles in terms of this outperformance? How what’s is this durable? And maybe just if it is, like, what’s your premium mix today? Where do you want to take it to?

Devin May, CFO, American Airlines: Yeah. Well, we think it is durable. And we’ve set plans around this that go back several years. Like this isn’t a really new trend. For sure, premium has done really well for outperformed main cabin.

We saw that in the first quarter numbers. We’ve talked to you about that. But it isn’t something new. Like we started building fleet plans around this and configurations around this years ago. Seven eighty seven-nine is a great example.

It’s an airplane that in the earlier configurations, we’ve had about 30 lie flat seats. In the new configuration, we’re gonna have over 50 lie flat seats. We’re looking at XLRs coming in and have a fantastic premium product. We’re reconfiguring our triple seven three hundred fleet to have more premium seats. We’re doing the same type of thing on some of our narrow bodies as well.

So we’re reconfiguring a three nineteens and a three twenties to have more premium. So today, we we think our mix is in a pretty good spot and, you know, premium’s more than just seats, obviously. We have a incredible network, incredible hub network. But the seating configurations, we feel we’re in a good spot, but we are excited about where we’re going to be four or five years from now once we take delivery of all these airplanes.

Unidentified speaker, Interviewer: Okay. You and most of the airlines didn’t really give any full year guidance with 1Q. You said, hey, if things stabilize, we’ll be profitable, We’ll generate cash. But any what do you want us to know about second half and the pieces there? Any kind of framework to be thinking about?

Devin May, CFO, American Airlines: Well, I’ll start with that statement. It was pretty straightforward. If demand trends stabilize, we expect to be profitable for the year. We expect to have positive free cash flow for the year. And we feel great to be in that kind of position where we’re able to make that call still fairly in the year.

Even during that month, was probably peak uncertainty in the month of April. Now let the next couple of months play out, and we’ll have a better feel for, is it getting easier and easier to forecast the back half? So I think as we get to our July call, we’ll have a pretty good understanding, at least where capacity is going to be probably through October at that point in time. And maybe there’ll be some indications of where it’s going be for the full year. For sure, we’ll have some near term demand trends that we may be able to extrapolate out through the rest of the year as well.

So no commitment quite yet on when we bring back our full year guide, but we’ll definitely have more insights as we get out to July here.

Unidentified speaker, Interviewer: Okay. Let’s talk about cost. So you said 3% to 5% CASM ex for Q2? Yep. Mid single digit for the year?

Yep. Anything changing here? Is it just getting harder, easier?

Devin May, CFO, American Airlines: Yeah, I’d say for full year, our guidance of mid single digits was based on a certain level of capacity production. We’ve guided to low single digits at the time. So if we do anything material on the capacity side, maybe there’s a little more cost pressure in the back half of the year. I’ll just start by saying, in general, I think we’ve done an incredible job managing costs over the past several years. Just line it up, us versus our network competitors, go back to 2019, I I think the numbers kind of speak for themselves.

But that’s not a short term effort, and it’s not necessarily a cost cutting exercise. This is an efficiency effort, requires dedication from, you know, from Robert and the entire leadership team. And it’s across the board. It’s it’s finding process improvements with every step from new hires to training to day of decision making with the frontline. We invested in a procurement team where we brought in one of the best guys in the world at procurement and asked him to build a team to go and drive savings across the enterprise, and he’s done that.

Within a quarter, there’s going be some variability, but it’s not because we’ve done some incredible job within that thirty or sixty day period of managing expenses. It’s because, you you run a great operation or you had some cost slide from one quarter to the next. But longer term costs and the costs we’re looking at for the full year, I think we’re doing a really, really nice job with it. I feel great about the second quarter. If there’s much movement, it’s probably going to be timing or just because we ran a fantastic operation.

As we look out through the back half of the year, I feel good about the exit rate. It will be at least somewhat dependent on capacity production, but I feel really good about the work that the finance team and the broader organization does around driving efficient business.

Unidentified speaker, Interviewer: Your point is, hey, we said low single digit run rate exiting the year, but if there’s a little less capacity, maybe it’s something a little bit higher than that.

Devin May, CFO, American Airlines: Yeah. Know, we’ll we’ll see where we’ll see where it all comes out. But I I still feel just in general, something we manage incredibly well. I think there’s more opportunities ahead as we lean more into technology. We’ll continue to find process improvement.

We’ll continue to find savings through procurement. But it’s something I think we’re really good at.

Unidentified speaker, Interviewer: And is there something unique about Q4? Or is this a that we’re starting to lap big step up in labor deals and that becomes sort of the new run rate as we think about ’26? This is basically me asking you for twenty six thousand guidance.

Devin May, CFO, American Airlines: I don’t I don’t have anything for ’26 for you, Koi, yet. But but you’re right that, like, you had some pretty material step ups with some collective bargaining agreements that were reached over the past year. Flight attendants kind of later in the year, we got to new agreements with our maintenance and fleet service team members to your extension that that hit at the beginning of this year. And so you do start to lap some of that cost pressure that’s hitting us right now. And we are you know, proud to have collective bargaining agreements in place with all of our large work groups.

We have a few smaller work groups that we’re working on right now, but our large work groups all have collective bargaining agreements in place that run through, you know, a good part of 2027 at this point.

Unidentified speaker, Interviewer: We had a labor panel earlier. Your unions were union was represented. And we asked, you know, how’s the relationship? And I think it was a very sort of constructive comment of, hey, we’re, you know, collaborating, everything’s really good, but we don’t like being number three. Right?

Was what we heard. Yeah. And what is sort of the path to go from number three to one or two or just narrow the gap or close the gap? Sure. Well,

Devin May, CFO, American Airlines: I’m to talk about the margin gap to start with.

Unidentified speaker, Interviewer: I think that’s probably what that was in reference to.

Devin May, CFO, American Airlines: And that’s fair. And I think as you know, like for for American, we we do have a different capital structure than our than our big network peers right now. That’s something we’re working on. We’ve made a ton of progress on that over the past several years, and we expect to continue to make progress on that. But because we have a different capital structure and we made different financing decisions over the years, the way to look at relative performance is EBITDAR margin.

Takes capital structure out of it. So if you look at 2024, we had about a two point EBITDAR margin gap to both United and Delta. That is inclusive of Delta’s third party business, which is is pretty meaningful, but about a two point margin gap. It’s not where we wanna be. Like, we we think we have the opportunity to close it, and we’re focused on the right things.

So sales and distribution, we’ve talked about. We think that’s a meaningful component of the margin gap that existed last year. If you go back another year, we had about the same margins, at least as one of our network peers. So 24, two point margin gap. Sales and distribution is is a chunk of it.

Network restoration is another component of it. That’s coming back right now, and we’re excited about the opportunities. We’ve talked in a lot of detail about our agreement with Citi. We think we’re at a disadvantage relative to our peers, and that’s a nice tailwind for us going forward. And the last thing maybe I’ll just mention right now is that we are at market rates for all of our labor groups.

We’ve got new collective bargaining agreements. At least for one of our competitors, it’s not in place yet. So, okay, there may be a near term margin advantage for them because of that. But one, we don’t think it’s sustainable. And and, you know, the other side of it is we feel we’re really proud of the agreements that we have in place.

So, a couple point margin gap last year. We think we’re focused on the right things. There’s other things that are just part of our business that we’re really excited about. We talked a lot about the fleet plan and the CapEx requirements we have going forward. We think we’re just going to be in a different spot to produce really meaningful free cash flow for the next five or six years relative to our competitors as well.

So not pleased with where we’re at, but I think we’re really focused on the right things.

Unidentified speaker, Interviewer: I think back to the Analyst Day a couple of years ago now, and you said, hey, if we get credit card deal that Yep. I don’t know if you said it closes the margin gap or Yeah. Something along those lines. Do we need to wait to 02/1930 when we get the full impact of the credit card deal for that comment to apply or

Devin May, CFO, American Airlines: No. Like, we’re going to start to see earnings improvement from that in 2026. It kicks off in 2026. We expect to continue to grow remuneration from that program each year. We said the expected rate of growth is about 10% a year.

Not every year is going to be 10%. Some years will be a little higher. Some years will be a little bit lower, but that’s going to flow through to EBIT fairly quickly. So to get the full benefit of this program, yeah, 02/1930 is a number we threw out there. And by that point, if you just take 10% compound growth, we think we’re to be at around $10,000,000,000 remuneration.

And we think the incremental remuneration was going to drive another $1,000,000,000 of EBIT, but it’s going come in pretty linearly. It’s not something you have to wait for.

Unidentified speaker, Interviewer: Just last couple minutes. If we get, or as we get a sort of NEA like announcement at some point, what does that mean for you and and New York and and the strategy?

Devin May, CFO, American Airlines: Yeah. I don’t know what’s to come from competitors. I’ll just say our position in New York is is pretty meaningful. We have 250 departures a day in New York. We have a fantastic customer base in New York.

You need to continue to adjust for demand trends and just the economic reality of operating at a place like LaGuardia that have really high employment costs. It probably doesn’t work as well on regional jets as it used to, so you want more mainline operations there. Probably doesn’t work as well on some of the short stage lengths. You want some longer stage lengths. You want to adjust to where demand is going.

But I think the network team that we have is doing a fantastic job with it. We have a really nice presence still in New York, and we’ll continue to make the most out of it.

Unidentified speaker, Interviewer: And maybe just update on the balance sheet and and debt reduction targets.

Devin May, CFO, American Airlines: Yeah. So really proud. You know, our initial target was to reduce total debt by $15,000,000,000 from peak levels in mid twenty twenty one and to do that by the end of twenty twenty five. We hit that goal at the end of twenty twenty four. So we brought it in by a year.

We’re proud to make that happen. And that brought us down to just under $39,000,000,000 of total debt. The next target we’ve put out there is that by the end of twenty twenty seven, we’d have total debt inside of $35,000,000,000 So that’s the relatively near term target. We feel great about going out and hitting it. We think that would put net debt inside of $30,000,000,000 and put us on this path.

Obviously, we have to expand earnings, but put us on this path to our stated goal of a BB flat credit rating.

Unidentified speaker, Interviewer: And then just as we wrap up, anything that, I know we touched on a lot, but anything we missed that you just want to make sure me and everyone in the room hears

Devin May, CFO, American Airlines: I don’t think there’s much. I’ll just reiterate. This year, yeah, not the year we expected, but still a year we expect to be profitable. And we are really focused on longer term. We feel great about the network, great about the product we’re offering.

I think there’s a ton of customer enhancements that are coming for us that we’re also excited about. And as we look out, we have this fleet plan that only requires $3,500,000,000 of capital a year. But with that fleet plan, we can grow the airline materially. We can grow something north of 5% a year if we choose to do so or if we have the flexibility with this fleet plan to keep it something closer to flat if that’s what demand warrants. So we feel we’re in a really great spot to produce positive free cash flow and drive real value for our shareholders.

Unidentified speaker, Interviewer: Awesome. That was great. Thank you, Devin. Appreciate it.

Operator: This presentation has now finished. Please check back shortly for the

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