FORT WORTH Jul 24, 2020 (Thomson StreetEvents) — Edited Transcript of American Airways Group Inc earnings convention name or presentation Thursday, July 23, 2020 at 12:30:00pm GMTAmerican Airways Group Inc. – MD of IR* Derek J. KerrAmerican Airways Group Inc. – Government VP & CFO* Robert D. IsomAmerican Airways Group Inc. – PresidentAmerican Airways Group Inc. – SVP of Community StrategyAmerican Airways Group Inc. – Chairman & CEO* Daniel J. McKenzieSanford C. Bernstein & Co., LLC., Analysis Division – Senior Analyst* Helane R. BeckerWolfe Analysis, LLC – MD and Senior Analyst of Passenger Airways, Aerospace & DefenseJPMorgan Chase & Co, Analysis Division – U.S. Airline and Plane Leasing Fairness AnalystStifel, Nicolaus & Firm, Included, Analysis Division – MD & Airline AnalystGood morning, and welcome to the American Airways Group Second Quarter 2020 Earnings Name. At present’s convention name is being recorded. (Operator Directions) And now I wish to flip the convention over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens. Please go forward.Daniel Cravens, American Airways Group Inc. – MD of IR Thanks, Sarah, and good morning, everybody, and welcome to the American Airways Group Second Quarter Earnings Convention Name. Becoming a member of us on the decision this morning, we now have Doug Parker, Chairman and CEO; Robert Isom, President; and Derek Kerr, Chief Monetary Officer. Additionally on the decision for our Q&A session are a few of our senior executives, together with Maya Liebman, Chief Data Officer; Elise Eberwein, EVP of Individuals and Communications; Steve Johnson, our EVP of Company Affairs; Vasu Raja, Chief Income Officer; and David Seymour, our Chief Working Officer.Like we usually do, Doug will begin the decision with an outline of our quarter and the actions we’re taking throughout this pandemic, and Doug will observe with particulars on our liquidity and value outlook. After Derek’s feedback, we’ll open the decision for analyst questions, and lastly, questions from the media. (Operator Directions)Earlier than we start, we should state that as we speak’s name does include forward-looking statements, together with statements regarding future revenues, prices, forecasts, capability, fleet plans and liquidity. These statements symbolize our predictions and expectations as to future occasions, however quite a few dangers and uncertainties might trigger precise outcomes to vary from these projected. Details about a few of these dangers and uncertainties might be present in our earnings press launch issued this morning and our Kind 10-Q for the quarter ended June 30, 2020. As well as, we might be discussing sure non-GAAP monetary measures this morning, which exclude the influence of bizarre gadgets. A reconciliation of these numbers to the GAAP monetary measures is included within the earnings launch, and that may be discovered within the Investor Relations part of our web site.A webcast of this name might be additionally archived on our web site. The knowledge that we’re providing you with on the decision is as of as we speak’s date, and we undertake no obligation to replace the data subsequently.So thanks once more for becoming a member of us this morning. And at this level, I would like handy the decision over to our Chairman and CEO, Doug Parker.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Thanks, Dan. Good morning, everybody. Thanks for becoming a member of us as we speak. I will give some colour on the work we’re doing to handle the present setting, make sure that we’re properly positioned after we come out of this disaster. Derek goes to supply an replace on our liquidity and cash burn. After which as Dan famous, we now have a number of executives within the room, together with our President, Robert Isom; and our Chief Income Officer, Vasu Raja, right here to reply any questions you may have.So to start, I have to acknowledge and applaud all the America West Airways group. The previous 5 months have been greater than tough, and our group has persistently risen to the problem, caring for our clients and one another, as the steadiness of their very own employment stays unsure. Our group does this and way more every day. Say that they are main this — to this disaster with grace is an understatement of huge proportion, and we’re all humbled by their work ethic and professionalism.Turning now to the actions we’re taking within the face of COVID-19 and the ensuing extreme disruption to world demand for air journey. Briefly, the disaster continues. Our group has finished an distinctive job managing by means of that disaster, as evidenced by the developments we noticed all through the second quarter. And we’re ready to climate the storm forward and be able to exceed when demand recovers. Within the close to time period, our actions have centered on Three pillars: build up our cash reserves, conserving the cash we do use and adjusting the best way we fly in order that when our clients return to the skies, they’ll accomplish that with full confidence, confidence that he is secure and it is pleasing to take action. And furthermore, that we’re flying when and the place they need to go.So first, on cash. We ended the second quarter with $10.2 billion of obtainable liquidity, which included an necessary web $3.6 billion that we raised in the course of the quarter by means of the capital markets. We even have a signed time period sheet with the U.S. Division of Treasury for a further $4.75 billion secured loan beneath the CARES Act, and we anticipate that loan to shut within the third quarter. As well as, we introduced this morning 2 senior secured be aware transactions with Goldman Sachs Service provider Bank totaling $1.2 billion. So when these transactions are mixed with our quarter ending liquidity steadiness of $10.2 billion, we’d have a professional forma liquidity steadiness of roughly $16.2 billion. And we’ll have twice the flexibility to boost extra if wanted, and Derek will speak about that in a couple of minutes.With regard to conserving cash and our cash burn, our every day cash burn price for the quarter was round $55 million, which was higher than our prior steerage of $70 million per day. We’re significantly happy with the speed of enchancment all through the quarter. That every day burn was almost $100 million per day in April, almost round $56 million in May and was $30 million per day for the month of June. That enchancment was pushed by each aggressive price administration, which Derek will talk about in additional element, and important income development all through the interval.As to income, demand was at its lowest level in April, in fact, and we had a remarkably low system load issue of 15% and a remarkably low passenger income per ASM of $0.018. However as a number of states started to reopen, we started to see demand enhance, significantly in some markets the place we had a community benefit. So with some plane possession and labor prices, we made a tactical resolution to fly a bigger schedule than a few of our opponents did, protecting our massive connecting hubs in Dallas, Fort Value and Charlotte bigger than the remainder of our community. So in even with that bigger schedule, we noticed rising hundreds and unit revenues throughout the system. Our load components jumped from 15% in April to 45% in May and 64% in June. And our passenger income per ASM elevated from that $0.018 in April to $0.069 in May and $0.103 in June. The hubs at DFW and Charlotte carried out significantly properly, with 80% of our flights working at over 60% load components all through the month of June. Now this price of enchancment goes to gradual as we head right into a seasonally softer journey season. And positively, as demand development is (inaudible) as a result of rising an infection charges and state and metropolis quarantine restrictions, we have modified our schedules accordingly, and we now anticipate our third quarter system capability to be down roughly 60% year-over-year.As to cash burn developments, we anticipate our third quarter burn charges to be properly beneath our second quarter charges and our fourth quarter charges to be decrease than 1/3. Our purpose is to be cash constructive in 2021 as demand for air journey regularly improves.Relating to liquidity, we anticipate to finish the third quarter with roughly $13 billion, and that assumes no further financing exercise along with — aside from these transactions I already talked about.And to restoring shopper demand, among the best issues we will do throughout this disaster is to place our vitality in the direction of profitable buyer confidence. To that finish, we have established a journey well being advisory panel comprised of inside leaders from our operations groups and outdoors consultants to advise us on well being and cleansing issues all through our operation. We have additionally began working with the International Biorisk Advisory Council, an accreditation for the cleansing and disinfection practices for our plane and lounges. These steps, together with extra beneficiant change payment waivers and rebooking alternatives for full flights, have helped our clients be ok with flying and really feel superb about selecting American.Trying outward, we’re constructing an much more strong community for our clients. Final week, we introduced a brand new partnership with JetBlue that may present seamless connectivity for vacationers within the Northeast and create extra alternative for patrons throughout our complementary home and worldwide community. The JetBlue partnership and the West Coast alliance of Alaska that we introduced earlier this yr will additional strengthen our community and can assist to make sure we’re positioned for achievement over the long run.In order good as we really feel about how we’re managing by means of this pandemic and our prospects for future success, we really feel terribly concerning the influence it is having on a lot of our group. We all know we might be a smaller airline going ahead, and we have labored to rightsize all points of the group to that actuality. Roughly 5,100 administration and assist workers positions have been eradicated this summer season in a way per the CARES Act. And final week, we despatched kind of to 25,00Zero American airways frontline group members. We’re doing every little thing we will to mitigate the impacts. And by working with our union companions, we put ahead new voluntary go away and early out applications for our frontline group. There’s additionally an effort underway by our union companions to increase the present Payroll Help Program into 2021. We’re proud to assist this union-led initiative as we imagine our complete business has a shared purpose of protecting hard-working frontline group members employed.With that, I will flip it over to Derek, who will give extra element on liquidity and cash burn. Derek?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Thanks, Doug, and good morning, everybody.Earlier than I start my remarks, I might additionally prefer to thank our complete group and acknowledge what they’ve endured in current months. Their continued professionalism towards our clients and fellow group members is a model for all of us, and we’re proud to serve alongside them.We reported a GAAP web lack of $2.1 billion or $4.82 per share within the second quarter. And in the course of the second quarter, we did acknowledge $1.7 billion of pretax web particular gadgets, primarily a $2 billion credit score ensuing from the Payroll Help Program monetary help. Excluding these web particular gadgets, we reported a web lack of $3.Four billion or $7.82 per share.With this historic decline in passenger demand, our main focus has been to make sure we now have ample liquidity to make it by means of a weak restoration. We now have moved shortly to boost incremental liquidity and cut back our cash burn. We now have additionally taken steps to drive efficiencies in our operation by additional accelerating our fleet simplification plan and aligning our price construction to the brand new world we discover ourselves in. We’ll proceed to leverage the flexibleness we now have in our scheduling course of, and we’ll let demand function a guidepost for our future capability ranges. We’ll proceed to be relentless in figuring out further methods to enhance our cash burn price going ahead.So far as the fleet, as we introduced in April, our fleet simplification plan went into excessive gear in the course of the quarter as we formally retired the Embraer 190s, Boeing 757s, Boeing 767s and Airbus A330-300 plane in addition to quite a few regional jets. As well as, we put the A330-200s and several other of our older Boeing 737s into momentary storage applications. These adjustments have decreased our lively fleet rely by greater than 150 plane and accelerated our fleet simplification technique. Eradicating these plane may even have a cloth influence on our price construction going ahead because it means we’ll keep away from important future upkeep expense, future coaching prices and future plane sparing prices related to working a extra fragmented fleet combine. These adjustments alone are anticipated to result in important fleet-related upkeep financial savings to the P&L by means of 2021.On the expense entrance, we now have taken a contemporary take a look at how we funds the airline and have taken a 0-based strategy to our planning for the rest of 2020 and 2021. These actions have decreased our estimated 2020 working and capital expenditures by greater than $15 billion. Past the gas and volume-related financial savings that have been achieved by means of our capability reductions, we now have eliminated or deferred nonessential bills all through the enterprise. We now have had nice success with our voluntary go away and early out applications, with greater than 41,00Zero workers stepping as much as assist by opting right into a go away or early retirement. And as Doug talked about earlier, we simply accomplished a 30% rightsizing of our administration and assist workers, leading to annual estimated financial savings of greater than $0.5 billion. Whereas this transfer was a tough course of to undergo, we’re grateful to those that are leaving the corporate for the various contributions they’ve made to our airline.With regard to capital expenditures, we at present had dedicated financing on almost all of our 2020 plane deliveries and don’t intend to take any deliveries with out dedicated financing. Past this, we now have eliminated $700 million from our projected non-aircraft capital spending plan in 2020, and that is $200 million greater than we introduced final quarter, and one other $300 million in 2021. We’ll proceed to aggressively pursue different alternatives to preserve working capital. Whereas we’re shifting shortly to tug down our prices, we’re not finished, and we’ll proceed to take the required steps to rightsize our price construction for the long run.Lastly, on liquidity. We now have moved shortly to scale back our every day cash burn and strengthened our liquidity place. Whereas there are a number of burn price definitions on the market, we outline it because the sum of all web cash receipts much less all cash disbursements. That features all debt funds and curiosity funds. However it does exclude the impact of recent financings and new plane purchases. Utilizing that definition, our second quarter common cash burn price was roughly $55 million per day, which was down from our authentic steerage of $70 million per day. And as Doug stated, we ended the month of June at $30 million per day.We ended the second quarter with $10.2 billion of liquidity. Throughout the quarter, we raised web $3.6 billion by means of the issuance of $2.5 billion of secured bonds, of which $1 billion was used to refinance our 364-day delayed draw facility, $1.1 billion in fairness and $1 billion in convertible bonds. We additionally raised $360 million in JFK municipal bonds, which the online proceeds are in our restricted cash steadiness till building spending happens. Importantly, we don’t have any massive non-aircraft debt maturities till our $750 million unsecured bonds mature in June 2022.Throughout the quarter, we obtained 90% of our allotted Payroll Help Program funds, and we anticipate to obtain the rest in July. Individually, we now have reached preliminary turns with the Treasury Division for the roughly $4.75 billion secured loan, which we anticipate to shut within the third quarter.As well as, we introduced in a separate 8-Okay issued this morning $1.2 billion of dedicated financing, topic to remaining documentation and different closing circumstances within the type of 2 senior secured be aware transactions with Goldman Sachs Service provider Bank. $1 billion of the notes might be secured by a primary lien — first precedence lien towards the American Airways model and associated logos and IP and $200 million might be in secured by current incremental capability beneath our LaGuardia-Regan Nationwide Collateral. The IP notes enable us to incur as much as one other further $Four billion of first-lien debt utilizing that collateral. We anticipate this transaction to shut within the third quarter. And as Doug talked about, when these transactions are mixed with our quarter-ending cash steadiness of $10.2 billion, we now have a professional forma liquidity steadiness of roughly $16.2 billion.Past what we now have raised to this point, based mostly on current value determinations, we now have roughly $Four billion of unencumbered property at our disposal. These include plane, spare elements, gear and actual property. This quantity excludes accounts receivable and any further borrowing capability beneath our secured debt or loyalty program past the CARES Act loan. This morning, we offered an 8-Okay which included an replace on our collateral place as detailed in that submitting.Whereas we’re completely satisfied these transactions have improved our liquidity place, we acknowledge they’ve come at a value of accelerating the debt load of the corporate and diluting our shareholders. Nevertheless, it is very important be aware that even after these transactions, our weighted common price of debt is barely above 4%. Buyers ought to know that we didn’t take these steps calmly and bettering our steadiness sheet as our crucial as soon as we get by means of this pandemic.As for future cash burn, given the current uptick in COVID-19 circumstances and new quarantine restrictions in some areas, we now have adjusted our income restoration forecast accordingly. Primarily based on our present forecast, we anticipate the third quarter with the — to finish the third quarter with roughly $13 billion of obtainable liquidity, assuming no different financing exercise along with these I discussed already. The group has finished an unimaginable job of decreasing prices on this setting and shutting down all discretionary spending. As we now have stated beforehand, our purpose is to get our every day cash burn price to Zero as shortly as doable in order that we do not burn cash in 2021. Nevertheless, the timing of reaching this purpose might be drastically impacted by the demand restoration time line as the advantages from the vast majority of the fee lower have already been realized.In abstract, it’s totally — in a really brief time period, we now have taken swift motion to bolster our liquidity, handle our near-term maturities and capital necessities and fortify our steadiness sheet to face up to what may be a protracted restoration.With that, I’ll hand it again to Doug for closing feedback earlier than we take questions.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Thanks, Derek. Earlier than we get to questions, I mistakenly thanked the America West group in the beginning of this as an alternative of all the American Airways group. That is clearly [Fordian] on this disaster. Definitely feels just like the previous America West days at instances. However at any price, our thanks exit to all the group, in fact. And on that be aware, earlier than we get to questions, I do need to once more acknowledge the wonderful work of our group. Though we definitely didn’t — none of us might foresee a pandemic like this, the actual fact is right here we’re, dwelling that precise actuality. And if a pandemic wasn’t sufficient to check our mettle, we have additionally skilled the unhappy and stark actuality of how far we now have but to go on this nation and our quest for inclusion and equality. This summer season, we, together with the remainder of the world, have seen the brutal murders of our fellow residents that dropped at mild the fact and persistence, the systemic racism in our nation. Within the wake of a passing of our good friend, civil rights chief, Congressman John Lewis, it is becoming to state clearly as soon as once more, black lives matter. Whereas all of us have a duty to create a greater world for our black neighbors, coworkers, associates and fellow residents, I can guarantee you that at American Airways, we stand proud and able to do our half to assist and lead within the areas of variety, fairness and inclusion.On that be aware, operator, we’re prepared for questions.================================================================================Questions and Solutions——————————————————————————–Operator ——————————————————————————–(Operator Directions) Our first query comes from the road of Helane Becker with Cowen.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Helane, do you bear in mind the America West days?——————————————————————————–Helane R. Becker, Cowen and Firm, LLC, Analysis Division – MD & Senior Analysis Analyst ——————————————————————————–I do. So I bear in mind lots, Doug, only a lot. So okay, this isn’t one thing to snort over as a result of we’re experiencing one thing actually horrible in our business. One thing I assumed truthfully between now and retirement, I might by no means see once more. And so I will variety to be a jerk and ask this query. You’ve gotten numerous plane debt on the steadiness sheet. And clearly, you must be a smaller airline for some time period till we get better to final yr stage. So does it make sense to determine a strategy to return these plane or in some way determine a strategy to get out from beneath this $50 billion in debt that you’ve on the steadiness sheet that in some unspecified time in the future must be repaid?——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Certain. I will begin, Helane, it is not — you are not being a jerk in any respect. It is a truthful query. We — as you realize, we constructed up a great little bit of debt on our steadiness sheet as we modernize our fleet. The excellent news is we do have probably the most trendy fleet within the business, and we needn’t proceed that work. We’re proud of what we now have. We have used this chance to speed up the retirement of numerous our older plane, which can make us much more environment friendly as we emerge on this disaster. We imagine the plane that we now have remaining in our fleet is about the precise measurement for the community we’ll want as we transfer into 2021. If certainly, that seems to not be the case, we’ll modify accordingly, in fact. However that is extra concerning the rightsize of the community versus the debt stage.However the reply to the debt ranges is to get the airline to be cash constructive. As I stated, once more, our purpose is to do in 2021. And to make use of all of the cash we generate to scale back the debt, which we’ll do over time. All of us have elevated our debt burden by means of this disaster to fund the losses. And also you’re proper, American was greater than the others.I might be aware, first off, we do have — the maturity profile is in our favor, at the very least because it pertains to the disaster. As Derek acknowledged, we do not have — aside from a $750 million time period loan that is due in the course of 2022 is our subsequent massive non-aircraft debt fee, which helps, in fact. As to what it is finished to — versus amortization, clearly, elevated curiosity expense. As we take a look at our curiosity expense in 2021, at the very least proper now, the curiosity bills could be about $300 million greater than what we spent in curiosity expense in 2019. Plane debt, I believe, a few hundred million extra. So a complete, $500 million of further expense. That is definitely not one thing we like, however the discount in administration specialist head counts we talked about part 1, and on high of that, all the opposite efficiencies that Derek talked about, add financial savings along with that. So we’re extremely assured that as demand returns and as we return to caring for clients, we can service the debt, cut back the debt load as we go ahead, and that is what we intend to do.——————————————————————————–Helane R. Becker, Cowen and Firm, LLC, Analysis Division – MD & Senior Analysis Analyst ——————————————————————————–Are you able to simply say why curiosity expense declined within the quarter, like that web curiosity expense quantity? Derek possibly.——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Within the quarter?——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Sequentially, Helane, or year-over-year?——————————————————————————–Helane R. Becker, Cowen and Firm, LLC, Analysis Division – MD & Senior Analysis Analyst ——————————————————————————–No. Yr-over-year.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Curiosity bills.——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–I will look, Helane, however I do not see — it is acquired to be rates of interest taking place, and our variable debt is over 60%, 70% of our debt. So it is acquired to be pushed by that.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of David Vernon with Bernstein.——————————————————————————–David Scott Vernon, Sanford C. Bernstein & Co., LLC., Analysis Division – Senior Analyst ——————————————————————————–So I needed to ask a bit of bit concerning the sequential developments type of into the third quarter and the again half of the yr. If we’re going from the $100 million a day to $30 million a day, ought to we anticipate that quantity to proceed to return down form of at a steady-state stage of demand? I suppose I am making an attempt to determine what stage of influence the actions you have taken would have as they’re absolutely applied and run by means of the P&L. So in the event you might give us some colour on the trajectory of that burn price at a continuing demand stage, that will be useful.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Sure, David. We tried, I believe, in our feedback to let you know that a lot of the — as Derek stated, the fee reductions are largely in place, and there is some that happens into the third and fourth quarter. And it is definitely with the October 1 date the place we now have the flexibility to scale back our labor price considerably. These aren’t huge numbers when it comes to every day cash burn as a result of type of $Three million or $Four million a day sort numbers on that. The majority of what could be required to get to enchancment is demand enchancment. So what we stated, once more, was that we anticipate the sequential enchancment within the third quarter, in fact, or the second quarter after which the fourth quarter over the third quarter after which into 2021 to be — have a purpose of being cash constructive. So — however these developments are way more about demand — gradual demand enchancment than they’re about price enchancment.——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Sure. And David, I imply simply from a value perspective, we have been down 46% within the second quarter. That trended even (inaudible) was 41% in April, 49% in May, 48% in June, so in that space the place we have been from a capability perspective. So that might change simply relying on in the event you add again capability or do not add again capability, however that is type of the pattern we have been working from a value perspective all through the third — second quarter. These will stay and solely enhance by capability as a result of the entire prices have been taken out. And as Doug talked about, there may be one other little step perform in October relying on the place we go from that from a value perspective in October.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Savi Syth with Raymond James.——————————————————————————–Savanthi Nipunika Syth, Raymond James & Associates, Inc., Analysis Division – Airways Analyst ——————————————————————————–Just a bit bit extra on the cash burn and truly associated to the plans for this type of severance, voluntary severance that you have offered. Simply how a lot of that do you type of anticipate to execute? And I believe, Doug, you talked about possibly $Three million to $Four million a day financial savings. Is that how we should always take a look at it? After which if the PSP grant is prolonged, how does that influence the planning course of?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Savi, simply on the severance, we didn’t do — we have unfold it out over a time interval. So there isn’t a huge cash outflow from a severance perspective. So all people is getting paid by means of October timeframe. So the quantity that Doug talked about, about 2 to three, is fairly good. And that features the severance that folks get as we speak for that, which might be leaving and every other changes that we might do from an effectivity standpoint within the third quarter. So these are the important thing as we get into the third quarter. However the severance is it is not a lump sum. It is unfold out over time. Does that assist?——————————————————————————–Savanthi Nipunika Syth, Raymond James & Associates, Inc., Analysis Division – Airways Analyst ——————————————————————————–That is useful. And what’s — like what is the financial savings that you simply anticipate? Does that type of offset them — that utterly?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Oh, that is the two to three we talked about. That’s the identical.——————————————————————————–Savanthi Nipunika Syth, Raymond James & Associates, Inc., Analysis Division – Airways Analyst ——————————————————————————–Okay, okay. So the severance will not be a lot.——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Sure, sure.——————————————————————————–Savanthi Nipunika Syth, Raymond James & Associates, Inc., Analysis Division – Airways Analyst ——————————————————————————–Okay. After which only a follow-up to that’s like if the PSP grant will get prolonged, how does that influence the planning course of? Given — I am guessing that is one thing that has occurred — has to occur over a few months prematurely.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Sure. I imply, the laws, as proposed by our unions, simply has a easy extension of a PSP program. So the dates modified from October 1 to March 31. That may imply that our dedication to involuntarily separate anybody could be prolonged till March 31. And the fund could be funds that have been allotted in CARES one in every of $25 billion to compensate airways for retaining — for paying our group [one at a time] might be reallocated. So that you would not have that financial savings and also you’d have funds that are available in to offset the financial savings.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Catherine O’Brien with Goldman Sachs.——————————————————————————–Catherine Maureen O’Brien, Goldman Sachs Group, Inc., Analysis Division – Fairness Analyst ——————————————————————————–Simply a few questions on the current demand downturn. I hoped you may assist us body the magnitude of that. Any colour on what gross bookings have been in June versus July? Or simply any approach to consider the falloff we have seen as new circumstances spike. After which might you simply stroll us by means of what actions you take to deal with this weaker demand? Was that third quarter capability outlook of down 60% totally different a few weeks in the past, or possibly there’s extra draw back danger now? A pair in there, however actually simply making an attempt to get a greater sense of the magnitude of the slowdown.——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–That is Vasu. Thanks for the query. I will begin into that. Look, what we’re seeing are fairly constant developments with what you have heard reported. We’re seeing proper now web bookings down 75% to 80%. This can be a marked distinction from the place we have been definitely within the month of June and even in May. What American Airways noticed and what we most likely disproportionately benefited from was that quite a few states throughout the Sunbelt began reopening in May and June. With each part of reopening, we noticed a gradual enchancment of web bookings, each amongst our leisure segments and among the many enterprise segments. And it is most likely excessive watermark. If web bookings throughout the system have been down 50%, the Sunbelt, they have been down web 35% to 40%. Now we’re seeing that down web 75% to 80%. Nonetheless, our Sunbelt bookings outpaced the remainder of the system. As we go ahead, we anticipate lots of these developments to proceed. We see actually a minimal — actually a token quantity of enterprise journey on the market and never numerous indicators that that is possible to enhance. So unsurprisingly, we’re constructing the airline’s capability round that demand projection. So that you see us taking down Q3 extra and we’re persevering with to guage This autumn and past.——————————————————————————–Catherine Maureen O’Brien, Goldman Sachs Group, Inc., Analysis Division – Fairness Analyst ——————————————————————————–Okay. Understood. After which possibly only a query on the cash burn outlook. If I simply take your second quarter liquidity, modify out the brand new $6 billion in debt increase, together with every little thing introduced this morning. To get that $13 billion anticipated third quarter and liquidity, that will get me to about $35 million every day burn. I suppose, possibly a bit of bit north of that if I embrace that final 10% of the PSP funds. I suppose, first, am I lacking something in that math? After which are you able to stroll us by means of what sort of income assumptions are underlying that? After which to get the fourth quarter being decrease than that, what sort of income assumption or enchancment will we now have to see to drive that decrease? Recognize the time, guys.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Certain. Once more, and I will begin. One other on the mathematics different than simply please be aware that these are — the n quantity is approximate. So we need to attempt to indicate any sure stage of precision round that quantity that it is best to put exact numbers on these every day cash burn numbers. Look, so — however anyway, I believe — I am positive you probably did the mathematics proper. The — we now have very restricted demand development in that $13 billion quarter-end quantity, so not a lot there in any respect in our — nor actual a lot enhance within the fourth quarter, actually per what Vasu simply described. So anyway, we have to be conservative because it pertains to demand and as we stated on the bills is the place it’s. I will simply give a bit of commentary on these — simply these every day cash burn numbers that — which I do know are necessary to our traders. They differ a lot definitely by month and subsequently by quarter. Typically, we simply have to be cautious about these as actual developments so long as you perceive that. And so long as you perceive how they evaluate to others and the way others exclude various things than we do. It is not a GAAP measure. I do know — we all know it is an necessary measure. That is why we gave you a quarter-end estimated liquidity steadiness. However much less — however we attempt to have much less concentrate on that precise quantity as a result of there’s simply a lot variability round it.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Mike Linenberg of Deutsche Bank.——————————————————————————–Michael John Linenberg, Deutsche Bank AG, Analysis Division – MD and Senior Firm Analysis Analyst ——————————————————————————–I suppose 2 fast ones right here. Derek, I do know that I imagine beneath the CARES Act, you possibly can defer social safety taxes. I suppose, a portion this yr. I believe you possibly can defer your minimal pension contribution. I believe there’s some profit on the payroll. Do you could have a way of how that, possibly collectively, these different numerous initiatives that we do not spend an excessive amount of time on, however how a lot that might increase your liquidity in 2020?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Sure. The one merchandise, and I do know for positive, on the pension aspect of issues, we do need to make a pension fee on January 1, which is a vacation, so we find yourself having to do it on December 31. So it is not a Zero quantity in 2020. However we had initially thought it might be round $500 million. Now it is right down to $140 million. So there is a important financial savings there. The — we now have gotten some tax refunds within the $170 million vary, which have been constructive. And one in every of them is $85 million we’re getting this quarter within the third quarter. After which the deferral of these different taxes, we now have all of them in 2021 anyway, so that you’ll need to pay them again in 2021. So the online influence over ’20 and ’21 is 0.——————————————————————————–Michael John Linenberg, Deutsche Bank AG, Analysis Division – MD and Senior Firm Analysis Analyst ——————————————————————————–Okay, okay. That is useful. After which simply my second query, actually to Vasu. Look, you introduced the JetBlue current — the JetBlue settlement just lately, and it appears similar to what you introduced with Alaska again in February. And I notice it is a actually robust backdrop to start out noticing any form of advantages from the Alaska deal, I suppose, because it’s initially solely up and working in a couple of months. Is there something which you can inform us with respect to possibly fast wins and issues that you have seen as you began to work extra carefully with Alaska that you simply suppose will materialize with — beneath the JetBlue settlement?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Sure, sure. Thanks for the query, Mike. I am completely satisfied to do it. In actual fact, let me put my reply in some context right here. That in American Airways, we now have form of a singular downside as we glance all throughout our hub. Our hubs, excluding the Northeast, that’s New York and Boston and the West Coast, produce unit income premiums of 10% to 12% greater than the business. Certainly, it is grown for the reason that time of our merger as we have upgauged, rebuilt the regional community, improved connectivity and grown in Dallas Fort Value. Within the Northeast and the West Coast, nevertheless, we produced a 10% RASM deficit to the business. That is necessary as a result of about 22% to 23% of our 2019 capability is deployed on the West Coast and the Northeast. To place that in perspective, about — a DFW in 2019 was about 26%, 27% of the airline. Charlotte was about 12% to 13% of the airline. So we now have a cloth quantity of our capability in these markets. In each of those circumstances, each the West Coast and the Northeast, the infrastructure is constrained. And we’re in a state of affairs the place we’re actually too small to win and too huge to go and exit. And so we have to determine a approach — and there is such an enormous buyer base that we have to discover a strategy to go and entry that income. So in our partnerships, each with Alaska and JetBlue, what it is solely about is creating a distinct and artistic aggressive various to the bigger networks that our opponents supply on these coasts. And that is precisely what you see us doing. So we proceed to go and construct our Seattle hub. And along with Alaska, we’ll go and create one of the best community on the West Coast. With JetBlue, American Airways is traditionally — and New York Metropolis is a good case examine for this. Traditionally, we now have a 10% originating share within the largest air journey market on the planet. We function 50-seat jets in among the costliest plane — most in depth airports on the planet. And so by doing this, we leverage the energy of each of those firms. The play right here may be very a lot that if we will do that, we go and appeal to extra clients to our joined-up networks.Financially, that, in fact, rectified as a really huge income downside that we now have throughout our hub system. It creates a extremely pro-competitive end result. And really importantly, it retains these actually vibrant and unbiased opponents. So we’re actually eager about all of them. The large onus is on us to go and execute and make these partnerships as seamless doable. And we’re working very ardently at that. Certainly, as we speak, we’re asserting Alaska’s formal invitation into OneWorld that may actually speed up the method, and we’re envisioning by the top of this yr, or worst case, early 2021, we’ll have them as a full-fledged member. And we’re desirous to go and progress the mixing with JetBlue as properly.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Jamie Baker with JPMorgan.——————————————————————————–Jamie Nathaniel Baker, JPMorgan Chase & Co, Analysis Division – U.S. Airline and Plane Leasing Fairness Analyst ——————————————————————————–I suppose this implies I will wrap up the cactus triumvirate, provided that Helane and Mike have already opined. Derek, are you able to stroll by means of how the model and the web site is worth sufficient to assist as much as $5 billion of further first-lien debt — excuse me, when loyalty is already pledged elsewhere. I imply these are fairly materials figures, and we do not suppose that the majority traders have these of their liquidity models previous to as we speak’s disclosures.——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Proper. So I imply we now have an appraisal on each of the transactions. I imply as we went into this course of, as you realize, we ran value determinations on every little thing as a result of we would have liked to try this as we have been wanting on the authorities loan and what we needed to do with the federal government loans. So we ran an appraisal simply on the frequent flyer program, after which we separated out every little thing else and put it into the model dialogue, I might say. The value of that’s — it is determined by the place the value is, however someplace within the $10 billion vary. Whereas the frequent flyer program, as we have introduced earlier than, is someplace within the $20 billion vary. So we have finished value determinations on each. That — the transaction we have been engaged on for a bit of bit, this current one, and as we negotiated, acquired ourselves the flexibility to do an additional $Four billion beneath that transaction, and it is held up by an appraisal that we have finished.——————————————————————————–Jamie Nathaniel Baker, JPMorgan Chase & Co, Analysis Division – U.S. Airline and Plane Leasing Fairness Analyst ——————————————————————————–And with reference to a possible ahead mileage sale, are you — have you ever reached the conclusion with Treasury but that you may converse to that potential phenomenon?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–We now have we now have not reached a conclusion with Treasury but. We’re nonetheless working with Treasury on the $4.75 billion transaction and the place we’ll go there. However I believe it is — as we have seen, if it isn’t a ahead miles transaction on high of that, as you realize, our competitor was very profitable and did a very nice transaction to take their frequent flyer program and take it to the market that’s obtainable. It most likely would take us a bit of little bit of time to try this simply because our firm is — our frequent flyer program will not be arrange as a separate firm, which our opponents was, for them, the flexibility to try this transaction. In order that capacity is there. They — I imply we’re at $4.75 billion. We now have a much bigger program. And I believe they raised $6.Eight billion, $6.9 billion towards it. So I believe sooner or later, that transaction is there. It is not there as we speak for us, however it’s there sooner or later. So if we can’t make the most of the room beneath the federal government loan, that transaction is out there sooner or later.——————————————————————————–Jamie Nathaniel Baker, JPMorgan Chase & Co, Analysis Division – U.S. Airline and Plane Leasing Fairness Analyst ——————————————————————————–And if I can simply squeeze a brief third one in. On JetBlue, are you able to simply remind us what you possibly can and might’t do regarding the partnership? What stage of coordination pricing scheduling is legally permissible?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Sure. I can. Thanks for the query, Jamie. Look, the best way we have envisioned it, it might be actually a reasonably broad partnership the place, in fact, we’d have in depth code sharing backwards and forwards, frequent flyer advantages and an enormous quantity of company dealing. An enormous a part of what makes this go, definitely as we take a look at it, is one thing that we predict might be nice for patrons and for our group, too. We envision having the ability to take out issues like 50-seat regional jets, that are, in some ways, actually uncompetitive product in a spot like New York or Boston and organize quite a few slot strikes inside JFK and LaGuardia such that, definitely, AA can develop its mainline presence. That is the place you see us including extra long-haul companies in New York. And certainly, over time, we anticipate having the ability to do an entire lot extra of that. After which, in fact, additionally for our new associate, JetBlue, additionally they get to go and broaden. So in doing that, we see numerous ways in which we will get work collectively that may be a bit of unconventional from conventional code shares prior to now, however can create an enormous profit for our clients, a really huge profit to our group and will help each of those airways actually take part within the restoration as and when it occurs.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Daniel McKenzie with Seaport International.——————————————————————————–Daniel J. McKenzie, Seaport International Securities LLC, Analysis Division – Analysis Analyst ——————————————————————————–Simply following up on that — the alliance with JetBlue and Alaska. So I suppose if I heard appropriately, it is 23% of flying in 2019. Is the purpose to get that again to business parity RASM? Or do you suppose you may get, with these alliances, to a premium? And I suppose type of the place I am going this for traders as they consider 23% of the flying, is that this revenues that might enhance 10% throughout 23% of the flying if we get again to parity?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Sure, that is a wonderful query, Dan, and a sound approach to consider the issue. Sure. Look — and simply to make clear the numbers, in 2019, about 22%, 23% of our capability base was on the West Coast, New York, Boston, proper? Evaluate that to our 2 strongest performing markets of DFW and Charlotte, which collectively represented about 48%, 49% of the airline. So there is a materials quantity of capability that was — and for a very long time has been producing RASMs beneath the business common. Now within the [probably] the again half of 2019, I believe numerous the best way you described that is sensible. The open query is how the world recovers, how shortly we will obtain regular state. However for that purpose, these partnerships are all of the extra essential to have the ability to be finished now as a result of the fact is — left to everybody’s personal units, the third and fourth largest carriers in New York simply will not have the ability to compete for a New York — for a diminished New York originating premium buyer given the present demand outlook that is there. So by having this, possibly a bit of little bit of time earlier than we’re capable of nonetheless obtain among the monetary objectives that we would like from this factor. However for us, so long as we’re doing what is true by the client in New York and Boston, offering actual competitors to the bigger networks that we face there, there’s an actual path for the way we go about doing it. And as you say, there’s most likely numerous upside by means of this factor that we envision having the ability to go and definitely scale the huge fastened bills of working in a spot like New York over issues like wide-bodies as an alternative of over issues like 50-seat regional jets. So we predict that there is numerous long-term financial profit there. The present disaster that the pandemic creates, the uncertainty in demand makes it a bit of little bit of an unsure path for the way we go from right here to there. However the core approach wherein you are fascinated about it’s just like how we give it some thought.——————————————————————————–Daniel J. McKenzie, Seaport International Securities LLC, Analysis Division – Analysis Analyst ——————————————————————————–Excellent. I suppose a follow-up query right here. Doug, going again to your commentary this morning on CNBC to generate cash subsequent yr and begin paying down debt, or possibly that is for Derek. Primarily based on what you see as we speak and what’s within the marketing strategy, are you able to give us a steadiness sheet highway map from right here? What is the vary of debt you’d aspirationally or might prepay subsequent yr? And what would you like the steadiness sheet to appear like realistically on the finish of the following yr after which as we glance Three years down the highway?——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–And I will begin. If Derek can provide extra specifics, I will let him. However it’s actually onerous to present any form of targets at this level into 2021 and 2022 and past with any form of specificity. And so it is a lot dependent upon what occurs with return to demand — when demand has returned. What I now’s this, once more, we now have a purpose of being cash — getting our gross sales cash constructive in 2021. That definitely requires some demand development, however we do not suppose unreasonable demand development. And we imagine we will try this. As that occurs and as there’s extra stability — first, as that occurs, we will certainly be utilizing all free cash to retire — our free cash move to retire debt. And as we now have extra certainty as to what the financial setting appears like going ahead, we can provide you higher indications of type of objectives on debt ranges and credit score ratios going ahead. However it is going to be onerous for us to do on this name.——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Sure. And Dan, I will offer you a bit of bit. I imply, simply, we — a part of the debt that we took out on the revolver, clearly, at $2.Eight billion. In order the cash steadiness works up, we’d return the revolver. As you realize, the CARES Act loan and the PSP loan, which mixed are $6.Four billion, are prepayable at any time limit. We now have prepayable plane mortgages of $3.1 billion and our SGRs are prepayable, like we might pay down at any time limit. So we now have $17 billion to $20 billion web. So long as we get the liquidity and get the cash, that we might use that to repay the debt that is there. Very first thing we’d do is the revolver, and we might simply return the revolver after we’re snug, and that is about $2.Eight billion of the debt.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Hunter Keay with Wolfe Analysis.——————————————————————————–Hunter Kent Keay, Wolfe Analysis, LLC – MD and Senior Analyst of Passenger Airways, Aerospace & Protection ——————————————————————————–Doug, simply briefly, what’s the 3 — what’s your 3-year imaginative and prescient for American Airways?——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Properly.Properly, I suppose, I type of like what — at this time limit, describing what the following Three years appears like will not be the best factor to do. However sitting right here proper now, once more, first, I would like — I can get to the primary one fairly simple, which is getting by means of this disaster and getting this airline again to the place we’re producing cash as an alternative of speaking about burning cash. In order that I do know we will do. Look, I will let you know this, Hunter, which may be useful. As horrible as this disaster is and there is not a lot good you possibly can say about it, one good — one factor, one alternative that is given us, which I believe is extra useful to us than others, we had American [and a ton of] others. And it gave us an opportunity publish integration to actually begin — to take the biggest airline on the planet and begin it — and shut it down and begin it from scratch. That is an actual alternative that we’ll — that we’re utilizing. That enables us to solely add again what is sensible. Issues which may have taken us a really very long time to proceed to get by means of, getting administration reductions out, getting older plane retired, getting extra environment friendly all through the airline, flying precisely the place it is sensible as an alternative of wanting on the community and saying, in whole, it is sensible, however some routes not doing in addition to others. That is going to make us way more environment friendly as we come out of that — out of this, and we’re enthusiastic about that. So we’ll add again solely what is sensible. We’ll come by means of it extra effectively. That — I am wanting ahead to that day after we’re by means of all this, and we will — and we now have that benefit. So — however that has been useful to us. And once more, one thing I suppose most likely as a result of we had extra want to try this coming nonetheless by means of integration, I believe that offers us extra alternative to try this. So anyway, because it relates — due to that, as soon as we get to a extra steady-state setting, what I believe you may see from American is we’re — as relative to our opponents, our relative efficiency might be improved. And because the business improves, we’ll endeavor to work by means of to get our — to pay down the debt that we have had — we have all needed to incur to fund these strains.——————————————————————————–Hunter Kent Keay, Wolfe Analysis, LLC – MD and Senior Analyst of Passenger Airways, Aerospace & Protection ——————————————————————————–Okay. After which simply my second query, simply Three very particular ones. Are you able to simply please give me your every day cash burn quantity for 3Q? What are you anticipating for income in 3Q? And the way a lot you are anticipating third quarter working expense to say no?——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Sure. Once more, I believe the steerage we gave was to present you a liquidity quantity that did not embrace every other further financing. So you possibly can calculate from that an estimated cash burn, I am positive. Derek, I do not know the opposite ones?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Properly, I believe the third quarter price down goes to be adjusted due to what Vasu stated, as we pull the capability out. So we ran about 46% within the second quarter, down in prices. We imagine that we’ll fly. So we flew a bit of bit extra in July, however we predict we’ll pull down August and September. So I believe that it will be a bit of bit decrease than that, however not too far off. So within the — if we’re at 46% for the quarter, we’re most likely going to be within the 40%, 42% vary for that within the third quarter from an expense standpoint. After which from a income standpoint, we have been at 86% down within the second quarter, possibly 80% within the third quarter, 75% to 80% within the third quarter, however relying on what we do with capability in August and September, which, as Vasu stated, we’re that now with a bias to convey it down.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Joseph DeNardi with Stifel.——————————————————————————–Joseph William DeNardi, Stifel, Nicolaus & Firm, Included, Analysis Division – MD & Airline Analyst ——————————————————————————–Doug or Robert, I believe, I believe you all are within the window or nearing the window on when you may renegotiate or begin speaking to Citi and Barclays about an extension. Are you able to simply speak about their willingness to interact their urge for food for the enterprise given the challenges that the journey business is going through and whether or not we should always assume an enchancment in economics, even when it is not of the identical magnitude because the final contract, however nonetheless an enchancment in economics if and when you may get a brand new contract?——————————————————————————–Robert D. Isom, American Airways Group Inc. – President ——————————————————————————–So simply actual fast. It is Robert. We now have the flexibility to renegotiate in 2022 the contracts come due. We clearly are working and have been working with each Citi and Barclays. I can let you know from the work with each companions that there is super curiosity. We all know that the American Airways buyer base and our loyalty program are unimaginable property to each Barclays and the Citi. We now have each intent to proceed these relationships and anticipate an incredible quantity of value to return again to American. Now clearly, the present setting will not be one of the best wherein to be speaking about of accelerating values. However as we have a look to the stabilization of the enterprise and have a look out to the long run, I am fairly assured that the economics are going to be equal to and higher than what they’re as we speak.——————————————————————————–Joseph William DeNardi, Stifel, Nicolaus & Firm, Included, Analysis Division – MD & Airline Analyst ——————————————————————————–Then, Derek, I believe your NOLs are getting larger. So you have acquired that going for you, which is sweet. Are you able to simply remind us how that works after which your capacity to make use of these? I believe you had some that started to run out in 2023. So simply how that works?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Sure. I imply, proper now, we now have federal at $9.1 billion, state at about $Three billion. We imagine we will use them. We’re nonetheless — as we take a look at forecasts out, we imagine that they may all be used and those in 2023 might be used. If not, we should put up a valuation allowance for them in the event you take a look at a forecast and assume that they can not be used. However as of proper now, with the tax capacity and adjustments we will do, we imagine we’ll use all of that 0.1 that we’re on prior — firstly of this yr, and that may all be utilized by 2023. We have sufficient room to have the ability to use all of them.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Stephen Trent, Citi.——————————————————————————–Stephen Trent, Citigroup Inc., Analysis Division – Former Lead Analyst ——————————————————————————–Simply curious when it comes to your longer-term pondering. What is the view with respect to sustaining New York and Philadelphia hubs? And I do know you are canceling some worldwide locations, however simply making an attempt to suppose when it comes to the way you’re fascinated about the optimization of these property?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Stephen, that is Vasu. Thanks for the query. Certainly, we envision protecting each the Philadelphia and the New York hub. And we have seen this earlier than. Look, after we put the merger collectively, there’s numerous fear that DFW-Charlotte and DFW-Phoenix would serve overlapping and contradictory functions. Certainly, as we have grown anybody, we have seen the RASM efficiency of all of them develop by having a number of hubs which have related functions you possibly can go and create numerous value for the client. And we see the identical footprint, not simply with New York and Philadelphia, however the Three hubs of New York, London and Philadelphia, that we’ll go right into a world the place worldwide goes to have a for much longer restoration path. And admittedly, American Airways already was producing lower than business RASMs in worldwide. So we envision Philadelphia as being the first connecting level. Via Philadelphia, we will join principally 90% of the nation by means of there, the lone exceptions being New York and Boston and upstate New York. In New York Metropolis, we’ll focus it very closely round O&D markets out of New York and the key connecting markets that feed it, suppose issues like Vegas, Orlando, issues like that.And in London, we now have an amazing market. And with our associate, IAG, the chance to go and broaden London the place we will go present extra connectivity, not simply into Europe, however into locations like Center East and Africa and India. Between the three, despite the fact that we go right into a world the place demand is extra depleted, the place subsequent yr, we might be a materially smaller provider, an especially smaller provider internationally, this permits us to go and take a much bigger share of what demand is there, present an enormous quantity of connectivity to the purchasers within the course of.——————————————————————————–Operator ——————————————————————————–(Operator Directions) Our first query comes from the road of David Koenig with the Related Press.——————————————————————————–David Koenig, ——————————————————————————–There is a man who used to work at America West and he stated yesterday that his present airline expects that income goes to rise to about 50% of pre-COVID and keep there till there is a vaccine that is extensively obtainable. I questioned if, Doug, in the event you agree with that view or when you have a distinct concept about how the restoration unfolds, and the way you are going to get to even the 50%.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Sure. David, I do know that man, too. And look — and I additionally know he stated it is anybody’s guess and that was his guess. So I definitely, he is affordable. I haven’t got any purpose to let you know that we disagree with Scott. And positively, type of what we’re planning for as we glance ahead is per that sort of restoration. I do not suppose any of us imagine that we’ll get something near the previous demand till there’s a vaccine that is extensively unfold. So anyway, on that time, I hope he is proper that after that occurs, demand returns shortly.——————————————————————————–David Koenig, ——————————————————————————–So this present lull is type of a brief stall right here with the current surge in circumstances?——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Properly, sure, sure. David, once more, what we have seen with the surge in circumstances, we noticed what was a continuous development in demand, sequentially month-to-month plateau. And in order that definitely occurred. And as circumstances hopefully fall sooner or later, one would anticipate that you simply see what we noticed by means of April, May and June as demand recovers considerably. However once more, nothing that we’d anticipate actually will get again to the type of demand we noticed in 2019 till the nation is shifting once more. I imply that is much less about folks’s concern about flying and way more about having a purpose to journey and having enterprise open and shifting and having locations to go if you journey and never have to quarantine. And as these issues occur, increasingly folks will journey. However clearly, in some circumstances, oh, that is not going to occur till we get to a vaccine.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Tracy Rucinski with Reuters.——————————————————————————–Tracy Rucinski, ——————————————————————————–I used to be questioning what your views are on how enterprise journey goes to evolve. Do you see any everlasting adjustments?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Tracy, that is Vasu. Thanks for the query. Look, it stays to be seen. A lot of what this disaster is, it is not simply that demand is low, however there’s such uncertainty about it. Sure, we do see evolutions which might be on the market. However in some ways, we’re already seeing it. The client segmentation is altering a bit of bit from enterprise and leisure, which airways have traditionally outlined in numerous sorts of transactions and way more what clients are eager to regain — to renew their financial life and which clients are much less able to. And oftentimes, the variations between these are a perform of individuals’s confidence in resuming it and necessity. So an amazing instance of that is each time we have been within the first week of April, which might be our lowest level for bookings. Small and medium-sized enterprise bookings out of Texas have been virtually 0. They have been like $10,00Zero every week, which isn’t even single-digit percentages. By June 15, after Texas went by means of Part Three reopening, they’d elevated 300% to $45,00Zero or so every week, which continues to be comparatively small however removed from — aside from the place we want them to be. In that very same interval, company bookings did not actually change in any respect. So it’s prone to suppose that for a time period, one, enterprise bookings, as we have traditionally considered them, goes to be very totally different. And corporations are unlikely to go and resume their financial life, definitely not larger firms. After which there’s numerous uncertainty round what and the way smaller firms may be. So we’re planning definitely for some very conservative assumptions. And in some ways, it is persevering with to adapt the airline for the altering buyer base that we acquired.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Alison Sider with Wall Street Journal.——————————————————————————–Alison Sider, ——————————————————————————–Matt, are you able to — is there something you possibly can share about form of what number of flights or when it comes to capability what the change might be from July to August? It appears such as you’re nonetheless planning to fly greater than a few of your friends. Is that type of the way you see it?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Ali, that is Vasu. Thanks for the query. Good to talk once more. Look, we have not completed loading all of our adjustments into August and even into September. And the way we load these adjustments, it is most likely going to happen over a number of durations of time. As we have type of described earlier than, we have modified numerous our inside processes round this stuff as a result of on this setting of unsure demand, the airline has to adapt and we now have to be versatile. So we describe ourselves as being nimble or adaptable. It is not a euphemism for flying extra. It means precisely that. That within the face of unsure demand, the airline has to evolve. And so what we envision doing actually in August, you may see it fairly per our feedback on this name, that we proceed to see our largest hubs, DFW and Charlotte, constructing. We anticipate protecting the connectivity there, however doing numerous different changes as a result of markets which might be way more depending on enterprise model site visitors are prone to not are available in. To place a finer level on it, as soon as we cross Labor Day, traditionally, on this airline, about 40% of our revenues come off of enterprise. And it is fairly unreasonable at this level to suppose that we’ll get wherever near that. And so routes which might be extra depending on enterprise are prone to come out. However slightly than making a single blanket name and taking all of it at one time, you may see us make these cuts over a time period. So we envision actually in August, the place we’re nonetheless taking bookings, that much more of our capability will sit within the largest hubs than not. And as we talked about earlier, we’ll take some fairly materials reductions to what we’re on the market promoting, each within the second half of August and publish Labor Day, such that Q3 capability might be at a minimal, down about 60%.——————————————————————————–Alison Sider, ——————————————————————————–Bought it. Sure. I am simply making an attempt to get my thoughts on how a lot of that is seasonal. Simply enterprise journey is form of by no means going to return again within the fall and the way a lot of it’s form of a change in fascinated about the demand trajectory.——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Properly, what I would say is there’s undoubtedly some seasonality to it. And actually, it is not very a lot of a change of fascinated about protecting the airline schedule and working practices actually versatile so we will adapt to a altering demand panorama. And that is what we have been doing all through the disaster, what we’ll proceed to do alongside the best way.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Claire Bushey with Monetary Time.——————————————————————————–Claire Bushey, ——————————————————————————–Have you ever obtained a response from the Vice President or the European Commissioner for House Affairs relating to that letter you despatched about transatlantic COVID testing? And what kind of would this testing regime appear like?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–That is Vasu. I will begin with the query. We — and the candid reply is that we’re nonetheless it and evaluating it, discussing it closely with our associate, IAG. So we do not have numerous perception but. However within the subsequent few days and weeks, we anticipate to.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–And we have not had responses but. It simply went out final yr.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Justin Bachman with Bloomberg LP.——————————————————————————–Justin Bachman, ——————————————————————————–I needed to ask about, there have been 12-or-so Boeing MAX plane that you simply’re searching for further assist in financing that have been to be delivered this yr. Do you could have any updates on the place that stands and if these airplanes are coming to American or in the event you’ve determined to maneuver on or defer these?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–Sure. Justin, that is Derek. The plan is to take these plane. The place we’re working with Boeing is to agency up that financing and be sure that with the delays within the plane, that, that financing is agency. We’re in actually good discussions with the Boeing group working onerous. They’re an amazing associate for us. We completely plan on taking these plane. There’s 13 which might be constructed that have not come to us but and there is one other Four which might be supposed to return by the top of the yr. So one other 17. So we’re working with Boeing to be sure that these are financed. As we stated within the feedback that we do not plan on taking any plane that are not financed, however we’re working properly, and we’re additionally wanting on the ’21 and ’22 plane. So we’re not finished. We’re speaking with them. All conversations are good. And our plan could be to nonetheless take all 100 plane we now have on order over time. Simply after we take them is the discussions that we’re having. However good discussions, not finished but. We’ll be finished fairly quickly, I believe.——————————————————————————–Justin Bachman, ——————————————————————————–So all these 17 that you simply simply talked about, will that be this yr? Or does a few of these slip into ’21?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–We hope all 17 is that this yr, but it surely all is determined by when the plane is again up within the air and the way fast they’ll get them and ship them. However we’d be okay to have all of them this yr. A few of them may slip into subsequent yr, however I might assume by early a part of subsequent yr, they might all be right here.——————————————————————————–Operator ——————————————————————————–Our subsequent query comes from the road of Leslie Josephs with CNBC.——————————————————————————–Leslie Josephs, ——————————————————————————–A fast query on the salaries and the labor invoice. Appears prefer it’s down near 21% in contrast with final yr. Are you going to have any cash left over if it type of continues on that trajectory? There are like decreased flying schedules or different causes, leads? And are you — can you employ the CARES payroll assist for severance packages? Or do you could have different plans if that occurs? Do you could have left over from the PSP?——————————————————————————–Derek J. Kerr, American Airways Group Inc. – Government VP & CFO ——————————————————————————–We won’t have any leftover from the PSP. I believe the quantity of — that is Derek. The quantity of PSP that we obtained was about 76% of the salaries over the second and third quarter. So there will not be any cash left, and we will not use that PSP cash for severance and different issues. That is different cash.——————————————————————————–Operator ——————————————————————————–Our final query comes from the road of Edward Russell with TPG.——————————————————————————–Edward Russell, ——————————————————————————–I simply needed to ask, get in your personal phrases. Should you suppose that American technique to fly extra capability within the second quarter, particularly in June, was worth it and in the event you simply clarify why you are pondering behind that.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Certain. I will begin after which Vasu can chime in. And look, we did certainly fly extra, for my part, anyway, we have this considerably made into a much bigger challenge than definitely the best way we consider it. This can be a tactic in disaster administration as we’re all managing by means of a disaster, making an attempt to [care best] for particular person airways. I believe it is correct to say that we flew twice as a lot as another airways. However it’s additionally correct to say that we flew 40% of our prior schedule and different airways flew 20% of their prior schedule. So — and the true story there’s that we’re down 60% they usually’re down 80%. This can be a disaster. All of us work to determine what’s finest for our airways. Our community group did an outstanding job of seeing that whereas — as all of us had pulled down schedules, that connectivity, specifically, had been decreased all through the nation and that we might, by specializing in our DFW and Charlotte hubs, have the flexibility to have extra connectivity than others and provides us a bonus on the restricted demand that was there to hold greater than we’d in any other case. In order that completely works. In June, as I stated in my feedback, our income per ASM in June was 6x what it was in April. And we — that will not have been the case had we flown solely 20% of our capability in any approach, so flying extra and having that type of enhance in RASM, we’re extraordinarily proud of it. It is labored properly into July. We’re proud of the outcomes we have seen in July. Our load components stay excessive and better than our competitor airways despite the fact that we’re flying extra. So we’re actually proud of that tactic. It is not going to make an enormous distinction 6 months from now. This is not some ploy of others and making an attempt to be larger than everybody else over time. It is only a tactic throughout this disaster that is labored out rather well for us. We’re actually happy with Vasu and his community group, Brian (inaudible) and different who got here who got here up with a method to handle the disaster. It is working rather well for us. Something so as to add, Vasu?——————————————————————————–Vasu Raja, American Airways Group Inc. – SVP of Community Technique ——————————————————————————–Sure. And the one factor I might add to that, Ed, is, as Doug stated, it did very a lot work properly for us. A easy approach to consider it’s we flew 60% greater than our main opponents and generated 60% extra passenger income. So — by any means, having the ability to have that are available in was huge in an enormous half for why our cash burn appears the best way it does. But in addition to place a finer level on a couple of issues that Doug simply talked about. Look, it taught us lots too alongside the best way. As we went by means of June, fewer than 2% of our flights have been flying beneath 25%, however (inaudible) our 2 strongest hubs, DFW and Charlotte, have been 60% of the airline and produced $0.11 and $0.12 RASMs, to which even in a traditional June could be in a extremely good June for most of the airways all all over the world. In order that was very instructive to us. And likewise by flying that huge, we acquired to get a extremely — we now have to attempt numerous issues throughout the business group that has taught us lots about how our buyer base is evolving, and people are all issues we’re placing into observe. However like Doug stated, this was a tactic of managing — and it was actually a onetime factor that we did, figuring out that June and July could be months the place, if there have been discretionary leisure vacationers, that is the time to get them. Clearly, within the fall the place the airline turns into extra depending on enterprise journey, that’s not a planning actuality for us. And so we’re adjusting, however we’re taking the insights we discovered alongside the best way with us.——————————————————————————–Operator ——————————————————————————–This concludes as we speak’s question-and-answer session. I might now like to show the decision again to Chairman and CEO, Doug Parker, for closing remarks.——————————————————————————–William Douglas Parker, American Airways Group Inc. – Chairman & CEO ——————————————————————————–Thanks very a lot on your curiosity, and we recognize it. In case you have any questions, both contact Investor Relations or our Company Communications division. We recognize your time. Thanks. Bye.——————————————————————————–Operator ——————————————————————————–Girls and gents, this concludes as we speak’s convention name. Thanks for collaborating. You may now disconnect. Everybody, have an amazing day.