American Airlines Group Inc
NASDAQ:AAL
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American Airlines Group Inc
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Good morning, and welcome to the American Airlines Group Fourth Quarter 2020 Earnings Call. Today's conference call is being recorded. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]
And now, I would like to turn the conference to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens.
Thanks, Victor, and good morning, everyone, and welcome to the American Airlines Group fourth quarter 2020 earnings conference call. Joining us on the call this morning, we have Doug Parker, our Chairman and CEO; Robert Isom, President; and Derek Kerr, our Chief Financial Officer. Also on the call for the Q&A session are several of our senior executives, including Maya Leibman, Steve Johnson, Vasu Raja, Alison Taylor, and David Seymour.
Like we normally do, Doug will start the call with an overview of our quarter and the actions we've taken during this pandemic. Robert will then follow with some remarks about our commercial and other strategic initiatives. After Robert's remarks, Derek will follow up – follow with the details on the quarter and our operating plans going forward. After Derek's comments, we will open the call for analyst questions and lastly, questions from the media.
Before we begin, we must state that today's call does contain forward-looking statements, including statements concerning future revenues, costs, forecast of capacity, fleet plans and liquidity. These statements represent our predictions and expectations as to future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release filed with an 8-K this morning, as well as our Form 10-Q for the quarter ended September 30, 2020.
In addition, we will be discussing certain non-GAAP financial measures this morning, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP result is included in the earnings press release, and that can be found on the Investor Relations section of our website. A webcast of this call will also be archived on the website. The information that we're giving you on the call is as of today's date, and we undertake no obligation to update the information subsequently. So, thanks again for joining us.
And at this point, I’ll hand the call over to our Chairman and CEO, Doug Parker.
Thank you, Dan, and thanks everybody for being with us. So, look, before I begin my prepared remarks, I want to preemptively state that we will not be commenting nor answering questions on the recent activity in our stock price. As a rule, we don't speculate on a day-to-day moments in our share price. We stick to that rule today. So we do a lot – we do want to talk about. So I’ll just start and then Robert and Derek will add some more and we will take questions after that as we always do.
So, look, 2020 was obviously an incredibly difficult year, but we couldn't be prouder of what the American Airlines team accomplished in the face of extraordinary challenge. Our team kept the country and economy moving and they did so safely with great care. American Airlines flew more customers last year than any other airlines. And our team did so while running a solid operation, ensuring our aircraft and airport facilities were clean and safe for every customer who needed us. We ended on a high note with the extension of the Payroll Support Program. This positive outcome is the result of the company and union leadership working arm-in-arm, bring PSP2 over the finish line. It's clearly great things come about when we raise our voices together for the greater good. Of course also grateful to our elected officials who recognize that the airline industry plays a vital role in the recovery from the pandemic.
We talk a lot about the best days here in American. We use that term to describe moments that make American truly unique and why our team believes it's the best airline in the world. December 24 was that best day for me. We welcome back all of our fellow team members and reinstated their paying benefits. Thanks to our tremendous support teams working around the clock, we were able to deliver thousands of colleagues their first paycheck in months.
[Indiscernible] a lot happened in 2020 on top of navigating the pandemic. Yes, we took aggressive steps to permanently lower our costs, increase our liquidity and care for customers in ways we've never seen before due to COVID-19. But we also accomplished significant milestones like entering into groundbreaking new partnerships and reaching a new joint collective bargaining agreement covering our fleet and maintenance columns. And just last month, we seamlessly returned the Boeing 737 Max to commercial service. We'll talk more about the accomplishments shortly. As we sit here today, I can unequivocally state that despite every challenge thrown our way, I've never been prouder of a company in my entire career. The American Airlines team and our industry is incredibly resilient and this past year has proven that.
As we turn our attention to the year ahead, 2021 will be a year of recovery. There's still a lot of unknowns of course, when or how quickly demand will return. Make no mistake, it will return. The good news is there are vaccines. And while it will take some time for them to be widely distributed, progress is being made every day and that's encouraging. We don't know exactly when we may return to prior levels of demand. What we do know is that we're prepared to withstand the ongoing crisis, irrespective of how long the recovery takes. We ended the year with over $14 billion of total available liquidity. And more importantly, we've used this opportunity to make American much stronger. When the recovery does occur, we'll be prepared and even better position when we were prior to the pandemic, and we'll do so.
I thank our team, our customers and our company. On the team front, we're proud of the progress we've made, especially in 2020. This crisis has brought the American team together, strengthened the relationship between management and our union partners in incredible ways. Since the onset of the pandemic, we've been meeting with our unions every two weeks to discuss the company's response to the crisis and our path forward. And we sit side by side, as you work to advocate for PSP to PSP2. It was a difficult decision to furlough 19,000 team members last fall, we prepared for that reality in a way that was cooperative and collaborative with our union partners. Our hope is to expand what we've accomplished in the past year, knowing that together we can be the best in the industry at advocating and caring for our team.
For our customers, we're doubling down on operational excellence. Once we're back at full speed, we're positioned to run the best airline American Airlines has ever run in terms of operating reliability. We reset our network to focus even more on our strongest and best performing hubs and migrated to a much simpler more modern fleet. We talked before about efficient growth in Dallas, Fort Worth and Charlotte, and that work is now done. We continue to modernize our facilities at Washington Reagan and improve the connectivity of Chicago O’Hare, Phoenix, Philadelphia and Miami. And we're building a much stronger network than we had before. In addition to the inherent strength of our hubs, in 2020 we established new and innovative partnerships with Alaska and JetBlue. It'll make us stronger on the West Coast and in the Northeast.
We also noted a lot over the past year to make American a much more efficient airline. We had a truly unique opportunity to shut down the worst airline in the world and rebuild around our strengths. It's enabled us to bring forward and accelerate a number of efficiencies in 2020 that were originally planned for the longer term. And we are passionately pursuing those efficiencies as we recover through 2021. Derek will elaborate on this in his remarks, but two of the best examples are the permanent retirement of more than 150 aircraft in five different aircraft types, and a 30% reduction in our management staff.
We believe the efficiencies we built in the business will drive more than $1.3 billion of permanent, non-volume related, non-fuel related savings in 2021, and of course, beyond. So in summary, we could not be more proud of the work the American Airlines team has accomplished over the past year. We're very well positioned and feel great about where American is going to be as demand returns.
With that, I'll turn it over to Robert.
Thanks, Doug, and good morning, everyone. I’d like to also thank the entire team for their tremendous efforts in navigating the exceptionally challenging year. Supporting our team members and customers was paramount in 2020, and it continues to be a priority as we move into 2021. We continue to expand our pre-flight COVID-19 testing to make travel easier, including pre-flight testing for certain international destinations and at-home testing for travel to all U.S. cities requiring negative tests.
In the fourth quarter, we began to rollout on the digital health passport, VeriFLY, so customers can easily confirm testing and COVID-19 travel requirements and streamline airport check-in. This tool is now available for travel to many international locations and for travel in the United States. Starting today, customers also will have the ability to use VeriFLY for travel to the U.S. to the UK and Canada, as we will continue expanding our use of VeriFLY this year to open up new – to open up international travel in key markets.
With cleanliness and safety top of mind, last month we were pleased to achieve STAR certification from the Global Biorisk Advisory Council for our entire fleet of aircraft and for our Admirals Club lounges. This is a testament to the effect of cleaning, disinfection and infectious disease protocols we put in place over the past year. As customers return to skies, we've taken a number of steps to give them flexibility and competence when they book with American. We have eliminated change fees on both domestic and international itinerary, and fees from mileage reinstatement on canceled award bookings, domestics same day travel standby, standby travel, and reservations booked by phone.
We also made it easier for top-tier customer to earn advantage elite status. Paused mileage expiration through June 30, 2021 extended 2020 status into 2022 for all members. Each of these efforts is predicated on our philosophy that American Airlines should be the easiest airlines to do business with. And we'll continue delivering on that commitment as more people return to flying.
Our fourth quarter revenue was down considerably versus 2019, 64% year-over-year. But we saw improvements compared to the third quarter when revenue was down 73% year-over-year. The momentum we saw heading into the fourth quarter was tempered by the surge in COVID-19 cases and the increased travel restrictions in many parts of the country. As we have done throughout the pandemic, we responded by making closing adjustments to our schedule, while maximizing the connectivity of our network.
In a testament to our team that our fourth quarter passenger unit revenues were by far the best in the industry. We will continue to be flexible and match our future capacity with observed booking trends while playing to the strengths of our hubs and the parts of the country where travel demand is greatest. And in here over two-year basis, we currently expect our first quarter system capacity to be down 45%. The recent CDC order to require a negative COVID test for entering into the U.S. has had an impact on our international bookings. So many countries and hospitality providers are planning to make testing available to travelers. The timing and scale of these efforts remain unclear. Given this continued demand volatility, we’ll remain as flexible as possible and match capacity to demand.
Our ongoing engagement with leisure operators will pay dividends as we head toward recovery. I want to acknowledge our sales team and an entire customer organization for their work. This team was recently named Airline Partner of the Year by the American Society of Travel Advisors and the Best Overall Airline for Students and Youth by StudentUniverse, which are both important accolades during such a challenging year.
Cargo remains a bright spot for our business. Our cargo revenue in the fourth quarter was up 32% year-over-year. Despite flying a significantly reduced schedule, in 2020 American operated more than 5,200 cargo-only flights transporting 167 million pounds of critical goods and supplies around the world during the pandemic. Cargo will continue to be an area of focus in 2021.
We remain optimistic about the recovery because of the changes that we've made to our network. We will offer customers the largest and most compelling global airline network thanks to the actions taken in 2020. We will have the full run rate benefit of our advocates in Dallas, Fort Worth and Charlotte, our best performing hubs, and we'll have a fantastic new facility at Reagan Nashville that will enable us to update the hub. By the third quarter of 2021 all of our DCA flights will have a first-class product, but we will eliminate the 50-seat regional jet operations there. Our pre-simplification, continued, updated and improved conductivity will also scale the cost of our other connecting hubs that improve their revenue generating capabilities as well.
Our new partnerships with Alaska and JetBlue will also create the best and largest network for our customers on the West Coast and in the Northeast. Customers will have access to a seamless network that allows us to focus our efforts on what we do best. In New York, we will remove the 50 seat regional jet, upgrade our service and offer a much more competitive network for customers. As a result, we will launch new long-haul international flights from New York this summer. We will start service to Tel Aviv and Athens.
Similarly, we are working with Alaska on the West Coast. In this year when demand returns, we will begin service from Seattle to London, Chennai and Bangalore. We have also announced a new integrated frequent flyer offering and have signed new corporate contracts. This partnership is already creating value for customers throughout the West Coast, including our hub in Los Angeles. Lastly, while we anticipate international demand will be slower to recover, we will use our strength in Latin America and our partnerships to create a leading international network.
Our Latin American network has long value, deeply valued by our customers and its performance during the pandemic has been stand-out. Despite near-term demand volatility, we expect Latin America to recover sooner than the rest of our international network and we will continue to offer customers the largest and most comprehensive network in the region. We rationalized many parts of our transatlantic and transpacific networks during the pandemic, reintegrating more deeply with our partners. As an example, with our partnership with Qatar Airways, we've been able to leverage Doha as a global connecting hub, which has opened up many new markets for our customers.
If demand recovers, we anticipate leveraging these partnerships to start flights and increase global connectivity even more. We believe the structural changes we made in 2020 will enable us to produce industry-leading revenues and lower expenses, through our focused customer proposition, broader network in a smaller fleet. We will continue to adapt our business to customers need and we'll keep working hard to make sure that they have peace of mind when they travel.
And with that, I'll turn it over to Derek.
Thanks, Robert and good morning everyone. Before I begin my remarks, I would also like to thank our entire team for their tenacity and resilience throughout the pandemic.
While 2020 was a certainly a financial difficult year for the airline, the collaboration, teamwork and sheer grit our team demonstrated was impressive. This morning, we reported a fourth quarter GAAP net loss of $2.18 billion or $3.81 per share. Excluding $32 million of net special non-operating items we reported a net loss of $2.21 billion or $3.86 per share.
For the full year 2020 we reported a GAAP net loss of $8.9 billion and excluding net special items we reported a net loss of $9.5 billion. Robert talked about what we're seeing with the revenues, so I'll focus my remarks on the cost side of the P&L. Through aggressive actions, we have reduced our fourth quarter total operating expense including net special items by 37% versus 2019. We remained focused on aligning our cost with capacity, while preserving the maximum amount of flexibility to respond to customer demand.
We have accelerated several of our long-term efficiency plans and as Doug mentioned, we are on track to permanently remove at least $1.3 billion from our cost structure in 2021 MBR. At the end of the fourth quarter, we had approximately $14.3 billion of total available liquidity. Costs were flat from the third quarter to the fourth, and we continue to see a positive trend in our daily cash burn weight rate, which improved from approximately 44 million per day in the third quarter to approximately 30 million per day in the fourth quarter.
The reduction was due to revenue improvements on higher capacity. As a reminder, our definition of cash burn includes 8 million per day of regular debt, principal, and cash severance payments. During the quarter, our treasury team did a phenomenal job of continuing to strengthen our liquidity through a series of capital market transactions. We raised approximately $1.5 billion of incremental cash through two equity transactions to strengthen our balance sheet composition. And we still have $118 million left on our previously announced after market equity authorization.
I would like to take this opportunity to specifically thank our recently retired Treasurer, Tom Weir. Tom has been an invaluable member of our team for more than 20 years, his expertise will be missed but I am confident our new Treasurer, Meghan Montana and her team will pick up right where Tom left off.
During the quarter, we took delivery of 10 MAX – 737 MAX aircraft and we expect to take another seven in this quarter. These aircraft were built while the MAX was grounded and were efficiently financed through sale-leaseback transactions. Also, as a reminder, we reached an agreement with Boeing to secure deferral rights on eight of our 2021 MAX deliveries and all 10 of our MAX deliveries in 2022. We have deferred five of these aircraft to-date and as I mentioned in last quarter to avoid exercising additional deferral rights, we would need to see substantial improvement in the demand environment.
As Doug discussed in his opening remarks, as we look ahead to a recovery in 2021, we are passionately pursuing the initiatives we have put in place to make the airline more efficient when we are back to a normalized demand and capacity environment. Like all airlines, our planning begins with our fleet. As we have mentioned on previous earnings calls, we have worked hard to rebuild our fleet into one that is simpler and much more efficient to operate, while offering our customers a consistent and improved product and experience. As part of that process, we have retired more than 150 older non-core aircraft including five total fleet types, lowering our average fleet age to 11.2 years, the lowest of the U.S. network carriers.
Not surprisingly, the aircraft that we exited were the least cost efficient aircraft in our fleet. With only four mainline aircraft types remaining, we will see improved aircraft utilization and operational efficiencies in the back half of 2021 through the increased engage, reduction in inactive aircraft, including spares and maintenance allocations. Additionally, we have further accelerated our seat harmonization project and now expect the entire project to be complete by the end of 2021. When this work is done, we will have a more consistent product with more premium seats, larger overhead bins and in-seat power. These projects will provide significant opportunities that not only improve revenue production, but also lower our unit cost now and well into the future. As a result when demand conditions improve, we could eventually reach 2019 levels of capacity with approximately 10% fewer aircraft.
We will also have a more efficient workforce on the other side of the pandemic. We reduced our management size by one-third, resulting in an estimated $500 million of permanent cost reductions. For reference that would drive more than entire pretax margin point on our total revenue base for 2019. Beyond that, we have implemented $700 billion in additional labor efficiencies that have been incorporated into our plans going-forward. These includes, but not limited to optimized staffing plans and the utilization of technology to be more efficient across our operation. For many of our work groups, these initiatives will allow us to achieve the best productivity levels that we have seen in years. Many of these projects would have come to fruition over time, but due to the extraordinary circumstances in 2020 we took the opportunity to accelerate and implement these efficiencies as part of our future foundation.
As we looked in the first quarter, there continues to be a tremendous amount of uncertainty with bookings. Stubbornly high COVID-19 cases and more stringent travel restrictions continue to constrain demand. And as a result, we expect the first quarter demand environment to be very much like the fourth. As Robert noted, we expect capacity to be down 45%. We also expect total revenue to be down approximately 60% to 65% versus the first quarter of 2019 similar to our fourth quarter results.
When this flat revenue performance is combined with known cost pressures from higher fuel, restoring pay to our furloughed workers and volume driven expenses, we expect our first quarter pretax earnings excluding special items to be lower than the fourth quarter. We presently expect to end the quarter with approximately $15 billion in total available liquidity. This results in an average – first quarter average daily cash burn rate of approximately $30 million per day flat with the fourth quarter.
The first quarter also includes approximately $9 million per day of debt principal and cash severance payments which includes $360 million EETC amortization, including the maturity of our 2011 dash one EETC, which unencumbered 30 aircraft. Also included in our daily cash burn for the quarter is a $240 million contribution to our pension and $225 million in non-aircraft CapEx. In terms of our balance sheet, we feel good about the flexibility in efficiency we have. Approximately 40% of our outstanding debt is pre-payable without penalty and we still do not have any large non-aircraft debt maturities until our $750 million unsecured bond matures in June 2022. After all the COVID related financings we completed in 2020, our average cost of debt is just over 4%.
For guidance for the full year of 2021, our debt payments will be $2.9 billion. And our pension payment is $695 million. Full year CapEx will be $900 million of non-aircraft CapEx and due to our negotiated settlements with Boeing discussed earlier and attractive aircraft financing, our net aircraft CapEx including PDPs will be an inflow of $1.2 billion. As we have previously stated when demand recovers we expect to use all excess cash to further de-lever our balance sheet.
Earlier this month, we received the first installment of approximately $3.1 billion of PSP2 funds from the treasury department and negotiated an extension on the final draw date of the CARES Act loan facility from March 26 to May 28, 2021. This extension gives us more time to decide our liquidity needs for the year based on the pace of the recovery, as well as to evaluate alternatives to drawing the CARES Act loan.
Our industry still has a long path to recovery ahead, but the actions we have taken in American to conserve cash both through liquidity and drive permanent efficiencies across the business give us confident that we are well positioned for the year ahead in the long-term.
And with that, I'll open it up to questions from the analysts.
[Operator Instructions] And our first question will come from the line of David Vernon from Bernstein. You may begin.
Hey, good morning, guys. I’m wondering if you could help us frame what the cost actions you guys have taken and the efficiencies that you guys pull forward through this crisis. Frame how that – how we should be thinking about EBITDA margins in your perspective from a 2023 or maybe a 2024 level? If you think about the $1.3 billion of non-operating cost takeout, plus the efficiencies in the fleet, if we get the revenue levels that we saw in 2019, where should we be thinking the EBITDA margins will shake out at that point?
Hey, Dave, it’s Doug. Really hard, of course, to project what the 2023 margins are going to be without knowing how the demand is going to be. So again, when I think for best answer as I tell you, the $1.3 billion, as we described is real sustainable. I think what we when other ways taken that is if we were starting 2019 right now with this fleet, with lane of organization, this management, we have a management team, our earnings in 2019 would have been $1.3 billion of that – consistent and other things to happen, we’ve added. We had a contract with our – so begin out with – those adjustments. But it’s real – and it’s fundamental difference in the airline right now. So you can use that to make your own 2023 projections.
I realize it’s difficult and nobody knows what demand is. I guess in our conversations with investors, it feels like people are framing your earnings power off of the 2019 base. When it sounds like with the fleet changes you’re making and with the cost reduction that you’re taking, that’s too low of a starting point. And I guess I’m just trying to understand if that is the right way to think about it, or if you think that the earnings power of the businesses is going to be materially higher or higher than it was, again, assuming the revenue environment stays…
Right. So again – yes, Dave, we can appreciate the question. It’s really hard to figure out the margin because it’s so dependent on revenues. But to answer your question, to the extent people are modeling 2023 with whatever revenue assumptions they want to do, if you weren’t – if you didn’t know that American Airlines is going to be $1.3 billion more efficient, you should go with your numbers. If you have already suspected that, you don’t have an adjustment to make. That’s where we are. Those are the real differences in the way this company is now structured versus where it was in 2019.
All right. Thank you for the time.
Thanks, Dave.
Thank you. Our next question will come from the line of Savi Syth from Raymond James. You may begin.
Hey, good morning, everyone. Just if I might on the cost side of things, can you provide any color on like 1Q 2021, what you’re expecting on the OpEx side, including what might be temporary because of PSP2? And just a follow-up on, Doug, your comments, the response to David, I think are you basically saying the 2019 capacity, we should see $1.3 billion less and kind of non-fuel OpEx out of the system. Is that a fair way to look at it?
Yes.
Yes. And Savi, the answer – I mean, the one number that we do know is the number added back to salaries is about $300 million, which is the amount of money that we will have higher salaries due to PSP2 coming back. The other is volume. I think fuel price is definitely up, fuel price, and we gave you a 45% capacity. So I think if you calculate where the price of fuel is now, and that capacity increase, that fuel should be up right around $300 million where the curve is today. And then we have a little bit higher regional expenses because we’re growing the regional little bit by about $100 million. So those are the key – the three key things. The rest is just depending on volume of growth that we have over the fourth quarter.
That’s helpful. All right. Thank you.
Thanks, Savi.
Thank you. Our next question will come from the line of Mike Linenberg from Deutsche Bank. You may begin.
Yes. Hey, two here. I guess Robert and Doug, Robert, you sort of alluded to the fact that the new testing requirement that went into effect, I guess earlier this week, it was obviously having some impact on maybe bookings to/from Latin America, Caribbean, et cetera? What’s thoughts on – I know that the administration this week floated the possibility of domestic testing. And I just logistically – I just – I can’t get my arms around that and I’m not even sure if the airports would be able to facilitate it. Maybe it’s an at-home type product. And it sounds like maybe you are gearing up for that, given what you’re doing, sort of behind the scenes. Can you just talk about that and whether or not that would even be feasible?
Hey, Mike, it’s Doug. Yes, we’ve certainly haven’t been informed that something that’s evidenced. And what we know is what Robert said about the international testing is that we’re getting that to work. And Robert said it’s had an impact on demand serving on short-haul international flying, but we’re supportive of that in anyway. Domestic testing as reasons you’ve stated, I mean, it seems like something that would both be difficult and would have us testing Americans on airplanes that we all know are safe to be on. We’ll obviously work with the administration and what they think makes sense and do our best to make sure the world doing everything we can to make sure that people are safe, and also that we get through this pandemic as quickly as possible, which is our best interest, but also let them know what kind of impact that would have on travel. But again, the bigger point is we haven’t – what you say has been floated has been informed to us. And so we haven’t heard anything directly from regulators or others about that possibility.
Okay, great. Very good. And then just a quick one to Derek, you gave us the gross, or you gave us the pension contribution for the year, I think you said $695 million. How does that compare to what you anticipate expensing on the P&L? Thanks. Thanks for taking my questions.
So the expensing on the P&L is actually a credit. I think it’s – but let me get you back on that number. Make sure we’ve got it right.
Not a problem. Thanks, everyone.
Thank you, Mike.
Thank you. Our next question comes from the line of Catherine O’Brien from Goldman Sachs. You may begin.
Hey, good morning, everyone. Thanks for the time. So my first one is on the $1.3 billion of the cost cuts. I guess, could you just walk us through what some of the larger buckets are there? It sounds like fleet simplification, management team are decent – management cuts are decent percentage of that. I know you gave the $500 million for the management headcount reduction. And then you touched on this a bit in your prepared remarks, but can you help us think about what proportion of that was – event it was pulling forward initiatives already laid out versus maybe potentially some new opportunities that came from turning over additional stones as a result of COVID?
Yes. I would say, I mean, the two big buckets, as I talked about are the $500 million in management and then the $700 million in other labor, and that goes through all groups. So, it goes – it say, as you get the summary – it’s through every group pilots, flight attendants, maintenance, fleet service. So as we look at every group we looked and see how can we be as efficient as we can in each one of these as we brought the people back. So there’s no – the biggest item definitely is management and that’s the $500 million and the $700 million goes in other things. We have a bunch of other items that are in that. There’s facilities consolidations, fuel efficiencies, benefits, a lot of other items that we have gone through to make sure that we’re as efficient as possible. We do have other savings that are out there that due to volume will be down, but we’ll have to see if those are permanent over time and whether they come back.
So I would say, we did take advantage of this, do some of this earlier. All of it was on our plans over the next probably three years, but we brought all of that forward. And as we went through the process of unfortunately having to furlough people and as we bring people back, how do we be as efficient as possible and that’s what we’ve done. Dynamic manning at the airports, single agent boarding at airports, all of that stuff has been accelerated through this process and will be put in place as we grow back.
Got it. Understood. And actually maybe one more for you, Derek. Can you just walk us through the calculus in determining how much cash you want to get on your balance sheet for the coming months, just given the uncertainty? Is there a new minimum you want to have until demand gets back to a certain point and you just kind of factor in your expectations on cash burn to help decide on potential incremental raises? Or is it really just more opportunistic, either use equity to pay down debt in the future or keeping a pulse on the market, see if there are opportunities to raise both expense and debt…
Yes.
Yes, thanks.
Yes, I think – I mean, we don’t have any requirements other than $750 million in 2022. And then we do have some payments, some term loans and stuff that come up in 2023. So right now we’ve gotten ourselves at the end of this quarter. We will be at $15 billion, a significant amount above the $7 billion we had in the past. So I think the liquidity is there. But we have to keep our policy and we have to keep watching it, see where the recovery is. But we are going to be opportunistic. Our biggest – we talked about the government loan, which we have $7.5 billion against the frequent flyer program for that government loan, which we would have to pull by May of 28.
The determination of what do we do there is one of our – one of the biggest things we’re going to do in the next few months. But we’re happy with the liquidity level where we’re at. We’re in a really strong position. We don’t have a lot of CapEx coming forward in the next two years at all. As I talked about our actual net CapEx is positive this year, which will bring in cash flow for us. So our biggest thing to look at right now is the government loan, how do we refinance that. Actually, we haven’t pulled it yet. So how do we – what do we do for using that collateral and how much liquidity do we raise in that transaction. But we’re really comfortable where we’re at. And we don’t have a lot of commitments going forward from an aircraft standpoint or CapEx standpoint or debt standpoint in the next two years.
Understood. Thanks.
Thank you. Our next question will come from the line of Hunter Keay from Wolfe Research. You may begin.
Hey, good morning, everybody.
Hey, Hunter.
Hey. A couple for you, Derek, probably, what’s the latest on the 787 delivery schedule for this year? And just can you just give us a rundown on what you’re planning for aircraft deliveries this year and next? And how many of them you already are financing in place for?
Yes. Yes. So we have right now we haven’t changed the delivery schedule on 787 yet. We have 19 deliveries coming this year, all fully financed. And as of right now, they’re coming, but we are talking with our partners on those aircraft. The MAX, we have eight more coming, seven will come this quarter, all fully financed. And we have 16 neos coming, all of those fully financed. So our actual net aircraft CapEx, when we just talk about CapEx it’s actually a positive. So those aircraft coming in will be positive cash flow.
Next year, we have 26 Airbus 321s coming in. No financing. We have backed our financing on those, but no permanent financing yet. So we’re working on 2022. We won’t take any aircraft that don’t have financing going forward. So we’re fully financed on all 2021 with really good financing and we still are looking at 2022 right now. And we will look – as we look at the Airbus planes next year in the 788s, we’ll continue to look at those aircraft as we talk to manufacturers.
That’s super helpful. Thanks, Derek. And then, just two sort of quick clean-up ones. Interest expense, can you help me out with that this year and next will be great, even 2023, if you want to take a stab at it? And then what is your blackout period? And thanks.
This is number two. Blackout period ends today or tomorrow.
Okay.
And I’ll get back to you on the net interest expense numbers.
Okay, great. I’ll leave.
Thank you. Our next question will come from the line of Dan McKenzie from Seaport Global. You may begin.
Hey, thanks. Good morning, guys. Question on corporate demand, the broad view is that it’s permanently impaired. And I’m just wondering if you can elaborate on the latest conversations with your corporate travel managers, what that path to recovery might look like? I’m pretty sure there’s no airline planning for 50% permanent decline in the spin. And I’m thinking Americans got some share shift here. But I’m just wondering if you could just help us connect the dots on this part of the recovery story?
Yes. Hey, Dan, this is Vasu. I’ll start into that. Look, the reality is that corporate travel demand is down, 5% to 10% of what its historical levels were. And though, we are very optimistic it will then return as vaccines are distributed, the timing, the speed, the rate of that is unfair at that. But also as important as that is the thing that I really never forget, I mentioned this a lot I’ll do it again here is the power of the network business, right? For us it’s the primary value we create. And we create more origin and destination markets for customers that creates more value for them and that results them – they’re paying us more for that product.
And indeed, what we see right now is that 50% of the revenue that we’re drawing are from origin and destination markets, where really American Airlines has the best network or in some cases the only travel option. And indeed, the yields in those markets are 50% higher than in markets where our product is the most commoditized and a ton of different carriers can provide the O&D.
So that’s a huge degree of leverage in the business because, of course there’s a big thing we have going for us is that we can move our capacity around. And so in a world where corporate travel is slowed to come back and we should expect that it is. What we really try to do is make the airline as limber as possible so that we can go and create as much connectivity where there is travel demand. And that something – in some cases that we are taking leisure – we’re taking it in some cases, where our origin and destination network is uniquely advantaged versus other airlines and the yields that we see in those O&Ds are materially higher than what we can generate even from what the business travel is there and really commoditized.
Yes. Thanks, Vasu. One thing really close to our corporate travel managers and their risk management team to get all the information they need to feel comfortable to get their travelers back on the road and how you think that most of guys doing that and building confidence in travel through information and communication. We also stayed very close to GBTA and the other large association who provide great communication to these travel managers. Little early to say, but as you saw some of the surveys coming out from GBTA, they did indicate the back end of 2021, the start of COVID travel. Thank you.
Yes. Thanks for the perspective. I guess just following up on that, I’m wondering if you can elaborate a little bit more on travel passport initiatives. What countries are you focusing on initially for adoption? And I appreciate, it’s early. But, is there a read on what is going to take for these – for countries to get a little more comfortable with this idea, maybe COVID metrics or what might they want to see?
Unless we’re with our great partners, we don’t do this alone. So working with the tourism body, or our hotel partners, we have been able to spend very quickly in 90 plus markets, testing and posts. We have our VeriFLY help format that provides all the documentations you’re ready to travel. You bought the tickets, you can go. And actually as an example that on Tuesday with thousand plus truckloads coming back from [indiscernible] to the U.S., everyone checked in and boarded successfully and had their negative tests.
So we’ve been able to similar techniques through communication with our customers and being very proactive without notification and calling customers directly and working on the brand across every station led by Jose Freig, who has done a great job making sure that with our brand we’re ready to help our customers.
I see. Thank you. Appreciate it.
Thanks, Dan. Thanks, Alison.
Our next question will come from the line of Jamie Baker from JPMorgan. You may begin.
Hey, good morning, everybody. Very thorough call. Most of my questions have been answered. But Derek, you disclosed that you’re able to achieve 2019 capacity on 10% of your aircraft. Would you be able to express the capacity base that would be required to get you back to 2019 ex-fuel CASM? Apologies, if I missed that in your prepared remarks.
Capacity base meaning air – number of aircraft?
No. ASMs. And if 2019 is even the correct base to be using, that’s just sort of become the industry standard at the moment. How much capacity do you have to operate to get back to 2019?
Yes, what we’re trying to do it – I mean, obviously, we’re not back to those levels yet and we don’t know when we’re going to be back to those levels. All we’re trying to do is equate to the fact that if we did get back to 2019 levels, we could do it with a significant amount, fewer aircraft, because we got – we don’t have to add a bunch of aircraft to get to those levels. Our spares are down, our maintenance allocations are down, the MAX has come back, which were down in 2019.
So we have a significant amount of utilization increase and gauge increase in our fleet, so that we would not have – in order for us to get to 2019 levels, the point is that we would not need anywhere near as many aircraft to get to those levels because of those things. Whether that’s the right point it’s a level that we know and that we were at back at that point in time, hopefully, some day in the future we will be ahead of those levels.
Sure. Would you have a corresponding ex-fuel CASM number that would then equate to the 2019 capacity?
No, we don’t have that right now. Yes.
And second, I came into the call mark and I also curious on with the net proceeds of PSP were going to be in it. And I think you answered this in response to Savi’s question. So is the $300 million in incremental labor the only thing we net out? Or were there any other additional operating costs?
That’s what you would net out.
Okay. All right. Thank you very much. Take care.
Thanks, Jamie.
Thanks, Doug.
Our next question will come from the line of Helane Becker from Cowen. You may begin.
Thanks very much, operator. Hi, everybody. Thanks for the time. Doug, you’ve been very close to Washington and you’ve done a lot to get this PSP in place. Has there been any discussion, and maybe it’s too early in the new administration, about changes going forward once we get post-pandemic to capital controls or anything else that would ensure the industry remains solvent in the event there is another crisis?
No. No, we have not. No, we certainly haven’t asked for that. So nothing like that, Helane.
Okay. That’s very helpful. And then, that was my main question. And then the other thing is when you look at the fleet with, I think, you said eliminating five types and down to where you are now, and having 11.5 years. How does that compare from an ESG perspective? Like what will your – if your carbon goals were to be half by 2050, what would the new goals be now? Like where would you be in say 2030 or 2035? Thank you.
Yes, I’ll try, Helane. The goals we already have in place are required things like this improvement. So you’re right. This is helpful to younger fleet, this is helpful to environment in terms of – and we at American have done a lot in that regard already, where we have the youngest fleet now it gets slightly younger even though years go on through this. So we’re proud of that. But that’s a big part of our commitment to get to carbon neutrality is continuing to have a moderate fleet. We’ve done with these retirements.
Okay. That’s very helpful. Thank you.
Thanks, Helane.
And our next question will from the line of Joseph DeNardi from Stifel. You may begin.
Yes. Thanks. Good morning. Maybe a question for Doug or Derek, following up on Hunter's, do you feel comfortable from a legal standpoint selling stock into this market? And how quickly can you increase your – I guess, your authorization?
Yes, Joe, there is kind of others reference coming on, again, to Derek comment on other stuff. So I'll first comment on. Again as [indiscernible] we still have $118 million left on our previously announced after market equity authorization. And if we choose to do anything more than that, we obviously will need to inform our investors. But right now, that's what we have to tell you. There's $180 million on the ATM equity authorization. And whether or not we choose to do that or feel comfortable doing that, we can't talk about.
Okay. And then Vasu, can you just quantify maybe what gauge looks like on the other side of this relative to pre-COVID? And then if you could just walk through the four geographic entities and speak to maybe the structural impact to capacity based on the fleet actions, if that makes sense? Thank you.
Yes. We indeed, we will be getting a material on updating. And as you probably hear from Derek's comments, by the time we get to December, we have the ability to produce 2019s level of capacity on about 110 fewer airplanes. And that will be gauge increase of about 4%.
Got it. Thank you.
Thank you. Our next question will come from the line of Andrew Didora from Bank of America. You may begin.
Hey, good morning, everyone. All of my questions have already been answered. But just one for one for Derek, I know you're talking about a net cash flow in from CapEx, can you just give us the gross aircraft CapEx number, how much financing you're assuming there. I'm just trying to understand the bridge to that inflow number. Thanks.
Yes. Gross aircraft CapEx, it's about $1.1 billion as the aircraft CapEx for the MAXs and NEOs. The 787s are fully-financed and direct leased to us. And that aircraft is approximately about $200 million, so positive. So we will over-finance those aircraft that are coming in and then we have as part of the settlement, we have some difference in our PDPs schedule that goes forward. So that's the difference between the $1.2 billion and the $200 million.
That's perfect. Thank you.
Thank you. Our next question comes from the line of Sheila Kahyaoglu from Jefferies. You may begin.
Hi, it's actually Scott Forbes on for Sheila. I was wondering if you could maybe elaborate a little bit more on the fleet. I mean you removed 150 aircraft from the fleet. You're going to come out of this with the youngest fleet among the network carriers. I mean, can you talk about maybe how that plays into your planning for the recovery with its route structure and how you're thinking about the competitive environment, post-COVID?
Yes. This is Vasu. Indeed, I think you gathered it from our remarks. We would be able to produce similar level of capacity much more efficiently than what we could before. It doesn't necessarily mean that we will do so, that's all going to be a function of demand. But a lot of what you see is really the schedules that are out there flying right now.
The strongest parts of our network, all of our core connecting hubs in Charlotte, Chicago, Dallas, Phoenix, Miami, Philip, we'll continue to be that way and be it with larger gauge airplanes we can operate there much more efficiently, right. We can stay other expenses on more seats, but also by having fewer departures in there, it's more efficient and reliable product. We were shutting fewer and fewer departures to the airspace. The biggest parts of our network, as Robert mentioned in his opening remarks that we have struggled and are really showed up through our partnerships with Alaska in the West and JetBlue in the Northeast.
And through those we anticipate the combination of those partnerships plus larger gauge airplanes in a more efficient fleet will enable us to go and do things like say 50 seat regional jets out of those markets, which are uniquely high cost, but also really challenge to airspace. And so, at large, we can go and provide more connectivity into the system, provide a better, higher-quality network for our customers and do it in a much more efficient way than what we would in 2019.
And Vasu, I'll just add that every time we move one of those 50 seaters out, we're bringing in a two-class product, obviously, with a first-class action as Wi-Fi and engine power as well. So it's a much more compelling offer to our customers and we're really looking forward to.
Great. Thanks, Scott.
Thank you. And at this time, I would like to give the media a moment for questions.
[Operator Instructions] And our first question comes from the line of Mary Schlangenstein from Bloomberg News. You may begin.
Hi, Mary. Mary?
Mary, your line is open.
Sorry, I was on mute. Thank you. Hey, Doug, I know you were a little hesitant to talk about demand further out into the summer. But I'm wondering if you could talk about what you guys are seeing now in terms of spring break demand? Do you expect that that's just going to be a non-event? Or do you see travel demand picking up a little bit maybe around that period?
We will allow Vasu to give you that, Mary. Thanks.
Yes. Hey, Mary, good to hear from you, Vasu at end. And look that what makes demand and forecasting so uniquely challenging in these times is that, 75% of our booking curve happens inside of 45 days. So really so much of spring break is kind of a question mark right now. And there is different tailwinds and headwinds for what might happen with demand there right now.
What we have seen, as Robert mentioned in his comments is that, since there have been more restrictions on international travel, our international bookings have roughly halved in the last seven days versus the first two weeks of January. It remains to be seen how much that trend holds certainly, a lot of our travel partners out there are working hard to go and bring testing online. And so we'll see how that goes for us. The biggest thing is to remain as nimble as possible and how we plan the airline, and we'll continue to do that through the first quarter and beyond.
Great. Thank you very much. I had a quick follow-up. I noticed that you guys mentioned the DoJ and the Attorney General of New York looking into the JetBlue Northeast U.S. alliance. I'm wondering there have been some others filing objections to that. And I'm wondering if your expectation is that you may have to gear up for some kind of a second round of review by the DoT more heavy to go to a greater efforts to get that thing finally in place.
Thanks, Mary. I'll give it to Steve Johnson to have that one.
Hi, Mary, how are you doing today? Let me start by saying that both the Alaska and the JetBlue alliances that we've announced are profoundly pro-competitive and can create enormous benefit for consumers. And that's why we like them, that's why we did it and that's why we're so excited. And our partners are so excited about implementing those.
But as you know, the Department of Justice has over the last, I guess, 12 or 13 years, looked really hard at all of the agreements between airlines, including all the mergers, taken a really good look at those. And that's what they're doing in connection with our JetBlue alliance. That investigation is going to continue. My suspicion is that they're going to allow us to be implemented and see and you take a look and determine whether the benefits that we promise actually do materialize. And if they do, I think we'll be fine.
Hi Mary, the only thing I'd add to that is that, we are working very ardently both AAL and all of our partners to deliver on exactly that. We anticipate in the first quarter, we will be rolling out some pretty comprehensive frequent flyer and connectivity codeshare with customer. And in second quarter, we anticipate being able to start ramping into new markets such as Tel Aviv and Athens, and certainly with JetBlue starts the process of deeper schedule integration.
Great. Thanks very much.
Thank you, Mary.
Thank you. Our next question will come from the line of Alison Sider from Wall Street Journal. You may begin.
Hi, Alison.
Hi. I was wondering if there's been any discussion yet about what will happen after March 31 with the employees that have been recalled, if you're able to say yet whether they'll be able to stay on or if there is discussion at this point about another round of government aid.
Yes. Thanks, Alison. Anyway to state the obvious – April 1 is approaching and demand hasn't gotten much better by then. So we are definitely going to need to address this unless demand starts to pick up. We're already talking to our unions about things we might be able to do. But anyway, nothing really to report yet, other than what we had hoped, which is the demand would have picked up, maybe not so much by April but into the summers that we would be ramping up for the summer, hasn't happened yet.
So we find ourselves with April 1 approaching, being concerned about this. Our unions being concerned about all work with them. I know our unions are already talking to the administration and Congress about with the current proposal to – for stimulus to be included in there. We would obviously be supportive of that. So that’s what I know right now, not enough to tell you but just telling what we know which is something we're going to need to address here before too long.
Thanks. And on the management side, I know you mentioned just the cost savings of all the reductions in staff on the management side. But I guess do you worry at all at some point about brain drain? Is it hard to recruit new people into the airline, just given the state of the industry right now?
Definitely. We're telling that we got brain to drain, we've got an amazing team here and frankly that those are here are engaged to do amazing work, and if anything we find ourselves, working more efficiently and better together just because there's not enough, not in terms of – not people be doing inefficient things. So I feel really good about where the team is right now. We certainly have issues like all companies do in these times, to make sure we're doing the right things to keep people engaged and retain. But so far so good. We really have an amazing team in place. It's working better together than I think we ever have, and continue.
Thanks.
Thank you, Alison.
And our next question comes from the line of Dawn Gilbertson from USA Today. You may begin.
Hi, good morning, everyone. Hey two questions, the first one for you Doug, I know this proposal was just floated, but I'm unclear and you're not the only one who had said this, why you support international testing on flights but not domestic? And my second unrelated question, I'm not sure who it's for is. Can anybody give any color on what you're seeing at international airports, especially in Mexico and the Caribbean in the first few days of international testing requirements? Any problems that have cropped up anything you've had to do differently? Thank you very much.
Yes, I'll take the first one and give Rob the second one. Again we support international testing because that's about getting more people to be comfortable flying across borders. And we have worked with regularity with the administration to make that happen on very shorter. So and indeed hopeful of doing so that allows the administration to get comfortable with Airline or just to be more open allowing people from here to, for example, to begin traveling to the United States at some point.
So anyway we worked together, supported with that. I didn't actually say that we weren't supportive of doing something more expansion in that. What I said is, we haven't heard – we haven't been asked to do. If we do, we certainly would want to make sure it was something that wouldn't restrict demand. We have seen drops in demand, of course, on short-orders especially and anyway, so we need to work with the administration to see what and if indeed.
There are – any thoughts about doing something at down for having American supply within America. It certainly seems like, we would like to see what if indeed there is anything there you have also just said has been floated. No one has talked to us officially about doing that. If they do, from our best to work with them make sure we can stress how safe it is to fly, and – which I know and they're improving that and we want to make sure that our customers feel comfortable in flying. Robert?
Yes. And Dawn, thanks for the question. The biggest challenge is getting word out to people that the new testing requirements have to be complied with. And to that end, we've done a terrific job of getting word out through every imaginable channel and what we found, as Alison mentioned a little bit earlier, our largest international destinations these days are kind of good. We've had – on the first half of the box, nobody seems whatsoever, all passengers they're basically boarded.
So, we've also done tremendous work in all international locations and making sure that testing resources are available. And so, yes, we're seeing some customers show up without the necessary proof and we're re-accommodating them as required. But we're getting out fortunately with all the work that we've done to put tools in place like VeriFLY, the digital health passport. We're doing a pretty good job and we're going to be able to handle this.
Thank you very much.
Thanks, Dawn.
Thank you. Our next question will come from the line of Leslie Josephs from CNBC. You may begin.
Hi, good morning, everyone.
Hi, Leslie.
What are your pilot feeds and pilot training needs for summer 2020 with Delta calling back 400 pilots. Do you expect them all, including the 1,200 plus that were furloughed to be active by summer? And then, just another question on capacity going forward with these partnerships. Do you expect American continue to or do you know the percentage of how much American will sort of outsource some of this capacity, thanks to these new partnerships.
So I'll try to take both. So just in terms of pilots, the question is how much you are flying? And so to that end, it's a question mark out there. As demand comes back we know that over the long run we will have a home for all of our pilots, certainly those that have been furloughed in the past and hopefully that we will be able to keep everybody on board. And just because of the pilots and retirement age, we anticipate that we will be hiring pilots in the not too distant future.
Now, second question was in terms of …
And having not playing your own metal versus –
Oh, yes, in terms of – yeah, thanks for that as well. The relationships are not about outsourcing any shape or form. It's all about better utilizing those assets we have in finding ways in the long run for growth for us. And these partnerships are really creative in that sense that they're going to be able to allow American Airlines to do what it does best, both domestically and internationally. So prospects in terms of the work that we do for the long run is very, very bright.
Yes. And as a team that we are really pro-consumer and what that means is that, you're going to generate more demand just because we can connect with each other. So we think that's actually more flying for American Airlines – more bigger airplanes and smaller airplanes for example in New York because we're able to compete better against other airlines who have larger networks in those areas we do.
Okay. And just one follow-up, do you have any expectation of how long American will be so domestic-focused versus a pre-pandemic global network?
Well, hey, this is Vasu. And right now, a lot of what you see in our asset footprint is more just we're operating with where indeed there is demand. As you go and look out there and now March schedule – sorry, February and March schedule, you'll see that Latin America network that we're operating is indeed in many cases larger than what was there before the pandemic because that is the place where we see demand, and heard Alison and Robert comment, a place where we see a lot of testing getting stood up pretty quickly.
And so for us, international will really be a function coming back. Again international bring that will be really a product of where demand is and how that test can get ramped up.
Okay. Thank you.
Thank you. Our next question will come from the line of Tracy Rucinski from Reuters. You may begin.
Hey Tracy.
Hi. Good morning. Hi. So, given the strong rise in shares this morning, are you planning an equity offering or anything to de-lever the balance sheet?
Yes, Tracy. So we said at the start of this comment on the recent stock price movement. What we did say is that $180 million of authority on a previously announced after market equity authorization and as well, we might get in the future we can talk about.
I apologize. I missed that.
That's okay. There are lot going on now. Thanks, Tracy.
Thanks.
Bye.
Our next question will come from the line of David Koenig from The Associated Press. You may begin.
Hey, guys. Good morning everybody. At the risk of maybe rephrasing something that you're kind of getting at in what Mary and Dawn's questions. I wonder if you can talk about how much travel restrictions, including what we saw from the U.S. this week. And how the travel restrictions are changing your view about the pace of recovery this summer? And then secondly, what impact would you see if there is a testing requirement for domestic flights?
All right, Dave. I'll try it. So first off, travel restrictions, again, international has resulted in reduction in demand for international travel. But as we say couple of times now, we expect that to improve as it becomes easier for people get those tests, which is happening already. And certainly it will have an impact on demand and customers need to present a positive test to travel and we're seeing that particularly in the short-haul international travel things like Mexico and the Caribbean, non-U.S. Caribbean destinations.
As it relates to any other travel restrictions, things like mask mandates, we've been doing mask mandates well before it was mandated by the government, we intend to keep continue doing that way. It was great things. We will continue to do so anything we want to make sure that the government doesn't put in place, exemptions other than the ones we have with children of two years old. So we are huge proponents of mask mandates, huge proponents of what the administration is trying to accomplish, and that's what we've been asked to do so far, we are asked to do more.
We'll do aim to impress, our desire to let right now we have a shared objective, which is to get the P&L behind as fast as we can, allow our country to keep moving. In the meantime people are driving from state-to-state, and they're flying from state-to-state. They're doing so safely. And we just want to make sure that we continue that to happen with the goal of making sure, we get rid of the pandemic as soon as possible. I know the administration shares that goal and I suspect anything we come up with will be consistent with that.
Okay. Thanks. I think that's more concise. And you must have an opinion though about what impact do you see if there is a domestic flight testing requirement?
I have to say what I understand, I was with them.
Okay. All right. Thank you.
Thank you. And that ends the media Q&A. I'll turn it back over to Doug Parker for any closing remarks.
All right, thank you very much for your interest. We will meet again. Just going to proud of our team on what they're doing. It gives great confidence as we go forward. I know everyone interested in how fast, things will rebound. We don't know the answer to that. We've done it well. But when it does, we're going to be there ready to take care of people when they want to travel. And we're ready to withstand, how long it may take because of the great job Derek and team have done to get our company to its financial position. Thanks for your time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.