美國航空 (AAL) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by.

We do appreciate your patience today while the conference assembled and good afternoon, everyone, welcome to AMR's first quarter 2007 earnings conference call.

Now at this point, we do have all of your phone lines muted or in a listen-only mode.

However after the executive teams prepared remarks there will be opportunities for your questions.

We'll be taking questions first from members of the analyst and financial community and then moving directly into the members of the press that have joined us.

[OPERATOR INSTRUCTIONS] We encourage and invite all of to you queue up by pressing star one on your phone's keypad.

Just as a note, if you should require any assistance during the earnings call, you may reach an AT&T operator by pressing star then zero and as a reminder today's call is being recorded.

So with that being said, let's get right to this first quarter agenda, here with us today, please welcome AMR's Chairman and Chief Executive Officer, Mr.

Gerard Arpey, as well as Executive Vice President of Finance and Planning, as well as Chief Financial Officer, Mr.

Tom Horton and here with our opening remarks is Managing Director of AMR's Investor Relations, Mr.

Kenji Hashimoto.

Good afternoon, sir, and please go ahead.

Good afternoon, everyone.

Thank you for joining us today.

Starting off, Gerard Arpey will provide an overview of our performance and then Tom Horton will provide the details regarding our earnings for the first quarter along with some perspective on the remainder of 2007.

After that, we'll be happy to take your questions.

In the interest of time, please limit your questions to one with one follow-up.

Our earnings release earlier today contained highlights of our financial results for the quarter and additionally I have made some improvements to the release by adding information regarding entity performance and cost guidance, which should assist you in having accurate information about our performance and outlook.

The earnings released along with the web cast of today's call and reconciliation slides is posted on the investor relations section of AA.com.

The slide deck in conjunction with the earnings release contains a reconciliation of any non-GAAP financial measurement we may discuss and we encourage you to view the press release, as well as the slide deck in the course of this call.

Webcast will remain available on our website for several days.

Finally, let me note that many of our comments today and our outlook for revenues and earnings, cost estimates and forecasts of past date traffic, load factor, fuel costs and other matters will constitute forward-looking statements.

These matters are subject to a number of factors that could cause actual results to differ from our expectations.

These factors include changes in economic, business and financial conditions, high fuel prices and other factors referred to in our SEC filings including our 2006 Form 10-K/A, with that, I'll turn the call over to Gerard.

Thank you, Kenji, good afternoon, everyone.

As you have seen in our press release, we earned a first-quarter net profit of $81 million, which is our fourth consecutive quarterly profit.

It is also our first, first quarter profit in seven years.

The last time we completed a run of four profitable quarters was in the fourth quarter of the year 2000.

In addition, this first quarter profit is $173 million better than the first quarter of 2006's net loss of $92 million and comes during a quarter where our people stepped up to a lot of very difficult weather challenges.

Our return to profitability in the first quarter, improvement in the balance sheet, increased pension funding, and ability to reinvest in our products and services over the past year is the culmination of a tremendous amount of hard work and reengineering under our turnaround plan by all our employees.

This progress has been achieved despite the intense competition and high fuel prices that continue to afflict our industry.

And while we have a lot of work left to do to increase profitability further and lower our debt burden, our string of results gives us a great deal of confidence in our belief that we're on the right track.

There is a lot more behind these positive results, so let me turn things over to Tom to take you through some of the details regarding our first quarter performance and our outlook for the remainder of the year.

And then be happy to answer your questions along with Tom when he's finished.

So over to you, Tom.

Thanks, Gerard and good afternoon, everyone.

Our normal course of reviewing our results is to exclude the impact of special items, however, this time around, there are no special items in any of the periods we discussed.

Before I jump into the details of our performance and outlook, I'd like to just reiterate what Kenji said regarding our earnings release.

We moved a lot of information into the earnings release that used to be disclosed on the call to improve the clarity of that financial information for all interested parties.

Now, just to recap the highlights of this quarter's results, I don't think enough can be said about the tremendous progress everyone at the Company has made to get us to this point.

As Gerard said, this is our fourth consecutive profitable quarter, which hasn't happened since the fourth quarter of 2000.

And we haven't had a first quarter profit since 2000.

We still have a long way to go, but we believe we are moving down the right track.

Our goal at building American Airlines for long-term success is most definitely a balancing act.

And as we walk through the details in a moment, I think you will see how we're striking that balance in the interest of customers, employees and shareholders.

So, moving to the numbers.

Let's started with our first-quarter revenue performance.

For the quarter mainline unit revenue increased by 4.5% year-over-year on record load factors, while unit revenue for our consolidated system was up 3.8%.

While lower than the fourth quarter 2006 increase, keep in mind that our first quarter 2006 mainline unit revenue increased 10.7% year-over-year.

So our comps are clearly tougher this quarter.

Weather had a significant impact on our revenue results as we cancelled about 3% of our mainline flights and 4% of our regional flights in the quarter, due to weather.

We estimate that this drove our consolidated revenue down approximately $60 million.

In our domestic markets, first quarter unit revenue increased versus last year.

Similar to last quarter, unit revenue improvements were particularly strong in Miami and Transcon markets.

Let me highlight a couple of interesting initiatives that impact this entity in particular.

First, you should start seeing some of our previously announced upgrades to our 767-200 aircraft used in the Transcon markets this summer.

And second, we implemented a very customer-friendly initiative on aa.com and if you haven't had a chance, I'd encourage you to take a look at our redesigned advantage booking screen, which allows you to better balance schedule relative to availability for using miles.

International business continued to be strong as first quarter unit revenue increased versus 2006, on both load factor and yield improvement.

We had strong improvement across all entities as all saw at or near double-digit unit revenue improvement.

The Pacific strong performance was influenced by our cancellations of Dallas, Osaka and San Jose Tokyo at the end of October 2006.

As we've retained some of that traffic over our other Japan routes.

And we're getting very positive reaction to our January relocation of our Tokyo/ Norita operations to terminal 2, which significantly reduces connection times for our passengers to Japan Airlines, and our other one-world partners.

This is a very cost-effective and customer-friendly way to strengthen our Asian network in addition to our own flying beyond Japan.

Atlantic first quarter unit revenue performance versus last year, improved as we got some distance from the London security issues from last fall.

We also continued to make progress on upgrading our business class seats on our Triple 7 and 767-300 aircraft.

We expect that all New York to Europe flights flown by our 767-300s will have the new business class seats this summer while the remainder of the 767-300 fleet will be complete by the end of this year.

In addition, our 777 first-class product will be standardized around our flagship suite by the end of this year.

And finally, Latin America continued its strong performance as unit revenue increased by 10.3% compared to last year.

While this performance was not limited to any region, it was especially evident in Central and South America.

First quarter revenue for our regional affiliate operation decreased by 2.5% compared to last year as weather had a negative impact.

In addition, we continued to be negatively impacted by increased low-cost carrier overlap on some of our northeast routes.

Turning now to the cargo operation, for the first quarter, total cargo revenue increased by 8.1%.

Freight revenue including fuel surcharge was down 0.2%.

Mail revenue increased by 62% driven by our contract with the Postal Service, that came into effect in October.

Finally, in the first quarter, our other revenue line decreased slightly year-over-year to $342 million.

This was a tougher compare as this line increased 25% in the first quarter of last year.

Our magazine publishing and vacation divisions both had decreased business in the quarter, in the case of AA Vacations, it was the result of a transition to new technology to improve our vender offerings.

In our third-party maintenance business is starting to ramp up its push for additional business and we are hopeful we can build off our current portfolio business as the year progresses.

Similar to the top line, we had significant impacts on our unit cost driven by the weather.

While the weather cancellations did allow us to spend a bit less money, we estimate the impact to have increased unit cost by about 1.5 points for both mainline and consolidated.

This counterbalanced some positive impact of our fuel price as our consolidated fuel price was $0.047 lower than last year, saving us $36 million.

Our unit cost, excluding fuel, rose by 2.2% mainline and 2.7% consolidated.

Our quarterly results also reflect an accrual for employee profit sharing.

Of course our actual profits and thus profit sharing for the year will be dependent on many factors such as fuel price and economic conditions and could vary from our current expectations.

Despite the improved fuel price versus last year, fuel still remains historically high and volatile, so fuel conservation continues to be one of our top priorities as we continue to explore opportunities for more savings.

Nonoperating costs were better year-over-year by $40 million in the quarter, as we had improvements in both interest income and interest expense, as we had both higher cash balances and lower debt balances.

Turning to the balance sheet, we ended the quarter with $5.9 billion in cash.

Including $471million in restricted cash.

In the first quarter, our scheduled principal payments on long-term debt and capital leases totalled $282 million.

In addition, we paid down our $285 million revolving credit facility and prepaid $79 million of aircraft debt.

Shortly after the quarter end, we refinanced $350 million of tax-exempt bonds for our alliance, maintenance, and engineering base in Fort Worth.

These additional actions eliminate about $15 million in annual net interest expense, and this is above and beyond our first quarter net interest expense reduction of more than $40 million driven by all of our other efforts to strengthen the balance sheet and reduce debt.

As part of those efforts, early in the quarter, we did an equity offering of 13 million shares and brought in $500 million.

Although conditions can always change, at this point, we feel more confident in our ability to achieve the necessary balance sheet improvement through internally generated cash flow.

And as we've said before, going forward, depending on market conditions, our cash position and other considerations, we may, from time to time, redeem or repurchase our debt or take other steps to reduce our debt or lease obligations.

Our capital expenditures totalled $126 million in the first quarter.

On the pension front we contributed $62 million to our defined benefit pension plans for the first quarter and we made an additional $118 million contribution on April 13th, for a total of $180 million so far this year.

As we continue to make strides improving the funding status of our pensions, and continue to deliver on this important obligation to our employees.

So in sum, it's fair to say while there's still much work ahead, we've made some solid progress on the balance sheet.

Our total debt, which we define as our total indebtedness including the principal amount of airport facility tax exempt bonds and the present value of aircraft operating lease obligations, now stands at $17.5 billion.

Our net debt, which we define as total debt less unrestricted cash, and short-term investments, is now $12.2 billion.

That represents a $3.3 billion or 19% reduction versus the same time last year.

You may recall that in March, Moody's raised the corporate debt ratings of AMR by one notch and similarly, in April, Standard & Poor's upgraded its outlook for AMR to positive from stable.

In taking these actions, the rating agencies are also recognizing AMR's improved financial condition.

Moving to guidance, when factoring in first quarter results, our full year 2007 mainline capacity is now expected to decrease by about 1.8% compared to 2006.

With a 2% reduction in the domestic system, while international capacity is expected to decrease by less than 1%.

[inaudible] load factor for the second quarter is currently less than a point lower than last year.

However, this is by design as our revenue management team and systems are foregoing some early booking and lower yield and flow traffic for higher yielding but closer booking traffic.

Therefore, we expect that the resulting second quarter load factor will be about flat with last year's record load factor.

On the fuel angle, fuel prices continue to be volatile.

Of course, this volatility, along with a steeply upward sloping forward curve, adds a challenge to planning.

As we stated in our earnings release, the second quarter price is anticipated to be $2.09 a gallon, with a full-year consolidated fuel price forecast of $2.09 per gallon as well.

In regards to hedging, we continue to follow a strategy of systematically layering in hedges using primarily collars to dampen volatility.

Our mainline consumption is anticipated to be 719 million gallons in the second quarter.

As discussed previously and at our analysts' conference, we continue to target and we believe we are currently on track for $300 million of cost savings for 2007.

This is driven by our cost initiative, such as, distribution cost savings, schedule and fleet simplification and ongoing fuel conservation initiative like Winglet on our 737 and 757 fleets.

As the data in the earnings release indicates, the weather impact on first quarter unit costs put more pressure on our goal to contain full-year unit cost.

And the current fuel curve means we expect overall unit cost to increase for both the second quarter and the full year versus last year.

Moving to cash forecasts, we expect capital expenditure of more than $600 million in 2007 and we'll update you as we make further commitment regarding our fleet renewal strategy.

Our scheduled principal payments are still expected to equal $1.3 billion for the full year.

And our total expected pension contribution for 2007 is $364 million, including the amounts contributed earlier this year that I mentioned a moment ago.

As I just mentioned, we made a fleet renewal announcement in late March.

We are starting by pulling forward deliveries of 737-800 aircraft, beginning with three in early 2009.

We believe it's the very prudent and flexible approach that allows us to match our fleet to the market conditions while leading us down a path of improved fuel efficiency.

Finally, as a reminder, in any quarter where the EPS figure exceeds $0.25, our fully diluted share count includes about 32 million shares attributable to our convertible notes.

And the earnings used to calculate our EPS figure will increase by about $7 million due to reduced interest expense.

So to wrap it up, we are cautiously optimistic about this year, profitability and the balance sheet are clearly improving.

We will continue to take a very measured approach towards capacity as we keep a watchful eye on demand and we continue to dig deep to find more improvements in our cost structure.

While challenges remain, we believe the Company is making steady progress under the turnaround plan toward longer-term success.

So at this point, Gerard and I will now be happy to take any questions you may have.

Indeed and thank you very much gentlemen for that first quarter update, we do appreciate that and ladies and gentlemen for those of you who have joined us late, in the interest of time, the executive management would like to get to as many questions as possible so we are asking that you limit yourself to one initial question and then one follow-up, should time allow we'll entertain any additional questions.

[OPERATOR INSTRUCTIONS] Once again, we queue up, please press star one on your phone keypad and after the analyst and financial community, we'll be moving to members of the media joining us today.

So we welcome your questions and comments as, please queue up at this time by pressing star one on your phone keypad.

And representing Morgan Stanley, our first question, we go to the line of William Greene, please go ahead, sir.

Yes, hey, Tom, I'm wondering if can you can add a little bit of color to KASM guidance particularly in the second half of the year.

If I've done the math correctly, it seems like you need to have flat KASM X fuel to get your guidance since the first half will grow at about 3%.

What are the line items that is can drive that improvement?

Okay.

As you'll recall, our goal at the beginning of the year was to have $300 million in cost savings to offset inflation largely.

And we also said that we were aiming for flat X fuel and profit sharing unit cost in the mainline business for full year.

So as I said, in the remarks, I think we're on track to get the $300 million in cost savings for the year.

And barring any serious operational disruptions like we had in the first quarter, we'd expect to continue on the pace we set for ourselves in the second through the fourth quarters.

However, you know, the first quarter in all the operational and unit cost challenges makes, is going to make it more difficult for us to meet the original full-year goals.

So that said, we are going to try to continue to make up lost ground.

Now, as you look into the second quarter, you know again, we'll have a little bit of a unit cost challenge because of capacity.

And you probably saw our guidance that our capacity is going to be down a bit, again, in the second quarter and that is really a result of the schedule simplification which resulted in a flattening of our schedule throughout the the year.

So where we normally see an increase of 4% to 5% in capacity from the first quarter to the second, this year it's going to look more like 2%.

So a much flatter schedule.

So that will put a little pressure on second quarter unit cost but conversely, will give us a little help later on.

So just to kind of clarify, you had your employment go down again in the first quarter.

Is that something that can continue for productivity reasons or are we about as low as we get here?

I think, I don't know of any significant enhancements to productivity over the balance of the year.

Okay.

Thanks for your help.

And thank you, Mr.

Greene.

Representing UBS, we go to the line of Kevin Crissey.

Please go ahead, sir.

Good afternoon, everybody.

Question on the international front.

What are the drivers here that we're seeing such a dichotomy between the domestic and international?

I'll actually leave it there and let you fill in the gaps.

Well, we've seen much stronger international business across all of the entities and if you look at unit revenue in each of our entities, Pacific, Latin, and Atlanta, see double-digit or near double-digit improvement.

So it has been very strong and I think it's, it's a result of our fairly attractive supply demand balance.

Demand has been strong.

Capacity has been relatively restrained.

It's a different story by region as I mentioned in the pacific.

We pull some capacity down specific to us.

And a couple of our recent ones, in Japan and fortunately we held onto a fair bit of traffic over our existing route.

So, but it's been strong just about everywhere.

In the function, on more of the business traveller?

I mean, I guess what I'm not fully appreciating is, it's not just you guys that are seeing this obviously.

But what the driver is and what we would look for, other than additional capacity coming in that might change the scenario because its been ongoing for quite a while now, more than four quarters.

So effectively we've already lapped, question is what might change the demand environment and basically what is the underlying driver?

I wouldn't necessarily describe it more to business or leisure.

It's strong across the portfolio, depending on the region you're talking about.

I think the things to look out for and thing that is we always pay attention to are the balance between demand growth and capacity growth.

And in general, the international economies that we serve have been pretty strong.

And capacity growth hasn't been crazy.

So, you know, watch capacity growth and watch the state of economic growth of the big industrial centers.

Terrific.

And I guess as a last question, the KASM guidance you provided includes profit sharing already?

It does.

Thank you very much.

You bet.

Next in queue we go to JPMorgan, Jamie Baker.

Please go ahead.

Good morning, everybody.

Or good afternoon.

Actually, good segue from the last question, Tom.

Just trying to nail you down a little bit more on guidance.

X fuel KASM expectations, again, includes profit sharing haven't changed for the full year but your fuel bill now relative to your earlier guidance is going to be a little bit over $300 million higher, presumable if you thought you were going to be less profitable your KASM would have changed to reflect different profit sharing assumptions.

So am I correct in assuming that you've put more revenue into your business plan, and if so, why?

Jamie, I'm not completely sure I'm following your question.

Could you --

Well, sure, sure.

Your fuel bill is admittedly going to be much higher this year relative to your prior guidance for a full year estimate of a $1.98 to the $2.09, given what has left in the year, that's about $330 million, $340 million.

But your X fuel KASM numbers are unchanged and those incorporate profit sharing as you just indicated in the prior question.

So, doesn't that mean that you've also made offsetting and improving assumptions to your revenue forecast?

You know, I'm not sure -- let us come back to you later in the call.

I'm not sure I completely follow you but I'll try to get you an answer to that.

We can take it up offline.

Thanks a lot.

You bet, Jamie.

And thank you Mr.

Baker lets go to the next participant in queue it's Dan McKenzie with Credit Suisse, please go ahead.

Good afternoon, thanks, Tom could you provide some perspective on the RASM impact so far in the second quarter from the new revenue management strategy?

And then just related to this, how much more corporate travels manager spending this quarter or this year versus a year ago?

On the revenue strategy, not really, I don't really have anything more to add to what I said.

There's not a lot more information to give you at this point, other than to say, we think that demand has remained pretty solid and as a consequence at this point, we expect our load factor for the second quarter to be relatively flat, with last year's load factor, which was a record.

So that's encouraging.

And so at this point, we feel pretty good about that.

But nothing really to add other than we have turned the dial a letter bit on the revenue management strategy, given that we see strong relatively strong load factors.

We think there's an opportunity to take a bit more close in bookings, so we're going to do that and see how it works out.

Sure.

Dan, this is injury Gerard, we've been running record load factors for month after month after month.

And I think it's fair to say that we've been consistent price leader in trying to increase our yields and there's really two ways to come at that.

Higher prices or more aggressive yield management.

And I think we've just concluded that given the level of demand and given the economic activity is holding up here in the U.S.

and internationally, that that's another way to go at the problem and try to drive more revenue instead of on the price side, on the yield management side, given where load factors have been, I think that's a wise course.

Okay.

And then on the international side, just a follow-up question here.

What are your Congressional sources saying about the likelihood of relaxing the bilateral with china later this spring and how could AMR if you could provide some perspective of how AMR could potentially capitalize on that?

Well, Dan, I guess what I would say at this point is, at this stage, this kind of dialogue, you get a lot of mixed signals.

But I think there's a degree of optimism that there will be more opportunity to china and we'll certainly be first in line for that.

We need to get our long haul agreement worked out with our pilots.

But I'm optimistic that there will be more opportunities for us in China.

Okay, great.

Thanks.

Thank you.

And here now a question from Ray Neidl with Calyon Securities.

Please go ahead, sir.

Yes.

I guess two things.

One is the Iberia situation, I think that's key.

The member of one world, there's a possibility that they may be sold to a non one world partner.

How would that affect your European strategy?

Well, Ray, you're quite right, there has been a lot of speculation in the press about Iberia's future and pretty much know what you know from what you read in the paper.

Iberia is a good partner for American.

Also, I don't speak for [LonChili] -- but I think -- is one of their bigger partners as well.

So I think we are between us and [LonChili] we're two of their strongest partners.

So we have a keen interest in the outcome there.

And in their future.

And would very much like to remain Iberia's partner, but I think we can work our way through any eventuality here.

So we will, to the extent that they want us to be engaged with them, we'll be engaged with them and we'll, to the extent we can be helpful to them, we've expressed that desire.

Okay, great.

The second one on a different topic is the labor situation.

I know the contracts don't come up for another year or couple of years in the case of some labor unions there seems to be a lot of concern on the part of many of the employees, now that [inaudible] starting to make money again, that they want their so-called fair share.

How are you communicating with the employees to demonstrate to them that one or two quarters of of profitability does not solve all your problems?

Well, Ray, I guess you're communicating best right now.

I think that's obvious given the years and years of losses that the Company incurred that we've got a lot of work to do to recover from the $8 billion that we lost between '01 and '05.

So we have had a very open dialogue with organized labor for many years now.

And partnership to work together to make our company stronger and we're just going to stay the course with that and do our best to continue to work together, to strengthen the Company and we will go through the Section 6 process with all of our unions and same spirit that it's gotten to us this point t spirit of collaboration and cooperation and try to get the best outcome for everyone, recognizing that there's a lot of stakeholders at this Company.

So we'll do the very best we can.

Okay, great.

Thanks.

Thanks, Ray.

Our next question we go to the line of Gary Chase, representing Lehman Brothers.

Please go ahead, Mr.Chase.

Hey, guys.

Tom, Just a couple of [inaudible] -- just watching the domestic revenue situation, I wondered first if the commentary that you made about load factors and trying to do a better job or be more aggressive on the road management, was that intended to be a system-level comment or domestic?

Is it both?

It is both.

It is both.

Because we see strong load factors across the system both domestic and international.

So should we take that to mean you think flat load factors and yield improvement during the quarter?

No, I wouldn't go that far.

I'll leave it at what I said so far.

The other quick one was on the $60 million, is that, should we be thinking that last year was some kind of aberration on the mild side for weather?

Should we think the revenue run rate you generated in the first quarter relative to a normal first quarter was really $60 million lower than where you would have been absent a lot of this abnormal disruption?

It was $60 million versus what we would consider a normal quarter.

Okay.

Appreciate the color, guys.

Thanks.

Thank you, Gary.

Thank you, Mr.Chase, next we go to the line of Frank Boroch with Bear Stearns.

Please go ahead, sir.

Hi, good afternoon.

Given the early start to Easter this year, do you expect that momentum that you saw in 1Q from a unit revenue perspective to the early start to have taken a little bite out of the second quarter?

And, also do you expect to be booking a tax rate on the P&L this year?

On the first question, very modest effect.

So I think you're right, there is an effect there but it's pretty small.

So I wouldn't expect for it to be particularly noticeable.

And our tax rate is going to be dependent, obviously on what our pretax income will be in '07.

Which we obviously haven't publicly estimated.

In addition, AMT could play a role in giving us some tax liability sooner than we have a regular tax liability.

There's no hard and fast rule on that.

But one thing to keep in mind is that you may become subject to A&T as a 20% tax rate at less than historical positive income levels because of the reversing of book tax differences.

And since question only use 90% of our AMT NOL against AMT taxable income that could essentially equate to a 2% effective tax rate.

So we have to sort of monitor the P&L as we go through the the year.

That's the way you out to be thinking about that.

Okay, great.

Thank you.

You bet.

We next go to the line of Robert Barry representing Goldman Sachs.

Please go ahead sir.

Hi, good afternoon.

[inaudible] Did the weather actually help the RASM growth in the quarter?

Sure.

Yes, it does.

You obviously hang onto some of the revenue that -- lose the ASM.

So natural lift to RASM and some offsetting negative impact to KASM.

Yes.

On my rough estimate it looks like maybe consolidated RASM was more like 2.5 instead of of 3.9.

And if that's kind of in the ballpark given the strength you're seeing internationally, it does imply a pretty lackluster domestic RASM growth maybe even flatish to slightly negative.

I guess I was curious to have you dissect what you're seeing in the domestic environment, clearly, we've got a slowing macro environment.

But how is that manifesting itself in the business, more advanced bookings, how is the impact coming at you?

Yes, I would -- you see the numbers for the quarter and domestic.

RASM year-over-year is up only a percent relative to the system.

And I think to take the 30,000-foot level, it's back to supply and demand.

There's more capacity growth domestically than GDP growth would suggest there should be.

So I think that's really what's driving a more modest growth than domestic, than domestic RASM.

And that's, you know, that's to be expected.

I guess my question was, how was the slowing demand manifesting itself?

Manifesting it more on the business side, or the leisure side.

I'm not sure I would characterize it slowing demand so much as a lot of capacity.

When you think about the supply and demand balance, which really is a result of more capacity than we ought to be seeing, given the economic growth in the U.S.

Yes.

Okay.

And then just one other quick one.

Did you get a, or could you quantify the benefit to the wage expense line from the weather?

If there was one?

Well, let me tell you.

It would probably be negative, Robert, because we ran a lot of overtime and what not in order to accommodate all of the weather.

I don't have a number in front of me, but I suspect it was negative.

It was, it was negative and it was pretty modest, a few million dollars.

Great.

Thank you.

Thank you.

Representing Merrill Lynch, our next question go to the line of Michael Linenberg.

Please go ahead, sir.

Good afternoon, guys.

-- just first off, Tom, I know recently I think you were quoted making a couple of comments about Eagle and maybe a point about Eagle's cost maybe being above where the industry is today.

The $300 million of cost saving that you're aiming for in 2007, does that include anything from Eagle and if it doesn't, based on where you think Eagle is today versus where you think the benchmark is, what's the magnitude of potential savings, rough number f's you have 'em?

Well, I don't have a number in front of me, Mike.

But I guess over at all $300 million cost reduction goal, does include Eagle cost reductions, generally operational type things, a lot of fuel-smart things, were doing at the big airlines were doing at Eagle as well.

Eagle is a beneficiary of some of the simplification initiatives and many are thing that is we do at the big airline, we pressed into the Eagle where we can see an opportunity to do that.

But having said there, there are some structural costs, disadvantages there that we need to be mindful of and think how we best address those in the long run.

That's what I was referring to, we'll continue to think that through.

Okay.

And then just my second, I think on peak day this is summer, we'll see EOS with three flights in the New York-London market.

Maxjet there and Silver Jet will add another flight out of Newark.

Are you seeing any sort of share shift?

Now with call it half a year competing against these Carriers, what if anything you are seeing in that market?

Well, since the security concern in London last August, we saw some -- underperforming core unit business.

And that has abated somewhat but we're still, we're still performing a little bit less positively than some of the other TransAtlantic business.

So there may somebody of that effective there mixed in with the additional competition.

But in general, more capacity of these markets is not going to be helpful for the universe and performance.

Jump back maybe for a minute to Jamie's question earlier and I apologize if I was on obtuse, Jamie.

But I think the gist of your question was about profit sharing and the impact on unit costs and guidance.

And as you probably know, profit sharing is 15% of Americans' pretax property above $500 million.

While that amount that we book is a material dollar amount the unit cost impact is relatively honest and not that noticeable in the guidance as of yet.

Of course, in our profits grow from our current expectations, that could become a big factor going forward.

So, that's -- is that it?

Yes, that's it for me.

Thank you.

Thank you.

And thank you very much, Mr.Linenberg.

We do have a follow-up question.

Let's go back back to Jamie Baker once again with JPMorgan.

Please go ahead.

Thanks for that.

Just a quick follow-up because I'm getting a bunch of questions from some of your shareholders here.

In response to one of my competitors questions, you didn't seem to want to get pinned down that yields were definitely rise on flat loads.

I just want to make sure that that is the message you're trying to get out, just seeing if that was an inadvertent endorsement of a RASM decline.

I interpreted that statement just AMR being kind of cautious on the demand front.

But if you're in fact endorsing a scenario where both loads and yields are flat, then would in fact be a, maybe negative piece of guidance.

Could you just revisit what you were trying to say?

No, that's just something we don't comment on.

It's not something that we're offering further guidance on, so your interpretation is right, Jamie.

Okay.

Just wanted to make sure.

Thanks a lot, gentlemen.

Ladies and gentlemen, at this point, then, we'll move into the media portion of today's call.