美國航空 (AAL) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Good afternoon, and welcome to the AMR third quarter 2009 earnings conference call.

At this point, we do have all of your lines on a muted or listen-only mode.

After the executive team's presentation today, there will be opportunities for your questions.

We will be taking questions first from the analysts community and after a short break move into the media Q&A session.

As a reminder.

today's call is being recorded.

We are very pleased to have on the call with us today, AMR's Chairman and Chief Executive Officer, Gerard Arpey, and Executive Vice President of Finance and Planning and Chief Financial Officer, Tom Horton.

And here with our opening remarks, is AMR's Managing Director of Investor Relations, Eric Briggle.

Please go ahead, sir.

Good afternoon, everyone.

Thank you for joining us on today's earning call.

During this call, Gerald Arpey will provide an overview of our performance and outlook and then Tom Horton will provide the details regarding our earnings for the third quarter along with some perspective on the fourth quarter and 2010.

After that, we will be happy to take your questions.

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

Our earnings release earlier today contains highlights of our financial results for the quarter.

This release continues to provide additional information regarding entity performance and cost guidance which should assist you in having accurate information about our performance and outlook.

In addition, the earnings release contains reconciliations of any non-GAAP financial measures that we may discuss.

This release along with the webcast of today's call is available on the Investor Relations section of AA.com.

Finally let me note that many of your comments today regarding our outlook for revenue and costs as well as forecasts of capacity, traffic, load factor, fuel costs, complete plans 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 2008 annual report on Form 10-K and the Company's current report on Form 8-K filed on April 21st, 2009.

With that I will turn the call over to Gerard.

Thank you, Eric.

Good afternoon, everyone.

As you have already seen in our press release, excluding special items, we had a net loss of $265 million in the quarter.

That compares to a net loss of $374 million in the third quarter of 2008.

These are obviously disappointing results, reflecting the challenges that we in the industry are facing on a variety of fronts.

However, we have accomplished quite a bit to meet these challenges and I will provide more color on that shortly.

This year we have been faced with a significant drop in demand for air travel that has resulted in a very difficult revenue environment.

Revenues for the quarter were down $1.3 billion versus the third quarter of last year, with consolidated unit revenues down by about 14.5% and capacity lower by about 8%.

The positive news is that fuel prices declined year-over-year 42% although they're clearly going in the wrong direction right now.

Combined with lower capacity, this translated into a decline in fuel expense of nearly $1.3 billion versus the third quarter of last year.

There remains a lot of uncertainty about the direction of the economy and fuel prices, but we are doing our best to manage through the industry's short term challenges while keeping an eye on the future.

Consequently, the actions we have taken over the quarter represent meaningful steps to address our short-term challenges and to better position our airline for long-term success.

Since the first of July into earlier this month, we have completed financing and liquidity transactions totaling about $5 billion, including $1.9 billion from GECAS and $1 billion from Citibank.

Tom will dive further into the details, but we are very pleased to have deepened our relationship with these two long-standing strategic partners.

With the uncertainty of the current operating environment, these are good developments to protect all of the stakeholders but we are under no illusions that this represents a long-term solution for our business.

Ultimately success will be measured by our ability to drive profits and this is exactly what we are focused on and we are taking some important steps in this direction.

One step we announced last month was to reduce some unprofitable flying and refocus our network around our five primary markets of Dallas/Fort Worth, Chicago, Miami, New York and Los Angeles.

In addition, we continue to make enhancements to our product, including adding first class seats to the CRJ 700 aircraft and we expect to take 22 more of these two class aircraft in the middle of next year.

At the same time, we have long been proponents of capacity discipline and despite our network enhancements, we have announced conservative capacity expectations for next year with consolidated capacity up about 1% on the reinstatement of flying that we pulled down this year due to the H1N1 virus and the launch of Chicago Beijing service next year that we deferred from this year.

The Department of Transportation is reviewing our antitrust immunity application with BA, Iberia, Royal Jordanian and Finnair and we continue to expect approval of our application.

In addition, we are progressing through the review process with the European Union and we look forward to demonstrating the public benefits of our plans.

We also are pleased with the year-over-year improvement in our operating performance in the third quarter, despite very heavy load factors with improvement in on-time performance completion factor and other operating stats.

With all of that said, our third quarter results remind us that we and our industry continue to face some difficult challenges.

And while I can't overstate the importance of the steps we have taken to position American to weather the current challenges and protect our stakeholders, our success will depend on achieving profitability just like any other company.

That is obviously our goal and we have taken some important steps in the right direction.

With that, I will turn things over the Tom to walk you through our results.

Tom?

Thanks, Gerard and good afternoon, everyone.

As Gerard said, in the third quarter we lost $359 million or $265 million excluding special items.

This compares to a loss of $374 million excluding special items in the third quarter of 2008.

We had special items totaling about $94 million in the third quarter of '09 and a net benefit from special items of about $405 million in the third quarter of '08.

I would refer you to the press release for the details on these items.

And for the remainder of the call, I will exclude the impact of special items to more accurately reflect our performance on an ongoing basis.

As these results show, the third quarter has continued to prove challenging for the industry and our company.

Ongoing weakness in the economy has driven a sharp decline in industry revenues and fuel prices remain volatile, adding to an already challenging operating environment.

That said, we have taken some big steps to weather the uncertainty that faces our industry.

Since July 1st, we have completed about $5 billion in financing transactions to help bolster our liquidity, to refinance certain obligations that would have matured next year and to fund our fleet renewal plan over the next couple of years.

We believe this puts well behind us questions about our ability to weather a prolonged downturn.

Having taken big steps on liquidity front, we will now redouble our efforts toward achieving sustained profitability.

The first step in that process is aligning our network around our five primary markets of Dallas, Chicago, Miami, New York, and LA, and enhancing our product offering.

And as Gerard mentioned, we are upgrading our current fleet of CRJ 700 aircraft to include two classes of service to better serve our premium customers.

And we expect to expand the fleet of these aircraft by 22 starting in the middle of next year.

Always mindful of our capacity, we remain disciplined in our approach to capacity for the next year.

We continue to be diligent on the cost side while at the same time, making sensible investments to improve our operational dependability.

These investments continue to yield big improvements in completion factor, on-time performance and in baggage performance.

I will expand on all of that in a minute, but let me first recap our revenue performance.

In the third quarter, main line unit revenues declined 14.5% on about 8% less capacity.

Load factors were up nearly 2 points with yields down over 16%.

Driving these results was weakness in business travel revenue during the quarter, which similar to the past few quarters continues to be down more than our revenue as a whole.

International unit revenue declined nearly 20%.

Domestic fared better, but was still down 11%.

While these results are disappointing, bear in mind that we face significantly more challenge in comps than we have seen over the past few quarters.

As you may recall, last year, the industry had been driving fares up through the first half of the year as we chased skyrocketing fuel prices which drove industry revenue performance to peak last September.

To normalize for this effect, we compared third quarter of '09 to third quarter of '07, and main line unit revenues were down about 5% with the '09 versus '07 performance improving in each month during the quarter.

On a relative basis, we have been focused on driving revenue premium and those efforts are bearing fruit as we appear to compare well in year-over-year main line unit revenue performance versus those provided by other network carriers.

While we estimate some of this effect is driven by entity mix and stage length, we believe we significantly outperformed the industry on year-over-year domestic RASM and yield performance.

That said, our absolute yield performance was still very disappointing as the industry continues to significantly discount its product through sale activity at very low prices.

Uncertainty persists about how travel demand will trend.

That said, our mainline book load factor for the remainder of the fourth quarter is down about a point, with domestic down about a point and international about flat.

On the regional front, clearly revenue declined nearly 22% versus the prior year.

Our regional capacity was down about 11% for the quarter.

And regional unit revenue was down about 12% versus last year.

The economic downturn also continues to affect our other lines of business.

Our cargo revenues declined over 40% versus the third quarter of '08 on both lower traffic and yield.

In other revenue, we saw a year-over-year improvement leveling off.

In addition to reduced capacity, we are now beginning to lap several service charges that were put in place last June, including the first bag service charge.

In addition for the third quarter, we still have head winds from revenue associated with American Beacon Advisors which we divested in September of last year.

That said, other revenue increased about 1% versus last year.

Turning to our alliance efforts, we received a scheduling order from the DOT earlier in the year, regarding our application for antitrust immunity with BA, Iberia, Finnair and Royal Jordanian.

While we can't make promises about the outcome of this process, we believe we have made a very strong case and we continue to expect approval.

We have received a statement of objection from the EU which was anticipated as part of our EU review.

And we are in discussions with them regarding their findings and to demonstrate the public benefits of our plans.

In addition, American and its oneworld partners look forward to adding Mexicana into our alliance next month, extending the alliance's coverage of Latin America to almost 150 destinations.

In regard to our long standing alliance partner, Japan Airlines, let me be clear that we and oneworld are committed to continuing and strengthening our valuable partnership with JAL on both an alliance and bilateral basis.

We believe that American and oneworld are best positioned to support JAL's efforts to remain operating as a single entity with global significance, which in our opinion is the best and most positive outcome for all of JAL's stakeholders.

We are dedicated to doing what we can to help JAL weather its current challenges and to assure a long and healthy future as an important and equal oneworld partner.

Shifting to costs, our third quarter unit costs excluding fuel rose 7% for the main line and 6% consolidated, driven by over 8% less capacity and headwinds from pension expenses, and investments and dependability initiatives.

Fuel price declines during the quarter continued to be significant as fuel prices came in at $2.07 per gallon consolidated on a decrease of over 42% versus last year.

Consequently, we paid about $1.1 billion less for fuel during the quarter than we would have paid at last year's price.

And these lower fuel prices drove total main line unit costs lower by 13.5%.

Turning to the balance sheet, we ended the quarter with $4.6 billion in cash including a restricted balance of about $460 million.

We accomplished a lot on the financing front over the last quarter or so.

Between July 1st and this call, we have closed on transactions totaling about $5 billion.

About $2.2 billion of this total is derived from transactions that had implications for the third quarter cash balance including the city forward mileage sale, $225 million from the vintage aircraft component of the G cast loan facility, $830 million from the equity and convertible debt issuance and $154 million from the vintage component of the 2009-1 EETC.

We will receive almost $800 million in the fourth quarter including proceeds from the refinancing of the 99-1 EETC that matured on October 15th and proceeds from the $450 million private placement that refinanced the term loan which was paid off in the third quarter.

Finally, about $2 billion represents financing for new aircraft that will fund aircraft CapEx through 2011.

With these financings, we have commitments in place for all 63 of our remaining Boeing 737/800 deliveries through 2011.

And we expect we will not have to use the backstop facility, although this facility remains in place.

In addition, over three quarters of these deliveries are covered by sale lease back facilities that will maximize liquidity relative to other financing structures.

In the third quarter, our principle payments on long-term debt and capital leases totaled almost $700 million, including the term loan paydown I mentioned.

Our capital expenditures totaled about $500 million.

And year-to-date, our CapEx totaled $1.1 billion including about $870 million of aircraft and $240 million of nonaircraft CapEx.

Our total debt as defined in the earnings release at the end of the third quarter was $15.7 billion, up from $15.4 billion last year.

Our net debt, defined as total debt less unrestricted cash and short-term investments at the end of the third quarter, was $11.6 billion versus $10.7 billion a year ago.

Turning to the outlook, in addition to the cash items I've already touched on, we expect fourth quarter principal payments on long-term debt and capital leases to total about $570 million.

Inclusive off the 99-1EETC that matured last week and with the pay down of the term loan, we have about $1.1 billion in long-term debt and capital leases maturing in 2010.

We continue to take a measured approach to our capital spending by making sound investments that will help keep American Airlines competitive for the long term.

Our remaining capital expenditures for the year include $350 million of aircraft and about $100 million of nonaircraft CapEx.

We continue to invest in Admiral's Clubs, Wing Woods for our 767/300 aircraft, and conversion of a part of our 757 fleet to support international flying which we expect will be completed by the end of the year.

While we do not have any minimum cash pension obligation this year, for the full year 2009, we expect to recognize about $640 million in defined benefit pension expense.

For next year, we expect a minimum cash obligation of approximately $525 million, and will provide an update of the defined benefit pension expense for next year on the next call.

In terms of capacity, we have taken a disciplined approach over the past several year.

With our capacity reduction announcement in June, we expect to see fourth quarter main line and consolidated capacity down almost 6%, with domestic down about 5% and international down about 7.5%.

As you may recall, a significant portion of our capacity reductions last year were put in place in the fourth quarter.

To put these expectations in proper perspective, versus the fourth quarter of 2007, capacity is expected to be down about 13.5% with domestic down 16.5% and international down about 8.5%.

We have long said that this industry will not be profitable if it does not properly manage supply and our 2010 plan keeps with this philosophy.

We expect capacity to be up a bit over 1% next year with main line domestic flat and international up about 3% driven by reinstatement of flying that we pulled down related to the H1N1 virus and the commencement of Chicago Beijing that we deferred from last year to this year.

Turning to costs.

In the fourth quarter, we expect tour ex-fuel main line unit costs to increase about 8% year-over-year and consolidated unit costs to increase about 7%.

Fuel price declines continue to help the cost equation, albeit less significantly than in the first three quarters of the year.

Based on October 9th forward curve, on a consolidated basis, we forecast a fourth quarter fuel price of $2.12 per gallon.

We have about 30% of our fourth quarter consumption hedged with floors at $67 per barrel and caps at $96 per barrel on accrued equivalent basis.

All in, we expect fourth quarter unit costs to decline about 1% versus the fourth quarter of 2008.

We are working through the budgeting process and will share our 2010 outlook for operating costs on the next call.

That said, with the recent financing activity, we expect interest expense for the fourth quarter to be higher by about $25 million versus fourth quarter of '08 and 2010 to be approximately $120 million higher versus 2009, although these expectations do not reflect the offsetting interest income from the increased cash levels.

Due to our systemic hedging program, we have built our hedging position for next year to about 20% of expected consumption with average floors at about $65 and caps at $94 on accrued equivalent basis, based on the October 9th forward curve.

To wrap up, there's plenty of uncertainty for the remainder of the the year and into 2010.

However, we have taken big steps on the liquidity front and we're focused on improving the airline to return to sustained profitability.

The near-term revenue environment and volatility of fuel presents significant hurdles while we've taken some important steps to position American to better weather these challenges and we believe we're on the right track.

With that, Gerard and I are happy to take your questions.

(Operator Instructions).

In the interest of time, we do ask that you limit yourself to one initial and one follow up question.

Our first question comes from the line of Mike Linenberg with Banc of America/Merrill Lynch.

Please go ahead.

Yes.

Two quick ones here.

The antitrust immunized agreement, the announcement -- or excuse me, the approval, is that still on track for the end of the month?

I just -- Gerard, you may have thrown out a date or something.

Just with the EU now taking a look -- although that was expected.

What is the timing and the update on that?

Yes.

Mike, we are really not in a position to put a stake in the ground in terms of the timing.

Okay.

Because we are dealing both with the US Government and of course the EU.

Yes.

But I think at this stage, we are being responsive to all of the governmental parties.

As you and I have discussed in the past, the facts are on our side and we think we will eventually get there.

Very good.

My second question -- this just to Tom.

Tom, I missed the early part of the call.

You may have actually hit this.

The tax credit in the quarter -- the $30 million I believe.

Now what was driving that or what was behind that?

The economic stimulus legislation last year, and extended into '09, allows companies to claim enhanced tax depreciation on new capital and bonus depreciation.

Unfortunately, companies with losses like our own did not benefit from depreciation, despite a lot of capital spending for the more profitable companies.

To address that stimulus and equity, the legislation provides that in lieu of deducting bonus depreciation on CapEx, companies may elect to accelerate the use of tax credits on a capped basis.

In other words, AMT credits.

These tax credits normally can't be used before NOLs.

But as of the end of the third quarter, we had accrued a $30 million refund of income tax on the use of tax credits from qualifying CapEx.

That's what that is about.

Is it -- Tom, so this is a one off?

Or would we see anything in the fourth quarter?

Or this is it?

There may be a little bit more in the fourth quarter.

Okay.

Good.

Very good.

Thank you.

You bet.

And next we will go to the line of Bill Greene with Morgan Stanley.

Please go ahead.

Good afternoon.

Gerard, as we look at the performance of the Company here in the third quarter, I am a little surprised and I understand there was some one-time catch up with swine flu and what not..

But I am still surprised that we would draw any conclusion from the performance and say, we should grow capacity.

I would think we would almost look at it and say, maybe we should cut somewhere given where we are at right now.

Bill, I think that while we have given guidance for next year in today's remarks, I think our capacity planning remains realtime.

We are going to be watching very carefully the trends in demand, the trends in corporate traffic, tracking the GDP actual and estimates.

As everyone on the call knows all too well, our results will be highly correlated with the return of the economic activity around the world.

Our capacity is not a static issue at this point.

We are trying to give you the best guidance we can at this stage for next year.

But that's something we're looking at every month.

And we may very well come to the conclusion you have reached, but that's not where we are today.

Do you think it is fair to -- I realize some of your competitors don't do this.

But does it ever make sense to maybe say, we need first the returns to justify further investment before we do and do that in capacity?

Yes, of course it does, Bill.

I think that our investment is related to replacing older airplanes.

We believe we can gone demonstrate a return on that capital, based on reduced fuel burn and reduced maintenance costs and a better product.

But in terms of the actually investing capital to grow and gain marketshare based on the returns that this industry has generated the past decade, I think it is ridiculous.

You don't see us doing that.

Maybe I can just ask one follow up here on the antitrust.

I realize you're waiting.

You don't want to put a stake in the ground, but we do see some of your competitors attempting at least to break up some of your partnerships.

If this BA thing doesn't happen, does it make sense to maybe make some overtures and some efforts to have a different partner other than BA where the hurdles aren't so high?

No.

I don't think so, Bill.

In the event -- unlikely event that we would not get a level playing field here, I think our goal will be to persevere and make the case and eventually prevail because the facts are on our side.

It would be ridiculous to leave several airlines out of a immunized partnership across the north Atlantic when everybody else is immunized.

Our strategy is to succeed in this round of discussions with the governments.

But if not, we will persevere and I believe eventually we will get this thing done.

I think we'll get it done this round, but since the facts -- I think the fact do matter.

This is the path the government had set for airlines in light of the foreign ownership laws in the world and so I think we are going to get there.

Thank you for the time.

You bet, Bill.

And next to the line of Gary Chase with Barclays.

Please go ahead.

Good afternoon, guys.

How are you?

Okay, Gary.

How are you doing?

Good.

Is there any way to think about a timeframe?

I understand the goal and look -- it's hard.

We are living in a volatile world.

But what kind of timeframe do you think you need to be back to profitability?

And more importantly, how do you manage in a world where just today we have oil changing in ways that are important enough to probably legitimately affect your planning and that's just today.

In other words, how do you stay flexible in this environment?

And how are you thinking about the way you are going to manage through this over the course of next year when it is so important to generate at least some cash and to demonstrate real progress if not actual profitability?

Gary, I think you're right on about the volatility.

I think we have experienced in the past 24 months an unprecedented level of volatility, at least in my experience.

I have been around quite awhile in this business.

It is a volatile business to begin with, but the past 24 months in terms of oil and the economy, are -- I think volatility has been extraordinary.

What we have been trying to do is manage the short term while at the same time recognizing that we've got to build the Company for the long term.

In the short term, we have been and obviously this quarter was an important quarter in terms of raising liquidity and capital for the airplanes in the next couple of years.

But we have been trying to build and [buttress] our liquidity to weather the current environment, but not lose track of the fact this company will have a long-term future.

We have a very solid franchise and I would argue we have the strongest franchise when you look at our brand, you look at our network and you look at our global partners.

And I am sure you hear that from every airline CEO, but I would be happy to stack our network buttress by Dallas/Fort Worth, Chicago, Miami, New York and LA against anybody else's domestic network.

And our international franchise, particularly our strength in Latin America, our position in London, and all of our oneworld partners around the world, stack that franchise up against any other US carrier.

I think that the key is to weather the current environment, but not lose track of the long term and making the decision that you have to make now to have a long term.

Things like fleet renewal, things like the agreement that we've reached with Hewlett Packard to modernize all of our IT systems, the things that we are doing with I think prudently in terms of upgrading admiral's clubs, we are trying to strike a balance between the short term and the long term, recognizing that this company is going to have a long-term successful future.

Does it change the way you are thinking though?

It is -- it seems like daily you can have a new capacity plan that makes sense and I don't disagree with some of the things that you said.

But what I don't really hear a lot of people talking about is the real need to be able to adapt quicker.

That's -- in terms of neighbor agreements.

That's a function of your hedge position.

It is --

Yes, Gary, I think we have though.

If you look at the network decisions that we have been making, we have pulled the plug on a lot of flying.

We have -- we were the first to really pull the handle on capacity in light of high fuel prices.

We have reallocated capacity this year.

We have gotten rid of hubs and legacy flying that just are just not going to work in this kind of an environment.

Perhaps more will need to be done, but I do think we have pulled our network back to what internally we refer to as our corner post strategy, which are the hubs that Tom and I described.

That's the future of our company.

We are not going to retreat in those markets at a pace faster than the industry's overall retreat.

But again, we have been the leaders in terms of trying to demonstrate what the industry needs to do to keep supply and demand in equilibrium.

And we have been, I think very systematic and strident in our efforts to raise prices.

Of course in our business, we are very careful what we say about pricing and I want to be careful about what I say about it.

But we have been consistent price leaders because we believe the industry can support higher prices.

You can expect us, particularly in the face of higher fuel prices, to raise our ticket prices because ultimately we have to pass that cost on to our customers.

Yes, Gary.

I would just add the call last year when fuel prices spiked up, we were pretty quick to be the first to address that with a really big capacity reduction so big that this year's fourth quarter compared to the fourth quarter of '07, our domestic capacity is going to be down 16.5%.

That's a pretty unprecedented cut in capacity.

Time may prove that insufficient.

If it does, we will react to that.

I think it is too early to make that judgment.

Okay, guys.

Thanks.

Thanks, Gary.

And next we will go to Hunter Keay with Stifel Nicolaus.

Please go ahead.

Thanks, guys.

Good afternoon.

Afternoon, Hunter.

How much of the 1% annum growth next year is specifically related to H1M1 and Chicago Beijing?

Just about all of it.

Okay.

How much capacity can you take out then?

What will be the max you are willing to go or are able to go with the current fleet line in place?

I wouldn't speculate on that, Hunter.

I would just tell you that we --last year we made a big move and so we have got plenty of flexibility if we choose to go down that track.

We have a lot of older airplanes which we can park if we want to go in that direction.

But as I said a minute ago, I think it is premature to make that judgment at this point.

Hunter, the only thing that I would add to that is when you look at the load factors that we're running and the industry is running this year, our priority -- our first priority given where supply of seats and demand for seats are right now has been to raise prices.

And we are going to continue to do that.

Okay.

Good.

At what point do you think Congress or anyone on Capitol Hill is going to be willing or do you think will take a fresh look at reining in commodity futures markets, speculators.

And if that starts to come up again, if we start to touch $85, $90 crude which it is looking like could happen at any point now, do you guys have a tangible proposal that you could dust off and see being implemented relatively quickly to maybe provide some relief on the front if it becomes necessary?

Hunter, I think the ATA has been quite vocal on this front and we have supported the ATA and the industry's efforts on this front.

Divided by us, what we have advocated for is a greater degree of transparency in these markets so that we can have a clear look at who is placing long-term bets on oil and who might be advocating and suggesting that long-term oil prices are going to go up at the same time, they're placing such bets.

I think more transparency in that environment would be helpful.

But beyond that, I don't know what else can be done.

It is a tricky issue as you know.

I saw a couple of CFTC commissioners have come out in the last day or so with concerns over such regulations and restraint because if not constructed properly, it could simply have the effect of moving trading activity offshore and out of the US market.

Great.

Thanks for the color.

Appreciate it.

Thank you, Hunter.

Next to the line of Kevin Crissey with UBS.

Please go ahead.

Hey, guys.

Was your primary discussion on the demand front related to the book load factor or did I miss more commentary on the outlook?

No.

That was pretty much all we gave.

I'll tell you we have been looking very carefully at demand trends and corporate travel trends in particular because that is really what has hit the industry so hard this year.

We have compared to last year -- and we have also looked at comparisons versus '07 which you can argue is a better, more meaningful comparison than '08.

It appears that corporate traffic bottomed out in the May/June timeframe, with a trend since that time being modestly positive off of a low base.

We are encouraged by some improvement, the recent corporate traffic numbers.

I can tell you that yields remain challenged and I think they will remain challenged until corporate travel policies change in a meaningful way.

It is not clear that we have got a meaningful and sustained turnaround here, but we have got some modest trends in the right direction.

Terrific.

Thanks.

One other follow up if I could.

The online travel agencies cut their booking fees awhile back now.

You've had some time to see what that has done to your distribution.

Continental indicated that they've seen meaningful supplier direct channel losses.

What about you guys?

We do see -- the online travel agencies have grown year-over-year.

AA.com has also grown significantly year-over-year.

It would appear that the increase at the online travel agencies has been at the cost of the traditional channels.

You don't necessarily have any plans in place to do mileage offer to get the website direct or you don't at the moment see really any need for that type of response?

We don't have anything that we would comment on today.

Okay.

Thank you.

Next to the line of Dan Mckenzie with Next Generation.

Please go ahead.

Good afternoon.

Thanks, guys.

Hey, Dan.

Given the spotlight on JAL, one question I am getting asked frequently is what its revenue contribution is.

Is that something that you folks can provide some perspective?

Dan, that's not something that we have historically given data on.

I will tell you that we and our oneworld partners have I think a very deep and long standing partnership with JAL that is today producing hundreds of millions of dollars of value for them.

We and all of the oneworld guys are committed to that partnership.

I think we will continue to provide the most meaningful long-term value to JAL as a strategic and equal partner.

And I would say that value will be by a wide margin greater than anything else they can accomplish.

But that's not a presumption they want to remain a major international carrier and not a feeder carrier to potential other partnerships.

I think that JAL and its stakeholders recognize that an alliance switch would be burdened by excessive financial and regulatory execution risks during the critical initial phase of its restructuring.

And by staying with us and oneworld, JAL will continue to benefit fully from all of the cash flow associated with those partnerships, and in addition to the cash flow that they get from other bilateral relationships that they have outside of oneworld.

Because oneworld doesn't have any prohibition against working with other airlines that are outside of our alliance.

And I think also by staying with oneworld JAL is more likely to realize the benefits of an immunized relationship under a Japan/US Open Skies agreement which would have significant incremental long-term value for them and ensure a level playing field across the three alliances in the US/Japan market.

Again I didn't mean to rambling there, but I think American and oneworld can best support JAL's efforts to keep operating as a single entity with a long-term global significance that will create the best outcome for all of their stakeholders.

That's great color.

Appreciate that.

I am wondering if you can share some of the detail from the statement of objections, regarding the antitrust application?

Particularly if I recall, [AMAR VA] were required to give up around 335 slots -- weekly slots, the first time 150, the second time.

And those were both nonstarters.

Any perspective that you can share on at least these initial number of slots that AMAR VA are being asked to relinquish this time around?

No, Dan, I don't think -- the only thing I would say there is the world has completely changed in terms of the immunity of other partners and Open Skies between the US and the UK and the competitive landscape from the time that the numbers you are highlighting.

It is a completely different world since then.

And as far as the statement of objection is concerned, I would come back to what Tom said is that was not unexpected.

We are going to work with the governments to demonstrate the pro competitive benefits of our proposals.

Again, the facts have obviously changed a lot since the last go around on this with Heathrow being open and lots of competition having entered these realms.

It seems that everybody who wanted slots has gotten them.

If you look at the numbers.

The VA controls something like 40% of the slots at Heathrow.

If you look at the other airlines, at Air France, de Gaulle or KLM in Amsterdam or -- but they're all around 60%.

The facts would say there should be no divestiture.

I appreciate that.

That's helpful.

Thanks a lot.

Thanks, Dan.

Ladies and gentlemen, this will be our last question for this session of the analysts Q&A.

That question will come from Helane Becker with Jesup & Lamont.

Please go ahead.

Oh my God.

That's a lot of pressure.

Thank you very much, operator.

Hi, guys.

Hey, Elaine.

We think you can handle it.

Thanks.

This is my question.

The fare increases that have been in the press lately and that have been going into place over the last week or so, can you say how they have been received and if they have been holding?

This is Tom.

If you look at the third quarter of this year, seven of ten domestic increases were successful.

And then if you look at the international environment, there have been a number of international fare increases relatively similar to the actions that we saw in the second quarter of '09.

And a number of those were successful.

There has been some pricing traction.

There obviously needs to be a lot more.

This industry cannot continue to price its product below what it costs to produce it.

We got to price at a level where we can cover our input costs and make a profit and return on capital.

We've got to get there.

We're not there yet.

But we've had some traction.

I would hope that the industry can get to a healthier place.

Okay.

Has there been a shift in your point of sale with the dollar being weaker?

I don't think it has been a meaningful shift.

If you look at year-over-year yields, actually the effect of currency has had a negative impact on our unit revenues on the transatlantic.

Because year-over-year, there's actually a decline in the value of foreign currency.

That's not what we have been seeing recently, but that's the net effect versus a year ago.

That's had an effect of more than a couple points on unit revenues, but in terms of point of sale I haven't noticed a material change.

Great.

Thanks.

You bet.

You bet you.

Ladies and gentlemen, members of the analysts and financial community, that does conclude your question-and-answer session for today.

After a brief break, we will begin the media Q&A session.

One moment, please.

Ladies and gentlemen, thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.