美國航空 (AAL) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Good afternoon and welcome to the AMR fourth-quarter 2010 earnings conference call.

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

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

As a note, we will be taking questions first from the members of the analyst community, and then after a short break, move into our media Q&A session.

As a reminder, today's call is being recorded.

We're very pleased to have on the call with us today AMR's Chairman and Chief Executive Officer, Gerard Arpey; the President of AMR and American Airlines, Tom Horton; and Senior Vice President and Chief Financial Officer Bella Goren.

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

Please go ahead.

Good afternoon everyone.

Thank you for joining us on today's AMR earnings call.

During the call, Gerard Arpey will provide an overview of our performance and outlook, and then Bella Goren will provide the details regarding our earnings for the fourth quarter, along with some perspective on the first quarter and the full year of 2011.

After that we will be happy to take your questions.

In the interest of time, please limit your questions to one with a related 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 measurements we may discuss.

This release, along with a webcast of today's call, is available on the investor relations section of AA.com.

Finally, let me note that many of our comments today, including statements regarding our outlook for revenue and costs; forecasts of capacity, traffic, load factor, fuel costs; fleet plans; and statements regarding our plans and expectations 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 2009 Annual Report on Form 10-K and our Quarterly Report for the third quarter of 2010 on Form 10-Q.

And with that, I will turn the call over to Gerard.

Okay, thank you Chris.

Good afternoon everyone.

As you have seen in our press release this morning, we reported a significant improvement in both our fourth-quarter and full-year 2010 results compared to 2009.

We substantially reduced our net loss for all of 2010 compared to the $1.5 billion loss that we incurred in 2009.

This obviously represents an improvement of more than $1 billion versus a year ago, and that in spite of a fuel bill that was nearly $850 million higher than it would've been at 2009 prices.

A lot of hard work on the part of everyone at American went into accomplishing this improvement, and while we have a lot more work to do to achieve our goal of sustained profitability, we are optimistic about the trajectory we are on, and we believe that the groundwork we laid in 2010 has positioned us well for future success.

I want to thank our employees for their hard work and dedication this past year and for their continued efforts in what is shaping up to be a very busy start to 2011.

Bella will walk you through our results in more detail in a few moments, but first let me just highlight a couple of things.

In 2010 we took several major steps to restructure and fortify our domestic network.

Today nearly 98% of our capacity is in one of our five cornerstone markets.

We are now stronger in the markets that matter most to our premium and corporate customers -- New York, LA, Chicago, Dallas/Fort Worth, and Miami, the premier gateway to Latin America.

And in 2011 our focus on our cornerstone markets will include a significant expansion of our Los Angeles service starting in April.

Our transatlantic joint business with British Airways and Iberia is now up and running, offering customers better fares, more choices and easier connections.

The transatlantic joint business, initially representing approximately $7 billion in combined revenue between the carriers, serves more than 400 destinations in over 100 countries with approximately 5200 daily departures.

This new relationship is enabling our three companies and oneworld to compete far more effectively with the other global alliances on routes between Europe and North America.

In 2011 look for us to deepen our relationship with BA and Iberia on many fronts, importantly including more coordinated joint flight schedules beginning this spring.

Turning to the Pacific, last week we announced that we expect our joint business with Japan Airlines to launch on April 1st.

Our transpacific joint business will initially include 10 nonstop routes across the Pacific.

American and JAL will also codeshare on a total of 123 routes, and we will continue to expand our codeshare whenever that is possible.

In addition, American will begin flying to Tokyo's Haneda Airport nonstop from New York's Kennedy Airport on February 18th.

As we launch our joint businesses across both the Atlantic and Pacific, we are simultaneously enhancing and expanding our global network of partners, adding quality carriers in the markets that matter most to our customers, including airberlin in Europe, S7 in Russia, and Kingfisher in India.

We are also very pleased to welcome our long-time partner, Qantas, to Dallas/Fort Worth with the announcement last week that they plan to start flights to DFW Airport in May.

As all of you know, our fleet renewal efforts are well underway, as we took delivery of 45 new 737 aircraft in 2010, with more coming over the next few years.

In addition today's announcement regarding our intent to purchase two 777-300 aircraft will bolster our network strategy, allowing us to take advantage of new opportunities made possible by our joint businesses across the Atlantic and Pacific.

So before I hand it over to Bella, in closing, all of us are intensely focused on improving our results going forward.

As always, we're keeping a close eye on fuel prices and the economy, and we're looking forward to the work ahead in 2011 as we become a stronger, more successful airline for the benefit of our shareholders, customers and employees.

And with that said, I'm going to turn things over to Bella.

Thanks Gerard.

Good afternoon everyone, and thank you for joining us.

The fourth quarter continued the trend of improvements for AMR.

We posted a loss of $97 million, or $69 million excluding special items.

Our $69 million loss reflects a $35 million tax benefit primarily related to The Tax Relief Act of 2010 passed by Congress in late December, the effect of which was not reflected in our Eagle Eye guidance.

Our fourth-quarter results compare to a loss of $415 million in the fourth quarter of 2009, excluding special items and a non-cash tax item.

We had a special item of $28 million in the fourth quarter of 2010, and our fourth-quarter 2009 results included the positive net impact of $71 million in special items in a non-cash tax item.

Please refer to the press release for details.

For the remainder of this call, I will exclude the impact of special items, to have a more meaningful discussion of our performance on an ongoing basis.

We improved our fourth-quarter net result by $346 million versus last year, and that result was achieved despite having paid $171 million more for fuel in the fourth quarter than we would have paid at last year's fourth quarter prices.

This is the best fourth-quarter results in four years, since the same period of 2006.

Obviously all of us recognize that we still have a lot of work to do to return to satisfactory levels of profitability.

Still our improvement versus last year is clearly a step in the right direction.

Now I would like to provide a brief update on a few of the key initiatives that we have underway to continue improving our performance.

First, looking at revenue.

We are continuing to build the revenue-generating power of our network.

As we begin 2011 we expect to reach three key milestones this spring -- the initiation of our joint business with Japan Airlines; the start of enhanced service in our Los Angeles cornerstone market in early April; and re-timing of our transatlantic schedule, which will allow us to offer our customers a more convenient joint schedule of American, British Airways, and Iberia flights.

Across the Pacific our joint business with Japan Airlines has already received the necessary government approval and is scheduled to start on April 1st with joint service on 10 transpacific routes and codesharing in 123 markets.

We are already working closely with JAL to better align our schedule, coordinate joint services, and enhance the experience we offer our customers, and offer them a greater variety of fares.

Our joint business will also include American's new service between New York and Tokyo's Haneda Airport, which we plan to launch on February 18th, as well as JAL's new service between Haneda and San Francisco, which started last fall.

In April we also plan to take the next step in executing our cornerstone strategy, which focuses our network on the largest markets in the United States -- New York, Los Angeles, Chicago and Dallas/Fort Worth, as well as Miami, the gateway to Latin America.

Los Angeles is the cornerstone market where we expect the most dramatic year-over-year change in 2011.

Los Angeles is not only a huge market in its own right, but it is also the most important gateway between the USA and Asia.

With that in mind, this year we will be adding service from Los Angeles to Shanghai, as well as to nine new markets in the US with our fellow oneworld carriers, including Cathay Pacific, Qantas and JAL -- across the Pacific; LAM, to Latin America; as well as British Airways; and starting this year, Iberia across the Atlantic.

We believe we have a truly unmatched set of partners at LAX, especially when it comes to attracting premium traffic.

And turning to the Atlantic, by April we expect to launch a truly coordinated schedule in our transatlantic joint business.

So let me give you a specific example.

Now that we are collaborating, American Airlines and British Airways together plan to offer 14 daily flights between the New York area and London in a pattern of service that is in demand by our corporate business base.

By April our joint flights will be much more evenly and conveniently spaced throughout the day.

In fact, during the peak periods we're going to be effectively operating a shuttle.

We're working diligently to expand our joint efforts as quickly as possible, and in a few weeks -- and I'm sorry -- and a few weeks ago, in December as a matter of fact, we expanded our codesharing relationship so that American's code is now displayed on over 800 British Airways and Iberia flights to almost 175 destinations.

As these and many other examples demonstrate, we are focused on building a more effective, which is to say, a more profitable network.

With fleet being the foundation of our network, we have accelerated our fleet renewal efforts by taking delivery in 2010 of 45 new, more fuel-efficient 737-800 aircraft, with more to be delivered over the next couple of years.

At the same time, we are in the process of adding 22 new CRJ-700's, bringing that fleet to 47 aircraft, all of which will offer a two-class product targeted at premium customers.

Today's announcement of our intent to acquire two Boeing 777-300ER aircraft for delivery in late 2012 is the next step in our fleet strategy, and more importantly it underscores our strong focus on network and alliance strategy.

We expect to be the first US airline to fly the 777-300.

These aircraft will facilitate our opportunities to grow in slot-constrained airports as well as a greater ability to serve new long-haul markets facilitated by our own network strength and our alliance partnerships.

The 777-300 is a highly efficient airplane, and we believe it is a great fit for American Airlines.

But of course to have a successful future we must be profitable.

So as we evaluate our fleet going forward, we fully recognize that building a thriving, successful business requires a competitive network, a competitive product, and a competitive cost structure.

Just as our long-term strategy demands that we have competitive costs, we are also keenly focused on cost control in the near term.

Heading into 2011 we anticipate flat unit costs for the full year, excluding fuel.

To keep our ex-fuel unit costs flat, we will have to offset a number of headwinds, including aircraft rent and facilities costs.

To do so our entire team has an intense focus on managing and controlling our costs and reducing costs where appropriate.

It is certainly well known that our biggest cost challenge is having the highest labor costs in the industry, and as you know, we have open contracts with the Transport Workers Union, The Association of Professional Flight Attendants, and the Allied Pilots Association.

The mission we face is pretty straightforward.

Not easy, but straightforward.

We're working towards labor agreements that provide American with competitive labor costs while securing good wages and benefits and a bright future for our people.

We are determined to reach deals with our three unions that provide our people with good compensation and enhanced job security, while putting in place competitive provisions needed for the success of our business.

We remain determined to reach agreements that are fair to everyone concerned, and we are dedicated to accomplishing that objective.

Now before commenting on our fourth-quarter results, let me take a moment to share a few comments on distribution.

As I'm sure you know, the Global Distribution Systems, or GDS's, include Sabre, Travelport and Amadeus, including -- have for many years served as the primary intermediaries between airlines and travel agencies.

Over time technologies have evolved and new technologies are now available that allow airlines to distribute services directly to travel agencies using more efficient and flexible platforms.

Specifically, in conjunction with technology providers, over the past few years American developed an alternative distribution approach that can connect travel agencies more efficiently to our internal system.

The new technology helps us to lower our costs with a positive impact on fares and more choices for the traveling public.

And we believe that the GDS companies can have a role in offering travel agencies access to our Direct Connect technology.

So our objectives with respect to distribution are pretty clear.

We have an opportunity to use new technology to customize the products we offer, resulting in more choices to better meet customer needs, generate new revenue from the sale of customized products and services, and lower our distribution costs, helping us to offer good fares while meeting our financial obligations.

It is important to note that American Airlines fares and schedules continue to be widely available through a number of outlets, including our own website, AA.com, American's reservations call centers, thousands of travel agencies in locations worldwide, search engines such as Kayak.com, and online travel agencies such as Priceline.com.

As a matter of fact, it became public yesterday, Priceline.com expects to begin using American's tickets -- issuing American's tickets through our Direct Connect in the near future.

Now I will take a few minutes and comment on our fourth-quarter results, starting with our revenue performance.

In the fourth quarter, mainline unit revenues increased 7.1% on 3.1% more capacity, compared to the fourth quarter of 2009.

Load factors reached a fourth-quarter record of 81.6%, and passenger yields were up 6.5%.

Our consolidated passenger unit revenue increased by 7.3% for the quarter.

Domestic unit revenues improved by about 7.7%, while overall international unit revenues increased by about 6.1% versus 2009.

Domestically all of our cornerstone markets were strong for us year-over-year, while internationally the Pacific and Mexico posted significant growth versus 2009.

In terms of corporate travel, we continued to see positive signs.

Corporate revenue increased for the quarter versus last year, and we continued to have a corporate revenue share premium versus the industry.

In recent weeks the industry has had some modest success in raising fares.

This is particularly important in light of recent fuel price trends.

Turning to advanced bookings, as we look out to the remainder of the first quarter, our bookings are in line with last year.

On the regional front, quarterly revenue increased about 18% versus the prior year.

Our regional capacity was up 11.6% for the quarter, driven by the new two-class CRJ-700 deliveries.

Our cargo revenues increased 10% versus the fourth quarter of 2009.

Freight traffic was higher by 6%, and freight yields posted about an 8.5% improvement.

In other revenue we saw year-over-year improvement of almost 3%.

We saw continued strength in baggage revenues, partially offset by the decision we made last summer to enhance our offering for premium customers and no longer charge for certain AAdvantage Award redemptions.

For the full year we grew our other revenue by over $120 million, reflecting our continued focus in this area.

Shifting to costs, our fourth-quarter unit costs, excluding fuel, improved 3% for the mainline and almost 3% on a consolidated basis.

We achieved this improvement through a lot of hard work and through relentless focus on cost controls.

Fuel prices increased during the quarter to $2.42 per gallon consolidated, up 11.5% versus the fourth quarter of last year.

Consequently we paid over $171 million more for fuel in the fourth quarter than we would have paid at last year's prices.

I would like to direct you to our press release for more information on our debt, cash position, fuel hedging, as well as specifics on our 2011 capacity and cost guidance.

But first let me point out a couple of highlights.

In terms of our cash, we ended the quarter with over $4.9 billion in cash and short-term investments, including a restricted balance of about $450 million.

A year ago we also had $4.9 billion in cash and short-term investments, including a restricted balance of about $460 million.

In the fourth quarter our principal payments on long-term debt and capital leases totaled about $280 million, bringing our total payments for 2010 to about $1.15 billion.

We expect 2011 principal payments on long-term debt and capital leases to total about $2.5 billion with approximately $325 million of this amount coming in the first quarter.

Our 2010 defined benefit pension contributions total approximately $460 million.

For 2011 we expect to make cash pension contributions of about $520 million.

Our 2011 P&L impact related to the defined benefit pension expense will be about $640 million.

Looking at our cost guidance, as you know, our year-over-year unit costs improved as we moved through 2010, so the comparisons this year will be guided by that trend.

In the first quarter of 2011, our unit costs, excluding fuel, will be improving by about 1.5% at the mainline and about 1.8% on a consolidated basis.

For the full year of 2011 we anticipate that unit costs excluding fuel and the potential impacts of new labor agreements will be comparable to the full year of 2010.

We anticipate achieving this through numerous cost control initiatives and modestly higher year-over-year capacity in the face of headwinds in several areas, including higher aircraft trends and facilities costs.

Our 2010 capital expenditures totaled under $2 billion, excluding approximately $250 million of non-aircraft CapEx.

For the full year 2011 we expect about $1.1 billion of aircraft CapEx and a modest increase -- which is a modest increase from our prior guidance, driven primarily by the pre-delivery payments for the 777-300 aircraft order we announced today.

As you can see, our aircraft capital spending will still be down significantly versus 2010, as 737-800 deliveries are expected to be reduced from 45 in 2010 to 15 in 2011.

We are currently projecting our 2011 non-aircraft CapEx to be between $450 million and $500 million, bringing our total capital spending for this year to about $1.6 billion.

One of the key drivers of the year-over-year increase in non-aircraft CapEx is deferred projects from 2010.

You may recall that while we initially estimated about $400 million in non-aircraft CapEx for 2010, our final spending was reduced by about $150 million versus our expectations a year ago, to the total of $250 million I just mentioned.

Some of the projects we will be focused on this year include customer-facing aircraft cabin upgrades to our 757 and 737 fleets, facility improvements, including terminal projects to support our cornerstone strategy, and necessary technology and avionics improvements.

With respect to capacity, our 2011 guidance is in line with what we discussed in our last call, with mainline domestic capacity up about 1% in 2011 and international growing just over 7.5%, resulting in mainline capacity growth of about 3.5% and consolidated capacity growth of just over 4%.

To wrap up, this quarter was one of significant progress, which reflects the dedication and commitment of our entire American team to further improving our results.

So with that, Gerard, Tom and I will be glad to take your questions.

(Operator Instructions) Michael Linenberg, Deutsche Bank.

This is actually (inaudible) behalf of Mike from Deutsche.

I just had a question regarding a press release you guys put out recently on -- that you expect $150 million in revenue and cost synergies from your recently approved JV with JAL.

And per today's release there was something in there that said you and JAL collectively generated $1.5 billion in revenue from routes in the combined markets.

So seeing that the synergies are about like 10% of that, is that a good number to use when considering the $7 billion JV you have with BA?

Or how else should we think about that?

An excellent question and thank you for raising it.

I think one thing to consider as you look, we're describing sort of the current business as it stands today and the immediate synergies that both of us see, but I think what it doesn't reflect and something that we haven't specifically commented on at this point are new routes, and so as we go forward, that is something that needs to be considered as well, but we did not specify that explicitly.

Okay.

But is there any way we can apply that similar 10% number to any -- or any sort of number to the $7 billion for the JV you have with BA?

Or --?

Well, what we have shared publicly -- and I just want to kind of recap -- what we said is there are a number of initiatives.

In aggregate they will represent over $500 million on an annual basis.

And we broke that down further by saying that our joint business agreements both with BA and Iberia and with JAL represent the bulk or the biggest portion of that $500 million, but we did not break it out publicly in any great detail.

That $500 million number also includes cornerstone strategies and a lot of other initiatives, but think of it in terms of on a steady-state basis, which we expect to attain by the end of next year, it should be in aggregate over $500 million.

Okay, got it.

Thank you.

I have one more question.

With regard to revenue trends, you talked about the fuel surcharges that the industry is trying to pass on.

Can you talk a little bit more about your experience in that regard and comment on whether -- what you're seeing in terms of the revenue environment in light of this?

Well, we don't prospectively comment on pricing or fare initiatives.

As I shared just a few minutes ago, we have seen strengthening in the fare environment in the marketplace, and as you look across the industry, just within the last couple of days there's been a number of initiatives, and I think that is a good reflection of the fact that as fuel has been increasing, there is also strengthening on the revenue side.

Oh, perfect.

Thank you so much.

Thank you.

Say hi to Mike for us.

Gary Chase, Barclays Capital.

Good afternoon everybody.

Wondering if you could elaborate a bit on what some of the near-term impact is that you're seeing from the distribution issues that you referenced?

Is there any way to calibrate that in terms of revenue impact?

Gary, I think at this point kind of given some of the legal matters that are involved, we are not specifically commenting on any one aspect.

What I can share with you is that as we look out to the remainder of this quarter, our bookings are in line with last year.

Okay.

And can I ask you to clarify that as well, Bella?

When you say the bookings, do you mean the booked load factor or the absolute bookings?

Because obviously capacity is up year-on-year.

An excellent clarifying question, Gary.

What I mean is as we look at advanced bookings, it is the advanced booked load factor that is in line with last year.

Okay.

Is there any regional color to that we should be aware of, like it is better in certain regions and not in others?

Or not really?

I think at this point we really aren't breaking it down further.

I've think that across the Atlantic the industry overall is not seeing the same kind of strength that it saw earlier, so I think kind of -- that is one region not uniquely for us but the industry as far as we can tell.

Other than that, the number that I shared with you is more of an aggregate system number.

Thank you.

Hunter Keay, Stifel Nicolaus.

I wanted to touch on a little bit -- I mean, the tone of your prepared remarks sounded very optimistic, and I appreciate that, but if I'm taking some of the guidance you guys provided with fuel amount and fuel CASM, it looks like a pretty sizable loss in 2011 is pretty likely here.

I'm getting something like 7% per ASM growth for something close to breakeven, which would be a pretty strong topline performance given the 4 plus percent capacity growth.

Is there something -- is that -- first of all, is that an attainable number do you think?

Is that -- the 7 plus percent per ASM -- or is there maybe some arrows in the quiver that we're just not appreciating that maybe you want to help us get some sort of body language on?

What do you see that makes you feel so optimistic right now?

Well, Hunter, unfortunately -- or fortunately -- if you can appreciate, I cannot comment on revenue projections for this year because that is not what we do.

What I can share with you -- and perhaps I'm generally more of an optimistic, upbeat person, so you're probably sensing that as well, but I think it's fair to say that there is a lot for us to be optimistic about in a sense of the foundational work that we did last year in terms of JV/A, both over the Atlantic and the Pacific, and the fact that as we are now putting, for example, like a more coordinated schedule in place with British Airways and Iberia, that is actually not going to be effective until April, but the good news, it will be in effect until April.

We see a lot of synergies that we have anticipated for many years that we're hoping to get, so a lot of things happened in 2010 that I think position us very well going forward, and I think perhaps that's what you're sensing.

There is also -- and I know that word can be overused, so you will have to forgive me -- but I think we have -- we're just very energized by a lot of things that happened in our favor in the last 12 months, and I think it lays the groundwork for us to be stronger in the future.

Okay.

By my math I think you guys can do about $350 million to $400 million in incremental operating income from charging $25 for international first bag fee.

I know you're not going to give any kind of comment on that, but could you maybe tell me what percentage of bags, roughly speaking, that you transport right now have a fee attached to them?

United told us about six months ago it was only about 40%, which I think is remarkable.

Do you have any kind of similar metric that you can help us out with?

Hunter, I'm going to defer and have maybe Chris look at that.

To be honest, that is not a number I have readily available, and I would rather not try to guess.

Okay, I appreciate that.

Thank you.

Thank you.

Glenn Engel, Bank of America Merrill Lynch.

Good afternoon.

Hi Glenn, how are you?

Hi Bella.

The first question would be on looking at RASM, if I look at the domestic RASM over a one- or two-year period, you've outperformed by a decent margin, and yet if I've looked at the international margin by any region -- Latin, transatlantic, transpacific -- either over a one- or two-year period, you've significantly underperformed.

Can you talk about what is driving the domestic better performance and the international worse performance?

Well, I think that -- I can comment about 2010, and in 2010, first of all, we have not benefited from antitrust immunity like some of our competitors have benefited from -- sort of one aspect.

Another one -- the Pacific region on a year-over-year basis was very strong, and of course we are not as large there directly, and we did not have a joint business with JAL at that point in time.

So there are some unique regional challenges that have impacted us given our geography.

And even over the Pacific, one of the areas that on a year-over-year basis did not increase as much as some of the other ones is for example Japan, because it was stronger the year before.

So there are some unique sub geographies within the geography.

And then in the case of Latin America, for example, there are -- like in Brazil we've seen pretty good economic growth, but there were some other regions, and specifically I can comment on Mexico.

So going back a little bit in history, in 2009 there was a unique impact from the H1N1, and that made the Caribbean pretty strong that year.

So if you look at the Caribbean in 2010, it did not show some of the same strength, and that is a large region for us.

So there are kind of unique geographical impacts that I would say.

Now, I think that on a year-over-year basis as we look out, I think it is going to be less of an issue -- as a general statement.

And the $640 million pension accrual for 2011, does that compare to $677 million in 2010?

It's about $660 million, $670 million in 2010.

Okay, thank you.

Thank you Glenn.

Kevin Crissey, UBS.

Hi guys.

Going back to the distribution stuff, I know -- I can understand why you wouldn't be able to talk much about that specifically, but maybe you could talk about something maybe not as revenue directly related but kind of maybe some changes in your website traffic or something along those lines that would get us appreciation for any shift in distribution trends?

Kevin, I appreciate your question, and I appreciate your understanding, because as you can understand, there is not much we want to share, given where we stand at the moment from a legal perspective.

I can share with everyone that we have seen a positive trend on AA.com, as you would anticipate, as we anticipated, so that has been a positive for us.

And the only other thing I would share with you is that we do have our hearing date with respect to the Sabre dispute.

That is actually now in mid February, February 14, and so that is kind of another piece of public information I can share with you at this point.

I think -- Kevin, this is Gerard -- I think it is useful, despite all the lawyer'ing going around, to come back to what our objectives are, and you know of course we have distribution costs, which is part of the equation here.

But we are also attempting to customize our products and services to better address what customers are asking from us and to increase the choices available to them.

So of course we want to lower our distribution costs, which will help us keep offering low fares, but we're also trying to be customer-centric in what we're offering our customers.

And then it's no secret we want to try to generate new revenue sources from the sale of customized products and services.

And of course part of the equation for doing that is developing a closer relationship with our travel agency partners and ultimately the folks that are riding on our airplanes.

So despite the fact that we've got to be cautious because of all the lawsuits about the data that we are sharing, I don't think there's any harm -- at least I hope there's not -- in trying to frame for you what our objectives are in all of this.

Thanks.

I guess as it relates to the Sabre stuff from an accounting perspective, are you -- the increased costs that they have passed on that I don't think you got an injunction against -- if I'm not mistaken-- are those in your guidance?

Would it be material if suddenly you got that back?

Or you're not capturing that currently in your guidance and it would be material to the negative?

Or do you know what I'm talking about with the increased cost per transaction for Sabre?

Kevin, I appreciate your question.

I think at this point -- I totally agree with Gerard that it really is very important for us to highlight what our objectives are, but as far as any specific aspects like that, given where we are right now, we prefer not to comment specifically, as I'm sure you can appreciate.

Okay, no problem.

What can I do with a flat advanced booked load factor?

I never -- you could do that with low pricing.

You could do that with high pricing.

I just -- it's not -- I've never been able to find much use with it.

I know you're trying to give color on "things are fine," but I don't know that that necessarily does.

Is there another way to try to frame "things are fine"?

(multiple speakers) we weren't trying to do anything other than what we do on ever quarterly call, so that is the same framework we use on every quarter to give guidance on revenue outlook as it relates to bookings.

It just seems more important now I guess because of the distribution headwinds, as well as the fuel headwinds and where capacity is.

But I don't think many people on the call did expect you to come out and say, here's what our RASM is going to be for the first quarter.

But we can all try.

Thanks.

(laughter)

Thank you Kevin.

Bill Greene, Morgan Stanley.

Hi, thanks.

This is [John Godham] filling in for Bill Greene.

Have two questions.

First, Gerard, I just want to ask a bigger-picture question on your negotiations with the OTA's and GDS's.

It is great that American took leadership on the issue, but if the industry presented a more unified front, I'm guessing chances of favorable outcome would in all likelihood be higher.

I'm sure it's not that simple, but can you just discuss how you arrived at your current strategy and what some of the challenges are in coordinating a more unified front with other airlines in how the industry deals with OTA's and GDS's?

Well John, of course we don't talk to other airlines, and we do not have a unified front with other airlines, nor would we be permitted to do so.

So that is not something that is legally permissible.

So of course we wouldn't do that.

But we have been thinking about the subject for a long time, and we have been working with technology providers, including some of the world's current GDS's, about our vision for the way technology is potentially changing the distribution of airline products and services.

And so those goals that I highlighted earlier, we had been thinking about for quite some time and working towards an ability to be able to achieve some of those objectives, while at the same time recognizing that we have, despite the fact we have some disputes going on today, we have some very good partnerships with GDS's and OTA's and of course travel agencies across the world, and we want to work constructively with everyone with our ubiquitous approach to distributing our product so that I think in the end we can have potentially a good result for everyone.

So I know I didn't -- well, I guess I did directly answer your question, which is we have no unified front because that is not the way we work.

So --

Okay, thanks Gerard.

And Bella, one thing that stood out in the release was the fact that you've pegged your fuel guidance to the average curve in December, but fuel prices have gone up since then.

Is your about 4% 2011 capacity growth guidance consistent with current prices?

Or is that based on the older fuel price guidance from December?

And what would trigger a reassessment of your capacity outlook?

Well, I think at this point what I can share with you is that of course fuel prices move considerably up and down on any given -- in any given week.

What we shared with you is our plan for 2011 as was finalized, and so the guidance that is provided in the press release is, if you will, consistent, the different components are consistent with each other, and at that point in time we pegged it to December.

Obviously there's been some movement, but at the same time, as you know, fuel prices are quite volatile, and so we will have to see how things progress.

But the guidance we gave is consistent with each other, if you will.

Sure.

But is there a specific fuel price level that would trigger any sort of reassessment of capacity?

That is not something that is as formulaic as you're describing.

So I would say, not at this point.

On the other hand, if you look at history, you can look at our behavior historically, and I think the answer is, yes, of course there's a point at which if you can't recover your input costs to any satisfactory level, you obviously have to think about capacity, and that has certainly been our history.

Yes.

I think that is absolutely true in terms of capacity discipline that we have demonstrated.

I would also, John, kind of point you to the fact that our international growth is kind of what you are seeing, and it is driven by very I guess strategic and specific decisions that we made that build to our network strength.

But of course as a Gerard points out, we are rational people and obviously are very focused on the overall well-being and financial health of AMR.

Okay, thanks a lot.

Jamie Baker, JPMorgan.

Hey.

Good afternoon everyone.

Question for Bella on fuel hedging -- it looks like last year's program reduced your earnings, oh, by around $190 million or so -- I'm just taking what you overpaid for fuel relative to US Air.

It doesn't actually include what you paid for those hedges.

And look, I respect that maybe US Air goes from first to worst this year in terms of what they ultimately pay, but you got to admit the program worked against you in 2010.

It seems to me that if your shareholders want to hedge their exposure to fuel -- and many of them do so -- that should be left up to them, but it isn't clear to me why AMR should be in charge of this process or this strategy.

If you accept that longer term you and the industry can absorb higher fuel prices, what is the rationale for continuing to tie up capital that could be put to other uses?

So Jamie, I appreciate your question and certainly your perspective.

I think we've been pretty I guess open in sharing that we take a systematic approach to fuel hedging so we're not at any one extreme, and we feel that given how tickets are sold in the industry -- in other words, tickets are pre-sold, right, for future travel -- that having a more systematic way of managing and reducing some of the fuel volatility is a reasonable, prudent manner in which we manage it.

And so I think that over time we have achieved significant savings, but of course if you look at any one point in time, it may be up significantly or down significantly.

But our approach has been a systematic way, and basically about 18 to 24 months out we start buying in small increments so that we, by the time we consume it, are hedged at about 35% to 50%.

And that is our plan.

Hey Jamie, if I could just -- this is Gerard.

If I could just add to that -- I appreciate your perspective on that, and I will think about what you had to say.

I do think that the underlying premise of the program was when it was conceived and is today that in any given year, as Bella highlighted, you're going to either win or lose, and -- but that is not necessarily the objective.

The objective was to dampen the volatility of fuel prices and your expenses and thus hopefully dampen the volatility for earnings.

And then I think if you keep the logic stream going, if you dampen volatility, you lower the beta in your stock, and that is a good thing and accrues to your shareholders.

So I think that is the underlying thinking behind the program.

But where you started is correct, that because of the systematic way that we do this, we were on the wrong side of the hedges in 2010.

As we currently sit, we're on the right side of them for 2011.

And the whole purpose is just to try to dampen some volatility.

Okay.

As a follow-up, just on the 777-300ER, how should we view this aircraft within the context of the 787 deliveries look like they're going to be starting around the time that 87 was originally slated.

Is this aircraft likely to be a long-term part of the fleet?

Is it part of Boeing's compensation to America over 787 delays?

Does your existing pilot contract even allow for this model, or is it contingent on a negotiated solution there?

Also unless I'm mistaken, two planes won't allow you to do a daily roundtrip.

Maybe across the Atlantic but not the Pacific.

So should we expect another order for this type?

Jamie, this is Tom.

Hi Tom.

The 777-300 is -- this was really a strategic decision.

It's a really efficient airplane that will allow us to capitalize on some near-term opportunities given our cornerstone strategy and our joint business agreements.

It's a very advanced airplane.

It has unit costs that are about 7% or 8% better than the 747-400, so it's really a very good airplane.

So we did it to capitalize on some opportunities.

It is good to have the flexibility to get at these airplanes, given that the 787 is delayed, but that is not the principal reason why we exercised our options here.

As to your question about whether we will do more, I would say we have ample flexibility under our agreement with Boeing to capitalize on more opportunities, but we will evaluate those as they come.

Because we do have that flexibility, we don't need to do anything until closer to the time of the opportunity.

And I know your existing APA contract specifies the 777-200, but does this require sitting down with the pilots to negotiate the cockpit economics?

No.

We believe we have the provision to fly these (multiple speakers)

Okay.

I just wasn't sure about that.

Okay, thanks for the feedback everybody.

You bet.

Dan McKenzie, Hudson Securities.

Good afternoon everybody.

One small housecleaning question on the network.

Consistent with your cornerstone strategy, I'm seeing AMR cut a significant amount of domestic capacity at certain non-cornerstone markets, but one that jumped out at me was San Juan, Puerto Rico, where I am seeing AMR cut flying 35%, starting in the second quarter.

I'm wondering if you can provide a little bit more perspective about what the plans are, either the equipment at this market or the market in the context of AMR Eagle, to the extent that it serves that market?

I can add a little color on that, Dan.

Then maybe Bella can jump in.

But it's really -- consistent with our cornerstone strategy, it's really about focusing on Miami.

And so many of the markets we serve out of San Juan we also serve out of Miami.

So this is a way for us to do that more efficiently and capitalize on the north- and southbound feed that we have coming into Miami.

So we think it is a really smart economic and strategic thing to do.

Okay, good.

And then following up, I hope I'm not kicking a dead horse here, but maybe I could try a little different tack, and that is it looks like everyone has the same interest in the biggest markets that matter the most, and by that, particularly New York and Los Angeles -- to your cornerstone comments -- and even at more granularity, domestic flying at these markets.

So I'm wondering if you can provide any perspective about whether or not these large markets can absorb the influx of capacity.

I know you can't talk about pricing, but maybe you could talk about perhaps the volume of corporate travel transactions or other demand points.

And I guess at the end of the day, what we're all trying to figure out is if the pie is big enough to go around for everyone.

Thanks.

Dan, this is Tom again.

I will give a little bit of the strategic point of view, and Bella can chime in if she likes.

We chose our cornerstones very carefully because four of the five are the largest metro areas in the US, and the fifth of our cornerstones is Miami, which is uniquely a hub for the Americas.

So we -- in three of those places -- Chicago, Dallas, Miami -- we have very large and powerful hubs, and I think we're unique in that regard.

In New York clearly that is a three-way battle -- at least a three-way battle -- between the big alliances.

We think we have a very strong strategic position there given our historical strength of corporate accounts, our brand new, beautiful Terminal 8 at JFK that is unmatched.

We now have a joint business with British Airways across the Atlantic into the -- far and away the most important travel corridor out of New York.

We are very big in the transcon.

We now have a partnership with JetBlue.

I don't think anybody has got anything close to what we have in New York, particularly as regarding the highest-value travel and the premium corporate accounts.

And then in LA I think our unique strength there is not only our own flying, which as you know we're growing this year, but also our partnerships.

We have the best partners in LA, particularly going across the Pacific, with Qantas, Cathay, JAL.

And so we think the combination of our domestic growth, our own international flying, and those partners makes us a natural winner in LA.

So we think we've got very strong and strategic positions in all five cornerstones, and that is why we've dedicated virtually all of our capacity now to the cornerstones.

That's excellent.

The only thing I would add to that is if you look at the largest premium markets in the world, Heathrow is by far the largest, and the second-largest is JFK, and so obviously with -- as I mentioned, we're going to offer in a shuttle-like pattern of service 14 flights between the New York area and London, and we feel that is very powerful.

Okay, great.

Thanks.

Appreciate the perspective.

Helane Becker, Dahlman Rose.

Thank you very much, operator.

Hi everybody.

Hi Helane.

Can you just comment, Gerard, perhaps on the flight attendants?

I think that after a few days of negotiations earlier this month talks broke off and they asked for -- to be released in a 30-day cooling off period.

And without commenting on any of the negotiations, can you indicate when or if the NMB has responded or when they will respond?

You know, Helane, I really -- I don't think I can give you any unique insight based on that because it is really up to NMB in terms of how they judge the status of negotiations.

We've certainly worked with them and worked in good faith at the table with our flight attendants to reach agreement that does, as Bella suggested earlier, try to balance the long-term interests of our employees against their short-term desire to improve their paycheck.

And we certainly understand that.

But the unique challenge that we have, that you're familiar with, is as the only legacy carrier not to have gone bankrupt, we just have to face the reality that we have the highest labor costs in the industry.

And so we are not trying to negotiate down to the bankrupt carriers.

We -- or formerly bankrupt carriers.

We are simply trying to recognize where we are relative to them and not put our company or our employees' long-term interests at jeopardy by not confronting that reality.

And of course we're watching very closely what is happening at the other carriers.

And so since you raised the flight attendants, I saw that -- or I read that the Continental flight attendants reached an agreement that was ratified by their members, and that agreement would be perfectly acceptable to American Airlines.

So I think that will show you the fact that we're not -- we're trying to be responsible in the way that we're conducting ourselves.

But we're also trying to recognize where the rest of the industry is and the fact that all these companies did go bankrupt and had labor contracts imposed on their people by a bankruptcy judge.

Okay, thank you for that color.

I really appreciate it.

So the NMB doesn't talk to you before releasing them into a 30-day cooling off period to get an agreement as to timing?

Are they just -- it has been a long time.

I don't really remember.

They just one day wake up and decide, it's time to be released.

Is that how it works?

Gosh, Helane, I guess in theory we would have a heads-up on that.

I'm not aware that there is any formal process for that.

(multiple speakers) okay, thank you very much.

Okay.

Thank you.

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