美國航空 (AAL) 2014 Q4 法說會逐字稿

Good day and welcome to the American Airlines Group fourth-quarter 2014 earnings call.

Today's call is being recorded.

(Operator Instructions).

And now I would like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens.

Thanks, Lisa, and good morning, everybody, and welcome to the American Airlines fourth-quarter 2014 earnings conference call.

Joining us on the call today is Doug Parker, our Chairman and CEO; Scott Kirby, President; and Derek Kerr, our Chief Financial Officer.

Also in the room for our question-and-answer session is Robert Isom, our Chief Operating Officer; Elise Eberwein, EVP of People & Communications; Bev Goulet, Chief Integration Officer; Maya Leibman, our Chief Information Officer; and Steve Johnson, our EVP of Corporate Affairs.

We are going to start the call today with Doug and he will provide an overview of our financial results.

Derek will then walk us through the details on the quarter and provide some color on our guidance for 2015.

Scott will then follow with commentary on the revenue environment and our operational performance.

And then after we hear from those comments, we will open the call for analysts' questions and, lastly, questions from the media.

Before we begin we must state that today's call does contain forward-looking statements including statements concerning future revenues and costs, forecasts of capacity, traffic, load factor, fleet plans and fuel prices.

These statements represent our predictions and expectations as to future events, but there are numerous risks and uncertainties that could cause actual results to differ from those projected.

Information about some of those risks and uncertainties can be found in our earnings press release issued this morning and our last Form 10-Q for the quarter ended September 30.

In addition, we will be discussing certain non-GAAP financial measures this morning such as net profit and CASM excluding unusual items.

A reconciliation of those numbers to the GAAP financial measures is included in the earnings release and that can be found on our website at AA.com under the More About American Airlines Investor Relations section.

The webcast of this call also will be archived on our website.

The information that we are giving you on the call is as of today's date and we undertake no obligation to update the information subsequently.

So thanks again for joining us and at this point I would like to turn the call over to our Chairman and CEO, Doug Parker.

Thanks, Dan.

Thanks, everyone, for being on.

We are here to talk about our fourth-quarter and full-year 2014 earnings.

We announced this morning record earnings for the fourth quarter of $1.1 billion, that is up 153% over the prior year.

And for the full year 2014 record earnings of $4.2 billion, that is up 115% versus 2013.

This is the best year in the long, proud history of American Airlines and the best year by a long shot, more than double the prior record.

And we are extremely pleased to be reporting results like this just one year into our merger.

It is the result of 100,000 hard-working team members who have done just a phenomenal job of working together and taking care of our customers.

So we are grateful for them and all that they are to doing and continue to do and will continue to do in the years ahead.

These results allow us to do a number of important things: invest in our people, invest in our customers, invest -- and return capital to our shareholders.

As to investing in our people, we hired over 7,000 new team members in 2014 including 2,300 flight attendants, 800 pilots, 300 mechanics.

And in recognition of the outstanding performance the Company has done and our people have done we instituted a 4% pay increase for all nonunion employees below the director level.

As well as for all of our contract employees that have reached joint contract -- joint collective bargaining agreements.

Our flight attendants have indeed reached a five-year joint collective bargaining agreement which includes industry-leading wage rates.

Our pilots are currently voting on a tentative agreement for a five-year joint collective bargaining agreement also including industry-leading wage rates.

During the year we prepaid our pension obligations by over $600 million and, based on current funding assumptions, we now have no required contributions until 2019.

As to investing in our customers, we've continued our fleet modernization program.

We added 132 new aircraft to the fleet in 2014 and retired 111 older ones.

That will continue in 2015 as we plan to take delivery of 128 new airplanes and retire 126 older ones.

American now has the youngest most modern fleet amongst our global network peers and that gap is widening every day.

We also announced a $2 billion product enhancement initiative including fully lie-flat seats on our long-haul international fleet; satellite-based Internet access on international flights; a refreshed and modern design for our Admirals Club lounges worldwide; and an improved and updated airport check-in experience.

And then we have used the returns after investing in our product and our people to return to our shareholders.

Earlier this year we announced the first shareholder dividend at American Airlines since 1980.

We've continued that dividend in each quarter since the initial announcement including in today's quarterly results.

We also completed our previously announced $1 billion share repurchase program more than a year before its expiration.

And today we announced the authorization of an additional $2 billion share repurchase program to be completed by the end of 2016.

So when you can do all these things well you generally see stock appreciation, that's certainly been the case here.

Now we at American Airlines, AAL is not yet in the S&P 500, but we know that we will be one day.

And if you look at our results, we produced a total shareholder return of 113% in 2014 and, had we been in the S&P 500, that would've been the second best in all -- amongst all of the S&P 500.

Behind, by the way, only Southwest Airlines, our competitor.

So it was a good year to invest in Dallas-based airlines.

But this is not our first year of really strong returns.

Our predecessor ticker LLC -- LCC was up nearly 90% in 2013 and over 170% in 2012.

So, on a three-year basis we produced a TSR of over 1,000% and that is by far the best of S&P 500 stocks.

And far in excess of anyone else, second place again -- actually, first in the S&P 500, but second if we ran it as a company with a 600% return.

So we are really proud of that record.

We understand we work for all of you and we intend to work hard to continue building upon it as we look to the years ahead.

As to the outlook for 2015, we are really pleased with where we are and we know we have a lot more to do.

2015 is going to be a key year for our integration; getting to single operation [certificate], merging into single frequent-flier programs; integrating our reservation system; achieving joint collective bargaining agreements with our remaining workgroups.

All of those things need to be done in 2015 and our goal is to accomplish all of those in the year.

It won't be easy, but the incredible things our team has accomplished by working together thus far gives us the confidence that we are on the right track with right team.

As to our financials outlook, Derek will give you some guidance.

But suffice it to say that we believe 2015 will be yet another record year, exceeding the results of 2014.

We also expect our pretax earnings margins will be the best of our global network peers in what will be only our second year post merger.

And then lastly from me, we are well aware that much of the tailwind pushing our industry in 2015 is due to a significant and recent drop in oil prices.

Our perspective is that Brent was over $100 a barrel for nearly four years and it has been under $100 a barrel for merely four months.

So we are going to continue to run American as though we are still operating with $100 per barrel oil.

We think that is best for our investors, our team members and our customers and how we plan to keep running the business.

So with that said I'll turn it over to Derek and then Scott and then we will get back to questions.

Thanks, Doug, and good morning, everyone.

In our earnings release filed early this morning you will find information pertaining to our fourth-quarter and full-year 2014 results.

As we talked about last quarter, please note that on a GAAP basis results for the fourth quarter and full year 2014 show today -- compares our post-merger performance to the 2013 GAAP financials for American Airlines Corporation, which includes the results for US Airways only for the period from the merger -- completion of the merger on December 9, 2013 through the end of 2013.

This makes the year-over-year comparisons not meaningful.

As such for the fourth-quarter and full-year 2013 we have provided our financial results on a non-GAAP combined basis which is the sum of American Airlines and US Airways results for the 2013 periods.

We believe this is the best way to review our financial results.

You will be happy to know that this is the last quarter of these types of comparisons.

Unless otherwise noted, all of my comments will be based on the comparisons to the 2013 non-GAAP combined results, which can be found in the press tables under the heading American Airlines GAAP (sic) Inc.

non-GAAP Combined Consolidated Statement of Operations.

For the fourth quarter the Company recorded a record GAAP net profit of $597 million.

This compares to a non-GAAP combined fourth-quarter 2013 net loss of $1.9 billion.

Excluding net special charges we reported a record net profit of $1.1 billion in the fourth quarter of 2014.

This represents a 153% improvement over the combined non-GAAP net profit excluding net special charges of $436 million for the same period in 2013.

Using 724.8 million diluted shares outstanding we reported earnings excluding net special charges of $1.52 per diluted share for the fourth quarter of 2014.

Our pretax margin, excluding net special charges, improved by 570 basis points year-over-year to 10.6%.

Total capacity for the fourth quarter of 2014 was 65.1 billion ASMs, up 1.7%.

Mainline capacity for the quarter was 57.8 billion, up 1.5%, while regional capacity for the quarter was up 3.8% to 7.21 ASMs.

As Doug said, in the fourth quarter we took delivery of 20 mainline aircraft and retired 15 aircraft.

On the regional side we removed in part eight Embraer 140 aircraft and took delivery of 17 aircraft.

We expect to end 2015 with close to a flat aircraft count while we continue our fleet replacement program.

We do expect to take delivery of 74 mainline aircraft and 50 regional aircraft and plan to retire or park 104 mainline aircraft and 22 regional aircraft.

Total operating revenues were a record $10.2 billion in fourth quarter of 2014, up 2.1% from the same period last year.

Passenger revenues for the quarter were $8.8 billion, up 0.7% with yields up 0.9% on a 1.7% increase in system capacity.

Cargo revenues were up 2% to $232 million due primarily to higher freight volumes.

Other operating revenues were $1.1 billion, up 14.4%, primarily due to higher frequent-flier revenue driven by our affinity card deal with Citibank announced in late 2013.

Versus the fourth quarter 2013 passenger RASM was down 1% to $0.135.

Total RASM in the fourth quarter of 2014 was $0.1562, up 0.4%.

And Scott will provide more detail on our revenue performance and demand environment after my comments.

The Airline's operating expenses excluding net special charges for the fourth quarter of 2014 were $8.8 billion, down 4.1% year over year.

Mainline operating cost per ASM excluding net special charges was $0.1251, down 5.9% year-over-year on a 1.5% increase of mainline ASMs.

We have seen a material financial benefit resulting from the recent decline in crude oil prices as we haven't hedged fuel.

Our average mainline fuel price including taxes for the fourth quarter of 2014 was $2.52 per gallon on a 17.5% decline versus $3.06 in the fourth quarter of 2013.

Excluding net special charges in fuel our mainline cost per ASM was $0.0867 in the fourth quarter of 2014, up 1.1% when compared to the same period in 2013.

Regional operating cost per ASM excluding net charges and fuel was higher by 0.9%.

Excluding net special charges and fuel our consolidated fourth-quarter CASM was up 1.3% year-over-year.

We ended 2014 with $8.1 billion in total cash and investments of which $774 million was restricted.

The Company also has an undrawn revolving credit facility of $1.8 billion bringing our total unrestricted liquidity to $9.1 billion.

As of December 31, 2014 approximately $656 million of the Company's unrestricted cash and investments balance was held in Venezuelan Bolivars which decreased $65 million from the September 30, 2014 balance of $721 million.

During the quarter the Company returned $959 million to shareholders through the payment of $72 million in quarterly dividends and the purchase of $887 million of common stock or 20.5 million shares.

As Doug said, the Company's $1 billion share repurchase program announced in July 2014 is now complete, more than one year ahead of its scheduled expiration.

When combined with the $113 million spent in share repurchases in the third quarter of 2014 the Company repurchased a total of 23.4 million shares at an average price of $42.72 per share.

As a result of these share repurchases the net settlement of shares withheld in satisfaction of certain employee payroll tax obligations, and the settlement and cash of our 7.25% convert, the Company's fully diluted share count has been reduced from 756 million at the time of merger close to 719 million today for a reduction of approximately 5%.

The Company's Board of Directors has declared a $0.10 per share dividend for the first quarter 2015 and also authorized an additional 2 billion share repurchase program to be completed by the end of 2016.

For the full year we have prepaid $2.7 billion in high cost debt and lease obligations thereby lowering our average -- our overall cost of capital.

We also contributed $781 million to our defined pension plans and, based on airline funding rules, we are over 100% funded which is better than our network peers.

Based on current assumptions we are forecasting no recorded contributions until 2019.

Turning now to our 2015 guidance, we have lowered our full-year overall system capacity by 0.5 point and are now forecasting it to be up approximately 2% to 3%.

This increase in capacity is primarily driven by increased gauge from aircraft deliveries, higher seat density through aircraft reconfigurations, higher completion factor and an increased stage length.

Domestic capacity is expected to be up approximately 3% in 2015 while international capacity is expected to be up approximately 1.5%.

By quarter mainline capacity breaks down as follows: 56.5 billion in the first quarter; 62.4 billion in the second quarter; 63.6 billion in the third quarter; and 58.2 billion in the fourth quarter.

Regional capacity breaks down by quarters as follows: 7.27 billion in the first; 8.01 billion in the second; 8.19 billion in the third; and 8.11 billion in the fourth.

There has been a lot of talk of capacity changes in response to lower fuel prices.

You won't see any changes from us in the near future since we continue to run the Airline as though high fuel prices will return.

Even if we were inclined to be less disciplined about expansion, our infrastructure is not setup to handle additional capacity increases above our current plans for at least 18 to 24 months.

Given our expected retirements and all of the additional training that has to occur as we take delivery -- take new deliveries to replace MD-80s, 757s and 767s, we are using 100% of our training resources for the foreseeable future.

Even if we wanted to increase utilization we would have to add simulators, hire and train new instructors, etc., and that is just not something that is practical to do just because oil prices are lower today.

For the full year 2015 we are forecasting total CASM ex-special items and fuel to be up approximately 3% in 2014.

This increase is driven primarily by the cost of new labor contracts for both flight attendants and pilots.

In the event the pilots do not ratify the tentative agreement this week, then our cost would be approximately $600 million lower than today's guidance which would be about 2.5 points of consolidated CASM.

Mainline CASM excluding special items and fuel is projected to be up approximately 4% while regional capacity -- CASM excluding special items and fuel is projected to be down approximately 5%.

By quarter our mainline CASM ex fuel and special items is as follows.

First quarter is up between 5% and 7%, slightly higher than full year due to maintenance timing and lower year-over-year capacity.

Second and third quarters are up between 2% and 4%; fourth quarter up between 3% and 5%.

Regional CASM excluding special items and fuel by quarter breaks down as first and second quarters will be down 4% to 6%; third-quarter down 3% to 5%; and fourth quarter down 4% to 6%.

As I mentioned earlier, we are seeing substantial financial benefit as a result of the recent drop in crude oil prices.

With no fuel hedges in place the entire change in fuel price flows straight to our bottom line.

Using the January 22 fuel curve we are forecasting our 2015 consolidated fuel price to be in the range of $1.73 to $1.78 per gallon.

Based on these prices we expect our 2015 consolidated fuel expense to improve by more than $5 billion year-over-year.

By quarter our forecast for mainline price breaks down as: first quarter $1.71 to $1.76; second quarter $1.67 to $1.71; third quarter $1.74 to $1.79; fourth quarter $1.76 to $1.81.

On the regional side the first quarter is at $1.75 to $1.80; second quarter is $1.71 to $1.76; third quarter $1.78 to $1.83; and the fourth quarter $1.80 to $1.85.

Using the midpoints of the guidance we have provided along with the PRASM guidance that Scott will give, we expect our first-quarter pretax margin to be between 13% and 15%, an improvement of approximately 1,000 basis points as compared to first-quarter 2014.

While we expect to have a large increase in cash flow this year resulting from lower fuel prices and merger synergies, we will continue to remain disciplined in our capital allocation process with a bias towards investing in the Airline, paying down high cost debt above our average cost of debt, and returning excess cash to our shareholders.

Looking at CapEx, our focus continues to be on integrating the Airline while also making key investments in the fleet, product, operations and our people.

We are forecasting total gross aircraft CapEx to be approximately $5.2 billion in 2015.

With the capital markets as strong as they are today, I expect we will take advantage of low financing rates to fund a greater portion of our aircraft deliveries than the $1 billion in commitments that are currently in place for 2015.

In addition, we expect to invest $1 billion for non-aircraft CapEx.

We also expect $2.1 billion in debt repayments in 2015 which includes $800 million in prepayments of high-cost debt.

So in summary, we are extremely pleased with our record financial results.

Our more than 100,000 team members are the best in the industry and it is their efforts that make 2014 such an outstanding year.

While a lot of hard work remains as we complete our integration, we have made great strides in our first year following the merger, which we believe puts us on the right track toward our goal of restoring American to the world's greatest airline.

Now I will turn it over to Scott to go through the revenue environment.

Thanks, Derek.

And I would like to start by thanking all the people of American Airlines for the great job they continue to do in operations during the fourth quarter and again today as we are dealing with the winter storm in the Northeast.

On the revenue front our fourth-quarter PRASM was down 1%, which was worse than our original forecast for flat to up 2%.

We can't really point to a single event that causes us to miss the forecasts other than to say that there is a lot of change going on in our network, both from us doing things like increasing density on existing aircraft and from our competitors who have large competitive capacity growth in many AA markets during the fourth quarter.

In particular there was significant capacity growth in some of our markets.

During the fourth quarter, we got new nonstop city-pair competition in 50 new markets and 44 of those new entrants were low-cost carriers.

While there are always competitive capacity changes, that is an unusually high and concentrated number of new starts that in hindsight we didn't accurately forecast.

Despite the growth in new domestic competitive capacity, however, domestic PRASM was still up 4%.

We continue to do well across the Pacific with a 1% decline in PRASM despite 23% ASM growth.

Our Atlantic PRASM was down 2% as industry capacity growth still exceeded demand in fourth quarter.

And of course Latin America remained the most challenging region for us with RASM down 11%, though excluding Venezuela [Latin] RASM would have been down only 2%.

We're still making solid progress on our integration efforts and are pleased with the progress thus far.

Some of the recent integration highlights included, as Doug said, reaching a final joint collective bargaining agreement with our flight attendants, reaching a tentative JCBA with our pilots.

We completed the eight of nine revision cycles on our way to achieving a single operating certificate, which we expect to complete in the first half of this year.

We completed additional airport co-locations and are now combined in 75% of the airports where we have joint operations.

We launched Match My Account to help our customers combine their AAdvantage and dividend miles accounts in preparation for converting to a single frequent-flier program in the first half of this year.

We completed the reconfiguration of 221 737-800s moving them from 150 to 160 seats.

We moved to a single revenue accounting system in the fourth quarter.

And we also continue to be excited about our progress with winning important corporate accounts.

We continue to see significant strength in New York when combining the two networks and that helped us generate double-digit PRASM increases again in New York in the fourth quarter.

We know that 2015 is a big year for integration, but, consistent with what we've said previously, all of the work we're doing leaves us confident that we will be able to meet or exceed our prior synergy guidance.

Turning to the outlook going forward, we continue to feel good about the demand environment, though there are some specific headwinds.

With the possible exception of South America, demand remains good so PRASM is being pressured in a number of markets where capacity is growing faster than demand.

Higher year-over-year completion factor will be an earnings positive but will negatively impact PRASM and we expect currency headwinds in all international regions from the strengthening dollar.

As I said earlier, we saw some large competitive capacity growth in AA markets during the fourth quarter.

In the first quarter we have new competition in five more markets, but we will still feel the impact of the 50 new markets that started in the fourth quarter.

Internationally AA has reduced capacity by 8% across the Atlantic and by 7% to Latin America.

The total industry growth is still high in all international regions.

Given the capacity issues we expect Q1 PRASM to be down in all regions except for the Atlantic where we expect modest PRASM growth on the back of our capacity [clutch].

Including all of the effects described above, we expect systems PRASM to be down 2% to 4% in the first quarter.

As we move forward the comps, particularly the international comps, get easier in the third and fourth quarters as we overlap the Venezuela situation and the challenges in Brazil and Argentina.

And of course we expect to begin realizing the benefits of re-banking Dallas and Chicago in the second quarter and to be able to realize the bulk of the revenue synergies once we move to a single reservation system in the fourth quarter.

In conclusion, we are very encouraged with the operating and integration results at American Airlines.

And while there are some near-term capacity headwinds, the demand environment remains strong and we are positive about long-term demand trends.

And with that (technical difficulty).

All right.

Thanks, Derek, thanks, Scott.

Operator, we are ready to begin taking questions.

(Operator Instructions).

Bill Greene, Morgan Stanley.

Doug, I wanted to ask you about your views on the revenue side because, for a long time you have sort of said, look, there is no point in hedging because fuel goes down, revenues eventually follow.

So I realize demand plays a pretty big role in this question, but when you think about it what is your best guess about when we start to see an impact on RASM from falling fuel or is this time different and we may not in fact see that?

Yes, I will let Scott chime in behind me with more detail.

But to be clear, I don't think we ever said, Bill, gee it doesn't make any sense to hedge because pricing follows cost.

Indeed, what we said was for a number of reasons, not the least of which is the cost of hedging, but also the fact that it doesn't derisk the firm, we didn't think it made sense to hedge.

Events like we have seen lately, large drops in fuel prices, are really costly to companies that have locked in prices.

And this time it happened to occur not because of a decline in the economy but they oftentimes do, which gets you in actually a more risky situation than others.

But again, if I said that, Bill, I would like to go back and clarify.

Because the fact of the matter is if we felt that our prices were always tied to fuel prices we wouldn't have been working at airlines that were losing billions of dollars when fuel prices went up and we couldn't raise prices.

What we believe is that pricing is tied to demand.

And that demand, as Scott said, remains strong and that is what we should base our pricing on, not based on our cost structure.

But, Scott, why don't you --?

Yes, I think, Bill, what you may be referring to is commentary that we've said where we have talked about a natural hedge between a demand driven decline in oil prices and our revenue.

So if the world economy got weak that would lead -- or the US economy got weak that would lead to lower oil prices.

The difference now this is a supply driven decline in demand.

We have always -- we always have and always intend to price to demand as opposed to cost.

But this decline in oil prices is a supply driven event as opposed to a demand driven event.

And because of that you there's usually a disconnect between that oil and airline revenue relationship that existed when it was -- when the oil price was being driven by demand.

That makes sense.

Let me just ask you one other question.

Derek mentioned there is limited ability to flex up on capacity.

In the event that we saw demand start to follow oil for whatever reason, or it just disappointed us for whatever reason, how much downside flexibility would you have on capacity?

Well, I mean we have a pretty fair amount because we are retiring aircraft and we can just accelerate those retirements.

We actually accelerated some of those retirements in 2015, but we have got a couple hundred aircraft that are scheduled to be retired over the next few years.

We could always accelerate that if we want, though obviously with our current outlook we don't have any plans to change that.

We continually look at demand -- or continue to look at the environment and work on our capacity.

And you can see that even as we came into this year, just as we fine-tuned the schedule we lowered capacity by 0.5 point.

There is nothing systematic about that, that is just fine tuning, going through market by market and allocating capacity.

But we have flexibility though, though obviously if the environment stays like it is today or like we -- and like we expect it to be, we don't intend to reduce beyond where we are right now.

Great, that is great.

Thanks for the time, guys.

Appreciate it.

Jamie Baker, JPMorgan.

Derek, are both operating entities fully harmonized in terms of frequent flyer accounting?

Or are there some other potential RASM implications as that process plays out down the road this year?

No, they are fully harmonized.

Okay.

And I think you said Bev was in the room.

Bev, could you outline what some of the, I guess, more material integration challenges and timings are that we should be aware of this year in particular.

Both in terms of what the passengers can come to expect, but equally, if not more importantly, what the owners should be looking for?

We do have a number of big events coming at us year.

Scott mentioned a couple of them.

You will see us harmonize the frequent flyer programs later this spring.

We will be migrating the dividend miles program into AAdvantage.

So that will be obviously something that will be front and center with our customers, particularly the members of both of those programs.

Scott also mentioned we are in rev cycle eight of nine now and we are well on the way and very much on track to a single operating certificate.

Also this spring -- and then probably the biggest event is the migration of our res program and we have had scheduled for -- towards the back of the year.

A whole lot of planning going on there because, as we know from other experiences, the systems can work just fine, but if we don't have our employees fully prepared for all of those changes things can still get muddled up.

So a lot of emphasis both on IT preparedness as well as business readiness.

In terms of our owners, a lot of progress has been made on things like aligning sales contracts, GDS agreements and so forth.

But clearly those efforts will continue, as will alignment of supply contracts and things that will drop right to the bottom line.

But we think we have got a good plan.

The whole Company is really impacted by it, as you know.

So a lot of time communicating with our employees and giving them all the tools they need to really be fully prepared to make it as seamless as possible.

Excellent, very thorough.

I appreciate it, Bev.

Take care.

Julie Yates, Credit Suisse.

On the PRASM guide for the first quarter of down 2% to down 4%, have you changed anything in your forecasting process to eliminate some of the errors that impacted Q4 -- Q4's progression?

Or is this a case where with two reservation systems it is going to be a little bit tougher to be accurate until the systems are merged?

I don't know that we -- we always try to improve our forecasting process and we always try to give you guys a 50-50 forecast.

I think it is fair in the fourth quarter -- I think the biggest thing we probably missed was the impact of 50 new routes starting up.

And while we knew that those -- we could have known have those routes were starting up, we don't really build that into our forecasting -- normal forecasting process just because it's unusual.

And so, we think we have given you the best forecast we can -- well, we know we've given you the best forecast we can, we think it is the right forecast.

There is more volatility in our process right now than there will be at steady-state because we just have a lot of change going on.

There is some of that that's between two different systems.

But also we just have enough change going on that our volatility is higher than it would normally be or that it will be once we have settled out, once we've merged everything and are at more of a steady-state performance.

But we gave you best forecast we could for the fourth quarter and if we turned out to have missed it we have given you the best forecast we can for this quarter.

And we will continue to update you every month as we get better data.

Okay, understood.

And then on the transatlantic, you mentioned that this is going to be the only positive region in the first quarter on unit revenues.

Is there a risk to this given some of the competitive capacity additions from Delta and Virgin Atlantic?

I believe they are increasing capacity about 10% on some of their routes.

Well, there's always a risk to it.

We feel pretty good about that forecast.

The UK remains relatively strong, which is where we have the bulk of our capacity.

And we have cut capacity a lot.

So while we said PRASM is going to be up, that is on the back of a 7%-8% -- I think we said 8% across the Atlantic production in capacity.

So PRASM is going to be a based on that.

So we feel -- we think that's what will happen, but obviously we can't know for sure until we get through the quarter.

Okay, thank you very much.

Hunter Keay, Wolfe Research.

So, I don't have the cash flow statement in front of me, but I think ballpark you guys are going to return about $1 billion of cash to shareholders despite maybe generating free cash flow of negative roughly $1 billion.

You probably have about $1 billion to $2 billion too much cash on the balance sheet.

You're probably going to do let's say $1 billion to $2 billion of free cash flow.

Derek said you are going to raise at least $1 billion, maybe $3 billion of cash in the capital markets.

Is there a scenario where if the market continues to penalize your stock with the amount of multiple compression that we've seen over the last few months, where you return all of the $5 billion of fuel windfall to your shareholders this year, even in the absence of let's say $5 billion of free cash flow?

We are not going to get into those scenarios.

But --.

Totally understand.

Maybe let me put the question differently, Doug.

I mean did the market penalizing your stock, because your stock did not go up as much as it should have based on EPS going higher.

Did that factor into your decision to deploy an enormous amount of cash in the fourth quarter?

Okay, let me try this and see if this helps.

We look to use our cash as follows: first, ensure that we have enough cash on hand to withstand any sort of unforeseen outcome -- and more so than our other large competitors at this point in time given what we are going through which is an integration.

So we look first to ensure that we have more than ample cash on hand.

And then for cash -- as to the uses of cash that we have in excess of that, we look to first invest in the business, we are doing that.

And I think both in terms of the integration as well as things like the $2 billion in customer improvements we talked about.

And then having done that -- and then look to reduce any high-cost debt, we have done virtually all of that.

I mean Derek can tell you there is more coming, but so far -- we are at the point now where we've paid down everything that we could have at least that's above our cost of capital.

And now we look to going forward do you actually -- as you have airplanes coming in do you go and actually pay cash for those or do you finance them?

And the reality is, at least in the current environment, it is definitely in our shareholders best interest for us to at least go and invest some large percentage of the cost of those airplanes because you can do so at investment grade rates below 4%.

So -- and we obviously believe we can use that cash better and get higher returns than that.

So long way of me saying you get through all that, and I think the math you were going through, you end up with still cash left over if indeed we continue to produce earnings like we have in 2014 and like we are looking for 2015.

And that cash is yours and our job is make sure we get back to you as efficiently as possible.

And we will continue to try to do that.

I don't -- frankly the biggest conversations we have is what the most efficient way of doing that is.

And what we certainly saw -- now getting to your question, what we certainly believed as we were headed through the fourth quarter of 2014 was that our stock was undervalued.

And we therefore thought it was in the best interest of our shareholders to use that excess cash to repurchase shares, and we did.

Yes.

That's helpful, Doug, thank you.

And a question for Scott.

Can you help us understand what the point of sale mix is on some of your international service as we sort of break it down between developed economies and emerging market economies?

Like is it maybe more balanced point of sale to say like a Western Europe than it is to some of your new China service or down in Latin America?

At a high level can you help me understand that as it relates -- I am thinking about this in the context of FX risk, Scott.

Yes.

So, these numbers won't be exact, but Europe is about 50-50 point of sale, China is more US point of sale, and Latin America varies -- deep South America, which is where the challenges are, is majority Brazil, Argentina, 70% plus of revenue is being sold in South America.

The Caribbean and Mexico is mostly US, but particularly the Caribbean.

But, so as you think about foreign-exchange risk, I'll just give you some numbers.

If you just took our mix of sales around the world from the fourth quarter, for those countries where we sell in euros or in foreign currencies, that would -- if we just kept the same mix of revenue and nothing else changed, that would be a 0.7 percentage point decline in system PRASM, which is baked into our forecast.

But that is the impact.

That doesn't include the impact of a place like Brazil where we sell tickets in dollars.

And while we sell them in dollars, a 25% depreciation in the Brazilian currency is obviously going to have an elasticity effect.

It also doesn't include that if you are American it is now cheaper to go to Europe for vacation and so there are some offsets.

But I think the currency impact is probably something a little less than 1% on PRASM.

We [have it] offsetting CASM help.

We do have some expenses in foreign currencies.

And obviously the impact on oil prices is even bigger.

So while it is a negative in the PRASM, it is probably an earnings positive to have a strong dollar when you consider all the effects.

Thanks a lot.

Mike Linenberg, Deutsche Bank.

Hey, Scott, I just want to go back on you talked about international capacity down 8%, the Atlantic and Latin down 7%.

Is that March quarter or is that full year?

I just --.

That is the first quarter.

Okay, so that's first quarter.

And then your point about the international comps getting easier in the third quarter and fourth quarter.

I mean I get the year-over-year impact with Venezuela.

But as we have seen things deteriorate in some of the other Latin regions and things like the Japanese yen go through a further depreciation, like what is underlying that?

Like what are you saying, or is it just because you are going to see additional capacity come out?

What is driving that view?

Well, Venezuela is 2 points at the system level.

So that is a huge tailwind, and that is by far the biggest impact in the third and fourth quarter.

But we also look at Brazil, for example, which the deterioration started in the third quarter of -- Brazil and Argentina, our two largest Latin geographies, where the deterioration started last year really in the third and fourth quarters.

And we anticipate improvement on a year-over-year basis as we get there, particularly as we started to pull capacity out and we will continue to do that as we go through the year.

So my commentary on the third and fourth quarter getting easier is more focused on Latin America than it is either Asia or Pacific.

But particularly for the fourth quarter, we will also start to have a tailwind across the whole system once we get to a single reservation system, that that will unlock a lot of the synergies that we can't realize until we are on to a single reservation system.

That is more across the whole system.

But the commentary about the international is more focused on South America.

Great.

And if I could just squeeze in a question for Derek on the debt paydown.

I think you said $800 million in the last quarter or so.

As you look out going forward, what are the opportunities on debt paydown?

Or is it just are you at the point where a lot of the stuff that was expensive has already either been taken care of, or you have debt out there that is already at pretty attractive rates?

Like is there a lot more to do on the debt paydown front?

No, I think the $800 million is in 2015.

So we have two items -- we have two items in 2015, one that is going to happen in the first quarter and one that will happen in the third quarter that are prepayment of debt, and then there is one in 2016.

But other than that, we have actually cleaned up everything and paid off everything, as Doug said, below -- or above our cost of debt, which is in just over 6% range.

All of that has been paid off that we can.

So there is not much other than those -- the $800 in 2015, and then there is one item in 2016.

Other than that, it will be general just aircraft debt pay-offs.

Okay, great.

Thanks, everyone.

Helane Becker, Cowen and Company.

I am just kind of curious about this seemingly frivolous lawsuit the mechanics filed against you guys.

How should we think about that with the looming negotiations for the JCBA?

This is Steve, Helane.

And I would echo your characterization of frivolous.

This lawsuit is really I think more a effort to get media attention than it is to pursue a real legal initiative.

And we expect that the lawsuit will be dismissed in due course.

And while the motives of this guy, Gary Peterson, who is leading this charge are a little confusing, I think it has a lot more to do with his fight and for a place in his union or to lead the team of people to a different union.

I don't think that the dispute itself that is in the courtroom is going to have any impact on negotiations once those negotiations start going.

But it very likely will have an impact on when we actually get to the negotiating table with these workgroups.

And that is disappointing because we would really like to be able to expedite those negotiations and get our mechanics and all of our other ground employees to join collective-bargaining agreements quickly.

Okay.

And then I don't -- thank you for that, I really appreciate the answer.

And then I don't know if you can do this, but is it possible to parse out what percent or can you say what percent of your business comes from like energy-related travel within Texas versus say the new markets that are competing with you to determine what impact lower energy prices is having on your corporate accounts?

I don't know for the whole system, but for corporate accounts that we would know that those are energy-related companies, it I believe is less than 1%.

It is bigger than that because there are a lot of people that aren't on corporate accounts that are involved in the energy business that are flying on us or people that work for energy companies that go on vacation.

So, I don't know what the overall impact on our revenue and demand will be, though clearly that is a trade-off that we are happy to make to have lower energy prices in exchange for a little loss of demand from that segment of our traveler base.

Great, thank you for the answers.

Dan McKenzie, Buckingham Research.

Derek, what were the NOLs as of December 31, first of all?

And then second of all, is the $65 million drop in the Bolivars in the fourth quarter a fair Bolivar burn rate looking ahead?

Two things, one, the NOLs are still right around $10 billion, so that will -- not much change from the end.

We haven't used any of that yet so we are still at about $10 billion.

And then the val allowance is at about $4.6 billion.

The run rate on Venezuela, I mean that is just what happened in this quarter.

I would -- we are going to -- we are using up some of them each quarter as we move forward.

We did get some returned to us during the quarter and we got it returned at -- we had the 20 -- what was it, 2012 on at 4.3 and we got it returned at 6.3.

So we actually wrote a little bit of that off as you can see in the charts.

So we got about $20 million back, we wrote off about $30 million of it, so that makes up the $65 million.

So I wouldn't -- there is no real run rate on it, it is just going to be as it is and as it comes back to us as we get things returned from Venezuela.

Understood, okay.

And then secondly, it looks like investors are interpreting the PRASM guide poorly this morning just given shares that are down $1 in premarket trading.

So competitive capacity and overcapacity in the international market factors but I guess the question is how much of a PRASM drag is coming from larger incoming deliveries replacing the smaller MD-80s?

And I guess just tied to that, how effectively can you really revenue manage the additional seats on those planes just given the mixed fleet composition at this point?

So the easier way to think about that, the bigger capacity impact I think is the 737s having 10 more seats on them, that's a more straightforward analysis.

And that's -- we had 221 737s that have got 10 more seats on them in the fourth quarter.

So all those extra seats would be flying in the third quarter.

We think that those seats will come in at about 65% of the average PRASM, so the marginal PRASM will be about 65%, which means that at a system-level affects PRASM by about 0.4 points.

It is P&L positive because our marginal CASM on those extra seats is a lot less than 65%, so it is P&L positive but it is about a 0.4 percentage point drag on system PRASM.

Understood.

Thanks, guys.

Thomas Kim, Goldman Sachs.

With regard to international, the yields on the Atlantic and Pacific were certainly encouraging.

Obviously we would love to see PRASM up as well.

But I am wondering, is this yield improvement any sign of an early inflexion or is it too early to say?

I think it is probably too early to say.

We at American have taken a lot of steps to try to improve yield.

And we spend a lot of time focusing on -- we spend more time actually focusing on looking at the yield environment as opposed to load factor because you can always get the load factor up by lowering prices.

And so, there are a number of efforts underway.

We have opportunities to increase the load factor, but we wanted to find ways to increase the load factor without negatively impacting those yield numbers.

But I wouldn't interpret it as some inflection point.

It is just the continued evolution of the market and the demand environment.

Okay, fair enough.

And based on your outlook and what you are seeing in LatAm, is there any reason why you couldn't be more aggressive in cutting capacity?

I think we feel pretty good about how far we have gone.

And of all the carriers we track, we are the only ones that have cut capacity.

And so, I think we're probably, at least our plan is we are done cutting.

Okay.

And if I could just add a follow-on.

Where does this extra capacity go?

What extra capacity?

As you reduce capacity where does that incremental capacity go within the system?

We wound up -- we in 2015 have retired more airplanes than we originally to planned to.

Okay, great.

Thank you.

Duane Pfennigwerth, Evercore ISI.

Most of my questions have been asked, but I just wanted to ask you for some thoughts around hedging.

Can you talk about any work you have done to sort of analyze whether now is the right time?

And if you won't bite on that, I guess can you describe a scenario or a price or a situation where your answer might change and where it might make sense?

So we get questions like that a lot.

I will note that I first started getting those questions the first time when oil declined from $115 to $103.

So you get them a lot at every decline.

Look, you still have the same challenges with deciding that you want to speculate on oil prices.

And one, you have got to buy -- you can't buy oil at today's prices far out in the future, the market is at pretty steep contango so it is a hard thing to go do.

And the only rationale for putting a position on systematic hedging we've talked about on calls like this, it just doesn't make sense, is to put a big position on.

And you are buying at a really steep contango, you have got really high expenses.

And somehow you have got to convince yourself that you know better than all the professionals in the oil market who are out trading the market.

So that is a really hard hurdle for us to overcome.

It doesn't mean we never will, but we haven't done anything yet and all the rationale that we have had for not hedging in the past still exists today.

Oil prices are lower so the downside of hedging is less.

If you are wrong you are going to lose less money than if you hedged when oil was $115 a barrel.

But the theoretical rationale for not hedging really hasn't changed, it's just that the downside has gotten less.

Okay, thank you.

(Operator Instructions).

Glenn Engel, Bank of America.

A question on cost and revenue.

On the cost side, if I look at how much wages are going up, it would cause costs to go up more than the maybe 3% or 4%.

So what is the good guys that are offsetting the big labor cost pressures?

And on the revenue side, the Atlantic down [1.7%] was worse than Delta and United, why was there a gap.

And why is the PRASM gap between what you and Delta and United seem to be getting wider in the first quarter?

Why hasn't it stabilized?

Okay, on the cost side we're seeing some of the synergies already come in, so the selling expenses are down a good point.

Even on the -- other expenses are down.

Landing fees and aircraft rents are pretty flat.

So really the increases on the year for the quarter are salaries and benefits as we talked about, maintenance and depreciation are the other two increases during the quarter.

But for the full year we are going to see salaries and benefits up, but we do see selling expenses and maintenance decreasing year over year primarily due to fewer engine overhauls.

So those are the primary areas from a full-year perspective.

Just the difference in the first quarter is just the maintenance timing is negative in the first quarter, but for a full year it is almost 0.5 point better as are the selling expenses as you get through the year.

So those are the two biggies that offset the salaries and benefits and the depreciation increases.

And on the revenue front I think the simple explanation is more competitive capacity in our markets.

It is 50 markets, some of those are across the Atlantic.

Dallas and Washington National are the two largest, those are well known.

But there has also been pretty significant growth from Frontier in Philadelphia and to some degree Chicago.

So, I think we just have more markets that are now -- have LCC pricing in them and that really ramped up in -- started in the fourth quarter and ramped up even more in the first quarter.

And the Atlantic?

It is the same issue.

There is -- you've got more capacity.

Some of the new markets are out of the UK as Virgin and Delta reorient and fly more out of Heathrow.

Thanks.

Darryl Genovesi, UBS.

Thanks for the update on your synergy targets.

I just wondered if you could put a little meat on the bones that you have your 3% CASM of fuel guidance out there now.

So wondering specifically if you could quantify the cost synergies that are already baked into that as opposed to what you think is yet to come through in 2016 and beyond as you cut over to a single reservation system and generally target the legacy cost structure?

I would say from a cost perspective most of the synergies are -- I would say 75% of the synergies are already built in.

So the increase is due to labor offset by some of the synergies that we talked about on the sales side and those are in.

There are other areas that we will see as synergies going into 2016 after integration which are some areas -- and examples are the maintenance area today and the IT area today are all -- we have not had any synergies in either one of those areas from a people perspective, but we may see some of those as we go forward.

And as we retire systems down the road we will continue to see some synergies in those areas.

So I would say about from a cost perspective 75% of the synergies are built in already into the forecast through 2015 and there is about 25% more to come.

And then on the revenue side I think we might be at about 50% now with more to come in 2016 and 2017.

Great, thanks very much.

Savi Syth, Raymond James.

Just -- I believe most of the kind of competitive capacity issues are probably surrounded around Dallas.

And just wondering if the pressure that you are seeing, and some of it is introductory fares, wondering if there is any improvement in the fares in Dallas.

And then also if you can help us understand maybe how the rebanking might help that as you get into 2Q and 3Q.

Sure.

So I don't think there has been any real change in the pricing environment in Dallas.

Rebanking will help -- I will take one step back, what has happened in those Dallas markets is there has been a decline in the local yields as prices have come down.

Our local volumes have actually stayed about the same.

So the load factor contribution from local traffic have stayed about the same.

But we have managed to replace -- we've managed to improve the connecting RASM to counteract some of the decline in loss of the local RASM.

So rebanking will help with that because we will have even more connecting opportunities in those markets.

So rebanking will help -- it won't just help of course -- of course it won't just help the markets that have new competition from Love Field [will] help all the markets.

But it will help all of those markets in Dallas on March 29 when we get it rebanked.

Got it.

And then just on the LatAm PRASM, how much of is the impact from Venezuela is reflected in 1Q and what is the expected trend as you go forward in the next few quarters?

Well, it was 2 points in the fourth quarter and it is only about 0.5 point in the first and second quarter this year.

And then it is essentially nothing in the third and fourth quarter.

Got it.

And if I might ask one last question on New York, the strong unit revenue growth, is that coming from kind of market share gains on the corporate side or is it better pricing or what is driving that strength?

I think it is mostly market share gain with corporates and premium customers.

All right, great thank you.

And before the next question, operator, the question about Dallas gives me the opportunity to correct something I said earlier.

In my unscripted remarks I said two Dallas-based airlines performed at the top of the industry.

We of course are based in Fort Worth here at American.

So at any rate I should have said Dallas-Fort Worth-based airline.

And I apologize to Mayor Price and all of our friends in Fort Worth who remind me all the time.

We are proud to be here in Fort Worth.

So anyway, Dallas-Fort Worth-based airlines and Scott's comments were about Dallas-Fort Worth-based pricing.

All right, next.

Joe DeNardi, Stifel.

Scott, on the strength of the other revenue line, the ancillary side, what is driving that?

Is that going to continue into 2015?

And then as you have combined the two frequent-flier programs, do you think that the economics you are getting from that from your credit card partners are reflected in kind of how strong that is going to be on a combined platform?

So, some of what you are seeing is improvement in the frequent-flier and the deals we negotiated, that is a lot of it.

A lot of it is harmonizing policy.

So for example, we have bag fees on the American Airlines' network in Mexico now and we didn't last year.

So those items won't to continue to have the same kind of growth as we overlap when those events happened and there is a bunch of those things.

The biggest one is the frequent-flier program which will already be overlapping in the first quarter.

But a lot of those rolled out -- Mexico bags and other things rolled out throughout the year.

So there will be some of that.

More of the upside now will be driven from new initiatives and new programs.

We have a lot going on with choice seats for example and how we are selling seats on the airplane.

And so those will continue to grow.

But we had a step function increase from the merger as you just consolidated and realize synergies from that.

And those mostly are already in the books and going forward it will just be kind of core improvements that aren't synergies but that are just things that apply to the whole airline.

Okay, thank you.

(Operator Instructions).

Bob McAdoo, Imperial Capital.

You have added quite a few international -- Pacific routes out of Dallas recently.

And it doesn't show up as a problem area because maybe it is because the prior year the RASM was so low that even now the new stuff looks better.

But could you just talk about how the spool up of a Pacific route out of Dallas works relative to other international routes?

And when -- do we really think that those things are profitable in the short run?

Does it take a year for those things to develop?

Just give us some color on that if you would, please.

Sure.

When we enter a new city in Asia it typically takes longer to spool up, some of that is because we are smaller there.

Particularly when you enter a completely new city like when we went into Seoul, Korea.

We are going to start flying Dallas Beijing, the spool up will be shorter because we already fly to Beijing so the up spool up is shorter.

But we typically think of an Asian route as taking a couple of years to spool up.

And in 2014 some of those new routes weren't profitable at the time, though they were exceeding our forecasts.

And we feel actually really good about the start-up that we had in 2014.

If we looked at it today I don't have a specific forecast that goes route by route, but I am pretty sure that with fuel prices where they are today we would expect even our Asian route to be profitable in 2015.

But we felt really good about how all of the routes have started, you are right, they take a longer time to spool up than other routes.

But we felt really good.

And you can look at our numbers; Asia is the one area that we have been outperforming the industry by a pretty wide margin for the past -- for the full year last year.

And so, we are making good progress.

Some of that is because we start from a lower base and so we have more room to make more progress.

But we are making good progress and feel good about that trajectory that we are on.

Are we getting close to the end of all of the new Asian routes for a while?

Are all the obvious ones getting about covered?

No.

We are probably at the end of the new Dallas routes.

But we will still be looking and pursuing opportunities probably particularly out of Los Angeles.

Okay, thanks.

And, ladies and gentlemen, this does conclude the analyst portion of the question-and-answer session.

We will now move to the media portion.

(Operator Instructions).

Mary Schlangenstein, Bloomberg News.

Scott, you talked about some of the domestic markets where you said PRASM was under pressure because of increasing capacity.

Beyond the four that you specifically mentioned, are there any others where you are seeing a big impact?

And are there any international markets where you are specifically seeing an impact?

What four did I mention?

You mentioned Philadelphia from Frontier and a little bit in Chicago, DCA and Love Field.

Okay.

Yes, there's 50 markets and they are concentrated in four -- I have said those four cities.

I think probably the other place that there is some significant growth is South Florida.

Okay, okay.

And I would assume that you are working on ways to try to offset some of that or what are you doing in response?

We are competing aggressively, we have a great product, we have great people at the Airline, we have a great frequent-flier program.

We are matching the fares of our low cost competitors and we are competing aggressively.

Great, all right, thank you.

Terry Maxon, Dallas Morning News.

Guys, let me ask the Fort Worth question not whether you have offended Betsy Price.

But are you -- where are you on considering whether or not to move out of your current headquarters to a new building or perhaps remodeling/revamping your existing building?

Yes, we are not particularly far along at all, Terry.

We again haven't even made the decision that is something we want to do.

We are studying the possibility as to what might be available.

But we have a perfectly acceptable facility that we are working in today.

To the extent there is something that makes more sense we will -- we want to at least look to see if that makes sense and that is where we are.

We are in the studying phase, certainly not in the announcement phase.

All right.

When do you think you might complete that study?

First half of 2015 or --?

It is not high on the integration timeline, so I don't even know a date.

All right, thank you.

David Koenig, Associated Press.

Derek talked about using cash investing in the airline and he mentioned that even before paying down debt and paying shareholders.

Doug, I wonder if to look at it another way, are you saying to passengers, hey, we are improving the product and passengers should be happy about that instead of just getting a temporary lower fare because of cheaper fuel.

Is that a fair characterization?

We are not trying to ask our customers to be happy with anything.

We think indeed what we -- our job is to go make sure we are we are giving the best product we possibly can to our customers.

We -- in some areas I think all airlines had underinvested through very difficult times and we are using the profits we are producing to invest in products that matter to our customers, most notably lie flat seats, international Wi-Fi, improving the Admirals Clubs, improving the airport check-in experience, things that are really important to our customers.

All of which take a lot of capital, because we are profitable we can do it now and things that airlines couldn't do in the past.

So that is our first priority is ensuring we have a product that is -- that meets the standards of our customers which are very high at American Airlines.

And we have got a little bit of catch up to do, we are doing that, we believe we will be leapfrogging our competitors shortly.

And not to mention all the new aircraft we're bringing in to retire older airplanes.

You put all that together and we are on our way to having a product that we believe will be as good or better as anyone in the sky and that is our objective.

So anyway.

And pricing simply goes with demand as we keep saying.

So when demand is strong you see pricing move accordingly; when demand drops you see pricing move accordingly.

Okay, thanks very much.

Andrea Ahles, Fort Worth Star-Telegram.

So since I have a Fort Worth question to ask, I think I will ask a little bit about could you expand a little bit more on the Wright Amendment affect?

And just are you -- do you think you are out of the promotional pricing aspect of the new routes that were introduced?

Are you seeing a more normalizing the airfares on those new routes that Southwest introduced that you are competing against out of DFW?

I don't know is the short answer.

We haven't really seen a change.

It is about what we expected.

When you have that much new capacity in markets it is going to put pressure on price, that is just Econ 101; when the supply curve moves that much it lowers the price.

And it is about what we expected.

I haven't really -- we haven't noticed any change one way or another in the recent past.

So how do you foresee rebanking?

Is that more -- do you think rebanking's effect on it is just going to be for the connecting traffic and not so much affecting your (technical difficulty) traffic out of DFW?

It will largely impact connecting traffic, yes.

All right, thank you.

Dawn Gilbertson, Arizona Republic.

I have a question about the storm and the Super Bowl.

How are you guys re-accommodating passengers whose flights were canceled Monday, Tuesday and sometimes into Wednesday later in the week given a lot of sold-out flights to Phoenix?

Dawn, I'm not sure I understand the question.

In terms of Super Bowl preparations, I've got to tell you that it is an event that we have been working on for the last year.

And so everything from preparing for really the biggest day in history of departures, the Monday following, we are going to have remote check-in sights at a number of different places for passengers and also ability for passengers to check baggage.

We are going to make sure that we have got staffing that is beyond holiday and peak levels.

And we think we are as prepared as we can possibly be.

In terms of flight cancellations, things like that, we run a really high completion factor so we don't anticipate that that's going to be an issue especially out of Sky Harbor.

And in terms of re-accommodations, the great news is that Sky Harbor and American Airlines is now connected to the biggest airline network in the world.

And so, if there are any disruptions or issues we have many ways to get passengers out and back on their way.

I guess what I meant was the storms in the Northeast.

If you have got Patriots fans coming from Boston and they haven't been able to fly yesterday afternoon, today and in some cases tomorrow and you are trying to rebook them to get to Phoenix, are you having to add extra flights since the flights that are already scheduled for Thursday and Friday and Saturday out here are full?

Dawn, we take a look at that kind of stuff, but right now we are anticipating that we are through the mess by the 28th and back to normal.

Dawn, I think we are still in planning mode and we have got -- we will have thousands of customers to try to get to their destinations, both to Phoenix and to everywhere.

It is too early for us to tell what is going to happen for the schedule for the next week (multiple speakers) those customers.

Okay, thanks.

Jeffrey Dastin, Thomson Reuters.

So would American consider announcing commercial service to Cuba pending government approval like United has done from Newark and Houston?

And if so, what benefits might Cuba have for American?

So we already -- we currently fly 20 times a week with the charter program to Cuba.

We, obviously with the hub in Miami in particular, will serve Cuba on a scheduled flight basis when it is allowed.

We don't have anything to announce today.

But we will be anxious to start serving Cuba as soon as it is legally allowed.

Great.

And if I may follow up separately.

How crucial is a slot at Tokyo Haneda to American's expansion in Asia?

Well, it is really important.

Haneda is the preferred airport for customers flying to and from Tokyo.

It is the number one destination at Tokyo, Japan or it is a number one destination for us and it is the preferred airport and it is important for us to get in there.

It is also important for customers.

That is a valuable asset, a slot at the premier airport in Japan, and to have it be used 10% of the time that it could be used, which is what Delta has used it, is an inefficient use of that scarce resource and we would put it to much better use.

Thank you very much.

Ely Portillo, Charlotte Observer.

I just had a question about now that you have the 787 coming in and that is part of the fleet, does that change your thinking about what kind of flights might be possible from a hub like Charlotte internationally?

And how might that impact service going forward?

787 and then the A350, when we get those, do open up a new set of markets to us and a new set of economics.

In the near term it is not going to have any change in Charlotte.

Got you.

And just out of curiosity, is it coming to Charlotte at any time in the near future just on a hub-to-hub flight?

Not that I am aware of.

I don't think so, actually.

Well, darn.

Thanks, guys.

You can travel to Dallas, Ely.

Okay, now I have an excuse.

Thanks.

Dallas-Fort Worth that is.

Ted Reed, [The Street].

I also wanted to ask about 787 deployment, what you have in mind for it.

And I recall that Gerard (inaudible) once said it was going to be used New York Heathrow.

Is that still the case or are you more looking at Asia or new routes or existing routes or what?

We don't have anything to announce yet.

It is going to be a while before it starts flying commercially.

It is doing proving runs and then initial training runs with pilots.

And so, it is a ways before it starts flying.

When it does start flying it is going to initially fly to domestically anyway to break the airplane in.

So no announcement yet on the permanent international route that it will fly.

All right, thanks.

And, ladies and gentlemen, this does conclude today's question-and-answer session.

I would like to turn the conference back over to management for any additional or closing remarks.

Thank you all very much.

Just in closing again, we couldn't be happier with the results and the outlook.

If we hit those margin numbers that Derek suggested we believe those will be the leading amongst our large competitive peer group.

And since we are the largest airline in the world, we have higher margins, that means we are the most profitable which was one of our objectives.

So we still have to go produce that, but it appears that we are on our way.

We are excited about that and mostly excited about the great job our team is doing.

So thank you all very much for your interest and look forward to continuing to produce record results as we move forward.

Thank you.

And, ladies and gentlemen, this does conclude today's conference and we do thank you for your participation.