Catherine O'Brien

Catherine O'Brien of Goldman Sachs questioned the relative attractiveness of sale-leasebacks versus other capital deployment options and asked if the quarterly gain on sale margin indicated a change in secondary market demand.

Answer

CFO Pete Juhas stated that the company is considering a mix of buybacks, sale-leasebacks, and engine deals. CEO Aengus Kelly asserted that the 18% gain on sale margin was a normal fluctuation and that market strength is better evidenced by the record 99% lease extension rate. He added that sale-leaseback opportunities are typically pursued through bilateral, value-added relationships rather than open-bid competitions.

Catherine O'Brien from Goldman Sachs asked about the relative attractiveness of sale-leasebacks, engine deals, and share buybacks, and questioned the drivers behind the recent gain on sale margin and the re-emergence of sale-leaseback opportunities.

Answer

CFO Pete Juhas stated that the current buyback authorization has $800M remaining, which is why a new one hasn't been announced. He ranked buybacks, sale-leasebacks, and engine deals as the most likely uses of excess capital. CEO Aengus Kelly added that the 18% gain on sale margin was a normal fluctuation and that demand remains extremely strong, evidenced by a 99% extension rate. Kelly also explained that AerCap's sale-leaseback opportunities are typically not from open-bid competitions but from strategic situations where AerCap brings unique value.

Catherine O'Brien asked if announcements of aircraft retirements by U.S. airlines were affecting demand for AerCap's fleet and requested a breakdown of who is buying their sold aircraft. She also inquired about the short-term role of lessors if tariffs disrupt OEM supply chains between the U.S. and Europe.

Answer

CEO Aengus Kelly dismissed the retirement announcements as affecting irrelevant, older aircraft types, not the in-demand assets AerCap manages. CFO Peter Juhas provided the Q1 buyer breakdown: approximately one-quarter to airlines, one-third to other lessors, and one-third to investors. On tariffs, Kelly asserted that in a disruptive scenario, the used aircraft market would become a critical source of supply. He argued that governments should exempt used aircraft to protect consumers, which would in turn create strong demand for the lessor fleet.

Catherine O'Brien asked about the proportion of COVID-era leases among those expiring in 2025-2026 and the potential for rate increases. She also inquired about the rationale for the new engine investment and how its economics compare to aircraft. A follow-up questioned the assumptions behind the EPS guidance range and the significance of the record-sized buyback authorization.

Answer

CEO Aengus Kelly explained that the engine business is a unique logistics operation partnered with OEMs, not a straightforward financing business, making its growth highly attractive. CFO Pete Juhas noted that COVID-era leases will roll off gradually through 2032, providing a long-term tailwind. He also clarified the EPS guidance midpoint assumes full deployment of the new buyback, with the range accounting for contingencies.

Catherine O'Brien, Lead U.S. Airline and Aircraft Lessor Equity Research Analyst at The Goldman Sachs Group, Inc., asked about the Q1 impact of Fort Lauderdale capacity additions and the biggest tailwinds from Jet Forward in 2026, including Blue Sky and domestic first class. She also inquired about further opportunities for Mint flying, given the focus on premium products, and the margin uplift of Mint versus non-Mint flights.

Answer

Marty St. George, President of JetBlue Airways, anticipated that Fort Lauderdale capacity would perform well in Q1 due to seasonality and increased connectivity, not expecting a typical three-year ramp-up. Joanna Geraghty, CEO of JetBlue Airways, identified Blue Sky (loyalty reciprocity, interline sales), network recalibration, return to growth, operational reliability, lounges, and domestic first class as key 2026 tailwinds, aiming to create a "flywheel" for premium customers. St. George stated that Mint aircraft deliveries are nearing completion, with future focus on domestic first class. He highlighted Fort Lauderdale's success as a counter-seasonal Mint market, allowing efficient aircraft deployment between transatlantic summer and Florida winter, and noted the cost benefits of a Mint crew base there. He affirmed Mint's continued success but did not quantify specific margin uplift.

Catherine O'Brien of Goldman Sachs requested details on the monthly RASM progression during the second quarter and the assumptions behind the third-quarter guide. Additionally, she asked how the planned low single-digit growth aligns with historical commentary on its impact on CASM-ex.

Answer

President Marty St. George noted a 'hefty' revenue progression from Memorial Day onward, driven by strong peak demand. He highlighted that significant capacity management in September is expected to result in the highest year-over-year RASM increase of the quarter. CFO Ursula Hurley confirmed that low single-digit growth would lead to unit cost growth higher than flattish, but emphasized that strong cost controls and AOG improvements should provide efficiencies.

Catherine O'Brien questioned what the CASM-ex fuel outlook would be if second-half capacity is down year-over-year, and asked what lessons from the failed Northeast Alliance with American are informing the new proposed partnership.

Answer

Financial Officer Ursula Hurley reiterated confidence in the team's ability to manage controllable costs, having met guidance for six consecutive quarters. While withdrawing the full-year guide, she stated their aspiration is to work towards the original target of mid-single-digit growth on flat capacity by pulling all available levers. CEO Joanna Geraghty declined to comment on lessons from the NEA, stating the focus is on the new partnership which they believe drives more value for JetBlue.

Catherine O'Brien asked if JetBlue was observing a pickup in corporate travel similar to its peers and questioned the status of compensation from Pratt & Whitney, including its timing and whether it was included in the outlook.

Answer

President Marty St. George stated that while revenue from corporate accounts is at a record high, corporate travel remains a small part of JetBlue's overall business and is not significantly impacting demand patterns. CFO Ursula Hurley confirmed that no compensation from Pratt & Whitney is included in the outlook and that settlement negotiations are ongoing due to the material nature of the impact. She reiterated the AOG peak is expected between now and 2027.

Catherine O'Brien asked about Southwest's guardrails for shareholder returns, specifically how much headroom the company aims to maintain on the high end of its 1 to 2.5 times leverage target, given market uncertainties. She also inquired about the EBIT contribution from initiatives booked in Q3 and incorporated into Q4, and how much of the Q4 figure is already secured.

Answer

CFO Tom Doxey stated that maintaining headroom within the 1 to 2.5 times leverage target and adhering to the $3 billion cash plus $1.5 billion revolver liquidity target are crucial for preserving investment-grade status and managing variability. CEO Bob Jordan noted that the sequential incremental improvement from bag fees from Q3 to Q4 is approximately one point. Tom Doxey and Bob Jordan reiterated that the EBIT associated with assigned seating and extra legroom is a full 2026 value, ramping to $1.5 billion in 2027, and that cost savings initiatives are also on track for next year.

Catherine O'Brien of Goldman Sachs inquired about the drivers behind the significant EBIT ramp-up expected in Q4 versus Q3, and sought details on the outperformance of checked bag fees, including any signs of customer book-away.

Answer

President & CEO Bob Jordan and COO Andrew Watterson explained the Q4 ramp is driven by the full-quarter impact of initiatives like bag fees (annualized at $1B EBIT), flight credit expirations, and loyalty program changes, combined with assumptions of continued sequential improvement in the macro demand environment. They noted bag fee outperformance is due to higher-than-expected take rates, not pricing changes, with no detectable negative customer impact or book-away. CFO Tom Doxey clarified that the temporary booking disruption from the Basic Economy rollout is now behind them.

Catherine O'Brien of Goldman Sachs questioned the confidence in maintaining EBIT initiative targets while suspending full-year EBIT guidance, asking about the sensitivity of these revenue initiatives to the macroeconomic environment.

Answer

President and CEO Bob Jordan expressed high confidence in the timing and financial benefit of the initiative portfolio. He acknowledged some sensitivity to the macro environment but stated it is substantially smaller than for the core business. He explained that while it's difficult to forecast the base business offset, the $1.7 billion full-year EBIT target remains the internal goal, and the company is not taking it off the table.

Catherine O'Brien of Goldman Sachs inquired about the drivers of the Q4 RASM beat, the 2025 pacing of tactical revenue initiatives, and whether sale-leaseback transactions are expected to be net EBIT positive.

Answer

COO Andrew Watterson attributed the RASM outperformance to company-specific actions, noting that revenue management had a strong initial impact and that he expects to build on yield gains in 2025 while closing the load factor gap. CFO Tammy Romo confirmed that sale-leaseback transactions are structured to be NPV positive, accounting for all related costs and benefits, including maintenance and rent.

Catherine O'Brien posed a theoretical question on CASM, asking if the fourth-quarter's low-to-mid single-digit capacity growth driving similar CASMx growth is indicative of future performance, or if CASMx could be lower with that level of growth.

Answer

Devon May, CFO, stated that CASMx performance is dependent on capacity growth and that they are working on the 2026 plan. He noted that labor cost increases, such as the 4% for Pilots next year, are largely in line with inflation, while airport rent and landing fees will grow faster. He expressed belief that American can achieve better CASMx performance than Q4 in the longer term. He also reaffirmed the long-term balance sheet goal of net debt below $30 billion and leverage below 3x by 2028, noting significant progress ahead of schedule due to limited capital needs and strong free cash flow.

Catherine O'Brien asked if the fourth quarter's low to mid-single-digit capacity growth driving low to mid-single-digit CASMx is indicative of American's long-term efficiency potential, seeking insight into future CASMx on mid-single-digit capacity growth.

Answer

Devon May, CFO, explained that CASMx performance is dependent on capacity growth. He noted that labor cost increases are largely in line with inflation, with some groups like Pilots seeing a 4% increase next year. Airport rent and landing fees are expected to grow faster than inflation, while maintenance costs are variable. He believes American can achieve better CASMx performance longer term than what is seen in Q4. Regarding balance sheet goals, he confirmed the target of total debt below $35 billion by the end of 2027 (achieved a year early) and net debt below $30 billion with leverage below 3x by 2028, aiming for a double B credit rating. He emphasized that limited capital needs and strong free cash flow are contributing to debt reduction.

Catherine O'Brien of Goldman Sachs asked about shifts in capacity and unit cost outlooks since January and questioned why the operating margin gap to peers persists despite the recovery in indirect channel revenue.

Answer

CFO Devon May stated that the year is unfolding as expected on costs, with some maintenance expense shifting from Q2 to Q4. He attributed the margin gap to American's higher domestic exposure during a period of domestic weakness and the fact that American is paying full costs for its new labor agreements while some peers are not. CEO Robert Isom added that the recovery of indirect channel revenue is not yet complete and the final portion will be the most profitable.

Catherine O'Brien of Goldman Sachs asked if the Q2 revenue guidance implies PRASM improvement across all international regions and whether full-year CASM would still rise mid-single digits on low-single-digit capacity growth.

Answer

Vice Chair Steve Johnson confirmed solid year-over-year international performance but noted a slight deceleration from Q1's growth rate. CFO Devon May stated that if capacity aligns with original plans, costs would also be in line, as efficiency programs were already factored into the initial forecast.

Catherine O'Brien of Goldman Sachs inquired about the underlying assumptions for the full-year revenue guidance, specifically regarding the pace of indirect revenue recovery, and asked about capital allocation priorities after achieving the initial debt reduction goal.

Answer

CEO Robert Isom expressed high confidence in fully recovering lost indirect revenue share during the year. Vice Chair Steve Johnson identified potential upsides from a faster recovery, continued revenue outperformance, and a ramp-up in co-brand revenue. Regarding capital allocation, CFO Devon May stated that the focus remains on strengthening the balance sheet, with a new goal to reduce total debt to under $35 billion by the end of 2027.

Catherine O'Brien of Goldman Sachs inquired about the potential impact of a step-function change in main cabin supply on margins, specifically whether it would narrow the gap between main cabin and premium cabin profitability, given Scott Kirby's earlier margin commentary. She also asked for an update on the Q4 cost outlook, considering recent shifts in flight attendant deals and maintenance expenses.

Answer

CEO Scott Kirby explained that the industry is transforming from a commodity to a brand-loyal model, where product, technology, and service drive loyalty. He noted that the commodity portion of the business currently loses money but supply adjustments should make it profitable, albeit low-margin, while brand-loyal airlines will achieve higher, more stable margins. CFO Mike Leskinen then updated on Q4 cost, noting a 1-point benefit from maintenance moving to Q4, a 1-point benefit from labor agreement timing, and a further 1-point underlying core efficiency gain, expecting Q4 costs to trend up from Q3.

Catherine O'Brien of Goldman Sachs Group Inc. asked about the specific drivers of Q2's cost outperformance and the offsetting factors in the second half that allow for similar performance despite new labor costs. She also inquired about plans to increase premium seat mix and which cabin would see the most growth.

Answer

EVP & CFO Mike Leskinen credited the cost performance to operational reliability, procurement savings, and better inventory management, confirming that the H2 cost outlook includes the new AFA contract. EVP & CCO Andrew Nocella identified the Premium Plus cabin as having the largest expansion opportunity. He also noted that up-gauging the fleet with new MAX 9 and A321neo aircraft inherently increases the overall percentage of premium seats.

Catherine O'Brien of Goldman Sachs requested a breakdown of the factors offsetting the revenue decline in the base case guidance and asked about expected RASM performance by geography for the second quarter.

Answer

EVP and CFO Mike Leskinen ranked the offsetting factors as: 1) lower fuel costs, 2) cost management initiatives, and 3) maintenance savings from capacity decisions. EVP and CCO Andrew Nocella projected positive Q2 international RASM across all entities, led by the Pacific, but noted the domestic market will see negative RASM due to main cabin demand weakness.

Catherine O'Brien requested more detail on the 2025 CASM outlook, particularly the timing of the flight attendant contract impact, and asked where the company sees opportunities to further expand its product choice offerings.

Answer

EVP and CFO Mike Leskinen clarified that the 2-3 point labor headwind in the forecast anticipates a flight attendant deal, and its timing will affect the final impact. EVP and CCO Andrew Nocella noted that while expanding product choice is a winning strategy, he would not disclose specific future innovations at this time, saving them for a later announcement.

Catherine O'Brien from Goldman Sachs asked for Air Lease's perspective on the sale-leaseback market potentially becoming more attractive as OEM deliveries increase, and how this fits into the company's capital allocation strategy. She also followed up on the Russia insurance situation, asking if further settlements are expected beyond the announced $60 million.

Answer

CEO John Plueger stated that while the company always considers sale-leaseback opportunities, strengthening available capital for shareholders is an equally, if not more, attractive priority at this time. Regarding the Russia insurance claims, Mr. Plueger confirmed the $60 million expected in Q3 but declined to comment further due to ongoing litigation in London.

Catherine O'Brien inquired about recent lease extension and placement examples that confirm business as usual despite tariff discussions, and also asked about the status of pursuing the remainder of the Russian fleet insurance claims.

Answer

John Plueger, CEO & President, provided a recent example of an A330 lease extension in Asia with rates 50% above prior levels, confirming strong demand. Regarding the insurance claims, he stated that due to ongoing litigation, he could not comment on pursuing the remainder but noted that future capital allocation decisions depend on the total amount recovered.

Catherine O'Brien of Goldman Sachs inquired about the timeline to return to pre-pandemic mid-teen ROE levels, capital allocation priorities after reaching leverage targets, and the potential upside from re-leasing the $5 billion in COVID-era aircraft.

Answer

CEO John Plueger stated that reaching mid-teen ROE is achievable in a 2-3 year timeframe. Regarding capital allocation, he and Executive Chairman Steven Udvar-Hazy noted that while all options are considered, a share buyback would be a strong possibility depending on the stock price at the time. Mr. Hazy estimated that lease rates on expiring COVID-era leases could be 30-50% higher upon renewal, with CFO Greg Willis adding this could contribute to a cumulative 150-200 basis point portfolio yield improvement over four years.

Catherine O'Brien of Goldman Sachs inquired about the rationale for extending two third-party aircraft leases. She also asked for more color on fall booking trends and geographic performance. Finally, she sought clarity on the company's strategy for a potential ULCC shakeup.

Answer

CEO Jude Bricker explained the lease extensions were driven by both favorable economics and the company's current inability to absorb the fleet growth. He noted fall bookings show a trend of lower load factors but higher fares. Regarding industry consolidation, he stated the focus is on asset acquisitions and organic growth, not M&A, as it's an unlikely scenario he can't control.

Catherine O'Brien sought clarification on the cargo revenue ramp, asking about the back-half weighted inflection and potential 2026 run-rate. She also asked for commentary on regional demand trends to understand why Sun Country's outlook was more positive than its peers.

Answer

CEO Jude Bricker confirmed the math for a near 100% year-over-year increase in cargo revenue by September, driven by rate increases and new aircraft, clarifying the run-rate would be closer to $220 million. Grant Whitney (executive) and Jude Bricker attributed their positive outlook to capacity discipline, strength in Midwest and Dallas leisure markets, and a lack of speculative flying.

Catherine O'Brien of Goldman Sachs questioned the Q1 margin outlook, which implies a slight year-over-year decline despite a strong Q4, and asked about the company's ability to source growth aircraft later in the decade amid strong secondary market pricing.

Answer

President and CFO David Davis attributed the Q1 margin guidance to factors including new labor agreements but expressed high confidence in the range. Regarding fleet, Davis stated that the redelivery of currently leased-out aircraft and utilization improvements provide a path for 30-40% growth through 2028 without needing new purchases. CEO Jude Bricker added that not being dependent on OEMs like Boeing and Airbus is a significant strategic advantage.

Catherine O'Brien of Goldman Sachs questioned SkyWest's capital allocation strategy in light of the new E175 order, asking how it balanced with share repurchases. She also sought to confirm if 'optimizing delivery timing' was driven by tariffs rather than partner demand, and asked for the reason behind reactivating 25 dual-class CRJs.

Answer

CFO Robert Simmons stated the company's strong balance sheet allows for an 'all of the above' approach to capital allocation, pursuing both fleet investment and share buybacks. President & CEO Chip Childs emphatically confirmed that delivery optimization is about managing potential tariffs, not a reflection of demand, which remains exceptionally strong. CCO Wade Steel added that the 25 CRJs are being reactivated for new flying arrangements signed within the last six months.

Catherine O'Brien of Goldman Sachs inquired about the timeline for E175 contract extension discussions, the strategic guardrails for future share repurchases, and the operational status of the CRJ200 fleet.

Answer

Chief Commercial Officer Wade Steel confirmed that SkyWest is in constant communication with partners about fleet renewals and is optimistic about extending the E175 contracts. Chief Financial Officer Robert Simmons explained that capital deployment prioritizes accretive growth, but the company will opportunistically repurchase shares when the stock represents a favorable investment, noting they have bought back 22% of the company since early 2023. Wade Steel added that the CRJ200 fleet is actively used under contract, in the prorate business, within SkyWest Charter, and for parts and engine leasing to third parties.

Catherine O'Brien of Goldman Sachs inquired about current pilot staffing levels relative to historical needs, the potential drivers for upside to the 12% block hour growth forecast, and the monetization strategy for the remaining unassigned CRJ200 fleet, including the market for asset sales.

Answer

President and CEO Chip Childs explained that while pilot counts are not yet at 2019 levels, hiring is well-paced with stable growth and low attrition. Chief Commercial Officer Wade Steel identified improved fleet utilization and better-than-expected fleet availability from the MRO network as the primary sources of potential upside to block hour growth. Steel also confirmed that after exhausting flying options, the CRJ200 monetization waterfall includes asset sales, for which there is still good demand.

Catherine O'Brien inquired about the financial drag from fixed integration costs in 2025, especially amid capacity cuts. She also asked for a breakdown of the recent demand recovery by geography and traveler type.

Answer

CFO Shane Tackett explained that pulling back capacity close-in has a near one-for-one negative impact on unit costs, as many fixed and semi-variable costs cannot be removed quickly. CCO Andrew Harrison described the demand inflection as broad-based, noting a recent double-digit increase in business travel volumes and revenue, alongside strength in leisure channels.

Catherine O'Brien inquired about the components of the Q2 2025 guidance, specifically the 6-point revenue headwind and the various positive offsets like Hawaiian synergies and loyalty growth. She also asked for details on Hawaiian Airlines' impressive margin improvement and whether that level of performance is sustainable.

Answer

Andrew Harrison, an executive, explained that the Q2 softness is due to the general macro environment and increased domestic industry capacity, not internal initiatives. He noted the quarter was about 63% booked. Harrison highlighted that the Hawaiian franchise is "bucking the trend" with strong performance and positive unit revenues. CEO Benito Minicucci added that the Hawaiian operations are expected to be near breakeven for the remaining three quarters of the year.

Catherine O'Brien of Goldman Sachs asked for clarification on the unit cost trajectory, specifically if the 1.5 points of pressure from the proposed flight attendant contract was included in guidance. She also asked if the strong Q4 interisland RASM and expected Q2 Hawaiian profitability were anticipated when the full-year EPS target was set.

Answer

CFO Shane Tackett confirmed the potential flight attendant contract costs are fully included in the Q1 and full-year guidance. Regarding Hawaiian's performance, Tackett explained that while they saw an improving trend, their long-term plan did not assume a material recovery in the Neighbor Island market, making recent strength an upside. He noted Hawaiian's demand in December was stronger than forecast, leading to a profitable month.

Catherine O'Brien of Goldman Sachs asked how Delta managed to meet its non-fuel unit cost (CASM-ex) target despite a difficult operational quarter. She also inquired about the long-term revenue growth potential for the MRO business.

Answer

CFO Dan Janki credited the cost performance to a "basket of efficiency opportunities" that offset operational disruptions, highlighting improved efficiency and lower costs in the TechOps division. He expressed strong confidence in MRO growth, stating it could become a "$1, $2, $3 billion" business, citing the recent major contract with UPS as proof of its potential.

Catherine O'Brien asked how Delta managed to keep non-fuel unit costs (CASM-ex) in line with plans despite a difficult operational quarter and inquired about the long-term revenue growth potential for the MRO (Maintenance, Repair, and Overhaul) business.

Answer

CFO Dan Janki credited the cost performance to the team's consistent execution on a basket of efficiency opportunities, such as improvements in maintenance turnaround times, which offset the impact of irregular operations. On MRO, Janki expressed excitement for its future, stating it can grow to a $2-3 billion business by leveraging its capabilities on both legacy and next-generation equipment, highlighted by a recent landmark deal with UPS.

Catherine O'Brien asked CFO Dan Janki how Delta plans to maintain its non-fuel unit cost (CASM-Ex) outlook despite cutting capacity in the second half of the year, requesting specific examples of cost-saving measures.

Answer

CFO Dan Janki detailed that cost savings will come from direct flying costs like crews, optimizing maintenance cycles, aligning labor hours with reduced volumes, aggressively managing supplier costs, and reducing discretionary spending. CEO Ed Bastian added that making the decision early allows for several months to plan and execute efficiently.

Catherine O'Brien asked for details on the 'greater than $7.35' full-year EPS guidance, questioning if the back-half revenue outlook was conservative and what could drive upside beyond current assumptions.

Answer

CFO Dan Janki explained the guidance is based on controllable factors like premium revenue and loyalty, with good visibility for the first half. He noted that an improving industry backdrop, particularly in the main cabin, could provide additional margin upside in the second half. President Glen Hauenstein added that the transatlantic was the standout performer in Q4 due to strong U.S. point-of-sale demand.

Catherine O'Brien requested more detail on the recent stabilization and improvement in demand, asking about the timing and magnitude of the trend. She also sought to understand the scale of the expected Q2 TRASM decline and whether the recent demand improvement was concentrated in specific regions or booking windows.

Answer

CCO Drew Wells noted the demand improvement was a recent trend observed over the "last week." He indicated the revenue outlook had shifted by a "mid-single-digit" variance since the prior call but declined to give a precise TRASM forecast beyond stating it would be down more than Q1's 7.1% decline. He described the improvement as "pretty broad-based," with Canadian border markets stabilizing and more strength appearing for the peak summer travel period.

Catherine O'Brien, on for Ravi Shanker, asked if the recent frequency of hurricanes alters the strategic view for the Sunseeker Resort. She also inquired if the industry-wide push into premium products creates an opportunity for Allegiant to raise its premium pricing floor.

Answer

President and CEO Gregory Anderson stated that the storms do not hurt the strategic thesis for Sunseeker and that the team improves its response each time. Regarding pricing, Chief Commercial Officer Drew Wells noted that they are constantly testing and have observed that the ceiling for premium pricing has been 'a little higher lately,' suggesting potential upside.