American Airlines Group - Earnings Call - Q1 2025

Executive Summary

• American Airlines’ Q1 2025 revenue was $12.551B with GAAP diluted EPS of ($0.72) and adjusted diluted EPS of ($0.59); management withdrew full-year 2025 guidance amid macro uncertainty and domestic main cabin weakness.
• Versus Wall Street consensus, adjusted EPS modestly beat (consensus ($0.67)* vs actual ($0.59)), while revenue was essentially in line ($12.559B* vs $12.551B); international RASM strength offset pressure in domestic leisure demand and indirect channels recovery continues (impact of Eagle Flight 5342 accident estimated at ~$200M revenue).
• Q2 2025 outlook: capacity +2%–4% YoY, total revenue -2% to +1%, CASM-ex +3%–5%, adjusted operating margin 6.0%–8.5%, adjusted EPS $0.50–$1.00; ~27% effective tax rate (largely non-cash).
• Balance sheet improved: Q1 free cash flow $1.7B, total available liquidity $10.8B, total debt reduced by $1.2B in the quarter; committed to reducing total debt below $35B by YE 2027.
• Near-term stock catalysts: withdrawal of FY guidance (uncertainty), Q2 guidance band anchored by domestic softness, traction on indirect distribution recovery, premium/international resilience, and continued deleveraging/free cash flow generation.

What Went Well and What Went Wrong

What Went Well

• International and premium strength: Atlantic passenger RASM up 10.5% YoY and Pacific RASM up 4.9% on 24.1% more capacity; premium revenue +3% YoY with paid premium load factor +2.9 pts.
• Cash flow and liquidity: Q1 operating cash flow $2.456B and free cash flow $1.711B; ended Q1 with $10.8B total available liquidity.
• Cost and balance sheet actions: repriced $2.3B AAdvantage-backed term loan, lowered rate ~300 bps and pushed $1.9B amortization to 2028; reduced total debt by $1.2B; >$10B unencumbered assets, >$13B first lien capacity.

What Went Wrong

• Domestic main cabin demand weakness pressured revenue; management highlighted significant softness among price-sensitive cohorts and domestic leisure; government business fell off as well.
• Unit cost ex-fuel rose 7.8% YoY in Q1 (labor step-up from recent CBAs; regional mix); CASM-ex expected +3%–5% in Q2 YoY.
• FY 2025 guidance withdrawn due to macro uncertainty; adjusted EPS for Q1 came in below prior guidance range (guided ($0.20)–($0.40) vs actual ($0.59)).

Transcript

Operator (participant)

Thank you for standing by, and welcome to American Airlines Group's First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Abriell Jackson, Managing Director of Investor Relations. Please go ahead.

Abriell Jackson (Managing Director of Investor Relations)

Thank you, Latif. Good morning, and welcome to the American Airlines Group First Quarter 2025 earnings conference call. On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devon May. In addition to our Vice Chair, Steve Johnson, we have a number of our senior executives in the room this morning for the Q&A session. Robert will start the call with an overview of our performance. Devon will follow with details on the first quarter, in addition to outlining our operating plans and outlook going forward. After our prepared remarks, we will open the call for analyst questions, followed by questions from the media. To get in as many questions as possible, please limit yourself to one question and one follow-up.

Before we begin today, we must state that today's call contains forward-looking statements, including statements concerning future revenue, cost, forecast of capacity, and fleet plans. These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning, as well as our Form 10-K for the year ended December 31st, 2024. In addition, we will be discussing certain non-GAAP financial measures, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the Investor Relations section of our website. A webcast of this call will also be archived on our website.

The information we are giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thank you for your interest and for joining us this morning. With that, I'll turn the call over to our CEO, Robert Isom.

Robert Isom (CEO)

Good morning, everyone. It goes without saying that we're in a challenging economic environment, which has had a significant impact on the industry. Historically, the airline industry has done well in periods of economic growth and certainty. The industry exited the fourth quarter with positive momentum, but this quickly shifted during the first quarter. The economic uncertainty in the market has pressured demand and impacted American's first quarter results and second quarter outlook. Given this macro environment, we're withdrawing our full-year outlook. That said, if current demand trends continue, we expect to deliver a profitable year and produce positive free cash flow. At American, we have the foundational strength, resilience, team, and financial and operating flexibility to navigate the current environment. The work we have done the past several years has prepared us for times like these.

We completed our fleet renewal in a very different economic environment with lower aircraft costs, lower lease and interest rates, and during a time of OEM and supply chain stability. As a result, we have low aircraft CapEx requirements for the remainder of the decade. We continue to employ our best-in-class cost management to make the airline more efficient. Through our efforts to re-engineer the business, we now expect more than $750 million of cumulative cost savings as we exit 2025. We've utilized our free cash flow to strengthen the balance sheet, and at the end of the first quarter, we had our lowest net debt level since the end of 2015, while simultaneously taking action to smooth our debt maturity obligations going forward.

This foundation allows us to focus on our 2025 priorities of running a reliable operation as we reestablish connectivity throughout our network and continue to find ways to run a more efficient airline. We are taking action to deliver on our revenue potential by enhancing our partnership with Citi, growing our AAdvantage Loyalty Program, progressing in our sales and distribution indirect channel recovery, and renewing our focus on customer experience to provide the best product and service for everyone who flies with American. As we move forward, we remain committed to delivering on our long-term targets: growing margins, generating sustainable free cash flow, and further strengthening our balance sheet. Now, onto our first quarter performance. First quarter unit revenue was up 0.7% year-over-year, which continues to lead the industry despite more exposure to a challenging domestic environment.

We estimate the impact of American Eagle Flight 5342 reduced first quarter revenue by approximately $200 million. Long-haul international passenger RASM continued to lead the way in the first quarter. Atlantic passenger RASM was up 10.5% year-over-year, and Pacific passenger RASM was up 4.9% on 24.1% more capacity, primarily driven by strength in Japan. Short-haul Latin passenger RASM increased year-over-year for the first time in more than a year and remains one of the most profitable regions on an absolute basis. We continue to see strong demand for international travel from the U.S. Domestic passenger RASM was down 0.7% year-over-year in the quarter as U.S. consumer discretionary spending, and especially consumer spending on air travel, decelerated throughout the quarter. Performance in our premium and loyalty revenues continued to show strength year-over-year.

Premium revenue increased 3% year-over-year in the first quarter on 0.3% lower capacity. Our premium cabin RASM year-over-year outperformed main cabin RASM by 4 points in domestic and 8 percentage points in international. Paid load factor in our premium cabins remained historically high and was up 2.9 points year-over-year. Loyalty revenues were up 5% year-over-year, with spending on our co-branded credit cards up 8% in the quarter. We've begun laying the foundation for our expanded co-branded credit card partnership with Citi, which is set to begin in 2026, and we remain on track to achieve the long-term growth targets we outlined last year. Most importantly, customers continue to recognize the value of our loyalty program, with AAdvantage enrollments increasing 6% year-over-year. AAdvantage members are responsible for 76% of premium cabin revenue.

American is proud to have an industry-leading travel rewards program that is frequently recognized for providing the best value for its members. Despite the headwinds in the economy and lower capacity, managed business revenue was up 8% year-over-year in the first quarter. We remain encouraged by the feedback we're receiving from corporate customers as we continue to engage with them to understand how best to meet their needs. We saw specific strength in the financial and professional services sectors during the quarter. Momentum in recovering revenue from indirect channels continued in the first quarter. We hit our target of reducing the gap versus our historical share to 7% in the first quarter, and we forecast to gain back another 2 points in the second quarter.

We remain on track to restore our revenue share from indirect channels to historical levels as we exit this year, despite the current macroeconomic uncertainty. We started the year with a conservative growth plan, and we will continue to be mindful of our capacity deployment. The demand and the competitive environments will continue to serve as the guideposts for our future capacity plans. We'll remain nimble and take action as conditions warrant, and we have many levers at our disposal, such as reducing off-peak flying, or if circumstances require, returning leased aircraft, retiring aircraft, and deferring aircraft deliveries to efficiently reduce capacity without jeopardizing the quality of our core network. We're positioning American for sustained long-term success, and a big part of that is transforming our customers' experience and engagement with us.

We've established a new customer experience organization, a centralized, cohesive team that sits at the intersection of our commercial and operations organizations. This team will advocate on behalf of customers, leading the strategy and implementation of initiatives to improve every part of the customer journey, from bookings to the airport to in-flight experience to customer feedback. Last week, we announced AAdvantage members will receive complimentary high-speed satellite-based Wi-Fi beginning in January 2026, thanks to a new sponsorship with AT&T. We're excited to be able to offer free high-speed satellite-based Wi-Fi on more aircraft than any other carrier, and it's a great way to demonstrate that we have renewed our focus on the customer experience. American continues to have the youngest fleet of the U.S. network carriers.

We're excited to debut our new state-of-the-art flagship suite seats on our first new Boeing 787-9, and we look forward to the rollout of this product on our new Airbus A321XLR aircraft. These deliveries, along with the planned refresh of existing seats, are expected to grow American's lie-flat and premium economy seating by approximately 50% by the end of the decade. Additionally, American has led the way in introducing premium lounges and offers more premium lounges than any other U.S. network carrier. We're committed to reinvigorating the customer experience throughout various touchpoints of the travel journey, and we're on track to open our newest flagship lounge in Philadelphia in May. This lounge will be our ninth premium lounge across the system, with more to come.

Finally, we recently announced several changes to improve our boarding process starting next month, and just this week, we introduced a new redesigned mobile app to further enhance customer interaction and self-service options. Turning now to our operation. During the first quarter, the American Airlines team demonstrated our resilience and ability to quickly recover from irregular operations. We continue to make investments to drive further enhancements to our operating reliability. Our first quarter operation was impacted by California wildfires, increased winter weather in our Sunbelt hubs, and the tragic accident of flight 5342 on January 29th. Before moving on, I want to take a moment to acknowledge the tragedy and pay tribute to the lives lost in the accident. We're supporting the families and loved ones through our Office of Continued Care and Outreach, which we established within a week of the accident.

The role and responsibilities of the office will evolve over time, but it will always be focused on ensuring we live out our purpose of caring for people on life's journey. Thank you to our team members who helped in the immediate response to the accident, those who kept the operation running while caring for our customers, and to our care team members who supported the families. We continue to work closely with the U.S. government, and we're encouraged by the collective commitment to make the U.S. aviation system even safer going forward. Now, I'll turn the call over to Devon to share more about our first quarter financial results and second quarter outlook.

Devon May (CFO)

Thank you, Robert. This morning, American reported a first quarter GAAP net loss of $473 million. Excluding net special items, we reported a first quarter net loss of $386 million, or an adjusted loss of $0.59 per diluted share. We produced first quarter revenue of $12.6 billion, down 0.2% year-over-year, with unit revenue up 0.7% year-over-year. First quarter unit cost, excluding fuel and net special items, was up 7.8% year-over-year. We are committed to running the airline as efficiently as possible while enhancing the customer experience. Through best-in-class workforce management, efficient asset utilization, and procurement transformation, we now expect to achieve approximately $250 million of cost savings in 2025, on top of the $500 million achieved last year.

We also expect an additional $100 million of working capital cash release, bringing our total improvement in working capital to approximately $550 million over the past three years. We continue to see improvements in the productivity of our team and expect mainline full-time employee counts to stay approximately flat relative to 2024. With regard to our fleet, we expect to take delivery of 40-50 new aircraft this year. Based on our current expectations for new deliveries, our 2025 aircraft CapEx, which also includes used aircraft purchases, spare engines, and net PDPs, is expected to be between $2 billion and $2.5 billion, and our total CapEx is expected to be between $3 billion and $3.5 billion. We continue to expect moderate levels of CapEx moving forward, with aircraft CapEx averaging approximately $3.5 billion for the remainder of the decade.

We ended the first quarter with $10.8 billion of total available liquidity, and we produced free cash flow of $1.7 billion in the quarter. During the quarter, we strategically repriced our $2.3 billion AAdvantage back term loan. The repricing lowered the interest rate by nearly 300 basis points and vastly improved the amortization profile, pushing out $1.9 billion of amortization over the next three years into 2028. Additionally, we reduced total debt by $1.2 billion during the quarter. We now have more than $10 billion in unencumbered assets and more than $13 billion in additional first lien borrowing capacity. Our balance sheet is stronger than it has been in nearly a decade, and we remain committed to reducing our total debt to less than $35 billion by year-end 2027.

For the second quarter of 2025, we expect capacity to be up 2%-4% year-over-year as we continue to build back our northern hubs. We remain focused on deploying profitable capacity and being nimble in response to the demand and competitive environment. We expect second quarter revenue to be down 2% to up 1% year-over-year as we anticipate softness in the domestic main cabin to continue. To partially offset this, we expect long-haul international and premium bookings to outperform year-over-year and anticipate additional progress in recovering revenue through our indirect channels. Second quarter non-fuel unit costs is expected to be up 3%-5% year-over-year, which is in line with our expectations to start the year. Nearly the entirety of our year-over-year CASM increase is driven by the collective bargaining agreements that we have ratified over the past two years.

While these collective bargaining agreements have resulted in a meaningful step-up in labor costs, we are pleased that all of our largest work groups enjoy contracts that are in line with industry-leading agreements and that we have labor cost certainty through 2027. Based on our current demand assumptions and fuel price forecast, we expect to produce second quarter earnings of approximately $0.50-$1 per diluted share. I'll now turn the call back to Robert for closing remarks.

Robert Isom (CEO)

Thank you, Devon. The travel industry is a critical engine for the U.S. economy, generating $1.3 trillion in direct spending in the U.S. and supporting one in every 11 U.S. jobs. With increased global travel to the U.S. comes increased spending and investment in economic growth. Airlines are a big part of that equation, and American is proud to be the largest employer of U.S. workers among them. Anything that spurs demand for travel, both domestically and abroad, is something we will support. This starts with making America a welcoming destination for international travelers, especially in advance of major events like FIFA World Cup 2026, of which we're a sponsor, and later the 2028 Olympic Games in Los Angeles. This means expanding visa-free travel, lowering visa processing times, and expediting the deployment of new technologies to make travel more seamless and secure.

Of course, ensuring the growth and long-term health of the travel industry in the U.S. will require us to address critical infrastructure issues, the most pressing of which is ATC modernization. American is committed to working with the administration, regulators, and the rest of the industry to meet each of these challenges. At American, we're resilient by design. The underlying strength of our business and balance sheet and our ability to remain nimble and adjust to the environment gives us confidence in our ability to navigate the path forward. We remain focused on delivering on our commitments and producing results for the airline and for our shareholders. Operator, you may now open the line for analyst questions.

Operator (participant)

As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. To allow everyone the opportunity to participate, you will be limited to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Scott Vernon of Bernstein. Please go ahead, David.

David Scott Vernon (Managing Director and Senior Analyst)

Hey, good morning, guys. Robert, I guess the first question I have for you, the earnings release and materials did not make much mention around sort of capacity moderation given the weakness that we are seeing in demand. Can you talk about kind of how you are thinking about sizing the network as we get through the second half of the year? I mean, clearly, with the financial leverage in the business, I am sure this is something you guys are looking at. I would just like to hear from you kind of what you are thinking about on the capacity front as we look at 2H.

Robert Isom (CEO)

Thanks, David. Appreciate the question. What we've done is, obviously, we pulled our guidance. We more or less have our capacity plan set for the summer. We plan on flying that. You saw in our second quarter guide, 2%-4% growth. As we look beyond that, there's a lot of uncertainty. I think that our view as we go forward is we're going to be nimble and quick to react, size demand, size capacity to demand. I'll tell you right now, we have a negative bias to all capacity as we go forward. We'll know more as time develops in the next several weeks, month, and we'll have more to talk about on that on future earnings calls.

David Scott Vernon (Managing Director and Senior Analyst)

All right. Maybe just as a follow-up, as you think about the corporate sort of share recovery, is that coming in at the yields you would have expected to be coming in, or is there a little bit of reinvestment required in terms of recapturing some of that, the business share?

Steve Johnson (Vice Chair)

Yeah, thanks for the question. This is Steve. It's coming in just as we expect it. As Robert said in his opening remarks, we're on track to recover share by the end of the year.

Operator (participant)

Thank you. Our next question comes from the line of Savi Syth Raymond James. Please go ahead, Savi.

Savi Syth (Managing Director)

Thank you. Good morning, everyone. I know you mentioned it sounds like in Q2 you're expecting kind of international and premium to continue leading the way, but I was curious if you can provide a little bit more color across the four entities on how you what's in guidance in terms of performance there.

Steve Johnson (Vice Chair)

Sure. Thanks, Sava. Across the entities, we're seeing strength through the summer, really in each one. Obviously, with the uncertainty and just the booking curve visibility beyond the summer is a little unclear right now, but we're seeing really very good strength in our Heathrow and European operation, strength in the North Pacific, strength in the South Pacific, South America, but it is doing pretty well, and Argentina is kind of the star of the show down there right now. I also just don't want to finish the answer without mentioning that we're still continuing we have a very significant international operation in short haul in the Caribbean, Mexico, Central America, and that's performing pretty well.

Savi Syth (Managing Director)

I appreciate that. If I could, on the domestic side, are you expecting much of a deceleration, or what's the trend into Q2 there?

Steve Johnson (Vice Chair)

Domestically, we remain strong in, as we described in the opening remarks, our premium bookings are terrific. The bookings through indirect channels are solid. Our business bookings are solid. What we're seeing, though, like the other airlines, is really significant weakness in the demand that books through our indirect channels, which is, I think, we believe is mostly our most price-sensitive customers, our customers for whom travel is most discretionary. That's where the issue is. We'd like to think that that's demand that's not been lost, but demand that's on the sidelines waiting to understand which direction the economy is going to go. Nevertheless, at the moment, we're seeing weakness in those cohorts.

Operator (participant)

Thank you. Our next question comes from the line of Scott Group of Wolfe Research. Please go ahead, Scott.

Scott Group (Managing Director and Senior Analyst)

Hey, thanks. Just to follow up there, that subset of the business that you're talking about that's, I guess, maybe domestic main cabin or indirect, what percentage of the total business is that? If international is staying, it sounds like international is positive. Correct me if I'm wrong. Are we thinking, is this business down? Is this a high down, a high single-digit kind of RASM right now on this more domestic main cabin part of the business?

Steve Johnson (Vice Chair)

Domestic main cabin is weak, and that's what's driving, I think, the overall demand numbers that you're seeing and the weakness in the reports. Right, I think I'd say mid- to high single-digit weakness in those groups, particularly over the course of the summer is what we're looking at.

Scott Group (Managing Director and Senior Analyst)

Okay. And then, I guess, are we seeing any signs of that stabilize, or is it continuing to get worse? And then maybe just like bigger picture. A year ago in Q2, you guys underperformed on RASM, and we heard about, well, we lost a lot of corporate. We're now getting the corporate back. Why aren't we seeing the RASM benefit of that, at least relative to some of the others?

Robert Isom (CEO)

Hey, Scott, just let me start with this, which is, hey, look, there's a tremendous amount of uncertainty in the environment. When we take a look at the fourth quarter, tremendous amount of momentum. You go into the first quarter, January kind of came in where we had anticipated, February looked kind of solid, but really March and then continuing into April changed considerably. We are cautious about what we're looking at in terms of forecast for the second quarter because there is so much uncertainty, and it's why we pulled our guide beyond that. As we take a look, and as Steve mentioned, premium is doing well. International seems to be holding up well. We're winning back our sales from a sales and distribution perspective. We just do not have a lot of clarity what goes beyond that.

Even as we take a look into the summer, what we know right now, we're telling you the best what we know, and we're going to have to see how things play out.

Operator (participant)

Thank you. Our next question comes from the line of Conor Cunningham of Melius Research. Please go ahead, Conor.

Conor Cunningham (Director of Travel and Transports Research)

Hi, everyone. Thank you. Just going back to the U.S. domestic market, I realize this is a short-term question, and I hate to ask it, but can you talk about how you've changed your revenue management systems? Are you doing what Delta and United are doing, essentially, and opening up basic economy earlier? The reason why I ask that is the industry in general has a lot more seats to sell in June versus April. Are you seeing incremental discounting into a month like that relative to the month of April in general? Thank you.

Steve Johnson (Vice Chair)

Sure. Thanks for the question. I do not have specifics about how Delta and United have set up, but we believe that we are properly set up for a summer that is along the lines that I just described a moment ago, where there is significant weakness in our main cabin demand, significant weakness among our most discretionary travelers. Our inventory systems and our pricing are set up to accommodate that, to capture all of the demand that is available under the existing circumstances. Obviously, those are levers that we can pull and tweak and manage very carefully on a real-time basis. We are monitoring the situation very carefully, make changes every day. I think right now our setup is where it needs to be.

Conor Cunningham (Director of Travel and Transports Research)

Okay. Okay. United spent a lot of time on their call talking about share shift in Chicago. I'm just trying to understand from your corporate travel expectation as you exit this year. Can you talk about the importance of rebuilding New York and Chicago in general and how that correlates to getting back the corporate share that you lost from the distribution changes in general? Thank you.

Steve Johnson (Vice Chair)

Sure. Sure. A big complicated question, but let me try to unpack it. First, if United is gaining share in Chicago, they're gaining it from somebody other than us. Let's start there. I mean, it's a huge market. It's a huge business market. It's our third largest hub. It's a really key part of our network. It has been profitable in the past, even as a shared hub. We've been part of Chicago for 99 years. We have a really loyal customer base there. We have significant AAdvantage penetration, significant co-brand penetration. We've received a really positive reception from our corporate clients as we've pivoted on sales and distribution. Chicago is really important to them, and our presence there is really important to our business with them. Geographically, Chicago is important.

It's where it's how we take care of and connect to and provide service to our customers in the Upper Midwest and the Great Lakes region. It's how we connect passengers across the northern tier of the United States. I can also say that so far, so far we have increased our share in Chicago, and the overall performance is, I think, going exactly in accordance with our plans. New York is likewise a very important part of our network, very large market, a market that has always accommodated several airlines. In New York, we have a large customer and large and loyal customer base, significant AAdvantage penetration, significant co-brand penetration. We're excited about the evolving position that we're creating in New York. LaGuardia will be the largest, I think, operation that we've had in history. We've optimized it.

We think for our New York customers, we've optimized it for our hubs and spokes, and we've optimized it to maximize the halo effect that New York has. At JFK, we've created a really competitive Oneworld hub at T8 at the airport there. Together with LaGuardia and together with our JB partners, we now serve 100 markets out of New York. We have a really significant franchise in the transcontinental market, really significant franchise in London Heathrow, the biggest travel market in the world, I think. We operate at two really great facilities in New York with terrific lounge products, terrific retail. Indeed, we're reimagining the retail at JFK, and I'm told there's going to be 60 new stores and restaurants there as that work is completed. We're evolving in New York. We're adapting in New York.

We're obviously constrained in New York by slots, but we're, I think, really happy with the positioning we have there.

Operator (participant)

Thank you. Our next question comes from the line of Jamie Baker of JPMorgan Securities. Please go ahead, Jamie.

Jamie Baker (Senior Airlines Analyst)

Hey, good morning, everybody. First one for Devon. You're obviously not buying back stock at the moment, which is a good thing. Curious how we should think about your approach to minimum liquidity and CapEx if operating cash flow deteriorates from here. Which bucket or buckets, plural, of collateral would you consider easiest to tap given where market yields are right now?

Devon May (CFO)

Yeah. I'll just start by saying I really like the position we're in. We ended the first quarter with $10.8 billion of liquidity. We have made a ton of progress on the balance sheet. We've reduced total debt by $15 billion from peak levels back in mid-2021. We have $10 billion of unencumbered assets. We have $13 billion of first-line capacity. We have really high-quality first-line capacity that sits out there as well, whether it's slot gates, routes, or AAdvantage-backed. We feel really good about where we're at right now, and we'll see what we end up doing with it if we do really get into a downside scenario, but we're in a great position.

Jamie Baker (Senior Airlines Analyst)

Okay. Following on Connor's question, it would not be an American earnings call, I suppose, if I did not ask about one of your hubs. Looking at Chicago, it seems that a pretty material portion of the capacity restoration is really early in the morning or pretty late at night. Can you comment on how RASM, sort of at the edges of the workday, however you define that, compares to that of, I do not know, daylight hours, for lack of a better term, although I suppose that is not a good term for the summer, but you get the idea.

Steve Johnson (Vice Chair)

Sure, Jamie. I mean, as you grow markets, particularly hub markets, you grow them by adding banks. We have added banks at the beginning of the day and the end of the day. Obviously, those are going to be weaker than in the heart of the day, but it is cheaper to add those by just improving your asset utilization. Also, it is important to know that the first flight of the day and the last flight of the day is really important. As we think about where we want to end up in Chicago, that is a big step. Ultimately, we expect that those banks will improve performance as we have the opportunity to fly them and have our customers get more remember American, and those will be better.

Really important part of our local traffic offering for our Chicagoans is the banks of the first part of the day and the banks of the last part of the day. Yeah, that's what we had always planned and what you would have expected to see.

Operator (participant)

Thank you. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your line is open, Duane.

Duane Pfennigwerth (Senior Managing Director)

Hey, thanks. Appreciate the time. Just on the corporate share recapture, it's hard to find that in your guidance and understand it's a dynamic backdrop for sure. What would be offsetting this share recapture if you're winning back corporates from a margin and from a, I guess, implied RASM perspective?

Steve Johnson (Vice Chair)

Thanks. I think that you're not seeing it because it's overwhelmed by the weakness in our main cabin demand.

Robert Isom (CEO)

Steve, I'd add to that our government business is falling off considerably as well. That would add to it as well.

Duane Pfennigwerth (Senior Managing Director)

Okay. Apologies. I really don't want to ask another Chicago question, but I'll venture down the path. Again, it might be hard to parse in this backdrop, but can you contrast presumably some of this was about taking pressure off of a market like Charlotte versus the investment that you're making in a market like Chicago. Can you just help us size the relative benefit in Charlotte from a RASM and margin perspective versus the relative investment in Chicago? I guess when are we done? What inning are we in of that rebuild in Chicago? Thank you.

Steve Johnson (Vice Chair)

A baseball question again. What inning are we in in the rebuild of Chicago? Right now, maybe the fourth inning, I think, is about right. Fourth or fifth inning, something like that. Our strategy to grow Chicago didn't have anything to do with our strategy in Charlotte. Chicago was a place that is a place that we have been very successful in the past. We took down our Chicago operation during the pandemic. As we grew our operation after the pandemic, we deployed our assets in the places where demand was the strongest first. Chicago just was slower to rebound. Now we're focused on rebuilding the position that we've traditionally had in Chicago. We understand that we'll probably always be second place in Chicago, but that's been a very effective means to serve our customers, profitable, and a position that we like a lot.

That's what we're focused on, is rebuilding Chicago because Chicago is a really important part of our network. In Charlotte, our strategy there is to continue to be as large in Charlotte as we can operate. It's a very efficient, very geographically well-placed hub, very low cost for purposes of connecting. We are close to capacity at that airport. We're just not in a position, at least right now, to grow it any further.

Operator (participant)

Thank you. Our next question comes from the line of Catherine O'Brien of Goldman Sachs. Please go ahead, Catherine.

Catherine O'Brien (VP)

Hey, good morning, everyone. Thanks so much for the time. Maybe just one more on the 2Q revenue guidance, if you'll allow it. Steve, I think you were talking about you're expecting to see momentum in international through the summer. That's looking strong, offsetting some of that main cabin. I guess underlying your revenue guidance, are you expecting each international geography to see PRASM improve relative to its 1Q performance and the decel is all domestic, or have I got that scrambled?

Steve Johnson (Vice Chair)

I think what we are seeing is solid performance in the long-haul international markets that has improved year-over-year. It is hard, I think, to compare second-quarter performance to first-quarter performance just because the demand is so different. I would just say sequentially strong, still positive. What you are asking is the year-over-year growth in the second quarter as good as the year-over-year growth in the first quarter. I would say it is decelerating a little bit, but still strong and, again, fueled by really strong premium demand, really strong demand for the premium cabins.

Catherine O'Brien (VP)

Understood. Thanks. Maybe one for Devon. You guys understandably pulled fully your EPS in this very uncertain backdrop, and there's downside bias to your capacity outlook. If you wind up growing low single digits, as was your plan back in January, are you still thinking CASM would be up mid-singles, or with the incremental cost savings you highlighted earlier, could you do better than that? Thanks for the time.

Devon May (CFO)

No, I think if our capacity ends up being largely in line with where we started the year, our costs are also going to be largely in line with where we started the year. I'd just say we're best in the business at managing costs in the next both year term and also driving efficiencies over the long term that are good for our customers, also good for our team members. That was built into our plan for this year. While there may be some trimming around the edges, I think we have all of the right plans in place to run a really effective and efficient business this year. On the other side, if we do pull capacity, I think we're going to be really effective in managing costs out as well.

Operator (participant)

Thank you. Our next question comes from the line of Stephen Trent of Citi. Please go ahead, Stephen.

Stephen Trent (Managing Director)

Good morning, everybody. Thanks for taking my question. First, I was kind of curious. When we think about 2026, I know it seems like an eternity from now, but looking at sort of the World Cup event on the horizon, would you guys expect any flux vis-à-vis what we saw in the Transatlantic for the Paris Olympics last year, or do you guys have, let's say, a relative advantage versus other pairs because of a high U.S. point of sale? Thank you.

Robert Isom (CEO)

Hey, Stephen, thanks. No, hey, we're really proud to be a sponsor along with our partner, Qatar. It's the largest sporting event in the world, and it's unique in that it is spread out across the United States, Canada, and Mexico, and American is the strongest carrier in all of the host cities or in the vast majority of the host cities. We're really proud to be the title sponsor. I tell you, this is an event that's very different than the Olympics. It's all concentrated in one city all at one time that actually, in some cases, can diminish demand over a period of time.

This is one in which we see tremendous interest in travel, in spending time, and we don't believe it will have an impact on the other business that goes into these cities, namely because it's spread out and because it will be something that is such a focus. Tremendously excited. American's glad to be at the top of that, and it's just another indication of us building for the future.

Stephen Trent (Managing Director)

Okay. Super, Robert. Really appreciate that. Just as a quick follow-up to that, could you sort of refresh my memory approximately where is the percentage of U.S. point of sale for your international?

Steve Johnson (Vice Chair)

About 75% of our international is sold as U.S. point of sale.

Operator (participant)

Thank you. Our next question comes from the line of Ravi Shanker of Morgan Stanley. Your line is open, Ravi.

Ravi Shanker (Managing Director)

Great. Thanks. Morning, everyone. Just to follow up on the normalization of share in indirect distribution and corporate, how macro-sensitive or agnostic is that share recovery?

Steve Johnson (Vice Chair)

That's a really good question. It is share, first of all. So it's not absolute numbers. At this period of uncertainty, we're seeing that share build very nicely. We're not hearing anecdotally about reduced travel. Our business travel is up overall, as Robert said in his opening remarks. It remains right now, it doesn't seem to be macro-sensitive. I suppose it remains to be seen. Right now, business traffic seems strong. Our share is growing. We're getting a lot of positive feedback with respect to our new sales and distribution efforts. Fingers crossed. It's going in the right direction and a really positive part of our revenue effort at this point in time.

Ravi Shanker (Managing Director)

That's helpful. Maybe as a follow-up, apologies if I missed this, but can you talk about book away following the tragic accident and whether or not that has normalized since?

Robert Isom (CEO)

I can. Look, the 553.42, as I said in my remarks, it had an impact in the first quarter. It had a material impact in the first quarter. That is largely been something that is unique to that quarter. As we take a look to the future, we do not anticipate any impact.

Operator (participant)

Thank you. Our next question comes from Michael Linenberg of Deutsche Bank. Please go ahead, Michael.

Michael Linenberg (Managing Director and Airline Analyst)

Oh, yeah. Hey, good morning, everyone. Hey, I just want to go back. With Steve, you talked about corporate trending up or being up. I mean, if we look at managed business revenue, that was up 8% in the March quarter. Based on what you're seeing now and the fact that you also have a fairly easy comp because of the sort of the distribution strategy from a year ago and the fact that you are gaining back share, is that increase, should we expect that increase to be higher in the June quarter, that managed business revenue will be better than up 8%, given kind of the underlying kind of factors that I just mentioned?

Steve Johnson (Vice Chair)

Thanks. As I look out, what I expect is that we're going to continue to grow our share in the second quarter. Remember, again, as I said a moment ago, that's share, not absolute. I'd say as long as the economy continues to support business traffic, we're going to continue to grow business traffic in the second quarter.

Michael Linenberg (Managing Director and Airline Analyst)

Okay. Great.

Steve Johnson (Vice Chair)

We should grow it faster than the other airlines because of our distribution, because of the progress of our distribution efforts.

Michael Linenberg (Managing Director and Airline Analyst)

Okay. Great. Just a second question here. Obviously, it seems like there is a lot of movement around with respect to the real estate in Chicago. If we think about your gate position today and where we are over the next, call it, six months or so as gates are reallocated, where are you on a net basis? I mean, I think it has been reported that you lose gates, but then there is the offset or there is the opportunity to use common use gates. On a net basis, what happens to your gate position in Chicago? Are you down or are you flat? Any color there would be great. Thank you.

Steve Johnson (Vice Chair)

Sure. Yeah. Thanks. I mean, first off, as I think you saw, we disagree with the airports and the City of Chicago's determination on that, and we're appealing that decision that would have gates be reallocated during 2025. That said, it's going to take a while to sort that out, I expect. To the extent that it's not sorted out by October when the new regime would go into place, I think we feel like we're in good shape. Remember, we're growing Chicago back. I expect that we will be able to accommodate our growth in Chicago all the way until the next summer with the gate footprint that we have. We also expect that growth in Chicago will put us in a really good position to benefit from the reallocation of gates that's going to take place again next February and March.

Operator (participant)

Thank you. Our next question comes from the line of Andrew Didora, of Bank of America. Please go ahead, Andrew.

Andrew Didora (Senior Equity Research Analyst)

Hi. Good morning, everyone. Most of my questions around certainly 2Q have been asked and answered. Just one question from me for Devon. On the sub-$35 billion of debt by the end of 2027, just curious what you are assuming for liquidity over that timeframe as I know you have a lot of debt coming due over the next few years. Just curious how you're thinking about liquidity. Thank you.

Devon May (CFO)

Sure. I'll just start by saying we are committed to reducing total debt to under $35 billion at the end of 2027. Structurally, we're set up really well to do that. We've talked about our limited CapEx requirements over that period. It gives us the potential for a lot of free cash flow. When we think about liquidity, right now, we're holding $10.8 billion. We've talked that over time, as we continue to improve the balance sheet, we would expect our levels of liquidity to come down slightly. During this uncertain time, we're going to continue to hold right around this $10 billion mark, but that is likely to change over time as we expand margins and improve the balance sheet.

Andrew Didora (Senior Equity Research Analyst)

That's all I had. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Tom Fitzgerald of TD Cowen. Your question, please, Tom.

Tom Fitzgerald (VP of Equity Research)

Hi, everyone. Thanks so much for the time. I was just kind of curious on corporate generally, both large managed accounts and the small and medium-sized enterprises, if there's any pockets of green shoots or any sectors that demand is looking a little more resilient than some of the sectors like autos or agriculture that we hear about on the news.

Steve Johnson (Vice Chair)

Thanks for the question. We are not seeing any real pullback in business travel at this point across the board. That may come later if the economy continues to deteriorate. Right now, it all looks pretty vibrant. We may have a better position in terms of improvement because of our sales and distribution recovery efforts. Right now, business travel looks good across the board.

Tom Fitzgerald (VP of Equity Research)

Okay. That's really helpful. Just going back to the topic about international travel and cross-border flows, what have your conversations been like with your government relations team or your contacts in DC about conveying the importance of smooth cross-border flows to policymakers? Thanks again for the time.

Robert Isom (CEO)

No, I appreciate the question. Travel is incredibly important to the U.S. I think people are aware that almost 1 in 11 jobs is tied to travel. $1.3 trillion of direct spending, $2.9 trillion of overall spending in related outside of direct. This is an incredibly important sector to our economy. We have to make this something that is a cornerstone of infrastructure. That starts with not only doing the work we can domestically, but also making the country a welcoming place. As we work with the administration just on overall reducing concerns about certainty, we're also getting ready for where we should be. That means making sure visa wait times are very, very limited. That means that we open up travel without visa opportunities.

That means that we work with the administration on safe and secure so that when you come to one of our ports, that it's easy to get into and you feel like it's a process that's not cumbersome. Ultimately, we look to the future of making sure that the industry as a whole can continue to grow. That's the long-term plan. From that perspective, we're working with the administration on air traffic control reform, which is likely the biggest limiter to growth in the industry as we look out over several years.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, the Q&A session is open for media questions. As a reminder, to ask a question, please press star one one on your telephone. To remove yourself from the queue, you may press star one one again. You will be limited to one question and one follow-up. We are open for media questions. Our first question comes from the line of Alison Sider of Wall Street Journal. Your line is open, Alison.

Alison Sider (Reporter)

Hi. Thanks so much. I guess I just wanted to ask a broad question on the economy. I'm just curious, Robert, what are you expecting? Do you expect the U.S. economy to sort of tip into a recession? What are you watching or keeping an eye on to gauge whether that's happening?

Robert Isom (CEO)

Hey, Ali. Thanks. Right now, there's uncertainty in the marketplace. I know you've heard that over and over again. It is no different in our planning process than it is for a domestic leisure passenger. Right now, we don't know what is going to happen. That means that we're taking a very cautious, even a negative approach to growth as we take a look out to the rest of the year. What does that mean? It means that we don't hire as much. It means that we don't bring out as many planes, potentially. It means a reduction in overall economic activity. Same thing for the customer that's planning a vacation. Nobody really relishes uncertainty when they're talking about wanting to go on a vacation and spend hard-earned dollars. I think that that is an overhang.

It is one that I know that the administration is aware of and wants to get back on track as soon as possible. Certainty will restore the economy. I think it will restore it pretty quickly. All that said, though, we have to be ready no matter the environment. American is incredibly well positioned. If uncertainty lasts quite a long time, Devon mentioned all the steps that we have taken to improve our balance sheet, make sure that we have liquidity on hand. We are the best at cost managing. We have reflected the airline in a period of much greater certainty with OEMs and in a financing environment that was much more favorable as well. We are ready for that. On the other end, on the other side, travel always comes back. We are ready for that.

The investments that we're making, you heard some of what we talked about in terms of building back our network. On top of that, it's also with a focus on customer experience. Customer experience is everything from new flagship suites to a Philadelphia flagship lounge and free Wi-Fi coming through partnership with AT&T. At the end of the day, American has the most opportunity, I believe, to add value to customers and certainly from a shareholder return in an environment where the economy comes back. We're on both sides of it. Been in this business for 30 years and have gone through everything from SARS to obviously COVID and 9/11 and great recession and everything in between. We have a leadership team here that is better prepared, experienced.

From what I see, this airline and throughout my entire career going into any type of better position than I've ever been.

Alison Sider (Reporter)

Thanks.

Operator (participant)

I'm sorry. Our next question comes from the line of Mary Schlangenstein of Bloomberg News. Your line is open, Mary.

Mary Schlangenstein (Correspondent Covering Airlines)

Thank you. I wanted to ask if you could address the issue of tariffs, whether you plan to pay the tariffs on any Airbus deliveries and the impact that you expect from tariffs both on aircraft and on parts. Secondly, you just mentioned, Robert, manpower in this uncertain environment. I'm wondering if you've already frozen hiring for the rest of the year or taken any steps in that direction.

Robert Isom (CEO)

Mary, I appreciate the question. First off, aircraft cost too much already. I do not want to pay any more for aircraft. It does not make sense. Certainly, we are pulling guidance. Certainly, this is not something we would intend to absorb. I will tell you, it is not something that I would expect our customers to welcome. We have to work on this. We, fortunately, do not have any near-term deliveries. We have deliveries at the end of the year that would be potentially subject to tariffs, the A321XLRs that are built over in Europe. I would tell you, we have to do some work before then. From an overall perspective, I would tell you there is good reason to do something in regard to aviation, civil aviation, because since 1979, we have operated under a tariff regime that has been zero for zero.

No tariffs in and no tariffs purchasing out. That's worked very well for civil aviation. By that, I mean everything from aircraft to engines and to parts as well. That framework has led to an industry, a sector that has produced the largest level of exports, the largest level of surplus of any industry. I know that that's where we want to end up. There may be changes to that framework, but the end result has to be that the U.S. is a powerhouse and continues to be incredibly strong from an aviation perspective. We're part of that. We ultimately operate these aircraft. I anticipate in working with the administration that we're going to end up with a framework that really does ensure that aviation in the U.S. is competitive.

Now, in regard to questions about our people, right now, we are planning for the peak of our schedule. We are getting ready for that. As we take a look into the fall, it's generally not a time where we do a lot of hiring. We are very focused on that. Right now, we don't quite know exactly where we'll end up in capacity at the end of the year. That is certainly coloring our views of 2026 as well. Stay tuned on that. Right now, we're taking a very cautious approach, and we're going to be nimble depending on what we see in the environment.

Operator (participant)

Thank you. Our next question comes from the line of Leslie Josephs of CNBC. Please go ahead, Leslie.

Leslie Josephs (Airline Reporter)

Hi, everyone. Thanks for taking my questions. Just wondering if you're seeing any gained market share in the Dallas area since your competitor announced bag fees and some of the other policy changes, and if there's any kind of detail on the take-up rate of status matches and things like that. Broadly on domestic demand, directionally, is it getting worse? Is it getting better? Are there any geographies that you're seeing are doing worse or better? I'm seeing $700, $800 tickets to New York, L.A. in the summer, and then $100 tickets to Florida. Kind of curious if you could break down where you're seeing the weakness in the main cabin. Thanks.

Steve Johnson (Vice Chair)

Leslie, hi. Thanks. It's Steve. First, on the DFW question, we have a great product. In DFW, it's our largest hub. We have fantastic penetration for our frequent flyer program, fantastic number of co-brand cardholders. We're going to operate the largest operation at DFW in history this summer. We are really well positioned to compete. We've competed with Southwest through thick and thin over the last 40 years, very successfully. We recognize that they've made a very significant change in their business model. We saw that they reported some good numbers yesterday. We are prepared to compete with them. DFW is our favorite place to compete with them.

With respect to demand, I just reiterate what I said earlier, is that what we're seeing is strength in the premium cabin, strength in long-haul international, strength in bookings through indirect travel through travel agencies, and pretty significant weakness in the part of our business that's very sensitive to economic conditions, that is super price sensitive, or that is for whom travel is really discretionary. That tends to be the main cabin. That is weak. The other airlines have identified that it's a source of weakness for them. In those circumstances, you do see prices that are lower. You do see some of the sales prices that you quoted. I think that's going to continue to be the case until we understand which direction the economy is going and we remove some of this uncertainty and some of that demand comes off the sidelines.

Operator (participant)

This concludes the Q&A portion of the call. I would now like to turn the conference back to Robert Isom for closing remarks. Sir?

Robert Isom (CEO)

Thanks, Latif. Hey, Steve, thanks for the response on that. In regards to DFW, I'll just also note that we continue to invest. I think there's going to be some really exciting, cool news coming up in the next week or so regarding American's position at DFW. I look forward to talking more about that. I'll close with this. Uncertainty is what we're living with now. It is something I know that the country wants to move beyond. I know that everybody is working to that end. No matter the environment, American is well positioned. From a prolonged period of uncertainty, we're ready for it. As I've said before, we have a balance sheet, exemplary cost management, a fleet that is ready and incredibly flexible, a team that is experienced to handle whatever may come our way. Over the long run, travel comes back.

People want to travel. American is well prepared for that as well. We have a renewed focus on customer experience. You will see American investing in our premium product. We do believe no matter the economic environment that customers will want to be treated better, they will want services and amenities that they are certainly willing to pay for. American is committed to being a leader on that front. We have got a great network, a great fleet, an incredible set of partners.

Over the long run, I know that our priorities of operating with excellence, of ensuring that we treat our customers right, working to expand our industry-leading loyalty program and partnering with Citi, delivering on our full revenue potential, and continuing to re-engineer the business, it will enable us to get back to growing margins, delivering free cash flow, and strengthening our balance sheet so American is ready for whatever may come long into the future. Thank you. I appreciate the time.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.