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Indiana University strengthens tomorrow's workforce with practical real world experience. IU grads make a difference in your community, serving as teachers, nurses and engineers who rise to tomorrow's challenges and meet them. Learn more at iu.edu impact,
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Bloomberg Audio
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Studios Podcasts, radio news, gas prices, specifically jet fuel prices have a lot to do with the conversation that we're about to hear. And as we watch prices pull back a bit today, we're seeing airlines, cruise lines, other travel related stocks get a bit of bump out of some of this relief. And it's a perfect opportunity to bring in our colleague Lisa Abramowicz who brings us an important conversation now with the CEO of American Airlines. Lisa, take it away.
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Thank you so much, Joe. I am here with Robert Isom, the CEO Chief Executive Officer of American Airlines here in our New York office. Thank you so much for being here. Robert, great to see you.
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C
Lisa, great to see you.
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B
And right now we are looking at oil prices on a daily basis as is your share price. Before we get there though, I want to start with just consumer demand. There have been a lot of questions about how resilient consumer demand actually can be as this conflict goes on. What have you seen so far?
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C
People want to travel. I think that there's still some consciousness that travel is still a bargain. Really. We're just getting back to yields that we had had in 2014 and 2019. So that that sense of travel is a bargain I think is, is, is, is apparent. And what we've seen tremendous demand in the, in the first quarter lines year over year, revenue improved 10, 11% and we're forecasting revenue to improve 15% year over year. And that's some, some additional capacity in there, but a lot of unit revenue performance as well, which suggests that people, you know, are finding great value in travel.
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Where is the demand coming from? Is it leisure, is it business, is it both?
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C
It's all of the above and it's business, its leisure, it's domestic and also international is still leading the way. Premium is still outpac leisure. But I really like what I see and in terms of capacity, I think that it is, it is responding to market dynamics. I think that, you know, the industry is stretched in terms of margins and at least for us, I like what I see in terms of how we set, we're set up.
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You say capacity is adjusting. Does that mean capacity is coming down and prices going up?
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Well, we've pulled a little capacity capacity out and we'll of course take a look at, you know, what's Happening later in the year, we're very margin conscious. I mean, at the end of the day, that's what we're in business to do. But right now demand is, is very robust. And as we look at closing out the second quarter, we're going to close out the second quarter in a really strong fashion.
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Have you seen any businesses pull back on business class travel? We've heard some companies start to discuss that type of measure just because of the costs. Have you seen anything like that?
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Not at American, where business Travel is up 13% year over year. And I think it's really responding to some of the things that we've been laser focused on. We have four pillars. One is elevating customer experience, growing back our network, really make sure we're, we're driving premium revenue and then leading in loyalty. And all of those are resonating with our customers right now. And American has done better year over year on a quarterly basis, last five out of six quarters in terms of unit revenue production. So I like what I see.
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B
You've talked about how there's an estimated 4 to 5 billion dollars of costs for 2026 as a result of fuel prices being elevated. How much of that can you pass along to customers?
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C
Well, it's, it's a big shock right now and I am very confident that as things out that that will translate into gains for American and our shareholders. If you take a look back at the first quarter, we were projecting solid profitability or profitability in the first quarter, which is usually, you know, a tough quarter for us. But for the shock in fuel prices in the same thing, think about in a year where price of fuel is spiked 4 or $5 billion, we're still projecting the same type of profitability that we had last year. That means good things in terms of what we hold. I really do think that there's some stickiness to a lot of what we're doing. And it's upside that's unique to American. But there's a rising tide as well. Everybody's got to be, be margin conscious. And of course, there's been some struggles in the business among those that are serving the lowest cost demand or the lowest revenue demand just to sort of
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B
put a bow on that. In other words, when you are passing along price increases, do consumers push back or are they remarkably resilient and accepting it? Because that is the status quo across the industry.
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C
We're trying to give our customers something that they really value. So, you know, I know that our basic economy product offers incredible value to those that avail themselves of it. But we're giving people buy up opportunities as well. And from a product perspective, you name it, flagship suites, the new flagship lounges, you know, opening up new routes, all of those things appeal to our customers in a way that they say, hey, you know, I can find real value in what American's offering.
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How crazy is it going to get? Private plane? Half the plane is a personal sort of suite where you have entertainment.
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C
Well, I like what we're doing. We're, we're looking at the entire fleet. But the investments that we're making, right, that are coming to fruition right now are really an indication of we skated to the puck in the right, right place. So our flagship suites that are on the seven, eight, seven nines that are delivering right now, fortunately on time, 321 XLRs are coming in. But not only that, the reconfigurations that we set out to do a few years ago on our 319s and our three 20s, it's all increasing the mix of premium seating that's going to grow probably at twice the rate of, of our, our leisure, our general cabins, our main cabins. But I really like what I see in terms of that premium product. It's leading the way and you know, it's very positive.
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B
You talk about some of the issues that we've seen elsewhere, particularly in the budget carriers, Spirit going among them. How do you see that in terms of an opportunity to gain share? Is this a time to see what potential business you can pick up from the likes of Spirit now that they're defunct? Is this a time for mergers and consolidation in that way?
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C
Well, I'll start with this. American has the most comprehensive network in North America. And that's something that our customers can avail themselves of, take advantage and really get to anywhere else in the world with our partners as well. So as we take a look out in the future, over the next five, 10 years, our network, you know, Miami based, large hub, DFW, Phoenix, Arizona, you name it, Charlotte, we're in all the right places where economic growth is, is going to happen. So first and foremost for us is growing our organic network and making sure that we're doing well. And then opportunistically, if assets become available, you know, by all means, and as well, you know, we have a great set of partners. Joint business across the Atlantic with iag, which includes BA and Iberia, with CHAL across the Pacific with Qantas in Australia.
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B
So assets become available, meaning planes and maybe gates, not necessarily entire airlines planes
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C
and gates, but planes and gates first and foremost and how we, we've really fleshed out our network. I want to give a shout out to our team. They do a great job taking care of customers every day. Reliability is key. So when I talk about customer experience, that is, you know, front and center and they deliver it every day. But anything that we can do to add to the franchise, we're doing it. And then of course, we've been really creative in the past, whether it was the nea, which you know, a judge I think inappropriately struck down would have benefited us in JetBlue, or what we're doing with, with Alaska Airlines, West Coast International Alliance. All of those things are just creative opportunities and we'll continue to look for those. But in the meantime, there's more upside in American than really any other carrier because of what we've been doing in investing in our, our 4 commercial pillars and because of the fact that there's quite frankly more ground that we've had to make up.
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B
So a marriage between American and United, not near, not near, not in your bingo card.
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C
That was a no from the get go. And at the end of the day, doing something that would be viewed as anti competitive by just about everybody that looked at it is just something that we don't spend a lot of time on. And that's why all of our attention is directed at really making sure American takes advantage and gets set up for when fuel prices normalize a bit. That's going to mean good things for us.
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B
Do you think that American can thrive even with oil prices where they are today?
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C
Well, you take a look at the team in the later teens in the United States. Airlines made good money with oil prices above $100 a barrel. Now my own view is I don't believe that oil prices will stay at this level. I think that conflict in the Middle east at some point is going to be resolved. And I want to thank all of our service members for what they do every day and want to thank the administration for making sure we get through this. But on the other side of this, I'm really confident that we're set up better than anybody to take advantage of fuel prices that are more moderated levels.
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Do you think that right now the way that things are set up, if the prices that we have Today at like $90 a barrel or $85 a barrel, you could return to the profitability that you had forecast the beginning of the year?
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Well, it's going to take some time, but that is certainly the intent and not only that, I mean, it's not just what we forecast this year, but for us, I look for pre tax margins to get back into the higher single digit levels. And the way that that happens is is keeping a close eye on the marketplace and ultimately, yeah, we're in this business to make a margin. I think it's different in that a lot of the lower priced competition is really having struggles. And so as we go forward, if there's a need to reduce capacity to get back to a business model that produces acceptable margins, we're going to do that. You know, right now we see considerable strength. I hope this is more of a blip that is, you know, months in the making, as in, you know, years in resolving. But when we get through this, we'll be in great shape.
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Robert Isom, thank you so much for being with us today. Robert Isom, the CEO of American Airlines. A wonderful summary of exactly how a lot of the airlines have managed through a difficult time. With the incredible resilience of the consumer, everyone wants to travel.
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