WEBVTT - American Airlines CEO Robert Isom Talks Consumer Demand

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Gas prices, specifically jet fuel prices have a lot to

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<v Speaker 2>do with the conversation that we're about to hear. And

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<v Speaker 2>as we watch prices pull back a bit today, we're

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<v Speaker 2>seeing airlines, cruise lines, other travel related stocks get a

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<v Speaker 2>bit of bump out of some of this relief. And

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<v Speaker 2>it's a perfect opportunity to bring in our colleague Lisa Abramowitz,

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<v Speaker 2>who brings us an important conversation now with the CEO

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<v Speaker 2>of American Airlines, Lisa, take it away.

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<v Speaker 3>Thank you so much.

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<v Speaker 1>Joe.

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<v Speaker 4>I am here with Robert isisam the CEO, chief executive

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<v Speaker 4>officer of American Airlines here in our New York office.

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<v Speaker 3>Thank you so much for being here. Robert, great to

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<v Speaker 3>see you.

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<v Speaker 1>Please, great to see you.

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<v Speaker 4>And right now we are looking at oil prices on

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<v Speaker 4>a daily basis, as is your share price.

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<v Speaker 3>Before we get.

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<v Speaker 4>There, though, I want to start with just consumer demand.

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<v Speaker 4>There have been a lot of questions about how resilient

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<v Speaker 4>consumer demand actually can be as this conflict goes on.

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<v Speaker 3>What have you seen so far?

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<v Speaker 1>People want to travel?

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<v Speaker 5>I think that there are still some consciousness that travel

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<v Speaker 5>is still a bargain. Really we're just getting back to

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<v Speaker 5>yields that we had had in twenty fourteen, in twenty nineteen,

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<v Speaker 5>so that sense of travel is a bargain, I think

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<v Speaker 5>is apparent. And what we've seen tremendous demand in the

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<v Speaker 5>first quarter American airlines year over year revenue improved ten

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<v Speaker 5>eleven percent, and we're forecasting revenue to improve fifteen percent,

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<v Speaker 5>you know, year of year. And that's some additional capacity

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<v Speaker 5>in there, but a lot of unit revenue performance as

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<v Speaker 5>well would suggest that people, you know, are finding great

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<v Speaker 5>value in travel.

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<v Speaker 3>Where is the demand coming from? Is it leisure? Is

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<v Speaker 3>it business? Is it both?

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<v Speaker 5>It's all of the above, and it's business, it's leisure,

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<v Speaker 5>it's domestic, and also international is still leading the way.

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<v Speaker 5>Premium is still outpacing leisure. But I really like what

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<v Speaker 5>I see, And in terms of capacity, I think that

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<v Speaker 5>it is responding to market dynamics. I think that you know,

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<v Speaker 5>the industry is stretched terms of margins, and at least

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<v Speaker 5>for US, I like what I see in terms of

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<v Speaker 5>how wet we're set up.

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<v Speaker 4>You say capacity is adjusting, does that mean capacity is

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<v Speaker 4>coming down and prices going up?

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<v Speaker 1>But we've pulled a.

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<v Speaker 5>Little capacity capacity out and we'll, of course take a

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<v Speaker 5>look at what's happening later in the year. We're very

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<v Speaker 5>margin conscious. I mean, at the end of the day,

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<v Speaker 5>that's what we're in business to do. But right now

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<v Speaker 5>demand is very robust, and as we look closing out

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<v Speaker 5>the second quarter, we're going to close out the second

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<v Speaker 5>quarter in a really strong fashion.

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<v Speaker 4>Have you seen any businesses pulled back on business class travel.

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<v Speaker 3>We've heard some companies.

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<v Speaker 4>Start to discuss that type of measure just because of

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<v Speaker 4>the cost.

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<v Speaker 3>Have you seen anything like that not an American.

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<v Speaker 5>We're business travels up thirteen percent year over year, and

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<v Speaker 5>I think it's really responding to some of the things

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<v Speaker 5>that we've been laser focused on.

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<v Speaker 1>We have four pillars.

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<v Speaker 5>One is elevating customer experience, growing back our network, really

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<v Speaker 5>make sure we're driving premium revenue, and then leading in loyalty,

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<v Speaker 5>and all of those are resonating with our customers right now.

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<v Speaker 5>And American has done better year over year from on

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<v Speaker 5>a quarterly basis last five out of six quarters in

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<v Speaker 5>terms of unit revenue production.

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<v Speaker 1>So I like what I see.

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<v Speaker 4>You've talked about how there's been estimated four to five

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<v Speaker 4>billion dollars of costs for twenty twenty six as a

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<v Speaker 4>result of fuel prices being elevated.

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<v Speaker 3>How much of that can you pass along to customers.

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<v Speaker 5>Well, it's a big shock right now, and I am

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<v Speaker 5>very confident that is things even out that will translate

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<v Speaker 5>into gains for.

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<v Speaker 1>American on our shareholders.

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<v Speaker 5>If you take a look back at the first quarter,

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<v Speaker 5>we were projecting solid profitability or profitability in the first quarter,

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<v Speaker 5>which is usually a tough quarter for us, but for

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<v Speaker 5>the shock and fuel prices and the same thing.

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<v Speaker 1>Think about in.

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<v Speaker 5>A year where a price of fuel is spiked four

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<v Speaker 5>or five billion dollars, we're still projecting the same type

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<v Speaker 5>of profitability that we had last year. That means good

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<v Speaker 5>things in terms of what we hold. I really do

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<v Speaker 5>think that there's some stickiness to a lot of what

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<v Speaker 5>we're doing, and it's upside that's unique to American, but

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<v Speaker 5>there's a rising tide as well. Everybody's got to be

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<v Speaker 5>margin conscious, and of course there's been some struggles in

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<v Speaker 5>the business among those that you know, are you know,

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<v Speaker 5>serving the lowest cost demand, are the lowest revenue demand?

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<v Speaker 3>Just to sort of put a bow on that.

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<v Speaker 4>In other words, when you are passing long price increases,

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<v Speaker 4>do consumers push back or they remarkably resilient and just

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<v Speaker 4>accepting it because that is a status quo across the industry.

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<v Speaker 5>We're trying to give our customers something that they really value.

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<v Speaker 1>So, you know, I know.

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<v Speaker 5>That our basic economy product offers incredible value to those

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<v Speaker 5>that avail themselves of it, but we're giving people buy

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<v Speaker 5>up opportunities as well.

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<v Speaker 1>And from a product perspective.

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<v Speaker 5>You name it, flagship suites, the new flagship lounges, you know,

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<v Speaker 5>opening up new roots. All of those things appeal to

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<v Speaker 5>our customers in a way that they say, hey, you know,

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<v Speaker 5>I can find real value in what Americans offering.

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<v Speaker 4>How crazy is it going to get ivate plane? Half

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<v Speaker 4>the plane is a personal sort of suite where you

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<v Speaker 4>have for entertainment.

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<v Speaker 5>Well, I like what we're doing. We're looking at the

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<v Speaker 5>entire fleet. The investments that we're making right that are

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<v Speaker 5>coming to fruition right now are really an indication of

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<v Speaker 5>we skated to the puck in the right place. So

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<v Speaker 5>our flagship suites that are on the seventy eight seven

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<v Speaker 5>nine that are delivering right now fortunately on time, three

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<v Speaker 5>twenty one xl rs are coming in. But not only that,

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<v Speaker 5>the reconfigurations that we set out to do a few

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<v Speaker 5>years ago on our three nineteens. In our three twenties,

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<v Speaker 5>it's all increasing the mix of premium seating that's going

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<v Speaker 5>to grow probably at twice the rate of our leisure,

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<v Speaker 5>our general.

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<v Speaker 1>Cabins, our main cabins.

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<v Speaker 5>But I really like what I see in terms of

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<v Speaker 5>that premium product. It's leading the way, and you know,

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<v Speaker 5>it's very positive.

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<v Speaker 4>We talk about some of the issues that we've seen elsewhere,

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<v Speaker 4>particularly in the budget carriers going bankrupt among them. How

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<v Speaker 4>do you see that in terms of an opportunity to

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<v Speaker 4>gain share?

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<v Speaker 3>Is this a time to.

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<v Speaker 4>See what potential business you can pick up from the

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<v Speaker 4>likes of Spirit now that they're defunct.

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<v Speaker 3>Is this a time for mergers and consolidation in that way?

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<v Speaker 5>Well, I'll start with this America has the most comprehensive

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<v Speaker 5>network in North America, and that's something that our customers

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<v Speaker 5>can avail themselves of, take advantage and really get to

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<v Speaker 5>anywhere else in the world with our partners as well.

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<v Speaker 5>So as we take a look out in the future

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<v Speaker 5>over the next five ten years, our network, you know,

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<v Speaker 5>Miami based a large hub, DFW, Phoenix, Arizona, you name it, Charlotte.

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<v Speaker 5>We're in all the right places where economic growth is

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<v Speaker 5>going to happen. So first and foremost for us is

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<v Speaker 5>growing our organic network and making sure that we're doing well,

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<v Speaker 5>and then opportunistically if assets become available by all means

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<v Speaker 5>and as well, you know, we have a great set

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<v Speaker 5>of partners joint business across the Atlantic with IAG which

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<v Speaker 5>includes BA and Iberia, with CHAT across the Pacific with

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<v Speaker 5>Quanas in Australia.

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<v Speaker 4>So as it's become available, meaning planes and maybe gates,

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<v Speaker 4>not necessarily.

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<v Speaker 5>Entire airlines, planes and gates, Planes and gates first and foremost,

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<v Speaker 5>and how we've really flesh out our network.

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<v Speaker 1>I want to give a shout out to our team.

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<v Speaker 5>They do a great job taking care of customers every

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<v Speaker 5>day where a liability is key. So when I talk

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<v Speaker 5>about customer experience, that is you know, front and center,

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<v Speaker 5>and they deliver it every day. But anything that we

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<v Speaker 5>can do to add to the franchise, we're doing it.

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<v Speaker 5>And then of course we've been really creative in the past,

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<v Speaker 5>whether it was the NEA, which you know, a judge

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<v Speaker 5>I think inappropriately struck down would have benefited us in

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<v Speaker 5>Jet Blue, or what we're doing with Alaska Airlines, West

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<v Speaker 5>Coast International Alliance. All of those things are just creative opportunities,

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<v Speaker 5>and we'll continue to look for those. But in the meantime,

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<v Speaker 5>there's more upside in American than really any other carrier

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<v Speaker 5>because of what we've been doing and investing in our

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<v Speaker 5>four commercial pillars, and because of the fact that there's

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<v Speaker 5>quite frankly more ground that we've had to make up.

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<v Speaker 4>So a marriage between American and United not in your

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<v Speaker 4>not in your Euro Bingo card.

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<v Speaker 5>That was a no from the get go, And at

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<v Speaker 5>the end of the day, you know, doing something that

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<v Speaker 5>would be viewed as anti competitive by just about everybody

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<v Speaker 5>that looked at it is just something that we don't

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<v Speaker 5>spend a lot of time on, and that's why all

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<v Speaker 5>of our attention is directed at really making sure American

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<v Speaker 5>takes advantages and gets set up for when fuel prices,

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<v Speaker 5>you know, normalize a bit, that's going to.

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<v Speaker 1>Mean good things for us.

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<v Speaker 4>Do you think that American can thrive even with oil

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<v Speaker 4>prices where they are today?

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<v Speaker 5>Well, and you take a look at the team in

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<v Speaker 5>the later teams in the United States airlines made good

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<v Speaker 5>money with oil prices above one hundred dollars a barrel.

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<v Speaker 1>Now, my own view is I don't.

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<v Speaker 5>Believe that oil prices will stay at this level. I

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<v Speaker 5>think that the conflict in the Middle East at some

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<v Speaker 5>point is going to be resolved. And I want to

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<v Speaker 5>thank all of our service members for what they do

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<v Speaker 5>every day, and want to thank the administration for making.

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<v Speaker 1>Sure we get through this.

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<v Speaker 5>But on the other side of this, I'm really confident

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<v Speaker 5>that we're set up better than anybody to take advantage

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<v Speaker 5>of fuel prices that are more moderated levels.

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<v Speaker 4>Do you think that right now, the way that things

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<v Speaker 4>are set up, if the prices that we have today

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<v Speaker 4>at like ninety dollars a barrel or eighty five dollars

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<v Speaker 4>a barrel, you could return to the profitability that you

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<v Speaker 4>would forecast the beginning of the year.

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<v Speaker 5>Well, it's going to take some time, but that is

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<v Speaker 5>certainly the intent. And not only that, I mean it's

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<v Speaker 5>not just what we forecast this year, but for us,

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<v Speaker 5>I look for pre tax margins to get back into

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<v Speaker 5>the higher single digit levels. And the way that that

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<v Speaker 5>happens is is keeping a close eye on the marketplace

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<v Speaker 5>and ultimately, yeah, we're in this business to make margin.

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<v Speaker 5>I think it's different in that a lot of the

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<v Speaker 5>lower priced competition is really having struggles. And so as

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<v Speaker 5>we go forward, if there's a need to reduce capacity

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<v Speaker 5>to get back to a business model that produces acceptable margins,

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<v Speaker 5>we're going to do that. You know, right now we

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<v Speaker 5>see considerable strength. I hope this is more of a

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<v Speaker 5>blip that is, you know, months in the making as

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<v Speaker 5>in years in resolving.

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<v Speaker 1>But when we get through this will be in great shape.

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<v Speaker 4>Robert im thank you so much for being with us today.

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<v Speaker 4>Robert Eisam, the CEO of American Airlines, a wonderful summary

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<v Speaker 4>of exactly how a lot of the airlines have managed

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<v Speaker 4>through a difficult time with the incredible resilience of the consumer.

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<v Speaker 3>Everyone wants to travel