2017 Annual Meeting of Stockholders

Transcription

1 2017 Annual Meeting of Stockholders Doug Parker Chairman and Chief Executive Officer American Airlines Group Inc. June 14, 2017

2 Cautionary Statement Regarding Forward-Looking Statements This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These forwardlooking statements may be identified by words such as may, will, expect, intend, anticipate, believe, estimate, plan, project, could, should, would, continue, seek, target, guidance, outlook, if current trends continue, optimistic, forecast and other similar words. Such statements include, but are not limited to, statements about future financial and operating results, the Company s plans, objectives, estimates, expectations and intentions, and other statements that are not historical facts. These forward-looking statements are based on the Company s current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth in the Company s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (especially in Part I, Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A. Risk Factors) and in the Company s other filings with the Securities and Exchange Commission (SEC), and other risks and uncertainties listed from time to time in the Company s other filings with the SEC. There may be other factors of which the Company is not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. The Company does not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements other than as required by law. Any forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements.

3 American Airlines 2017 Airline of The Year

4 The Leap of Faith Revisited

5 The Leap of Faith Revisited The Leap: Our Company and industry have fundamentally and structurally changed Impact on Leadership: Once you make the leap, you recognize the need to lead differently

6 Investors Are Making the Leap The Leap: Our Company and industry have fundamentally and structurally changed AAL Investor Composition: Percent of Shares Held by Low-Turnover Investors 80% 44% At Merger Today Source: Ipreo

7 The Leap of Faith Revisited The Leap: Our Company and industry have fundamentally and structurally changed Impact on Leadership: Once you make the leap, you recognize the need to lead differently

8 Key Differences for Leadership Compete well with less Management / labor tension Planning horizon: 1 year Perform better with similar Race for best employee relations Planning horizon: 3 5 years

9 Validate the Trust American s mission is to validate the trust placed in us by our: - Team Members - Customers - Investors Trust

10 Impact on Investors As we begin to lead differently, we need to communicate that shift to our investors Old World Thesis Survive Produce ASMs at lowest employee/product cost Keep investments to bare minimum Impossible to project earnings beyond 1 year New World Thesis Thrive Generate higher RASM through quality product Make smart investments for future Earnings cyclical, but much more predictable The duration and severity of the old world make the commitment to the new world even more urgent

11 The Danger of Short-Term Thinking at American American s significant and achievable upside lies in closing its unit revenue gap vs. its largest competitors 2016 Stage Length 1 Adjusted PRASM -6.2% -12.2% A short-term focus could exacerbate the disadvantage rather than encourage value-creating steps - Can discourage investment in product / team 1 Stage length adjusted to AAL s 2016 system stage length of 1,191 miles

12 American is Playing the Long Game Investment Team building Capital allocation Executive compensation

13 Unprecedented Product Investment Total Capital Expenditures $22.9 Billion $5.3 $6.2 $5.7 $5.7 $4.3 $2.2 $2.0 $3.2 $2.7 $3.4 $3.2 $ E Non-Aircraft Aircraft Source: SEC filings and other company guidance

14 Product Investment: New Aircraft By the end of 2017, we will have inducted 399 new aircraft into the fleet since the merger, while retiring 391 older aircraft giving us the youngest mainline fleet among our peers Average Mainline Fleet Age yrs 16.7 yrs Years yrs 13.3 yrs 14.4 yrs 10.4 yrs 10.4 yrs yrs E Source: SEC filings and Ascend data

15 Investing In Our Operation Many large operational initiatives are now complete or nearing completion - PSS Cut-Over - GSE Refresh Programs - Operational Staffing Increases - New IOC - FOS Integration - Hub Re-Banking - MBR Improvement Initiatives - New Simulators

16 Investing in Our Operation: New Technology Coming soon Dynamic Reaccom Notify All Proactive Bag Notification

17 Investing in Our Facilities and Infrastructure We have invested in a large number of projects to improve much of our real estate - Employee Support Space - HDQ 1 & 2 Refurbishment - Data Network Refresh - Disaster Recovery Initiatives - PHX Restack & Refurbishment - Lounges and holdroom refurbishments

18 Product Investment: Better Customer Experience We are making a number of changes to improve the customer experience Free Entertainment Facility Improvements Improved Clubs and Upgraded Seats

19 Product Investment: China Southern The investment in China Southern is expected to give American customers access to 70 destinations in China ORD DFW ORD DFW LAX Beijing Shanghai AA routes to China CZ domestic routes from PEK and PVG Source: Diio Mi schedule data

20 Investing in Revenue Initiatives Basic economy Premium economy New revenue management system Schedule optimization Revamped sales organization New credit card agreements Aircraft reconfigurations

21 Investing in Our Team 10,000 additional team members 38% average pay rate increase per team member Unilateral implementation of profit sharing Elevate the Experience customer service training Trust New HR team member service center Two positive space tickets for ATW Airline of the Year Unilateral mid-contract adjustment to pilot and flight attendant pay rates

22 Allocating Capital with Long-Term Focus After: - Unprecedented investment in product, team, operation, automation, etc. - Elimination of high-cost debt - Ensuring industry-leading cash balances AAL Share Count 34% Reduction American returns capital to shareholders - Over $9.5 billion of share repurchases since 3Q Paid over $600 million in dividends since 3Q M Diluted Shares at Merger Close 496M Shares Outstanding on March 31, 2017

23 Allocating Capital with Long-Term Focus Higher debt levels supported by higher asset values 2016 Mainline Fleet Values 1 $27.4B $17.0B $12.7B 1. Data estimated from Diio and MBA Redbook values

24 Allocating Capital with Long-Term Focus Higher liquidity position provides insurance $9.1B 1Q 2017 Total Liquidity 1 $6.4B $5.1B Impact on AAL of 100 bps increase in interest rates ~$30M / year in net interest expense 1. Source First quarter 2017 Form 10-Q.. Total Liquidity includes total unrestricted cash and undrawn revolver capacity at 3/31/2017

25 Executive Comp. Aligned with Long-Term Value Creation Target compensation heavily weighted to AAL equity Percent of Compensation Denominated in AAL Equity CEO 100% President 72% EVPs 65%

26 Annual Incentive Plan Tied to Long-Term Profitability Targets Annual incentive plan designed to average 100% of target over time Annual targets set with long-term profitability in mind Pre-Tax Earnings 1 Threshold (50% of target) $3B Target $5B Maximum (2x target) $7B Valuation Point: AAL current market cap is approximately 8x target net earnings 1. Pre-tax earnings excludes special items

27 Current Valuations Seem Well Below Profit Expectations American sets annual incentive plan on targeted average pre-tax earnings ( steady state ) of $5 billion excluding special items Current AAL market value is approximately 8x the steady state target AAL pre-tax steady state earnings 1 After taxes AAL current market capitalization $5 billion ~$3 billion ~$24 billion Steady state P/E multiple ~8x Since 1990, the average P/E multiple of the S&P 500 is 19.6x 1. Excludes special items

28 Revenue Trends Are Encouraging American was the first network airline to return to positive TRASM and is expected to outperform in 2Q and the rest of 2017 Year-Over-Year Change in Total Revenue per ASM 1.3% 3.1% 0.1% 3.5% to 5.5% 2% 2% 1% to 2% -2.2% -7.0% -5.7% -4.1% -1.3% -1.8% -2.9% -0.6% -2.3% 3Q16 4Q16 1Q17 2Q17E Source: Company reports. 2Q17 data is based on company guidance for AAL and LUV and analyst estimates for UAL and DAL.

29 CASM Growth is Slowing Costs have been elevated in recent quarters, primarily due to rate increases given to our team members This impact will lessen throughout the year and we anticipate that consolidated CASM will be less than 2 percent* in both 2018 and % Mainline CASM (ex. Fuel and Special Items) YoY Growth 1 6% to 8% 3% to 5% 2% to 4% <2% 1Q17 2Q17E 3Q17E 4Q17E 2018/19E* 1. Excludes net special items. Please refer to the Company s GAAP to Non-GAAP reconciliation in the appendix. 2018/19 forecast excludes the impact of any potential increases from new joint bargaining agreements. *Consolidated CASM projection

30 AA Post-Merger Earnings $7,000 $5,000 AA/US Pretax Income (excluding special items) $1.0B Millions $3,000 $1,000 -$1,000 -$3, $19.3B -$5,000 Data presented is pre-tax income excluding special items for AMR and US Airways combined for and pre-tax income excluding net special charges for American Airlines Group Inc. for Please refer to the Company s GAAP to Non-GAAP reconciliation in the appendix for these years. The estimated 2017 data is a J.P. Morgan estimate as of June 13, 2017 and is not a Company forecast.

31 AA Post-Merger Earnings $7,000 AA/US Pretax Income (excluding special items) $7B Millions $5,000 $3,000 $1,000 $5B $3B -$1,000 -$3,000 -$5,000 Data presented is pre-tax income excluding special items for AMR and US Airways combined for and pre-tax income excluding net special charges for American Airlines Group Inc. for Please refer to the Company s GAAP to Non-GAAP reconciliation in the appendix for these years. The estimated 2017 data is a J.P. Morgan estimate as of June 13, 2017 and is not a Company forecast.

32 Summary Industry undervalued given long-term prospects AAL best positioned within industry - Greater revenue opportunities than other airlines - Revenue gap closing due to product / operational improvements - Cultural transformation underway - Best assets: well ahead of group on capital spending requirements

33 Appendix

34 GAAP / non-gaap Reconciliation 12 Months Ended Reconciliation of Pre-Tax Income Excluding December 31, Special Items (In millions) Income (loss) before income taxes as reported $ 4,299 $ 4,616 $ 3,212 $ (1,340) Special items: Other revenue special item, net (31) Special items, net 709 1, Regional operating special items, net (4) Nonoperating special items, net Reorganization items, net ,655 Pre-tax income excluding special items $ 5,071 $ 6,290 $ 4,168 $ 2,195 Calculation of Operating Revenues and Pre-Tax Margin Excluding Special Items Income before income taxes as adjusted for special items $ 5,071 $ 6,290 $ 4,168 $ 2,195 Total operating revenues $ 40,180 $ 40,990 $ 42,650 $ 40,419 Other revenue special item, net (31) Total operating revenues excluding special items $ 40,180 $ 40,990 $ 42,650 $ 40,388 Pre-tax margin excluding special items 12.6% 15.3% 9.8% 5.4% For additional detail regarding net special charges and the methodology used to produce combined historical results for 2013, see the Company s earnings press releases filed on SEC Form 8-K issued January 27 th, 2017, January 29 th, 2016, January 27 th, 2015 and January 28 th, 2014, which can be found at

35 GAAP to non-gaap Reconciliation Reconciliation of Operating Cost per ASM Excluding Special 3 Months Ended March 31, Items and Fuel - Mainline only (in cents) Mainline operating expenses per ASM as reported Special items, net per ASM (0.21) (0.17) Mainline operating expenses per ASM, excluding special items Aircraft fuel and related taxes per ASM (2.48) (1.79) Mainline operating expenses per ASM, excluding special items and fuel Note: Amounts may not recalculate due to rounding. For additional detail regarding special items, see the Company s SEC Form 8-K issued April 27, 2017

36 Questions?