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Date
Tuesday, January 27, 2026 at 8:30 a.m. ET
Call participants
- Chief Executive Officer — Robert Isom
- Chief Financial Officer — Devon May
- Chief Commercial Officer — Nat Pieper
- Vice President, Investor Relations — Neil Russell
Takeaways
- Adjusted Earnings Per Share -- $0.06 for the fourth quarter and $0.36 for the full year, both figures below prior management guidance due to a $325 million revenue impact from a prolonged government shutdown.
- Winter Storm Fern Disruption -- More than 9,000 flights canceled over four days with at least two additional days of elevated cancellations expected, marking the largest weather-related operational disruption in company history.
- Premium Unit Revenue Outperformance -- Premium unit revenue outpaced Main Cabin by seven points in the fourth quarter year over year, with premium consistently outperforming throughout 2025.
- Corporate Revenue Growth -- Managed corporate revenue rose 12% year over year in the fourth quarter, with continued strength noted into the start of 2026.
- First Quarter 2026 Revenue Guidance -- Revenue expected to increase 7%-10% year over year, factoring in a $150 million-$200 million negative impact from winter storm Fern.
- First Quarter 2026 Capacity and Costs -- Capacity projected to rise 3%-5% year over year, while CASM ex fuel ex profit sharing and net special items will increase 3%-5% including a 1.5-point impact from winter storm Fern.
- Full-Year 2026 Adjusted EPS Guidance -- Adjusted earnings per diluted share projected in the $1.70-$2.70 range.
- Free Cash Flow Projections -- Free cash flow generation expected to exceed $2 billion for 2026, supporting accelerated debt reduction.
- Total Debt Reduction -- $2.1 billion debt reduction completed in 2025, bringing total debt to $36.5 billion and positioning the company to achieve its sub-$35 billion 2027 debt target a year early if midpoint guidance is met.
- Premium Seat Expansion -- Premium seat growth is set to nearly double the rate of main cabin seat growth through the decade, with lie-flat seats planned to rise more than 50% by 2030.
- Cobranded Credit Card Program -- Card spending grew 8% year over year in 2025, and the transition to an exclusive ten-year Citi partnership was executed on January 1, 2026, with a company-reported focus on driving conversions.
- Indirect Channel Recovery -- Management stated indirect channel market share was fully restored by year end, with high-value customer relationships prioritized for growth in 2026.
- Q1 2026 Adjusted Loss Guidance -- Adjusted loss per diluted share projected at $1.10-$1.50, with management noting a wider guidance range due to ongoing assessment of winter storm Fern’s financial impact.
- CASM and Productivity Savings -- $250 million of additional savings targeted for 2026 versus 2025, building on a cumulative $1 billion in operating savings and $900 million in working capital improvements since the launch of multiyear efficiency efforts in 2023.
- Advantage Program Enrollments -- 7% year-over-year enrollment growth reported in 2025, with Chicago enrollments up nearly 20%.
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Risks
- Devon May said, "These results came in below our guidance, primarily due to prolonged government shutdown, which impacted revenue by approximately $325 million," with the disruption concentrated in the domestic entity and particularly at the DCA hub.
- Management cited "unit revenues in Latin America remained under pressure during the quarter," and expects this to be "a continued headwind for the 2026."
- Devon May stated that the "impact of this storm is unlike anything we have ever experienced," causing significant operational disruption and an estimated $150 million-$200 million negative revenue impact in the first quarter guidance.
- Devon May stated, "we still have lot of work to do before we shift our focus to any sort of shareholder remuneration," as debt and ratings targets remain and labor cost inflation must be absorbed.
Summary
American Airlines Group (AAL 5.22%) identified the unprecedented operational and financial impact of winter storm Fern as an immediate concern for first quarter performance, including more than 9,000 canceled flights and a significant revenue headwind. Management acknowledged that the fourth quarter and full year 2025 earnings results fell short of guidance, citing government shutdown-related revenue loss, but also pointed to record early 2026 booking trends and double-digit year-over-year system revenue gains in January. The company highlighted outsized premium revenue growth, the scaling of premium cabin capacity, and a newly expanded ten-year Citi cobranded card partnership as structural advantages expected to drive improved profitability. Substantial progress on debt reduction and cost efficiency initiatives may support the acceleration of balance sheet targets, with targeted free cash flow generation over $2 billion in 2026. Management conveyed plans to expand capacity in key hubs, further premiumize product offerings, and maintain flexibility in capital allocation until leverage and ratings goals are met.
- The 2026 capacity plan includes notable hub growth in Philadelphia, Miami, and Phoenix, enabled by expanded premium seating and international fleet deliveries.
- Domestic and international flying are both projected to deliver balanced capacity growth, with unit revenue guidance supported by improved premium performance and fully restored indirect sales channels.
- Management is investing in hub reliability upgrades and technology to improve disruption recovery, especially at Dallas/Fort Worth, as part of a major banking structure and facilities overhaul.
- The full-year guidance midpoint does not assume the January booking surge will persist throughout 2026; exceeding the high end would require further acceleration in demand.
- Plans for share buybacks or direct capital returns remain on hold, pending further progress on net debt and credit rating improvement toward stated goals.
Industry glossary
- CASM ex fuel ex profit sharing and net special items: Operating cost per available seat mile excluding fuel, profit sharing expenses, and special items, a key cost efficiency metric in airline financial management.
- Advantage program: American Airlines' proprietary frequent flyer customer loyalty program, used to drive passenger retention and ancillary revenue through mile accrual and redemption.
- RASM: Revenue per available seat mile, a principal measure of airline unit revenue performance.
- Banking structure: The grouping of flight arrivals and departures to facilitate connections and operational efficiency within a hub-and-spoke network.
Full Conference Call Transcript
Neil Russell: Thank you for standing by, and welcome to American Airlines Group Fourth Quarter and Full Year 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 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Neil Russell, Vice President, Investor Relations. Please go ahead.
Neil Russell: Thanks, Latif, and good morning, everyone. Welcome to the American Airlines Group earnings conference call. On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devon May. In addition, we have a number of senior executives in the room this morning for the Q&A session. 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, please note that today's call contains forward-looking statements, including statements concerning future events, costs, forecasted 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 earlier this morning, Form 10-Ks for the year ended 12/31/2024, and subsequent quarterly reports on Form 10-Q. Unless otherwise specified, all references to earnings per share are on an adjusted and diluted basis. Additionally, 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 and investor presentation, each of 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 in American and for joining us this morning. With that, I'll turn the call over to our CEO, Robert Isom.
Robert Isom: Good morning, everyone. As we close out 2025, I'm extremely proud of the hard work and perseverance of the American Airlines team throughout the fourth quarter and the full year. Thank you to each of you. Your commitment to excellence is what makes American the premium global airline our customers trust. Thank you for navigating 2025 with resilience, and for taking care of our customers throughout the holiday period. And I especially want to recognize the tremendous efforts of our team this past weekend and this week as we work through winter storm Fern. Ensuring our customers and team members remain safe during this challenging weather event.
The impact of the storm is as significant as we've ever seen at American. Ice and freezing rain have significantly reduced operations, especially at DFW and Charlotte, our largest hubs, for multiple days. Over the past four days, we've had to cancel more than 9,000 flights, making this the largest weather-related operational disruption in our history. We expect at least two more days of elevated cancellations before returning to normal operations later this week. While 2025 wasn't the year anyone in the industry thought it would be, and no matter the unique challenges American faced, we did the hard work to build a solid foundation for our future. Our balance sheet is the strongest it's been in years.
On the labor front, over the last thirty months, we've successfully negotiated ratified agreements with our pilots, flight attendants, mechanics, fleet service agents, passenger service agents, reservations agents, and more recently, our flight crew training instructor and simulator pilot groups. Our fleet is in excellent shape, thanks to the significant investments we've made. We have low capital requirements and no required aircraft retirements for the foreseeable future. Over the next few years, we will continue to expand our international fleet and premium seating through new deliveries and retrofit programs. Additionally, we've fully restored our historical sales and distribution indirect share with our focus now on further growth in 2026 and beyond. We turn to the page to a new year.
A momentous chapter in our history. As we celebrate American Centennial. I'm excited about the opportunities that lie ahead for American as we begin to see the benefits of our work in 2026. Our strategy to deliver on America's revenue potential centers on four key areas. Delivering a consistent, elevated customer experience, maximizing the power of our network and fleet, building partnerships that deepen loyalty and lifetime value, and continuing to advance our sales, distribution, and revenue management efforts. While this has been a multiyear effort, 2026 will be the year these efforts start to bear fruit. We're off to a fast start based on the booking trends we've observed in January.
All-time records for the first three weeks of the year. Starting with our first focus area, delivering a consistent elevated customer experience. Proud to deliver. We strive to create an experience that customers value and that our team members are. In 2025, our Net Promoter Score for on-time customers was the highest in our company's history and is expected to see even more improvement in 2026. We continue to invest in the customer experience and premium products and services that differentiate America. American. Our new flagship suite products the industry standard of luxury for long-haul travel, and has delivered leading customer satisfaction scores since its inauguration.
We're expanding this product across our international capable fleet, including on the new Boeing 787-9s, the new Airbus 321 XLRs, and the retrofits of our existing triple seven aircraft. We're proud to offer the industry's leading lounge network including the most premium lounges, We opened our newest flagship lounge in Philadelphia last year, and we also announced plans to bring new flagship lounges to Miami and Charlotte. We're also making significant investments to our Admirals Club lounges. Including the renovation of our Concourse D Lounge at DCA and the introduction of provisions by Admirals Club at Charlotte. A first of its kind lounge concept for travelers that are on the go.
We are also enhancing the onboard experience with the introduction of mattress pads for added comfort upgraded food and beverage offerings, and other thoughtful touches throughout the journey. Rolling out this month, Advantage members will enjoy complimentary high-speed satellite Wi-Fi on our narrow-body aircraft. Dual-class regional jets, and our new premium Boeing 787-9s. Sponsored by AT&T, reinforcing connectivity as a core aspect of the customer journey and a benefit that our members value. The early feedback shows increased satisfaction, especially among younger generations. American will offer more free high-speed satellite Wi-Fi on more aircraft and on more flights than any other carrier in the world.
Also know that reliability and disruption management are key drivers of customer satisfaction and revenue production, and we're taking steps to improve our reliability. First, we're transforming the way we operate a DFW to prepare for future growth at our largest and most profitable hub. Moving to a new 13 bank structure, is designed to increase customer connection opportunities reduce air traffic delays, and allow for quicker recovery during irregular operations. All while providing more on-time arrival certainty to our 100,000 customers traveling through DFW each day. Importantly, we expect this change will open the door future expansion in a market with significant economic and population growth.
In the coming years, we'll see the completion of a new terminal f along with further enhancements and gate expansion at two other terminals. Once completed, American will operate the largest single carrier hub in the world at DFW. We're also investing in our schedules and in technology to ensure more on-time arrivals. Fewer missed connections, and a smoother travel experience. We're bolstering our ability to get customers in their bags to where they're going on time and we expect these changes will have a meaningful impact on customer satisfaction scores. Our second focus area is maximizing the power of our network and fleet. We're a premium global airline with the strongest network in The US.
The most important a v s aviation market in the world, Eight of our hubs are located in the 10 largest metropolitan areas in The US. We're maximizing the power of our network, global reach of our partners, to connect more people to more places than any other airline. Our current domestic growth plans for 2026 are focused on scaling hubs where we can grow our local share and fully utilize existing infrastructure. Particularly in Philadelphia, Miami, and Phoenix. We'll also be rounding out our schedule in Chicago. Improved schedules combined with product enhancements are helping us win local high-value customers. Our fleet order book has a diverse mix of aircraft size and operational.
This provides the opportunity to grow our hubs. Invest in our local markets, and expand servers globally. Our international offerings in 2026 will include new routes to premier destinations like Budapest and Prague and growth with our international joint business and One World partners. We remain on track to increase our international capable fleet from 139 today to 200 aircraft by the end of the decade. We expect continued improvement in premium unit revenue. Supported by growing demand and increased premium product availability. With our current order book, and the announced reconfigurations, there are triple seven two hundred, triple seven three hundred, a three nineteen, and a three twenty fleets.
Will deliver significant premium seat growth over the coming years, nearly twice the rate of main cabin seats. Our lie-flat seats are expected to increase by over 50% by 2030. Building partnerships that unlock loyalty and life lifetime value is the third area of our focus. American invented airline loyalty, and the Advantage program continues to lead the industry. We offer more value per mile, countless ways to earn and redeem miles, and more ways to engage with Advantage members, including complimentary Wi-Fi that started this month. Advantage enrollments increased 7% year over year, marking our greatest number of annual enrollments with Chicago leading the way. Up nearly 20% year over year.
2025 marked a record year for cobranded credit card program. With spending on our cards up 8% year over year. This momentum sets the stage for our exclusive ten-year cobranded credit card partnership with Citi which went into effect on January 1. In the fourth quarter, we successfully transitioned in-flight and airport acquisition channels from Barclays to Citi, and our focus in 2026 now shifts to card conversions. The Citi partnership gives our customers the most straightforward and seamless path to status in the industry. With a Citi cobranded credit card, members earn loyalty points for every dollar spent. Creating more benefits for customers to engage with American.
Our partnership with Citi is designed to drive long-term growth credit card acquisitions and spend, and the upside is significant. These efforts, combined with the strength of our advantage program, will deepen engagement enhance customer loyalty, and deliver meaningful long-term value to American. Lastly, we remain focused on the continued advancement of sales, distribution, and revenue management efforts. As we closed the year, we had restored our indirect channel share an important milestone but not the end of our initiative. As we move into 2026, we will continue to deepen the relationships that we've built with our corporate and agency partners. And capture greater share among high-value corporate travelers and premium leisure customers.
Across the commercial organization, we see significant opportunities by sharpening our fair product architecture and continuing to improve our revenue management processes and technology. In the fourth quarter, we made changes to our basic economy product to drive clear segmentation. While still offering a better basic product than any of our competitors. Throughout the year, we will continue evaluating our premium offerings. Particularly our extra legroom product. Is a compelling option for corporate customers. And finally, we will continue innovating our commercial systems through the deployment of best-in-class technology solutions. And lastly, wanna acknowledge that this week marks the one-year anniversary of the tragic accident of flight fifty-three forty-two.
We remain committed to supporting everyone affected by that tragedy through our Office of Continued Care and Outreach. And I wanna commend our team for handling this difficult situation in an exemplary way. Devin will now share more about our financial results in the 2026 outlook. Thank you, Robert.
Devon May: Excluding net special items, American reported fourth quarter adjusted earnings per share of $0.06 and full year adjusted earnings per share of $0.36. These results came in below our guidance, primarily due to prolonged government shutdown, which impacted revenue by approximately $325 million. The impact of the government shutdown was largely concentrated in the domestic entity, where American has the largest exposure. Especially our hub at DCA and its relative weighting towards government-related traffic. This disruption was temporary, but it impacted revenue in November and December. Following softer than expected bookings late in the fourth quarter, bookings strengthened meaningfully in January. System-wide revenue intakes for the first three weeks of 2026 are up double digits year over year.
Premium continued to outperform main cabin throughout the quarter. A trend that has remained consistent all year underscoring the strength of the premium customer and demand for the premium products we offer. Our fourth quarter year over year premium unit revenue outpaced Main Cabin by seven points. We continue to see strength in our indirect channels with managed corporate revenue up 12% year over year. Which has strengthened further so far in 2026. Looking ahead, we expect premium unit revenue momentum to remain strong in 2026, also expect main cabin to deliver strong year over year improvement assuming a stable macroeconomic backdrop.
Year over year unit revenue for the domestic entity had inflected positive in September and remained positive before the impact of the government shutdown. Excluding the government shutdown, year over year domestic unit revenue would have been positive for the quarter. Our international entities performed in line with the guidance we provided in October. Atlantic unit revenue was up 4% year over year, and it was our most profitable region during the quarter as seasonal demand trends and demand for our premium offering continued to strengthen in the fourth quarter. Once again, unit revenues in Latin America remained under pressure during the quarter. We expect this to be a continued headwind for the 2026.
As we have said in the past, American's presence in the region, the premium services we offer, and the scale we have in Miami and our other southern hubs allow for profitable results in this environment and a continued long-term competitive advantage. And finally, Pacific unit revenue was slightly down year over year, but showed sequential improvement from the third quarter supported by strength in the premium cabins. Looking to Q1, we expect domestic unit revenue to get back on trend and be nicely positive for the quarter, driven by both strength in premium and main cabin demand.
We expect international unit revenue performance will be mixed, with continued strong transatlantic performance and flattish unit revenue in the Latin America and Pacific entities. As Robert mentioned earlier, American is continuing to invest in expanding our premium offerings across the customer journey. We are already recognized among The US network carriers for having the highest rated and most consistent products across our long-haul fleet. We expect to expand that product further in 2026 with 10 additional a three twenty one XLR deliveries and the full utilization of our 11 premium Boeing 787-9s. Additionally, our Boeing triple seven three hundred retrofit has started, and customers will enjoy a 20% increase in premium seats.
The retrofitted aircraft roll out this year and next. These efforts will continue in future years with retrofits on the Boeing seven seventy seven dash 200, the a three nineteen, and the a three twenty fleets. With these investments in our existing fleet, along with our new deliveries, we expect our premium seat growth will outpace our nonpremium offerings each year for the remainder of the decade. Now on to our earnings outlook for 2026. Our guidance today reflects our preliminary estimate of winter storm fern. Our guidance always includes a completion factor assumption for winter weather. But as Robert mentioned earlier, the impact of this storm is unlike anything we have ever experienced.
For the first quarter, capacity is projected to be up 3% to 5% year over year as we maximize the value of our network through stronger schedules in many of our hub cities. This is inclusive of approximately a point and a half impact from winter storm Fern. Our 2026 capacity plan includes significant growth in Philadelphia, Miami, and Phoenix as we take advantage of near-term opportunities and utilize existing facilities. Our growth for the year is expected to be evenly balanced across domestic and international entities.
We expect first quarter revenue to be up between 7-10% year over year, driven by improvements in the domestic entity, from expected growth in corporate passenger volumes and as demand continues to recover as we lap the challenges experienced in the 2025. This includes an estimated revenue impact of between $150 million to $200 million from the ongoing winter storm firm. First quarter CASM ex fuel ex profit sharing and net special items is anticipated to be up between 3-5% we absorb the flight attendant boarding pay an additional benefit that went into effect in the 2025. And as we staff ahead of the summer to support peak growth.
The CASM ex impact from winter storm Fern is approximately one and a half points. We remain confident in our ability to deliver the most efficient capacity in the industry as we continue our multiyear effort to reengineer the business. This transformation leverages technology, and streamlines processes to enable an improved customer and team member experience while driving a more efficient business. These efficiencies enable our mainline work groups to operate at their highest productivity levels partially mitigating the impact of contractual labor rate increases and other inflationary pressures. In 2026, expect an additional $250 million of savings from these efforts versus 2025.
Bringing our cumulative operating savings to nearly a billion dollars since 2023 and total working capital improvements of nearly $900 million. Meeting the expectations set at the start of the program. With this first quarter guidance, inclusive of the impact of winter storm Fern, we expect to deliver an adjusted loss per diluted share of between $0.1.50. The guidance range for the quarter is slightly wider than what we traditionally use as we continue to evaluate the impact of this extraordinary weather event. For the full year, we expect adjusted earnings per diluted share of approximately $1.70 to $2.70. Lastly, turning to CapEx and the balance sheet. 2026, we expect to take delivery of 55 new aircraft.
Based on our current expectations, our 2026 total capital expenditures are expected to be between 4 and 4 and a half billion dollars. Consistent with our prior guidance. Based on these earnings and capital projections, we anticipate free cash flow generation of more than $2 billion for the full year. We continue to make significant progress in strengthening our balance sheet. At the start of 2025, we committed to reducing total debt by approximately $4 billion to less than $35 billion by the end of twenty seven. During 2025, we reduced total debt by $2.1 billion bringing our total debt to $36.5 billion.
At the midpoint of our EPS and CapEx guidance, we would hit our 2027 goal to have total debt below $35 billion a year ahead of schedule in 2026. And with over $2 billion of free cash flow this year, we expect that by year end, will have our lowest level of net debt since the 2014. I'll now hand the call back to Robert for closing remarks.
Robert Isom: Thanks, Devin. This year marks our one hundredth anniversary. A remarkable milestone that reflects a legacy of innovation, resilience, and caring for people on life's journey. We've been innovators since the beginning. We invented the first reservation system and the first revenue management system. The first airport lounge, and the first airline loyalty program, which continues to lead the industry today. From our humble beginnings as a mail carrier between Chicago and St. Louis, today, American Airlines is a premium global airline that connects more of The US to the world powered by a proud team of over 130,000 aviation professionals unmatched in talent and spirit, with a proven ability to adapt, innovate, and always strive for better.
I've been in this business for a long time. I'm incredibly excited about what lies ahead for American. The foundation we built in 2025 combined with our go forward strategy, positions us to deliver sustainable growth and create long-term value for our customers, team members, and shareholders. American's tagline for our centennial year is Forever Forward. It embodies all the things that we've accomplished over the past one hundred years, and all the opportunities in front of us. From elevating the travel experience and strengthening our network to unlocking loyalty and driving efficiency, We're executing on a strategy and initiatives that will drive value and shape our next one hundred years as a premium global airline.
Thank you for your interest in American Airlines. And operator, you may now open the line for questions.
Operator: Question, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. To allow everyone the opportunity to participate You will be limited to one question and one follow-up. Please standby while we compile the Q and A roster. Our first question comes from the line of Connor Cunningham, Amelius Research. Please go ahead, Connor.
Connor Cunningham: Hi, everyone. Thank you. I was hoping we could talk about the hub structure a little bit. You have a bunch of fresh eyes looking at it right and clearly, there's a lot of questions about what's happening in Chicago. So was hoping you could talk about how you view profitability by hub and then where you see the most upside from your hub standpoint in 2026 and beyond? Thank you.
Robert Isom: Thanks, Connor. And I'll just you know, dive right into to Chicago. We've been flying to Chicago for a hundred years, and it was where our first flight took place, in fact. And it's gonna be part of our system know, for the next hundred years. When we look at Chicago, it's strategically important It is something that we're gonna grow back to where we were prior to pandemic to 500 flights. We feel that's rounding it out. That gets us to where we think that we need to be. And I'm really pleased with, what I see from the results so far.
Book customer, mix up 20%, loyalty acquisitions up 20%, credit, co branded credit card acquisitions up 20%, So we're, making sure that we're doing best for our customers. And when it comes to Chicago, we would expect that it returns to the average profitability of our hub network. It's going to be our third largest hub, and we're gonna get keep at work taking care of our customers and making sure that it performs as, best as it possibly can.
Connor Cunningham: Awesome. And then maybe we could talk a little bit about just the cost trajectory in 2026. I think I mean, you quantified what you expect from 1Q just from the storms in and that's helpful. But just it seems like 1Q is going to be your high watermark. So just how you think about the shape of the cost curve in '26 would be helpful. Thank you.
Devon May: Hey. Thanks for the question. The construct we've given in the past is that at around mid single digit capacity for this year, we would expect our unit cost to be low single digit growth. And that's what we would have experienced here in the first quarter. We expect the unit cost growth in that 2% to 3% range prior to winter storm Fern. So that's where we'll be for the year. I think, you know, quarter to quarter, it might move a little bit up or down to on what's happening with the timing of certain maintenance events. But if we end up at mid single digit capacity, I would expect low single digit CASM.
As always, though, we'll be flexible with capacity depending on, the demand and competitive environment we find ourselves.
Operator: Thank you. Our next question comes from the line of Katie O'Brien of Goldman Sachs. Your line is open, Katie.
Katie O'Brien: Hey. Good morning, everyone. Thanks for the time. So maybe just on the premium growth rate, I know you've shared that premium seat growth rate will be double main cabin seats at end of the decade. And I think you've previously noted, you know, that's driven by 20% premium seat growth and 50% lie flat growth through 2030. Just wondering, what does that look like in 2026? You know, how much fee growth is driven by premium? How quickly are you growing those lie flat seeds? And how does this factor into your full year revenue outlook? Is there a mix shift benefit included? And how should we think about that?
Robert Isom: Thanks, Katie. I'm going to hand that off to Nat Pieper, our Chief Commercial Officer.
Nat Pieper: Katie, good morning. On the premium side, our premium performance in 'twenty five, premium RASM was superior to nonpremium by seven points. Both domestically and internationally very strong. And as we look forward into '26, by entity, you'll continue to see our premium mix improve. We're taking delivery of a three twenty one XLRs. Our more seven eight seven dash nine p configuration, p standing for premium, and we'll continue to deploy more premium seats into international markets. By entity, just quickly, if you think on the Transatlantic side, demand there continues to be really strong. Across both products, all parts of our business, Heathrow, Rest Of Europe, etcetera, and our joint business partners seeing similar things.
Premium holding up well in The Pacific. As well as in our Deep South Latin market too. So you're going to continue to see richness. We see a lot of depth in the premium market, and we're really excited about American's product evolving, the customer experience investments we're making, all tuned to that premium traveler.
Katie O'Brien: Great. Matt, great to hear from you at your new at your new gig. Maybe just one for Devin. You pulled forward your debt reduction target by a year once again, now expected to be less than 35,000,000,000 by the end of this year. Instead of 27. I think when I asked you at my conference last December, you said you'd contemplate what the right medium term or longer term leverage target would be once you got to under 35,000,000,000? I know we're not there quite yet, but with the target approaching, how are you thinking about the balance sheet and when the potential buybacks are to figure out the calculus again? Thanks for all the time.
Devon May: Hey, Katie. Listen. We are really pleased with the progress we've made on the balance sheet, not just over the last year, but really over the past three or four years. And, you know, we talk about the priorities. They remain the same. We've focus first on taking care of our customers and making the right investments there, taking care of our team members. Any investments we need to make back in the business. And then beyond that, any free cash flow that we're producing, we are putting into the balance sheet, and that's what allowed us to, achieve this goal and achieve this goal a year early.
But we still have lot of work to do before we shift our focus to any sort of shareholder remuneration. We need to get inside of 3x net debt to That was our longer term stated goal. We wanna get to a double b flat credit rating. So some work to do still on the ratings and metrics side, but really happy with the progress we've made so far.
Operator: Thank you. Our next question comes from the line of John Gaudin of Citi. Your line is open, John.
John Gaudin: I wanted to ask a little bit about full year guidance. I think the narrative that we've heard from other airlines so far is that the year is started out very strong, and we've seen what people have interpreted as a bit you know, conservative guidance in light of that. It sounds like you guys see similar trends. Based on how things have started the year. I just was hoping to kinda dialogue about how you would characterize your full year guidance and areas where you think, you know, that there may be some conservatism if that's how you see it. At all.
Devon May: John, Maybe I'll just start with the first quarter, which I think is really a 50 forecast at this point. You know, we've attempted to capture the impact of winter storm Fern, but we'll know more about that impact, over the next I'd say for the full year, though, probably similar comments to what we've heard from others. Week or so, which is why we provided a little bit wider range here in Q1. I think if bookings continue at their current pace, this guide could prove to be conservative, but we'll see how the year plays out. You know, right now, we're a month in, and we're comfortable with this range.
John Gaudin: Got it. And if I could just follow-up on a little bit of the Chicago commentary earlier. You know, completely appreciate your perspective on Chicago. One of the data points that was put out there by one of your competitors was fact that you guys are, potentially losing significant amounts of money in Chicago. I know you typically don't talk about hub level profitability, but I just wanted to give you a chance to kind of address that if there's anything to address there.
Robert Isom: Thanks, John. Look, we're growing back Chicago. Pleased with what we see so far, as I said. Customer action has been great. And we fully expect that Chicago will return to the profitability levels that had been at prior to the pandemic. I just I just say this. We're do we're doing all the right things, you know, from that perspective, but we're now look. We're we're we're mindful of how we're we're we're positioned. And, you know, quite frankly, I wouldn't be out there bragging about profitability in a hub when, you know, 80% of your team members make, you know, a lot less than the market rate. So you know, we're doing right by our team members.
We're doing right by our customers. And we're certainly doing right by the community of Chicago too. They welcome know, this kind of service. And the customers in Chicago, I can tell you, you know, benefit. You know, from competition. So, we're pleased with what we're doing, and we're playing our game. And we're gonna make sure that we deliver for our customers.
Operator: Thank you. Our next question comes from the line of Jamie Baker of JPMorgan Securities. Please go ahead, Jamie.
Jamie Baker: Hey. Yeah. Good morning, everybody. So question another question on the full year guide. Last year, American contributed about 4% of the total big three pretax profit pool. Based on your disclosures today. And if we just kinda use consensus for Delta and United, that 4% goes to about 12%. In 2026. So I get that you may not necessarily think in these relative terms, but when we think of that improvement, how much do you, you know, attribute to the macro? And how much is idiosyncratic to American? And, you know, so, obviously, the Citi deal is a contributor. Is there any way you could parse that implied percentage of big three improvement? That would be helpful.
Robert Isom: Thanks, Jamie. Well, I just I'd I'd say this that you know, obviously, of it is due to, you know, a macro environment that is positive. Clearly, we see supply and demand, especially for domestic coming back, you know, more into sync. And that definitely Mhmm. Benefits American. But all the things that we're doing as Nat mentioned, in terms of premium traffic, our strategy, I think, is paying off too. So I don't know if it's $50.50 or $70.30, but, you know, it's it's a combination of both. And again, I'm pleased with the strategy we have. We're gonna be a really efficient producer of ASMs going forward.
And from a profitability perspective, the only other thing I'd I'd just add is, yeah, we expect to be a greater proportion of total industry profitability. And, again, we have, you know, labor cost certainty You know, that's built into our numbers.
Jamie Baker: Yep. Okay. And then very quickly on the FERN calculus, that 150 to $200,000,000 revenue, impact, can I confirm that is net of recapture? Or well, actually, let me ask it differently. Of the lost revenue in the past week, how much do you forecast you recaptured later in the quarter Or are you just assuming that the totality of that revenue is gone for the foreseeable future?
Robert Isom: Jamie, I'll I'll start. Devin can help me out on this too. Like, we're still in the midst of assessing where things stand. You know, we're at 9,000 cancels. It's it's gonna probably be, you know, more than that. So you know, that's a couple of days of operation. You know, for the entire quarter. And so the impact is been certainly that people didn't want to travel to some of the places that are iced in. And, you know, we don't see a lot of that coming back. And the other thing is, you know, there's there's been a, you know, a freeze on some level of bookings during this period as well.
So as we take a look at it, I like what I see in February and March. In terms of the bookings that we've seen as we really round out January. I just I think a lot of that is probably, you know, foregone revenue and, you know, the fact that we've got a perishable product in terms of, you know, some people want to fly to some places on certain days.
Operator: Thank you. Our next question comes from the line of Michael Linenberg of Deutsche Bank. Please go ahead, Michael.
Michael Linenberg: Yeah. Hey. Good morning. I wanna just get back to Dallas and as you think about building that into the largest airline hub, actually, single airline hub in the world, When I when I look at this last year and I and I look at your ops stats, it's it's been a tough year, but it does seem like that Dallas has had more than its fair share of bad weather. And you know, I'm not here to sort of predict what I think weather's gonna be like Texas over the next few years. But you know, you do have knock on effects as that hub builds out.
As you think about building that out, does that does that at all factor in your calculus you know, and how it can impact the entire system, maybe whether they're it just being so much of your system, being driven by the Dallas operation.
Robert Isom: Thanks for that question. I'd just say this, that winter storm fern, it is something that is relatively unprecedented. I don't I won't say that it's never happened before. But we get that this kind of storm, you know, once every five to ten years in DFW. And having been here you know, for over ten years, that been my experience. We recover as quickly as we can. But over the long term, you know, DFW is the fastest growing one of the fastest growing metro regions in the country, and the product that we're putting out is fantastic. As we think about growing, though, reliability is key.
So one of the things that we're doing this coming year is reassessing how we bank our operation. And pulling down the peaks quite a bit. So you'll see us convert to a 13 bank operation yet still have a presence in local markets that equal to the biggest banks anybody else flies. At the same time, we're making sure that our facilities can keep up with that. You've heard about the new DFW Terminal F Which Is Just Progressing At, You Know, A Great Rate. But We'll Be Opening Up A New Satellite On Terminal C later this year and also on Terminal A.
So we're gonna make sure that we have the facilities the schedule that works for it. And then the final piece is we're working on airspace as well. So we're always gonna have to take care of you know, irregular operations events, and we'll thaw out here. Don't worry about that and mother nature has a way of hitting everybody equally over time. But I really like what we're doing in terms of making sure that we're as reliable as possible and then also we're gonna continue to invest in making sure that our irregular operate our operations recovery is the best in the business.
Michael Linenberg: Okay. And then just to follow-up on the Dallas. As build that out, sort of where and maybe this is for Nat, as well, just where you know, the connect versus local split is today And as you add, you know, you build that up, where does that what does that evolve to? How does that shift, if at all? Thanks for taking my question.
Nat Pieper: Thanks, Mike. I think the mix actually stays pretty similar. We're going to be more create more utility for local customers with different alternatives But I think I think the way we manage Dallas you know, as it goes to a thousand departures eventually is the cornerstone of our network. And you hit the nail on the head in asking the question. I look at it as trying to maximize revenue for American across our entire system. And having an operationally reliable DFW, the engine behind everything we have, in the domestic US, it really becomes a no brainer. So we're we're really excited about the potential and the enhanced utility for local DFW customers.
Operator: Our next question comes from the line of Scott Group of Wolfe Research. Please go ahead, Scott.
Scott Group: Hey. Thanks. Good morning. So can you just help us think about overall capacity growth for the year? And then I guess with what I think you'll say is something north of GDP, what's the confidence in sustaining strong RASM throughout the year with more elevated capacity? And don't know. Maybe just help us think about, like, how much the credit card new credit card helps on RASM this year.
Devon May: Hey, Scott. For capacity for the year, we didn't give a guide to, but I would expect for the first quarter, as we said, it's going to be up in the 3% to percent range. Ideally, we would have been a little higher than that. I would expect a similar level of capacity growth right through the summer peak. And then as we always do, coming out of that summer peak, we'll adjust capacity depending on the competitive and demand environment that we're seeing. But if it holds and if kind of our expectations hold, we'll probably have capacity for the full year around mid single digits. We like the opportunities we have.
We've talked a lot about growth opportunities in Philadelphia, Miami, Phoenix, along with rounding out our schedules in Chicago. And we do think even with this level of growth, we'll have a supportive environment for positive unit revenue throughout the year.
Nat Pieper: Scott, I'll take Just I'll take yeah. Just one quick note on the loyalty side too, part of your question. You know, as the ADDvantage program continues to grow, enrollments are growing extremely rapidly for us. And advantage members are the lion's share of our premium revenue, the lion's share of our flown revenue. And as we continue to grow that program, it just then generates loyalty to American and that's gonna translate into higher unit revenue as well.
Scott Group: Just a quick follow-up. So, like, when you guys announced the new card and gave us, like, a multiyear, like, earnings contribution from that, is there a reason to think '26 is you know, is that a linear growth in '26? Or is there any front end motive in any way?
Devon May: No. I'd say it's all pretty linear. It's never gonna be perfectly linear, both in terms of remuneration that we get. Sometimes it'll come in a little chunky depending on different bonuses that might be there. And, also, just in the impact of the p and l. It won't be perfectly linear, but it will be you know, fairly linear over the next five years.
Operator: Thank you. Our next question comes from the line of Christopher Stathropoulos. Of Susquehanna Financial Group. Please go ahead, Christopher. Your line is open.
Christopher Stathropoulos: Good morning, everyone. Thanks for taking my questions. On ORD, I heard a target of I think it was 500 flights. So where does that sit And assuming that's I'm not sure if that's for this year or next, but how should we think about that within the context of the midpoint of the guide? And then at 500, does that put you back at profitability for that hub?
Robert Isom: I'll just comment again. We anticipate getting back between five hundred and five fifty flights. That'll happen this summer. And we are on track. And meeting the goals that we had established for ourselves. And, again, Chicago is strategically important. And at the end of the day, it's going to help system overall system profitability, but we fully expect that Chicago will return to its position as, one of our, you know, mid level, profitability hubs.
Christopher Stathropoulos: Okay. And then on the $1,000,000,000 in savings realized, if you could talk about opportunities going forward. I think in the past, you've spoken about technology and, or AI in benefiting areas such as MRO and procurement? Maybe if you could expand on that in other potential areas. Thank you.
Devon May: Yeah. Know, this is something we've been at for over three years now, just really trying to reengineer our business for efficiency and making investments that drive, productivity and a better customer experience. I'll say no major change. Obviously, we'll lean into the latest technologies like AI and the opportunities it brings both areas like tech ops and reservations. A lot of the work, though, just continues to be streamlining processes and making, you know, regular way technology investments that drive improvements across our labor line with productivity improvements that are improvements for our customers. We also focus heavily on procurement where we think we build the best procurement team in the world.
It's driving really significant savings as well as working capital improvements. So, this is a continuation of a years long effort. It's a mindset for the company. It's an area that Robert and I get to meet on with leaders across the company every month. We think we're best in class, and we'll continue to focus there. Thank you.
Operator: Our next question comes from the line of Savi Syth of Raymond James. Your line is open, Savi.
Savi Syth: Hey. Good morning. I wonder if you can talk a little bit about operations. You know, clearly, Fern is just not a liar here, but some of the investments that you're making in DFW, you know, when do you expect to see that And in Chicago, not necessarily you know, there seems to be a lot of flight being added just industry wide in Chicago and just any thoughts on kinda how that operation might impact, but really looking at it at high level but also wondering if, you know, the level of flying in Chicago is a concern.
Robert Isom: So I'll just I'll just start with DFW again. We have this facilities project that is going on that been in the works for some time now right now, new terminal f. Which is going to be American's terminal. New satellites on Terminals A And C, those are progressing really well. I think that they're going to be really spectacular from a customer experience perspective and enable DFW to get to over a thousand departures. And we're really pleased with that work. And regarding Chicago, again, I'll just say that we're flying to the places that our customers want to go.
And it warrants rounding the schedule back out to between five hundred and five hundred and fifty flights, and really look forward to, you know, putting forth a great product this summer. We've done it before. We'll we'll we'll do it again. And know, that's that's what I have to say on that front. I can't really speak to what others are doing.
Savi Syth: I guess, Robert, my question is coming from operations. I have no doubt that there's appetite in Chicago for American to kinda come back there in a big way. I'm just kinda curious about, one, like, the changes you're making at DFW, you know, how you expect that to improve operations throughout the year, like, when we would see the biggest benefit. And two is kind of the level of operations that are gonna happen in Chicago this summer, not just American, if there's a concern in terms of the airport can handle that.
Robert Isom: Well, Savi, in terms of what we're doing in DFW, it's not only the facilities work, but it's technology we're bringing to bear. So whether that's making sure that we have the appropriate solutions to disrupt disruptions during the summer with smart gating and connect assist We have new you know, block time targets, which means we've we've assessed how we're building things out all into this 13 bank schedule. We really think that's going to show performance throughout the entire year. But I would expect a notable benefit during the summer. And for Chicago, you know, look. This is a lot of growth for us. Again, but it's only getting back to where we were.
So we're putting a tremendous amount of time and effort to making sure that we're ready and that all of our partners are ready to go, as well. So we've we've got all eyes on it, and you know, ready for the growth that we have planned for Chicago this summer.
Operator: Thank you. Our next question comes from the line of Atul Maswari of UBS. Please go ahead, Atul.
Atul Maswari: Good morning. Thanks a lot for taking my question. I also have a question on the full year guidance. It sounds like to get to the midpoint of the range, you're not necessarily assuming current booking trends to persist. A, could you confirm that? And then b, which is the high end of the range, would you need the current demand to, you know, continue at these levels? Or would that drive even more upside over and above the high end of the range? Thank you.
Devon May: Yeah. I think you're interpreting our comments correctly that we've seen really strong bookings in the first part of the year. If bookings continue at this level, we would probably be a lot closer to the high end of the guide. We haven't built that in for the entire year. In order to come in, you know, above the high end, it would probably require some acceleration of what we're seeing right now.
Atul Maswari: Got it. That's helpful. And, there is me follow-up. As you look out, you know, over the next few years, what do you think is sustainable long term margin rate for American Eagle with respect to EBITDAR margin or the pretax margin, whatever you want to pick? And relative to where you land, in FY '26, what are the key drivers that get you to that long term sustainable margin rate?
Robert Isom: Well, what we're working on is this. We're going to continue to be, the most efficient producer of capacity in the business. And I feel great about what we're doing, and Devin highlighted you know, some of the things that we've embarked on with reengineering the business. But our focus right now is delivering on our revenue potential. And that's gonna push margins, we believe, the most. So it starts with, like, delivering a customer a elevated customer experience.
You've heard us talk about a lot of things we're doing, whether it's from a facilities perspective, reconfigurations of our fleet, the new flagship suites and flagship lounges, Everything that we do for our customers is being looked at in a way to enhance that. On top of that, we have a network that is getting back to scale and size. And I feel that where we're flying is where people want to go. We're gonna make sure that we maximize the power of that network and it's powered by the youngest fleet that's out there. You know about the work that we're doing with Citi with the relaunch of our cobranded credit card relationship.
Feel great about the advantage loyalty program and that being the best in the business. And then ultimately, we're gonna sell and market our product and make sure that we stay on top of, you know, our share and, you know, our ability to really drive performance through sales, marketing, and revenue management. All that combines, to put us in a position where we anticipate margin growth. I think that then, you know, fuels free cash flow production stronger balance sheet. And getting, really, American back on track with where we had hoped we'd we'd be a couple years back. So that's what I expect, and appreciate the opportunity to expand on.
Operator: Thank you. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Line is open, Duane.
Duane Pfennigwerth: Hey. Good morning. I just wanted to ask you about your window into government travel. Obviously, there was a fair bit of noise in the fourth quarter, and we have some noise, at least in the last week, from Mother Nature. But are you seeing signs of stabilization or growth in the government segment as we begin to comp really severe dose impacts last year.
Robert Isom: Okay. I'll I'll handle that. Look. What I can I can tell you is that, you know, we our government traffic in the fourth quarter was down about 50%? And that's largely driven by the government shutdown. As we move into the first quarter, it's just too soon to see how that's gonna back. But we've built into our forecast, you know, assumption that we'll have to be out there and working hard to win back government business.
But over time, you know, I would anticipate that the government traffic returns You know, Washington is always gonna be really important, and I do believe that, our Washington National Hub, you know, does something for customers that no other you know, airport can really do. And when the government travel comes back, we're gonna be the best position to take advantage of it. So I look over the long run as that being upside to us.
Duane Pfennigwerth: Thanks, Robert. And then just on premium, I don't know if there's any way to frame it. On a relative basis. You know, premium as a percent of total seats, you know, where you are today versus your network peers, And as you look at, like, the growth you're lining up over the next few years, where does that you know, go to?
Nat Pieper: I think, Duane, it's Nat. I think from a network peer perspective, not deep into that. I can speak, though, on the American side, not only taking delivery of aircraft but mod programs that we've got going on with our A319s, our A320s, 100 plus airplanes in those buckets. And then longer term, triple seven modifications, both the two hundreds and the 300 fleet. So clearly enhancing the premium product and the offering that we have out there. Premium economy continues to be very successful for us too.
Robert Isom: Yeah. It did. Right. In terms of just real numbers, 30% growth as we take a look in premium seating out towards the end of the decade. And 50%, growth from a lie flat international, you know, perspective as we move out towards the end of the decade. And, you know, in terms of overall premium revenues, I don't think we're a lot different than our competitors. We see about 50% of our revenue you know, being driven, by premium offerings. And that's something that, again, we've got a product lineup and a strategy that is really directed at meeting those customers' needs.
Devon May: And the other the other piece to it as well is just a recovery on the sales and distribution side, which drives premium revenue as well. Getting back to our indirect share, which we mentioned in the script, and then just having a more reliable better customer experience, more reliable operation, you know, suited to that specific segment. We expect to continue to participate actively and grow that share.
Operator: Thank you. Ladies and gentlemen, at this time, the floor is open for media questions. Please press 11 on your telephone. We ask that you please allow to allow everyone the opportunity to participate. You limit yourself to one question. Our first question comes from the line of Niraj Chokshi of New York Times. Your line is open, Niraj.
Niraj Chokshi: Hey. Thank you. I was just wondering if on the topic of FERN, can you guys help us understand, you know, why does American so disproportionately affected? You know, just looking today, like, United Delta Southwest have very few cancellations, and American has about 750 so far.
Robert Isom: Oh, thanks for the question. I can tell you from having spent the night on campus here that the DFW area is a little bit different. And it let's face it. DFW is big in our operation. Almost a third of our team members reside in the area. Conditions here are still a skating rink. And I'm super proud of what our team has done in terms of getting the operation back. We're trying our best to make sure that we cancel in front and do that in a way that gives customers the most advanced notice. But there's no mistaken. DFW is still in, the sick of it, and we've gotta, saw out a little bit today.
I do think that the sun's gonna come out, and, you know, roads will improve quite a bit so our team members can give get back in place. But this fern, it hit not just DFW, but it hit Charlotte and then went up the coast. So it hit our system five out of our nine largest op operations you know, all at the same time. I believe that we've got a couple more days of digging out. Wanna apologize to our customers Certainly doing everything we can to make sure that they are taken care of. And then the last thing is, you know, our team.
They're the ones who are fighting the elements trying to make it in, and there's no hiding it. The Again, it's a it's an ice rink out there in DFW. And it's safety, safety, safety. So, from the perspective of canceling flights, it's done for the purposes of making sure that we don't put anybody in harm's way. We'll work out of this the best in the business at this, and we'll be back on track as we get towards the end of the week.
Operator: Thank you. Ladies and gentlemen, this concludes the Q and A portion of the call. I would now like to turn the conference back to Robert Isom for closing remarks. Sir?
Robert Isom: Thanks, Latif. And I'd just like to say thanks for dialing in. We know who we are. We're a premium global airline. We're out there every day even in these ridiculous weather conditions. Caring for people on life's journey. We have a focused plan this coming year to deliver on our revenue potential. And it starts with making sure we have a fantastic customer experience. We're gonna maximize the power of our network and just, you know, love the areas we're gonna be growing this year. We have a loyalty, proposition that's second to none, and relationship with Citi is really gonna kick start value production this year.
And we're gonna keep up the momentum in terms of deliver in terms of selling our product effectively, making sure that we regain and hold our share with our most all of our customers. And at the end of the day, we have a fantastic team We do a great job of producing an efficient level of capacity. And making sure that we're taking care of our customers. So, appreciate the interest and look forward to delivering for our customers and our shareholders.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.