American Airlines Group Inc. 2026 Q3 Earnings Call

Please go ahead. Thanks, Latif, and good morning, everyone.

Welcome to the American Airlines earnings conference call. On the call with prepared remarks, we have our Chief Executive Officer, Robert Isom, our Chief Commercial Officer, Nat Pieper, and our Chief Financial Officer, Devon May. 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, forecasts of capacity, and fleet plans. These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected.

Information about some of these risks and uncertainties can be found in our earnings news release that was issued earlier this morning, Form 10-K for the year ended December 31, 2025, and subsequent quarterly reports on Form 10-Q. Unless otherwise specified, all references to loss per share are on an adjusted and diluted basis. Additionally, we will be discussing certain non-GAAP financial measures which exclude the impact of net special items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings news 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're giving you on this 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.

Thanks, Neil, and good morning, everyone. American's third-quarter revenue grew 19.3% year over year to $16.3 billion, above the high end of our guidance. Excluding the years following the pandemic, that's the strongest quarterly revenue growth of my career. Unfortunately, the significant increase in fuel prices more than offset that strength. Higher fuel added $1.9 billion to our costs in the third quarter, nearly 70% more than we paid during the same period last year. We produced a loss in the quarter that, but for this fuel spike, would've been solidly profitable. Short-term pressures notwithstanding, we're moving in the right direction and with urgency. We're not satisfied with a loss, no matter the reason, and we will do better. The work we're doing now is laying the foundation for solid profitability as we move to 2027.

Our confidence comes from the strength we see in the underlying business, bolstered by encouraging results from our commercial initiatives and delivering on our commitments, even as higher fuel prices obscure some of that progress in our reported results. We said we would elevate the customer experience, and we are. You've seen our announcements, modernizing our fleet, installing Starlink on our entire mainline fleet, expanding seat back entertainment to our narrow body aircraft, adding premium amenities, creating and updating lounges and more. We said we would rebuild our network, and we have. We grew in Miami and Phoenix and are investing in Charlotte. We rebanked our DFW and Philadelphia operations, producing meaningfully stronger operational and financial performance. We've reestablished ourselves in Chicago, and we're restoring our presence in Los Angeles over time. That's competitive growth we needed to do.

At the same time, we're focused on achieving profitable, sustainable growth in any environment. Given today's elevated fuel prices, we now expect our growth rate in 2027 to decelerate considerably. We said we would grow premium revenue, and we have. Premium generates roughly half of our ticket revenue on only about 30% of our seats, and we're adding more premium seats with every new aircraft and retrofit. This is the most profitable real estate on our planes, and these moves position us well as demand for premium continues to grow. Finally, we said we'd lead in loyalty, and we are. AAdvantage enrollments and spending on our co-branded credit cards are up year over year, and the AAdvantage program remains one of our strongest competitive advantages. The U.S. economy remains strong, supported by healthy employment, rising household incomes, and significant wealth accumulation.

Consumers continue to prioritize travel, and recent yield strength is allowing airlines to regain our historical share of the travel wallet. In the near term, our focus is on what we can control. We continue to have industry-leading cost performance. The efficiency efforts we've prioritized are producing meaningful savings that will benefit us well beyond this year. Our premium product investments are paying off both now and in the future. Our year-over-year revenue growth has accelerated every quarter this year, and we expect that momentum to continue in the fourth quarter, with revenue up 19.5%-22.5% year over year. We will adjust our capacity to support profitability as high fuel costs persist. American is taking the right actions for long-term success.

Our job now is to convert all this progress into better margins, free cash flow, and an even stronger balance sheet. We expect the benefits of our strategy and the investments to become increasingly apparent, especially as fuel prices stabilize. Of course, none of this happens without the American Airlines team, and I want to thank all of our team members for taking care of our customers and each other. With that, I'll turn it over to Nat.

Thank you, Robert. The work we have done across the commercial organization is resonating with customers, and it showed up in our third quarter results. Total unit revenue increased 14.5% year-over-year, with strength across every geography and every cabin. Domestic passenger unit revenue increased 13.6% year-over-year, with notable strength in New York and Miami. Internationally, passenger unit revenue increased 16.4% year-over-year. Latin America led the way, up 21.1%, followed by the Atlantic at 14.5% and the Pacific, up 11.3%. We were deliberate in how we managed revenue during the quarter. We prioritized yield over load factor, proactively securing meaningfully higher yields in exchange for slightly lower loads. We see opportunities to further improve revenue quality through pricing, premium products, merchandising, and loyalty, and are taking advantage, especially in this high fuel cost environment. Now let's go through each of our four commercial priorities.

First is to elevate the customer experience. We now have enough scale to more consistently deploy our world-class product. Our new Boeing 787-9 premium aircraft finished the summer with the highest NPS of any aircraft in our fleet. With 11 flying and another 19 on the way, our NPS scores will continue to rise as we introduce them further into the network. Across the system, our net promoter scores for on-time flights have improved in six of the last seven quarters. In addition to the Starlink installations and seat back entertainment that will greatly enhance the customer experience in the air, giving us a hard product that will lead the industry, we are improving our premium ground game, too. We will open 10 lounges through 2027 and have additional investments planned across our network, including the largest Admirals Club in our system in Charlotte.

We are also investing in our digital experience across the board. Customers will see this as we manage disruptions better and deliver more timely information, and we are already seeing improvements in our mishandled baggage rate and customer missed connections, among other customer-focused metrics. Second is to grow the global network. Dallas Fort Worth is our epicenter. Following this year's rebank, DFW handled record passenger volumes in the quarter with significantly fewer missed connections, fewer mishandled bags, and unit revenue that outpaced the rest of the system. Beyond DFW, we're building stronger schedules for local customers in our hubs, especially Chicago, Miami, Philadelphia, and Phoenix. These travelers tend to be higher yielding, and a better schedule is how we earn more of their business. Internationally, our Latin America franchise, anchored by our Miami hub, remains one of the strongest parts of our network.

Our long-haul international growth for 2027 is focused, with seven new routes, including Chicago-Tokyo for our corporate customers and Charlotte-Barcelona for high-demand leisure travel. The network is creating value beyond the passenger business, too. Cargo revenue increased 29% year-over-year in the third quarter, and we see future growth as we expand our wide-body fleet. Third is driving premium revenue. Premium unit revenue increased 18.5% year-over-year, outperforming main cabin unit revenue by more than four points. Expanding our premium seating volume with new deliveries and retrofit programs, which include more than 200 aircraft across our 777, A320, and A319 fleets over the next three years, is already bearing fruit. Corporate demand remains strong, and American is capturing meaningful share as our managed corporate revenue increased 28% year-over-year, our sixth consecutive quarter of double-digit growth.