American Airlines Group, Inc. · NASDAQ:AAL
American Airlines — Investor Day (September 2017)
87 slides from American Airlines's investor day presentation, Sep 28, 2017
Slide 1: American Airlines Group Inc. September 28, 2017
American Airlines Group Inc. September 28, 2017 Exhibit 99.1
Slide 2: Safe Harbor
Safe Harbor This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “co
Slide 3: American Airlines: Playing The Long Game
American Airlines: Playing The Long Game Doug Parker – Chairman and Chief Executive Officer
Slide 4: Setting Context – 35,000-Foot View
Setting Context – 35,000-Foot View We are a U.S.-based, global hub-and-spoke airline with a set of privileged assets Our history has created a need to: Invest in the airline Transform our culture Focus on our customer experience Executing on our strategy will deliver significant shareholder value
Slide 5: The Leap of Faith Revisited
The Leap of Faith Revisited
Slide 6: The Leap of Faith Revisited
The Leap: The Leap of Faith Revisited Believe/Understand that our industry and our airline have been materially and permanently transformed Leadership must adapt to the new world The Implication:
Slide 7: American Post-Merger Earnings
Data presented is pretax income excluding net special items for AMR and US Airways combined for 1978 – 2012 and pretax income excluding net special items for American Airlines Group Inc. for 2013 – 2016. Please refer to the Company’s GAAP to Non-GAAP reconciliation in the appendix for these years. 1
Slide 8: American Post-Merger Earnings
Data presented is pretax income excluding net special items for AMR and US Airways combined for 1978 – 2012 and pretax income excluding net special items for American Airlines Group Inc. for 2013 – 2016. Please refer to the Company’s GAAP to Non-GAAP reconciliation in the appendix for these years. T
Slide 9: American Post-Merger Earnings
Data presented is pretax income excluding net special items for AMR and US Airways combined for 1978 – 2012 and pretax income excluding net special items for American Airlines Group Inc. for 2013 – 2016. Please refer to the Company’s GAAP to Non-GAAP reconciliation in the appendix for these years. T
Slide 10: Playing the Long Game: Our Strategy
Playing the Long Game Build a World Class Product Strengthen our network: grow where we have competitive advantage Deliver value to all customer segments, with focus on the premium traveler Achieve operational excellence Leverage technology for customer ease of use Make Culture a Competitive Advanta
Slide 11: Validate the Trust: Team Members
Media and ®. Investor Day & Validate the Trust Team Members
Slide 12: Long-Term Focus = Near-Term Value
Long-Term Focus = Near-Term Value A long-term strategy does not mean AAL investors should need to wait for returns If we are correct about our prospects, the present value of AAL is well above current trading levels Near-term issues have minimal impact on our view about our future
Slide 13: Long-Term Focus = Near-Term Value: The Bet
Long-Term Focus = Near-Term Value: The Bet Sam B: Hi Dan – I continue to struggle to reconcile Doug's unequivocal bullishness with the street's forecasts. (10/21/16) Doug P: In short, we don’t think that declining earnings in the near term should mean declining stock prices. Indeed, we think our equ
Slide 14: Long Term Focus = Near Term Value: The Bet
Long Term Focus = Near Term Value: The Bet The Bet = AAL will be $60/share before Sam B. turns 60 years old on 11/25/2018
Slide 15: Summary
Summary Incredibly excited and bullish about our future Know who we are: have a plan to create substantial value for our shareholders Focused on the long game and running our own race Encourage you to hold our feet to the fire against these plans
Slide 16: Building a World Class Product
Building a World Class Product Robert Isom – President
Slide 17: Building a World Class Product
Building a World Class Product Our Privileged Assets There’s More to Come Our Strategy Is Working Who We Serve Bet on American Our Privileged Assets There’s More to Come Our Strategy Is Working Who We Serve Bet on American
Slide 18: The World's Largest Network
The World’s Largest Network … 350 Destinations 1,050 Nonstops 35,000 Markets
Slide 19: With Strong Partners in Europe
With Strong Partners in Europe …
Slide 20: Latin America and the Caribbean
Latin America and the Caribbean …
Slide 21: and the Pacific
Media and ®. Investor Day & and the Pacific ...
Slide 22: Provides Easy Access to the World
Provides Easy Access to the World 990 Destinations 2,800 Nonstops 50,000 Markets
Slide 23: American's Network Structured to Serve Demand
American’s Network Structured to Serve Demand 1/ American Airlines Flown O&D passengers per day each way August 2017 Market % of Daily Passengers1 DFW-LAX 49% LIT-LAX 3% TUL-LAX 2% JAN-LAX 1% BNA-LAX 1% EWR-LAX 1% DAY-LAX 1% SDF-LAX 1% MSY-LAX 1% SGF-LAX 1% XNA-LAX 1% SHV-LAX 1% GUA-LAX 1% LFT-LAX 1
Slide 24: Providing Access to Markets Worldwide
Providing Access to Markets Worldwide ULCC 825 ULCC 5,200 LCC 50,000 Markets Hub-and-Spoke 8x 48x Source: Db1B and OAG data
Slide 25: Building a World Class Product
Building a World Class Product Our Privileged Assets There’s More to Come Our Strategy Is Working Who We Serve Bet on American
Slide 26: Customer Segmentation
Customer Segmentation 76% 24% 13% Fly more than once a year2 87% Fly once a year or less 1/ Unique O&D passengers on 11/27/16 2/ Unique flown passengers 3/ O&D destination region with at least one flown leg operated by American Airlines 500,000 daily passengers1 3
Slide 27: Product Segmentation Appeals to Broad Customer Base
Product Segmentation Appeals to Broad Customer Base Price Quantity First Business Premium Economy Basic Economy Main Cabin Extra Flagship First Flagship Business Main Cabin
Slide 28: Basic Economy: Retain Core Aspects of Main Cabin
Basic Economy: Retain Core Aspects of Main Cabin … Carry-on Bags Seat Assignment Upgrades Snacks & Drinks American Main Cabin Wi-Fi & Entertainment American Basic Economy Service Recovery ULCC Economy Price = = +
Slide 29: With the Ability to Choose Desired Benefits
With the Ability to Choose Desired Benefits Basic Economy Main Cabin Customers American Lowest price Bundled product with all the benefits Marketplace competitive More ancillary revenue 50% upsell rate to better product
Slide 30: Main Cabin Extra: Additional Comfort and Convenience
Main Cabin Extra: Additional Comfort and Convenience Additional benefits coming soon
Slide 31: Premium Economy: Coming to a Widebody Near You
3Q 2017 4Q 2017 1Q 2018 2Q 2018 3Q 2018 4Q 2018 26% 76% 88% 88% 88% 100% Premium Economy: Coming to a Widebody Near You Premium Economy Rollout Schedule – Retrofit Completion Rate by Quarter
Slide 32: Flagship Business: Lie-flat Seats with Flagship Lounge Access
Flagship Business: Lie-flat Seats with Flagship Lounge Access
Slide 33: Flagship First: A Premium Experience on the Ground and in the Air
Flagship First: A Premium Experience on the Ground and in the Air Airport Flagship Lounge JFK Open ORD Open MIA 4Q 2017 LAX 4Q 2017 DFW 4Q 2018 PHL TBA LHR TBA
Slide 34: A Successful Model for Industry Competition
A Successful Model for Industry Competition Network Product Schedule Service Rewards Segmentation
Slide 35: Building a World Class Product
Building a World Class Product Our Privileged Assets There’s More to Come Our Strategy Is Working Who We Serve Bet on American
Slide 36: Customer Satisfaction is Improving
Customer Satisfaction is Improving
Slide 37: Continued Growth in High Value Channels
Continued Growth in High Value Channels Added 13,000 new small and medium business accounts YTD 2017 1/ Data includes Business agencies and Travel Management Company (TMC) channel performance
Slide 38: Strong Premium Cabin Revenue Performance
Strong Premium Cabin Revenue Performance
Slide 39: Revenue Performance Outpacing the Industry
Revenue Performance Outpacing the Industry
Slide 40: Building a World Class Product
Building a World Class Product
Slide 41: Reliability through Improved Operational Performance
Reliability through Improved Operational Performance Flight attendant integration Maintenance systems alignment Fleet alignment
Slide 42: Major Milestones = Delivering More Value
Major Milestones = Delivering More Value Integration Milestone Impact to Network Improved Aircraft Utilization Crew & Aircraft Scheduling Efficiencies Better Match Supply to Demand
Slide 43: Enhancing Revenue Management Tools and Processes
Enhancing Revenue Management Tools and Processes
Slide 44: Ancillary Revenue Performance Continues to Improve
Ancillary Revenue Performance Continues to Improve
Slide 45: A Younger, More Modern Fleet
A Younger, More Modern Fleet More 2-class Regional Aircraft2
Slide 46: Updating Aircraft to Align Fleet Types and Improve Customer Experience
Updating Aircraft to Align Fleet Types and Improve the Customer Experience
Slide 47: Major Fleet Harmonization and Optimization Update
Major Fleet Harmonization and Optimization Update In 4Q 2017, the first of more than 550 narrowbody aircraft will begin the largest fleet modernization project in aviation history New seats Satellite Wi-Fi In-seat power Larger overhead bins B737-800 172 B737 MAX 160 172 B737-800 & MAX 181 LAA A321 1
Slide 48: Strengthening Relationships with Global Partners
Strengthening Relationships with Global Partners Atlantic Joint Business Latin Joint Business Qantas Joint Business China Southern
Slide 49: Revitalized Sales Efforts to Extend Global Reach
Revitalized Sales Efforts to Extend Global Reach
Slide 50: Market Leading Co-brand Partnerships
Market Leading Co-brand Partnerships
Slide 51: Building a World Class Product That Delivers Value
Building a World Class Product That Delivers Value 500 Seat Harmonization 550 Co-Branded Partnerships 175 Sales Initiatives 325 Commercial Initiatives 350 Revenue Management Initiatives 1,000 Basic and Premium Economy Total Estimated Program/Project Value ($ Millions) 2,900 Total Opportunity from Co
Slide 52: Building a World Class Product
Building a World Class Product Our Privileged Assets There’s More to Come Our Strategy Is Working Who We Serve Bet on American
Slide 53: A Winning Combination You Can Bet On
A Winning Combination You Can Bet On
Slide 54: A Winning Combination You Can Bet On
A Winning Combination You Can Bet On
Slide 55: Trust in Action
Mediaand & Investor Day & Trust in Action
Slide 56: Drive Efficiencies
Drive Efficiencies Derek Kerr – Chief Financial Officer
Slide 57: Validate the Trust: Investors
Validate the Trust: Investors
Slide 58: Current Status: Pretax Earnings
Data presented is pretax income excluding net special items for AMR and US Airways combined for 1978 – 2012 and pretax income excluding net special items for American Airlines Group Inc. for 2013 – 2016. Please refer to the Company’s GAAP to Non-GAAP reconciliation in the appendix for these years. T
Slide 59: Current Status: Liquidity
Despite significant investment in the airline, American remains comfortably above its target liquidity of $7.0 billion Target Liquidity $7.0B 1/ Total liquidity consists of unrestricted cash and short term investments, plus available undrawn revolving credit facilities Current Status: Liquidity
Slide 60: Long-Term Value Creation
Long-Term Value Creation Validating the Trust: Investors Investment in the Business Commercial Initiatives Capital Allocation Project One Airline
Slide 61: Investment in the Business
Media and & Investor Day & Investment in the Business
Slide 62: Capital Investments
Capital Investments Elevated capex driven by fleet renewal program Fewer aircraft deliveries in future years reduces cash outflows and increases financial flexibility
Slide 63: Aircraft Deliveries
Aircraft Deliveries By the end of 2017, we will have inducted 496 new aircraft into the fleet since the merger, while retiring 469 older aircraft 2017 2018 2019 2020 Beyond 2020 A320 Family / Neo 20 - 25 25 50 A330-200 - - - - - A350-900 - - - 2 20 B737-800 / Max 24 16 20 20 40 B777-300ER - - - - -
Slide 64: Fleet Plan
5 -Year Fleet Plan Future deliveries will continue to be accompanied by retirements, keeping the number of aircraft relatively flat Total Aircraft
Slide 65: Fleet Transformation
Efficient capacity growth driven by larger replacement aircraft, upgauging existing aircraft and longer stage length flying 10% more fuel efficient1 1/ Measured in gallons per 10,000 ASMs Fleet Transformation
Slide 66: Significant Capital Projects
Significant Capital Projects 2021 Flight attendant operational integration Tech Ops integration HR and Payroll integration Initial rollout of Basic Economy Self re-accommodation tools New pricing and yield management system One Campus, One Team Harmonize seat layouts: B737/737 Max Harmonize seat lay
Slide 67: Project One Airline
Media and Investor Da ~“ Project One Airline
Slide 68: Drive Efficiencies: Project One Airline
High-value initiatives in customer experience, ops, sales and marketing 32 Technology driven or enabled initiatives 72 Smaller process improvement initiatives 253 Remaining redundancies on FTEs, systems and other initiatives 60 A total of 417 efficiency projects have been identified Drive Efficienci
Slide 69: Drive Efficiencies: Project One Airline
Drive Efficiencies: Project One Airline Examples of efficiency projects include: $250 million $350 million $175 million $225 million Estimated Opportunity of $1.0 billion Integrated Ops Aircraft taxi management technologies Optimize aircraft warranty recoveries Customer Experience New airport ramp t
Slide 70: Long Term CASM Growth Targets
Long Term CASM Growth Targets 1% - 2% Long-term CASM Growth Goal As the efficiency program takes hold and the integration nears completion, sustainable low CASM growth is anticipated
Slide 71: Commercial Initiatives
Media and & Investor Day & Commercial Initiatives
Slide 72: Driving Efficiencies: Commercial Initiatives
50 100 50 250 50 Integrated Operations 20 105 50 225 50 Other 10 125 - 175 40 Strategic Planning 120 120 50 350 60 Customer Experience 200 125 175 500 - Seat Harmonization 200 100 - 550 250 Co-branded Partnerships 25 50 50 175 50 Sales Initiatives 25 150 - 325 150 Commercial Initiatives - 100 - 350
Slide 73: Capital Allocation
Media and & Investor Day & Capital Allocation
Slide 74: Driving Efficiencies: Allocating Capital
Higher debt levels supported by higher asset values Driving Efficiencies: Allocating Capital 1/ Data estimated from Diio and MBA Redbook values
Slide 75: Driving Efficiencies: Liquidity
American is comfortably above its target liquidity level of $7.0 billion, and has higher liquidity than both the other network airlines 1/ Total liquidity consists of unrestricted cash and short term investments, plus available undrawn revolving credit facilities 2/ Net of an assumed 1% increase in
Slide 76: Driving Efficiencies: Capital Allocation Strategy
Driving Efficiencies: Capital Allocation Strategy Anticipated Uses of Cash Investors Return excess above $7.0 billion to shareholders Debt Prepay high cost debt Investments Invest in our people, product and operations, while taking advantage of attractive financing options Operational cashflow Compl
Slide 77: Summary
Summary American remains committed to long-term value creation American has identified $3.9 billion of revenue and cost opportunities Fleet transformation Commercial initiatives Project One Airline Capital allocation plan: We expect to de-lever over time as our capex program decreases We will mainta
Slide 78: Long-term Guidance
Media and & Investor Day & Long-term Guidance
Slide 79: Focus on the Long-Term – Changes to Guidance
Focus on the Long-Term – Changes to Guidance American will lay out long-term, clear financial objectives Going forward: Will provide TRASM guidance on a quarterly basis Will stop reporting monthly traffic Starting in 2018: Guidance will be on consolidated basis Will provide three years of fleet guid
Slide 80: Change to Revenue Recognition Standard
Change to Revenue Recognition Standard
Slide 81: New FASB Revenue Recognition Standard
New FASB Revenue Recognition Standard Certain ancillary fees currently reported as “other revenue” will be reclassified as “passenger revenue” $2.5 billion annually; no effect on total operating revenues or TRASM AAdvantage miles earned through travel must be accounted for under the deferred revenue
Slide 82: New FASB Revenue Recognition Standard
New FASB Revenue Recognition Standard Estimated impact upon adoption on January 1, 2018: Balance Sheet: $5.5 billion increase to liability for outstanding mileage credits Corresponding $2.0 billion increase in deferred tax asset Net $3.5 billion charge recorded to retained earnings Income Statement:
Slide 83: Closing Remarks
Media and & Investor Day & Closing Remarks
Slide 84: Playing the Long Game: Our Strategy
Playing the Long Game Build a World Class Product Strengthen our network: grow where we have competitive advantage Deliver value to all customer segments, with focus on the premium traveler Achieve operational excellence Leverage technology for customer ease of use Make Culture a Competitive Advanta
Slide 85: Summary
Summary Incredibly excited and bullish about our future Know who we are: have a plan to create substantial value for our shareholders Focused on the long game and running our own race Encourage you to hold our feet to the fire against these plans
Slide 86: Appendix
Appendix
Slide 87: GAAP/Non-GAAP Reconciliation
GAAP/Non-GAAP Reconciliation For additional detail regarding net special items 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 27th, 2017, January 29th, 2016, January 27th, 2015 and January 28th,
American Airlines Group — Investor Day (September 2017) on 6ix