THOMSON REUTERS STREETEVENTS EDITED TRANSCRIPT AAL - Q1 2016 American Airlines Group Inc Earnings Call EVENT DATE/TIME: APRIL 22, 2016 / 12:30PM GMT OVERVIEW: Co. reported 1Q16 total operating revenue of $9.4b and net profit (excluding net special charges) of $765m or $1.25 per diluted share. THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2016 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 22, 2016 / 12:30PM, AAL - Q1 2016 American Airlines Group Inc Earnings Call CORPORATE PARTICIPANTS Dan Cravens American Airlines Group Inc. - Managing Director, IR Doug Parker American Airlines Group Inc. - Chairman & CEO Derek Kerr American Airlines Group Inc. - EVP & CFO Scott Kirby American Airlines Group Inc. - President Steve Johnson American Airlines Group Inc. - EVP, Corporate Affairs Robert Isom American Airlines Group Inc. - EVP & COO CONFERENCE CALL PARTICIPANTS Joseph DeNardi Stifel Nicolaus - Analsyt Julie Yates Credit Suisse - Analyst Jamie Baker JPMorgan Chase & Co. - Analyst Rajeev Lalwani Morgan Stanley - Analyst Hunter Keay Wolfe Research - Analyst Duane Pfennigwerth Evercore - Analyst Helane Becker Cowen and Company - Analyst Darryl Genovesi UBS - Analyst Savi Syth Raymond James & Associates, Inc. - Analyst Mike Linenberg Deutsche Bank - Analyst Andrea Ahles Fort Worth Star-Telegram - Media Susan Carey The Wall Street Journal - Media Mary Schlangenstein Bloomberg News - Media David Koenig Associated Press - Media Jeffrey Dastin Reuters - Media Edward Russell Flightglobal - Media Ted Reed TheStreet - Media PRESENTATION Operator Good morning and welcome to the American Airlines Group first-quarter 2016 conference call. Today's conference is being recorded. (Operator Instructions) Now I would like to turn the conference over to your moderator, Managing Director of Investor Relations Mr. Dan Cravens. 2 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2016 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 22, 2016 / 12:30PM, AAL - Q1 2016 American Airlines Group Inc Earnings Call Dan Cravens - American Airlines Group Inc. - Managing Director, IR Good morning everyone and welcome to the American Airlines Group first-quarter 2016 earnings conference call. Joining us on the call today is Doug Parker, our Chairman and CEO; Scott Kirby, our President; Derek Kerr, our Chief Financial Officer. Also in the room for the question-and-answer session is Robert Isom, the Chief Operating Officer; Elise Eberwein, our EVP of People and communications; Bev Goulet, Chief Integration Officer; Maya Leibman, Chief Information Officer; and Steve Johnson, our EVP of Corporate Affairs. As is our normal practice we are going to start the call today with Doug and he will provide an overview of our first-quarter 2016 financial results. Derek will then walk us through the details on the quarter and provide some additional information on our guidance for the remainder of the year. Scott will then follow with commentary on the revenue environment and our operational performance. And then after we hear from those comments we will open the call for analyst questions and lastly questions from the media. Before we begin we must state that today's call does contain forward-looking statements, including statements concerning future revenues and costs, forecasts and capacity, traffic and load factor, fleet plans and fuel prices. These statements represent our predictions and expectations as to future events but numerous risk 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 issued this morning and our Form 10-Q for the quarter ended March 31, 2016. In addition, we will be discussing certain non-GAAP financial measures this morning such as net profit and CASM excluding unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings release and that can be found on our website at AA.com. The webcast of this call will also be archived on our website. And the information that we are giving you on the call is as of today's date. And we undertaken obligation to update the information subsequently. So thanks again for joining us this morning. At this point I will turn the call over to our Chairman and CEO Doug Parker. Doug Parker - American Airlines Group Inc. - Chairman & CEO Thanks, Dan. Thanks to everybody for being on the call. This morning we announced 2016 pre-tax earnings for the first quarter excluding special items of $1.2 billion. That is slightly down from our all-time record first-quarter earnings that were set in 2015. But of more relevance to our shareholders, on an adjusted earnings per share basis EPS actually grew 15% versus last year's records. That of course is because our share count is lower due to the share repurchase program we've had in place. And indeed absolute earnings would have been slightly higher than last year's record instead of slightly lower, except for the Company's unilateral decision to institute a profit-sharing program for our employees beginning in 2016. I know investors may question that decision, it's a big decision. And the fact of the matter is we at American had attempted to transform our industry's compensation structure consistent with our view that our industry had been transformed. In short, we believe the best way, as most industries do, to pay our working team is to give them an industry-leading base wage instead of lower wages and then give them a share of the profits at the end of the year. But as it became more clear over time that our competitors were not going to do the same, it became a real issue for our team and therefore for shareholders. And while the team understood the logic we couldn't get past a collective view amongst the team that the Company didn't appreciate their contributions to the success of the team. And that certainly wasn't the intent nor the view. So we implemented a unilateral 5% profit-sharing program, the first accrual of which is in these results. The accrual was $73 million for our team. We're quite pleased with that and believe US shareholders should be as well. 3 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2016 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 22, 2016 / 12:30PM, AAL - Q1 2016 American Airlines Group Inc Earnings Call The fact of the matter is the announcement had the impact that we had hoped. Our team is excited, they are engaged, they are intent upon returning American to be the greatest airline in the world. And we're seeing it in the results. You can see it in the great job our team is doing of running our airline, taking care of our customers. I want to begin by thanking them for their continued hard work and everything they are doing to return American to greatness and take care of our customers. As to the share repurchase, we returned more than $1.6 billion to our shareholders in the first quarter. And our Board has authorized a new $2 billion repurchase program that will expire at the end of 2017. We're purchasing our shares because we are bullish on the stock and our prospects for American. We think it's a great investment for a couple of reasons: one, we continue to believe that the market does not seem to fully appreciate the transformation that has taken place in this industry and as a result we believe the industry is well undervalued; second, we think American Airlines has more upside than anyone else in the industry. We're not done with our integration. We are making investments at a rate that no other airline has done in the past in the product and in our people which will turn into our product. And that gives us upside that others don't have. So we're very bullish. But look, because we're bullish that doesn't mean we are totally pleased with the current performance because we're not. In particular, we're disappointed in our revenue performance on both an absolute level and relative to some of our peers. And Scott will take some time to explain the current situation and the outlook. But just know that we don't view the current revenue trends as either acceptable or long term. If we did we wouldn't be as bullish as we are. So with that said, I will turn it over to Derek to give you a lot more details and then Scott will give you some color and then we will take questions. Derek Kerr - American Airlines Group Inc. - EVP & CFO Thanks, Doug, and good morning everybody. In our 10-Q and earnings press release about this morning we reported a first-quarter 2016 net profit excluding net special charges of $765 million or $1.25 per diluted share. This compares to 2015 net profit excluding net special charges of $1.2 billion, or $1.73 per diluted share. As we talked about on our last call, in the fourth quarter of 2015 the Company concluded that realization of substantially all of the deferred tax assets, principally net operating loss carryforwards or NOLs, was more likely than not.