American Airlines CEO On FAA Outage: Investment Is Required, No Doubt

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Following is the unofficial transcript from a CNBC exclusive interview with American Airlines Group Inc (NASDAQ:AAL) CEO Robert Isom on CNBC’s “Squawk Box” (M-F 6AM – 9AM ET) today, Thursday, January 12, 2023.

American Airlines CEO Robert Isom On FAA Outage: Investment Is Required, No Doubt

PHIL LEBEAU: Andrew, thanks very much. Robert Isom, CEO of American Airlines. We just gave the numbers on the brand new guidance for the fourth quarter. You’re essentially doubling what you were expecting on all the important thing metrics. What drove the better-than-expected performance?

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ROBERT ISOM: Phil really pleased with with the guidance today and, , it has been about what nine months since we were here and we talked about American’s goals, return to reliability, return to profitability, and, , definitely we have done some nice work on reliability especially over the vacations.

From a profitability perspective, we have put the planes in the proper places. And by way of demand, it has been strong all year long, they accelerated within the fourth quarter and really our beat is revenue related.

LEBEAU: So if you’re talking in regards to the fourth quarter, let’s talk in regards to the Christmas storms separate from what happened with Southwest. For American Airlines, you had an impact as well. How much did it cost you? And what did you learn from earlier within the 12 months that helped you higher prepare for what was happening?

ISOM: Well, we are able to we are able to definitely discuss cost more once we do our earnings in a few weeks.

LEBEAU: But it surely did have an effect.

ISOM: It absolutely had an impact and in addition we had some profit from customers coming over over to American. But look, the the quarter was largely settled by the point that we got to the vacations, , that impact lasted 4 or five days.

We did a remarkable job of creating sure that we kind of said hey, , let’s set the airline up for recovery. We did that over Christmas day. We were back faster than anybody else within the industry.

We had one of the best completion factor performance and departure performance within the industry. And that every one got here from numerous the learnings throughout the pandemic and even before that. We have invested in technology to be certain that that our crews and our planes we all know where they’re at and we are able to put them back together and get them back to where they should be sooner.

We have done some work by way of ensuring that our planes are as efficient as they will be on the on the ramps, and all of that, , led to essentially nice results.

LEBEAU: Let’s talk in regards to the outage yesterday. Does the FAA have the financing and the potential to be certain that its systems are robust and won’t fail and this may not occur again?

ISOM: Phil, first, it’s safety. Okay, so I’m really pleased with the FAA by way of calling a timeout yesterday. You understand, we put the bottom stop in place. All of the airline CEOs and Acting Administrator Nolen were on the phone. And we talked about hey, what’s best to do? S

afety first, we have built the safest, most reliable, largest network on this planet and we’re really pleased with the protection and we at all times need to keep that in mind. Investment is required, little question and from from that perspective.

And I do know from from running an airline, the lots of of thousands and thousands of dollars which might be required in technology and renewing what we do, the identical is required but once we take a have a look at investment throughout the FAA, it’s something that is that is, , it’ll be billions of dollars and it isn’t something that is done overnight. It’s something that we now have to plan for and construct over quite a lot of years.

LEBEAU: But you and I each know throughout the airline industry, it has long been a criticism of many individuals within the industry that not enough is being spent in the important thing programs and the important thing areas to be certain that it could be much more robust, right? Is that an accurate criticism?

ISOM: You understand what? We are able to at all times spend more and it takes minds to come back together and really have a look at the longer term where we wish to go and that takes leadership and I do know with with Secretary Buttigieg and the administration that we’re going to search out our way. Incidents like this, right, they occur. Everyone knows that there are computer outages for whatever reason, how we get well after which how we learn from that is totally the important thing.

LEBEAU: You are gonna give guidance for 2023 if you report your financials in a few weeks, but broadly speaking, how strong do you expect this 12 months to be?

ISOM: Well look, fourth quarter is de facto strong. And we have only had a few weeks here of bookings in 2023. But we like what we see and that portends for the longer term I believe a powerful 2023 and for us at American, we’re on the downside of the investment cycle.

LEBEAU: You bought the tailwind.

ISOM: Yeah, we have that we have got the tailwind. So we’re entering a period where profitability means free money flow. Profitability signifies that we will be deleverage and also you saw that we paid off some debt, some term loans $1.2 billion at the tip of the fourth quarter.

You understand, that sort of effort to cut back debt and achieve our goals of reducing debt by $15 billion by 2025, we’re 50% of the best way through our goal in only a brief time period. I’m really pleased with where we’re headed.

LEBEAU: Becky has a matter for you. Becky, go ahead.

BECKY QUICK: Hey Robert. Just going back to the the shutdown yesterday with the FAA’s systems. I mean how big of a deal is that this? Is that this really outdated technology? What does it require to repair this?

I remember going back over a decade and hearing from airline CEOs who were concerned in regards to the quality of the FAA systems, how up to this point they were, how up to this point they weren’t, how much needed to be invested more cash coming from the federal government. What’s your tackle it just out of your perspective?

 

ISOM: So Becky, I do think that we’re talking about, , billions of dollars that ultimately to deal with all of the needs that we now have whether it’s in airspace or, , just in antiquated systems, but I’ll return to we have built with the FAA that probably the most reliable safest airline environment within the history of the world.

And, , we now have to be certain that that we take measured steps to deal with any issues because we’re talking about safety and competence aspects. You understand, 99.9, to to the, , fifth and sixth decimal point, we now have to be certain that that what we do is as reliable and as protected as we have ever been.

And to that, to that extent, it’s going to take time and it’s going to take people coming together to essentially chart out the longer term, not for a 12 months or two or three years, but really ensuring that we now have a 5, 10 12 months plan out into the longer term.

ANDREW ROSS SORKIN: Separate query which really goes to possibly Bill of Rights for patrons within the US versus Bill of Rights for patrons in Europe. They differ meaningfully.

I’m curious how you truly take into consideration that by way of the advantages for consumers, the forcing mechanisms that a few of those Bill of Rights in Europe may produce or not as we’re form of seeing numerous a lot of these issues play out or at the least problem issues play out for patrons.

ISOM: Hey Andrew. So for us, it’s really about running probably the most reliable airline that we are able to. We now have to deal with our customers. You understand, we’re reporting guidance here that is really positive. But what, the remaining of the corporate is out caring for one other 5,500 flights today and a half million customers.

Taking good care of customers is the primary priority by way of ensuring that when disruptions occur and the overwhelming majority of disruptions, they occur for things like we saw, , over the vacations if you had unprecedented storms.

There’s at all times, , maintenance issues that we now have to account for as well. But on those kinds of things when it’s our responsibility and we do not get well the best way we must always, we owe the purchasers.

And that is something that we work with the administration on, I believe that we now have a program in place right away where we are able to deal with customers, however it’s at all times incumbent on the airlines and here at American Airlines to do our greatest because at the tip of the day, that is the way you construct loyalty.

At the tip of the day, that is the way you’re more efficient. And I believe it’s higher for the corporate overall to run a very solid airline where we’re caring for customers and addressing their needs.

LEBEAU: Robert, thanks very much. Robert Isom CEO of American Airlines on a day guys, have a look at the stock it’s up almost 5%. That is what happens when your guidance is actually saying we’re gonna provide you with a double the EPS that we previously told you we’d provide you with. Guys, I’ll send it back to you.

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