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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, thank you very much. Robert Isom, CEO of American Airlines. We just gave the numbers on the new guidance for the fourth quarter. You’re essentially doubling what you were expecting on all the key metrics. What drove the better-than-expected performance?This Asset Manager Thinks The ESG Push Is Like The Revelations Of The Twitter FilesEnvironmental, social and governance (ESG) issues have drifted to the forefront of investing over the last several years, but more recently, the ESG issue has become contentious. ESG proponents claim they’re pushing companies to be more friendly to the environment and more equitable in their governance and social issues. However, others argue that ESG isn’t Read More
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Q4 2022 hedge fund letters, conferences and more
ROBERT ISOM: Phil really pleased with with the guidance today and, you know, it’s been about what nine months since we were here and we talked about American’s goals, return to reliability, return to profitability, and, you know, certainly we’ve done some nice work on reliability especially over the holidays.
From a profitability perspective, we’ve put the planes in the right places. And in terms of demand, it’s been strong throughout the year, they accelerated in the fourth quarter and really our beat is revenue related.
LEBEAU: So when you’re talking about the fourth quarter, let’s talk about 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 in the year that helped you better prepare for what was happening?
ISOM: Well, we can we can certainly talk about cost more when we do our earnings in a couple of weeks.
LEBEAU: But it did have an impact.
ISOM: It absolutely had an impact and also we had some benefit from customers coming over over to American. But look, the the quarter was largely settled by the time that we got to the holidays, you know, that impact lasted four or five days.
We did a remarkable job of making sure that we more or less said hey, you know, let’s set the airline up for recovery. We did that over Christmas day. We were back faster than anybody else in the industry.
We had the best completion factor performance and departure performance in the industry. And that all came from a lot of the learnings during the pandemic and even before that. We’ve invested in technology to make sure that our crews and our planes we know where they’re at and we can put them back together and get them back to where they need to be sooner.
We’ve done some work in terms of making sure that our planes are as efficient as they can be on the on the ramps, and all of that, you know, led to really nice results.
LEBEAU: Let’s talk about the outage yesterday. Does the FAA have the financing and the capability to ensure that its systems are robust and won’t fail and this won’t happen again?
ISOM: Phil, first, it’s safety. Okay, so I’m really pleased with the FAA in terms of calling a timeout yesterday. You know, we put the ground stop in place. All 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’ve built the safest, most reliable, largest network in the world and we’re really pleased with the safety and we always have to keep that in mind. Investment is required, no doubt and from from that perspective.
And I know from from running an airline, the hundreds of millions of dollars that are required in technology and renewing what we do, the same is required but when we take a look at investment within the FAA, it’s something that’s that’s, you know, it’s going to be billions of dollars and it’s not something that’s done overnight. It’s something that we have to plan for and build over a number of years.
LEBEAU: But you and I both know within the airline industry, it has long been a complaint of many people in the industry that not enough is being spent in the key programs and the key areas to ensure that it can be even more robust, right? Is that an accurate complaint?
ISOM: You know what? We can always spend more and it takes minds to come together and really look at the future where we want to go and that takes leadership and I know with with Secretary Buttigieg and the administration that we’re going to find our way. Incidents like this, right, they happen. We all know that there are computer outages for whatever reason, how we recover and then how we learn from that is absolutely the key.
LEBEAU: You’re gonna give guidance for 2023 when you report your financials in a couple of weeks, but broadly speaking, how strong do you expect this year to be?
ISOM: Well look, fourth quarter is really strong. And we’ve only had a couple of weeks here of bookings in 2023. But we like what we see and that portends for the future I think a strong 2023 and for us at American, we’re on the downside of the investment cycle.
LEBEAU: You got the tailwind.
ISOM: Yeah, we’ve got that we’ve got the tailwind. So we’re entering a period where profitability means free cash flow. Profitability means that we can be deleverage and you saw that we paid off some debt, some term loans $1.2 billion at the end of the fourth quarter.
You know, that kind of effort to reduce debt and achieve our goals of reducing debt by $15 billion by 2025, we’re 50% of the way through our target in just a short period of time. I’m really pleased with where we’re headed.
LEBEAU: Becky has a question 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 this? Is this really outdated technology? What does it require to fix this?
I remember going back over a decade and hearing from airline CEOs who were concerned about the quality of the FAA systems, how up to date they were, how up to date they weren’t, how much needed to be invested more money coming from the government. What’s your take on it just from your perspective?
ISOM: So Becky, I do think that we’re talking about, you know, billions of dollars that ultimately to address all the needs that we have whether it’s in airspace or, you know, just in antiquated systems, but I’ll go back to we’ve built with the FAA that the most reliable safest airline environment in the history of the world.
And, you know, we have to make sure that we take measured steps to address any issues because we’re talking about safety and competence factors. You know, 99.9, to to the, you know, fifth and sixth decimal point, we have to make sure that what we do is as reliable and as safe as we’ve ever been.
And to that, to that extent, it’s going to take time and it’s going to take people coming together to really chart out the future, not for a year or two or three years, but really making sure that we have a 5, 10 year plan out into the future.
ANDREW ROSS SORKIN: Separate question which really goes to maybe Bill of Rights for customers in the US versus Bill of Rights for customers in Europe. They differ meaningfully.
I’m curious how you actually think about that in terms of the benefits for consumers, the forcing mechanisms that some of those Bill of Rights in Europe may produce or not as we’re sort of seeing a lot of these types of issues play out or at least problem issues play out for customers.
ISOM: Hey Andrew. So for us, it’s really about running the most reliable airline that we can. We have to take care of our customers. You know, we’re reporting guidance here that’s really positive. But you know what, the rest of the company is out taking care of another 5,500 flights today and a half million customers.
Taking care of customers is the first priority in terms of making sure that when disruptions happen and the vast majority of disruptions, they happen for things like we saw, you know, over the holidays when you had unprecedented storms.
There’s always, you know, maintenance issues that we have to account for as well. But on those types of things when it’s our responsibility and we don’t recover the way we should, we owe the customers.
And that’s something that you know we work with the administration on, I think that we have a program in place right now where we can take care of customers, but it’s always incumbent on the airlines and here at American Airlines to do our best because at the end of the day, that’s how you build loyalty.
At the end of the day, that’s how you’re more efficient. And I think it’s better for the company overall to run a really solid airline where we’re taking care of customers and addressing their needs.
LEBEAU: Robert, thank you very much. Robert Isom CEO of American Airlines on a day guys, look at the stock it’s up almost 5%. That’s what happens when your guidance is essentially saying we’re gonna give you a double the EPS that we previously told you we would give you. Guys, I’ll send it back to you.