American Airlines Group Inc. (AAL) Earnings

Management highlights

### Commercial Strategy Execution (Four Core Pillars) - **Elevate customer experience**: Announced plans to install Starlink high-speed Wi-Fi across the entire fleet starting in 2027. Total net promoter score (NPS) increased 5 points year-over-year, with on-time flight NPS improving for the 15th time in 17 months. American achieved a 7% year-over-year improvement in the ACSI customer satisfaction survey, one of the strongest gains in the industry. The airline is expanding its industry-leading premium lounge network in New York and DFW, and is rolling out upgraded food and beverage offerings and new/retrofitted aircraft. - **Grow the global network**: Regained market share across all hubs after years of constrained growth, with record schedules implemented at DFW and Miami. Completed a successful re-banking of the DFW hub schedule in April, reducing system-wide misconnects by nearly 25% year-over-year and lifting DFW unit revenue 4 points above the system average. Launched new international routes including Budapest, Prague from Philadelphia, and Athens from DFW, and became the first U.S. carrier to resume service to Venezuela (Caracas and Maracaibo). Focused on recapturing lost local market share in core hubs including Phoenix, Philadelphia, and Miami, with targeted capacity reallocation across the network. - **Drive premium revenue**: Increased premium flatbed and premium economy capacity nearly twice as fast as main cabin capacity via new Boeing 787-9 and Airbus A321XLR deliveries and ongoing fleet retrofits. Premium revenue growth continues to outpace non-premium growth, with 60% of American's revenue coming from households earning $150,000 or more annually, a segment with more resilient demand through economic uncertainty. - **Lead in loyalty**: The AAdvantage program achieved record enrollment growth of more than 30% year-over-year in Q2, surpassing the prior quarter's record growth, with the strongest growth in high-value markets including New York, Chicago, Los Angeles and strong international gains (enrollments doubled in London). Spend across the Citi co-branded credit card portfolio grew 8% year-over-year, with the new partnership still in its early stages. ### Operational and Financial Highlights - Strong operational reliability improvements have reduced disruption impacts for customers, with new self-service tools to help customers manage schedule changes. - Ended Q2 2026 with $11.3 billion in available liquidity, after completing incremental financing in the quarter that addressed the only meaningful 2027 debt maturity. Expects to generate positive full-year 2026 free cash flow and end the year with lower net debt than at the start of the year. - Held non-fuel year-over-year unit cost growth to under 3% in Q2, continuing multi-year efficiency initiatives that have positioned American as a best-in-class cost performer.

Guidance

- **Third Quarter 2026**: Capacity is now expected to grow 3% to 5% year-over-year, approximately 2 percentage points lower at the midpoint than the original plan, in response to elevated fuel prices. Adjusted diluted EPS is guided to a loss of 70 cents to 10 cents per share. CASM (excluding fuel) is expected to increase 2.5% to 4.5% year-over-year. Total revenue growth is projected at 16% to 19% year-over-year, with year-over-year unit revenue expected to be stronger in Q3 and Q4 than it was in Q2. Average fuel price is expected to be approximately $3.75 per gallon, leading to a $1.7 billion year-over-year fuel expense increase. - **Full Year 2026**: Guidance was revised to an adjusted diluted EPS range of a loss of 65 cents to a profit of 65 cents per share, down from prior guidance that projected full-year pre-tax earnings approaching $1.5 billion. The midpoint of the new guidance range is breakeven, which offsets a projected $6 billion full-year year-over-year fuel expense increase. Capital expenditures for 2026 are expected to be approximately $4 billion, with 48 new aircraft deliveries planned. 2026 CapEx is expected to rise slightly to ~$4.5 billion in 2027. - **Long-Term**: The fleet plan supports sustained mid-single digit annual capacity growth, though actual growth will be adjusted based on fuel and demand conditions. Management maintains long-term balance sheet targets: reduce total debt to below $35 billion, reduce net debt to below $30 billion, achieve a Baa credit rating, and reach net debt to EBITDA leverage below 3 turns. Management expects material margin expansion once fuel prices normalize, with American positioned to deliver strong free cash flow and shareholder value creation from 2027 onward.

Segment performance

American Airlines reported record total Q2 2026 revenue with 16.3% year-over-year growth, with strength across all geographic segments: 1) Domestic: Unit revenue up nearly 11% year-over-year, with top performance from Washington National, Dallas-Fort Worth (DFW), and Los Angeles. 2) Atlantic: Unit revenue up approximately 9% year-over-year, led by London. 3) Pacific: Unit revenue up 15% year-over-year, with Japan as the standout performing market. 4) Latin America: Unit revenue up approximately 7% year-over-year, driven by recovering demand for Mexico beach destinations. By product cabin: Premium segment revenue increased 19% year-over-year, with premium unit revenue up 13% (5 points ahead of main cabin). Premium revenue now accounts for roughly half of total ticketed revenue on just 30% of available seats. Non-premium main cabin unit revenue increased nearly 9% year-over-year, with upsell rates from basic economy to main cabin up 5 percentage points following product enhancements. Managed corporate revenue grew 26% year-over-year, marking the fifth consecutive quarter of double-digit growth, with small and medium business and travel management company (TMC) revenue also surging in the quarter.

Risks & headwinds

- Extreme volatility in global fuel prices has created significant near-term earnings uncertainty: since the start of July 2026, projected Q3 2026 fuel expense increased by more than $700 million, and full-year projected fuel expense increased by nearly $1.6 billion, with a further $230 million Q3 increase and $550 million full-year increase just in the week prior to the call. - Pilot labor contract negotiations open in August 2027, with a scheduled pilot wage increase already factored into 2027 base cost forecasts. Industry-wide labor cost inflation is expected to impact peer airlines as new contracts are implemented. - Sustained high fuel prices could require additional capacity adjustments beyond the Q3 reduction already implemented, pressuring near-term unit costs if capacity is further reduced. - Fuel supply concentration: approximately 65% of American's fuel supply comes from the Gulf region, with West Coast and certain international locations carrying significantly higher fuel prices.

Analyst Q&A

• Q: Why hasn't American cut capacity more aggressively in response to the sharp rise in fuel prices, and what drives capacity decisions for the intermediate term? /

  A: Management notes extreme recent volatility in fuel prices, with the earnings forecast changing dramatically in just three weeks. American already made a capacity adjustment for Q3 2026 in response to higher prices, and is currently conducting a diligent review of Q4 capacity, with further adjustments coming if needed. Management says American has a history of quick, smart reactions to market changes and will continue matching capacity to demand to protect financial performance.

• Q: What is driving the strong growth in premium and corporate revenue, and what is the outlook for premium capacity growth? /

  A: Premium demand is outpacing non-premium across the industry, and premium revenue now makes up half of American's ticket revenue on 30% of seats, with 60% of revenue coming from high-income households that have more resilient demand. American plans to continue growing premium capacity faster than non-premium: in 2026, premium seats are growing 5% vs 3% for non-premium, and this growth gap will accelerate as fleet retrofits (for domestic A320 family and international widebody aircraft) ramp up, with new deliveries also adding more premium seats.

• Q: Has the sharp rise in fuel changed American's target for liquidity and long-term balance sheet deleveraging goals? /

  A: American raised ~$1.3 billion in incremental financing in Q2 to bolster liquidity amid fuel volatility, but has not changed its long-term balance sheet targets. The company still aims to reach total debt below $35 billion, net debt below $30 billion, a BB credit rating, and net debt/EBITDA below 3x. Margin expansion needed to hit these targets may be pushed slightly later by high fuel, but management still expects to achieve the goals over time.

• Q: How is American responding to Southwest Airlines' new product changes that target corporate customers, and are you losing corporate share to Southwest? /

  A: Management notes American's own corporate revenue performance is very strong: managed corporate revenue is up 26% year-over-year, small/medium business revenue is up 42%, and TMC revenue is up 19%. American is gaining corporate share, not losing it to competitors, so it does not see Southwest's changes as a meaningful threat to its customer base.