Symbology — SEC Filing Synthesis

American Airlines Group Inc · 10-Q · FY 2024 Q2

● American Airlines Group Inc. · FY 2024 Q2

Management Discussion

AAL

● SYMBOLOGY.ONLINE · text diffs

What changed in the Management Discussion.

The disclosure for Aircraft fuel and related taxes shifted from reporting a large decrease of $1.5 billion in the prior period, primarily due to falling average prices per gallon, to reporting increases in both quarterly and semi-annual periods driven by higher gallons of fuel consumed due to increased capacity. Additionally, current disclosures specify that aircraft rent decreased due to decreased rental payments associated with aircraft operating lease extensions.

§7.39 Open

de-emphasised

The detailed disclosure regarding gross federal Net Operating Losses (NOLs) and state carryforwards, including specific expiration dates for these tax assets, was entirely removed from the current period filing.

§7.77 Open

de-emphasised

The current period removed the specific cross-reference that directed readers to Note 4 of AAG's Consolidated Financial Statements and Note 3 of American's Consolidated Financial Statements for further information regarding debt repurchases for the year ended December 31, 2023.

§7.81 Open

de-emphasised

The prior period included an explicit statement that the company has no off-balance sheet arrangements under categories one through three that may have a material effect on financial condition, liquidity, or results of operations; this concluding disclosure was removed in the current filing.

§7.94 Open

reworded

The description of the AAdvantage Financing was expanded to specifically name its components, including the 5.50% senior secured notes due 2026, 5.75% senior secured notes due 2029, and the AAdvantage Term Loan Facility. Additionally, peak debt service coverage ratio was removed from the list of covenants requiring annual or semiannual collateral appraisals in the relevant section.

§7.82 Open

reworded

The substantive risk disclosure regarding fuel hedging remains unchanged, as the company continues to have no outstanding contracts and maintains a policy not to hedge consumption, resulting in full exposure to price fluctuations; however, the reference date for this status shifted from December 31, 2023, to June 30, 2024.

§7.9 Open

● American Airlines Group Inc. · FY 2024 Q2

Management Discussion

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of AAG's and American's Annual Report on Form 10-K for the year ended December 31, 2023 (the 2023 Form 10-K). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of AAG and American, but rather updates disclosures made in the 2023 Form 10-K.

Financial Overview

AAG's Second Quarter 2024 Results

The selected financial data presented below is derived from AAG's unaudited condensed consolidated financial statements included in Part I, Item 1A of this report and should be read in conjunction with those financial statements and the related notes thereto.

Three Months Ended June 30,Increase(Decrease)Percent

Increase (Decrease)

20242023

(In millions, except percentage changes)

Passenger revenue$13,202 $12,978 $224 1.7

Cargo revenue195 197 (2)(1.3)

Other operating revenue937 880 57 6.4

Total operating revenues14,334 14,055 279 2.0

Aircraft fuel and related taxes3,061 2,723 338 12.4

Salaries, wages and benefits3,953 3,635 318 8.7

Total operating expenses12,950 11,892 1,058 8.9

Operating income1,384 2,163 (779)(36.0)

Pre-tax income1,028 1,763 (735)(41.7)

Income tax provision311 425 (114)(26.6)

Net income717 1,338 (621)(46.4)

Pre-tax income - GAAP$1,028 $1,763 $(735)(41.7)

Adjusted for: pre-tax net special items (1)

12 34 (22)(66.1)

Pre-tax income excluding net special items$1,040 $1,797 $(757)(42.1)

(1)See "Reconciliation of GAAP to Non-GAAP Financial Measures" below and Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for details on the components of net special items.

Pre-Tax Income and Net Income

Pre-tax income on both a GAAP basis and excluding pre-tax net special items was $1.0 billion and $1.8 billion in the second quarters of 2024 and 2023, respectively. Net income was $717 million and $1.3 billion in the second quarters of 2024 and 2023, respectively.

The period-over-period decrease in our pre-tax income on both a GAAP basis and excluding pre-tax net special items was principally driven by increases in aircraft fuel expense, salaries, wages and benefits, maintenance expense and other operating expenses. These costs were offset in part by higher passenger revenue.

In May 2023, American and the Allied Pilots Association, the union representing our mainline pilots, reached an agreement in principle on a new collective bargaining agreement, which was ratified in August 2023. This four-year agreement provides wage rate increases, including an initial wage rate increase of 21% effective as of January 1, 2023, quality-of-life benefits and other benefit-related items.

In July 2024, American and the Association of Professional Flight Attendants (APFA), the union representing our approximately 27,000 mainline flight attendants, reached a new tentative collective bargaining agreement. The tentative agreement is subject to approval by the APFA Board of Directors and is subject to ratification by American's flight attendants through a vote that is presently expected to close in September 2024. Upon flight attendant ratification, the ratified agreement will include a provision for a one-time payment of approximately $500 million and provisions for other benefit-related items. Since the tentative agreement has not yet been ratified and there is uncertainty about the outcome of that process, we have not accrued for the one-time payment or for the other benefit-related expenses as of June 30, 2024.

Revenue

In the second quarter of 2024, we reported total operating revenues of $14.3 billion, an increase of $279 million, or 2.0%, as compared to the second quarter of 2023. Passenger revenue was $13.2 billion, an increase of $224 million, or 1.7%, as compared to the second quarter of 2023. In the second quarter of 2024, we experienced a 6.3% decrease in passenger yield on an 8.0% capacity growth year-over-year, as measured by available seat miles (ASMs). Load factor was 86.6% for the second quarter of 2024, compared to 86.2% for the second quarter of 2023. This revenue performance reflected weak industry pricing conditions in light of significantly increased industry capacity, as well as softness in customer bookings due in part to certain commercial initiatives that we deployed, many of which were reversed late in the second quarter of 2024.

Other operating revenue increased $57 million, or 6.4%, in the second quarter of 2024 from the second quarter of 2023, driven primarily by higher revenue associated with our loyalty program. During the three months ended June 30, 2024 and 2023, cash payments from co-branded credit card and other partners were $1.4 billion and $1.2 billion, respectively.

Our total revenue per available seat mile (TRASM) was 19.05 cents in the second quarter of 2024, a 5.6% decrease as compared to 20.18 cents in the second quarter of 2023. This decrease was driven by a 6.3% decrease in passenger yield primarily due to a softer domestic revenue environment.

Fuel

Aircraft fuel expense was $3.1 billion in the second quarter of 2024, which was $338 million, or 12.4%, higher as compared to the second quarter of 2023. This was primarily due to an 8.8% increase in gallons of fuel consumed due to increased capacity and a 3.3% increase in the average price per gallon of aircraft fuel including related taxes to $2.70 in the second quarter of 2024 from $2.62 in the second quarter of 2023.

As of June 30, 2024, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review this policy from time to time based on market conditions and other factors. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices.

Other Costs

We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: general economic conditions and the price of fuel.

Our 2024 second quarter total operating cost per available seat mile (CASM) was 17.21 cents, an increase of 0.8% from 17.07 cents in the second quarter of 2023.

Our 2024 second quarter CASM excluding net special items and fuel was 13.14 cents, a decrease of 0.1% from 13.16 cents in the second quarter of 2023.

For a reconciliation of CASM to CASM excluding net special items and fuel, see "Reconciliation of GAAP to Non-GAAP Financial Measures" below.

Liquidity

As of June 30, 2024, we had $11.7 billion in total available liquidity, consisting of $8.4 billion in unrestricted cash and short-term investments, and $3.3 billion in total undrawn capacity under revolving credit and other facilities.

During the first six months of 2024, we completed the following financing transactions (see Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information):

•entered into a revolving credit facility that provides for borrowing capacity of up to $350 million, maturing in March 2027 with an option to extend for an additional year;

•amended the 2013, 2014 and 2023 Credit Agreements to reduce the applicable interest rate margins, and terminated all revolving commitments under the April 2016 Credit Agreement, increasing overall available revolving credit capacity from $2.8 billion to $2.9 billion, maturing in June 2029;

•amended the 2023 Term Loan Facility to reduce the applicable interest rate margin; and

•issued $530 million of equipment loans and other notes payable in connection with the financing of certain aircraft.

Reconciliation of GAAP to Non-GAAP Financial Measures

We sometimes use financial measures that are derived from the condensed consolidated financial statements but that are not presented in accordance with accounting principles generally accepted in the U.S. (GAAP) to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis.

The following table presents the reconciliation of pre-tax income (GAAP measure) to pre-tax income excluding net special items (non-GAAP measure). Management uses this non-GAAP financial measure to evaluate our current operating performance and to allow for period-to-period comparisons. As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance.

Three Months EndedJune 30,Six Months EndedJune 30,

2024202320242023

(In millions)

Reconciliation of Pre-Tax Income Excluding Net Special Items:

Pre-tax income - GAAP$1,028 $1,763 $615 $1,779

Pre-tax net special items (1):

Mainline operating special items, net- - 70 13

Regional operating special items, net- 6 - 6

Nonoperating special items, net12 28 58 45

Total pre-tax net special items12 34 128 64

Pre-tax income excluding net special items$1,040 $1,797 $743 $1,843

(1)See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.

Additionally, the table below presents the reconciliation of total operating costs (GAAP measure) to total operating costs excluding net special items and fuel (non-GAAP measure) and CASM to CASM excluding net special items and fuel. Management uses total operating costs excluding net special items and fuel and CASM excluding net special items and fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude net special items and fuel allows management an additional tool to understand and analyze our non-fuel costs and core operating performance. Amounts may not recalculate due to rounding.

Three Months EndedJune 30,Six Months EndedJune 30,

2024202320242023

Reconciliation of CASM Excluding Net Special Items and Fuel:

(In millions)

Total operating expenses - GAAP$12,950 $11,892 $25,513 $23,644

Operating net special items (1):

Mainline operating special items, net

- (70)(13)

Regional operating special items, net

(6)- (6)

Aircraft fuel and related taxes(3,061)(2,723)(6,042)(5,890)

Total operating expenses, excluding net special items and fuel$9,889 $9,163 $19,401 $17,735

Total available seat miles (ASM)75,263 69,658 145,779 134,665

(In cents)

CASM17.21 17.07 17.50 17.56

Operating net special items per ASM (1):

Mainline operating special items, net - - (0.05)(0.01)

Regional operating special items, net- (0.01)- -

Aircraft fuel and related taxes per ASM(4.07)(3.91)(4.14)(4.37)

CASM, excluding net special items and fuel13.14 13.16 13.31 13.17

(1)See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.

AAG's Results of Operations

Operating Statistics

The table below sets forth selected operating data for the three and six months ended June 30, 2024 and 2023. Amounts may not recalculate due to rounding.

Three Months EndedJune 30,Increase(Decrease)Six Months EndedJune 30,Increase(Decrease)

2024202320242023

Revenue passenger miles (millions) (a)

65,144 60,020 8.5%122,617 112,034 9.4%

Available seat miles (millions) (b)

75,263 69,658 8.0%145,779 134,665 8.3%

Passenger load factor (percent) (c)

86.6 86.2 0.4pts84.1 83.2 0.9pts

Yield (cents) (d)

20.27 21.62 (6.3)%20.11 21.49 (6.4)%

Passenger revenue per available seat mile (cents) (e)

17.54 18.63 (5.8)%16.92 17.88 (5.4)%

Total revenue per available seat mile (cents) (f)

19.05 20.18 (5.6)%18.46 19.49 (5.3)%

Fuel consumption (gallons in millions)

1,132 1,041 8.8%2,174 2,006 8.4%

Average aircraft fuel price including related taxes (dollars per gallon)

2.70 2.62 3.3%2.78 2.94 (5.4)%

Total operating cost per available seat mile (cents) (g)

17.21 17.07 0.8%17.50 17.56 (0.3)%

Aircraft at end of period (h)

1,529 1,470 4.0%1,529 1,470 4.0%

Full-time equivalent employees at end of period

137,400 132,500 3.7%137,400 132,500 3.7%

(a)Revenue passenger mile (RPM) - A basic measure of sales volume. One RPM represents one passenger flown one mile.

(b)Available seat mile (ASM) - A basic measure of production. One ASM represents one seat flown one mile.

(c)Passenger load factor - The percentage of available seats that are filled with revenue passengers.

(d)Yield - A measure of airline revenue derived by dividing passenger revenue by RPMs.

(e)Passenger revenue per available seat mile (PRASM) - Passenger revenue divided by ASMs.

(f)Total revenue per available seat mile (TRASM) - Total revenues divided by ASMs.

(g)Total operating cost per available seat mile (CASM) - Total operating expenses divided by ASMs.

(h)Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excluded from the aircraft count above are 65 regional aircraft in temporary storage as of June 30, 2024 as follows: 55 Embraer 145, eight Bombardier CRJ 700 and two Embraer 170.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Operating Revenues

Three Months Ended June 30,Increase(Decrease)Percent

Increase

(Decrease)

20242023

(In millions, except percentage changes)

Passenger$13,202 $12,978 $224 1.7

Cargo195 197 (2)(1.3)

Other937 880 57 6.4

Total operating revenues$14,334 $14,055 $279 2.0

This table presents our passenger revenue and the period-over-period change in certain operating statistics:

Increase (Decrease)

vs. Three Months Ended June 30, 2023

Three Months EndedJune 30, 2024RPMsASMsLoad

Factor

Passenger

Yield

PRASM

(In millions)

Passenger revenue$13,202 8.5%8.0%0.4pts(6.3)%(5.8)%

Passenger revenue increased $224 million, or 1.7%, in the second quarter of 2024 from the second quarter of 2023. In the second quarter of 2024, we experienced a 6.3% decrease in passenger yield on an 8.0% capacity growth year-over-year, as measured by ASMs. Load factor was 86.6% for the second quarter of 2024, compared to 86.2% for the second quarter of 2023. This revenue performance reflected weak industry pricing conditions in light of significantly increased industry capacity, as well as softness in customer bookings due in part to certain commercial initiatives that we deployed, many of which were reversed late in the second quarter of 2024.

Total operating revenues increased $279 million, or 2.0%, in the second quarter of 2024 from the second quarter of 2023, driven primarily by the increase in passenger revenue as described above. Our TRASM was 19.05 cents in the second quarter of 2024, a 5.6% decrease as compared to 20.18 cents in the second quarter of 2023. This decrease was driven by a 6.3% decrease in passenger yield primarily due to a softer domestic revenue environment.

Operating Expenses

Three Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Aircraft fuel and related taxes$3,061 $2,723 $338 12.4

Salaries, wages and benefits3,953 3,635 318 8.7

Regional expenses1,268 1,153 115 10.0

Maintenance, materials and repairs950 808 142 17.6

Other rent and landing fees834 762 72 9.5

Aircraft rent314 344 (30)(8.6)

Selling expenses456 489 (33)(6.8)

Depreciation and amortization474 483 (9)(1.9)

Other1,640 1,495 145 9.7

Total operating expenses$12,950 $11,892 $1,058 8.9

Aircraft fuel and related taxes increased $338 million, or 12.4%, in the second quarter of 2024 from the second quarter of 2023 primarily due to an 8.8% increase in gallons of fuel consumed due to increased capacity and a 3.3% increase in the average price per gallon of aircraft fuel including related taxes to $2.70 in the second quarter of 2024 from $2.62 in the second quarter of 2023.

Salaries, wages and benefits increased $318 million, or 8.7%, in the second quarter of 2024 from the second quarter of 2023 primarily driven by higher wage rates and costs for benefit-related items associated with the ratification of a new collective bargaining agreement with our mainline pilots in August 2023.

Regional expenses increased $115 million, or 10.0%, in the second quarter of 2024 from the second quarter of 2023 primarily due to an increase in regional flight operations at our wholly-owned regional carriers. An increase in the volume of engine overhauls also contributed to higher costs for maintenance, materials and repairs.

Maintenance, materials and repairs increased $142 million, or 17.6%, in the second quarter of 2024 from the second quarter of 2023 primarily due to increased costs for engine overhauls, component part repairs and airframe heavy checks driven by higher volume and flight hours.

Other rent and landing fees increased $72 million, or 9.5%, in the second quarter of 2024 from the second quarter of 2023 primarily driven by rate increases at certain airports and incremental engine leases.

Aircraft rent decreased $30 million, or 8.6%, in the second quarter of 2024 from the second quarter of 2023 primarily due to decreased rental payments associated with aircraft operating lease extensions.

Selling expenses decreased $33 million, or 6.8%, in the second quarter of 2024 from the second quarter of 2023 primarily due to a decrease in commissions expense, offset in part by higher credit card fees driven by the overall increase in passenger revenues.

Other operating expenses increased $145 million, or 9.7%, in the second quarter of 2024 from the second quarter of 2023 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.

Nonoperating Results

Three Months Ended June 30,Increase

(Decrease)

Percent

Increase

(Decrease)

20242023

(In millions, except percentage changes)

Interest income$128 $162 $(34)(21.3)

Interest expense, net(486)(548)62 (11.3)

Other income (expense), net2 (14)16 nm (1)

Total nonoperating expense, net$(356)$(400)$44 (11.0)

(1)Not meaningful or greater than 100% change.

Interest income decreased $34 million, or 21.3%, in the second quarter of 2024 from the second quarter of 2023 primarily due to a decrease in short-term investments subsequent to the second quarter of 2023. Interest expense, net decreased $62 million, or 11.3%, in the second quarter of 2024 from the second quarter of 2023 primarily due to lower outstanding debt subsequent to the second quarter of 2023.

In the second quarter of 2024, other nonoperating income, net primarily included $24 million of non-service related pension and other postretirement benefit plan income, offset in part by $12 million of net special charges.

In the second quarter of 2023, other nonoperating expense, net primarily included $28 million of net special charges associated with debt extinguishments and mark-to-market net unrealized losses associated with certain equity investments, offset in part by $8 million of non-service related pension and other postretirement benefit plan income.

Income Taxes

In the second quarter of 2024, we recorded an income tax provision of $311 million. Substantially all of our income before income taxes is attributable to the United States.

See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Operating Revenues

Six Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Passenger$24,661 $24,081 $580 2.4

Cargo382 420 (38)(9.1)

Other1,861 1,743 118 6.8

Total operating revenues$26,904 $26,244 $660 2.5

This table presents our passenger revenue and the period-over-period change in certain operating statistics:

Increase (Decrease)

vs. Six Months Ended June 30, 2023

Six Months EndedJune 30, 2024RPMsASMsLoad

Factor

Passenger

Yield

PRASM

(In millions)

Passenger revenue$24,661 9.4%8.3%0.9pts(6.4)%(5.4)%

Passenger revenue increased $580 million, or 2.4%, in the first six months of 2024 from the first six months of 2023. In the first six months of 2024, we experienced a 6.4% decrease in passenger yield on an 8.3% capacity growth year-over-year, as measured by ASMs. Load factor was 84.1% for the first six months of 2024, compared to 83.2% for the first six months of 2023. This revenue performance reflected weak industry pricing conditions in the second quarter of 2024 in light of significantly increased industry capacity, as well as softness in customer bookings due in part to certain commercial initiatives that we deployed, many of which were reversed late in the second quarter of 2024.

Cargo revenue decreased $38 million, or 9.1%, in the first six months of 2024 from the first six months of 2023 primarily due to a 22.8% decrease in cargo yield driven by increased air freight capacity, offset in part by a 17.7% increase in cargo ton miles.

Other operating revenue increased $118 million, or 6.8%, in the first six months of 2024 from the first six months of 2023, driven primarily by higher revenue associated with our loyalty program. During the six months ended June 30, 2024 and 2023, cash payments from co-branded credit card and other partners were $3.0 billion and $2.8 billion, respectively.

Total operating revenues increased $660 million, or 2.5%, in the first six months of 2024 from the first six months of 2023, driven primarily by the increase in passenger revenue as described above. Our TRASM was 18.46 cents in the first six months of 2024, a 5.3% decrease as compared to 19.49 cents in the first six months of 2023. This decrease was driven by a 6.4% decrease in passenger yield primarily due to a softer domestic revenue environment.

Operating Expenses

Six Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Aircraft fuel and related taxes$6,042 $5,890 $152 2.6

Salaries, wages and benefits7,820 6,917 903 13.1

Regional expenses2,469 2,295 174 7.6

Maintenance, materials and repairs1,834 1,520 314 20.7

Other rent and landing fees1,653 1,470 183 12.5

Aircraft rent642 688 (46)(6.7)

Selling expenses864 927 (63)(6.8)

Depreciation and amortization944 969 (25)(2.6)

Mainline operating special items, net70 13 57 nm

Other3,175 2,955 220 7.5

Total operating expenses$25,513 $23,644 $1,869 7.9

Aircraft fuel and related taxes increased $152 million, or 2.6%, in the first six months of 2024 from the first six months of 2023 primarily due to an 8.4% increase in gallons of fuel consumed due to increased capacity, offset in part by a 5.4% decrease in the average price per gallon of aircraft fuel including related taxes to $2.78 in the first six months of 2024 from $2.94 in the first six months of 2023.

Salaries, wages and benefits increased $903 million, or 13.1%, in the first six months of 2024 from the first six months of 2023 primarily driven by higher wage rates and costs for benefit-related items associated with the ratification of a new collective bargaining agreement with our mainline pilots in August 2023.

Regional expenses increased $174 million, or 7.6%, in the first six months of 2024 from the first six months of 2023 primarily due to an increase in regional flight operations at our wholly-owned regional carriers. An increase in the volume of engine overhauls also contributed to higher costs for maintenance, materials and repairs.

Maintenance, materials and repairs increased $314 million, or 20.7%, in the first six months of 2024 from the first six months of 2023 primarily due to increased costs for engine overhauls, airframe heavy checks and component part repairs driven by higher volume and flight hours.

Other rent and landing fees increased $183 million, or 12.5%, in the first six months of 2024 from the first six months of 2023 primarily driven by rate increases at certain airports and incremental engine leases.

Aircraft rent decreased $46 million, or 6.7%, in the first six months of 2024 from the first six months of 2023 primarily due to decreased rental payments associated with aircraft operating lease extensions.

Selling expenses decreased $63 million, or 6.8%, in the first six months of 2024 from the first six months of 2023 primarily due to a decrease in commissions expense, offset in part by higher credit card fees driven by the overall increase in passenger revenues.

Other operating expenses increased $220 million, or 7.5%, in the first six months of 2024 from the first six months of 2023 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.

Operating Special Items, Net

Six Months Ended June 30,

20242023

(In millions)

Labor contract expenses (1)

$57 $-

Severance expenses13 21

Other operating special items, net- (8)

Mainline operating special items, net70 13

Regional operating special items, net- 6

Operating special items, net$70 $19

(1)Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with our mainline passenger service team members, including a one-time signing bonus which was principally paid in the first quarter of 2024.

Nonoperating Results

Six Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Interest income$246 $288 $(42)(14.7)

Interest expense, net(984)(1,088)104 (9.7)

Other expense, net(38)(21)(17)86.1

Total nonoperating expense, net$(776)$(821)$45 (5.5)

Interest income decreased $42 million, or 14.7%, in the first six months of 2024 from the first six months of 2023 primarily due to a decrease in short-term investments subsequent to the second quarter of 2023. Interest expense, net decreased $104 million, or 9.7%, in the first six months of 2024 from the first six months of 2023 primarily due to lower outstanding debt subsequent to the second quarter of 2023.

In the first six months of 2024, other nonoperating expense, net included $58 million of net special charges primarily for mark-to-market net unrealized losses associated with certain equity investments and $10 million of foreign currency losses, offset in part by $50 million of non-service related pension and other postretirement benefit plan income.

In the first six months of 2023, other nonoperating expense, net primarily included $45 million of net special charges associated with debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments, offset in part by $16 million of non-service related pension and other postretirement benefit plan income.

Income Taxes

In the first six months of 2024, we recorded an income tax provision of $210 million. Substantially all of our income before income taxes is attributable to the United States.

See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes.

American's Results of Operations

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Operating Revenues

Three Months Ended June 30,Increase(Decrease)PercentIncrease (Decrease)

20242023

(In millions, except percentage changes)

Passenger$13,202 $12,978 $224 1.7

Cargo195 197 (2)(1.3)

Other936 879 57 6.4

Total operating revenues$14,333 $14,054 $279 2.0

Passenger revenue increased $224 million, or 1.7%, in the second quarter of 2024 from the second quarter of 2023. In the second quarter of 2024, American experienced a decrease in passenger yield on higher capacity growth year-over-year, as measured by ASMs. This revenue performance reflected weak industry pricing conditions in light of significantly increased industry capacity, as well as softness in customer bookings due in part to certain commercial initiatives that American deployed, many of which were reversed late in the second quarter of 2024.

Other operating revenue increased $57 million, or 6.4%, in the second quarter of 2024 from the second quarter of 2023, driven primarily by higher revenue associated with American's loyalty program. During the three months ended June 30, 2024 and 2023, cash payments from co-branded credit card and other partners were $1.4 billion and $1.2 billion, respectively.

Total operating revenues increased $279 million, or 2.0%, in the second quarter of 2024 from the second quarter of 2023, driven primarily by the increase in passenger revenue as described above.

Operating Expenses

Three Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Aircraft fuel and related taxes$3,061 $2,723 $338 12.4

Salaries, wages and benefits3,950 3,633 317 8.7

Regional expenses1,260 1,150 110 9.6

Maintenance, materials and repairs950 808 142 17.6

Other rent and landing fees834 762 72 9.5

Aircraft rent314 344 (30)(8.6)

Selling expenses456 489 (33)(6.8)

Depreciation and amortization472 481 (9)(1.9)

Other1,642 1,494 148 9.9

Total operating expenses$12,939 $11,884 $1,055 8.9

Salaries, wages and benefits increased $317 million, or 8.7%, in the second quarter of 2024 from the second quarter of 2023 primarily driven by higher wage rates and costs for benefit-related items associated with the ratification of a new collective bargaining agreement with American's mainline pilots in August 2023.

Regional expenses increased $110 million, or 9.6%, in the second quarter of 2024 from the second quarter of 2023 primarily due to an increase in regional flight operations at American's regional carriers.

Other operating expenses increased $148 million, or 9.9%, in the second quarter of 2024 from the second quarter of 2023 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.

Nonoperating Results

Three Months Ended June 30,Increase

(Decrease)

Percent

Increase

(Decrease)

20242023

(In millions, except percentage changes)

Interest income$275 $282 $(7)(2.6)

Interest expense, net(511)(563)52 (9.3)

Other income (expense), net2 (14)16 nm

Total nonoperating expense, net$(234)$(295)$61 (20.6)

Interest expense, net decreased $52 million, or 9.3%, in the second quarter of 2024 from the second quarter of 2023 primarily due to lower outstanding debt subsequent to the second quarter of 2023.

Income Taxes

American is a member of AAG's consolidated federal and certain state income tax returns.

In the second quarter of 2024, American recorded an income tax provision of $367 million. Substantially all of American's income before income taxes is attributable to the United States.

See Note 5 to American's Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Operating Revenues

Six Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Passenger$24,661 $24,081 $580 2.4

Cargo382 420 (38)(9.1)

Other1,859 1,741 118 6.8

Total operating revenues$26,902 $26,242 $660 2.5

Passenger revenue increased $580 million, or 2.4%, in the first six months of 2024 from the first six months of 2023. In the first six months of 2024, American experienced a decrease in passenger yield on higher capacity growth year-over-year, as measured by ASMs. This revenue performance reflected weak industry pricing conditions in the second quarter of 2024 in light of significantly increased industry capacity, as well as softness in customer bookings due in part to certain commercial initiatives that American deployed, many of which were reversed late in the second quarter of 2024.

Cargo revenue decreased $38 million, or 9.1%, in the first six months of 2024 from the first six months of 2023 primarily due to a decrease in cargo yield driven by increased air freight capacity, offset in part by an increase in cargo ton miles.

Other operating revenue increased $118 million, or 6.8%, in the first six months of 2024 from the first six months of 2023, driven primarily by higher revenue associated with American's loyalty program. During the six months ended June 30, 2024 and 2023, cash payments from co-branded credit card and other partners were $3.0 billion and $2.8 billion, respectively.

Total operating revenues increased $660 million, or 2.5%, in the first six months of 2024 from the first six months of 2023, driven primarily by the increase in passenger revenue as described above.

Operating Expenses

Six Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Aircraft fuel and related taxes$6,042 $5,890 $152 2.6

Salaries, wages and benefits7,816 6,912 904 13.1

Regional expenses2,457 2,293 164 7.2

Maintenance, materials and repairs1,834 1,520 314 20.7

Other rent and landing fees1,653 1,470 183 12.5

Aircraft rent642 688 (46)(6.7)

Selling expenses864 927 (63)(6.8)

Depreciation and amortization939 965 (26)(2.6)

Mainline operating special items, net70 13 57 nm

Other3,178 2,954 224 7.6

Total operating expenses$25,495 $23,632 $1,863 7.9

Salaries, wages and benefits increased $904 million, or 13.1%, in the first six months of 2024 from the first six months of 2023 primarily driven by higher wage rates and costs for benefit-related items associated with the ratification of a new collective bargaining agreement with American's mainline pilots in August 2023.

Regional expenses increased $164 million, or 7.2%, in the first six months of 2024 from the first six months of 2023 primarily due to an increase in regional flight operations at American's regional carriers.

Other operating expenses increased $224 million, or 7.6%, in the first six months of 2024 from the first six months of 2023 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.

Operating Special Items, Net

Six Months Ended June 30,

20242023

(In millions)

Labor contract expenses (1)

$57 $-

Severance expenses13 21

Other operating special items, net - (8)

Mainline operating special items, net$70 $13

(1)Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with American's mainline passenger service team members, including a one-time signing bonus which was principally paid in the first quarter of 2024.

Nonoperating Results

Six Months Ended June 30,Increase(Decrease)PercentIncrease(Decrease)

20242023

(In millions, except percentage changes)

Interest income$537 $513 $24 4.5

Interest expense, net(1,031)(1,113)82 (7.4)

Other expense, net(39)(20)(19)92.2

Total nonoperating expense, net$(533)$(620)$87 (14.0)

Interest expense, net decreased $82 million, or 7.4%, in the first six months of 2024 from the first six months of 2023 primarily due to lower outstanding debt subsequent to the second quarter of 2023.

Income Taxes

American is a member of AAG's consolidated federal and certain state income tax returns.

In the first six months of 2024, American recorded an income tax provision of $297 million. Substantially all of American's income before income taxes is attributable to the United States.

See Note 5 to American's Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes.

Liquidity and Capital Resources

Liquidity

At June 30, 2024, AAG had $11.7 billion in total available liquidity and $875 million in restricted cash and short-term investments. Additional detail regarding our available liquidity is provided in the table below (in millions):

AAGAmerican

June 30, 2024December 31, 2023June 30, 2024December 31, 2023

Cash$605 $578 $595 $567

Short-term investments7,841 7,000 7,837 6,998

Undrawn facilities3,287 2,862 3,287 2,862

Total available liquidity$11,733 $10,440 $11,719 $10,427

In the ordinary course of our business, we or our affiliates may, at any time and from time to time, seek to prepay, retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, prepayments, retirements or exchanges, if any, will be conducted on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, legal and contractual restrictions and other factors. The amounts involved may be material.

Certain Covenants

Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, may restrict the ability of us and our subsidiaries to incur additional indebtedness, pay dividends or repurchase stock. Our debt agreements also contain customary change of control provisions, which may require us to repay or redeem such indebtedness upon certain events constituting a change of control under the relevant agreement, in certain cases at a premium. Additionally, certain of our debt financing agreements (including our secured notes, term loans, revolving credit facilities and spare engine enhanced equipment trust certificates (EETCs)) contain loan to value (LTV) or collateral coverage ratio covenants and certain agreements require us to appraise the related collateral annually or semiannually. Pursuant to such agreements, if the applicable LTV or collateral coverage ratio exceeds or falls below a specified threshold, as the case may be, we will be required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), withhold additional cash in certain accounts, or pay down such financing, in whole or in part, or the interest rate for the relevant financing will be increased. Additionally, a significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and our 5.50% senior secured notes due 2026, 5.75% senior secured notes due 2029 and AAdvantage Term Loan Facility (collectively, the AAdvantage Financing) contain a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing. As of the most recent applicable measurement dates, we were in compliance with each of the foregoing covenants.

Sources and Uses of Cash

AAG

Operating Activities

Our net cash provided by operating activities was $3.3 billion and $5.1 billion for the first six months of 2024 and 2023, respectively, a period-over-period decrease of $1.8 billion. This decrease in operating cash flows from the 2023 period to the 2024 period was primarily due to lower profitability in the first six months of 2024 driven by higher salaries, wages and benefits and maintenance expenses, offset in part by higher revenues. In addition, we contributed $281 million to our defined benefit pension plans in the first six months of 2024 as compared to $68 million in the first six months of 2023.

Investing Activities

Our net cash used in investing activities was $1.9 billion and $3.7 billion for the first six months of 2024 and 2023, respectively.

Our principal investing activities in the first six months of 2024 included $1.5 billion of capital expenditures, which primarily related to the purchase of 12 Embraer 175 aircraft, three Boeing 737 MAX aircraft, two Airbus A321neo aircraft, 32 aircraft engines and aircraft purchase deposits. Additionally, we had $833 million in net purchases of short-term investments. These cash outflows were offset in part by $353 million of proceeds from sale-leaseback transactions and sale of property and equipment, which primarily related to the modernization of Terminals 4 and 5 at Los Angeles International Airport (LAX).

Our principal investing activities in the first six months of 2023 included $2.9 billion in net purchases of short-term investments. Additionally, we had $1.2 billion of capital expenditures, which primarily related to the purchase of seven Boeing 737 MAX aircraft, six Embraer 175 aircraft, two Airbus A321neo aircraft and 13 spare engines.

Financing Activities

Our net cash used in financing activities was $1.4 billion and $1.2 billion for the first six months of 2024 and 2023, respectively.

Our principal financing activities in the first six months of 2024 included $1.8 billion in scheduled repayments of debt and finance lease obligations. These cash outflows were offset by $527 million borrowed in connection with the financing of certain aircraft.

Our principal financing activities in the first six months of 2023 included $1.1 billion in net repayments of debt and finance lease obligations. We refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility by extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility and issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes.

American

Operating Activities

American's net cash provided by operating activities was $3.3 billion and $5.0 billion for the first six months of 2024 and 2023, respectively, a period-over-period decrease of $1.8 billion. This decrease in operating cash flows from the 2023 period to the 2024 period was primarily due to lower profitability in the first six months of 2024 driven by higher salaries, wages and benefits and maintenance expenses, offset in part by higher revenues. In addition, American contributed $280 million to its defined benefit pension plans in the first six months of 2024 as compared to $67 million in the first six months of 2023.

Investing Activities

American's net cash used in investing activities was $1.9 billion and $3.7 billion for the first six months of 2024 and 2023, respectively.

American's principal investing activities in the first six months of 2024 included $1.4 billion of capital expenditures, which primarily related to the purchase of 12 Embraer 175 aircraft, three Boeing 737 MAX aircraft, two Airbus A321neo aircraft, 32 aircraft engines and aircraft purchase deposits. Additionally, American had $831 million in net purchases of short-term investments. These cash outflows were offset in part by $353 million of proceeds from sale-leaseback

transactions and sale of property and equipment, which primarily related to the modernization of Terminals 4 and 5 at LAX.

American's principal investing activities in the first six months of 2023 included $2.9 billion in net purchases of short-term investments. Additionally, American had $1.2 billion of capital expenditures, which primarily related to the purchase of seven Boeing 737 MAX aircraft, six Embraer 175 aircraft, two Airbus A321neo aircraft and 13 spare engines.

Financing Activities

American's net cash used in financing activities was $1.3 billion and $1.1 billion for the first six months of 2024 and 2023, respectively.

American's principal financing activities in the first six months of 2024 included $1.8 billion in scheduled repayments of debt and finance lease obligations. These cash outflows were offset by $527 million borrowed in connection with the financing of certain aircraft.

American's principal financing activities in the first six months of 2023 included $1.1 billion in net repayments of debt and finance lease obligations. American refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility by extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility and issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes.

Commitments

Significant Indebtedness

As of June 30, 2024, AAG had $31.5 billion in long-term debt, including current maturities of $4.0 billion. As of June 30, 2024, American had $26.3 billion in long-term debt, including current maturities of $3.5 billion. All material changes in our significant indebtedness since our 2023 Form 10-K are discussed in Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A and Note 4 to American's Condensed Consolidated Financial Statements in Part I, Item 1B.

Aircraft and Engine Purchase Commitments

As of June 30, 2024, we had definitive purchase agreements for the acquisition of the following new aircraft (1):

Remainderof 202420252026202720282029 and ThereafterTotal

Airbus

A320neo Family3 11 26 31 14 64 149

Boeing

737 MAX Family11 20 10 - 20 95 156

787 Family3 8 4 5 5 5 30

Embraer

1756 12 18 15 15 30 96

Total23 51 58 51 54 194 431

(1)Delivery schedule represents our best estimate as of the date of this report as described in footnote (d) to the "Contractual Obligations" table below. Actual delivery dates are subject to change, which could be material, based on various potential factors including production delays by the manufacturer and regulatory concerns.

We also have agreements for 51 spare engines to be delivered in the third quarter of 2024 and beyond. The "Contractual Obligations" table below reflects these commitments.

We currently have financing commitments in place for all aircraft scheduled to be delivered in 2024, except for three Airbus A320neo Family aircraft. Our ability to draw on the financing commitments we have in place is subject to (1) the satisfaction of various terms and conditions including, in some cases, on our acquisition of the aircraft by a certain date and (2) the performance by the relevant financing counterparty of its obligations thereunder.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us.

There have been no material changes in our off-balance sheet arrangements as discussed in our 2023 Form 10-K.

Labor Contracts

In January 2024, a new five-year collective bargaining agreement was ratified by the Communications Workers of America and International Brotherhood of Teamsters for our mainline passenger service team members, which is amendable in 2029.

Contractual Obligations

The following table provides details of our estimated material cash requirements from contractual obligations as of June 30, 2024 (in millions). The table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time and is subject to other conventions as set forth in the applicable accompanying footnotes.

Payments Due by Period

Remainderof 202420252026202720282029 and ThereafterTotal

American

Long-term debt:

Principal amount (a), (c)

$1,769 $3,753 $4,637 $4,676 $5,120 $6,340 $26,295

Interest obligations (b), (c)

843 1,459 1,120 796 511 568 5,297

Finance lease obligations92 154 126 86 51 185 694

Aircraft and engine purchase commitments (d)

864 2,968 3,145 3,535 3,531 13,610 27,653

Operating lease commitments868 1,650 1,469 1,301 1,165 4,394 10,847

Regional capacity purchase agreements (e)

1,093 1,997 1,703 1,471 693 1,339 8,296

Minimum pension obligations (f)

251 244 165 140 65 865

Retiree medical and other postretirement benefits

63 131 137 137 135 606 1,209

Other purchase obligations (g)

2,813 3,005 1,760 910 260 3,297 12,045

Total American Contractual Obligations8,405 15,368 14,341 13,077 11,606 30,404 93,201

AAG Parent and Other AAG Subsidiaries

Long-term debt:

Principal amount (a)

1,487 - - - 3,746 5,233

Interest obligations (b)

61 155 181 214 211 429 1,251

Finance lease obligations3 - - - - - 3

Operating lease commitments11 12 10 6 4 26 69

Minimum pension obligations (f)

3 2 2 1 1 3 12

Total AAG Contractual Obligations$8,483 $17,024 $14,534 $13,298 $11,822 $34,608 $99,769

(a)Amounts represent contractual amounts due. Excludes $327 million and $10 million of unamortized debt discount, premium and issuance costs as of June 30, 2024 for American and AAG Parent, respectively. For additional information, see Note 5 and Note 4 to AAG's and American's Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively.

(b)For variable-rate debt, future interest obligations are estimated using the current forward rates at June 30, 2024.

(c)Includes $7.1 billion of future principal payments and $895 million of future interest payments as of June 30, 2024, related to EETCs associated with mortgage financings of certain aircraft and spare engines.

(d)See "Aircraft and Engine Purchase Commitments" above for additional information about the firm commitment aircraft delivery schedule, in particular the footnote to the table thereunder as to potential changes to such delivery schedule. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current estimate based on contractual delivery schedules adjusted for updates and revisions to such schedules communicated to management by the applicable equipment manufacturer. However, the actual delivery schedule may differ, potentially materially, based on various potential factors including production delays by the manufacturer and regulatory concerns. Additionally, the amounts in the table exclude three and two Boeing 787 Family aircraft scheduled to be delivered in 2024 and 2025, respectively, in each case for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above.

(e)Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American's actual payments could differ materially. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above.

(f)Represents minimum pension contributions based on actuarially determined estimates as of December 31, 2023 and is based on estimated payments through 2033. During the first six months of 2024, we made required contributions of $281 million to our defined benefit pension plans.

(g)Includes purchase commitments for aircraft fuel, flight equipment maintenance and information technology support and excludes obligations under certain fuel offtake agreements or other agreements for which the timing of the related expenditure is uncertain, or which are subject to material contingencies, such as the construction of a production facility.

Capital Raising Activity and Other Possible Actions

In light of our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements and new flight equipment, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity or equity-linked securities in public or private offerings or otherwise. The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (such as the COVID-19 pandemic), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. See Part II, Item 1A. Risk Factors - "Downturns in economic conditions could adversely affect our business" for additional discussion. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements.

In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, lease and other obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions, and the amounts involved may be material.

Critical Accounting Policies and Estimates

For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2023 Form 10-K.