American Airlines Group Inc. (AAL) Q3 2013 Earnings Report, Transcript and Summary

Daniel Cravens William Douglas Parker - Executive Chairman, Chief Executive Officer, Chairman of Labor Committee, Chairman of US Airways and Chairman of AWA Derek J. Kerr - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Chief Financial officer of America West Airlines Inc J. Scott Kirby - President Stephen L. Johnson - Executive Vice President of Corporate & Government Affairs Robert D. Isom - Chief Operating Officer and Executive Vice President

Hunter K. Keay - Wolfe Research, LLC Jamie N. Baker - JP Morgan Chase & Co, Research Division Michael Linenberg - Deutsche Bank AG, Research Division Helane R. Becker - Cowen Securities LLC, Research Division Helane R. Becker - Cowen and Company, LLC, Research Division Glenn D. Engel - BofA Merrill Lynch, Research Division Daniel McKenzie - The Buckingham Research Group Incorporated John D. Godyn - Morgan Stanley, Research Division Savanthi Syth - Raymond James & Associates, Inc., Research Division Bob McAdoo - Imperial Capital, LLC, Research Division

Good day, ladies and gentlemen, and welcome to the US Airways Third Quarter Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] And now, I'd like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens. You may begin, sir.

Thanks, Keith, and welcome, everybody, to the US Airways Third Quarter 2013 Earnings Conference Call. Joining us on the call today are Doug Parker, our Chairman and CEO; Scott Kirby, President; Derek Kerr, Chief Financial Officer. And also in the room for Q&A session are Robert Isom, our Chief Operating Officer; Elise Eberwein, EVP of People and Communications; and on the phone with us is Steve Johnson, our EVP of Corporate. Like we typically do, we're going to start with Doug, and he will provide an overview of our financial results. Derek will then walk us through the details on the quarter and provide some color 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'll open the call for our analyst 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 fuel prices. These statements represent our predictions and expectations as to future events, but numerous risks 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 release issued this morning, our Form 10-Q for the third quarter September 30, 2013 that was also issued this morning and our 2012 Form 10-K. In addition, we will be discussing certain non-GAAP financial measures this morning, such as net profit and CASM excluding special items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings release, and that can also be found on our website at usairways.com. A webcast of this call will also be archived on the website. And the information that we're giving you on the call today is as of today's date, and we undertake no obligation to update the information subsequently. So thanks again for joining us this morning. And at this point, I'll turn the call over to our Chairman and CEO, Doug Parker.

Thanks, Dan. Thanks, everybody, for being on. We're pleased to report a record third quarter profit today. The earnings were $367 million pretax, excluding special items. That's up 90% year-over-year, clearly due to the work of our 32,000 hard-working employees, and we're extremely grateful to that work. They're doing great job of taking care of our customers. I'm going to turn it over to Derek to give you more details on the numbers, and Scott will take you through more detail on the revenues, and then we'll take questions. Derek?

Thanks, Doug. Good morning, everybody. As Dan said, we did file our third quarter 10-Q this morning and in that Q, we reported a third quarter net profit, excluding net special items of $241 million, $1.16 per share versus last year of net profit, excluding special items of $192 million or $0.98 per share. Similar to our second quarter, we were required to book a noncash provision for income taxes in the third quarter, which totaled $126 million. Our third quarter results last year included a provision of only $1 million. So given this difference in the periodic income tax expense, we believe pretax earnings, excluding net special items, is a better measure for evaluating the year-over-year performance than net income. And in that, as Doug said, pretax income, excluding net special items for the third quarter of 2013, was a record $367 million. It's $174 million or a 90% improvement year-over-year. Our pretax margin improved by 400 basis points in 2013 to a third quarter level of 9.5%. On a GAAP basis, the company did report a net profit of $216 million or $1.04 per diluted share for the third quarter of 2013 versus a net profit of $245 million or $1.24 per diluted share in the third quarter last year. The GAAP earnings were down year-over-year with the principal driver, the difference is the income tax provision. The company did recognize approximately $31 million of net special items before taxes in the third quarter of 2013. Mainline operating special items totaled $40 million and consisted primarily of merger-related costs. Express operating special items consisted of a $14 million credit, resulting from a favorable arbitration ruling related to a vendor contract. The company also recognized approximately $5 million in nonoperating special items, primarily related to noncash write-offs of debt discount associated with conversions of our 7¼% convertible notes. By comparison in 2012, the company recognized $67 million in net operating special credits, made-up primarily of a gain related to the Delta slot transaction. So there's a swing in special credits of about $98 million. For the third quarter, total capacity was 24.1 billion ASMs, up 4.1% from 2012, primarily due to the use of larger-gauge aircraft. As a result of our fleet replacement plan and longer average stage length, our mainline capacity for the quarter was 20.5 billion ASMs, up 4.9% from a year ago, and express capacity was 3.6 billion ASMs, down 0.4% from 2012. Our capacity guidance is consistent with what we gave in early October. Total system capacity is expected to be up approximately 3.5% versus 2012 with domestic and international capacity each forecast to be up approximately 3.5%. Total mainline ASMs are projected to be approximately 77.4 billion for 2013, 18.7 billion in the fourth quarter, and express ASMs are expected to be approximately 14.2 billion ASMs in 2013, 3.49 billion in the fourth quarter. We're still completing our 2014 planning process, so formal ASM guidance for 2014 will come in the first quarter next year. At this time, we expect 2014 capacity to be up 3% to 4%, similar to 2013 levels on the same number of aircraft. During 2014, we expect to take delivery of 20 larger-gauge aircraft, 17 A321s and 3 A330s while retiring 14 older 737-400s, 4 older A320s and 3 767 aircraft. So the increase in ASMs is primarily due to gauge. Record consolidated passenger yields, driven by strong passenger demand, resulted in record total revenue performance for the third quarter. Top line revenue grew 9.1% year-over-year to a record $3.9 billion. Mainline passenger revenues were $2.6 billion, up 12.2%, driven by a 6.2% increase in passenger yield and a record load factor of 86.8%. Cargo revenues were up $2 million or 5.5% to $37 million due to volume. Other operating revenues were $360 million, up 3.7% in the third quarter, due primarily to revenue -- higher revenues associated with our Dividend Mile frequent flyer program and increased change fees. Total passenger RASM was $0.1432, up 5.1% in the third quarter of 2013. For the same period, our combined load factor was a record 85.5%, up 0.6 points, while combined yield increased 4.4% to $0.1675. Total RASM for the third quarter of 2013 was a record $0.1597, up 4.9% versus 2012. The airline's operating expenses for the third quarter were $3.4 billion, up 5% as compared to the same period a year ago. Mainline operating costs per ASM, excluding special items, was $0.1275, up only 0.9% year-over-year, mainly driven due to salaries and benefits being up $72 million, driven primarily by higher profit sharing and stock-based compensation accruals and costs associated with our new flight attendant contract. Higher volume-related expenses, such as fuel and rents and landing fees, also contributed to the increase. Our mainline -- average mainline fuel price, including taxes for the third quarter 2013, was $3.01 per gallon, a 1.8% decrease compared to the $3.06 per gallon in the third quarter of 2012. While fuel prices remained somewhat volatile, our policy to not hedge continues to benefit our bottom line. We are forecasting mainline fuel price to increase slightly from the previous guidance. So based on the October 22 fuel curve, we expect fuel price to be in the range of $3.03 to $3.08 for the fourth quarter and the full year. Despite tough operating conditions, driven primarily by weather, the team's continued focus on cost management allowed the company to maintain its relative cost advantage. Excluding special items, fuel and profit sharing, our mainline cost per ASM was $0.0808 in the third quarter of 2013, an increase of only 1.7% versus 2012. Express operating CASM per ASM, excluding special items and fuel, was $0.1436 for the quarter, which was 2.8% higher than 2012. Our third quarter consolidated CASM, excluding special items, fuel and profit sharing, was up only 1.5% versus the third quarter of 2012. Our full year cost guidance remains unchanged from previous guidance. For the full year 2013, we are forecasting mainline CASM x special items, fuel and profit sharing to be flat versus 2012. The fourth quarter should be down 1% to 3%. Express CASM is forecasted to be up approximately 6% to 8% in the fourth quarter due to scheduled aircraft maintenance at the company's wholly owned carrier PSA. Despite record load factors and significant weather disruption throughout the third quarter, our 32,000 team members continue to deliver outstanding operating results, earning $2 million in additional incentive payouts and bringing the year-to-date total to $10 million. We also accrued $42 million in profit sharing based on our third quarter profit, bringing our year-to-date accrual to $95 million. I would like to thank and congratulate all of our 32,000 team members for delivering exceptional service to our customers. We ended the quarter with $3.87 billion of total cash and investments, of which $350 million were restricted. This is our highest third quarter total cash balance in company history. Total cash increased $1.1 billion year-over-year. During the quarter, the company generated $225 million of cash from operations and $162 million of free cash flow defined as operating cash flow less net capital expenditures. During the third quarter, we made $254 million in debt payments, which included the paydown inflow of our prepaid miles loan issued in connection with the Barclays affinity card -- credit card program at its face amount of $200 million. Due to the continued strong stock performance during the quarter, holders of our 7¼% convertible notes converted an additional $28 million principal amount, resulting in the issuance of approximately 6.1 million shares of the company's stock. The outstanding principal amount on this note is now down to $23 million. Looking at CapEx, we're forecasting total net cash CapEx to be $307 million in 2013. This includes non-aircraft CapEx of $180 million and net aircraft CapEx, which includes aircraft deliveries, PDPs and PDP loan repayment of $127 million. In summary, we're extremely pleased to have reported these outstanding third quarter financial results. I would like to again thank and congratulate our 20 -- our 32,000 team members, whose hard work and commitment make these results possible. I will turn it over to Scott.

Thanks, Derek. And before I turn to the revenue environment, I'd also like to start by thanking the employees of US Airways who continue to run a fantastic operation, even with challenging weather we had this summer and all of the uncertainty created from the DOJ lawsuit. We were pleased in the quarter that the revenue environment improved from where it was during the third quarter. Our third quarter PRASM was up 5% compared to our expectations of up 3.3% at the start of the quarter. We saw strength in both business and leisure demand and across all geographies. For some regional color, domestic RASM was up 5%, Atlantic RASM was up 8% and Latin RASM was flat. Latin RASM was impacted by 99% more capacity to Brazil year-over-year as we started new service to São Paulo. Going forward, we have tougher RASM comps in the fourth quarter because, one, last year we saw fundamental improvement in demand in 4Q; two, RASM was artificially higher in October of last year because of Hurricane Sandy; and three, the operational issues at AA for last October likely resulted in incremental RASM in October and November of last year. The demand environment for both business and leisure travel was strong throughout the quarter, and it remains strong today, although there was a temporary hiccup caused by the government shutdown and threat of a U.S. default. I'm going to give you some statistics that demonstrate the impact. But before I do, we believe that the brouhaha of the past 3 weeks was a onetime impact and, hopefully, an impact that won't be repeated. We don't think that the federal government funding issues have impacted the core economy or demand trends. While there was a short-term impact, demand and bookings snapped back to precrisis levels, literally beginning on the morning that the government funding legislation was signed. As we see in the past with high-profile threats to the economy, the shutdown affected both business and leisure demand, though the effects were most pronounced for business demand. For the last week of September and the first 2 weeks of October, close-in bookings were down by 12% and total bookings were down 8%. In the 7 days since the government shutdown ended, however, our bookings have returned with close-in bookings up 8% and total bookings up 9%. So it does appear that the impact was temporary and over. For some more specifics, government-booked revenue, which was approximately 3% of our total revenue in 2012, was down 57% in the first 2 weeks of October, and close-in bookings to Washington, D.C. airports, including National, Dulles and Baltimore, declined by 54% year-over-year. So quite clearly, the government histrionics had a near-term impact on revenues. In mid-September, we expected October RASM to be up 4% to 5%, but we now expect it to be up 1%, and we think all of that difference is attributable to the shutdown. While there was a decline even in leisure bookings during the shutdown, the post-shutdown booking strength leads us to think that we will recover all of the lost bookings for November and December, and therefore, we don't expect any impact on those 2 months. November and December RASM comps are noisy given Hurricane Sandy last year and the shift in Thanksgiving return. As a result of the shift in revenues from November into December and even with our capacity increases, our forecast is that November RASM will be flat to down 2% and December RASM will be up 4% to 6%. In conclusion, the revenue environment was very strong in Q3. That strength was temporarily interrupted by the government shutdown and funding threats, but demand appears to have immediately recovered when that crisis was resolved. Doug?

Thanks, Scott. All right, before we get to questions, just one thing before we turn it over to the operator for questions. I know everyone is interested somewhat in the merger and the litigation that's underway between the Department of Justice over the merger. What we will know is the teams from both US Airways and American continue to work extremely well together and are working really hard and well on integration planning, and we're excited about that. But today's call, of course, is about our third quarter earnings, and we're not going to be addressing questions related to the integration or the litigation. So we would ask you to keep your questions on the topic at hand and appreciate your understanding in that regard. So with that said, operator, we are ready for questions.

[Operator Instructions] We'll take our first question from Hunter Keay from New York.

Real quick, Scott. Did you give October PRASM guidance or just November, December?

No. October, we said up 1%. That did contrast with -- we thought it would be up between 4% and 5%.

Got it.

In September. All that, I think, attributable to the temporary impact of the shutdown.

Okay. Sorry, I think I missed that. And I don't know if Steve Johnson's in the line or not, but I wanted to just ask a quick question about this seniority dispute. I think we had some movement at the district court level just yesterday, actually. But can you maybe just give us an update as to where we are in that process, between both the east versus west dispute? And where the company's position is on the declaratory judgment, I don't know if that's been resolved yet, and maybe things that we can watch for over the near term as those -- both of those progress?

Steve?

How long do you have?

Take your time.

Well, with respect to the trial that was set for this week, it is ongoing. I spoke with my guys last night, I don't have anything new since then, but it is in its second day today. It -- what we anticipate is that the parties will finish testimonies today and the judge will take the matter under advisement. And the betting is that she'll wait until after the merger closes to actually issue a ruling. So you shouldn't expect anything real soon. In terms of our declaratory judgment action, which is a separate lawsuit that was filed in the July of 2010, that is now winding its way through the Ninth Circuit Court of Appeals and will be argued, if it's still necessary, I think sometime in the fall. I don't have the date with me, but I can get it for you, Hunter.

Okay. And it's Judge Silver's ruling at the district level. Is that appealable by any one of the losing parties back up to the circuit court again, or...

Sure.

We'll take our next question from Jamie Baker from New York. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Doug, I wanted to ask the same question as last quarter, but to try to pin you down a little bit better because, quite honestly, I didn't ask it very well last time. Do you still expect the merger to produce higher earnings per share in 2014 than standalone airways is expected to? Because I do believe this is what you indicated at the time the merger was announced, but I'm not sure you've commented publicly since then.

Yes. Maybe it wasn't the way you asked, maybe it was the way I answered. But at any rate, Jamie, the answer is this. We have public filings with projections for the company, and we haven't made any revisions to those projections. Jamie N. Baker - JP Morgan Chase & Co, Research Division: A simple yes or no might've been better, but I -- all right. Second question, I mean, Delta has obviously emphasized the momentum that they're having in terms of gaining corporate share. Presumably that share is coming from somewhere. We haven't gotten the chance to clear United on this topic yet. I know that in the absence of a merger, you've expected to potentially cede share to the bigger networks in the long run. What I'm interested in is whether that process might already be underway. Should we or shouldn't we be concerned with this phenomenon?

We know US Airways have been on a trajectory for several years on a standalone basis where we're focusing on corporate travel and a niche, and we've been successful within our niche. Some of that's included things like growth in corporate accounts in Europe, a market we really didn't much participate in 7 or 8 years ago. Corporate point of sale from Europe in this quarter, in fact, grew 22%. So we continue to do well, but we recognize that there's a large set of corporate accounts for whom we can't really meet their needs because we don't have a ubiquitous network. And we see that, particularly, where Delta effectively competes with us in New York on the shuttle markets as an example. So we're -- we are playing to our strength and doing a very good job. Our sales team has done a great job. Our corporate sales growth has been -- like Delta, it has been strong, and it has been by playing to our strengths, but weak knowledge, on a standalone basis. And we'll continue to play to our strengths, but that there's a whole set of customers wherein we can't offer the product that they're looking for which is ubiquitous.

We'll take our next question from Mike Linenberg from New York.

I guess 2 questions here. Scott, you gave us sort of what October may be -- what PRASM is anticipated for October and maybe what it would've been. And I know the shutdown started -- I think it started impacting in late September. Did you provide like a revenue number? Did you provide a revenue number for what the impact you thought was to US Airways?

Well, I said we thought it would be between 4% and 5% on RASM, and then it would be -- it was down to 1%. So I guess it's 3.5%. I don't know what our October revenues are $1.1 billion or $2 billion, so 3.5% of that.

And then -- but there was also an impact in September, right, or no?

There may have been, but mostly it impacted bookings that were coming forward.

Okay, perfect. I can do the math on that. Then just on the second question, you currently are in the Star Alliance, and yet it feels like you may have one foot in the oneworld alliance. And just given the news flow over the last year or so, have you seen any meaningful falloff in, let's -- bookings or passenger flow from Star Alliance carriers, or have you seen the level engagement decline materially over the last year or so? And if so, is it -- has there been an impact? Is it material? Anything you can comment on that thought would be great.

I think that our Star Alliance partners have been fantastic throughout this process, first, in dealing with -- for a year or a while, there was a rumor of a deal, and it continued to be good partners and working with us and making investments and systems to move the partnerships we have with them forward. That has continued. There've been a lot of uncertainty for them and for our potential new oneworld partners, and everyone has worked really well. So I don't think that there's been anything related to the noise around the merger or not that's impacted Star, and we appreciate the good work and the help that we've gotten from all them and from the future oneworld partners.

We'll take our next question from Helane Becker, New York.

So I guess -- maybe Derek or Scott. I was looking at your numbers, second quarter to third quarter. And normally, your second quarter is better than your third, and that was true, but you're narrowing the gap. So as we think about this going forward, is that a trend that's likely to continue, or do you think there was something special in this year's third quarter that made the revenue line so strong?

Well, usually the reason that gap is bigger for us -- you see the opposite happen at Delta, for example, I think, or United. It's because the second quarter is the strongest quarter domestically, and the international markets are stronger in the third quarter. So as we're growing more rapidly in international markets, I think that gap will continue to close because it's just purely a function of domestic markets being strong in the second quarter and international markets having the third quarter as their strongest quarter.

Okay. So then -- actually, when you think about it, next summer, you're adding a lot of capacity internationally from some -- from, I think, your Charlotte hub. So you narrow the gap completely, right?

Well, not completely. We'll still -- our international, as a percentage of our total system, is still less than, say, than other carriers. So I don't know if that'll be enough to narrow it completely. I don't -- I suspect it's not, but it'll continue to narrow.

We'll go next to Glenn Engel.

A couple of questions. One, in Europe, the strength in the past has been led by strong corporate originating in Europe rather than the U.S. Has that changed at all? Is that still what the leader is?

We've had -- we had strengthened Europe on both sides. But for us, we continue -- again, we started from a relatively low base, where we really hadn't invested in acquiring corporate accounts as much as some of our competitors had in Europe, but we've grown the European side more rapidly than domestic and that continues.

And on -- for Derek, on the cost side. I'd like to add up depreciation, rental and interest expense and compare that as a whole. And it's up only about 1%, even though you've spent -- got about $1 billion more of new planes. So why is that number increasing so little, given the fleet upgrade?

In which ones, depreciation, interest expense and ...?

If I add up depreciation, rental and interest expense, because it shouldn't matter how you finance planes, and I compare this year versus last year, you're up only 1% despite having spent about $1 billion worth of aircraft.

Well, I mean, the aircraft rent is going down really because of the new leases, so we've renewed a lot of leases at lower levels, which has offset the depreciation increase. Another thing is paying off debt. We've done the -- you could see it's flat on the interest expense side with paying off a fair amount of debt and refinancing a fair amount of debt at lower levels that -- than we've done over the last 2 quarters. So I think that's the real reason why everything's pretty much flat.

We'll take our next question from Dan McKenzie with Buckingham Research.

Just one housecleaning question here. Regarding the aircraft financing for the deliveries in 2014, are they going to show up as leases or as owned aircraft?

All of those will show up as owned aircraft because they're all EETC planes.

Got it.

All the delivery. So far, we've financed the first 12 aircraft through 2014, all in the 2013-1 EETC. The aircraft 13 through 21 have not been financed yet, but I would assume, with the markets the way they are, we might do a similar transaction. So I would assume that they're all owned aircraft.

Okay, very good. And then, Scott, I wonder if you can kind of help us peel back the macro, peel back the onion on the macro backdrop here. The GBTA is forecasting global travel spend -- well, the travel spend for the U.S. to rise 7.2% next year. And I realize you sort of have to look at these forecasts with one eye, but it does include hotel and car rental spend as well. And I guess, first, would you expect, based on what you're hearing from the early conversations you're having with your corporate clients today, that the airline spend would sort of trend in line with that average or perhaps lower or perhaps higher? Anything you can comment on to help us peel back the onion here?

Well, I don't have any reason to think airlines will trend any differently than hotels or car rental companies, and I think it's really early to have a good read on what 2014 revenues and spend is going to be. It just depends on what happens with the economy. And I think it's hard for anyone to really know that number until you see how the economy develops. I don't -- I can't think of any reason that airline revenues would either outperform or underperform that kind of macro forecast.

We'll take our next question from John Godyn with Morgan Stanley.

Doug or Scott, we've seen some examples in the -- across the airlines of airlines sort of putting together a strategy defined by very conservative capacity growth and CapEx, generating a lot of cash and returning that cash to shareholders. You've sort of taken a little bit of a different strategy here and it sounds like based on the 2014 capacity growth guidance, you're going to continue to exceed the market in terms of growth. I was just hoping to kind of hear your thoughts on this idea in general. Philosophically, I mean, what's the right strategy here, and does it depend on the scale of the airline?

First, it doesn't depend on the scale of the airline. The right philosophy -- we've talked about capacity discipline for years. And capacity discipline to us means growth when there are profitable growth opportunities, and it means capacity reductions in a world where existing flying loses money. That's typically happened in 1 of 2 ways, either a spike in fuel price, which causes a flight -- causes a series of flights that you have that were formerly marginally profitable become unprofitable because fuel prices have spiked, or it happens like it happened in 2009 where domestic revenues declined by 17%. And so you had flights again that were formerly profitable that became unprofitable. So we always look at the world from our individual airlines perspective. And if there are growth opportunities that we think are profitable, we will pursue them. And if we're in a macroeconomic environment where some of our existing flying is unprofitable, we will keep flying unprofitable flying. I'd also point out that most of our capacity growth in the past couple of years has been through adding gauge to aircraft and utilizing our aircraft more and putting more seats on the airplane. That's been very efficient, and you can see it reflected in our profit margins. I know for sure that the second and third quarter are our highest pretax profit margin, excluding items, in the history of the company, and I think the first quarter was as well. So that growth has been successful and profitable. And so philosophically for us, capacity discipline is about pursuing growth opportunities when the macroeconomic environment allows you to, but not when it doesn't.

This is Doug. And I would just add, by no means are we inconsistent with what you've described others as saying about getting cash to shareholders. Indeed, what Scott just described in terms of our growth is growth that's in line with demand and demand growth and efficient growth that will just allow us to generate more cash. This is not a situation we're saying now we're going to -- we're choosing to invest our cash in growth and, therefore, not return it to shareholders. To the contrary, this is growth which will drive you more cash. And we have been, for the longest time and will continue to be, the -- as aggressive as anyone of being sure that we're generating cash and returning to shareholders when we can and doing this for shareholders. I mean, the reality is as to our current cash position, in which we are planning to get this merger done and when we do, my guess is between the 2 combined companies, one of the first things on the new board's agenda is going to be deciding what's the best use of the significant cash. It'll be on hand at the combined company.

That's very helpful color. And, Scott, if I could just ask a quick knit. The impact of Thanksgiving between November and December, how are you sort of benchmark -- what's that percentage, your best guess?

I think it's 3% to 4% of revenue that moves out of November into December. The Sunday after Thanksgiving is the largest revenue day of the year every year. And the Monday after Thanksgiving is usually in the top 5 revenue days of the year. And so moving that from November into December is 3% to 4% of revenue.

Ladies and gentlemen, at this time, we have no questions in the queue. [Operator Instructions] We'll go with Savi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just a quick question on Brazil. I know that, that puts pressure. I'm guessing because of the longer distance. But I was just wondering, it's been a while that you've been trying to get into Brazil and that operation startup. If you can give some color on how that's ramping up here.

Sure, it is a longer stage length so that puts pressure in it, and it's a new market and new markets always take time to spool up. In São Paulo, we have something else that's unique. We haven't yet gotten slots at the time of day that customers prefer to fly, so we're flying in a poor time channel. For the next season, our slot timing is going to be improved, although it's still not to where it will be most competitive. But over time, we expect that we'll get slots in the right time channel. So it's not only a startup mark -- it's not only startup and the normal spooling issues you have with startups, but it's about the slot times and this is part of the investment in a new route. This happens sometimes in certain geographies around the world where you've got to start with a bad slot time, and then you gradually get it improved to the point where you want it to be. Savanthi Syth - Raymond James & Associates, Inc., Research Division: How -- just a follow-up on that, how long does it usually take for such a market to mature?

Can you say it again? Savanthi Syth - Raymond James & Associates, Inc., Research Division: How long do you think that will take to mature and be profitable?

Well, I didn't say anything about profitability, but I think a normal spool-up in a market like that is probably 18 months. And as I said, the next season, we've already improved the slot time. So I think that's a separate process, a separate question, but I think we'll get to the right time within 18 months on that as well.

We'll take our next question from Jamie Baker with JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: I know you stopped short of giving -- well, I guess, you didn't stop short of giving formal guidance on capacity for next year. At the mainline and assuming an international bias, would you care to take a stab as to what this does in terms to the ASM per gallon metric? Obviously, if you were to grow 4% year-on-year, consumption likely would be up less than that. Just trying to get a feel for fuel efficiency, because, obviously, on an annual basis, that's pretty sensitive input into the model.

I don't really know, but if we grew it 3% to 4%, I think our assumption is the aircraft count is essentially flat, so you won't burn much fuel. So my guess is your fuel burn or your gallons per seat would decline by, let's say, 2.8% to 3.8%.

We'll take our next question from Hunter Keay with Wolfe Research.

Just a couple ones here. Just going to follow up to what I asked you 3 months ago. Scott, have you seen any types of change of noticeable changes in booking habits with the higher change fees, which you cited is one of the drivers of your other revenue growth in the quarter, whether that is better mix shift to a, let's say, more refundable fares or potentially people booking -- the booking curve is a changing shape but didn't to some extent, or have you noticed anything measurable at all from that?

I will -- so no, I have not noticed anything, but, also, I should acknowledge that I haven't gone and asked anyone to look at that or see any analysis on that. I've been otherwise engaged in the last 3 months. But certainly nothing that stands out at a high level with the kind of statistics I look at.

Okay, yes. That's probably the answer then. And in terms of the other source of other revenue growth. You guys cited some mileage program revenues. Delta cited the same thing. Can you give us an idea of what that is? Are you selling more miles to partners? Is this cash revenue? Any color?

The answer is yes and yes, and we continue to grow programs like Choice Seats that just continues. That's a great program for our customers. All of our various First Class upgrade programs, again, and great for our customers to offer them a better product and give them access to that better product. And those programs continue to grow pretty aggressively as well.

We'll take our next question from Dan McKenzie with Buckingham Research.

Scott, I guess following up on the reference to the shuttle product earlier in the call, how sacrosanct is that product? Do you have the flexibility to use the same slots for different destinations? And of course, that would assume that they would fall within the DOT perimeter rules.

Well, those -- the slots at both DCA and LaGuardia are not specific to a market. So you could use them for anything. We don't have any intention to change the shuttle. But the technical answer to your question is you can use them to fly anywhere inside the perimeter rule that you want.

Got it, okay. So it suggests that since you have no interest in using those for other destinations, the shuttle product is still the most compelling opportunity for those slots, I guess, is how we should think about that?

No one has ever even brought up the idea of changing a shuttle before you talked about it. So there's no plans to do that.

We'll take our next question from Bob McAdoo of Imperial Capital.

Just a quick question on cargo. You've talked about cargo being reasonably strong, and some other people have said that cargo is weak, yields are weak and whatever. Just curious, what part of the world are you seeing the strength in cargo? Is it -- or is it because you got some bigger airplanes that are easier to carry cargo in, or what might be driving that that's maybe a little different? I know you don't know what the other guys are seeing, but.

I think we saw strength, particularly across the Atlantic, and I suspect that they had more weakness in the Pacific. We've certainly seen that in the past revenues. So that'd be my best guess, but we don't really know.

And ladies and gentlemen from the media. [Operator Instructions] We'll go to Jack Nicas with Wall Street Journal.

So we are -- we're expecting the FAA to soon issue new guidelines and how airlines can demonstrate that their aircraft are tolerant to any potential emissions from flyers' electronic devices and, basically, eventually allow airlines to allow their customers to use these devices during takeoff and landing. So if the FAA follows through with this, obviously the advisory committee report is expected to be out very soon, are you folks in US Airways interested in allowing devices during all phases of flight?

Jack, it's Robert Isom. Yes, we're keenly aware of the ARC and are trying to make sure we're keeping up as much as possible on what might come out of that. And I guess what I would say is we're going to be ready no matter what comes out and prepared to offer our customers the conveniences that they need. And while we haven't made any decisions yet, we really have to wait and see what comes out of the ARC, but we'll be ready.

Okay, so you guys -- could you say, to some degree, you're preparing right now to make those policy changes?

Absolutely.

We'll take our next question from Mary Schlangenstein with Bloomberg.

I wanted to ask you guys -- Scott, have there been any decisions made as you've worked with the American folks on whether you would carry over the no hedging policy to a combined airline if the merger goes through?

No, we haven't, to my knowledge, had any discussions about that. We have not.

Okay. And then the second question, which is a little bit in the weeds, but I wanted to ask since you were talking about cargo. UPS and FedEx have been affected a lot by this trade down from overnight shipments to deferred. And I'm wondering if you're getting any more volume from them because they have talked about the fact that they're putting more things in the bellies of passenger planes, and I'm wondering if you guys are seeing any of that.

Mary, it's Robert Isom. Right now, I can't say that we're seeing much there. I will say that we've had some benefit from the Postal Service mail this past quarter, and so we're looking on and making sure our product's competitive as we go forward.

We'll go next to Ely Portillo with the Charlotte Observer.

It's Ely here. I just wanted to ask, first of all, if you ever thought that Charlotte Douglas 5 years ago would have 10 nonstops to Europe, and also if the leadership transition question, whatever you want to call it, that's going on at Charlotte Douglas right now has impacted your operations or your future plans for the airport at all.

I'll start on the first one. It's -- it is -- it's a remarkable story growth in Charlotte. It shows you what the power of a hub and being able to connect to customers and offer customers service to far more destinations in a microcosm in the southeast. It's an example of the kind of benefits they can create in our merger with American Airlines, if we get it approved, that you have -- you create growth opportunities by being able to serve more customers, and Charlotte is an example of what we've been able to accomplish there. It's been fantastic growth. But it's because we can have a large hub with a large customer base there in the southeast that allows us to serve 10 destinations in Europe, because there's just -- there's not enough local demand, obviously, in the market. So it has been a fantastic growth story, and I think is representative of what you can do with a network.

Operations, Robert?

Yes. From an operations perspective, I've got to tell you that we're really pleased with a lot of the work that's going on, on the airfield, and our relationship with the city and airport has never been better. We have so many things that are going on that I think we'll really improve our ability to service customers as we go forward, the airfield improvements to runway 18/36C, Taxiway D extension that should be online and helpful for us this fall when we get into de-icing season. So again -- and then on the terminal itself, we have numerous products that are going on that all result from the great partnership that we've had in the past and we continue to have.

Yes. And, Ely, this is Doug. But on both those answers, Scott's talked about growth in Charlotte and Robert's talked about the great relationship, any else we have there. All that's due to Jerry. Jerry Orr has just been a phenomenal airport director, and that city owes him dearly, and hopefully, people recognize that. So we're staying out of the politics. But politics aside, Jerry Orr has done an amazing job, and we'd like to see him back in there.

We'll take our next question from Linda Loyd with Philadelphia Inquirer.

The letter that was sent today by the mayors of 7 cities to U.S. Attorney General Eric Holder urging him to reconsider the Justice Department lawsuit, do you think that will carry any sway, any weight with the Justice Department?

Linda, again, we're trying to stay out of this, talking about the litigation and stuff. So we were very pleased to see the letter of support and think it's indicative of what people around the United States think about this merger and how it should go forward. So we certainly appreciate the letter of support, and you'd have to ask the Department of Justice as to whether it affects them or not.

We'll go next to Karen Jacobs with Reuters.

My question is -- no, I'm going to ask it anyway. It's somewhat merger related. But you reported -- once you take out the noncash income tax provision, you reported really strong results today. We saw pretty strong results last week from American. Both of -- both carriers topped expectations once you strip away special items. Can you comment on whether -- on the argument, the idea that it's been advanced, that these solid financial results from both carriers suggest that both carriers can survive on a standalone basis, and therefore, undercut support for the merger as, obviously, your critics have suggested?

I guess, I'll try. First, the short answer is no. It doesn't undercut support. Strong companies merge all the time. And the point of this merger is we will be stronger, we will be able to attract more customers, we will be able to offer more benefits to customers if we're allowed to merge. And the fact that we're currently making profits today doesn't change that in any way whatsoever.

We'll take our last question from David Koenig with the Associated Press.

Karen asked kind of what I was going to ask, but let me then move to something else. Maybe I missed it, but, Scott, did you break out domestic versus international in that 2014 capacity increase? And if you did not, could you?

We did.

I have a follow-up.

It was Derek who did it. We didn't and I don't -- and we don't have that done yet because we haven't built the 2014 plan, so that's just a rough guide. I expect it'll be higher internationally, but we don't have the specific numbers yet.

Okay. And then kind of as a follow-up, how much are you being helped as competitors either retreat or at least don't grow on the routes where they're overlapping you?

I'm not sure what you mean, but internationally, there's been a lot of growth across the Atlantic for all carriers. And so -- and we're growing into market. Every market that we're growing into has no nonstop service on it, so.

I think I meant more domestic. I'm sorry, my bad. You're seeing -- even Southwest and the other guys have been fairly cautious where they are overlapping you, right?

Well, I assume carriers are growing and adding and subtracting capacity where -- based on what their own profitability is. We have some markets that carriers have pulled out of, but we also have markets where they've grown. We've got new competition coming from Spirit into our market, from Virgin America. So we've -- from Frontier, who's establishing a little mini hub operation just outside of Philadelphia. So we have significant low-cost carrier growth in our markets that happens all the time, and that continues.

Okay, that's all. And look, just a follow-on, I guess, is this -- the last question was also going to be about the prior question before about this -- the results. Scott answered it well. But it's also worth, I think, putting some perspective on this industry and where we are when you think about these earnings. As excited as we are, but the reality is, within the same press release, we talked -- one of our accomplishments of late is that the company's credit rating was raised one notch from B- to single B. While we're happy to see a credit-rating increase, a single B company's 5 -- still need 5 upgrades to get to investment grade. So this is -- as well as we're doing, we still have a company that is nowhere near investment grade, nowhere near where other companies that merge on their businesses are and one that -- we know the merger is good for competition, but also, I just want to make sure everybody understands that what we're really talking about here is merging a single B credit with a bankrupt credit. So with that said, we are adjourned, and thank you, all, very much for your time. If you have any questions, contact Corporate Communications or Investor Relations. Thanks a lot.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.