Chris Ducey - Managing Director of Investor Relations Tom Horton - CFO, EVP Finance Isabella Goren - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Gerard Arpey - Chairman and Chief Executive Officer

Will Randow - Citigroup Inc Garrett Chase - Barclays Capital Daniel McKenzie - Hudson Securities, Inc. John Godyn - Morgan Stanley Jamie Baker - JP Morgan Chase & Co Michael Linenberg - Merrill Lynch Hunter Keay - Wolfe Trahan & Co.

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the AMR First Quarter 2011 Earnings Conference Call. [Operator Instructions] We're very pleased to have on the call with us today, AMR's Chairman and Chief Executive Officer, Gerard Arpey; the President of AMR and American Airlines, Tom Horton; and Senior Vice President and Chief Financial Officer, Bella Goren. And here with their opening remarks is AMR's Managing Director of Investor Relations, Chris Ducey. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us on today's AMR earnings call. During the call, Gerard Arpey will provide an overview of our performance and outlook, and then Bella Goren will provide details regarding our earnings for the first quarter, along with some perspective on the second quarter and the full year of 2011. After that, we'll be happy to take your questions. [Operator Instructions] Our earnings release earlier today contains highlights of our financial results for the quarter. This release continues to provide additional information regarding entity performance and cost guidance, which should assist you in having accurate information about our performance and outlook. In addition, the earnings release contains reconciliations of any non-GAAP financial measurements that we may discuss. This release, along with a webcast of today's call, is available on the Investor Relations section of aa.com. Finally, let me note that many of our comments today, including statements regarding our outlook for revenue and costs, forecasts of capacity, traffic, load factor, fuel costs, fleet plans and statements regarding our plans and expectations, will constitute forward-looking statements. These matters are subject to a number of factors that could cause actual results to differ from our expectations. These factors include changes in economic, business and financial conditions, high fuel prices and other factors referred to in our SEC filings, including our 2010 annual report on Form 10-K. And with that, I'll turn the call over to Gerard.

Thank you, Chris. Good afternoon, everyone. As you saw earlier today in our press release, our net loss, excluding special items, for the quarter was $405 million. And that compares to a net loss of $452 million in the first quarter of 2010. That's obviously a disappointing result. And even though we improved our results by almost $50 million versus the same period last year, this highlights the challenge we and our industry are facing as a result of sharply higher fuel prices. This quarter, our fuel prices increased almost 24% year-over-year, higher fuel prices drove over $350 million in the increased expense this quarter alone. And that's after we recognized the benefits from our hedging program of about $100 million in the quarter. If our current estimates hold, we anticipate that our total fuel bill for all of 2011 will increase by about $2.1 billion versus 2010. And that includes substantial benefits from our hedging program. Obviously, despite a number of things outside of our control, we're focused on the things that we can impact. So I'd like to highlight some specific actions we're taking. First, we're working aggressively to increase revenues and we're making good progress. In fact during the first quarter, American initiated over a dozen of domestic fare increases and most of them were either fully or partially successful. And there were also additional actions initiated by our other carriers. Internationally, we have also made a lot of progress with over 80% of international pricing actions being at least partially successful. Second, in this fuel environment it's important to continue renewing our fleet, replacing MD-80s with more fuel-efficient 737-800s. And that is ongoing this year and into next year. Furthermore, to our Fuel Smart program, our people across the entire company are working every day to reduce the fuel that we consume. In fact, in 2010, we achieved an annual run rate of about 123 million gallons saved, or 285 million gallons at last year's prices. And we anticipate even more opportunity to save fuel this year. We're also using our systematic hedging program to reduce some of the impact of rising prices in the short term. And finally, we're keeping a close eye on capacity, which must be carefully and continuously considered in this environment. Today we announced that we plan to reduce our fourth quarter 2011 system capacity by an incremental 1%. This cut is in addition to the capacity reduction we announced in March and further demonstrates the flexibility provided by our MD-80 fleet. We now plan to retire at least 25 MD-80s in 2011, which will help us navigate the current fuel environment by both renewing our fleet and reducing our planned level of flying. Over the last five years, I think it's fair to say that we have led the industry in taking a disciplined approach to our capacity, and we have done so while also fortifying our network and our global footprint. In doing so, we focused 98% of our flying in our 5 domestic cornerstone markets, which are some of the most important premium markets in the world. We are convinced that this focus strategy is the right one for our future where global alliances in our own international flying will play an ever-expanding role. Bella will walk you through our results in a few moments. But first, let me highlight some additional developments. In the Pacific. We launched our joint business with Japan Airlines on April 1. We are proud to be a long-term partner of JAL and to take our relationship to a new level. And I think it's a great testament to the strength and quality of our partnership that we were able to launch our joint effort in spite of the current challenges that the country of Japan faces. All of us are looking forward to working even more closely with JAL in the years to come. On the distribution front, we have made a lot of progress towards our objective of allowing travel agencies to access our fares, as well as our customized products and services in a revenue-enhancing and cost-effective manner. We've reached an agreement with Priceline. And earlier this year, they started to utilize our direct connect technology. And recently, we have also reached a memorandum of understanding with Expedia. At this point, American Airlines tickets can be purchased through thousands of travel agencies worldwide, including a variety of online agencies, including Priceline.com and Expedia and meta-search engines like Kayak.com. We have also seen considerable growth in our revenue generation through our own website, aa.com. As you've seen, we recently filed an antitrust lawsuit against Travelport and Orbitz, since we believe Travelport has engaged in anticompetitive practices to preserve its monopoly powers over our ability to distribute our products through Travelport subscribers. The lawsuit follows extensive discussions between our company. In the meantime, we continue to have discussions with other GDS companies in pursuit of agreements that will enable us to distribute our products through these systems under competitive terms. Turning to the airline industry. Labor environment, I also want to share a few thoughts on that topic. It is no secret that we have the highest labor cost in the industry and have been in discussions with our unions for some time. And our situation is certainly not unique, with most of our major competitors involved in their own negotiations. Looking across the industry, 19 of 30 major contracts are either already amendable or will become amendable by the end of this year. And among the 11 remaining contracts that extend into 2012 and beyond, 9 of those agreements are at carriers currently involved in mergers. And as a result, they will also likely be looking to sign new integrated agreements in the near terms. So simply put, almost the entire industry is either in negotiations as we speak or will be, very soon. Our goal in discussions with organized labor is to strike a balance between our employees very real desires and the need for cost competitiveness, which is the only way to establish a long term successful enterprise and provide good-paying, secure jobs for our employees. So we are continuing negotiations in good faith with each of our unions and are doing so with the support of the National Mediation Board. And we are hopeful that our discussions will help us to reach a deal that achieves the balance I mentioned and give American the opportunity to be competitive, both now and in the long term. Given the current oil trends and volatility, it's also important to mention that in March, we completed a $1 billion private offering of senior secured notes backed by certain key assets of our international network, including our London Heathrow and Tokyo franchises, which connects key global business markets and our center for our strategy of attracting high-yielding business travelers. With this offering, which we had planned for some time, we were able to take advantage of favorable capital markets. We now have one of the strongest liquidity positions among the major U.S. airlines. Our unrestricted cash balance increased from about 20% of 2010 revenues to about 25% of revenue following the transaction. In terms of liquidity, our considerable cash balance should enable us to continue to invest wisely in strengthening our airline and our service while maintaining reasonable financial flexibility in the current environment. In addition, we anticipate that within our current fleet, aircraft that are Section 1110-eligible and are valued at over $1 billion -- well over $1 billion, will become unencumbered by the end of 2011, providing our company with additional financial flexibility. So in closing, I want to take a moment and thank all of our people for their hard work and dedication, particularly in light of the challenges we faced during the first 3 months of the year, including the unusually severe weather we saw all across the country, a disruption in Miami due to the airport fuel system fire and the aftermath of the earthquake and tsunami in Japan. Our team is intensely focused on overcoming the challenges we face in improving our results. I'm confident in the direction we are headed in our collective determination to successfully execute our long term plan and deliver good results for the benefit of all of our stakeholders. And with all that said, let me turn things over to Bella now and have her walk us through the results. Bell?

Thank you, Gerard. Good afternoon, everyone. As you have seen in our press release this morning, in the first quarter, we incurred a loss of $436 million or $405 million excluding special items. This compares to a loss of $452 million excluding special items in the first quarter of 2010. We had a nonrecurring non-cash charge of $31 million in the first quarter of this year and a special item of $53 million in the first quarter of 2010. Please refer to the press release for details. For the remainder of our discussion, my comments will not include the impact of special items to have a more meaningful conversation of our results. As these results indicate, the first quarter was a difficult period. As you know, significantly higher fuel prices were the primary driver of our results. In addition, the impact of unusually extreme weather in the U.S., the earthquake in Japan, a fuel farm fire in Miami and our efforts to change the effectiveness of the distribution of our products represented an estimated combined revenue impact of over $100 million in the first quarter. In addition, as I will cover in more detail in a few minutes, we did not yet fully benefit from a number of our strategic initiatives, which were ramping up during the quarter. So as we are working to address a number of challenges in the near term, we are also continuing to make progress towards strengthening our company's future. We are confident that we have the right plan and we are focused on accelerating the pace of improvement. And, of course, we also recognize that the current fuel environment adds additional urgency to our efforts. One major aspect of improving our results is of course revenue. And I'd like to take this opportunity to provide an update on a few of the key initiatives we have underway, including several major milestones. First, turning to the Atlantic. At the end of March, we implemented a coordinated schedule in our transatlantic joint business with British Airways and Iberia. Now our joint flights are much more conveniently spaced throughout the day. In fact, during the peak period, we are effectively operating a shuttle-type service between London and New York. Although transatlantic revenues in the first quarter were adversely impacted by significant capacity additions on the part of our competitors, we anticipate that this will moderate going forward, and we will see a greater benefit from our transatlantic operation where we are working diligently to enhance our joint effort as quickly as possible. As we have previously discussed, there is a ramp up time for our joint business, and we anticipate that the full run rate of the benefit will be in place by year end 2012. As the joint business agreement is being implemented, we are achieving significant milestones. For example, in early April, we initiated our sales effort on a joint basis and started to sign combined agreements with corporate accounts. This is a cycle of contract renewals. It will be some time before we see the full benefit of joint deals. But of note is the fact that we're moving ahead in putting them in place. With these and a number of other initiatives, we have a clear line of sight to how we should approach the market jointly and are on our way towards those goals. So in summary, our work over the last few months makes us even more confident in the significant potential of our joint efforts, both for our business and for our customers. Across the Pacific, our joint business with Japan Airlines began April 1, with joint service on trans-Pacific routes and code sharing in over 120 markets. We are working closely with JAL on many fronts to coordinate our flights, enhance the experience we offer our customers and implement joint-selling efforts. Obviously, the tragic earthquake and tsunami in Japan are a setback. And we have, on a temporary basis, suspended 2 of American's 6 US-Japan round-trip flights. Overall, however, we believe that our partnership puts us in a much better position to manage through the near-term issues and to achieve our joint long-term success as Japan rebuilds. Earlier this month, we opted to the next step in executing our cornerstone strategy, which focuses our network on the 5 of the largest markets in the U.S.: New York, Los Angeles, Chicago, DFW and Miami. Los Angeles is the most important gateway between the U.S. and Asia. With that in mind, we added service from Los Angeles to Shanghai, as well as to 9 key business markets in the U.S. With our fellow oneworld carriers that serve LAX, including Cathay Pacific, Qantas, Japan Airlines, LAN, British Airways and Iberia, we believe we have a truly unmatched set of partners at LAX, especially when it comes to attracting premium passengers. One of the ways we are building on the significant progress we have already made in New York is with the new service between JFK and Budapest in 2011. Budapest is a new market for us, and we believe that it will be successful given our strength in New York and the fact that we will be connecting to our oneworld partner, Malev Hungarian Airlines' network of around 50 destinations in 35 countries throughout Europe and the Middle East. Similarly, in another of our cornerstone markets, Chicago, in the next couple of weeks, we will be launching new service between O'Hare and Helsinki, the hub of our oneworld partner, Finnair. Helsinki Airport is the leading long-haul airport in Northern Europe. And because of its proximity to the Arctic Circle, it offers highly efficient connections from North America to India and much of Asia. I would also like to highlight how we are thinking of our global network by sharing with you a few of the steps we are taking to build our industry-leading franchise in Miami and Latin America. Late last year, we launched new service from Miami to the capital of Brazil, Brasilia. We also added daily flights from JFK to Rio, as well as seasonal flights from DFW to Rio. With enhanced facilities and more flights, we are more determined than ever on expanding Miami's unique leadership position as the key gateway between the U.S. and Latin America and the Caribbean. Now, I'd like to spend a few minutes discussing capacity. Fundamentally, this is a network business. So to be successful, we need to offer convenient service to the places where our customers, especially our business customers, are needing to travel. With American's position within the oneworld Alliance, which we believe is the premier global alliance for premium travelers, we need a domestic and international network that connects the rise up across the United States and the globe. Over the last few years, we have made careful decisions while clearly focusing in refining our network. In fact, including the capacity reduction Gerard mentioned, we anticipate that our 2011 capacity will be down approximately 9% versus our 2006 capacity. While the overall U.S. airline industry, excluding us, is down only about 1% and the other legacy carriers are down only 5.5% over the same time period. In other words, we believe our discipline on the capacity front over a five-year period is unmatched in the industry. Furthermore, this year, our flying is more efficient with more seats per departure and longer stage length. In fact, our mainline departures are anticipated to be flat year-over-year, while our seats per departure will increase about 1 percentage point as 140-seat MD-80s are replaced by 160-seat 737s. In addition, our average flight distance will be about 2% longer. This means that our 2011 mainline capacity increase is expected to be the result of flying larger planes over longer distances, which is more cost effective. If we look further down the road, our dedication to improving the efficiency of our fleet speaks for itself. Our turbo 777-300ER order book for 2012 and 2013 deliveries now spans at 5 aircraft. The 777-300s will not only enhance the efficiency of our fleet but also improve our capabilities to operate in longer-haul markets and at slot-constrained airports. With our fleet renewal efforts, our current projections for 2011 capital expenditures stand at about $1.7 billion, with nearly $1.3 billion of that amount representing aircraft CapEx. In light of the current fuel prices, we have carefully reevaluated our non-aircraft capital spending and have lowered our expected non-aircraft capital spending from the previously discussed $450 million to $500 million range to just over $400 million this year. Turning to revenues. In the first quarter, mainline unit revenues increased 5% on about 2.5% more capacity compared to the first quarter of last year. Load factors were just over 77% and passenger yields were up over 6%. Domestic unit revenues improved by over 5.5%, while international unit revenues increased by about 3% versus the first quarter of last year. Domestically, all of our cornerstone markets improved year-over-year while internationally, Latin America drove our growth. And it is also important to note that our unit revenue growth increased each month as we progressed through the quarter. In terms of corporate travel, we continue to see positive signs. And we are very pleased to see more business travelers out on the road. Corporate revenue increased in a year-over-year basis, and we continue to have a corporate revenue share premium versus the industry. In the first quarter, the revenue environment has strengthened significantly, and as all of us know, this is particularly important in light of much higher fuel prices. In addition, we're also seeing relatively few industry fare sales. And the ones that we are seeing are generally more tactical and targeted to specific markets. Turning to advance bookings. If we look out to the remainder of the second quarter, our book load factor is better than last year by about 1.5 percentage points. To a large extent, and that reflect the shift of [ph] Eastern travels fully into April this year while Eastern travel was split between March and April of 2010. On the regional front, quarterly revenue increased about 16% year-over-year. Our regional capacity was up almost 14% for the quarter, driven by our new 2 class CRJ-700 deliveries. On the cargo side, our revenues increased over 10% versus last year. Freight traffic was up slightly and freight yields posted a greater than 13% improvement. Notably, we saw strength in our premium product, expedite FX, with shipments moving from the northeast part of the U.S. to Europe. In addition, we are seeing strong volume of auto-parts moving for South America and Asia to assembly plants in the U.S. In the other revenue category, we saw year-over-year improvement of almost 11.5%. We saw continued strength in our revenue from the AAdvantage program, baggage revenue increased year-over-year and in February, we added a $30 charge for customers checking a second bag to the Caribbean and Central America markets. Furthermore, we continue to diversify our revenue stream and focus on growing our revenues from optional products and services, such as offering express seats. Shifting to costs. Our first quarter unit cost, excluding fuel, improved by about 2% on a mainline and consolidated basis. Fuel prices during the quarter were $2.76 per gallon, up 24% versus the first quarter of last year. Our hedging program reduced our fuel expense by about $0.15 per gallon, resulting in a savings of over $100 million for the quarter. Looking at our cost guidance. For the current quarter, we anticipate that our unit costs, excluding fuel, will be up between 1.1% and 1.5% both at the mainline and in the consolidated basis. Our long-term strategy demands that we have competitive costs and we are sharply focused on cost controls. Although the capacity cuts we discussed earlier will make it more difficult to achieve, our goal is to keep our full year unit costs approximately in line with 2010, excluding fuel and any potential impact of new labor agreements. To achieve our goal, we have to offset a number of headwinds, including among others, facility and healthcare costs, as well as having fewer air stems over which to spread our fixed expenses. Our entire team has an intense focus on managing and controlling our costs and reducing costs where appropriate. Our press release contains more information on our debt, cash position, fuel hedging, as well as specifics on our 2011 capacity and cost guidance. With respect to liquidity, I'd like to point out a few highlights. As a result of financing completed during the first quarter, we ended the quarter with about $6.3 billion in cash and short-term investments, including a restricted cash balance of about $455 million and hedge collateral of approximately $390 million. A year ago, we had about $5 billion in cash and short-term investments, including a restricted balance of about $460 million. Our capital expenditures in the first quarter totaled approximately $360 million. And we expect second quarter CapEx to be about $430 million. In the first quarter, our principal repayment on long-term debt and capital leases totaled about $320 million. Our total repayment this year will be about $2.5 billion, with about $460 million of that amount coming in the second quarter. I'm sorry, I wanted to correct that. It's $860 million. To wrap up, in many respects, this year has started with many challenges. If we aggressively pursue immediate actions to improve our results, we are also focused on executing our long term strategy to strengthen our company and secure our future for the benefit of our shareholders and for all of our other stakeholders. So with that, I appreciate your attention. And Gerard, Tom and I will be glad to take your questions.

[Operator Instructions] Our first question comes from the line of Gary Chase with Barclays Capital. Garrett Chase - Barclays Capital: I apologize, guys. I've been bouncing between calls, I did miss some of the prepared remarks. But if I read through the release, it does look like you're pulling forward another couple of 777s [777-300]. If I kind of look and if I read the language in the release, I know you're not performing where you'd like to be, yet still kind of investing in the business. And it looks like increasing that level of investment. Can you just offer a little bit of your perspective on sort of what you see looking out there that, in your mind, justifies the investments that you continue to make in the business?

Gary, this is Tom. As you know, these are very long-term fleet decisions that we're making. And with respect to the 777-300, we think we have a lot of rewarding near-term opportunities given our cornerstone strategy and the joint business agreements, which are just now sculling off. So that's really what this is about. And the 777-300 is a uniquely efficient airplane. It has about 7% to 8% better unit cost than even the 747-400. So it's a really, really good airplane, particularly with respect to slot-constrained markets where we see some opportunities in the post JVA world. So that's the logic behind it. Garrett Chase - Barclays Capital: And just broadly, I mean, if you look, you're spending a lot of money on fleet, you've ramped up the non-aircraft CapEx. What's kind of a longer term thought behind investment in the business and how you see the returns on that a few years out?

Actually, we pulled down the non-aircraft CapEx, so that's just a correction. But with respect to the aircraft CapEx, these are long term investments. It's a business where, on an ongoing basis, you have to make substantial investments just to maintain the existing fleet, notwithstanding further growth. So we think our long-term plan, our long-term prospects are quite good and notwithstanding the near-term challenges of high fuel prices and the recent economic climate we've been through.

Yes. And Gary, I just wanted to add that on the non-aircraft CapEx, what we said is that we're actually, to come point blowing our estimates. Previously, we had indicated that we anticipated spending about $450 million to $500 million in that range and now it will be just over $400 million. So we've kind of took a close look and shaved off a considerable amount. Garrett Chase - Barclays Capital: Okay, guys. Thanks.

Thank you.

Our next question is from Michael Linenberg with Deutsche Bank. Michael Linenberg - Merrill Lynch: Two questions here. One, I believe with the falloff in traffic out of Japan, I think you were going to scale back some of your service on a temporary basis. And I think it was actually due to come back pretty soon, correct me if I'm wrong on that. Can you talk about what you've seen in trends, on traffic trends to and from Japan? And are we at a point where those frequencies can come back? Or is this going to be a longer-term situation? Just the latest thoughts on that would be great.

Okay. Thanks, Mike, for asking. I'll take that one. Basically, as you mentioned, our suspension, is mostly through the end of April, there's sort of different base depending on which crowd and in which direction. Sort of we are obviously monitoring it closely. And at this point, are in very close discussions and coordinations with JAL because we obviously have a joint business agreement across the Pacific. So it really kind of depends, if we look at the golden week, which is towards the end of April, first week of May, the traffic trends are pretty strong and, obviously, we're mindful of that. Looking beyond that, I think it really will depend on kind of the day-to-day analysis. And so at this point, to answer your question, we haven't made any further decisions and will continue to monitor it and are in daily conversation with our partners. Michael Linenberg - Merrill Lynch: Bella, just to put numbers to that, I mean we keep sort of hearing and reading that the traffic is down 20% to 30% or so. Excluding the impact of golden week, is that still kind of a fair assessment of where things are now?

I would say it's in that range. What's interesting, Mike and others, is we look, typically, obviously, Japan has gone through an unbelievable shock. Right? and I mean with a lot of after effects. And so what we see, and see in other parts of the world, when that happens is there is a considerable falloff, which then starts to regain momentum as the rebuilding process starts. And so I would say that should be applicable to Japan but, obviously, a lot of things that are in play and we're monitoring it closely. The golden week is a strong traffic month, and I would say, generally, what happens in a situation like that is bookings come in now closer in as people refine their plans to either take travels that they had planned to take before. So it's more fluid, I guess what I'm trying to say is that it is more fluid than a normal market. Michael Linenberg - Merrill Lynch: Okay. Okay, good. And then just my second question in the press release, you talked about your revenue environment in the March quarter and you highlighted some of the challenges like the Japanese earthquake, tsunami, the fire at Miami International, the weather, et cetera. There was nothing in there about the potential impact from distribution and the bias that you had to deal with during the quarter. Can you give us maybe what that impact would have been if you can talk about it openly? That would be great.

Yes. And actually, Gerard kind of pointed that out. What we said is when you look at kind of all the impact together, we estimate that the total number is over $100 million. So we included distribution impacts that we saw in that amount, and the only thing I guess I would add is at this point is that they were more significant earlier in the quarter and moderated as the quarter progressed. Michael Linenberg - Merrill Lynch: Okay. Thank you.

Thank you.

Our next question is from Bill Greene with Morgan Stanley. John Godyn - Morgan Stanley: This is John filling in for Bill. Just two questions. First, many of the other legacy airlines are cutting more capacity than you in the back half despite starting from a better base of profitability before oil ran up. Can you walk us through why you think cutting less than them in the back half is a better strategy than matching the size of their cuts? Or maybe even cutting more to account for the profitably differential?

Yes, I'll take that first and then open it up to others. So I think what's important to note, John, is if we look at a five-year trend, which in this business, especially when you do scheduling and network planning, looking at a longer horizon is more important than any one particular period of time. So if we look back over a five-year period to 2006, our capacity is down 9% whereas the industry overall is down only 1%. And if you look at our legacy competitors, they're down only 5.5%. So I think, if you look at this in a more kind of a global basis, we feel that we have done quite well on our capacity plans. Obviously, the current fuel environment makes us evaluate where we stand. And therefore, we took the actions that we did. We had two revisions to 2011 plans. One early in March and one that we just shared with you today. So in addition to kind of taking two significant steps, we also look at kind of how our capacity is laid out over the past 5 years. But at the same time, this is a business where you have to keep a very close eye on things, and we continue to monitor the situation as we go forward. John Godyn - Morgan Stanley: Okay. And maybe, I understand that you've got more capacity than peers over a long period of time. On the other hand, some might think that the way to manage capacity is to think about the impact on profitability. Can you just kind of help us think about maybe how you approach, how you guide your decisions to capacity and how that relates to attempts to return to profitability?

John, I'll just add a little bit to that. This is Tom. We try to take a long term approach to this. Obviously, if you react to what oil prices did yesterday, you'd be moving your capacity all over the place and we don't think that makes sense. So we do try to take a long-term view. And as Bella said, if conditions in the industry don't improve, either via oil prices moderating or more revenue initiatives getting traction, then we'll revisit that, as we have done already twice. So that's the way we think about it, but we're committed to getting the company back to consistent profitability. And if that requires further capacity reduction, we'll do so. But we'll only do so if we think it can make our profitability better. And at the moment, we don't think that it would have that effect. Our financial performance -- under performance, the reasons for that are well known. And I don't think further cutting capacity is going to assist that situation. John Godyn - Morgan Stanley: Okay. And my second question is just a quick nit. In '08, if I remember right, when you retired a bunch of MD-80s, you encouraged some costs related to retiring them, it took some associated write-downs. Is that something that we should look out for or is that embedded in the CASM x fuel guidance? Anything you can an add on that would be helpful.

It is reflected in the guidance we provided. If there is any, it'll be a pretty minimal amount. So I would not be terribly concerned at this point. John Godyn - Morgan Stanley: Okay. Thanks a lot.

Thank you.

And next in the line of Will Randow with Citigroup. Will Randow - Citigroup Inc: A couple of questions for you. I guess -- or 2. The first one is on your drivers of CASM underperformance, that has been up if you look at long term trend. But focused on year-on-year, do you think part of it is because you have competitive capacity on your 5 cornerstone hubs at a higher level than we see domestically? And also, why are you not benefiting from the strength we're seeing in Latin America?

So this is Bella. And I guess I'll start off here. We are seeing considerable strength in Latin America. So I think that is reflecting or reflected I guess in our results. I would say, in addition to kind of the aggregate description we gave in terms of the all of the cancellations we had for the Miami fuel fire, fuel farm fire, obviously that was kind of uniquely difficult for American Airlines given how large our operation is there. So as we look at the first the quarter, we've had in Dallas, it if you might recall, during Super Bowl, we had basically a week of this airport being shut down because of ice. So there are some unique issues that happened this quarter for us. And as we look at it all together, that impacted us to the tune of about over $100 million on the revenue side. That includes the distribution impact as well. And one of the things that I can share with you is that on a month-to-month basis, as the quarter progressed, we saw a considerable improvement in our revenue performance, vis-à-vis the industry. As far as our antitrust immunity agreement, for example, we have British Airways and Iberia, one of the I guess anticipated opportunities there that we saw is that the full effect will not be in place until the end of next year because there is considerable coordination involved in putting it in place if we rejuggle our schedule and realign both on the international side, as well as in Los Angeles, the additions we've made have just happened. That was 2 weeks ago. So there's a lot of important things we've put in place that have not yet fully reflected in our revenue performance. Will Randow - Citigroup Inc: I guess I understand enough, that's kind of where my question was going. Do you think your current additions and your peers additions to those markets is diluting your revenue performance domestically versus the industry?

If I could point a point on it, Will, at some again. If you look at the things that we think disproportionately impacted us in the first quarter, the Miami situation, the Japan disaster, the weather and then our distribution efforts, which have had some dilution to revenue, all that taking an aggregate is worth over $100 million, conservatively. And without those things, we think our unit revenue performance year-over-year would have been right in line with industry. I think maybe more important is, what do we see going forward? And that is, as Bella said, the ongoing traction of our joint business agreements across the Atlantic and Pacific. Those are the things that our competitors have enjoyed for some time across the Atlantic. And, as we've said, ours is just sculling up. So we're encouraged by that and as Bella said, we did see our unit revenue, year-over-year performance improve in each of the months of the first quarter. So that suggests to us that what we're expecting to see is beginning to take lead.

Yes. And I would just also add that in each of our cornerstone markets, our year-over-year revenue performance has improved. And so if we look at the revenue picture of where we stand today, to us it looks healthier. So there's been, as Gerard and Tom pointed out, an unprecedented level of fare activity in both domestically and internationally and a lot of either fully successful or partially successful fare increases. A lot of them we led, on many of them were led by others. But overall, we feel that the revenue picture looks healthier.

Walter, your question about the cornerstones in particular, which I think is a good question. As we grow the cornerstones and we add capacity, certainly in the early days, there's probably a little bit of burning to be done. But if you look at Chicago, for example, where we've had a little bit of experience with our additions to the cornerstone, we've seen that our Chicago performance, our unit revenue performance, has outperformed the rest of the domestic system in a way, which we think about it our efforts. Will Randow - Citigroup Inc: If I could ask a follow-up, just on the billion dollars of aircraft rolling. How are you thinking about that proactively as you go through the year? Would you proactively pre-refinance that, I assume?

Well, the unencumbered aircraft, the value we've quoted of over $1 billion will be towards the end of this year. And I will tell you that we always think proactively about it. So we look at obligations. We look at what is happening with respect to fuel environment revenue environment, debt coming due and it's a very proactive program. So we are pleased that we will have that level of unencumbered asset by year-end and we'll use that wisely.

Will, this is Gerard. I was trying to highlight in my prepared remarks the fact that the timing of the secured deal that we did earlier this year, I think it was well timed in terms of the capital markets. And also, with the over $1 billion of 1110 airplanes that will become unencumbered this year, the timing of all that, it just gives us the opportunity to be more flexible and think a little bit more broadly about what our options are. So I think the timing is worth skewed for us because it just gives us more flexibility. Will Randow - Citigroup Inc: Thanks, guys. I appreciate the time.

Thank you.

And next we'll go to Hunter Keay with Wolf Trahan. Hunter Keay - Wolfe Trahan & Co.: Gerard, I understand why you and the team are sort of steering us towards the long term. But I think at a certain point that approach becomes pretty difficult for a lot of investors to accept, given the fact that you guys did give a kind of perpetual deficit economically to all of your peers, at least as far as out as I can model. So given the fact that the company has lost about $12 billion over the last decade, at what point does the near term matter? And is there a specific measurable 12-month goal that you can share with us right now that we can look back 12 months from now and kind of feel that you're progressing towards the long term improvement?

Yes. I think that's a fair question answer, Hunter. I think that the important thing for us, recognizing the significant labor cost disadvantage that we have, which is contributing to that deficit to the industry. The important thing for us as we go through this contract cycle is that we look for our cost to converge and our margins to converge and for our relative performance to improve. And we've got a long term plan that is designed to do that, both through improvement on the revenue front with our cornerstone strategy along with the joint ventures in the Atlantic and Pacific, as well as doing our very best, as I highlighted in my remarks, in terms of our contract negotiations, to end up when by the time everyone has gone through their own contract negotiations, that we're in a much more competitive posture. So I think I would look towards the short term and the long term for our margins to improve relative to the industry. That's what we're focused on. Hunter Keay - Wolfe Trahan & Co.: Okay. I appreciate that. And on LAX, what percentage of the capacity growth is there? And what have you learned from Delta's failed attempt to hub LAX about 4 years ago? And what can you do differently to make sure that this does not happen again?

So Hunter, I'll take that first. And I guess what I would point out to and I think we shared -- and we'll get you the percentage increase but I guess, kind of overall, what we would point out to is that given the oneworld partners that we have there and with whom we have antitrust immunity, for example, like JAL, we truly believe that it positions us uniquely to be very strong in that market. And so, if we added the 9 Pacific domestic destinations in addition to Shanghai, we did it very thoughtfully, focusing on the premium customers and assuring that the strength of our trans-Pacific network, by ourselves and more importantly, with our oneworld partners is very strong.

And I would like to add to that, in markets like New York or LA, you can't be strong domestically unless you're strong internationally and the converse is true. So if you look at our strength in LA, we have some unique assets. We have this broad transcom portfolio that others don't have. We have a strong oneworld partners across the Pacific and across the Atlantic. We have a partnership with Alaska. And in our view, it's a very unique situation. They're a very good real estate footprint there. So we think of it, maybe not so much as a hub but really as a major trans-Pacific gateway, which benefits from our own flying, as well as our oneworld partners. And if you look at oneworld's market share premium seats out of LA, I think you'll see that we're extraordinarily well positioned. www.schaeffersresearch.com Okay. Thank you for the time.

You bet.

And let's go to Jamie Baker with JP Morgan. Jamie Baker - JP Morgan Chase & Co: Gerard, I'm normally not the type to go around quoting Einstein, but I'm pretty sure he was the one that said that insanity is defined by doing the same thing over and over but expecting different results. AMR at onetime was an airline that was willing to take a pioneering role in the industry. Obviously, thinking about the creation of the Frequent Flyer program, buying individual theaters it ultimately rolled up into Eagle, a proposition of a be scale value pricing, the basic tenets of revenue management. These all can be traced back to AMR. And I realize that maybe not all of these ideas were good ideas that they were still ideas that were provocative and they shook things up. Is there any assurance you can give us that you might be working on something similarly radical today? Above and beyond cornerstones, above and beyond new flights to Helsinki. Something truly different that would signal that you're trying to retake leadership position in the industry that AMR once held and produce profits for your stakeholders. I'm quite confident that the market would reward you for some really fresh thinking. Any thoughts?

Yes, Jamie. Well I think as I indicated earlier, I think in terms of the long-term strategy that we have in place, we are doing the right things in terms of our network, our products and our partnerships to drive the company to a better position competitively, in terms of closing the margin gap with our peers. In terms of things that we're doing right now, I think I guess I would highlight the fact that we are aggressively moving on the distribution front to think differently about the way that we distribute our product. And there's been a lot of focus on that in terms of managing our costs. And that, of course, is an important consideration. But the real leverage in what we are attempting to do here is to become much more aggressive and in control of our ability to merchandise. I think that when you think about the business in the long run, it is an industry where virtually every company has either been bankrupt once, some more than once. And I think the track record would indicate that it's an industry that needs to find ways to generate more revenue. And we believe that probably the most aggressive vehicle for doing that is through the merchandising efforts that we have, in fact, led. Some of them have been controversial, including charging for checked baggage. But I do believe that, that ability is going to be a way to drive significantly more revenue in the long run. And we're already generating a lot of revenue today. Much of that is overshadowed by the oil environment. But I do believe, as we stay on that path, despite the other headwinds that we're faced with, I think that it will give us an opportunity to generate substantially more revenue in the future. So that's one example that comes to mind. Jamie Baker - JP Morgan Chase & Co: Well I'll give you to that, but still distribution is a fairly small percentage of overall costs. What about this aggregation of ticket pricing? Are you willing to work with regulators the way Allegiant is, to allow for a fare structure where fuel might be collected separately or with a different timing and mechanism? And just, bag fees are new to passengers but the basics of how you purchase an airline ticket really hasn't change for decades.

Yes, I think that's fair, Jamie but I think that that's why -- thinking about distribution from a cost standpoint is the wrong way to think about the way we're thinking about it. Because the historic way the product has been distributed has really tied the hands of a lot of airlines, including our own, in terms of thinking more dramatically in terms of ways to merchandise the product. For example, if you go to aa.com today, you will see that we're able to merchandise things that we're not able to do through the traditional channels. So I think that's where the leverage is. I think the leverage has to be on the revenue side of the equation. Jamie Baker - JP Morgan Chase & Co: Okay.

Yes, Jamie, I just want to add to that because I do think, and by the way, whenever someone starts a question with a quote from Einstein, it's really hard to compete with that, I would say. So you get credit for that one. I think, overall, to kind of emphasize Gerard's point, when we talk about distribution, I think there is lack of understanding, perhaps, or really the full knowledge of what we're trying to accomplish. It really is about presenting our products and services in a manner that customers will have choices and that we will derive a greater revenue stream. So I would say, in our view, it is quite both evolutionary and revolutionary in the industry. But we are going through some hard times, and as a result of that, because we are leading that effort and some people give us credit for it and some don't. But the reality is we're taking quite a significant leadership position in changing how the industry presents its products and services with respect to generating additional revenue. Jamie Baker - JP Morgan Chase & Co: All right. Thanks, to both of you. I appreciate the insight.

Not quite as Einstein as terminating pension plans, aggregating contracts, networks and wiping out shareholders but it is progress.

Our next version is from Dan McKenzie with Hudson Securities. Daniel McKenzie - Hudson Securities, Inc.: I really appreciate all of the commentary on capacity in kind of your plans. And I guess when I look at the schedules date, I am seeing a 21% increase in capacity at JFK, 7% increase at Miami, a 5% increase at Los Angeles and I guess, what I'm wondering is how dependent are your results and other shrinking in these cornerstone markets? And I guess, related to that, the consensus loss this year is $630 million for AMR versus $1 billion profit for your biggest competitors. So that would suggest AMR has some aggressive corporate travel goals. And are there any corporate travel data points you can share that would help us understand how you closed the revenue gap?

So Dan, I'll kind of get started on this one. Our revenue objectives are kind of broader encompassing. Obviously, and I will use the word aggressive. We are aggressively pursuing corporate deals, both individually where it's appropriate and jointly with our new partners with antitrust agreements where it's appropriate. In addition to that, we have a number of other initiatives and as we shared with the investment community, we're looking to about $500 million or more in incremental revenue by the end of next year from a number of initiatives, realigning our cornerstone schedule. Some of which just went into effect a few weeks ago. Some of it is really kind of a gradual process as we learn how to do business in a different way with each other. So there is a lot of initiatives underway. But obviously, corporate business and premium customers are important to us. And we are very focused and aggressively pursuing that. Daniel McKenzie - Hudson Securities, Inc.: Okay, I appreciate that.

Thank you, Dan. Daniel McKenzie - Hudson Securities, Inc.: I have a separate question here. If I could follow up with one more. Your 2 largest competitors are going down the path of an economy plus product on long-haul flights. And I'm just wondering if AMR feels it will need to file a suit and does the cash position allow you to do so?

Well, Dan, this is Tom. I think our cash position speaks for itself. So that's something that's clear. We can certainly go down that track. For competitive reasons, I'm not prepared to comment on that today. But we look at everything our competitors do and think about doing what makes sense for us. Daniel McKenzie - Hudson Securities, Inc.: Fair enough. Thanks. I appreciate that.

And ladies and gentlemen, that will be our last question for this session of the analyst Q&A. Ladies and gentlemen, members of the analyst and financial community, this does conclude your question-and-answer session. After a brief break, we will begin the media Q&A session. And ladies and gentlemen, thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.