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Executives

Gerard Arpey - President and Chief Executive Officer

Thomas Horton - Chief Financial Officer

Eric Briggle - Managing Director of Investor Relations

Analysts

Michael Linenberg - Banc of America Merrill Lynch

William Greene - Morgan Stanley

Gary Chase - Barclays Capital

Hunter Keay - Stifel Nicolaus & Co.

Kevin Crissey - UBS

Daniel McKenzie - Next Generation Equity Research

Helane Becker - Jesup & Lamont Securities Corporation

AMR Corp. (AMR) Q3 2009 Earnings Call October 21, 2009 5:00 PM ET

Operator

Good afternoon and welcome to the AMR third quarter 2009 earnings conference call. (Operator Instructions)

We are very pleased to have on the call with us today AMR’s Chairman and Chief Executive Officer, Gerard Arpey, and Executive Vice President of Finance and Planning and Chief Financial Officer, Tom Horton. And here, with our opening remarks is AMR’s Managing Director of Investor Relations, Eric Briggle.

Eric Briggle

Good afternoon everyone. Thank you for joining us on today’s earnings call. During the call Gerard Arpey will provide an overview of our performance and outlook and then Tom Horton will provide the details regarding our earnings for the third quarter, along with some perspective on the fourth quarter and 2010. After that we will be happy to take your questions. In the interest of time, please limit your questions to one with a follow-up.

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 the 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 regarding our outlook for revenue and costs, as well as forecasts of capacity, traffic load factor, fuel costs, fleet plans, and other matters 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 2008 annual report on Form 10-K and the company’s current report on Form 8-K filed on April 21 2009, and with that I will turn the call over to Gerard.

Gerard Arpey

Thank you Eric good afternoon everyone. As you have already seen in our press release, excluding special items we had a net loss of $265 million in the quarter that compares to a net loss of $374 million in the third quarter of 2008. These are obviously disappointing results reflecting the challenges that we and the industry are facing on a variety of fronts. However, we have accomplished quite a bit to meet these challenges and I will provide more color on that shortly.

This year we have been faced with a significant drop in demand for air travel that has resulted in a very difficult revenue environment. Revenues for the quarter were down $1.3 billion versus the third quarter last year with consolidated unit revenues down by about 14.5% and capacity lowered by about 8%.

The positive is news is that fuel prices declined year-over-year 42% although they are clearly going in the wrong direction right now. Combined with lower capacity this translated into a decline in fuel expense of nearly one $1.3 billion versus the third quarter of last year.

There remains a lot of uncertainty about the direction of the economy and fuel prices but we are doing our best to manage through the industry short term challenges while keeping an eye on the future. Consequently, the actions we’ve taken over the quarter represent meaningful steps to address our short term challenges and to better position our airline for long term success.

Since the 1, July and earlier this month we have completed financing in liquidity transactions totaling about $5 billion including $1.9 billion from GCAS and a $1 billion from Citibank, Tom will dive further into the details but we are very pleased to have deepened our relationship with these two longstanding strategic partners.

With the uncertainty in the current operating environment these are good developments to protect all of our stakeholders but we are under no illusions that this represents a long term solution for our business, ultimately success will be measured by our ability to drive profits, and this is exactly what we are focused on and we are taking some important steps in this direction.

One step we announced last month was to reduce some unprofitable flying and refocus our network around our five primary markets of Dallas Fortworth, Chicago, Miami, New York and Los Angeles. In addition, we continue to make enhancements to our product including adding first class seats to our CRJ 700 aircraft and we expect to take 22 more of these two class aircraft in the middle of next year.

At the same time we have long been proponents of capacity discipline and despite our network enhancements we have announced conservative capacity expectations for next year with consolidated capacity up about a percent on the reinstatement of flying that we pulled down this year due to the H1N1 virus and the launch of Chicago-Beijing service next year that we deferred from this year.

The Department of Transportation is reviewing our anti-trust immunity application with BA, Iberia, Royal Jordanian and Finnair and we continue to expect approval of our application. In addition, we are progressing through the review process with the European Union and we look forward to demonstrating the public benefits of our plans.

We also are pleased with the year over year improvement in our operating performance in the third quarter despite very heavy load factors with improvement in on-time performance completion factor and other operating staffs.

With all that said our third quarter results remind us that we and our industry continue to face some difficult challenges and while I can’t overstate the importance of the steps we have taken to position American to weather the current challenges and protect our stakeholders. Our success will depend on achieving profitability just like any other company. That is obviously our goal and I think we have taken some important steps in the right direction.

With that I will turn things over to Tom to walk you through our results. Tom?

Thomas Horton

Thanks Gerard and good afternoon everyone. As Gerard said, in the third quarter we lost $359 million or $265 million excluding special items. This compares to a loss of $374 million excluding special items in the third quarter of 2008. We had special items totaling about $94 million in the third quarter of ’09 and a net benefit from special items of about $405 million in the third quarter of ’08.

I would refer you to the press release for the details on these items, and for the remainder of the call I’ll exclude the impact of special items to more accurately reflect our performance on an ongoing basis.

As these results show, the third quarter has continued to prove challenging for the industry and our company. Ongoing weakness in the economy has driven a sharp decline in industry revenues and fuel prices remain volatile adding to an already challenging operating environment.

With that said, we have taken some big steps to weather the uncertainty that faces our industry. Since July 1, we have completed about $5 billion in financing transactions to help bolster our liquidity. To refinance certain obligations that would have matured next year and to fund our fleet renewal plan over the next couple of years. We believe this puts well behind us questions about our ability to weather a prolonged downturn.

Having taken big steps on the liquidity front we’ll now redouble our efforts toward achieving sustained profitability. The first step in that process is aligning our network around our five primary market of Dallas, Chicago, Miami, New York and LA, and enhancing our product offering. And as Gerard mentioned, we are upgrading our current fleet of CRJ 700 aircraft to include two classes of service to better serve our premium customers, and we expect to expand the fleet of these aircraft by 22 starting in the middle of next year.

Always mindful of our capacity we remain disciplined in our approach to capacity for the next year. We continue to be diligent on the cost side while at the same time making sensible investments to improve our operational dependability. These investments continue to yield big improvements in completion factor, on time performance and in baggage performance.

I will expand on all of that in a minute, but let me first recap our revenue performance. In the third quarter mainline unit revenues declined 14.5% on about 8% less capacity. Load factors were up nearly two points with yield down over 16%. Driving these results was weakness in business travel revenue during the quarter, which similar to the past few quarters continue to be down more than our revenue as a whole.

International unit revenue declined nearly 20%, domestic fared better, but was still down 11%. While these results are disappointing, bear in mind that we face significantly more challenging times than we have seen over the past few quarters. As you may recall, last year the industry had been driving fares up through the first half of the year as we chased skyrocketing fuel prices, which drove industry revenue performance to peak last September.

To normalize for this effect, we compared third quarter of ’09 to third quarter of ’07, and mainline unit revenues were down about 5% with the ’09 versus ’07 performance improving in each month during the quarter.

On a relative basis we have been focused on driving a revenue premium and those efforts are bearing fruit as we appear to compare well in year-over-year mainline unit revenue performance versus those provided by other network carriers. While we estimate some of this effect is driven by entity mix and stage link, we believe we significantly outperformed the industry on year-over-year domestic and yield performance.

With that said our absolute yield performance was still very disappointing as the industry continues to significantly discount its product through sale activity at very low prices. Uncertainty persists about how travel demand will trend. With that said our mainline booked load factor for the remainder of the fourth quarter is down about a point with domestic down about a point and international about flat.

On the regional front, quarterly revenue declined nearly 22% versus the prior year. Our regional capacity was down about 11% through the quarter, and regional unit revenue was down about 12% versus last year. The economic downturn also continues to affect our other lines of business. Our cargo revenues declined over 40% versus the third quarter of ’08 on both lower traffic and yield.

In other revenue, we saw year-over-year improvement leveling off. In addition to reduced capacity we are now beginning to lap several service charges that were put in place last June including the first bag service charge. In addition, for the third quarter, we still have headwinds from revenue associated with American Beacon Advisors, which we divested in September of last year. With that said other revenue increased about 1% versus last year.

Turning to our alliance efforts. We received a scheduling order from the DOT earlier in the year regarding our application for antitrust immunity with BA, Iberia, Finnair, and Royal Jordanian. While we can make promises about the outcome of this process we believe we made a very strong case and we continue to expect approval. We have received a statement of objection from the EU, which was anticipated as part of our EU review, and we are in discussions with them regarding their findings and to demonstrate the public benefits of our plans.

In addition, American and its One World partners look forward to adding Mexicana into our alliance next month, extending the Alliance’s coverage of Latin America to almost 150 destinations. In regard to our long standing alliance partner Japan Airlines, let me be clear that we in One World are committed to continuing and strengthening our valuable partnership with JAL on both an alliance and bilateral basis.

We believe that American and One World are best positioned to support JAL’s efforts to remain operating as a single entity with global significance, which in our opinion is the best and most positive outcome for all of JAL’s stakeholders. We are dedicated to doing what we can to help JAL weather its current challenges and to assure a long and healthy future as an important and equal One World partner.

Shifting to costs. Our third quarter unit cost excluding fuel rose 7% for the mainline and 6% consolidated driven by over 8% less capacity and headwinds from pension expenses and investments and dependability initiatives.

Fuel price declines during the quarter continued to be significant as fuel prices came in at $2.07 per gallon consolidated on a decrease of over 42% versus last year. Consequently we paid about $1.1 billion less for fuel during the quarter than we would have paid at last year’s price. And these lower prices drove total mainline unit cost lower by 13.5%.

Turning to the balance sheet. We ended the quarter with $4.6 billion in cash including a restricted balance of about $460 million. We accomplished a lot on the financing front over the last quarter or so.

Between July 1 and this call we’ve closed on transactions totaling about $5 billion. About $2.2 billion of this total is derived from transactions that had implications for the third quarter cash balance including the city forward mileage sale $225 million from the Vintage Aircraft component of the GCAS loan facility, $830 million from the equity and convertible debt issuance, and a $154 million from the Vintage component of the 2009-1 EETC.

We will receive almost $800 million in the fourth quarter including proceeds from the refinancing of the 99-1 EETC that matured on October 15th and proceeds from the $450 million private placement that refinanced the term loan which was paid off in the third quarter.

Finally, about $2 billion represents financing for new aircraft that will fund aircrafts CapEx through 2011. With these financings we have commitments in place for all 63 of our remaining Boeing 737-800 deliveries through 2011, and we expect we will not have to use the back-stop facility although this facility remains in place.

In addition, over three quarters of these deliveries are covered by sale lease back facilities that will maximize liquidity relative to other financing structures. In the third quarter our principal payments on long term debt because capital leases totaled almost $700 million including the term loan pay down I mentioned.

Our capital expenditures totaled about $500 million and year-to-date our CapEx totaled $1.1 billion including about $870 million of aircraft and $240 million of non-aircraft CapEx. Our total debt as defined in the earnings release at the end of the third quarter was $15.7 billion up from $15.4 billion last year. Our net debt defined as total debt less unrestricted cash and short term investments at the end of the third quarter was $11.6 billion versus $10.7 billion a year ago.

Turning to the outlook, in addition to the cash items I have already touched on we expect fourth quarter principal payments on long term debt and capital leases to total about $570 million, inclusive of the 99-1 EETC that matured last week. And with the pay down of the term loan we have about $1.1 billion in long term debt and capital leases maturing in 2010.

We continue to take a measured approach to our capital spending by making sound investments that will help keep American Airlines competitive for the long term. Our remaining capital expenditures for the year include $350 million of aircraft and about a $100 million of non-aircraft CapEx.

We continue to invest in Admirals Clubs, winglets for our 767-300 aircraft and conversion of a part of our 757 fleet to support international flying, which we expect will be completed by the end of the year.

While we do not have any minimum cash pension obligation this year, for the full year 2009 we expect to recognize about $640 million in defined benefit pension expense. For next year we expect a minimum cash obligation of approximately $525 million and will provide an update of the defined benefit pension expense for next year on the next call.

In terms of capacity we’ve taken a disciplined approach over the past several years and with our capacity reduction announcement in June, we expect to see fourth quarter main line and consolidated capacity down almost 6% with domestic down about 5% and International down about 7.5%.

As you may recall a significant portion of our capacity reductions last year were put in place in the fourth quarter. So to put these expectations and proper perspective versus there fourth quarter of 2007 capacity is expected to be down about 13.5%, with domestic down 16.5% and international down about 8.5%.

We have long said that this industry will not be profitable if it does not properly manage supply and our 2010 plan keeps with this philosophy. We expect capacity to be up a bit over 1% next year with mainline domestic flat and international up about 3% driven by reinstatement of flying that we pulled down related to the H1N1 virus and the commencement of Chicago-Beijing that we deferred from last year to this year.

Turning to cost, in the four quarter we expect our ex-fuel mainline unit cost to increase about 8% year-over-year in consolidated unit cost to increase about 7%. Fuel price declines continue to help the cost equation albeit less significantly than in the first three quarters of the year.

Based on the October 9th forward curve, on a consolidated basis we forecast a fourth quarter fuel price of $2.12 per gallon. We have about 30% of our fourth quarter consumption hedged with floors at $67 per barrel and caps at $96 per barrel on accrued equivalent basis. All in, we expect fourth quarter unit cost to decline 1% versus the fourth quarter of 2008.

We are working through the budgeting process and we’ll share our 2010 outlook for operating costs on the next call. With that said, with the recent financing activity we expect interest expense for the fourth quarter to be higher by about $25 million versus fourth quarter of ’08, and 2010 to be approximately a $120 million higher versus 2009. Although these expectations do not reflect the offsetting interest income from the increased cash levels.

Due to our systematic hedging program, we’ve built our hedging position for the next year to about 20% of expected consumption. With average floors at about 65 and caps at 94 on accrued equivalent basis, based on the October 9th forward curve.

So to wrap up, there’s plenty of uncertainty for the remainder of the year and into 2010. However, we have taken big steps on the liquidity front and we are focused on improving the airline to return to sustained profitability.

The near term revenue environment and volatility of fuel present significant hurdles though we have taken some important steps to position American better to weather these challenges and we believe we are on the right track.

So with that Gerard and I are happy to take your questions.

Question-And-Answer Session

Operator

(Operator Instructions). Your first question comes from Michael Linenberg - Banc of America/Merrill Lynch.

Michael Linenberg - Banc of America/Merrill Lynch

Yes. Two quick ones here. I guess the anti-trust immunized agreement, the approval, is that still on track for the end of the month? I just -- Gerard you may have thrown out a date or something just with the EU, now taking a look although I guess that that was expected. What’s the time, any update on that?

Gerard Arpey

Yes. Mike, I think it’s -- we are really not in a position to put a stake in the ground in terms of the timing, because where we are dealing both with US the government and of course with the EU, but I think at this stage we are being responsive to all of the governmental parties and as you and I have discussed in the past the facts around our side and we think that we’ll eventually get there.

Michael Linenberg - Banc of America/Merrill Lynch

Yes, very good. And then, my second question, this is to Tom, I missed the early part of the call you may have actually hit this. The tax credit in the quarter, the $30 million I believe, now what was driving that or what was behind that?

Thomas Horton

The economic stimulus legislation last year and extended into ’09 allows companies to claim enhanced tax depreciation on new capital spending, bonus depreciation. Unfortunately companies with losses like our own did not benefit from bonus depreciation, despite a lot of capital spending as far as profitable company.

So to address that stimulus and equity, the legislation provides that in lieu of deducting bonus depreciation on CapEx, companies may elect to accelerate the use of tax credits on a capped basis, in other words AMT credit. So, these tax credits normally can’t be used before NOLs, but as of the end of the third quarter we had accrued a $30 million refund of income tax on the use of tax credit from qualifying CapEx, so that’s what that’s about.

Michael Linenberg - Banc of America/Merrill Lynch

Thomas, this is a one offer, would we see anything in the fourth quarter or this is it?

Thomas Horton

There may be a little bit more in the fourth quarter.

Operator

Your next question comes from Will Greene - Morgan Stanley.

William Greene - Morgan Stanley

Gerard, as we look at the performance of the company here in the third quarter, I guess I am a little surprised and I understand there are some one time, sort of catch up with swine flu and what not, but I am still surprised that we would draw any conclusion from the performance and say, well we should grow capacity. I would think we would almost look at and say well, may be we should cut some more given where we are at right now.

Gerard Arpey

Well, Will, I think that well, we’ve given guidance for next year in today’s remarks. I think our capacity planning remains real time, and so we are going to be watching very carefully the trends in demand, the trends in corporate traffic, tracking the GDP actual and estimates; does everyone on the call know all too well our results will be highly correlated with the return of the economic activity around the world and so, our capacity is not a static issue at this point.

We are trying to give you the best guidance we can at this stage for next year, but that’s something we are looking at every month and we may very well come to the conclusion you’ve reached, but that’s not where we are today.

William Greene - Morgan Stanley

Do you think it’s fair to sort of, I mean I realize some of your competitors don’t do this, but does it ever make sense to maybe say we need first the returns to justify further investment before we go and do that in capacity?

Gerard Arpey

Yes, of course it does Will, and I think that our investment is related to replacing older airplanes and we believe we can demonstrate a return on that capital based on reduced fuel burn and reduce maintenance costs and a better product. But in terms of the actually investing capital to grow and gain market share based on the returns that this industry has generated in the past decade, I think it’s ridiculous. So, you don’t see us doing that.

William Greene - Morgan Stanley

May be I could just ask one follow-up here just on the NI Trust immunity I realize you are waiting, you don’t want to put a stake in the ground, but we do see some of your competitors attempting at least to break up some of your partnerships. If this BA thing doesn’t happen, does it make sense to maybe make some overtures and some efforts to have a different partner other than BA where the hurdles aren’t so high?

Gerard Arpey

No, I don’t think so Will. I think in the unlikely event that we would not get a level playing field here, I think our goal will be to persevere and make the case and eventually prevail, because the facts are on our side and it would be ridiculous to leave several airlines out of an immunized partnership across the North Atlantic when everybody else is immunized.

So, our strategy is to succeed in this round of discussions with the governments, but if not we will persevere and I believe eventually get this thing done, I think we will get it done in this round, but since the facts I think the facts do matter. I think this is path the governments have set for airlines in the light of the foreign ownership laws in the world, and so I think we are going to get there.

Operator

Your next question comes from Gary Chase - Barclays.

Gary Chase - Barclays Capital

Is there any way to think about a timeframe? It’s hard, we are living in a world, but what kind of timeframe do you think you need to be back to profitability, and I think more importantly, how do you manage in a world where just today we’ve got oil changing in ways that are important enough to probably legitimately affect your planning, and that’s just today.

In other words, how do you stay flexible in this environment and how are you thinking about the way you are going to manage through this over the course of next year when it’s so important to generate at least some cash and to demonstrate real progress, if not actual profitability.

Gerard Arpey

Yes, well Gary I think you are right on about the volatility. I think we’ve experience in the past 24 months and unprecedented level of volatility, at least in my experience I have been around quite a while on this business it’s a volatile business to begin with. But the past 24 months in terms of oil and the economy are I think the volatility has been extraordinary.

So I think what we have been trying to do is manage the short term while at the same time recognizing that we got to build the company for the long term. So in the short term we have been, and obviously this quarter was an important quarter in terms of raising liquidity and capital for the aero planes in the next couple of years, but we have been trying to build our liquidity to weather the current environment, but not loose track of the fact that this company will have long term future.

We have a very solid franchise, and I would argue we have the strongest franchise when you look at our brand, you look at our network and you look at our global partners, and I am sure you hear that from airlines CEO, but I would be happy to stack our network buttressed by Dallas Fort Worth, Chicago, Miami, New York and LA, against anybody else’s domestic network and our international franchise, particularly our strength in Latin America, our position in London.

All of our One World partners around the world stack that franchise up against any other US carrier, and so I think the key is to weather the current but not lose track of the long term and making the decisions that you have to make now to have a long term.

So, things like fleet renewal, things like the agreement that we reached with Hewlett-Packard to modernize all of our IT systems, the things that we are doing with I think prudently in terms of upgrading Admirals Clubs, I think we are trying to strike a balance between the short term and the long term recognizing that the this company is going to have a long term successful future.

Gary Chase

Does it change the way you are thinking though. I mean it seems like on a daily basis you could have a new capacity plan that makes sense, and I don’t disagree with some of the things you said. But what I don’t really hear a lot of people talking about is the real need to be able to adapt quicker and that stays until the labor agreements that’s the function of your hedge position it’s…

Gerard Arpey

Yes. Gary, I think we have those. If you look at the network decisions that we have been making we pulled the plug on a lot of flying and we were the first to really pull a handle on capacity in light of high fuel prices.

We have reallocated capacity this year and we have gotten rid of hubs and legacy flying that just are not going to work in this kind of environment. So, perhaps more will need to be done, but I do think we have pulled our network back to what internally we refer to as our corner pro strategy which are the hubs that Tom and I described and that’s the future of our company. So we are not going to retreat in those markets at a pace faster than the industries overall retreat.

But again we have been the leaders in terms of trying to demonstrate what the industry needs to do to keep supply and demand in equilibrium and we have been I think very systematic and strident in our efforts to raise prices, and of course in our business if you are careful what we say about pricing and I want to be careful about what I say about it.

But we have been consistent price leaders because we believe the industry can support higher prices and you can expect us particularly in the phase of higher fuel prices to raise our ticket prices, because ultimately we got to pass that cost on to our customers.

Thomas Horton

Yes, Gary, I would just add, call last year when fuel prices spiked out we were pretty quick to be the first to address that with a really big capacity reduction. So big that this year’s fourth quarter compared to the fourth quarter of ’07 our domestic capacity is going to be down 16.5%. So that’s a pretty unprecedented cut in capacity and time may prove that insufficient and if it does we will react to that, I think it’s too early to make that judgment.

Operator

Your next question comes from Hunter Keay - Stifel Nicolaus.

Hunter Keay - Stifel Nicolaus & Co.

How much of the 1% ASM growth next year is statistically related to H1N1and Chicago Beijing?

Thomas Horton

Just about all of it.

Hunter Keay - Stifel Nicolaus & Co.

So how much capacity can you take out then, what will be the max you are willing to go or able to go with the current free plan in place?

Thomas Horton

Yes, I would speculate on that Hunter, I would just tell you that we, last year we made a big move and so we have got plenty of flexibility if we choose to go down that track, we’ve got a lot of older aeroplanes, which we can park if we want to go in that direction, but as I said a minute ago, I think its pretty mature to make that judgment at this point.

Gerard Arpey

And Hunter the only thing that I would add to that is when you look at the load factors that we are running and the industry is running this year, our priority, our first priority given where supply of seeds and demand for seeds are right now, has been to raise prices, and we are going to continue to do that.

Hunter Keay - Stifel Nicolaus & Co.

Okay good, and at what point do you think Congress or anyone on Capitol Hill is going to be willing or feeling to take a fresh look at and sort of reining in commodity futures market speculators, and if that starts to come up again, if we start to touch $85, $90 fruit which is looking like it could happen any point now. Do you guys have a tangible proposal that you could kind of dust off and C, being implemented relatively quickly to maybe provide some relief on the front if it becomes necessary.

Gerard Arpey

Well Hunter I think the ATA has been quite vocal on this front and I think we’ve supported the ATA and the industry’s efforts on this front, divided by us I think what we have advocated for is a greater degree of transparency in these markets, so that we can have a clearer look at who is placing long term bets on oil and who might be advocating and suggesting long term oil prices are going to go up at the same time they are placing such bets. I think more transparency in that sort of environment, I think would be helpful, but beyond that I don’t know what else can be done.

Thomas Horton

It’s a tricky issue as you know, I saw a couple of the CFTC commissioners come out sometime in the last area, so what concerns over such regulations and restraint because if not constructed properly, could simply have the effect of moving trading activity offshore and out of US markets.

Operator

Your next question comes from Kevin Crissey - UBS.

Kevin Crissey - UBS

Was your primary discussion on demand front related to the book load factor or did I miss more commentary on the outlook?

Thomas Horton

No that was pretty much all we gave. I will tell you, we have been looking very carefully at demand trends and corporate travel trends in particular because that’s really what’s hit the industry so hard this year. And we’ve compared to last year and we’ve also looked at comparisons versus ’07 which you could argue as a better or meaningful comparison than ’08 and it appears that corporate traffic bottomed out in the May-June timeframe with a trend since that time being kind of modestly positive off of the low base.

So, we are encouraged by some improvement, the recent corporate traffic numbers, I can tell you that yields remain challenged and I think they will remain challenged until corporate travel policies change in a meaningful way. So, it’s not clear that we’ve got a meaningful and sustained turn around here, but we’ve got some modest trends in the right direction.

Kevin Crissey - UBS

Perfect, thanks, and one other follow-up if I could. The online travel agencies cut their booking fees a while back now and kind of had some time to see what that has done to may be your distribution. Continental indicated that they’ve seen meaningful kind of, I guess supplier direct channel losses, what about you guys?

Thomas Horton

Well, we do see the online travel agencies have grown year-over-year. Aa.com has also grown significantly year-over-year. So it would appear that the increase of the online travel agencies has been at the cost of traditional channels.

Kevin Crissey - UBS

So you don’t necessary have any plans in place to do mileage offer to get the website direct or you don’t at the moment don’t see really any need for that type of response?

Thomas Horton

We don’t have anything that we would comment on today.

Operator

Your next question comes from Daniel McKenzie - Next Generation.

Daniel McKenzie - Next Generation Equity Research

Yes, hi, good afternoon thanks guys.

Thomas Horton

Hi Dan.

Gerard Arpey

Hi Dan.

Daniel McKenzie - Next Generation Equity Research

Given the spotlight on JAL, one question that I am getting as frequently is, what is revenue contribution, is that something that you folks can provide some perspective?

Gerard Arpey

Dan, that’s not something that we’ve historically given data on. I will tell you that we and our One World partners have I think a very deep and longstanding partnership with JAL that is today producing hundreds of millions of dollars of value for them.

We and all the One World guys are committed to that partnership. We and all the one world, guys are committed to that partnership and I think we will continue to provide the most meaningful long-term value to JAL as a strategic and equal partner. And I say that that value will be a wide margin, greater than anything else they could accomplish. But that’s not the presumption they want to remain a major international career and not a feeder carrier to potential other partnership.

I think that JAL and its stakeholders recognize that an alliance switch would be burdened by excessive financial and regulatory execution risks during the critical initial phase of its restructuring. And by staying with us in One World, JAL will continue to benefit fully from all the cash flow associated with those partnerships, and in addition to the cash flow that they get from other bilateral relationships that they have outside of one world, because one world doesn’t have any prohibition against working with other airlines that are outside of our alliance.

And I think also by staying with One World JAL is more likely to realize the benefits of an immunized relationship under a Japan-US open skies agreement, which would have significant incremental long term value for them, and ensure a level playing field across the three alliances in the US-Japan market.

So again, I didn’t mean to start ramp on there, but I think American and One World can best support JAL’s efforts to keep operating as a single entity with a long term global significance that will create the best outcome for all of their stakeholders.

Daniel McKenzie - Next Generation Equity Research

No, that’s great color, I appreciate that. And then I guess, I wonder if you can share some of the detail from the statement of objections regarding the NE Trust Application, and particularly if I recall, AMR and BA were required to give up around 335 slots, weekly slots, the first time a 150,the second time and those are both non-starters, any perspective that you can share on at least initial number of slots, that AMR and BA are being asked to relinquish this time around.

Gerard Arpey

No Dan, I don’t think, well, the only thing I would say there’s the world has completely changed in terms of the immunity of other partners and open skies between the US and the UK and the competitive landscape from the time that the numbers you are highlighting.

So it’s a completely different world since then, and as far as the statement of objection is concerned, I will just come back to what Tom said, is that was not unexpected, and we are going to work with the government’s to demonstrate the pro competitive benefits of our proposals.

Thomas Horton

And again, the facts have obviously changed a lot since the last go around on this with Heathrow being open and lots of competition having energy thrown, seems like everybody you wanted slots have gotten them.

Then if you just look at the number, DA controls something like 40% of the slots of Heathrow and if you look at the other airlines at Air France, DeGaul or KLM at Amsterdam or Lufthansa at Frankfurt, they are all around 60%. So the facts would say, there should be no divestiture.

Operator

Your final question comes from Helane Becker - Jesup & Lamont.

Helane Becker - Jesup & Lamont Securities Corporation

The fare increases that have been in the press lately and that have been going into place over the last week or so, can you say how they have been received if they have been holding?

Thomas Horton

Helane, this is Tom, if you look at the third quarter of this year, seven of ten domestic increases were successful, and then if you look at the international environment, there have been a number of international fare increases, which were relatively similar to the actions that we saw in the second quarter of ’09, and a number of those were successful.

So there has been some pricing traction, there obviously needs to be a lot more, this industry cannot continue to price its product below what it cost to produce it, we got a price at a level where we can cover our input cost, and make a profit and a return on capital. So we got to get there, we are not there yet, but we have had some traction and I would hope that, the industry can get to a healthier place.

Helane Becker - Jesup & Lamont Securities Corporation

Okay, has there been a shift in your point of sale with the dollar being weaker?

Thomas Horton

I don’t think its been a meaningful shift, if you look at year-over-year yields, actually the effect of currency has had a negative impact on our unit revenues on the TransAtlantic because year-over-year there is actually a decline in the value of foreign currencies. That’s not we have been seeing recently, but that’s the net effect versus the year ago, and that’s had an effect more than a couple points on your revenues, but in terms of point of sale, I haven’t noticed a real change.

Operator

Ladies and gentlemen, members of the analyst and financial community, that does conclude your question-and-answer session for today. After a brief break we will begin the media Q-and-A session, one moment please.

Ladies and gentlemen thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

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