CNBC Exclusive: CNBC Transcript: American Airlines CEO Doug Parker Speaks with CNBC’s Phil LeBeau Today
WHEN: Today, Wednesday, April 15, 2020
WHERE: CNBC’s “Squawk Alley”
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The following is the unofficial transcript of a CNBC EXCLUSIVE interview with American Airlines CEO Doug Parker on CNBC’s “Squawk Alley” today, Wednesday, April 15th. The following is a link to video of the interview on CNBC.com:
Watch CNBC’s full interview with American Airlines CEO Doug Parker
All references must be sourced to CNBC.
CARL QUINTANILLA: Morning everybody. Welcome to "Squawk Alley.” I’m Carl Quintanilla with Morgan Brennan and Dom Chu. As we watch the selloff take off some of those one-month highs we got yesterday, the data rolling in showing a much fuller impact of the COVID-19 crisis during the month of March. Retail sales, industrial production, and banks not helping. Neither is oil. We’re going to start this hour, though, with our own Phil LeBeau and a very special guest, the CEO of American Airlines, Doug Parker. Good morning, Phil.
PHIL LEBEAU: Good morning, Carl. Let’s bring in Doug from the headquarters of American Airlines in Fort Worth, Texas. Doug, you guys reached an agreement in principle with the Treasury Department on the payroll grants for $5.8 billion. How much will this tide you over, at least in the near-term, to ensure that the payroll can be met, so to speak?
DOUG PARKER: Yeah, look, Phil, it’s great news for America, it’s great news for our customers and team, and it’s great news for the industry. The last time I talked to you we were in the middle of negotiating this, and we went through some tough times in getting through it, but we’re really just elated to have that behind us. It’s incredibly important given where demand for air travel is right now and we’re extremely pleased that the government has recognized the importance of the airline business and retaining critical service and keeping our team employed. So, it’s extremely important and great news.
PHIL LEBEAU: Doug, you have already said that you plan to apply for a loan from the Treasury Department in the other $25 billion buckets that’s been set aside for the airline industry. Beyond that, do you expect to have to borrow more in the months ahead from the private market in order to continue to fund the operations the way you want to have them funded?
DOUG PARKER: That’s unclear, Phil. It depends so much on how demand recovers, when demand recovers and how quickly. What I know is this: we, as an industry, asked the federal government for $50 billion of assistance. And that’s what we got, $50 billion of the assistance. That’s what we believe we need to ensure that we can ride through this. And clearly, you can go to more dire circumstances than -- where it stays like this for an extended period of time. But from our own projections, you know, that it stays like this certainly through the second quarter, a very gradual recovery through the third and fourth quarters, this will be more than sufficient.
PHIL LEBEAU: Which gets to my next question. Yesterday, the TSA screened a record low number of people at airports in the United States, just over 87,000. Do you believe that we’re close to a bottom here? And more importantly, at how far out will it be for you guys to say, Okay, we’re starting to see bookings increase. We know we are not going to see a V but we’re starting to see an increase. Is it six weeks out, eight weeks out? When do you sense you’ll get a sense of Okay, people are starting to fly again?
DOUG PARKER: Yeah, a question we all want to know the answer to. And I don’t know that anyone really does know. As to your question, are we at the bottom, it certainly feels like we’re at the bottom. Our revenues are down 90% on a year over year basis. And they’ve been that way now for a few weeks. So, the real question is how long do you stay at the bottom? And when do we begin to recover? I don’t think I know that better than anyone else. That depends on when our country starts moving again, it depends on when people feel comfortable again, it depends on when Disneyland opens and shelter in place restrictions are lifted and corporate restrictions on travel are listed. So, we don’t know. What I do know now is we’re prepared for whatever recovery it takes, which is extremely important. I will say that in just the last week we started to see bookings outside of 90 days start to tick up a little bit. Again, those could be changed in the future, that doesn’t seem to be the case, but it seems to be a little bit an indication that maybe our country is ready to get moving again. We have -- our sales team tells me we’re being asked to work on conventions in the fourth quarter. That certainly isn’t going on in the second and third quarter. So, there are indications that the world is ready to start traveling again. But they’re very preliminary and it’s certainly not happening today. But we’re prepared for whenever people are ready to start traveling again our team is in place and ready to take care of them. That’s what’s really important about this act. It ensures that our team will be here ready to take care of the flying public when they’re ready to return.
MORGAN BRENNAN: Doug, Morgan Brennan here, it’s interesting to hear you say that, especially since we had the CEO of Carnival on yesterday and one of things that he said is they’re seeing booking activities in 2021 begin to return. But in the meantime, in near-term, given the fact there is so much uncertainty about what this recovery actually looks like and when it truly takes hold, in terms of some of the other levers you’re able to pull with your business, we had more 737 Max order cancellations reported by Boeing yesterday. Are you scrapping purchases, be it that aircraft or others in the meantime?
DOUG PARKER: No, Morgan. What we’re doing instead is retiring older aircrafts sooner than we would have. We have some – while we have the youngest fleet of the major airlines, we still do have some planes that we were planning on retiring over the course of the next year and a half – some 757s, 767s. So, we’re going to accelerate that process, so we’ll come out of this with a smaller fleet than we entered and smaller than we expect to be flying through the second and third quarters. But at this point, the new airplanes that are scheduled to come, we want. They’re great aircraft. They’ll replace some of those airplanes that are leaving. And we don’t have any intention working with the manufacturers to defer or cancel any of those orders.
DOMINIC CHU: Hey, Doug. It’s Dominic Chu. I’m actually in-studio right now. So, I’m one of the handful of Americans that’s out of there getting some semblance of normalcy back to their lives. So that means, I have to commute to work, I actually have to fill up my gas tank—I’m paying a lot less for it these days. Oil prices are down precipitously over the course of the past several months right now. How does it make you feel as an airline executive knowing that one of your prime costs is as low as it is right now and that you are not able to take advantage of it, and how exactly do you plan for those fuel costs going forward as well?
DOUG PARKER: Yeah, look, it certainly ameliorates the problem but not in a significant way when we don’t have 90% of the revenues. As a result, we’re flying only about 20% of our schedule. But looking forward, you know, we look to the forward curve. And we look to demand for oil and what I do believe is if that this is a very slow rebound, you’ll see oil prices not increase at a very significant level. I think that will help. But that’s not the real issue for us. The real issue is revenues and a return of revenues. But oil prices at these levels do help mitigate the problem a little bit.
PHIL LEBEAU: Hey Doug, it’s Phil again. You and I talked about this I want to say two or three weeks ago and we were talking about what it takes to get people flying again, in addition to all the other stuff involving the economy. Really, you said it, it comes down to making people comfortable to get back on the flight. You’re doing things like spacing people apart on aircraft, leaving the middle seat open as such as possible. Do you expect other steps to be taken, not only by you guys but by the industry, in terms of hey, do we hand out masks at the gate for people who want to wear a mask? What other steps do you sense may be needed as we work through this period of social distancing, the idea of getting back to our normal lives?
>> Yeah, thanks, Phil. What we know is, as has always been the case, people need to feel safe when they travel, and we’ll ensure that’s the case. That’s certainly the case today. I was out thanking the team last week -- had me going from DFW to Chicago to Philadelphia to Charlotte and seeing the team. And I can assure you today there’s more than enough room for social distancing on airplanes. We’re making sure that’s the case by blocking middle seats. We’re doing extensive cleaning of aircraft, fogging of aircraft, things I expect you’ll continue to see, and again, as customers return, we’ll need to make sure we’re doing what they need to do to ensure they feel safe on the aircraft. But, again, I can tell you, we aren’t seeing people not fly because they’re worried about safety on airplanes, I don’t believe. There may be some of that. The reason people aren’t flying is because they’re not leaving their homes and because corporations aren’t having people come into work. Once those things happen, that’s when demand will recover. We’ll make certain that when demand recovers our customers feel safe.
CARL QUINTANILLA: But Doug, to that point, it’s Carl by the way, when they do leave their homes and they are ready to fly, will there be some kind of structural change in seat configuration, in pitch? Will we be looking at partitions? And have you done any modeling as to what break-even load factors look like in the future? If you put fewer people on the plane, what happens to the cost of a ticket?
DOUG PARKER: Carl, again, questions we can’t answer just yet. What I know is today, again, there’s more than enough space on the aircraft. We are today blocking middle seats. As demand recovers, we’ll all be forced to deal with those issues. I don’t think anyone is looking to take seats off the aircraft at this point. But that may be the case. But for right now, we have -- we’re doing social distancing on the aircraft, making sure the aircraft -- extensive cleaning. Those things I know will continue for the foreseeable future. As demand actually rebounds to a point that becomes harder to do, we’ll have to figure out what we all do in regard to customer demand. But what I know is, we fully recognize that customers need to feel safe when they travel, that’s always been the case, and we’ll always make certain that’s how customers feel.
MORGAN BRENNAN: Doug, there’s reports that are emerging that U.S. airlines are now asking the FAA for permission to fly cargo in the main deck where passengers would normally sit, including maybe the option to remove some of those seats. Is this something American is looking to do, at least in the near term? And how would that help offset some of the costs associated with the plunge we’ve seen in customer traffic? Air cargo is where we’re seeing shortages on an international basis right now.
DOUG PARKER: Yeah, and we’re asked to do some of that, and we’re doing it as much as we can. It’s one of these things that’s helping to mitigate, modestly, the huge drop off in passenger demand. We have a lot of wide-body aircraft that are not being flown internationally, of course. So we’re using those through the State Department to help get Americans back to the United States and also move cargo, really important cargo by the way, medical supplies, PPE, other things that we’re being asked to transport so it would help in some cases if we could remove seats and have cargo travel also, not just in the belly but in the passenger cabin. So, we’re waiting for FAA approval on that, again. And hopefully, we can do that because I think it would help us help others.
PHIL LEBEAU: Doug, this is Phil again. Which are you expecting to come back sooner, if you will, or do you think that happens at the same time, the leisure travel or the corporate travel? And which -- I know you’re concerned about all of your business but are you more concerned about one or the other at this point?
DOUG PARKER: Phil, I don’t know. I think they come back -- I think they come back at about the same time. Again, the corporate travel will come back when corporations decide that they need their team out on the road again. That certainly isn’t going on today. So that will come back. There’s absolutely pent up demand for that type of travel. So, I know when that will come back. The leisure traveler will come back when they feel comfortable traveling. And again, I don’t think it’s about being on airplanes, it’s having somewhere to go. The leisure travel is going to come back when hotels are open, when there are things to see, when you can go out to restaurants. So, none of it is going to come back until we get further through this crisis. And people feel more safe being around others or just even just traveling. We’re prepared for that. Our team is in place for it, We’re going to be here when people are ready to travel. I couldn’t be more proud of the team, they’re out flying today. They’re heroes in this. They’re taking care of customers that need to fly, medical professionals getting to people that need care, people that want to get home, or want to get to a place that’s safe. Carrying precious cargo around. They’re real heroes here and I’m excited we’ll be able to keep them all employed through a period we wouldn’t have been able to if the government had not acted here.
DOMINIC CHU: Hey, Doug. It’s Dominic again. We know so much -- you’re not the only CEO out there who has little clarity about what’s going to happen in the future and coming months here. I’m kind of curious though, as a CEO of a massive airline operation, what parts of your business do you feel you have a good handle on? Outside of the employment picture, where the government has come through, where do you think that American is best positioned, and where do you think that it can execute well given that 90% of your business is down year over year?
DOUG PARKER: Look, first and foremost, we needed liquidity to get through this, and that was the biggest uncertainty facing us and all airlines. That now has been resolved. So, we feel very good about this. We definitely are looking at, as we go through this, ways we can come out even stronger. Figuring out how to be more efficient as we come out. We’re obviously eliminating a tremendous number of expenses at this point in time and we’ll be very careful about what gets added back. We are indeed retiring aircrafts sooner than we would have retired them otherwise. That allows for a better product, much more efficiency within our system. It allows us to come back gradually, instead of bringing everything back at the same time. So, there are a number of areas and we’re moving our attention to that point, to when we come back that we want to come back even stronger, and in an even stronger competitive position than we were before. But we needed to make sure we could get through, and now I know that we can.
CARL QUINTANILLA: Doug, they say that beggars can’t be choosers, but restrictions on buybacks, dividends, executive comps, do you see those limiting your flexibility operationally, financially in the year to come?
DOUG PARKER: They’re conditions we were happy to accept. If you find yourself in need of government assistance, I think it’s fair to say that until you’ve -- until you’ve paid off the loans, for example, if you choose to take loans that you don’t have stock buybacks, you don’t do dividends, that the money doesn’t flow to your executives, so you have restriction on executive compensation. We need to figure out ways around those. But those are absolutely fair things we’re asked to do and we’re certainly not complaining about them.
PHIL LEBEAU: Doug, it’s Phil. One last question from us and then I know we have to let you go. And this has to do with the fact that you’re going to be applying for more loans from the Treasury Department, you’ll put in the application this week for I think a little over $4 billion. Do you expect any unusual terms, or are there any curve balls that you expect because during the grants you were not expecting that 30% would have to be repaid to the Treasury Department? What’s your sense in terms of what the terms will be from Treasury on those loans?
DOUG PARKER: Look, first, let me say, while we were in negotiations with the Treasury Department and what we thought was most fair, I think they’ve been exceptionally fair on this. They’re working day and night to try and get this country moving again and making sure it has the liquidity it needs, not just for airlines but for the entire country. They’ve been more than reasonable, including the 30%. To the extent they want 30% of the grants repaid, it’s repaid through low-interest loans over -- unsecured low-interest loans over a long period of time. We appreciate that. They also were careful to make sure that as we’ve been going through this process for the payroll support payments to give us guidance, at least indications, as to how a loan process will work, which has been very helpful. So, based on what we’ve been told so far, what we believe the case will be, they’ve done all the work they need to do. Frankly, our application is not going to require much more information whatsoever. They have what they need to do the analysis they need to do on the loans. So, I feel quite good. We still have work to do, but I feel quite good they’ll be reasonable in this case too. Loans again that will be at rates probably higher than we paid before the crisis but much lower than we could do in today’s market, just to make sure that the taxpayers are being paid and also, we have the liquidity we need to take care of our customers and take care of our team.
MORGAN BRENNAN: Alright. Doug Parker, CEO of American Airlines, thank you for joining us. And Phil LeBeau, thank you for bringing this to us.