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American and JetBlue just unveiled a new partnership with 33 new routes

Vasu Raja - American Airlines Chief Revenue Officer, joined Yahoo Finance to discuss the outlook for the airline industry amid covid-19.

Video Transcript

ADAM SHAPIRO: Take a look at American Airlines right now. It's trading higher up almost 2% on some positive news out of Deutsche Bank. They raised the rating from hold to buy. We spoke with their chief revenue officer, Vasu Raja. And he's quoting John Denver. A lot of us want to get on a plane, leaving on a jet plane. Here's what he said.

VASU RAJA: Well, look, the pandemic has been certainly unprecedented, even beyond the wildest expectations of our most stressful stress tests. And so look, the airline continues to manage through it. We continue to recover. We're certainly in a better position than what we could have predicted a year or so ago.

But there's still a long climb ahead. Demand is currently at between 40% to 45% of its 2019 levels. Our revenues trail that, maybe about 30% of our 2019 levels. So clearly, we have a long ways to go, but everybody is a little bit better, but probably not quite yet where we want to be.

ADAM SHAPIRO: There was an upgrade recently from Deutsche Bank. The analysts there are very positive on all the airlines, and specifically, American Airlines, they said because, quote, "US consumers on average have fared relatively well during the pandemic and are on track to emerge with much lower credit card debt, higher home values, and significant savings."

Are you seeing people who are ready to spend the money they've saved? I believe the figure is $1.5 trillion. Spend that money on future bookings, and are you expecting a big pop, say, after June, when most of us hopefully will be vaccinated?

VASU RAJA: Yeah, look, we certainly expect that there will be a recovery, that the recovery could even be quite sudden and the recovery is probably going to be a leisure-led recovery for all the reasons you mentioned. Home savings rates are really high. People are keen to go and travel. I'll add to the data points you mentioned, which is that almost every day, we see searches for airplane tickets grow.

The challenge is that we don't see conversions growing at nearly the same rate. And so we do sense pent-up demand that's out there. The more and more the vaccine is distributed, we see people willing to go and visit elderly relatives, go back home, do things like that, that just six or seven months ago, they were unwilling to do.

However, the real issue is that we don't know what the size, the timing, or the shape of the recovery might look like. And so a lot of what we're trying to do is just make the airline as flexible as possible, so, indeed, when that demand comes, that we're prepared to go and capture it.

ADAM SHAPIRO: But you're preparing now for that demand. For instance, you just went into the new cochaired deal with JetBlue. And help us understand how that plays into the recovery, because the number of destinations, it's more than 30 new destinations that if I fly American, I can now achieve.

VASU RAJA: That's correct. Yeah, we've added 33 new routes into the New York and Boston area. And yeah, and very much, it's exactly that. Our partnerships, both in the Northeast with JetBlue and in the West Coast with Alaska, are really designed to give our customers more of our network, more options. And it enables us to go and recover from the pandemic.

Historically, our schedules in those marketplaces were really oriented around business travel. We'd fly 16, 17 times a day between Chicago and New York. While, unsurprisingly, there's not enough demand for 16 trips between Chicago and New York, that's probably a long time before that kind of business demand is back.

And so, by having these partnerships, we can combine the best of things that American Airlines has, which is flying long haul, flying to mid-continental markets like Indianapolis, or some of the great things that JetBlue, for example, does, which is flying to leisure destinations and things like that. And together, we can go and offer a much, much better proposition to a New York-based customer than what we could have done before.

ADAM SHAPIRO: And as we wrap up, a two-part question here. I know Mr. Parker has made a big issue about the daily average cash burn. In fact, that Deutsche Bank note in which American Airlines was-- they upgraded it from buy-- from hold to buy. Talked about most of the airlines should hit cash burn breakeven this year, some going back to profitability. So can you share with us where you all stand on a potential breakeven point maybe this year and what you're most optimistic about for Americans' recovery?

VASU RAJA: Yeah, look, we stopped short of going and deciding when exactly we get the cash flow breakeven. Because, as we say through this pandemic, any time you want to look foolish, make a big prognostication and wait two weeks. Things just change so, so very much. And so much of us getting to that point is really at this point about demand recovery.

So what we're really focused on is really reimagining and reengineering the airline, that if we were to go back to 2019, we could run that same airline with almost $1 and 1/2 billion less in expenses and produce materially more revenue than what we did then. There's an open question about when we get back to 2019, what demand might look like. But ultimately, we can't control when demand comes back. We can only make the airline as flexible and resilient as possible.

And that's what we've done. And so now, really, it's a matter of letting the vaccine distribution play out. We're trying to help with that as much as possible, giving our customers confidence to come back to travel and being the easiest airline to do business with. And so, that's what we're going to keep doing. And should that come to pass, then we're absolutely optimistic that air travel will be back, our customers will be back, and our airline will be growing again.