So when you look at our Q1, we have peaked the airline a lot less than what we had historically. It’s at a lower percentage of Q2 than what it’s historically been. And that’s really a conscious design. And you see that is really what you see in our Q4 to Q1 change that’s there. And that’s sort of a unique thing. And to my earlier point, we don’t presume any change to the historical relationship between airline revenues and fuel prices. But Devon may want to add more to that, too.
Devon May : Just really quick other comment on fuel price. So our — fuel price forecast is based on Friday’s close, where Brent was trading almost exactly where it’s at today and then using the forward curve for Brent and he crack from there. So I think our forecast that we have delivered today is pretty much in line with where you always have or feel of that today.
Scott Group : Okay. And then just separately, can you just give any color on what you’re assuming for the cargo and other revenue and then the non-op expense is up a good amount from the Q4 run rate? Any color there?
Devon May : Yes, this is Devon. So just on cargo revenue, we are expecting it to be down slightly year-over-year. When it comes to non-op, the largest change we’re seeing in non-op is due to a noncash pension credit that we got last year based on the prior year’s market performance of our pension assets, and what were relatively low interest rates. This year, we saw interest rates increase. Pension assets came down and so this noncash credit that was fairly significant in 2022 is much smaller in 2023. And that’s something that I’m sure you’re hearing from other companies and seen in other industries.
Operator: Our next question comes from the line of Michael Linenberg of Deutsche Bank.
Michael Linenberg : Hey, Derek. I’m going to miss you. I know you’re going to still do the company, but we’ve had a lot of fun over the years. Anyway.
Derek Kerr : Thanks, Mike.
Michael Linenberg : Next drink is on me.
Derek Kerr: Boston trip, never forget the Boston.
Michael Linenberg : Anyway. Just — I have two here, if I could just start off with Vasu because I think we’re trying to get our arms around the run-up in fuel and the pass-through. And I think Delta is out there sort of guiding to 50 — or well, to exceed 60% of their revenue in premium and ancillary. And I think right now, they’re in the mid-50s. And when I think about those revenue segments, many of them come with a price elasticity of demand that’s less than 1. Many of them are the types of segments where you can have a fuel surcharge. And so Vasu, as you think about it, like sort of what percentage of your routes maybe are subject to fuel surcharges, whether they’re international long haul or which ones are premium corporate, cargo.
How should we think about like in round numbers, maybe what percent of your revenue where you stand a very good chance of passing on 100% of horizon fuel? Sort of where do you sit there? And just any color on how you guys think about it?
Vasu Raja: Yes. Hey, Mike, it’s a great question. Look, I would actually even simplify it further. Look, in the airline network business, if you can offer something unique to the customer, they pay you a premium for it. It is as simple as that. And so — and we see it time and time again, we’ve seen it do the pandemic the most unique thing we can offer customers is to take them to places where our competitors can’t have better schedules than what our competitors can do. So as long as that’s the case, we find that those routes regardless of whether customers purchase a transaction, which is first class or an economy or fly for leisure business, they always have yields that index to the top of our system. So if you think about us, right, to my earlier point, in 200 of the 300 cities that we serve in the Western Hemisphere, we have a material schedule advantage.
But when you look at it on the number of origin and destination markets that we make and that turns into like something like 65% to 70% of our origin and destination markets. We have a material advantage over what our competitors are. That is what drives our revenue performance. And unsurprisingly, demand at large for the airline product is relatively inelastic. But in so many of those places, it is inelastic. We’re also further benefited by just general trends that we’re seeing so much of what is driving the economy and likely to continue to do so, are markets in the Sunbelt and the interiors of the country and less so the coastal markets, which creates an immediate benefit for American Airlines. So we’ve benefited from that. We’ve benefited from how we can uniquely serve it, are likely to continue to be able to uniquely serve it.
And when fuel prices rise, it’s a really simple thing for us, with any number of ways to go and manage capacity down as the airline continues to produce.
Michael Linenberg : Very good. And then just second question to Robert. All the talk about capacity constraints across the aviation ecosystem. And as I think about American, it feels like things like pilots and mechanics. Maybe that’s not an issue. If you sort of think about like what are the big hurdles that you have from a constraint issue? And is it just that maybe you don’t have enough wide-body airplanes and therefore, it’s an issue with the OEMs delivering the airplanes that you need? Is it air traffic control, like where are you — sort of where are the roadblocks that you’re running into with respect to constraint in the aviation ecosystem?
Robert Isom : Yes. Mike, thanks for that. And yes, we’re in a environment of a lot of constraints coming out of the pandemic. We certainly saw everything last year, it’s just things that we never thought we would have issues with pillows and link is in food and fuelers and things like that. We’ve gotten our arms around a lot of that. But what we have now is aircraft manufacturers that are just starting to get their feedback under them. I mentioned that Boeing is starting to deliver aircraft to shout out to the Boeing team and Dave Calhoun, we need them to keep it up. But there’s constraints out there in terms of engines and aircraft. With — at American right now, we have really an issue with regional aircraft and then some issue with mainline aircraft.
On the regional side, it’s largely a pilot constraint. And we’re not flying the fleet that we’d like to. Vasu would actually like to deploy more aircraft. Now on that front, it’s pretty explainable. It’s just a shortfall in pilots. We didn’t attract people into the business for a couple of years. And we’re working our way through that as we have retirements that are coming out the other side. American took the monumental step last year of greatly increasing regional pilot pay. And I think that, that is the biggest thing that any company can do and has done to actually get the pump prime and people flowing back in. And we’re seeing that. We’re seeing that we’ve stabilized the pilot ranks at our regionals, and we see potential growth as we come through the end of the year.
Now from a mainline perspective, look, we’re going through the greatest training cycle of pilots that we’ve ever experienced. We had, I think, almost 900 retirements last year, probably nearly the same number this year. So we’re stretching our training resources like we’ve never before. But fortunately, we plan for this. And so from an equipment perspective, like simulators, we’ve got those in place. One of the things that we’re really working on is to make sure that we have the people resources and having the check pilots that we need to really address all of our training needs. And I’m hopeful that as we work with the APA and we get a new contract, but we’ll be able to give even more flexibility. But overall, I do see from a mainline perspective, we should be through the constraints that related to pilots as we progress through the year.
Regionals probably take a couple of years. But as we said, we have aircraft that we can deploy and will, and it’s going to be done in a very efficient fashion. You mentioned some other areas that are absolutely positively out on the horizon, the large airports all have constraints, whether that’s at the gate or on the airfield. And then we have aerospace issues. That clearly, we need to address. And that’s going to take leadership. And fortunately, we’re working with the DOT and FAA. And I know that the Secretary Buttigieg has an interest like we all do in making sure that we can invest for the future. And it’s going to take a long-term view. But overall, look, these constraints right now are things that we’re managing through. I think it bodes well, at least from a demand environment and being able to ensure that we can achieve profitability.
And over the long run, we’re going to make sure that we have a business model that works in any demand environment with any set of constraints.
