Kristina Edwards:

Thank you, Brianna. Good morning, everyone. And welcome to United's Second Quarter 2024 Earnings Conference Call. Yesterday, we issued our earnings release, which is available on our Web site at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Mike Leskinen. In addition, we have other members of the executive team on the line and available to assist in the Q&A. And now I'd like to turn the call over to Scott.

Brett Hart:

Thank you, Scott, and good morning. This quarter, we continued to achieve record operational performance, delivering the best on-time performance, completion factor and seat cancellation rate for a second quarter since the pandemic, while flying the most passengers in the quarter ever in our history, over 44 million. Looking across our network, Newark, our largest hub, broke several of its own records in 2Q with its April and May on-time departures being the best in company history. The FAA waiver allowing for better balance between the number of flights and with the runways, facilities in aerospace and safely and efficiently handle at Newark has enabled us to produce these results for our customers. Operational excellence was not limited to Newark. Six out of our seven hubs departed more on-time flights than our primary competitors. The improvements were made over the last year to adapt to a more challenging operating environment, have shown meaningful benefits to our reliability, particularly during times of the regular operations. Our strong operation, underpinned by our safety culture is translating into an even better customer experience and driving efficiency benefits to the bottom line. This would not have been possible without the commitment to operational excellence from our frontline employees. So thank you to all of them for their hard work. As I mentioned before, our strong operation is not only driving efficiency, but it is also positively impacting our customer experience. As a result, our NPS scores were the highest second quarter results since the pandemic. We're investing in all aspects of our product, including the introduction of Tillamook ice cream on board our aircraft. Additionally, the United app continues to be the most downloaded airline app with new features like seat preferences that automatically reseat customers when their preferred seat becomes available. This summer, we also started texting live radar maps to customers during weather delays, so they can stay informed about how increment weather in one part of the country can impact their journey. Investment in our leading product and customer experience will remain a key priority to United and will continue to differentiate us as a premier global US carrier. Shifting gears to our employees, I'm pleased to share that after a brief pause in pilot and flight attendant hiring classes due to the Boeing delivery delays for the months of May and June, we resumed these classes in July. Looking ahead, we have a busy end of summer in front of us. The United team continues to innovate and adapt to a complex operating environment. While Andrew will describe some of the near term trends, it's clear that United has a bright future, and we remain on track to deliver $9 to $11 in earnings per share this year. I'll now hand it over to Andrew.

Mike Leskinen:

Thanks, Andrew. And thank you to the United team for all of their hard work this busy summer season. In the second quarter, we delivered pretax income of $1.8 billion. Our earnings per share of $4.14 came in ahead of expectations driven by good cost performance. In the quarter, we continued our no-excuses approach to managing the business to maximize profitability and to consistently deliver on our earnings guidance. The second quarter is another solid result despite some capacity headwinds to the industry. We have never been more confident that our United Next strategy is working. We've successfully differentiated our business and that will support sustainably higher profitability. Turning to costs in the quarter. Unit costs, excluding fuel, were up 2.1% year-over-year on 8.3% capacity growth versus the second quarter of last year. Our strong second quarter CASM-ex performance was driven by three factors. First, over the year our operations team has invested in technology and improved their processes to better recover from irregular operations. Our ability to recover faster leads to a more reliable operation, and a more reliable operation is a more cost efficient operation. Notably, crew related disruption expenses such as premium pay and deadheading costs are much lower than we have seen during similar events in prior years. The full impact of these improvements drove approximately 1 point of CASM-ex improvement in 2Q compared to our own expectations. Second, as yields softened throughout the quarter, we doubled down on expense management to ensure we hit our EPS guidance. As we've discussed before, we have a no-excuses mentality with respect to hitting our EPS guidance and we will do what is necessary in the quarter to achieve that. These specific actions led to another 0.5 point of CASM-ex improvement in the quarter versus our plan. Finally, approximately 0.5 point of CASM-ex is associated with the timing of maintenance events, which were delayed and will likely be seen in the second half of 2024. As we look to the third quarter, we expect industry capacity rationalization is beginning to take effect starting in mid-August. Money losing flights across the industry are being cut rapidly, thus supporting our confidence in our trajectory for both the third quarter and the full year. Our own third quarter system capacity plan moderates by approximately 3 points versus the second quarter on a year-over-year basis. While this is the correct action to take for United, this reduction in capacity along with the impact from Hurricane Beryl in Houston puts pressure on CASM-ex and makes the third quarter the high point for CASM-ex for the year. Altogether, with the revenue backdrop that Andrew described, we expect our third quarter earnings per share to be in the $2.75 to $3.25 range. As for the full year, we continue to expect to fall within our original EPS range of $9 to $11. I realize that many of you will immediately point out that this implies a better than normal seasonal pattern for Q4 versus Q3 earnings per share. That's accurate and it's what we expect. It has nothing to do with seasonality and everything to do with a better balance between supply and demand in the fourth quarter, which should lead to significantly higher yields and therefore, improved profitability. Andrew already touched on this, but I'd like to reiterate it. We aren't hoping for moderating industry supply. It's already happened and you can see it in published schedules and with our own reductions. Despite the excess industry capacity, it's clear demand for the United product remains strong and we expect our revenue growth to outperform the industry. Coupled with disciplined cost management, we expect United and one other airline to represent the vast majority of industry profits in 2024. On the fleet, in the second quarter, we took delivery of four Boeing MAX aircraft and five Airbus A321neo aircraft. We expect 66 aircraft deliveries in 2024. And with the movement of certain PDPs related to deliveries in future years, we now expect total adjusted capital expenditures to be less than $6.5 billion for the year. In the quarter, we generated $1.9 billion of free cash flow, while also continuing to invest in the business with almost $1 billion in capital expenditures. Earlier this month, we took advantage of this position to improve our balance sheet by voluntarily prepaying the $1.8 billion outstanding balance of MileagePlus term loan that had an interest rate near 11%. This reduction in high interest rate debt significantly reduces our interest burden. As of the end of the quarter, our adjusted net debt to EBITDAR was 2.6 times. I'm encouraged by our strong performance in the second quarter. Our team remains nimble as we've demonstrated our ability to adjust to an evolving environment. Thanks to the whole United team for their hard work. The United Next plan continues to run on all cylinders and our confidence has never been higher about the trajectory of our business. With that, I'll pass it over to Kristina to start the Q&A.

Operator:

[Operator Instructions] The first question comes from Jamie Baker with JPMorgan.

Andrew Nocella:

Well, first, I'd say we don't believe there was a sudden material or a significant windfall to United when American attempted to disintermediate travel agencies and force companies to book direct. So I don't think there'll be a windfall as American flip flops again to this side. We've maintained really long term partnerships with our agencies and corporate partners. And what we did during this time period is we made sure that we put in long term arrangements to gain long term market share and make the corporations and the travel agencies more sticky to United. We'll see if that actually occurs. But I think the benefits of that are actually to come more than they are currently and are currently in our current revenue outlook. So that was our perspective on it. And we think that there's no sudden windfall to United as a result of their change.

Scott Kirby:

Well, this will be a little geeky economics 202…

Scott Kirby:

I think that absolutely, the airline revenue to GDP ratio is going to trend back. I'm not sure where it will close but it is going to trend back upwards. And I think if you went back and looked in history what you'd find is every time capacity gets ahead of demand, this ratio declined. The reason that happens is because demand for air travel is inelastic. Like the very first project I worked on when I was an analyst at American Airlines was estimating demand elasticity, it is inelastic, every bit of analysis you look at says that demand is inelastic. But when airlines get over their skis on capacity, they rush to get the load factors up and they lower prices and that lowers overall revenue. So it really is just as simple as this ratio goes down when supply exceeds demand. And so I'm not at all surprised to see that happen. I am incredibly encouraged to see the rapid response that is happening. We'll probably talk about it more as we go through the call today, but beginning mid-August, I mean I've been through these cycles with capacity many times in my career, this is the fastest response. It's also the biggest gap between the leading airlines and the other airlines, which I think is part of the reason the response is so fast, but the fastest response I've ever seen. So I expect that to close, I think -- but I think it's purely a function of capacity.

Andrew Didora:

First question probably for Scott. Last night, Alaska announced more premium seating. There are reports out there, JetBlue could do the same. Obviously, a lot of discussion on your premium strength on the call today, certainly a tailwind. Just how do you think some of this premium RASM growth can trend from here, do you think some of it will be competed away? Or is the United product so unique that you feel like you can hold on to most of it here? Just would love your thoughts.

Andrew Didora:

And just a quick question, Mike, for Mike. Very nice cost execution in the quarter. Can you maybe help me understand some of the near term cost levers that you're able to pull as you see those -- the revenues coming in a little bit softer than expected? And are these just kind of timing related or are these costs that kind of permanently come out?

Scott Kirby:

I'm going to actually pile on and give kudos to Mike, Jonathan Ireland and Toby, because much of what you see in this is a real structural changes. I mean Mike talked about the benefit that we've gotten from irregular operations. That team, the three of them combined with a lot of support from Jason Birnbaum, our Chief Information Officer, who's sitting in here with technology are really identifying the places where there's opportunity to pull permanent cost out. To me, like there's other places that it's happening, but the irregular operations expense improvement is one of the biggest proof points. And we just have a great team that is doing those kinds of things. We didn't build that into the budget at the start of the year. We didn't realize how successful it would be, they're doing a lot of other work like that. And I think we should have a really solid process and team for cost. And so while it was great to hit that in these quarters, that's something that is an example that is permanent and we'll always spend less on irregular operations than we did in the past. And I think there's a lot more of that to come.

Conor Cunningham:

I think that many of us can buy into the idea that capacity is going to be rationalized near term, but the fear over the longer term is that someone is going to start to cheat again. So what's United's plan if the capacity reductions are just short term? Clearly, your margin structure has slipped, you're playing from an area of strength. But just curious on how you're going to approach a competitor set that's always looking to add supply at some point.

Conor Cunningham:

And then I realized it's early, but you're making adjustments for the fourth quarter and the implications for 2025 could be significant. I know -- again, I realize you're not trying to give '25 capacity plans, but the United Next plan called for like 4% to 6% annual growth. Has that thought process changed given what's happening in the current environment today?

Operator:

Our next question comes from Michael Linenberg with Deutsche Bank.

Andrew Nocella:

We're not going to give guidance for Q4 at this point. We haven't finalized our Q4 schedules but we’ll [Multiple Speakers] that…

Andrew Nocella:

And obviously, the Asia-European dynamic that I think a lot of airlines have cited now is not really one that all that relevant to United Airlines. So I don't think that negativity translates through to where we are. But what I would say is -- and we've been saying this for a while, but we do see a pivot. First, in the Pacific, last Q4, we were up 83% year-over-year in capacity. We more or less have got the Pacific back to pre-pandemic levels. And this year, we're going to be up high single digits. So we're obviously bullish about that transition. And then Latin America, South America has already pivoted to positive and we expect to close in Latin America to pivot as well and do dramatically better. And then the last point is we have said over and over again, we were taking a pause year on the Atlantic. Clearly, others did not choose to do so and our results across the Atlantic, I think, are a shining star of our plan, it worked. And so we are really happy with Atlantic. The Atlantic continues to look good going forward with extremely solid profitability. And so overall, I think international is fundamentally different than it was pre-pandemic and our results show that.

Scott Group:

Mike, just want to clarify a couple of things. So you had a comment about the implied fourth quarter guidance. Just want to make sure you feel like we should be tracking towards the midpoint of the full year guide. And then there was a comment in the release that says that you guys expect to have leading unit revenue performance among peers in the second half of the quarter. I know Delta talked about domestic RASM inflecting back positive in September. So I just want to make sure we're all on the same page and you think that you'll be positive on RASM exiting the quarter.

Andrew Nocella:

I'll just -- yes, I'll confirm the point. We do think that September PRASM for domestic will flip positive at this point based on the 4 to 5 point improvement we're seeing so far. We think that's going to hold. We also -- July will be the worst quarter of the year probably -- July will be the worst month for the year.

Mike Leskinen:

I think very little change from our prior guidance. We're targeting that 100 narrow bodies per year as we rebaseline the skyline, and nothing that we see right now would cause me to change that today.

Duane Pfennigwerth:

Just on corporate, I think the last time we were together, you talked about improvement in the March quarter and basically holding serve in 2Q. I wonder if you could remind us your view on how recovered it is, both on a volume and on a revenue basis and your thoughts on potential improvement from here. Basically, what's baked into the guidance in terms of incremental improvement on corporate?

Duane Pfennigwerth:

And then maybe one for Mike. Can you just remind us what the next opportunities might be to pay down a high coupon debt? Obviously, you took down loyalty debt, high coupon loyalty debt as soon as it was prepayable. What are the next two to three opportunities on that front?

Operator:

Our next question comes from Sheila Kahyaoglu with Jefferies.

Andrew Nocella:

I'll give you the distinction. The premium cabin RASM was up. The premium RASM contribution was down and that's because of the definition of whether it includes Economy Plus or not. Economy Plus is obviously part of the main cabin. And Economy Plus was infiltrated by the yield weakness of the main cabin. And so we did see that issue and it resulted in the number that you just saw. But if you look at just the PRASM contribution of Polaris and Premium Plus and domestic first class, you would find that was up low single digits year-over-year.

Andrew Nocella:

Look, I think the Atlantic -- well, if you go back to last year, particularly June of last year, had one of the most unbelievable quarters we've ever seen, an unbelievable month in June. And we're actually doing a little bit better year-over-year and so we're really proud of that. And we, again, think we made the right capacity allocation choices to create that outcome better than our competitors did quite frankly. What I would say is capacity to Southern Europe, which is up 31% year-over-year this summer has pushed the limits of demand to Southern Europe. And that's just a fact. But the overall combination for United, including our Southern European performance, I think, has been pretty darn good given the comp from last year. And we are very careful on our scheduled plan for this year. And that careful nature continues all the way through the end of the year with our published schedules. So we feel good about the setup that the Atlantic will continue to look pretty good going forward.

Brandon Oglenski:

Mike, just a point of clarification here. I think maybe last quarter or two quarters ago, you said beyond 2024 CapEx should be in the $7 billion to $9 billion range. Is that with that anticipation of 100 narrow-body aircraft deliveries baked in?

Brandon Oglenski:

And I guess maybe for my follow-up for Scott or for Mike. I mean I really appreciate the no-excuses mentality here. I think the Street likes your just EPS guidance and focusing on bottom line results. But I think you both would agree that you're below your next targets on margins right now and you are below profitability of last year, too. And I think part of the challenge for investors here because your multiple is quite low, and I think you both would agree on that as well. Your CapEx outlook here is roughly matching your operating cash flow. And I realize if you hit higher margins that you could offset some of that. But I think what investors are saying is, hey, why can't we see a more balanced capital allocation strategy, maybe a little bit less CapEx? And I think maybe investors are a little bit frustrated that with the Boeing delivery delays, the MAX 10 issues, you guys didn't back off capital spending a little bit more. So can you put that in context for folks and why taking so many aircraft in the future should be relatively beneficial?

Operator:

Our next question comes from Savi Syth with Raymond James.

Andrew Nocella:

Savi, I think it's the new normal. Demand for China is down dramatically than where it was in 2019. And it's also difficult to fly there because of the lack of Russian overflight ability. So those two combinations just make this the new normal. And so we've [adjusted], we're back to pre-pandemic capacity. We've reallocated the capacity, I think, in a more profitable way. Pacific is generating a solid margin. Obviously, the negative RASMs, particularly driven by China as China has fallen back to normal revenue performance caused year-over-year numbers for the Pacific to look a little funny. We again lapped that later this year and we'll be definitely, I think, beyond that after Q4.

Andrew Nocella:

Well, I think it's all of the above, all those issues you just said. We've worked very hard to insulate ourselves from the changes, sometimes not very sound changes that are being made in the industry. And I think we did a great job of insuring [ourselves] against that, but it's not 100% insurance plan. And in this particular quarter the capacity growth was just so significant that it pressured yield in a way that it didn't, I mean, for example just in Q1. And our schedule changes in Q1 if you look at our RASM change domestically in Q1 along with the Atlantic, our schedule changes were incredibly effective, particularly during the offtake period and maybe less effective in a peak period as Q2. And that's one of the reasons I think we're excited to see how Q4 turns out because not only we've taken the same recipe book for Q1 and put it into Q4, which again had RASM changes that I don't think anybody in the industry expected out of United. But this time, the industry itself is, I think, even remarkably more different in Q4 of this year than it was in Q1 and how it's reacted and how it's changed. And again, it's changing because that fly in has extremely negative margins by many of our competitors. So that's a long answer to your, I think, very simple question.

Ravi Shanker:

Just a couple of follow-ups here. I know you said you didn't want to commit to your own 4Q capacity plans. But do you have a sense of how much industry capacity still needs to come out of the fourth quarter to get that demand and supply in balance, especially kind of that would help push your guidance up to the top half of the range?

Ravi Shanker:

And maybe a second one. I think it's pretty clear that investors are looking forward to your Investor Day as a pretty significant catalyst for the stock, especially kind of for long term earnings and kind of updated United Next targets. Do you have a sense of when the timing of that would be and kind of when we'll hear more about that?

Operator:

Our next question comes from Tom Fitzgerald with TD Cowen.

Scott Kirby:

Before Andrew answers the question, I'll use this, Tom, since you've replaced to say, yes, big shoes to fill in Helane. I wish her the best and I'm jealous of all her travels, tells me she's going to Greenland. I don't know if she's listening. Maybe she's already in Greenland but I can’t get the conference call there and hope to still continue to send me book recommendations. Andrew?

Tom Fitzgerald:

And then just a quick one. Is there any noise around lapping the Tel Aviv flying in the fourth quarter this year that we should think about in our models?

Operator:

We will now switch to the media portion of the call. [Operator Instructions] Our first question comes from Mary Schlangenstein with Bloomberg News.

Andrew Nocella:

Let me try to take it and Scott will correct me where I'm wrong. I think like when you -- first of all, you have to understand that the world has changed fundamentally. With no-change fees in Basic Economy, things are just not as they were pre-pandemic. And I think this core fact is often ignored in how people kind of set up the answer to what's going on today. But I'll give you a rundown of what I think the playbook is, and Scott can kind of add to it. First, when you face this type of problem, airlines generally push to grow out of the problem, but that usually doesn't work and this happened in the previous quarters. And I can recall this back when I worked for Continental Airlines in the late 1990s, quite frankly, in regards to something we called [cow light] at the time. I was just a junior analyst and I remember it very well. The second step is network churn, where you think, well, we picked the wrong markets and we can fix that. But the next set of markets is usually worse than these markets you're flying today. Then the next change is business model changes, right? We noticed Airline X is doing something different from us, let's match. That's really hard and slow. I think the next step is that everybody thinks, well, let's go premium. But that's a generational adjustment that just does not occur over a few quarters. And then the next one is let's push capacity on good days and months but cut hard on off peak and that's really hard to do because it's an inefficient use of assets. And then the next one is closing schedule changes because you're really concerned about your P&L and what's going on. And I think we see a lot of closing schedule changes today from many of our competitors. And then the last part is you just shrink. And so I think these business models are simplistic and it'll be very difficult to make complex without adding a lot of costs. So hopefully, that helps answer the question. Scott, anything to add to that?

Andrew Nocella:

There you go.

Claire Bushey:

This is a question for Scott. How worried are you that delays by manufacturers in delivering new, more fuel efficient jets is hampering the industry's progress on cutting emissions as carriers are forced to fly older planes for longer?

Operator:

I will now turn the call back over to Kristina Edwards for closing remarks.

Operator:

Thank you, ladies and gentlemen, this concludes today's conference. You may now disconnect.

Kristina Edwards:

Thank you, Krista. Good morning, everyone. And welcome to United's first quarter 2024 earnings conference call. Yesterday, we issued our earnings release, which is available on our Web site at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our release. Joining us on the call today to discuss our results and outlook are our Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Mike Leskinen. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now, I'd like to turn the call over to Scott.

Brett Hart:

Thank you, Scott, and good morning. I'd like to thank our employees for their hard work this quarter as we navigated through the grounding of the Boeing MAX 9 fleet. We recovered well and got our customers to their destinations with limited disruption. As Scott mentioned, together with the FAA, we have begun an in-depth review of our processes and procedures. These reviews are being taken very seriously and we will see this as an opportunity to further strengthen our commitment to safety. As we work through this safety review with the FAA, certain certifications will be delayed. As a result of this, we expect a small number of aircraft scheduled for delivery in the second quarter to be delayed. We expect this to have a minimal impact to our 2024 capacity plans. I am confident that we will be able to successfully look back on this review process, resulting in an even better airline for our customers, employees and shareholders. On the employee front, we reached a tentative agreement with the IBT for a four year extension to their existing contract. We expect to hear if it is ratified by their membership in the next few days. Taking a look at our operation. In the first quarter, we delivered top-tier service to our customers. We had our second best on-time departure performance in the first quarter in our history excluding pandemic years. This resulted in being second in the industry in on-time departures for the seventh month in a row. Additionally, our widebody operation had the company's best on-time performance since the pandemic. We accomplished all of this while having the price seat factor for any first quarter in our history. This is a great testament to the hard work of our team. In addition to strong operational performance, we also continue to make customer enhancements that have driven up our Net Promoter Scores. Some of these include continuing to retrofit our existing mainline fleet with signature interiors that feature larger overhead bins, in-flight entertainment and every seat back and Bluetooth connectivity. Signature interior aircraft were 9 points higher an on-time NPS compared to the rest of the narrow-body fleet. And we are on track for 50% of our North America fleet that have signature interiors by the end of the year. We were the first US airline to offer MileagePlus pooling, allowing customers to share and use miles with their friends and families. We've also partnered with the TSA to launch TSA PreCheck Touchless ID at O'Hare and LAX, which uses biometrics to enable customers to pass through the TSA line faster and without having to pull out their ID. Running a reliable operation and enhancing the customer experience continues to differentiate United. These encouraging operational results and improved Net Promoter Scores combined with our focus on safety by creating strong momentum for the rest of 2024. I will now turn it over to Andrew to talk about the revenue environment.

Mike Leskinen:

Thanks, Andrew. And thank you to the United team for the tremendous effort as we work through the grounding of the Boeing MAX 9 fleet and entered the peak spring break travel season. In the first quarter, we produced pretax loss of $79 million, a $187 million improvement over the first quarter of last year. Our loss per share of $0.15 was better than our guidance and well ahead of consensus expectations, driven by both strong revenue results and disciplined expense management. The grounding of the Boeing MAX 9 fleet negatively impacted our earnings by more than $200 million and without it, we would have had a profitable quarter. We also generated $1.5 billion in free cash flow and our adjusted net debt to EBITDAR of 2.7 times is back to pre-pandemic levels. These are strong results in what is our seasonally weakest quarter and they provide another proof point that our United. Next plan is working. Before I turn to the outlook, I'd like to address the changes we made with Boeing and Airbus, to optimize the delivery skyline. Boeing's repeated delivery delays had created an impractical bow wave of aircraft deliveries that both United to address, and we have. In 2024, we now expect to take delivery of 61 narrowbody aircraft and five widebody aircraft. This compares to our contractual deliveries of 183 narrowbody aircraft at year-end and the 101 aircraft we were planning for at the start of the year. Due to these fleet changes, we now expect full year 2024 total capital expenditures to be approximately $6.5 billion, down from $9 billion at the start of the year. We've also made changes to level out our fleet plan for 2025 through 2027. This modified fleet plan allows us to execute on our long-term goals while also smoothing out the pace of deliveries and our annual CapEx spend. We've converted a near term portion of our MAX 10 deliveries scheduled through 2027 into MAX 9s. Additionally, we have signed letters of intent to lease 35 new Airbus A321neos with CFM engines scheduled for delivery in 2026 and 2027. With these changes, we now anticipate taking delivery of approximately 100 narrowbody aircraft on average each year during this three-year period. This delivery schedule provides fleet renewal, steady growth and addresses the bow wave of aircraft delivery delays that had been building. These changes bring our total adjusted capital expenditures in 2025 through 2027 to the $7 billion to $9 billion range in each of those years. Balancing our United Next growth plan and managing the business towards positive free cash flow remain top priorities. And with the rebalanced skyline, we are targeting positive and growing free cash flow over the next three years. While we will provide an updated long-term earnings target later this year, we are confident we are on a path to higher earnings, better margins and materially stronger free cash conversion. Now turning to costs. Unit costs trended as expected during the quarter and were up 4.7% year-over-year on 9.1% capacity growth. As I mentioned, it was challenging to re-optimize our expenses with the uncertainty created by the MAX grounding and continued delays to our aircraft deliveries. While our underlying costs are consistent with our forecast at the beginning of the year, it's important to understand that the continued reduction in capacity from delivery delays will continue to temporarily pressure our CASM-ex for all of 2024. As we entered the year we built a business plan for a larger airline, and deliveries have fallen more than 40 aircraft short of our expectations. We continue to incur most of the expenses as we hired for that capacity despite flying fewer ASMs and it is driving almost a point of CASM-ex pressure. We are working diligently to reduce these costs as much as possible and our higher completion factor has helped offset some of it. For the second quarter, we expect CASM-ex to be similar on a year-over-year basis versus the first quarter. Given our expectation for costs and our current outlook for revenue and fuel, we expect second quarter earnings per share to be between $3.75 and $4.25. We have great momentum. Our United Next plan is working and the future for United and our industry has never looked brighter. Our margins are already near the top of the industry and we still have significant and unique network and gauge opportunities in front of us. United has never been in a stronger competitive position. We have developed a wide variety of products that are compelling to a wide variety of customers. And as a result, they are increasingly choosing to fly United. I remain excited about our future and believe we're firmly on track to deliver $9 to $11 in earnings per share this year. With that, I'll pass it over to Kristina to start the Q&A.

Operator:

[Operator Instructions] Your first question comes from the line of Andrew Didora from Bank of America.

Mike Leskinen:

I'll take that question. Andrew, as I said in my prepared remarks, our net leverage is currently 2.7 times -- our net leverage is 2.7 times, which puts us back in the range of pre-pandemic levels. In fact, in 2019, we were at 2.5 times, in 2018, we're at 3 times. As we look at the path forward, I expect to see continued deleveraging. We also have -- we also still have some high coupon debt outstanding. A piece of our MileagePlus debt, $1.8 billion becomes prepayable in July, that debt is still yielding over 10%. So that will be my near-term priority is to take care of that debt. After that, with the -- on our way to investment grade credit metrics, we're going to have a tremendous amount of flexibility and we'll revisit other uses of free cash at that time. But you're going to have to stay tuned.

Andrew Nocella:

As I said, I mean, corporate was strong across the board, not just in London Heathrow to be clear. We saw strength domestically and around the globe. So it's great to see. We saw, I think, nine of our top 10 corporate booking days this year in our history, which is also really strong. So really across the board. The strongest industries are professional services, tech and industrials, but every -- I think just about every sector was up in the numbers this year. And I just think it reflects on where that's going. And as I said in my earlier script, Q1 corporate is really important to us. And the fact that Q1 is gaining strength, corporate is really very good for our outlook for future Q1s.

Sheila Kahyaoglu:

I wanted to ask domestic PRASM up 6% year-over-year in Q1 was double that of one of your peers that have reported so far. Curious how you would attribute that to the strong performance across the Mid-Con restoration, corporate, share gains in either premium or basic? You've touched upon that a little bit. But then maybe as a follow-up as well, how are you thinking about that sustaining domestic unit revenues here with industry capacity?

Andrew Nocella:

Well, it's hard to follow that. I mean, on the tactics, the one that I would bring up at a very high level would be, we went into the quarter not trying to maximize aircraft utilization, particularly in seasonally Q1, which is weaker. We went in trying to maximize our profitability and I think it works. And I'm really proud of the team for all the changes we made across the network because I think they're incredibly effective.

Conor Cunningham:

Just going back to the comment on you taking advantage of the number of opportunities in the US domestic market. Can you just maybe elaborate a little bit more on that? You talked a little bit about Florida and Las Vegas. Is there any learnings that you have that you go into peak season or is it more of just a shoulder comment as you kind of take advantage of some of the other issues that some of the other carriers are dealing with in general?

Conor Cunningham:

Maybe actually sticking with that specifically. I get the fact that you and Delta have distanced yourself from some of your competitors, and that's pretty obvious at this point, I think. And just -- but your performance relative to Delta sticks out pretty meaningfully. And I was just -- maybe you could just elaborate a little bit more on what's uniquely United, because when I think about it, I think that you have a more -- a bigger opportunity on premium. You talk a lot about upgauging, but a lot of that has to do with fleet delivery. So I'm just trying to understand on how you kind of close the gap or continue to separate yourself, I should say, from the peers this year?

Operator:

Your next question comes from the line of Jamie Baker from JPMorgan.

Andrew Nocella:

I won't dictate how you use your time, Jamie. But…

Jamie Baker:

Well, that wasn't the point…

Jamie Baker:

And then second, and whoever wants to take this, but when you initially introduced United Next and its growth plan, aircraft were being delivered on time, the discount model wasn't impaired domestically. So it was pretty easy for us to map out how your capacity share would ramp over time. Obviously, everything has changed since that. My question is on a relative basis to the US industry, so considering these constraints on capacity. Does the new fleet plan keep your relative position on track with the United Next plan? It actually seems to me like you might be somewhat ahead of the plan on market share, but there are quite a few OA assumptions that I have to make there.

Jamie Baker:

But suffice to say, you haven't fallen behind on a relative basis to the industry?

Mike Leskinen:

Jamie, I'd encourage you to measure profitability and our relative profitability, that's certainly what we're focused on here in United.

Ravi Shanker:

So speaking of TikTok, Scott, your industry commentary is usually very insightful. So I'd love your thoughts on the current headline risk to the industry from the incidents that may be out there. Kind of is this just a social media [indiscernible] or is it a pandemic hangover thing, is the lack of new aircraft thing, is the labor thing? What's your view on how the industry is going to assure its customers that flying is as safe it’s going to be?

Ravi Shanker:

And maybe as a follow-up, the pooling miles is a very interesting idea. Can you just unpack that a little bit kind of what may be launched at this time, kind of what are some of the cost or revenue implications thereof? And what do you think some of the benefits might be to United and our customers as you roll that out?

Operator:

Your next question comes from the line of Duane Pfenningwerth from Evercore ISI.

Mike Leskinen:

And I do want to kick off the question by reiterating how important generating free cash over the long term is to us here at United and we understand too our shareholders. So that is something we are balancing. We gave you a range for CapEx of $7 billion to $9 billion. We gave you a range because it's an acknowledgment that there's some uncertainty around the OEM delivery schedules and production rates. We also are managing this business to maximize profitability. And so make no mistake, we'll manage our deliveries as well in a way that captures the macroeconomic environment at the time. In three years, a lot can happen in three years. As I think about uncertainty for '25 and '26 in a stable macro economy, 787 production rates can -- Boeing continue to increase rates, that's going to be really critical also for the 737 line, are they able to increase production rates. So we'll watch that closely. I want to be clear that what we are giving is our expectation. Our expectation builds in some hedge that production rates don't increase at the rate that Boeing hopes. There is -- so there's upside risk and downside risk to CapEx as a result. I think we're going to be managing that $7 billion to $9 billion range, and that's why we wanted to share that with all of you today.

Andrew Nocella:

I would say, yes, we are seeing progress. The one place we look to the most is Germany and core Europe, and that's still trails. So hopefully, that will continue to move forward. But I think we're seeing really progress across the whole globe on rebalancing and being a little bit less dependent on the US consumer to drive the global network.

Savi Syth:

I was just wondering on that 100 narrowbody aircraft per year. Just what's the thought on the mix of growth versus replacement? And I guess, asked another way, I appreciate, Mike, you mentioned kind of taking into account macro realities. But what's the right level of kind of domestic growth as you kind of look over the next three to four years, assuming you can get the aircraft delivered?

Savi Syth:

And just a follow-up, Mike, to a comment you made earlier on -- I appreciate the 2Q unit cost color. But as you think about the year just high level, I'm wondering what are the kind of the year-over-year headwinds that might kind of step down from now or maybe step up? I know your capacity is moderating a little bit from the levels in the first half. But just curious, given that you have more time, are you able to address more of the fixed cost as you get into the second half?

Operator:

Your next question comes from the line of Scott Group from Wolfe Research.

Andrew Nocella:

Just at a really high level, I would say that the [cap is] up domestically, I think is rough as in probably Q2, but gets better in Q3 and particularly better in Q4 is our estimate based on what we look at. So I think that is a nice trajectory. Second, we added a considerable amount of Asia Pacific capacity middle to late last year. And so as we lap that capacity, so it's now fully spooled up, we expect the line to improve. And as we make capacity adjustments to unproductive capacity in that region, we also expect that's going to show some improvements. And that follows always through Q1 of next year. Latin America, the capacity picture has been particularly difficult for the first half of this year. As you all know, the second half looks, I think, very different. And so I'm optimistic that Latin is going to turn the quarter in Q3. Although Q2 is still a very -- [poor] results. And in Europe, I think we've really sharpened our pencil, we paused growth for the most part this year on purpose. And I'm particularly optimistic based on how we deploy capacity that Europe is going to look fine. So I'm not giving you the exact numbers, but that's how I look across the globe and see what's happening and think about positive or negative trajectory by region.

Scott Kirby:

I think the $7 billion to $9 billion is probably a pretty good number. And I think of it as we've ordered a lot of airlines more than anyone in history has ever done. And when you combine that with the supply chain challenges, as Mike described, is kind of a ballot, you have 40 airplanes that are supposed to be delivered in 2023, they got pushed to 2024 and none of them got delivered and then yet another 20 in 2023 got pushed and so now you have 60 in 2025. That also -- that wasn't just hard on the planning for us, it may things like our flight training center, really hard to run effectively, because constantly changing capacity plan, those are -- you're thinking about upgrading pilots and things like 18 month out decisions. So one of the things we attempted to do was level out the capacity, the aircraft deliveries, which we've done at approximately 100 per year. And so we'll have a lot -- at least a lot less variance, the standard deviation will be a lot less than it's been in the past. It's also kind of split 60-40 Boeing, Airbus, so there's a little more diversity in that number going forward. I don't think we'll take it out, but -- well, I know we're not planning to take it up because taking it up, drives things at the flight training center, just drives a lot of other complexities, this is just not worth it. I think the other thing that we will -- I know that we're going to do now and going forward is build a little hedge into or build a bigger hedge into our schedule. And like if we think we're going to take 100 airplanes this year, we're going to only put 90% or some lower number into the schedule. And if everything is on time and on plan, then we'll have a few extra spares around for a couple of months. That will cost a little bit but it doesn't cost nearly as much as overstaffing by 40 airplanes. And so I think it will give us not just certainty on CapEx, it will give us a lot more operational certainty for running everything better and more efficiently.

Helane Becker:

So I have two questions. I think, Andrew, you talked about the quality of your product and the network and the loyalty and so on in your answer to somebody's question. But when you think about some of your alliance partners, they don't have the same commitment to service and any of the things that you just talked about that you have. So as you think about alliances going forward, and maybe this is a question for Patrick. How do you think about getting everybody on board to the same standard that you're setting so that you don't distress your customers when they have to connect because you're not flying some place non-stop that they want to go aspirational or they let your customers down?

Helane Becker:

And then just for my follow-up question, maybe Mike, as we think about the earnings guidance for the second quarter. How should we think about like the percentage corporate, leisure, domestic, international, are you starting to skew more corporate international in the next six months than you have in the past, or how should we think about that breakdown?

Andrew Nocella:

I'll add one incremental fact, Helane. The growth in Polaris load factors has been pretty significant year-over-year. And the growth in premium load factors across the board at United Airlines, our paid premium load factor was up 9 points year-over-year in the quarter, which is amazing. But as we revenue manage all of that, we kept all of the premium leisure passengers in their seats as we added more corporate into their seats. So we were able to do both. And that is one of the reasons for the great execution in the quarter is that we see corporate rebound in, but we see the desire for premium products by leisure customers continue to be strong.

Andrew Nocella:

What happened in this [indiscernible] case is during the pandemic, we had very high free load factors in some of these premium cabins, and that number is coming down more towards…

Brandon Oglenski:

Mike, can you give us some insight on how you're planning for the cost structure in '25 through '27 just given the variability that you gave us on CapEx. And I know it's aspirational to get 100 deliveries every year, and Scott spoke to it as well, maybe you filter in some buffer here on spare aircraft. But how do you think about hiring, especially given that some of these training events might be an 18 month decision?

Brandon Oglenski:

And maybe just a quick one for you, Mike. I know you guys had wanted to do an analyst meeting soon here, and that's going to get pushed back. But any strategic teasers you want to give us on MileagePlus, because I know it's been a focus of yours and the team?

Operator:

Thank you. We will now switch to the media portion of the call [Operator Instructions]. Our first question comes from the line of Mary Schlangenstein from Bloomberg.

Scott Kirby:

I'll try. I don't think we know for sure yet. I think we've got three airplanes that are coming in the next few months. They're MAX aircraft MAX-9s, three aircraft that are coming in the next few months, and we'll continue to work with the FAA on -- I'm going to change that. What we're mostly focused on, though, that's not what we are focused on. We are focused on figuring out everything I said in this call, how to use this -- embracing this process as an opportunity to get a new higher standard for safety. And as we go through that process, there will be some point along the way where we'll start taking aircraft deliveries again, but that is absolutely not our focus nor should it be our focus.

Scott Kirby:

It's putting -- it's not the delivery, it's putting them on the certificate.

Andrew Nocella:

As we head into the summer season, we expect strength across the board and in the United network tilt in terms of our best seasonality towards Q2 and Q3 and particularly across the Atlantic, across specific and TransCon within the United States. So we expect all of those entities to perform really strongly this year. And everything we have in terms of data right now, I would say that's where we stand.

Andrew Nocella:

Yes, I think we will, as an airline and as an industry.

Leslie Josephs:

Can you [Technical Difficulty] exactly what the FAA review prohibits you from doing? And is the change to the fleet plan from this year because of the Boeing delays in production and deliveries or because of the FAA review? And then on -- just a question on the mechanical issues lately. Have you had to update kind of procedures or anything else for your technicians so that those things don't happen, maybe things that were getting overlooked or not part of checklist prior?

Leslie Josephs:

And the review prevents you from putting new aircraft into service and then what else, is it captain upgrade, anything else?

Leslie Josephs:

So it's just putting new aircraft into service?

Leslie Josephs:

When do you expect the review to conclude?

Operator:

Thank you. I will now turn the call back over to Kristina Edwards for closing remarks.

Operator:

Thank you. Ladies and gentlemen, this concludes today's conference, and you may now disconnect.

Kristina Edwards:

Thank you, Tegan. Good morning, everyone. And welcome to United’s fourth quarter and full year 2023 earnings conference call. Yesterday, we issued our earnings release, which is available on our Web site at ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the Company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the Company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on the call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are our Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Mike Leskinen. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now, I’d like to turn the call over to Scott.

Brett Hart:

Thank you, Scott, and good morning. As of Saturday, January 6th, Boeing 737 MAX 9 aircraft has been grounded. We are currently the largest operator of the Boeing [Technical Difficulty] fleet type, the aircraft representing approximately 8% of our capacity in the first quarter. Our financial guidance assumes that United’s 79 MAX 9 aircraft is grounded [Indiscernible] January. I echo Scott's gratitude for all at United who worked so hard [Technical Difficulty] travel plans were affected by the grounding of our MAX 9 fleet. I'm also extremely proud of our tech ops team who’ve been working carefully to ensure the safety of our MAX 9 aircraft before we start flying them again. 2023 was a year of growth and restoration. And we closed out the year with strong record breaking operational results, carrying a record 171 million customers. The fourth quarter consolidated customer D0, A0 and misconnect rate were the best for any quarter in our history. Not only did we set company records for the quarter but we also ran record setting operations during our busiest time of the year over Thanksgiving and Christmas. Thanksgiving and the entire fourth quarter had the highest NPS scores in our post pandemic history. We wrapped up the year with our lowest ever cancel rate for the month of December. One of the largest challenges United and all airlines flying to and from New York have historically faced more flights than the air traffic system can handle is now being addressed, thanks to proactive intervention by the FAA. Newark, United's largest hub has been operating with the best reliability on record since the FAA mandated that flight activity to be consistent with the airspace and runway limitations of no more 77 operations per hour this fall. For United, that meant we reduced flight activity from Newark by about 10%, expect to continue with those cuts for the remainder of 2024. Our customers and every passenger flying from New York are now benefiting and the cascade of delays that historically would flow across the United States from New York airspace has significantly improved. Our customer D0 from Newark the company record 76% in Q4 of 2023. We expect this level of performance to continue as long as the FAA continues to mandate that flight operations remain at 77 or fewer operations per hour going forward. United plans to continue to upgauge our Newark flying to ensure that there is plenty of capacity available for our customers even with fewer flights. 2023 was also a banner year for employee recruiting, hiring and retention at United. On the heels of hiring more than 21,000 people in 2022, we hired another 16,000 aviation professionals to our airline last year. We hire the best of the best. The skill and talent of our employees played a big role in our operational outperformance in the second half of the year. Our record breaking customer scores during the holidays and our overall financial performance [as an airline] (ph) in 2023. We are a better, more successful airline because of our people and I'm proud of the way we've gone about growing our team. I'm happy to announce we will be paying our eligible employees 81 million in profit sharing next month. This is 5 times higher than 2022 and over 2 times higher than the average of the last 10 years. Our team, the beating heart of this airline [Technical Difficulty] sharing these impressive results today without them. With that, I will pass it over to Andrew.

Mike Leskinen:

Thanks, Andrew, and thank you to the whole United team for closing up the year on a high note, both operationally and financially. I'm proud to report that in 2023 we delivered pretax income of $4.3 billion, a more than $3.2 billion improvement over 2022. We delivered earnings per share of $10.05 within our initial guidance range of $10 to $12, and well ahead of consensus expectations of about $6 at the beginning of the year. We achieved this despite significant industry headwinds and operational constraints that led to lower capacity. For the fourth quarter, we delivered pretax income of $845 million and earnings per share of $2, ahead of consensus and above the high end of our guidance range. Strong operational performance, robust revenue trends and a decrease in fuel prices supported these results. Fourth quarter CASM-ex was up 4.9% as we did not operate flight to Tel Aviv for the full quarter. Additionally, effective with the fourth quarter, we are now classifying certain commissions that has been classified as contra-revenue and distribution expense. This has no impact on net income or cash flow. This change added 1 point to our year-on-year fourth quarter CASM-ex and increased fourth quarter year-on-year unit revenue by 0.6 points. The change will also result in an approximate 1 point headwind to year-on-year CASM-ex and an approximate 0.6 point increase in RASM through the end of the third quarter of this year. Underlying unit costs trended favorably during the quarter as the completion factor came in better than planned due to our strong operational performance. Compared to 2019, our relative performance on CASM-ex was near the top of the industry. As Scott outlined, delivering strong relative cost performance remains critical to the successful execution of United Next. We have always ascertained the costs that are borne by the entire industry are passed along in prices with a lag. Historically, this relationship has been clear with jet fuel prices. More recently, the relationship has been clear for both higher labor and higher maintenance costs as well. Notably, our unit cost in 2023 were up 17.8% versus 2019 compared to ultra low cost carriers, unit costs that are expected to be up 25% on average. That more than 7 point cost convergence in costs occurred simultaneous with an emerging preference for United product, the top-tier operational reliability that United provides. The result is unsurprising. Our margins have dramatically and structurally improved and we're only in the early innings of that journey. For the first quarter of 2024, we expect a loss per share between negative $0.35 and negative $0.85. While our core costs remain on track, our first quarter CASM-ex faces a few headwinds. First, the cancellations of the MAX 9 flights have reduced first quarter capacity. Due to the close-in nature of these cancellations, most of our expenses are fixed. And we also incurred additional interrupted trip expenses. We expect the combination of these items will increase CASM-ex by approximately 3 points. Second, as we mentioned that the contra-revenue reclassification in the distribution expense is a 1 point headwind. Third, the impact of new labor agreements as they annualize adds an additional 3 to 4 points. And fourth, a higher volume of engine events and continued supply chain challenges lead to another 1 point of CASM-ex headwind. While the first two items I mentioned are United specific headwinds, labor and maintenance are an industry wide issue and the primary drivers of the cost conversions that Scott described earlier. Most importantly, we're confident that the pace of inflation in our costs will continue to be favorable versus our historically lower cost competitors. Building off of our 2023 momentum, we expect full year 2024 earnings per share to be between $9 to $11. We are encouraged by the trends we are seeing and our United Next plan is working well. This is our guidance but I'd be remiss if I didn't point out that our internal targets are higher. We plan to update our longer term financial targets at our upcoming Investor Day. Looking ahead, we intend to take a different approach to guidance. As demonstrated in 2023 and just recently with the MAX grounding, we operate in a dynamic industry. With the no excuses philosophy, we intended to take United off the detailed quarterly metrics shortly after I joined and led the Investor Relations team. The pandemic interrupted those plans. But now that we're pass the crisis and as we deliver on our earnings per share target, you should expect us to remove TRASM, CASM-ex and capacity guidance and focus on earnings per share. We've provided RASM and TRASM for the first quarter but this is likely the last time we will do so for our quarter. We will continue to provide fulsome commentary on the trends impacting our business. And we will continue to be transparent with our views of the longer term future for both United and the industry that we're managing this business towards. We will earn your confidence by delivering bottom line results. Shifting gears to the fleet. In the fourth quarter, we took delivery of 20 Boeing MAX and four Airbus A321 aircraft. Looking ahead to 2024, we have a total of 107 aircraft scheduled to deliver, 31 of those being MAX 9. It is unrealistic at this time to believe all of those aircraft will deliver as currently planned. We also have 277 MAX 10 aircraft on order through the remainder of the decade and an additional 200 auctions for MAX 10 aircraft. We are monitoring Boeing's progress towards certification of the MAX 10 closely. At this time, our current aircraft delivery schedule would lead to a total CapEx of approximately $9 billion in 2024. But given the MAX 9 grounding and the continued supply chain issues, there is this downward bias to our 2024 spend. We also expect a reduction in orders and deliveries from Boeing in 2025. This will require reworking of our fleet plan and we will share the details when that work is complete. Turning to the balance sheet. We ended the quarter with $16.1 billion in liquidity, including our undrawn revolver. Our adjusted net debt to EBITDAR was 2.9 times, consistent with our leverage target of less than 3 times provided at the start of the year. Managing the business towards positive free cash flow will be a top priority for our team over the coming years. Our stock is deeply undervalued, trading at less than 4 times earnings despite the fact that we delivered 19.5% revenue growth and realized significant structural improvement and relative profitability in 2023. But we also understand that generating free cash flow consistently even while we execute our United Next strategy is an important component to increasing our valuation. 2023 marked the first full year of United Next plan. We are thrown some curve balls but we adapted quickly and exited the year stronger than ever. It's clear that when customers are given a choice they are choosing United. You can see it clearly in our revenue and margin performance relative to the industry. Finally, I'm happy to announce we will be hosting an Investor Day on May 1st in Chicago. We plan to provide an update on our progress with the United Next plan and introduce some of the United tailwinds that will drive continued margin expansion and sustainable free cash flow. I'm encouraged by our results in a relative momentum and I'm looking forward to delivering another solid year for our employees, customers and shareholders. With that, I will pass it over to Kristina to start the Q&A.

Operator:

[Operator Instructions] All right, we will go to the first caller in queue, Ravi Shanker from Morgan Stanley.

Mike Leskinen:

Look, the reality is that with the MAX grounding, this is the kind of straw that broke the camel’s back with believing that the MAX 10 will deliver on the schedule we had hoped for. And so we're working through an alternate plan. We do expect our growth rate to slow in coming years. Though United Next plan is firmly on track it will take a little longer to get there. And we're working on alternate plans to see how much higher we can elevate the growth with the MAX 10. Now we're still counting on Boeing and we're monitoring the MAX 10 closely and we're rooting and we'll do everything we can to help that aircraft get certified. It's a great aircraft. But we can't count on it and so we're working on alternate plans. The details we'll share when we have them. I hope we'll have more by the first quarter conference call, and we'll certainly have a fulsome update for you by our May 1st Investor Day.

Andrew Nocella:

As we rebuilt Asia, we definitely wanted to rebuild it. So it has sustainably higher margins than it did pre-pandemic. And we've gone about that, I think, very carefully. We're back to our pre-pandemic size, which is nice at this point. And China was profitable for us pre-pandemic, although, it was not our highest margin climb to be fair. As we bring it all back, our goal is to make sure that the Asia Pacific entity produces margins that are similar to that across the rest of our global network. And I think that at least in 2023, Asia Pacific is well ahead. I do expect things to move around a bit, particularly as more China flights come back online. But I think we're particularly bullish about what Asia looks like going forward. We added a lot of capacity in the quarter, we are absorbing it, and we expect in Q2 and Q3 that capacity is going to do very well. So very bullish about the long term prospects in Asia post pandemic.

Jamie Baker:

First one for Andrew. So you said the 20% revenue increase for Basic Economy, what can you tell us about the composition of that growth? Is some percentage MileagePlus members trading down? Is some percentage stimulation of brand new demand from scratch, is some percentage of share shift from LMAs? I guess the simpler question is who's driving the growth?

Jamie Baker:

And then for Mike, it was a couple of years ago, in fact, it might have been, like, almost two years to the day that there were press reports that United was looking at monetizing a portion of MileagePlus and then things subsequently went pretty quiet on that front. So a couple of questions. First is, is loyalty as important to United as it is to Delta? Delta's leading so hard into this topic on its calls. And second, any thoughts on how United or the broader industry might get investors to value this cash flow at a higher multiple? And if the answer is no, I'm happy to cede the floor.

Operator:

We’ll go to the next caller in queue, Michael Linenberg from Deutsche Bank.

Mike Leskinen:

The A350 is a incredible aircraft. We have a significant order book for 787s right now and we have a mix of 777 aircraft, some are relatively older and a sub fleet is quite young. As we look into the 2030's, the A350 is an aircraft that we are looking at. We don't have any new news to share with you today but the timing will be that early part of the next decade.

Andrew Nocella:

No, we didn't pull back on it for that reason. And remember, these are year-over-year comps but you have to consider the math of what we did last year. We're very bullish about Basic. We're also very bullish about the premium. And the point is, we have a really great diversified revenue stream across all of our cabins as we try to de-commoditize our product. We are really hopeful that we'll continue to drive increasing volumes in basic. It seems to be having the appropriate P&L effect at United and competitive effect across the industry. So it's something we want to do more of, not less of. And so you should expect that.

Conor Cunningham:

I'm a little confused on the comment between -- on the link between CASM and RASM. I would have thought that would have been the case before. So I'm just trying to understand what's changed. Is it that you're being -- like just better at predicting outcomes or is it really more of an industry comment that you're trying to drive home here?

Conor Cunningham:

And then it was a little unclear in the prepared remarks. I'm just trying -- does your outlook for costs include accruals for open labor contracts, and just what are the risks that you see for the cost plan in 2024?

Operator:

Catherine O'Brien from Goldman Sachs.

Mike Leskinen:

So Catie, let me take the last question first. We include our expectations for labor agreements in our guidance. Regarding CASM trends in Q2 and Q3 and Q4, you would expect the MAX headwind to go away. We do think we're getting closer to seeing that aircraft fly again. You would see some United-specific tailwinds with some gauge increase. Although, with slowing deliveries, that gauge increase in '24 will be less than we would have expected. You will see continued pressure from labor of about 3 to 4 points, that's an industry headwind for CASM-ex, not unique to United. We expect it will lead to higher TRASM to offset. But you should continue to see that we will lap the majority of that as we enter into the fourth quarter. And then maintenance headwind of about 1 point, that's going to be lumpy quarter-to-quarter. As I sit here today, I think it's about 1 point in each of the quarters. this year. At some point, the supply chain will fix itself in aerospace, but we don't see that today and I think it probably takes well beyond 2024. So you should think about -- to summarize, you should think about the labor and maintenance headwinds as being persistent.

Andrew Nocella:

The delta in between contractual and expected is growing. And we don't know exactly where it settled yet, that's what we're working through now. And we are working on an alternate strategy to mitigate some of the loss in growth. But yes, as you're thinking about CapEx coming below $9 billion this year and the trajectory for maybe lower than what you would expect CapEx in '25 and beyond, that's how you should think about it.

Scott Group:

So Mike, I totally get your message that the plan is fluid and flexible. But as it stands today, I'm just wondering, do you think RASM is going to be positive this year? And then maybe just, can you help us just think about shaping the year a little bit? So if I look at last year, had a pretty massive second quarter and then moderation in the second half of the year. Are you thinking a similar shape or maybe more back half weighted? Any color there would be helpful.

Andrew Nocella:

Well, we're not giving exact guidance here other than, yes, we're very bullish on the year. I think I laid out a business case where domestic is starting the year incredibly strong. I think we've laid out a business case for where we're going to do with trans-Atlantic capacity. And I do expect Asia capacity to step down materially as we head into Q2 and then Q3, which is obviously going to bolster those numbers, too. So I remain bullish on the year.

Andrew Nocella:

Look, I think we're seeing -- I hate to say the word exceptional, but we're seeing really good strength in domestic right now, and I expect that's going to narrow the gap. International margins are well ahead of domestic margins in 2023, and they'll continue to be well ahead of domestic margins in 2024. But I do think that gap will narrow a bit based on the RASM outlook that I'm looking at, again, which is pretty darn good for domestic. Maybe I'll take the seasonal shape in as well. We're working very diligently to make Q1 a more profitable quarter for United. I think we are well on our way prior to the MAX grounding. And obviously, if you take that out, you can use that to update the estimates as to where we would have been in Q1. We made a lot of changes to how we fly in Q1, and we didn't talk about all those details. But when I look at our RASM trends, particularly in domestic, I am now confident that all those changes had the desired effect. As we continue to build and make sure that in the future, Q1 can -- well, it won't ever be our best quarter to be blunt that it will be a much better relative quarter. But our global network, I have to say in Q2 and Q3 really stands out, and we expect it to be stellar again over those six months in 2024.

Operator:

Helane Becker of Cowen.

Andrew Nocella:

We will update our longer term margin targets at Investor Day. But the tailwinds that we expect from the United Next strategy from engage, from the connectivity, from the preference to fly United, we have proven, it used to be -- it was a strategy on a piece of paper. We have proven that it's working. And so as we think about '24, deliveries being a little less than '25 and '26, of reaccelerating into that United Next strategy, we see just continued momentum. And so as for the specific level of 12% to 14% pacing, we're going to have to update you on May 1st. But the strategy is working and we're very confident in an upward trajectory to both earnings and margin.

Mike Leskinen:

Let me try to give you a high level view, Helane, and we can dig into more details in the near future. But as I sit here today and I think about the changes in CapEx related to the delay in deliveries, I expect free cash to cover our CapEx in most years, if not all years. And as far as additional paydown of the balance sheet, we would expect that as our margins grow into that low double digit low-teen area that free cash flow will be quite positive, allowing us to pay down that debt. Now the pacing will be dependent on how much that CapEx profile changes and how quickly we get to what we think is that on long run, higher level of margin.

Duane Pfennigwerth:

Just a couple for me. On international inbound, so basically international point available to the US. As you look across your network, how recovered is international inbound, how do you think about that growth of that demand set in 2024? And are there any markets that stick out from a recovery headroom potential?

Duane Pfennigwerth:

Just following up there. Any specific markets, maybe San Francisco, Asia inbound, any more kind of bullish recovery thoughts there?

Operator:

Andrew Didora from Bank of America.

Andrew Nocella:

We've all sat on calls and predicted the recovery of business graphic more times than I can count over the last few years. And I will say, Q4 was okay. It wasn't spectacular in any way. But as we started January in the new budget season for all of our big corporate clients, we did notice a significant step-up. So it's really early. It's only been a few weeks, and I hesitate to say, oh my gosh, it's fixed, because it's still well behind where it should be relative to GDP growth, of course. But look, it's a really nice step up. We're seeing close-in yield gains as well that result from that. And I think that's one of the reasons our domestic RASM outlook is as strong as it is. And so hopefully, that continues. At the end of the quarter, of course, we'll report on that and let you know how it looks. But at least for the first two weeks of January, we've gotten off to a really strong start and it gives us increasing signs that this is going to be, I think, a very good year.

Mike Leskinen:

Andrew, I think it's a few years off still, let me get with my treasurer, Pam Hendry, and follow up with you on the precise year. It does depend on how CapEx moderates and it depends on that profitability, but it's still a few years off.

Brandon Oglenski:

I'll just keep it to one here at the end of the call. But maybe Scott or Mike, I mean coming back to the context that your stock is trading like 3 times or 4 times P/E probably for the second year here, and also giving you guys credit, because I know a lot of us didn't think you could hit those United Next targets so many years out. But you are guiding to roughly flat margins at the midpoint this year. And I think what investors are worried about is things you can control or at least perceived control like costs that are going up for the industry here. Is this just a continued view that United is going to decouple from industry trends where you're going to be able to drive margin premium? And I guess what can you give investors confidence that, that is the path forward here?

Operator:

David Vernon from Bernstein.

Andrew Nocella:

I mean I think that's probably a lot more detail than I can do on a conference call, to be honest. But just generally, unproductive capacity has been leaving the system. I think that's been good for the system and good for United. And so we'll manage our RM like we normally do to take advantage of all of the opportunities. But I just want to reiterate that our choice to diversify our revenues at the top of Polaris and at the bottom of Basic Economy is not something we're going to be giving up on. The Basic Economy is an important part of the airline, it is what our customers want, we will continue to provide choice. And we expect to provide more and more of it as our gauge increases. The competitive dynamics are what they are, I can't predict them. I only really can talk for United, and we'll obviously maximize our returns and do the right thing. But again, the diversified revenue streams that we're putting out there are really working for us across not only the fare ladder but our geographic dispersion of our flying. And so we couldn't be more pleased with our revenue results quarter-after-quarter, by the way, not just in Q4 and not just last year, and the outlook we have. If the industry is dynamic, it's always changing, we'll change with it. But it is, I think, a good time to be at United Airlines and be an investor in United Airlines.

Andrew Nocella:

I think our outlook for Q1 for domestic PRASM says it all.

David Slotnick:

I know you talked about London and about slower growth across the Atlantic. I was wondering if you could talk a bit more from a consumer perspective. There's been some talk just about all the capacity across the Atlantic next summer. Do you see any impact on ticket prices, do you see them going down or up, just given all that?

Operator:

Rajesh Singh from Reuters.

Scott Kirby:

Boeing has a storied history and thousands of great people. They're one of the best engineering, they're one of the best technology companies in history, they've been a great American company, their biggest exporter. I have -- they're going through a rough patch right now, but I believe that Boeing is across the board from top to bottom is committed to changing and fixing it. I'm encouraging them to do it even faster. And it is going to impact United in the near term because of some of the challenges they've had, but there are great people there and they will get it together. And we are their biggest -- at critical times, we're also their biggest cheerleader. There's no one that's a bigger supporter that wants Boeing to succeed outside of Boeing than me, and I'll do everything I can to help.

Scott Kirby:

We are not canceling the order. We are taking it out of our internal plans. And so we're taking out of our internal plans and we'll be working on what that means exactly with Boeing. But Boeing is not going to be able to meet their contractual deliveries on at least many of those airplanes. And I’ll just leave it at that.

Kristina Edwards:

Thanks for joining the call today. Please contact Investor or Media Relations if you have any further questions, and we look forward to talking to you next quarter.

Kristina Edwards:

Thank you, Silas. Good morning, everyone, and welcome to United’s third quarter 2023 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the Company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the Company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are our Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and new Executive Vice President and Chief Financial Officer, Mike Leskinen. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now, I’d like to turn the call over to Scott.

Brett Hart:

Thank you, Scott. And thank you to each member of the United team. Your dedication is what continues to propel us to the top. I also want to acknowledge the tragic conflict in Israel. At United, our top priority is the safety of our crews and customers. We are closely monitoring the situation. Following our coordination with the State Department, we have suspended flights to Tel Aviv till the end of October, and we are offering waivers to impacted customers. We will continue to monitor the situation and adjust as needed. Mike will provide more detail on the impact of these capacity adjustments shortly. Last quarter, we announced changes to our operation at Newark to better hedge against disruptions, including taking advantage of FAA granted waivers to reduce our flight schedule along with the necessary airspace relief in the highly congested region. While July was a difficult weather month, the Newark waivers and other proactive measures to improve reliability helped avoid pre-pandemic levels of ATC-related delays. In the third quarter, delayed arrivals were down 16 points versus the third quarter of 2019. Additionally, in August, we had the fewest cancels of any August in history, while operating the third largest quarter widebody schedule effort. In September, the FAA granted extensions to the New York airspace waivers, allowing the ability to maintain a reduced flight schedule at Newark that will help minimize air traffic delays through the rest of the year. The flexibility enabled by waivers are proving to be successful in ensuring operational reliability and resiliency at our largest international hub and have meaningfully improved the travel experience for our customers traveling in and out of Newark and throughout our network. Looking to our system operations. During the quarter, we carried over 482,000 revenue passengers daily, the most in any quarter in United’s history with top-tier system customer D:00 in August and September. We’re grateful to the FAA for allowing us to make necessary adjustments in Newark and thank our employees who worked hard to get our customers to their destinations safely and on time. While most of our network has recovered to 2019 capacity levels or beyond, our China network has been last to recover. At the start of the quarter, we were operating four flights a week from San Francisco to Shanghai. And this month, we increased that to a daily flight. Next month, we will be the first U.S. airline to return to Beijing with a daily flight from San Francisco. We believe this measured approach to bringing China capacity back on line is appropriate as demand slowly recovers. These increased flights are a significant step forward in rebuilding our Asia Pacific network. Late last month, our pilots ratified their industry-leading agreement. This contract enables us to continue providing great career opportunities in United, and I’m excited for the future as we continue to execute our United Next plan. At this point, we ratified agreements for four out of our five major work groups. Flight attendants represented by AFA are in active negotiations, and we look forward to sharing an update when we have one. As a reminder, we began accruing for pilot pay rate increases in the first quarter of this year. Our outlook has and continues to represent our expectation for this agreement. And with that, I will hand it over to Andrew to discuss the revenue environment.

Operator:

Thank you for standing by. We are now live again to the audience.

Mike Leskinen:

Thanks, Andrew. Good morning, everyone. Before I get into the results, I want to take a minute to say how honored and excited I am to join the United executive team during such a transformative time. Industry dynamics are constantly changing, and I continue to see the incredible opportunity ahead for United. We believe our no excuses mentality and clear strategy with United Next are laying the foundation for success. I look forward to continuing the conversations I’ve had with the investment community thus far in my new role, and I’m excited to lead the talented finance team here at United. Now let’s turn to the results. For the third quarter, we delivered pretax earnings of $1.6 billion and a pretax margin of 10.8%. Our earnings per share of $3.65 was ahead of expectations as our revenue growth came at a full point ahead of our guidance midpoint. Thanks to the amazing commercial team for their great work. They truly are the best in the business. Fuel remains volatile and worked against us in the quarter. Our average fuel price for the quarter ended $0.30 higher than the midpoint of our July expectation and more than accounts for the entirety of the reduced outlook for the third quarter. Our CASM-ex remained on track at up 2.6% versus the third quarter of 2022. Our operation to Tel Aviv has been impacted by the recent events in the region and is materially impacting our outlook as this market represents approximately 2% of our capacity. For the fourth quarter, we expect CASM-ex to be up approximately 3.5%, with capacity up 15.5%, both versus the fourth quarter of last year. Our guidance incorporates no service to Tel Aviv through the end of October. If flights are further suspended through the end of the year, it would reduce capacity by an additional approximately 1.5 points and add approximately 1.5 points of CASM-ex as it’s very difficult to cut the associated expenses related to this flying so close in. These changes bring capacity for the full year, up around 17.5% year-over-year, just below our guidance. We’re proud of that result given all the headwinds United and our industry faced, a huge testament to the hard work of our operations team. Lower capacity along with elevated maintenance expense has pressured CASM-ex and pushed us above the high end of our CASM-ex range for the full year. For the fourth quarter, we expect earnings per share of approximately $1.80 with an average fuel price of approximately $3.28. Absent our Tel Aviv flying through the rest of the year, our fourth quarter earnings per share would be reduced by approximately $0.30. Looking ahead to 2024, we feel good about the core fundamentals of our expenses. However, we are facing sizable headwinds with labor in expectation of a new flight attendant agreement and continued higher maintenance expense. We believe our capacity growth, along with improvements in utilization are helpful tailwinds as we manage down expenses. We are working through our 2024 budget and new projections for 2024 capacity, CASM-ex and our other financials, and we’ll provide a customary guidance on our January call. On the fleet, in the third quarter, we took delivery of 18 Boeing 737 MAX aircraft and paid for 14 of those aircraft with cash. We expect to take delivery of 20 737 MAX aircraft in the fourth quarter, and we took delivery of our first Airbus A321neo last week. This is a reduction of 12 aircraft versus our plan in July for the second half of the year. Due to these aircraft shifting into 2024, we now expect our full year 2023 adjusted capital expenditures to be approximately $8 billion. Earlier this month, we announced our order for 60 A321neos and exercised options for 50 787s for delivery in 2028 and beyond. Managing the delivery skyline for the future of United is critical. This order builds on the successes we are already seeing with United Next and reflects our confidence as we extend our planning into the next decade. With the retirement of our Boeing 757 and 767 fleet later this decade, these aircraft are important additions as we work towards fleet simplification and capitalize on our cost reduction opportunity. Turning briefly to the balance sheet. We ended the quarter with almost $19 billion in liquidity, including our undrawn revolver. Before we end our prepared remarks today, it’s important to recognize that while our financial results remain strong, as an industry, we are facing new and unique challenges. Our growth has helped us deliver strong relative cost performance, and that’s even before we begin the accelerated gauge growth that we expect will come from the 737 MAX 10 and the A321 additions to our fleet. We are committed to continuing to deliver industry-leading cost performance. And this will form the foundation for continued cost convergence and improving absolute profitability. And because our growth is focused on our hubs, we’re also growing with industry-leading PRASM. There are and will always be headwinds facing our industry, but as we enter 2024, United has great momentum, and I’m confident of very bright future. With that, I’ll hand it over to Kristina to start the Q&A.

Operator:

[Operator Instructions] The first question comes from Jamie Baker from JP Morgan.

Andrew Nocella:

Hi Jamie. I’ll try to give that a try. I mean, rank order them maybe a little difficult, but let’s see what we can do. I do think your question is really one of the most important questions that anyone could ask today because there’s such a difference occurring versus the past. And clearly, what I think I would start off is there’s a large range of business models today that didn’t exist in years past in this business. And these models are clearly creating winners and losers in a way many of us did not anticipate during the pandemic. I recall telling all of you on the Q1 2022 call that industry domestic margins will be challenging post-pandemic. Clearly, the thinking at the time was -- for most, at least, was that all airlines would be pressured equally at best are the legacy carriers even more so. Right? It was widely assumed that lower margin, higher cost legacy carriers, which shrink rebalance in supply and demand, an outcome that has happened so many times in the past, so why not again? The number of times I heard that the airline with the lowest cost wins the race, I can’t even begin to count. So, that kind of sets up what about the business models has shifted so much to cause this paradigm change we’re seeing today. Why are these low-cost airlines so unprofitable? Why does United have top tier results? And first, I just want to be really clear. United’s domestic network is profitable. So it’s not simply our great global network that’s creating this outcome for us. The first issue, of course, Mike talked about it is cost. Every airline has to manage higher inflationary cost pressures with the lowest cost carriers’ cost structure relative to the legacy carriers are clearly converging. The shrinking cost gap is just a fundamental shift for United and our industry. And I guess, I would rank that number one. You said it’s impossible to run your airline like it’s 2019. High utilization was a critical ingredient for success of certain models, and that’s simply not possible, where we are today. And also having large labor cost differentials are not possible. Low-cost carriers also tend to operate at a very high gauge already. It will be much more difficult for them to drive cost materially lower with larger gauge planes like United. United has increased domestic gauge more than any airline since 2019, and our plan is to push that even further in the years to come. Another issue that I think we should talk about is it’s difficult for many to grasp is not every ASM is created equal. It’s easy to mistake often in the middle of really large spreadsheets that everyone uses to evaluate our outlook, right? At United, we proved this point early in 2018 and ‘19 with our growth and revenue performance and we just did it again in Q3. Market saturation of the low-cost business model in certain regions is creating very low marginal RASMs for some of our competitors. In fact, many of our competitors have marginal revenue percentages that are negative. There are only so many seats Florida, Cancun or Vegas can support in such a short period of time. Also low-cost carriers generally must operate a very large gauge equipment to have low-cost without the connectivity benefit of the hub-and-spoke business model, expansion of the low-cost model into smaller and medium-sized markets with these very large jets lacking connectivity just creates low marginal RASMs. Market saturation and the mismatch of gauge and other connectivity continues to plague certain business models. Expansion opportunities with this type of business model are not endless in our view, but in response to that shortcoming, many of our domestic competitors have doubled down with plans for even more growth in 2024. 2024 marginal growth in markets will absolutely be no better than 2023. No airline network team would say, let’s add the bad markets in 2023, so we can save the good ones for 2024. The other factor is the percentage of ASMs that these airlines have in new markets. Very fast growth rates simply create a high percentage of new capacity, which by its nature in the best of times is below average. The fourth quarter -- this fourth quarter, United has less than 1% of our ASMs in new markets versus ‘19. This is an absolute difference maker. And capacity growth is designed as a strategy to maintain low cost without revenue accretive markets to add the entire business model can break. And that is what we think is happening right now. United’s domestic capacity growth has always been about correcting a gauge mismatch created by the overuse of high-cost passenger and friendly single-class regional jets. At United, we have this diversity of revenue streams that provide us long-term stability and earnings that a one-dimensional plan will never achieve. We have a range of products, including array of premium seating options that’s increasingly popular with our travelers. We fly as much capacity in global markets as we do domestically. We fly to big cities and small. We have a great hub-and-spoke business model. United has significant margin accretive growth, and we’ve proven that time and time again. United’s business model can support dramatically higher gauge and once added, we spill less and less traffic to others. United’s higher gauge will create more and more cost conversions between now and 2027. The complexity of United’s product offering is not a disadvantage. It in fact is a structural advantage that generates revenues more than the cost it creates by the complexity and just cannot be replicated. In the past, United and other legacy carriers that have emerged from the crisis smaller, creating excess planes and other resources for others to grow. This time, that will not happen. This time around, it is not United with the low margins. We will not adjust our plans. United’s focus on global markets has clearly won the day in Q3, and you can see that in the results. Our focus on domestic gauge is absolutely the right one. We’ll no longer spill as much revenue to others as we’ve done in the past. Our focus on basic fares means we’ll be able to be even more competitive. United will moderate our domestic growth plan, as I said earlier, for the first half of 2024 because we’re focused on building our Asia Pacific line where we see the strongest short-term results. But I have to say, maybe in our timing, there may be off to a few other -- the timing may be off, Jamie, but the quarters are coming, and there’s a lot of other variables. And I truly am confident that sooner or later, the industry will rebalance like it has done in the past, and the United and a few others with similar diversified revenue streams are going to come out on top. I know that was a long answer.

Scott Kirby:

Well, I guess, I’ll try now. It’s hard to follow, Andrew. That was a great answer and very comprehensive. And probably why we feel that -- what Andrew said is why we feel so different that I recognize everyone on this call feels or that the market feels. We feel really confident about where we’re headed, what this means for margins out in 2026, by the time we’re there. We just feel really confident. But without answering the question about sort of overall industry capacity, I kind of at a high level, think of this, Jamie, to me, one of the most remarkable statistics this quarter is that 90% of the industry revenue growth is going to be at two airlines and 90% of the pretax profitability. We just have better model. And what we’ve tried to do is we went through -- the goal was to create an airline that had better product service experience for customers across the board. We can’t just be a leisure airline. We can’t just be a low fare airline. We can’t just be a premium airline. We need to deliver for all customers. We try to create products that are better on the high end, but all the way down to the low end. I believe strongly that air travel is not a commodity. Some of the industry thinks it’s a commodity. And that’s how you get the low-cost wins, if you believe it’s a commodity. I do not think that. And I think we are proving -- our results of two airlines are proving that air travel is not a commodity. So without commenting on what the total industry growth is, what is happening is to have that differentiated product service experience, getting almost all of the revenue growth and customers are voting with their wallets that those models are working.

Michael Linenberg:

Congratulations, Mike, on your promotion, and Kristina on your recognition. Scott, I’m going to go to the other end, kind of the side of your business that caters to, call it, the higher-end consumer. And I guess when I think about just the recent top-up order on the 787s, adding to your current order, I mean, it’s significant. I think it’s actually one of the largest widebody orders out there, at least for a U.S. carrier. Is the internal thinking at United just given the shape of the OEMs, whether it’s the manufacturers or the engine makers that we could be facing maybe some kind of widebody shortage in the back half of this decade? What are your thoughts on that?

Mike Leskinen:

Hey Mike, this is Mike. I’ll pile on. With the delays in the supply chain, they’ve become persistent. And so, part of what we’re doing is controlling Skyline for a longer period of time than we have historically. This industry has been an industry that has in the past gone from putting out fire to fire. And United Next strategy is putting us on a firmer footing to plan for the longer term. So a, I want to highlight that the contractual delivery dates, they’ve been pushing to the right. And we’ll probably continue to see that. And you see us -- as you see us playing internally, we’ll have some expectation of continued slipping. But make no mistake, we will make adjustments to the order book and the delivery times in a way that maximize the returns to our shareholders. And we will focus on return on invested capital in addition to our pretax margin as we take delivery of those aircraft.

Scott Kirby:

I’m happy to answer that. Look, it would be really, really bad policy for consumers in this country. It’s a bill that would -- 84% of U.S. consumers have some kind of rewards card in their wallet, I bet almost everyone on this call has one. And they like them, and they like them a lot. Our customers certainly like them a lot. And so I think it’d be hard in Congress to take a vote that 84% of your voters are going to be upset with the outcome of that vote. And by the way, this will kill rewards program, it would not exist anymore, will kill debit card rewards programs when it happens. And I think it’s a bad policy. And I also think it kind of misses the mark because in the credit card is just a couple of things. And this is the mark with small businesses. I understand the frustration with small businesses. But small businesses are actually -- there’s middleman in between credit card companies, the banks and the small businesses. And I think that’s probably where the bulk of the issues are. Some of those middlemen charge square charges as little as 35 basis points, and some of those middlemen are charging businesses 300 or 400 basis points. And so, I think, it probably misses the mark. And then the final point would be, it’s remarkable how good the cybersecurity is at the credit card process. They’ve invested heavily in it. It’s not easy to replicate. And think about how many billions of transactions are happening every day and how rare breaches or problems are. And so, I think, this is one of those that I’ve spent now a fair amount of time in D.C. talking to people. They didn’t know much about it before because as it’s come up. But as you talk to people about it, they more and more say, well, those are a bunch of good points. We need to go through regular order, we need to examine this. And so I think as long as we do that, as long as we examine it through regular order, which is the right way to pass consequential legislation, the facts will win today and nothing is going to happen.

Conor Cunningham:

Just on cost. I’m trying to understand the trends between your core cost performance and just how these supply chain transitory issues that you’ve laid out are kind of impacting. I realize that it’s probably really hard to tell right now, but you could just frame up when you think some of these potential transitory cost pressures may ease next year? That would be helpful. Thank you.

Conor Cunningham:

Okay. That’s super helpful. And then maybe just a little bit on -- so a lot of your cost stuff next year kind of seems like it’s somewhat capacity-related or delivery -- new delivery related. So, I’m just trying to understand if you could maybe -- is there any swing capacity -- excess in capacity that you may be able to have that could protect some of that growth that you have next year that may be slowed as a result of some of these delivery delays?

Operator:

Our next question comes from Catherine O’Brien with Goldman Sachs. Please go ahead.

Andrew Nocella:

It’s a good question. We -- last year, facing the surge in demand, just maybe the simplest way to say it is we sold out too soon and we didn’t have appropriate room for these basic passengers and are gauge was smaller. And this year, as we get closer to implementing all of our United Next plan, we are much more careful not to sell out too soon. So our close-in bookings are actually quite strong. It’s interesting to say that as I read commentary from around the rest of the industry that kind of says the opposite, and I do have to wonder whether one is tied to the other, obviously. But because we say we didn’t sell out too soon because we have plenty of room and because we have just a normal booking curve for all this, we were able to accommodate those passengers in this quarter, unlike we did in the past. And with the new gauge aircraft coming in the future, we’ll be able to continue to do that going forward. So, I think that’s the simplest and easy explanation as to why you saw that change in our Basic Economy passengers. And look, it’s a product we’ve talked about a lot, provides choice for our customers, on the low end. We have lots of products on the high end as well. It gives us the diversity we need. And I think it’s really allowing us to compete very effectively with all of our competitors, but particularly our ultra-low-cost competitors.

Mike Leskinen:

That is what we can do is we can manage our expected deliveries versus the contractual deliveries and size the business appropriately, the more that we hire workforce for aircraft that don’t come, they aren’t delivered when we need them, the bigger that headwind is for us. And so, one of the first things I need to do in my new role is to properly size that buffer between expected and contracted delivery. So that’s point one. Point two, we have older aircraft, and we will push some of those older aircraft to fly longer with expected delays in delivery. I happen to love that option because that is also a return on invested capital enhancing. And so, in the long run, we want to simplify the fleet and those MAX 10s are going to be structurally lower cost. We’re excited about them. The A321s are fantastic aircraft. Both of those aircraft are fantastic for a network like United, where gauge -- we get a real advantage out of gauge. I expect those deliveries to really start to drive lower CASM in 2025, not 2024. And so, we should understand the timing of that. But we’ve got numerous levers to manage the delays from the supply chain, and we can do a better job optimizing based on delays that are becoming a little bit more predictable.

Ravi Shanker:

I just wanted to follow up on the commentary earlier about you need to cater to all customers, which I totally get kind of given the broad base of the market. But obviously, we’re seeing some of your peers try to push into premier or pushing into the low end. And just kind of the face of it feels like specializing may be an easier thing to go after than trying to cater to everyone with the network and the product you have. So just wanted to dig a little deeper into kind of why that strategy of kind of being everything to everyone rather than being just maybe a full-service premium network airline.

Scott Kirby:

And I would say it as -- it is more complicated. You’re right. It’s simpler if you’re going to only try to appeal to one niche. But the niches are small. The number of markets that exist that you can only be a low-fare, low-cost commoditized player is -- the number one market that exists, but you can only be a premium airline is even smaller. And so, they’re just tiny niches, and we’re a big airline.

Ravi Shanker:

That’s very helpful color. Thank you for that. And maybe as a quick follow-up, and apologies if I missed this earlier. There is some speculation about us potentially being at peak international right now, specifically peak transatlantic. What would you say to that kind of going into 2024, kind of do you see enough runway? I think you said in the coming out of the summer of 2022 that 2023 would be a lot bigger and kind of had that visibility? Are you confident that that strength can continue in 2024 as well?

Mike Leskinen:

I spoke to an earlier question around the -- I spoke to an earlier question around the constraints to industry capacity. And there’s nowhere that that’s more true than for widebody aircraft. In addition to that, as Andrew alluded to, but I’ll just emphasize, we have the best international gateways leaving the United States of any carrier. And so this is where, as Andrew says, we were born on third base, and we’re going to capitalize on that.

Scott Group:

So Scott, yesterday, you said that adjustments are inevitable and you expect them by the second half of ‘24. I guess, I’m wondering what -- are you just talking about there are going to be capacity cuts by the second half next year? Are you talking about something bigger than that? And then, when -- yes, go ahead.

Scott Group:

It strikes me, I don’t think I’ve heard you talk so much and then so positively about Basic Economy in a while. It feels like a change in tone or strategy. Can you just talk about that and why it’s happening now? Is it reflective of the competitive dynamic, the demand environment? Just feels like a change.

Operator:

Our next question comes from Duane Pfennigwerth from Evercore ISI. Please go ahead.

Andrew Nocella:

Well, we’ll probably save that for a more smaller conversation, to be honest. What I would say is the comps last year, we just couldn’t execute the way we wanted to execute. And so, it’s off a small base, it creates a big percentage, but it is a meaningful change. And as I said earlier, we’re going to lean into it. We have these big aircraft coming, and we’re going to be more competitive in the future, not less.

Helane Becker:

Kristina, congratulations. Given I was quoted in the article, I knew it was coming. And Mike, same to you. So here’s my question. As I think about the fact that we have all these infrastructure issues, especially in the New York area that are going to persist for several years, how should we think about two things? You increased gauge, obviously, to capture the demand. But then there’s a point where you want to capture higher ticket prices. So, what’s the sweet spot where you can do both, where you can benefit from capacity limitations with higher aircraft and raise ticket prices so that you improve margins?

Helane Becker:

So, is the conclusion that I should have that the revenue is what it would have been, had the infrastructure issue not existed and you flew more flights, but you would have had higher costs, right? This way, you have lower costs and the same amount of revenue. Is that right?

Mike Leskinen:

The worst thing from a cost perspective is irregular operations. That’s what surprises us. We built lots of buffers into the system to control for that. And with a better air traffic control, with airport that is capacity -- appropriately, we can do a lot more optimization.

Brandon Oglenski:

I know it’s been a long call. I just want to get one more in here. But Andrew, I know you’re not -- technically got into 2024, but you also mentioned domestic capacity, I believe in your prepared remarks, we should think about it being pretty much flat, I think, in the first half of the year. But maybe you can clarify that. And what’s driving that? Because I know under your Next strategy, you did want to upgauge domestically. So, is this in concert with OEM delivery expectations, pilots, commercial? I mean, what are you seeing that’s driving that?

Operator:

We will now switch to the media portion of the call. [Operator Instructions] Leslie Josephs from CNBC.

Andrew Nocella:

Sure. Look, I’ll give a little bit of commentary. Our status matches up dramatically. Yes. Is dramatically a big number? No. So, that’s all I’ll say on that front. And in terms of the signature interiors, we are definitely facing some constraints, but I’ll pass that over to Toby, who runs that program for us.

Scott Kirby:

Well, I’d just add that this is another one of the things that United got right. We believe back in 2020 that there was going to be a full recovery in demand and thought that the pandemic as tough as it was represented a once in history opportunity to get prepared and invest for the future. So two of the things we did was get ahead of the curve and we built more club space. So we now have 49% more club space than we did before the pandemic. And we just opened our -- two largest clubs in our entire system that are great for customers. Feedback is awesome, one in Denver, one in Newark. So we plan ahead for that. And while the signature interiors are behind, we today have close to double the number of premium seats that we had pre-pandemic. So this is a team that started back in the summer of 2020 to prepare for the recovery in premium demand. And that’s the reason Andrew said in his remarks, we don’t need to change our programs and do anything because we’re prepared for this.

Andrew Nocella:

Leslie, I would say, it’s likely a lot more share shift that in the previous quarters and years we didn’t have the large gauge aircraft to accommodate all the different range of passenger types and product types adequately. And we are now just beginning, but we have a lot more flexibility, and we’re able to accommodate those passengers and it happened. And I think I would describe it as probably a fair amount of share shift.

Mary Schlangenstein:

I wanted to ask you about the situation in Israel. And whether you are assessing potential for that to spread to other areas and perhaps even to some areas of Europe where you may have to cancel more flights because people might be poking away over worries. And if you’re seeing any of that already where that’s shifted to other countries or other cities that you serve?

Operator:

Moving to our next caller, Justin Bachman from The Messenger. Please go ahead.

Scott Kirby:

I don’t think it suggests that. But I think what we are proving is that customers care about quality product and service. And I think because of that, the airlines that succeed are going to invest in quality product and service. And if you don’t do that, you’re going to fail.

Justin Bachman:

Right. No, I fully understand that. I’m just thinking, if you play that movie out, what does that suggest for the competitive landscape in two, three, four years if those trends continue and things don’t continue as they have been.

Operator:

I will now turn the call back over to Kristina Edwards for closing remarks.

Operator:

Thank you all. This concludes today’s conference, and you may now disconnect.

Kristina Munoz:

Thank you, Silas. Good morning, everyone, and welcome to United's second quarter 2023 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now, I'd like to turn the call over to Scott.

Brett Hart :

Thank you, Scott. Thank you to our United team for their hard work this quarter. As Scott mentioned, during the last week of June, we experienced one of the most challenging operational environments in United's history, impacting primarily our largest international departure hub, Newark. Our hub locations make us disproportionately prone to weather and then in the second quarter, weather was particularly challenging, with 25 major irregular operation days accounting for 75% of our second quarter cancellations. Despite this, we are focused on setting United up for success, and being able to recover more quickly in the future. We are implementing a few new initiatives in Newark that will improve our operation. First, we are reducing the total flying in the peak hours to align better with the capabilities of today's constrained operating environment. Second, we expect to have additional gating as we bring the remaining six gates in Terminal A online, two of which are additional wide-body gates as well as make additional tactical changes at United. Third, we are adjusting our schedules to increase our out-and-back flying to limit the downline system impact of any cancellations or delays. Fourth, we are increasing our resources and crew scheduling and accelerating the timeline of our technology enhancements and automation. Lastly and importantly, our partnerships with the FAA and Port Authority are essential to the airline's success. Collaboration and communication amongst these groups has never been stronger. To that end, Scott and our government affairs team continue to remain actively engaged in working with the administration and leaders in Congress to pass an FAA reauthorization bill. Legislation that equips the FAA with the resources, tools and funding they need isn't just essential to the success of our industry, it's among the best investments that we could make for the traveling public in the U.S. economy right now. And we're committed to continuing to advocate for a smart FAA reauthorization bill and to get it passed quickly. These are only a few of the initiatives underway, but combined with lower capacity, these adjustments add approximately 1 to 2 points of incremental year-over-year pressure to our 2023 CASM-ex. Gerry will go into more detail. But running a successful and efficient airline is critical and United is laser-focused on getting our customers to their destinations safely and on time. As we work to respond to these challenges, we are also investing in our customer experience. Recently, we announced new mobile app features that support our customers during travel disruptions. These first-of-their-kind tools will allow customers to rebook, track their bags and get meal and hotel vouchers when eligible on their personal device. It is important for us to provide our customers the resources they need for flight or their flight at their fingertips, especially when things don't go as planned. As Scott mentioned, over the weekend, we reached a tentative agreement with our pilots represented by ALPA. We're thankful for the hard work our pilots put in every day, and this agreement is a representation of that. We are still in active negotiations with our flight attendants represented by the AFA, and have new agreements in place for all other work groups. The United team continues to be resilient. We're making real-time changes that directly impact the travel experience for our customers and for our employees, day-to-day. Proud to be a member of this team. I want to thank everyone for their unwavering hard work. And with that, I'll pass it over to Andrew to discuss the revenue graph.

Gerry Laderman :

Thanks, Andrew, and good morning, everyone. I am pleased to report that for the second quarter, we delivered the highest quarterly pretax earnings in the United's history of $2.2 billion. Our earnings per share of $5.03 was also an all-time record. And in addition, we produced a record second quarter pretax margin of 15.3%, 3 points higher than second quarter of 2019 and ahead of our expectations. This exceptional performance was driven by stronger-than-expected revenue and lower-than-expected fuel prices. The severe weather at the end of June, which drove multiple consecutive days of strained operations, did lead to a 1 point reduction in capacity for the quarter. We also incurred incremental disruption related costs that weren't anticipated at the time of our guidance. The capacity loss and added costs led to a CASM-ex impact of approximately 1.5 points for the quarter. Excluding this impact, until June 24, we were trending below the midpoint of our CASM-ex range for the quarter, an indication that our core costs remain under control. And for the rest of the year, the operational and scheduling changes that Brett discussed have reduced our full year capacity plans from our prior expectations, and we now expect full year capacity to be up approximately 18% versus 2022. Additionally, our CASM-ex guidance now incorporates an expectation of additional incremental costs in order to address the operational challenges. Specifically, for the third quarter, we expect CASM-ex to be up 2% to 3% with capacity up approximately 16%, both versus the third quarter of last year. When combined with our results for the second quarter and our expectations for the fourth quarter, we now anticipate our full-year CASM-ex to be up approximately 1% to 2% versus last year. However, just like the second quarter, outside of the revisions I discussed, our core costs for the rest of the year are trending as expected. Furthermore, our CASM-ex expectation for the year continues to include the impact of our recently announced agreement with our pilots. Turning to earnings. The strong revenue environment and moderate fuel prices continue to provide strength to our bottom line. For the third quarter, we expect earnings per share to be $3.85 to $4.35, with a fuel price of $2.50 to $2.80. More importantly, given our second quarter performance and third quarter outlook, we are raising our full year earnings per share expectation to the top half of our previous guidance range of $10 to $12. On fleet, we took delivery of 20 Boeing 737 MAX aircraft in the second quarter and paid for 10 of those aircraft with cash. We expect to take delivery of 28 737 MAX aircraft in the third quarter and also look forward to our first Airbus A321neo later this fall. We continue to expect our full year adjusted capital expenditures to be approximately $8.5 billion. Turning to the balance sheet. We ended the quarter with $21 billion in liquidity, including our undrawn revolver. We are comfortable with our current level of liquidity, particularly given the uncertain macroeconomic backdrop. In the second quarter, we opportunistically issued $1.3 billion of enhanced equipment trust certificates secured by a pool of recently delivered Boeing MAX aircraft with an interest rate of 5.8% which was attractive in the current interest rate environment. Additionally, we prepaid $1 billion of floating rate debt, which carried a current coupon of over 9%. Our adjusted net debt is now down almost $3 billion since the end of 2022 and $6 billion since the end of 2021. With the reduction in debt and the improvement in earnings, at the end of the second quarter, our trailing 12-month adjusted net debt-to-EBITDAR ratio improved by a full turn to 2.4x versus the end of the first quarter, putting us back to where we were prior to the pandemic and ahead of pace to achieve our target of less than 3x by the end of 2023. We also continue to expect to generate positive free cash flow for the full year, including the impact of our new pilot agreement. In conclusion, we are encouraged by the trends we are seeing and believe we're adequately mitigated against additional operational risk in the back half of the year. I'm extremely proud of the United team for delivering our strong financial results. Six months ago, when we first announced our full year EPS guidance, we were met with skepticism from some of you listening. Now more than halfway through the year, as we increase our EPS guidance, I hope all of you are as comfortable as we are with the value of the United Next plan, where we continue to march towards meeting our long-term path target in delivering for our customers, employees and shareholders. And with that, I will turn it over to Kristina to start the Q&A.

Operator:

[Operator Instructions] The first question comes from Dave Vernon from Bernstein.

Scott Kirby :

I guess I'll start and maybe let Andrew give you some details to follow. But at its core, two to three years ago, we started describing United Next, we started describing the intellectual framework for United Next, what we thought was going to change in the industry. And in particular, we thought that the international market was going to be really, really good because we thought demand would recover. And we were literally the only large airline in the world that decided to keep all our airplanes and actually took more airplanes during the pandemic and grow. That has, in fact, happened. Domestically, we thought that the cost convergence was likely to happen. One, because of inflation, we probably think that two or three years ago, about 18 months ago, we thought that, that inflation was going to drive cost convergence and that the expectations for capacity were going to be unfulfilled because supply chain constraints, pilot shortages and infrastructure constraints. And to fix that particular issue, all three of those things have to come together. It's not enough if you get the supply chain remedied. It's not enough to get pilots remedied. All three of them have to happen. And so kind of from a big picture level, like this is playing out exactly like we thought it would. And it's a fair question. We get the question we've gotten into at least six or seven quarters in a row. And the results just keep getting better because the industry backdrop is getting better, particularly for large airlines that have international exposure and they are at the top of the food chain for hiring pilots and for supply chain issue, which is where United sits. And you further that with United -- so that's the industry backdrop. But United specifically thought this was going to happen, and we made a really big bet on this happening. And the truth is we're the only ones in the world to do that. While everyone else was shrinking and retiring airplanes, we started betting on the growth and getting ready for United Next. And we thought it would play out like this. It is playing out like this. I really am confident that our margins are set to grow 1 to 2 points a year for each of the next -- at least through 2026, and that this is the new normal. Andrew?

Scott Kirby:

All right, well David, that was a lot, but you can tell we feel confident.

Conor Cunningham :

On the -- LCCs right now are ramping back capacity [Indiscernible] fare sales. That seems to be out there. So that seems to be having like a little impact on you right now. I'm just curious on what's actually -- what changes the mindset around your unwillingness to match these fares? Or is it premium, coastal? Just any thoughts there would be helpful.

Conor Cunningham :

And then just on the international landscape, you obviously are taking a huge advantage there. Just curious on what's next for the Atlantic. Are you comfortable with that network? And then just on the Pacific build-out, there seems to be a lot of upside there. I'm just curious on your expectations for that fall launch.

Operator:

Our next question comes from Catherine O'Brien from Goldman Sachs.

Gerry Laderman:

Hi, Catie, let me take a crack at that. So let me talk first on the cost side, where -- what you saw us do for the second quarter, third quarter full year is adjusted CASM entirely related to the operational disruptions, which is why I wanted to emphasize that costs aside from that, our core costs are trending right in line with our expectations. So the variance versus our prior guidance is all attributable to this. So the way to think about it is about 1/3 of that CASM variance is related to the actual incurred costs from the disruptions and 2/3 just related to the capacity adjustment. The overall impact in the second quarter versus our forecast prior to June 24, I would call it about 1 point of margin is what we lost in the second quarter because of the events. And we've incorporated our expectation on lower capacity in our EPS guidance for the third quarter and full year. And so it's fair to say that -- but for those adjustments, our guidance for the full year of top half of the range, yes, it could have been a little bit higher because of those changes. But that's the way to look at it.

Andrew Nocella :

Well, I won't go through my long list of what's unique to United, again, I think that may be a little bit too much. I would love to, but look, we're looking at the numbers for Q3. What I would tell you is that there's clearly been some shift out of Q3 into Q4. October is, I think, setting up to be a stronger month of the year than it was in 2019. And June is now the strongest month of the year itself. So that is causing some shifts in seasonality and margin, I think, for United and for the industry. But overall, we just -- I think we have a really good setup. Our international system is just performing outstandingly. There's not like a single part of the globe, a single part of the network that's not working. And we've leaned into it really strongly. And I think that's shown up in the results. And on the domestic front, I think this is just -- we have the right aircraft in the right places. New York City, in particular, is doing dramatically better than it had been in the past for us. So we're really pleased by that. And all the hubs, as I said, are profitable and performing well. So we just think very good capacity plan and a really strong environment.

Ravi Shanker :

So just to kind of follow up on the July 4 disruptions. I don't know if it's a fair question, but are you able to quantify kind of what percentage of the disruption was sort of in your hands or factors within your control versus like what was fostered upon you, if you will, or externally imposed? And also kind of in the near term, it does make sense to draw down capacity, but kind of what is the long-term plan to make sure that Newark serves as an effective hub for you?

Ravi Shanker :

Understood. And then maybe as a follow-up, I think it was mentioned earlier, and I agree that your comment on 3Q PRASM domestic being flat to up slightly is a pretty differentiated message from your peers. Do you have enough visibility into what 4Q might look like relative to 2Q?

Operator:

Our next question comes from Jamie Baker from JP Morgan.

Gerry Laderman:

We're including all cash going out the door, Jamie.

Gerry Laderman :

No, Jamie, that's -- we can't right now because it really depends on the forecast. We can help you and anyone else offline with your spreadsheets on how to think about how profit sharing might best be sort of incorporated if you want.

Scott Group :

Sorry about my voice. Hopefully, you guys can hear me okay. Just to clarify just that last question. Is it -- I know you're not giving a number, but is it right that there's a pretty meaningful step-up in profit share from Q2 to Q3?

Kristina Munoz :

I'll follow up with you offline, Scott…

Gerry Laderman :

Sure. Let me answer that. It's very early in the planning process. So this is all very preliminary. But we do know about some of the headwinds and tailwinds that we're going to see as we start putting together the plan on the cost side. Headwinds would include the full year impact of the labor contracts and contractual increases. Inflation, which, by the way, what we're seeing now is a moderation in inflation. We've got constraints on growth due to infrastructure. And one of the big ones, and you'll actually see when we file the Q our expectation for aircraft deliveries next year. Back in December, you may recall when we announced the wide-body order, we gave some multiyear expectations on deliveries and CapEx. On the narrow-body side, now that we're that much further in, we have a -- what I describe is a clear expectation on aircraft deliveries. I think for the total, including eight 787s, about 110 aircraft next year. That's down from what we showed you in December. But by the way, if you recall, that CapEx number of $11 billion for next year we had in December, just counting aircraft, that's going to be closer to $9 billion and $11 billion of CapEx, a good guide, particularly when we are looking at free cash flow for next year. But bottom line, I would say that with a variety of tailwinds we have as well, which would include improved utilization, improved productivity as our junior workforce begins to gain some experience. Putting it all together, right now, six months ahead of next year, I would say we're targeting high single-digit capacity growth, and in that context, targeting flat CASM-ex for next year. But much more to come as we get into the planning process.

Duane Pfennigwerth :

So I agree with your differentiated bet on international recovery, you're winning the jump ball this summer, winning customers in summer 2023. A question would be, how do you think about keeping those customers as international carriers restore their capacity over time? What investments are you making to keep those customers beyond just metal, especially when we think about periods of operational disruption.

Duane Pfennigwerth :

And just a quick one for Gerry. Can you speak to how much sale-leaseback activity you'd expect to utilize this year? And can you just help us bridge, just remind us what's the difference between net CapEx and an all-in gross CapEx?

Duane Pfennigwerth:

Just the guidance is a net CapEx guidance. So how would that CapEx guidance compare to just the value of the fleet that you're bringing on?

Operator:

Our next question comes from Helane Becker from TD Cowen

Scott Kirby :

The short answer is, yes, the new contract does address that. It is also -- it's interesting, it's the first time that I've ever known it to happen in the airline industry. And it's one of those interesting artifacts of so much growth at United. In the past, you spent 10, 12 years sometimes before you get your first shot at captain. If you didn't take it on the first shot, it might be another five or six before we came around again and so everyone took it. But now our pilots have enough confidence in the future, I think, as they should in that they can wait and let their seniority go up a little more, which helps the quality of life. And so we have had not as many captains as we’d hope upgrading. It hasn't affected capacity yet. It is going to impact capacity in the fourth quarter. That's all in our numbers, by the way, already. But the good news is the contract, I think, fixes that. It depends. I'm not sure how long we do we get 100% back. I think it will be the second half of next year. The union leadership thinks it will be a lot faster than that. But somewhere in that timeframe, we'll get back to a full level of captains. That's a transitory issue that's already in our numbers, but we're on a good path. And the one data point I have is our first captain -- our most recent captain gate closed last night, and it was meaningfully better, and they haven't even seen the new country yet. They just know that there is direct. It's already made a difference. And this is a unique issue that will be in the rearview mirror sometime next year.

Linda Jojo :

Hi, Helane. This is Linda Jojo. I think the way to think about these vouchers is it's a more customer-friendly way and a more efficient way for our operations to deliver to them what they would already get. So this is more about letting our agents be able to serve other aspects of the disruption versus this piece and making it much easier for our customers to actually receive them.

Operator:

Our next question comes from Sheila Kahyaoglu from Jefferies.

Andrew Nocella :

I'm not going to give you the exact number. I'm going to say they are well above domestic margins, and we expect for this cycle for them to remain well above domestic margins. So look, our domestic margins are very solid, too. So I don't want to say anything too negative about that. I think international is just performing really well because of the structural change that happened during the pandemic.

Alison Sider:

Scott, could you say anything about what crossed you to take that private flight during the operational problems at Newark, like what was so urgent? And then if you've had any kind of conversations or feedback or consequences from the Board since then?

Operator:

Our next question comes from Mary Schlangenstein from Bloomberg.

Gerry Laderman :

Let me just talk about the financial impact first. So as I mentioned earlier, that disruption effectively cost us 1 point of margin in the second quarter.

Operator:

Our next question comes from Leslie Josephs from CNBC.

Andrew Nocella :

Sure. Let me five it a try. The normal schedule in Newark in summer, which has been the same schedule for many, many years pre-pandemic is about 435 flights per day. This summer, we are scheduling about 410. And this August, we're going to bring that down to 390. We are in constant conversation with the FAA about Newark and its overall ability to handle capacity, and we're going to work collaboratively with them to try and figure out the overall level of flight activity. I expect that level of flight activity will be down from our traditional 430 flights per day in the summer until we can come up with a creative solution to the constraints that we're all facing there. So hopefully, we will return to that bigger schedule in the future. But for next summer, I do think that we will have a smaller schedule, and we will operate a reliable schedule, and we're going to do that in cooperation with our partners at the port and the FAA and the Department of Transportation to make sure that we get it right for all of the customers that fly in and out of Newark and New York City.

Kristina Munoz :

Thanks for joining the call today, everyone. Please contact Investor and Media Relations if you have any further questions, and we look forward to talking to you next quarter.

Kristina Munoz:

Thank you, Silas. Good morning, everyone and welcome to United’s first quarter 2023 earnings conference call. Yesterday, we issued our earnings release and investor update, which is available on our website, ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on the line available to assist with Q&A. And now I’d like to turn the call over to Scott.

Brett Hart:

Thank you, Scott, and thank you to our United team for their hard work this quarter. As Scott mentioned, we continue to see the benefits of running a strong operation. In the first quarter, United led the industry with the lowest seat cancellation rate despite around 20% of our flights being impacted by weather, the most out of any of our competitors. This was the first time since 2012 that we led on this metric. Additionally, United was first or second in the quarter for on-time departures at nearly all of our hub locations, including those heavily impacted by winter weather like O'Hare and Denver. Our airline is built to run well and recover fast and we expect our operation to reflect that in the peak summer season. We continue to navigate the challenges in the current operating environment. Specifically, constrained industry infrastructure, United is working with the U.S. Department of Transportation and FAA regarding operational disruptions and air traffic staffing challenges. The FAA’s decision to consider commercial air traffic with managing the growing number of space launches combined with the FAA’s recent move to give carriers more flexibility in how we all fly in and out of New York area airports shows that the FAA is listening to feedback and finding ways we can all work together. In March, we took steps to reduce our schedule in the New York region and DCA by around 30 daily departures over the summer period to provide the air space relief requested by the FAA. The scheduled reductions are largely regional jet focused and will be redeployed at our other hubs minimizing the capacity impact to the system. It is our hope that this will drive improved customer experience, while flying United in the New York area and throughout our network. We are excited to announce that we reached a tentative agreement with our nearly 30,000 employees represented by the International Association of Machinists. With volume on the agreement expected to be completed by May 1, we are very proud of the work that our team does daily to support our operation and create a positive travel experience for our customers. Regarding other labor agreements, a new contract with our technicians represented by the IBT was ratified in January and we are still in active negotiations with our flight attendants represented by the AFA and our pilots represented by ALPA. As a reminder, we reached an agreement with our Dispatchers represented by PAFCA last year. We look forward to sharing further updates in the future. I once again want to thank our team for being the best in the industry. We remain confident in our outlook as we leverage our industry leading operational performance and network advantages. And with that, I will hand it over to Andrew to discuss the revenue graph.

Gerry Laderman:

Thanks, Andrew and good morning to everyone. Let’s start with our first quarter results. Our pre-tax loss of $256 million was in line with expectations and at the better end of our updated guidance issued last month. We saw losses in January and February due to seasonal weakness, but March turned solidly profitable. Our first quarter fuel price of $3.33 came in at the lower end of our revised guidance range. This was still about $0.14 higher than our expectation at the start of the quarter due to a spike in jet fuel prices in late January and early February. Turning to non-fuel costs, our first quarter CASM-ex came in slightly better than our revised guidance range at down 0.1% versus the first quarter last year. Our operational performance in the first quarter was truly exceptional and our CASM-ex fee is largely due to the cost benefit of a reliable operation. On the balance sheet, we ended the quarter with approximately $19 billion in liquidity. We continue to leverage the flexibility provided by our cash with financing opportunities and paying down debt. We generated over $3 billion in operating cash flow in the first quarter, the highest for any quarter in United’s history and we produced free cash flow of over $1 billion. Over the last 12 months, our total debt, including pension liability, has declined by approximately $4.6 billion and we remain on track to meet our 2023 target of adjusted net debt to adjusted EBITDAR of less than 3x. Looking ahead, we expect second quarter CASM-ex to be flat to up 2%, with capacity up approximately 18.5% both versus the second quarter of last year. Strong cost performance underpins our confidence in the earnings trajectory of the business in the second quarter we expect adjusted diluted earnings per share of $3.50 to $4, with a fuel price of $2.80 to $3. As noted in our investor update, this fuel price is based on prices as of April 12. As others mentioned, our strong operational performance in the first quarter sets the tone for the remainder of the year and is key to our conviction in achieving our CASM-ex targets. For the full year, we continue to be on track to keep CASM-ex approximately flat versus 2022 with non-fuel unit costs in the second half of this year declining versus the second half of last year. To give context as to why we expect CASM-ex in the second half of this year to improve on a year-over-year basis versus the first half of this year, it’s helpful to consider the 2022 cost baseline. With COVID still significantly impacting the business in the first half of last year, we have certain unique headwinds in the first half of this year when comparing costs on a year-over-year basis. Here are two notable examples. Revenue in the first half of 2022 was much lower than the second half of 2022, which meant that distribution costs were also much lower in the first half of last year versus the second half. This drives the year-over-year comparisons for the first half of this year to be commensurately higher than the second half of this year. A similar phenomenon exists with maintenance expense. As Omicron abated and the recovery took hold, we ramped up our maintenance activity in the back half of ‘22 to more normalized levels. Again, the difference in year-over-year costs are much more muted in the second half of this year versus the first half. So simply put, the two items represent a 1 to 2 point CASM-ex headwind in the first half of this year, which won’t exist in the second half. These drivers, along with strategic cost management, gauge growth and running a reliable operation support our expectation that we will hit our flat CASM-ex target for the year. When combined with our revenue outlook, we remain confident in our trajectory towards $10 to $12 in adjusted diluted EPS for the full year whether we face a mild recession or soft landing. As we have left the starting gate for our United Next plan, I am encouraged by the progress we’ve made not only financially but in our operation and across the entire organization. While we continue to live in uncertain times, I know that we will successfully manage everything under our control as we continue on a path to reach our full year financial objectives. And with that, I will turn it over to Kristina for the Q&A.

Operator:

Thank you. [Operator Instructions] The first question comes from Catherine O’Brien from Goldman Sachs. Your line is unmuted. Please go ahead.

Scott Kirby:

Sure, Catherine. We’re getting this question about domestic strength a lot and we should really address it. The way when we go back thinking about it, how to describe the conditions of this Q2, we have to recall Q2 of last year, Q2 of 2022 was the best domestic TRASM quarter ever for United with TRASM up 25% versus Q2 of 2019, which, by the way, was a prior record holder. We simply sent a really hard comp for Q2 2023 and also last year at this time, international markets were not widely open to travelers, in my view, selected domestic trips out of caution, just creating unprecedented demand relative to the number of seats available to sell. This year’s conditions are different. International travel is more or less completely open, and we see customers clearly excited about taking a long-haul trip. Domestic capacity is also now comparable to 2019 levels. So here are the facts, domestic ASMs at United will be up about 10% in Q2 2023 year-over-year. And our TRASM outlook for domestic will be negative low single digits from what I’ve said today. Total domestic revenue should finish well above 2022, given our TRASM outlook on capacity growth of about 10%. We’re currently booked about 10% ahead in gross revenue at this point compared to last year, and we’re about 54% into the booking curve for the quarter. I just don’t see these facts as weak when revenue is on target to again break the record and TRASM is likely to be just a bit behind an amazingly strong 2022. In summary, when Q2 2023 is in the books, we will likely be our second biggest best domestic TRASM quarter ever with record total domestic revenues. The only thing negative, I think I can say is that as good as domestic looks, it’s just not matching global long-haul revenue outlook, which is very strong and where United has focused a majority of capacity.

Scott Kirby:

On the ATL, I think it’s seasonally moving in a normal way. I don’t know, Gerry wants to add anything else on the ATL question.

Catherine O’Brien:

Okay, thank you.

Jamie Baker:

Hey. Good morning, everybody. Just chuckling it Gerry’s response to Katie there, on the ATL, Gerry, the build obviously helped with free cash flow generation in the quarter, presumably, the ATL will incrementally moderate in the second half as it often does. Do you still think you can cover this year’s $9 billion in CapEx and generate positive free cash flow?

Jamie Baker:

Okay. Fair enough. Second to Andrew, relative to the international component, you have got a lot of new route activity. Could you speak to sort of like same-store sales or same-store RASM or revenue, I guess, relative to those new routes? And how does the ramp to profitability in all of these new markets compare to that in the past? I mean, are new markets maturing much faster? Or does it take about the same amount of time as it ever did? I’m just trying to think about the read-through as some of these trends normalize next year.

Jamie Baker:

Thank you, gentlemen. Speedy answers. Take care.

Conor Cunningham:

Hi, everyone. Thank you. Just the 2023 CASM-ex rate seems pretty encouraging. I know you mentioned maintenance and distribution as being a main driver from the first half to second half, but it still seems to me that you’re holding incremental cost. I mean, that may be the cost of doing business right now. But just curious if you could talk about what potentially rolls off next year as we start to think about CASM-ex there? Thank you.

Conor Cunningham:

Okay. Okay. That’s helpful. And then just on the evolving booking curve and seasonality that you’ve been talking about. Just curious how going to combat those challenges going forward? I mean Delta has mentioned they are talking about looking at like overbooking and like tinkering with the inventory. Just curious what the strategy is at United, if there is one to combat those changes in the booking curve. Thank you.

Conor Cunningham:

Okay, thank you.

Savi Syth:

Hey, thank you. Good morning, everyone. Just a question on the MAX deliveries. It looks like you had three more deliveries than the prior plan in 1Q, but for the full year, kind of slipped a little bit. Just curious how you’re feeling about confidence on kind of the MAX deliveries, especially given the recent news?

Savi Syth:

Okay. That’s helpful, Gerry. And maybe along those lines, a follow-up on the fuel efficiency, there is a little kind of surprised by kind of what we saw here in the first quarter, maybe a little bit less than what we’ve seen last year. What’s your expectation around how that trends kind of going forward, especially kind of given that, that’s another part of the kind of the cost benefit in the United Next Plan?

Savi Syth:

So just from a critical mass standpoint, when does that – when do you think roughly that is based on like what you know today, I guess?

Savi Syth:

Okay, that’s very helpful. Thank you.

Operator:

The next question comes from Mike Linenberg from Deutsche Bank. Your line is unmuted. Please go ahead.

Andrew Nocella:

It’s a good question. And our intent is to get it to narrow. But we do – we’re simply smaller in Florida due to a lot of reasons that – that can’t be addressed in a matter of a few quarters, we have to be addressed over years. And so while our goal is to narrow that gap in Q1, I don’t think to be blunt, we’re going to be able to eliminate it. Clearly, the introduction of counter-seasonal fly into the South Pacific definitely helps put it in the right direction, and we will be looking for more opportunities and we will be looking to grow Florida, I think, faster than probably most of our competitors because we’re just so going to continue to be our weakest quarter and a recovery of business traffic in Q1 will do the most to help our relative Q1 results.

Scott Kirby:

Definitely was quite a few aircraft heading towards the South Pacific. What I would tell you is that we just seasonally reduced Europe and we would otherwise, but many of those wide-bodies into our domestic system and this year, our maintenance. And this year, those aircraft will be flying to the South Pacific, which we think is their best use. In regards to China, we continue to be stuck at four flights per week. We are preparing to supply more than that, but have been unable to get that done so far. But hopefully, later this year, we will be flying more to China, and we have the aircraft to do so if the conditions are – allow us to do so.

Operator:

The next question comes from Duane Pfennigwerth from Evercore ISI. Your line is unmuted. Please go ahead.

Andrew Nocella:

It’s a really good question. And I am hopeful that after further evidence that we will be able to operate a more stable schedule all the way from March through the end of October, which I think will definitely benefit our cost structure having less of the peak. However, we are not there just yet. I think we need to make it through this year. We need to see how the remote work schedules continue to play out. We need to, in particular, see how this September and this October do – we were fantastic, obviously, last year. And I think that will help us validate for next year whether we actually change the seasonal shape in, as I just described. And hopefully, we can but we’re not ready to really jump into the deep end of that pool today. So we will continue to peak the airline in July as we normally do, and we will see where we go from there. In terms of regional jets, the lack of regional jets has definitely hurt our connectivity. This is an issue. I talked about it, and we’re very focused on rebuilding that connectivity with the right jets going forward. And in fact, we don’t intend to ever go back to the fleet of approximately 600 regional jets we had in 2019. We think the economics have changed. We think the business has changed and we need to change with it. That being said, on the good news front, the regional jet pilot situation has recently – in our mind, stabilized. We’re no longer losing pilots at the same rate we were earlier – very early this year or last year. And the production of block hours in our regional jet division at the end of this year will be consistent with the production of block hours that we started the year with. And I can tell you that our original budget for that was not that. We thought we would continue to see deterioration. So the good news there is the regional jets are going to be able to at least temporarily help us boost our connectivity as we wait for all of our mainline jets from Boeing to deliver over the next 2 or so years.

Andrew Nocella:

I don’t think we’re ever solving for CASM. We’re solving for margin and, of course, the 10% to 12%. So that will always be our focus. And we’re going to maintain the flexibility. Like I said, I’m pretty bullish about the international environment, and that’s going to generate the large lion’s share of our ASM growth this year. And I expect International to be strong all the way through the end of October and so far, chose that. It’s still early, obviously, when we look at that far, but we’re very optimistic. And domestically, Gerry set us up at a really good fleet plan where we have a significant number of older A320 and A319 aircraft that we could easily fly less or we could put on the ground if we thought that was necessary as we solve to reach the right margin and right EPS targets that we have for the year.

Operator:

The next question comes from Helane Becker from Cowen. Your line is unmuted. Please go ahead.

Gerry Laderman:

Hey, Helane, yes, we did not say anything about pension. Nothing’s changed from our recent disclosures. There is – we expect no pension contributions this year. Our pensions are in good shape and both with the pension calculations that can be made and interest rates having nicely reduced the liabilities. We wouldn’t expect any pension contributions actually for a couple of years.

Andrew Nocella:

On the United Next comment, as I indicated a bit earlier, my number one focus domestically is this connectivity issue. We can clearly see it when we look at our RASM by flight by market that we are just – we’re missing a lot of connectivity relative to where we were. And so as we go forward, we’re going to be very focused on rebuilding that connectivity and getting the bank sizes back to where they were, hopefully, in 2019, but it is going to take some time. But we’re optimistic just like we did it in 2017 and 2018. And that we’re going to do it again, and it’s going to be very accretive to margin profitability and, of course, to RASM as we build back the connectivity. So it is a really important focus of our domestic flying, and we’re ready to get that implemented as soon as possible.

Operator:

The next question comes from Ravi Shanker from Morgan Stanley. Your line is unmuted. Please go ahead.

Scott Kirby:

Well, maybe I will start and talk about it from a business traffic recovery and what we are seeing in there, because I do think one of the most common questions I get is business traffic recovering and what is it going to look like. And first of all, I wonder whether the old methods of measuring business travel will be the same in the future. But for now, it’s all we really have to really benchmark against 2019. I will say that as we look at business traffic three different ways, the first is from larger corporations that have a contract with United. The second from a set of demands from agencies that specialized in business traffic. And the third is based on ticket attributes. The third is clearly the most encompassing view as it includes small and medium-sized businesses that don’t have an agency or don’t have a contract for United. So, in Q4, the revenue recovery rate was between 70% and 85% for these three categories. In Q1, the revenue recovery rate for these three measurements range from 85% to 97%. And for the first two weeks of April, the recovery ranged from 95% to 101%. I think this data in the last two weeks of April was a surprise to us as we have seen more conservative measurements, start to approach 100%. The fact that large corporations are getting close to 100%, is a nice tailwind to United. As many of you know, this is critically important – critically important component to our revenues. I will also say that the recovery in global long-haul business is a few points of head of domestic. And all these measurements are just a good sign that our planned international revenue increases, our capacity increases are moving in the right direction. We obviously need more time to see if this trend will hold. But what I can tell you in the last week or so after reviewing this data become a lot more positive even as many of the headlines continue to predict a recession. As I have said in my opening statement, the trends for May look ahead of March. I can also confirm in absolute dollars the last 14 days have been the best booking days for business traffic revenue that we have seen since the pandemic. I will also add, since this step-up in business demand is very recent, we have not incorporated it into our revenue outlook for the quarter.

Scott Kirby:

Yes. So, I mean cargo stepped down in Q1 and stepped down exactly with our plan, still well ahead of 2019, which is nice to see. But we are seeing very low prices, low yields across the system, particularly outside of United. We have been – I think we have done a great job of holding yields where they are at through our – really the best cargo team in the world, in my opinion. But not only is air freight challenges now, but also sea freight where rates are incredibly low. So, we are holding our own. I think again, we are executing consistent with our plan, and we have got this baked in for the rest of the year. We do expect to see more and more pressure on cargo yields going forward. But the United team is executing in an amazing way. Our relative size to our primary competitors, you can see it in the numbers. And so I am still actually bullish about the business relative to 2019. But look, it’s last Q1 in particular, we reached an unbelievable high based on where we were with the pandemic and COVID. We didn’t expect we would be able to re-achieve that number, and we didn’t. But again, we are on plan.

Operator:

The next question comes from Sheila Kahyaoglu from Jefferies. Your line is un-muted. Please go ahead.

Scott Kirby:

Well, I guess we will see. But I feel really good about what we have done with running with higher resources than we did pre-pandemic, it’s leading to the best operation that one of the countries run the best operation, frankly, that we have ever run. That’s great for our customers. That’s great for our brand. I also think it’s turning out at least right now in this environment to be the lowest CASM outcome, that by being able to run a reliable operation, most sensitivity [ph] and being able to run a reliable operation is what is giving us the best CASM results in the industry and given us confidence about CASM results going forward. So, I think we are at the right place at the moment. It’s obviously very – if the operating environment gets easier down the road, it’s obviously easy to adjust that, especially as we are growing just slip down the hiring for a month or two months and you are right back to where you were, so, easy to adjust, but I feel – I am really proud of how the team has done operationally. And I think it has been the lowest CASM outcome we could have had by running reliable operations.

Andrew Nocella:

Sure. I mean I have been really happy actually with our progress on the premium side in all of our cabins, particularly for Polaris. We have been just making a ton of progress in the Polaris cabin given the rebound in business traffic, but we still have more to come. In March, for example, our load factor was up 10 points year-over-year and 5 points versus 2019. We sold a lot of seats, but we sold business travel seats accounted for 7 points down year-over-year and premium leisure comp traffic compensated for that by being up 7 points. So, it just to offset it, but that came at a lower yield. So, we are carefully also trying to keep increased premium leisure demand and revenue created since the pandemic while accommodating more and more of traditional business traffic. There are lots of puts and takes with this given our load factors, but we do think that there is potential to get this done, particularly as we continue to integrate the new 737s, which come into our fleet with a large amount of premium seating. Most of our growth is tilted towards premium seating at this point, particularly as we retire the single class regional jets from the network. And so I will say that I think we are just hitting on all cylinders on this front and the progress we are seeing in Polaris in particular, with higher load factors, backfilling temporarily lease or premium leisure. And ultimately, as long-haul business traffic, as I said earlier, some of it back, faster, we were optimistic that we are going to get Polaris completely back to where it was in terms of relative profitability margin later this year.

Operator:

The next question comes from Scott Group from Wolfe Research. Your line is un-muted. Please go ahead.

Scott Kirby:

I do think it is a little bit lower than Q1. I think you are absolutely correct on that. It’s where the numbers shook out. We clearly leaned as hard as we could, as quickly as we could into global long haul, which really turns on in March and April, and that’s what shook out for domestic because we thought that was the best place to put the capacity. But you should see a little bit more domestic ASM growth in the second half than what we are seeing in the second quarter.

Scott Kirby:

I don’t think we are prepared to give our guidance for ‘24. We are excited to continue implementing the United Next. And most importantly, for domestic or excited to make sure that we rebuild the connectivity as quickly as we can back to where we were pre-pandemic. And I think that’s our biggest driver of domestic RASM next year and that’s really all I can say at this point.

Operator:

The next question comes from David Vernon from Bernstein. Your line is un-muted. Please go ahead.

Andrew Nocella:

Sure. What I would say is the booking curves have adjusted. They are both international and domestic are booking further out, the international more extreme than domestic. And so we are – RM systems have adjusted for this very, very quickly, and we are booked ahead in our global long-haul system based on the change in the booking curve. Domestic has also moved out. There is I think 4 points greater outside of 21 days and there is inside of 21 days right now. And again, RM systems have adjusted for that. That being said, we are managing to keep yield domestically as close as possible to where we were last year. And as we look at this, we expect we are going to run lower load factors in our domestic entity in Q2 as a result. That’s part of our plan. We think it’s the right strategy. And we do think we will be able to fill up some of these seats were closer in higher yield in business. And the back that business has had significant recent recovery in the last two weeks makes me even more bullish that we have executed the right strategy there and that we do have capacity available to accommodate closer in business demand to the extent it materializes in Q2.

Operator:

We will now switch to the media portion of the call. [Operator Instructions] The first question comes from Claire Buchi [ph]. Your line is un-muted. Please go ahead.

Torbjorn Enqvist:

Hey Claire, this is Toby. Well, we have done a lot. Let’s talk about Newark and New York first. So, we work with the FAA. FAA gave us a waiver for the summer. So, we are down about 30 flights per day in Newark and at peak times that’s going to make a big difference. Also, like Andrew said, we are not the only one. So, for the first time in a long while in New York, we actually will be scheduled to on a blue sky day, at least what the capacity of the airport can actually hold. So, we are really bullish on that. And on top of that, and Andrew mentioned this in his remarks as well, we are actually going to have 17 new normal mainline gates in the brand-new terminal in New York. And if you guys haven’t been there, it’s a fantastic terminal. I mean it’s a world-class terminal replacing a 1969 [indiscernible] terminal that we were in last year. So, just right up the bat right there, that’s going to be a huge improvement. The other thing – again, United actually did, if you guys remember, we actually did pretty well last year, last summer. I think the biggest issues we had was actually the infrastructure, especially in the Transatlantic. And now actually, we are just in Europe two weeks ago and talked to our biggest Air Force there Heathrow, Frankfurt and Munich. And they are 1 year ahead of all the hiring and all the other things there. So, again, it’s summer, it’s peaked up. It’s not going to be perfect, but we are in a much, much, much better place than we were last year and we visited, I mean all the terminals in Europe is actually open this year. We had large traffic terminals in Europe last year, both in Amsterdam and Heathrow and others that were even open, and they are wide open and open for business this year. So, we are – again, we are – we call it summer readiness. We are not taking it lightly. Summer is our Super Bowl, is the toughest time to operate. It’s going to have some tough base really with weather and things, but we are going to be in a much, much better place than we were last year.

Torbjorn Enqvist:

Well, I would just – I will take that, too. We have already done that. So, when we talk about we are not building our own like it’s 2019, we built those buffers in prospectively and in advance. And that’s why we ran the best operation in the country because we were ahead of the curve. And perhaps others are catching up to that, but we were ahead of that curve, and that’s what led to the best operation in the country in the first quarter.

Operator:

Our next question comes from Leslie Josephs. Your line is un-muted. Please go ahead.

Scott Kirby:

Okay. That’s a good question, and I will not answer the latter question other than the teams are always working on innovations at United across all of our business functions. And I am sure somebody somewhere is working on something great when it comes to seats and we will leave it at that. In regards to retrofits, and I don’t have the numbers here. We will have somebody call you back. But the reality is the supply challenges across the board whether it would be IFE systems, chips, seats and many other things are just more challenging than they have ever been in our business. And while we converted our first A319 a few weeks, it should be flying hopefully, any day now in the new interior, and we have multiple lines that we will be doing this summer. So, you will see a rapid increase in the number of aircraft with the signature interior through retrofits and through new aircraft. The total time to convert all the aircraft is just going to be longer than we expected, unfortunately, probably by a year or 2 years, to be frank. So, we will get there. It will just take a little bit longer than we had originally intended. But you will see material progress. We will get some of the numbers out to you separately by the end of this year.

Scott Kirby:

No, what I would tell you is that the increasing of getting on an aircraft, the United signature interior is going to go up rapidly. It’s just the tail of this is going to take a little longer to get done. So, our investment in our brand and our products and our services, and how we are differentiating ourselves from our competitors, I think our customers already see it. And they are going to see it a lot more in the coming quarters. It’s going to be a little bit slower than we had hoped, but I know people are noticing it already. We can see the NPS scores on these converted aircraft are definitely the new aircraft and we are excited to get it done as quickly as we possibly can.

Operator:

The next question comes from Alison Sider. Your line is un-muted. Please go ahead.

Scott Kirby:

So, I am proud of the whole aviation industry for the level of safety that we have, which is at least an order of magnitude higher than any others appropriately so. And when aviation professionals talk about safety is our number one priority, that is something that’s deeply embedded in the DNA and everyone, not just at United, but across the industry. United Airlines, in particular, is at the tip top of that pyramid in terms of safety. Our team, I think is doing a really good job of saying in today’s environment, where you are coming back out of COVID, and there is new people working in airports or new air traffic controllers or whatever it is, and increasing the amount of training, the time in training, quality of training. We are spending more money and a lot more time and resources there. And in fact, we put a Vice President, a guy named Mark Champion [ph], who has been a champion for safety for his entire career into a new role where he is exclusively responsible for safety and quality of training for our aviators. And I think we are leading on that and continuing to push to make the system what is already the safest system in the world even stronger, and I feel good about the have there on and Mark being charged with that responsibility and having really as many resources as he need to the one person that doesn’t have to live to his budget because he can do whatever he needs to do to make sure that we keep this the interest steep as we have always been.

Scott Kirby:

Well, one of the great things about aviation is we use and we share data. We have great safety systems where our own employees can report without repercussion to them that encourages reporting because it’s been, I guess well over a decade since there has been accidents [ph] in the United States. What that means is we have to look for, say, that are close to the out of tolerance, throughout a tolerance to find it and sharing that data across the industry is a strength that I think is unique to aviation and what leads to our higher safety standards. So, we have teams of people and our competitors have teams of people. And on this one, we don’t compete. We share the data with each other on doing that. And they are always, always, always looking for no matter how good we get, what’s the next place that we can get even better. That process as well, it’s continuing to work well. I think they have an even elevated sense of responsibility right now as we are coming out of COVID and feel great about where we are headed.

Operator:

I will now turn the call back over to Kristina Munoz for closing remarks.

Operator:

Thank you all. This concludes today’s conference. You may now disconnect.

Kristina Munoz:

Thank you, Candice. Good morning, everyone, and welcome to United’s fourth quarter and full year 2022 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday’s release and the remarks made during the conference call may contain forward-looking statements, which represent the Company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the Company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to related definitions and reconciliations in our press release. For reconciliation of these non-GAAP measures to most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are our Chief Executive Officer, Scott Kirby; Executive Vice President and Chief Operations Officer, Toby Enqvist; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on the line to assist with Q&A. And now, I’d like to turn the call over to Scott.

Toby Enqvist :

Thanks, Scott, and hello to everyone tuning in today. I first want to thank our employees for their exceptional performance over the holidays. We faced a really challenging operating environment that included some of the busiest days of the year and historical cold weather across most of our hubs and line station. While you wouldn’t know it from the holiday travel headlines, United was actually the most impacted airline from a weather perspective. 36% of all our flights were exposed [Technical Difficulty] 21st, and 26th, more than any other airline in the country. And even though our load factor was already high, we accommodated thousands of additional customers on short notice when their travel on other airlines was disrupted. Despite these headwinds over the holidays, our team connected 90% of our customers within four hours of their planned arrival and served more than 8 million people, 1 million more than we did last year. And our operation performed very well, especially because there were these tough conditions. United was among the airlines with the fewest cancellations during the holidays and we were number one in completion in Denver, San Francisco, Houston and Washington, and Dallas. And we practically eliminated all crew related challenges and cancellations compared to the 2021 holiday period. So, how did we do this? The answer lies in all the planning and investment we made during the depths of the pandemic. Instead of just trying to run the airline like we did in 2019, we worked over the last three years to prepare for a different, more complex operating environment and a sudden surge in travel demand. To prepare specifically for the 2022 holiday period, we’ve purposely built some slack in the schedule and reduced how often we fly during peak times. We accelerated our hiring and added staffing buffers in key locations. We built firewalls to prevent individual weather events from spilling over into broader network. And finally, we beefed up our training in every department, including clearing out the pilot training backlog to be resource ready for the peak travel demand season. Again, as Scott said, our work to prepare goes back even further. Over the last three years, United invested in systems, training, tools and technology that would empower our employees and benefit our customers [Technical Difficulty] a modernized crew scheduling system with 800% improvement in performance, capacity and security versus 2019, a smart schedule and operations coordination to build a reliable and operable schedules, additional spare aircraft in our fleet, updated technology infrastructure supporting our network, operations, airport operations and [Technical Difficulty]. Together with our industry leading customer facing technologies like ConnectionSaver and Agent on Demand, both of which now are integrated in our mobile app. Some of these investments are obviously more marketable than others, but they all make a difference in our performance. Finally, I want to point out the biggest difference maker for United this holiday season, our frontline teams. They worked as one team, they volunteered to pick up extra trips and work overtime and again record setting cold temperature. It was the combination of their dedication and the proactive investment in technology and infrastructure that led to our success. And with that, I’ll hand it over to Andrew to talk about the numbers.

Gerry Laderman:

Thanks, Andrew, and thank you to the whole United team for closing out the year strong. With adjusted pretax income of $1.1 billion, we came in ahead of our fourth quarter expectations and not only returned to pre-pandemic levels of profitability, but actually exceeded the fourth quarter of 2019 on both an operating and pretax margin basis. Even more encouraging in the second half of 2022, we achieved an adjusted pretax margin of 9%, which matches our margin target for 2023 and puts us well on our way for that same success this year. Turning to costs. Our CASM ex performance in the second half of 2022 meaningfully improved versus the start of the year. As I mentioned last quarter, a big driver of this success is the return of the grounded 777 to flying and further improvement in our operational reliability. As we know, a well-run operation is a more cost-efficient operation. Looking ahead, we expect first quarter 2023 CASM-ex to be down between 3% and 4% with capacity up 20% versus the first quarter of 2022. On a full year basis, we expect 2023 CASM-ex to be about flat with capacity up high-teens versus 2022. This full year cost outlook is inclusive of investments in the system that support operational reliability, our current expectations for new labor increases, representing about 4.5 points of CASM-ex, excluding any possible signing bonuses, and a higher inflation outlook for all parts of the business. On the first point, one lesson learned during the pandemic recovery is that it is both economical and profit maximizing to provide cushion to our aircraft utilization. Instead of pushing utilization to its theoretical limit, we are focused on protecting our reliable operation. This minimizes delays and cancellations, which would otherwise drive higher costs such as overtime and customer accommodation costs. Turning to our expectation on profitability. As Andrew mentioned, demand remains healthy. As a result, and using the January 10 forward curve for fuel prices, we expect our first quarter 2023 adjusted pretax margin to be around 3%, resulting in an adjusted diluted earnings per share between $0.50 and $1. Additionally, building on a successful second half of 2022 and with industry dynamics Scott described at the start of the call, we feel even more confident about achieving our United Next 2023 adjusted pretax margin target of 9% and expected adjusted diluted earnings per share between $10 and $12 for the full year. On aircraft, we currently expect to take delivery of 92 Boeing 737 MAXs, 2 Boeing 787s, and 4 Airbus A321neo aircraft in 2023. Assuming all these aircraft are delivered, we now expect full year 2023 total adjusted capital expenditures to be around $8.5 billion. Even with this elevated level of CapEx, based on the capacity, revenue and cost guidance we’ve outlined, we expect adjusted free cash flow to be positive for the full year. Looking beyond 2023, last month, we announced an aircraft order with Boeing that included 100 firm 787 aircraft, which will address much of our widebody replacement needs through 2032. We also received options for up to 100 additional 787s that can be used for growth if there are margin accretive opportunities to do so. Additionally, the order included 100 incremental 737 aircraft to both, meet planned United Next targets and start preparing for narrowbody replacements in 2027 and beyond. Our aircraft order book is one of our key assets as it provides us with both, cost-saving replacement aircraft and the ability to take advantage of profit-enhancing growth opportunity. The cost of the flexibility built into the order book, we can also adjust the delivery time line as the macro economy dictates. Moving to the balance sheet. We ended the year with liquidity of $18 billion and reduced our adjusted net debt by $3.3 billion versus year-end 2021. We continue to balance liquidity levels with deleveraging activity and financing opportunities as we expect to end the year having met our 2023 target of adjusted net debt to EBITDAR of less than 3 times. We’re entering 2023 with a strong foundation, and I want to recognize all of the hard work that has gone into running this great airline. We look forward to delivering to our customers, employees and investors in 2023. And with that, I will turn it over to Kristina for the Q&A.

Operator:

[Operator Instructions] The first question comes from Conor Cunningham from Melius Research.

Gerry Laderman:

Hey. Conor, let me provide a little bit of color on that and maybe Andrew will as well. But first of all, we -- when we provide our fuel guidance, we did this quarter, what we always do, which is we look at the forward curve about a week ahead of the release. So last week -- those numbers, as you know, can change daily. In fact, if we had run it more recently, we would have put out fuel numbers potentially $0.10 to $0.15 higher. All things being equal, that would represent about 1 point of margin, but we are -- we continue to remain confident that there is the correlation between revenue and fuel that we’ve seen historically. For the first quarter, near term, we don’t have quite the same ability that we would have during the full year. But even for the first quarter, we still have February, March and fuel will change daily. And for the full year, we’re still comfortable that there is this correlation. And in fact, had we put a higher fuel number -- and there probably would have been a different revenue number. But let me just give you an example that gives me some comfort. But keep in mind that for the back half of 2022, where we achieved 9% margin, fuel was $3.68. So, we do have a lot of cushion. And I don’t know if Andrew has any additional color.

Conor Cunningham:

Okay. And then just on the United Next plan. So when you guys talked about that originally, it was all about leading on costs, and I realize the environment has changed a lot since then. But, as you start to look at the cost structure that includes labor and so on, is your expectation that this -- like that United becomes a cost story again going forward -- in the post-2023 world, going forward. Thank you.

Operator:

Our next question is from Catie O’Brien from Goldman Sachs.

Scott Kirby:

Well, I mean, if you go back and look at history, while load factors have gone up a little, I wouldn’t expect a lot of change in load factor. And if you went back a few years, pricing in real terms was higher [Indiscernible] it remains a great value. I mean, air travel prices are probably 50% lower than they were about 30 years ago in real terms. And you can still frequently pay more for your Uber to the airport than you do for your airline ticket to Florida. And so, I think -- but I think that what this means is the era of $4 prices from Los Angeles to Cabo and $7 from New York to Florida or $9 from Houston to Central America are probably a thing of the past. And cost convergence -- it’s up to other airlines to decide how to price the product. But I’m pretty sure it’s not upto them what’s happening to their cost structure. And as that is changing, we see it happening already. It is what happened last year. It’s what changed last year. We see that continuing, to Andrew’s earlier point, too, I look at the data as well and following our revenue management team is doing a great job. But the yield curve for February is higher than January. The yield curve for March is higher than February. And the yield curve for the second quarter is higher than March. And by the way, bookings are ahead in all periods. So, I think it’s a structural reset. I think it is the investor store or aviation, I think it’s good for everyone. I think it’s particularly good for airlines like United that have the sophistication, the technology, the infrastructure to operate in this more challenging environment. But it’s good for everyone. And it’s just a structural reset that’s reversing what happened over the past couple of decades, at least a possibility of it. I think it’s likely, but we’ll see it at least a possibility.

Andrew Nocella:

I’ll try that. I don’t think we’re going to reset the bar here. Obviously, this is really dynamic. And the OEM delivery delays, both on engines and aircraft have been really unprecedented. So, we’re not going to reguide today to what 2026 looks like, other than we’re plotting our course in very bumpy skies when it comes to the availability of aircraft. And there’s not a quarter that goes by where I don’t get an update with obviously disappointing results from what our outlook looks like for aircraft deliveries. So, we’ll continue to monitor that. And at the appropriate point in time, we’ll update the guidance.

Operator:

Next, we have Jamie Baker from JP Morgan.

Gerry Laderman:

Jamie, nice question, but neither one of those we’re going to be able to talk about on the call. You’re asking for too much information regarding potential negotiations.

Scott Kirby:

I’m saying, not implying, that I don’t think a world where they pay meaningfully less and still hire and successfully fly and complete their schedules. I think that’s an offset. I don’t think they can do it. And one of the other ULCCs has really been struggling this year with a completion factor, which at least had us internally wondering if they had pilot shortage issues because system’s been really pretty good. There was a one-day FAA outage, but the weather has been good, and they’ve been consistently having problems. And then 8 or 9 days ago, they put out a $50,000 signing bonus for pilots. And look, however you want to calculate it, however you want to look at it. And if you’re interested, I can give you some more real-time facts, like I’ve watched the data closely. And it’s not happening. I mean what happened over the holidays wasn’t just at one airline. And at all the airlines that had challenges, you can look at our data that we put out. And if you want data for what’s happening right now, I can tell you some more stuff. But, there are a number of airlines who cannot fly their schedules. The customers are paying the price. They’re canceling a lot of flights. But they simply can’t fly the schedules today. Maybe it’s pilots, maybe it’s something else, maybe it’s technology, maybe it’s infrastructure, but what I’m confident of the big three -- and by the way, I think JetBlue has invested in this, the big three and JetBlue are operating at a different level than everyone else for whatever the reasons are.

Ravi Shanker:

Scott, thanks for that kind of early intro to the call, pretty extraordinary set of kind of facts, an argument you laid out there. What does this mean for the industry kind of longer term? Kind of it’s really unusual to see an industry, to your point, try to grow in the face of the restrictions that they have like this? I mean, how does this end? I mean, do you think there’s going to be like regulatory scrutiny on kind of airlines trying to grow when they can’t, and that’s hurting service, or what happens next here?

Ravi Shanker:

Great. Thanks, Scott. I think, you can be a good sell-side analyst when you decide to do something else at some point in the future.

Ravi Shanker:

Just maybe one follow-up. I think the point on corporates running out of budgets towards the end of last year was an interesting point. Do you guys have much data on kind of what ‘23 corporate budgets look like to avoid a similar situation this year? Thank you.

Operator:

Next from Duane Pfennigwerth from Evercore ISI.

Scott Kirby:

Well, to be clear, I think we can grow at United. I don’t think the industry can grow for all the reasons that we’ve set. I think at United, we can grow. We are clearly able to hire pilots, pre-pandemic, like most of we ever hired there’s about 900 in a year. We were right at 2,500 last year. Our team -- our flight training team has done an amazing job. There was a lot of work to do to get that training machine humming. It also helped that we had enough foresight to build 14 new simulators during the middle of the pandemic when everyone else was pulling back and shrinking. But that’s part of the -- that’s one of the probably the most complicated thing that airlines are struggling with, and we have that machine humming. We’re here in Houston at the flight training center and we acquired 4,000 flight attendants this year. We opened a new flight training center, another investment we made last year. I mean, really, the point is we invested to be able to grow. And I think we can grow. We have the other benefit. We’re taking 300-plus regional jets out of the system. So, that creates a natural slack in terms of departures. If you got FAA issues, air traffic control issues, if you’re a single fleet type airline, you buy all A320 family or all 737s, like you don’t have anything to take out to give you room. We do have 300 aircraft to take out. But really, the point is all the investments -- I mean, like one of the investments that I like that speaks to the foresight that we had coming into this was clubs, and we increased our club space by 48% during the pandemic, like that’s always a challenge. Trying to close clubs when they’re full in a constrained airport environment, it’s always tough on customers, like the pandemic was once in history, not once in a generation, once in history, a chance to do that with minimal impact because we didn’t have nearly as many customers flying in 2020 and 2021. And we’re the only ones that did it. And like there’s just stuff like that everywhere that United did differently. So to be clear, while I don’t think the industry can grow, I think we think United can. My guess is because of the [Technical Difficulty] our full target because those will be behind. We’re going to be filing a lower utilization than we were before, and there’s going to be less regional. So, we probably won’t be all the way to our target. But I think we can uniquely grow and expand margins in this environment when everyone else can’t, and it’s because of all the investments we made to set up for this.

Scott Kirby:

I think if we -- I mean, look, if we’d invested -- if we had done the same thing everyone else did, we’d have the same problems they have right now. Instead of canceling 1% of our flights today in Denver, we would be cancelling 33%. That’s higher cost. Our costs would be higher. This isn’t just investment, like [Technical Difficulty]. Anyway, I think when you get to the end of the year, add dollars to donut, we have the lowest CASM, the best CASM performance. I recognize other people have better guidance and then maybe they will have better guidance. But I think in the real world, we’ve come to grips with what the real world means and how -- which you have to do to operate it. And you can see it in the data, you can see it in the operating stats, you can see it in the financial stats. And it’s a new world. You can’t run the airline like you did in 2019. I remember -- I read all the transcripts. And I read one of the transcripts, and Jamie asked someone, I don’t remember which airline it was, but asked someone when are we going to get back to pre-pandemic normal. And I don’t remember who it was or even what they said because I immediately thought the answer to that question is never. And I don’t think anyone else just figured that out yet. The answer to that question is never. It isn’t a new environment, it’s a new industry. And that creates higher costs. It does, but it’s also creating higher revenues. And I think it’s going to lead to across the board higher margins, but particularly for United.

Dave Vernon:

Hey. Andrew, I just wondered if you could sort of [Technical Difficulty] about what’s embedded in the TRASM guide for being flat? I know you mentioned PRASM was up 2 to 3 cargo down. What are you expecting out of the card program and the other revenue line as we think about ‘22 to ‘23?

Dave Vernon:

Okay. And then, maybe, Scott, just to ask the question, it just kind of came up as you’re talking about the challenges around the industry having to reset its cost structure. Do you see any risk that as you’re kind of looking out and building the revenue plan around your own cost structure, setting fares at a level where you can recover that cost pressure that the rest of the industry maybe doesn’t get there. I guess, if the rest of the industry isn’t quite recognizing what the cost pressure of operating in the new normal is going to be, do you think they’re going to be under pricing and potentially creating some problems for you to absorb some of the costs that you’re building into the network? Thanks.

Operator:

Next, we have Andrew Didora from Bank of America.

Gerry Laderman:

Let me start. Look, what I’d tell you is that I do think fuel is a pass-through in both directions and that it is dynamic on when we pick the number and we -- we adjust the revenue forecast for it. But more importantly, where we are in terms of demand and supply and cost convergence, as Scott just spoke about in quite a bit of detail, has just given us, I think, significant ability to utilize our revenue management system to make sure that the price points are where we need them to be. And we did that all through last year. And in fact, we did that all throughout the entire pandemic, where we led the industry, I think, 11 out of 12 quarters. So, we feel really good about where our revenue performance is. We feel really good about where our bookings are. We feel really great about our Q1 guidance, and we feel really good about where the RM system is currently managing price points for Q2 and beyond. We definitely believe in the GDP relationship. It is converging, and it’s converging for all the reasons that Scott talked about earlier. So, we feel really bullish about the outlook and the ability to achieve the revenues that we need to achieve.

Andrew Nocella:

Sure. I’ll go to try. I will say that I started with earlier, the global long-haul environment where capacity ex United is negative and capacity with United is just slightly about at 2019 levels relative to where GDP is this year, provide just an enormous set up to hit a home run on TRASM on our global long-haul network. So, we couldn’t be more bullish about that. And it’s simple, right? Supply is flat versus ‘19 and the propensity to travel along with the economy and GDP is dramatically higher. That sets up a very good opportunity for RM systems, and they’re actively working to do that. And bookings for spring and summer look really strong. So, to Europe, I just think it’s going to be another record RASM and margin year based on that setup, and it looks really good. Across the Pacific, the same exact capacity setup, by the way, where it’s slightly negative without United and about 100% with United relative to 2019 capacity and a very similar setup, but we also have the opening of China and all three markets, Hong Kong, Beijing and Shanghai, ultimately. And we think there’s going to be a significant bounce back in demand like we’ve seen in Korea and Australia and other places in the region. The only I think thing we’re watching more carefully is Japan, where the numbers look really good, but it’s based on U.S. point of sale at this point and not Japanese point of sale. We expect the Japanese point of sale to kick in later this spring and summer. So, that one has been slower to rebound. But again, U.S. point of sale just had an enormous, I think, pent-up demand and is ready to fly and is doing -- so really covers the numbers. Once Japan comes back on line from a point-of-sale perspective, I think that further strengthens that as well. Latin America, near Latin America is the best I’ve ever seen it from a TRASM, RASM type perspective at this point. And Deep South America is also very good, but it’s just not nearly as good as the amazing performance we’re seeing eclipse in Latin America. So the setup for our global network is, I think, unbelievably good. And it’s really a very simple math, and there’s very little capacity growth out there and a lot of GDP. And if you look at our capacity guide, while we haven’t given you an international and domestic breakout, you can look at what we’re selling. And you can see how we’ve leaned into it for 2023 to make sure we maximize the profitability of the airline. And we think that we’ve done that very well. Domestically, I also want to say, Scott, talked about this cost convergence. We talked about the capacity constraints. What people think they’re going to fly in 2023 is not what will really be flown, that happened 2022. We think that’s going to happen in 2023. And given where we think total revenue is and ASMs will be less than that. We think there’s a chance for a positive TRASM domestically as well. And it’s a really good setup. So, across the globe, amazing setup; here at home also a very good setup for a positive outlook for the year.

Helane Becker:

So, just one question here. When we look at air fares and we compare, say, premium economy to where business class was pre-pandemic, it seems like the price points moved to that level, right? So, you have some economy fare. Then, you have a premium fare in economy that seems to be equal to what business was, and you seem to have business that is significantly higher. So, A, is that observation correct; and B, what’s your expected load factor in the front of the cabin?

Helane Becker:

Okay. That makes perfect sense. And then just for my follow-up question. I’m not sure whether you said that or Scott said this, but if ‘22 -- if nobody flew their capacity original plans in ‘22, which they didn’t, and they don’t in ‘23 and the infrastructure issues -- and I don’t see the government rushing to invest in air traffic control. In fact, I see it getting worse. I don’t see the FAA investing. As you think about this, doesn’t ‘23 get worse than ‘22 and ‘24 get worse than ‘23? And doesn’t that accelerate to the point where you can’t -- the industry just have more because you run out of space?

Andrew Nocella:

And Scott, we should add to that though, what you said earlier that we’re getting rid of a large number of regional jets. So, the departure activity that we’re planning from our 7 key hubs in 2023 is still materially behind where we’re in 2019 from a departure level. The ASMs are a whole another story as we’ve talked about because of what we’re doing with gauge. But we’ve created the room in our hubs to be able to execute our plan. We have sufficient runway and gate space to do so.

Scott Group:

I got one near term and then one bigger picture question. Just when I just look fourth quarter to first quarter, the RASM guide, the implied revenue guide just worse than normal seasonality. Just given everything you were saying about February, March bookings, just help square with the revenue and RASM guide, please?

Jamie Baker:

Okay. And then, Scott, so bigger picture, if you’re not getting the unit cost leverage from capacity growth that maybe you thought you would have gotten a year ago, I guess, why grow so much and risk adding too much capacity to the market and risk pricing? And maybe just asked differently, if you didn’t grow as much, do you think you’d still hit the 9% margin, but at the same time, just generate better free cash flow?

Operator:

We will now switch to the media portion of the call. [Operator Instructions] First up is Leslie Josephs from CNBC.

Andrew Nocella:

I’ll give it a try, Leslie. It’s Andrew. I think we’re benefiting from running a world-class great global airline. When we look at the data and particularly not over like one week, right, over one quarter, when we look at the data over the last year plus, our team has been just hitting a home run and the data shows it. So, I think we’re really proud of where we’re at. We intend to keep that online. We have the appropriate buffers to make sure we can continue to deliver for our customers going forward, and we shall. In terms of frequent flyer growth, what I was going to say is the program is incredibly healthy. The redemption rates are quite normal given where we are with inventory availability and our customers are using their miles to fly all over the world in the largest global network of any U.S. carrier.

Operator:

Next is Alison Sider from The Wall Street Journal.

Scott Kirby:

So, I think this ought to be a wake-up call to -- for all of us in aviation -- something many of us in Aviation have been saying for a long time that the FAA needs more resources. By the way, I think they do an amazing job. During the Christmas struggles with the weather, a bunch of great things that they did. But 2, in particular, the water main break that flooded the tower in Newark and the same thing happened at one of the towers in Chicago, and they really quickly moved into backup facilities and kept the operation running. I mean, just a lot of people jump through a lot of hoops and deserve a lot of credit for that. But the hard facts are the FAA’s budget in real terms, it’s lower than it was 20 years ago. But the amount of work that they’ve been asking to is significantly higher. Huge resources devoted to space launches, drones, thousands of people were working on aircraft certification programs in the aftermath of the MAX disaster. And so, they’ve had to rob Peter to pay Paul. And they’ve done -- asked to do more, and they’re doing it less money. There’s fewer controllers than there were 30 years ago. And it’s people, it’s technology. And look, here in the United States, we should have a world-class best aviation system in the world. And we’re putting at risk if we don’t invest in it. And this is infrastructure. It was great that we passed a bipartisan infrastructure bill. This ought to be bipartisan as well, by the way that we passed the bipartisan infrastructure bill. But this isn’t concrete, but modern systems, modern technology and the right number of people for the FAA is an infrastructure investment that will pay dividends many times over for the country. And so, I hope that what this is, is an opportunity for us to look at this just like we looked at the country at the infrastructure bill in a bipartisan way, get the agency, the resources that they need because we have asked them to do more, and we’ll all be better off.

Andrew Nocella:

There are. At this point, United Airlines holds the rights to fly 4 flights per week to China. We intend to convert our current one-stop service to nonstop sometime in the next few weeks, hopefully. But we do not hold rights at this point to increase our service any further. And I believe that is an industry-wide type of situation. So, at this point, there’s no green light to go beyond what we’re currently flying.

David Schaper:

Hi. Thanks for taking my call. I appreciate you guys doing this, this morning. A couple of questions I had have been asked and answered. So I’m going to kind of shift gears into something that might be coming out of left field. But the Biden administration announced last week a plan to get the transportation sector down to net zero emissions by the year 2050. I know the aviation industry has that goal as well. But how realistic is that really? And what is the cost to an airline like United to try to shift to sustainable aviation fuels to possible hydrogen-powered engines, that sort of thing?

David Schaper:

Just a quick follow-up. What is the cost of all this, especially if governments, not just the United States but governments globally start imposing mandates to ship to alternative fuels that they cost a lot more to develop and use?

Operator:

Our last question is from Bill Murphy from Inc.com.

Scott Kirby:

It’s really the latter. It’s not a targeted airline to go after them, but people pay attention and United is the best place to work. And if you’re a pilot and want to work at the best place, a lot of them are just putting their applications in. We don’t need to do anything more than be the biggest and the best airline in the history of aviation, and that’s enough of a sell point.

Scott Kirby:

Well, I don’tknow what the numbers are I’m -- by anecdote I asked people. And I would guess that 30% of the people in those classes come from one of the large airlines. That’s just my eyeballing it in the room. But somebody at United probably knows the numbers, but I don’t know the specific numbers. I’m just proud of everything that team is doing.

Scott Kirby:

It’s a really interesting trend and we saw it again over the Thanksgiving and Christmas holidays. For example, for Thanksgiving, we saw a lot of people leave dramatically earlier for their vacation than they would normally do. And this year, Saturday, because if you left early, Saturday was actually one of our biggest return days, didn’t display Sunday, which is obviously always the biggest, so completely different pattern. And we saw that throughout the entire second half of last year. And it’s really exciting for our business because it allows us to DP things ultimately, run the airline differently and more efficiently. And remote work, while I’m sure will evolve and adjust over time, which is driving this, remote work does seem like a permanent feature in our workplace here in the country. And so we’re optimistic that this continues to be the trend based on everything we’ve seen. And it really is just -- it’s a different type of demand. It’s a different industry, and I think we’re well prepared for it. And it’s very exciting from a capacity and revenue management and customer point of view across the board.

Kristina Munoz:

Thanks, Candice, and thanks for everyone joining the call today. Please contact Investor or Media Relations if you have any further questions, and we look forward to talking to you next quarter.

Kristina Munoz:

Thank you, Candice. Good morning, everyone, and welcome to United’s third quarter 2022 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the Company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the Company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Also during the course of our call, we will discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on line available to assist with the Q&A. And now, I’d like to turn the call over to Scott.

Brett Hart:

Thanks, Scott. I also want to start by recognizing the entire United family for their hard work in the quarter. Our team never fails to pull together and we couldn’t be more proud. During the quarter, our operational performance set records. Our on-time arrival and misconnection rates were the best for third quarter in company history, when excluding the low flying quarters during the pandemic. We saved over 1,500 daily connections on average with our ConnectionSaver tool. This means over 137,000 additional customers got to their destinations on time. ConnectionSaver is a unique innovation and customer benefit for United. In addition, our team did a fantastic job helping our customers and their bags get to their destination as seamlessly as possible. In fact, our mishandled bag ratio in September was better than 2019 levels. Our daily controllable cancels, which are driven by maintenance or crew challenges, dropped over 95% September versus what they were in January. With a reduction in these cancels alone, we were able to add 1% of incremental capacity to the third quarter. This provides a better experience for our customers, but also leads to much more cost-efficient flying. We look forward to continuing these trends into the final part of the year. Putting that all together, and despite all the challenges around the industry, this was the best third quarter operationally for a full schedule in United’s post-merger history. Huge kudos to the team. One of the most significant changes for United operationally and for cost has been the return of the Pratt & Whitney Boeing 777s. With their grounding, we’ve had to make suboptimal operation with schedule change adjustments that have led to a more complex operation. And the work required to return these aircraft to service, created a heavy burden on our tech-ops organization. For the first part of this year, we had over 500 of our technicians dedicated to this fleet in Victorville, California, with over 175,000 hours of work spent to get these aircraft back into service. This drove inefficiencies in our technician staffing with negative cost and operational impacts. Great news is that this work is behind us and these technicians have returned to their bases, which has led to the improvement in our performance metrics. With these aircraft fully back in service, our fleet can be more efficiently positioned for both, our operation and our customers. I’d like to thank the entire tech-ops organization for their significant effort in returning these aircraft to service. We’re proud that a career at United remains in high demand. This year, we’re on track to hire 7,000 airport personnel, 4,000 flight attendants, 2,300 pilots and 2,000 technicians. Momentum is high. For example, a recent announcement for flight attendant openings received over 5,600 applications in just 48 hours. Ultimately, we expect to welcome 15,000 new team members this year and another 15,000 next year to support our United Next plan. And with that, I’ll hand it off to Andrew to talk about the revenue environment in more detail.

Gerry Laderman:

Thanks, Andrew, and a big thank you to the whole United team for achieving another quarter of profitability. As Brett mentioned, our recent operational performance has been record-setting, and we believe the worst of the operational-driven cost pressures we’ve talked about on previous calls are now behind us. Importantly, we’ve completed all remedial work on our 52 Pratt powered 777s and the vast majority are back in service with the last few expected to be on line by next month. On previous calls, we have noted the significant CASM-ex headwind driven by the grounded 777s, but it was more than just the capacity implications. We believe -- as we piece together a schedule with a suboptimal mix of aircraft, we also incurred a variety of direct and indirect costs in many of our operating groups as we waited for the return to service of a significant portion of our wide-body fleet. To put in context how impactful it is to have these aircraft flying again, our fleet was able to produce over 20% more ASMs for mainline aircraft per day in the third quarter compared to the first quarter. This provides a meaningful improvement in our utilization, which is one of the primary drivers of improved unit costs. Looking at the numbers for the third quarter. We reported pretax income of $1.1 billion on an adjusted basis and an operating margin of 11.5%, also on an adjusted basis. This was 1 point better than our most recent guidance, driven by a combination of stronger revenue and better costs. Our third quarter CASM-ex was up 14.5% versus the third quarter of 2019. This is a 1.5 points better than earlier expectations. The outperformance was driven in large part by our improved operational performance. A reliable operation is an efficient operation and a key to our strong unit cost performance today and for the future. As an example of how our strong operation benefits our costs, in September, we saw a 27% reduction in the premiums and overtime paid as compared to an average month in the first half of the year. That equates to a $35 million improvement in September alone. This reduction in premium pay is expected to reduce fourth quarter CASM-ex by more than 1 point compared to the first quarter of this year. As we look into the future, retaining top-tier operational performance will continue to be a key element to our execution on costs. Looking ahead, we expect fourth quarter 2022 CASM-ex to be up between 11% and 12% with capacity down 9% to 10% versus the fourth quarter of 2019. As Andrew mentioned, we expect the revenue environment to remain strong throughout the fourth quarter. As a result, we expect our fourth quarter 2022 adjusted operating margin to be about 10%, exceeding the fourth quarter of 2019 and adjusted diluted earnings per share, a metric we are happy to talk about again of $2 to $2.25. In the third quarter, we took delivery of 11 Boeing 737 MAX aircraft and 1 Boeing 787 aircraft. In the fourth quarter, we expect to take delivery of 20 MAXs and 4 787s. Assuming these aircraft are delivered, for the full year 2022, we now expect total adjusted capital expenditures to be $4.7 billion. Our most recent capacity guidance for next year assumes 179 aircraft deliveries from now through the end of 2023. There’s certainly downside risk to that assumption but under almost any circumstance next year, we expect to take delivery of more aircraft in one year than any other airline in history. We continue to work closely with Boeing and Airbus regarding our deliveries and we plan to provide you an updated outlook for 2023 in January. Turning to the balance sheet. We ended the third quarter with over $20 billion of liquidity, including our undrawn revolver, which allows us to maintain flexibility as we meet the uncertainties that remain in our industry. We used some of our cash to purchase all of our aircraft delivered to date this year, and we expect to use cash, about half of the remaining deliveries in the fourth quarter. And remember that every aircraft purchased for cash today increases our pool of unencumbered assets, which further protects our future. In addition to aircraft purchases beginning in 2023, we will have the opportunity to prepay a portion of our debt at par. In the current rate environment, it is a tremendous benefit to have the flexibility to prepay debt, continue to pay cash for new aircraft or access the financing markets opportunistically for new aircraft deliveries. And at all times, we remain committed to restoring our balance sheet and working towards our long-term leverage targets. I again want to thank the whole United team for all we accomplished this quarter. We are executing our plan and making good progress towards our United Next goal. And with that, I will turn it over to Kristina for the Q&A.

Operator:

Thank you. [Operator Instructions] First question comes from Michael Linenberg from Deutsche Bank.

Gerry Laderman:

Mike, you have to look, it’s a number of things. Yes, the savings is in the millions. But more importantly, it dramatically improves customer satisfaction. People are comfortable now flying United because they know we’re looking after them.

Michael Linenberg:

Great. And then...

Operator:

Please go ahead. Mr. Linenberg, please go ahead.

Andrew Nocella:

Well, Gerry won’t let me tell you, so I’ll have to wait now. We’ll let you know that in due course, Mike, probably in January. What I’ll say about Asia Pacific, just to give you some color on that is, excluding China, in December this year, our schedule as published is 89% recovered. So, we are already well on our way to flying the full trans-Pac schedule, excluding China at this point as we enter into next year, early in the year.

Operator:

Our next question is from Ravi Shanker from Morgan Stanley.

Andrew Nocella:

Well, I think this new normal really allows us to become more and more efficient. For example, Tuesdays and Wednesdays are not as much of a trough as used to be in a traditional week. For holiday traffic, holiday traffic is now spread out more. So, it doesn’t necessarily peak as much on one or two days. It actually spread out across a few days. And we see that time and time and again. And we also see like secondary holidays are incredibly strong, not just the primary holidays. And ultimately, what this could mean is that we operate a less peak schedule and a less peak schedule, we think comes with really enormous efficiency gains and that the marginal cost of an ASM in February is very different than that in July. So, a lot more to come on that subject, but I think a really interesting opportunity for United as it transitions from a very peaky schedule to something that’s less peaked.

Andrew Nocella:

I don’t think I gave that number. Somebody else may have. But look, we announced a number of new routes, I think just last week, across the Atlantic. Our partnerships are doing really well. Quite frankly, where the dollar stands is incredibly useful from a U.S. origin point of view for transatlantic travel. And this season was incredible based on the numbers we’ve seen. This fall is also incredible based on everything we’re seeing. So just -- it’s full speed ahead across the Atlantic. And we are very bullish on the outlook, not only there, but across our entire global network. There’s just a lot of good indicators across the entire network. Once economy is open, traffic rebounds very quickly, and we expect to see that in Japan over the coming months.

Helane Becker:

Can I just ask a question about the routes that were added this past summer on the North Atlantic? A lot of them were leisure focused. And I just wondered how they compared versus your expectations and whether all those routes are coming back next summer or if some of them were below expectations, the new routes that you announced last week, are they kind of replacing them?

Helane Becker:

And then, are they -- just a follow up on that. Are they -- can you talk about relative to system average? Are they better or worse than system average?

Operator:

Next, we have Steve Trent from Citigroup.

Andrew Nocella:

Sure. I’ll give it a try. First of all, our alliances, particularly going across the Atlantic with Lufthansa and Air Canada is, first and foremost, that is gigantic. It’s the number one alliance across the Atlantic. And we have the best partners and the best hubs supply to in Europe. And that is and will continue to be our primary focus. So, I just want to be clear on that. And of course, across specific with ANA, down to the South Pacific with Air New Zealand, these are all things we focus on every day here and are key to our global network. That being said, the Middle East was, the way we use the term, a white spot for United. Our global gateway supports all kinds of markets across the globe. And when we looked at the opportunity to do a partnership with Emirates, it did fill in this white spot and allowed us to access a lot of destinations that we could not otherwise access with our existing partnerships. And so, that motivated that. And the same is true in Australia, where Virgin Australia has a fantastic franchise. We’re so excited to partner with them. We were already the largest airline to Australia. And now, I hope to be not only the largest airline to Australia, but the most profitable airline to Australia. And I think that comes with the strong network we have and great partnerships across the board, definitely Virgin Australia. So, we’ll continue to look for opportunities that don’t interfere with our core strategic immunized alliances. And that’s what these two things in my mind represented. Quite frankly, at this point, United’s global network is pretty comprehensive. I’m not sure there’s many more of those out there in the world, but we’ll keep looking.

Jamie Baker:

So, Gerry, the sequential drawdown in the air traffic liability was larger than I would have expected. I’m just trying to square that with the strength in bookings. So, how do I reconcile these two metrics?

Jamie Baker:

Okay. It was just the sheer dollar magnitude that surprised me. But you’re right, if I look at it as a percentage of trailing revenue, I suppose it’s not that unique. Second question. So, Scott, there’s an airline business model that I would describe as predicated on an abundance of cheap capital and abundance of aircraft and abundance of pilots, and the pilot wage arbitrage and seating density. So, how should we think about that business model in an environment where none of that, say, for density seems to exist any longer?

Operator:

Our next question is from Scott Group from Wolfe Research.

Gerry Laderman:

Hey, Scott. So, we’ll provide, obviously, more color in January. But what I can tell you right now, as I think I said in my prepared remarks, these numbers just increase the confidence we have in hitting our numbers for next year. So, I think that’s the way to look at it. And the fact that we are confident in our ability to hit our pretax margin target, I think, says a lot.

Andrew Nocella:

Well, I think so far, and you can see by our results over the last 90 days and our outlook for the next 90 days, we think it’s a pretty good trend. So obviously, I would say that it’s positive for margin. There’s still a lot more to come. And I have to say that business traffic will continue to get better from this point. So, I’m optimistic that all of those like headwinds that United Airlines faced in the pandemic are still in the transition period to tailwinds, and particularly the coastal gateway impact. I think we still have a long way to go, particularly on domestic traffic from our coastal gateway. So I think there’s a lot more upside.

Duane Pfennigwerth:

Why don’t we start right there? On corporate recovery, can you offer some thoughts on recovery by market or hub in the U.S.? How would you mark to market or speak to the momentum of the recovery in, say, a New York versus Chicago versus San Francisco? And Andrew or Scott, I’d just be really curious, as you look into the future, I would really appreciate your thoughts on kind of the Bay Area and how travel patterns may have changed there and kind of the upside you see into next year.

Duane Pfennigwerth:

I appreciate those thoughts. And maybe a follow-up for Gerry on the 179 aircraft you plan to take between now and the end of 2023. How much of that financing is in place? How much do you still have to do? And how has your expectation for cost of capital changed? I mean, Gerry, you’ve seen a lot of these cycles. So, we haven’t seen rate momentum like this. How are you thinking about sort of supporting that aircraft book over the balance of the next couple of years? Thanks for taking the questions.

Operator:

Our next question is from Conor Cunningham from Melius Research.

Andrew Nocella:

Yes. We -- when we did the forecast, it’s pretty much flat. So, we’re not expecting a significant recovery on the traditional way we measured it. I’m not sure that’s the right way to measure it anymore, to be clear. So, we’ll be agile on that as we go forward from this at this point.

Andrew Nocella:

Yes, I didn’t finish your question. On cabin, I think your perspective is somewhat correct there. We’ve seen incredible strength in the new Premium Plus cabin and in the coach cabin. We’ve also seen really good strength in the Polaris cabin but not as good, I have to say, as the back of the airplane. And so as that business continues to come back, we will hopefully likely see, I think, further strength in the front section of the aircraft. Again, the numbers are pretty downright strong from a load factor point of view. But the more leisure-oriented nature of some of the Polaris traffic today does fly at a lower yield than has traditionally been in that cabin. So, as that returns to normal, however fast or slow that occurs, that will continue to provide, I think, more of a tailwind going forward.

Gerry Laderman:

I don’t think you’re missing anything. The inflationary pressures are there. I think we’re pretty comfortable that we have a good handle on that, and that’s been incorporated into our thinking all year. We have the tailwinds from the return of the 777s, the tailwinds from this record-setting operation that we have going on. So, there isn’t any magic to it. I think we’ve been pretty clear what all the components are.