United Airlines Holdings Inc (UAL) — Q4 2018 Earnings Call Transcript

Thank you, Brandon. Good morning, everyone, and welcome to United's fourth quarter and full-year 2018 earnings conference call. Yesterday, we issued our earnings release and separate investor update. Additionally, this morning we issued a presentation to accompany this call. All three of these documents are available on our website. Information in yesterday's release and investor update, the accompanying presentation 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 other reports filed with the SEC by United Continental 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 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, investor update and presentation, copies of which are available on our website. Joining us here in Chicago to discuss our results and outlook are Chief Executive Officer, Oscar Munoz; President, Scott Kirby; 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 team in the room available to assist with Q&A. And now, I'd like to turn over the call to Oscar.

Thank you, Mike, and thank you all for joining us today. Well, what a difference a year makes. Remember that over a year ago when we laid out our multi-year growth strategy and set forth a series of concrete promises. I'm proud to say that in 2018, our incredible United team, over 90,000 strong, got to work fulfilling those promises because what matters is proof, not promise. You'll remember that we said we would deliver higher unit revenue in 2018, while simultaneously increasing supply, and we have. Many on Wall Street believed this was possible when we initially announced our plan, and now there are few questions about our continued growth. As we've talked about, this uniquely United growth strategy is that not all capacity is created equal, and I think we've proved that this year. In fact, our PRASM has or is expected to outpace the industry in each of the last four quarters, and is likely to outpace the industry by approximately 200 basis points in 2018. We turn to Slide 5. You'll also remember that we said we expected to increase our 2018 adjusted EPS between $6.50 and $8.50, and we have and we'll do better, i.e., $9.13 per share for the year. We also said that we would be laser-focused on cost discipline, with a full year CASMex goal flat to down 1%. And again, we delivered on that promise, expecting to lead the industry with a CASMex down 0.2% for the year. We also said we would ensure that our commitment to smart growth strategy wouldn't detract from our focus on running great operations, and we have. In fact, we flew more passengers than ever last year and achieved the highest completion rate in our history. So, no doubt there is much more work to be done and we are very proud of the significant progress we made in 2018, and I thank all our employees. Now the question, of course, becomes what difference will next year make? As we look ahead to 2019, we are paying very close attention to the government shutdown, potential trade disruptions, and other sources of economic instability. We read the same headlines that you do and while concerning, we've not, to this point, detected much of an impact on our numbers. Scott will walk through our facts that make this particular point. Of course, we will keep watching and, in the meantime, we will just stay focused on the priorities that we can control, particularly the way we serve our customers. Switching to that, more than ever, we're focused on putting our customers at the center of everything that we do. This year we'll continue to roll out a series of innovations and improvements to customer experience, and we believe we will continue to reshape United's image. We will introduce a series of new routes, boosted by new customer-friendly aircraft designed to make United the airline our customers choose to fly. Just next week, we will be able to download a completely reimagined version of the United app. It's already the number one downloaded app among U.S. carriers, but we are making it even better, putting useful information at your fingertips without losing the features our customers love. We'll also continue to add useful information to over 60,000 mobile devices used by our employees that have real-time information and communicate better and solve problems in the moment. These are just a few examples of the digital advantage that has resulted from the new entrepreneurial culture we're fostering here at United. This culture, coupled with our deep company-wide commitment to our core four principles, will be essential to the success of our efforts to take our standard of customer service to a whole new level. Lastly, moving to Slide 6, let me emphasize that while we're delivering on our commitments to our customers, we are also delivering on our commitments to you and our shareholders. Last year, our ability to recover almost 100% of the year-over-year increase in fuel expense helped us achieve a full year adjusted EPS of $9.13. In 2019, we are committed to delivering an adjusted EPS target of $10 to $12, which puts us nicely ahead of the pace to deliver our adjusted EPS of $11 to $13 in 2020.

Thanks, Oscar, and thanks everyone for joining us on the call today. 2018 was a fantastic year financially, operationally and for our customers. We operated the most on-time flights in United's history. This is the result of the commitment and hard work of the entire United team that came together to deliver a great operation and experience for our customers. From the frontline to the corporate support center, everyone played a part and I'd like to thank all of them. In 2018, we continued to run a great operation, including top-tier performance, all while flying a record number of passengers and with record load factors. We had the best-ever consolidating completion factor in our history and drove a record 9.3% revenue growth year-over-year. As Andrew will talk about later, we believe our strong operation and continuously improving customer focus drove about a point of PRASM improvement in the quarter. These operational steps, coupled with our strong PRASM performance and our return to margin growth in the fourth quarter, are clear evidence that the growth plan we announced this time last January is the right strategy for United. As we look at 2019, we all know that there is a relationship between costs, with fuel being the industry's most volatile cost and revenue. It's precisely what gives us the confidence to provide annual and multi-year adjusted EPS guidance. This historical relationship is why we were confident giving full-year guidance for the first time last year, and we're able to maintain and raise that guidance even as fuel rose significantly during the year. This historical relationship not only gives us confidence for one-year guidance, but also allowed us to provide $11 to $13 adjusted EPS guidance for 2020, because we are confident that PRASM would increase in the world of higher fuel. Set another way, unpredictable fuel costs are a reality, but at United, they will not be an excuse to miss our guidance. Our revenue strategy, combined with our cost discipline, gives us confidence that we can continue to meet or exceed our adjusted 2019 EPS targets anywhere between $40 and $80 Brent Oil. As Oscar mentioned, there's been a lot of concern on Wall Street about the health of the economy as we enter 2019. We normally don't react to a single week's worth of bookings because of the inherent volatility in bookings. But the first full week back from the holidays is unique, as business customers are back in the office and planning business trips. It's the largest booking week of the year and the first opportunity to see what's happened with corporate budgets. Historically, the companies we are seeing weakness in are concerned about the outlook, and they almost always reduce the travel and entertainment budget for the coming year. As a result, business bookings for the first week of the year are reasonably good forward indicators for the health of the economy. And despite all the stock market volatility and government shutdown, our business bookings, as measured by all large corporate accounts and travel agencies, were up 11% at slightly higher yield last week. The world can certainly change going forward. But United Airlines demand remains solid, at least based on the data we have so far. Over the last several earnings calls, you've heard us talk a lot about the benefits of our growth strategy. But today, I want to talk to you about another change that's hard to quantify and even harder to perceive from outside the company, but it's essential to driving strong PRASM and margin growth. In short, at United, we're changing our culture. We started to shift to a nimbler, faster and more action-oriented approach to improving our customer and employee experience. I can't tell you the number of times I sit in a meeting or someone walks into my office to show me something new and innovative that we're doing. You're able to see it in the performance of Gemini, to develop an industry-leading mobile app and the powerful new technology that we put in the hands of our employees. Our teams are developing new ideas literally every day and testing them at speeds we wouldn't have thought possible. We're now experimenting with all kinds of new initiatives and solutions, quickly expanding those that work and pulling back those that don't. And this is happening throughout United. At the start of last year's budget process, as an example, we asked the teams to keep M&A total headcount flat, despite growing 5% and adding all kinds of initiatives to deploy. There was a fair bit of anxiety around this from the team, but we did it and achieved the great results that we announced today. For this year's budget process, we took it a step further and set a goal to keep total M&A spending flat. So leaders had to fund growth, new initiatives and pay raises without spending a single dollar more. I'm proud to say that the team has embraced that challenge with a positive 'can do' spirit. It isn't an easy target to hit, but aided by our new entrepreneurial culture that's taking root, we are confident we will do it. We're committed to making United the best airline in the world. We have the world's best network potential and this ongoing culture change really is a significant and difficult to replicate competitive advantage for United. We had a great year in 2018, and I again want to thank the team for delivery. There's a lot happening at United. The growth plan focused on the customer, great operations, and a new action-oriented culture facilitated by our core four principles, to name just a few. As a result, we're confident that we'll meet or exceed our $10 to $12 EPS guidance in 2019 for any fuel price between $40 and $80 per barrel. As we said before, unpredictable fuel prices will not be an excuse here at United. 2018 was an incredible year and set a solid foundation for the strategy we laid out one year ago. We're looking forward to repeating our success in 2019.

Thanks, Scott. Turning to Slide 12. I'm pleased to report our revenue momentum continued from the third quarter and into the fourth, with PRASM growth up 5%, achieving the high end of our expectations. All entities achieved positive PRASM in the quarter. For all of 2018, we achieved a 4.3% increase in PRASM on 4.9% more capacity. We achieved the high end of our unit revenue guide each quarter in 2018. Congratulations to the entire United team for top-tier PRASM performance in the quarter. There were a number of uniquely United initiatives that drove our PRASM outperformance in 2018, outside of just our capacity growth. Our employees delivered record-setting operational performance and improved our customer service, which we estimate will add about a point of revenue to our PRASM year-over-year. Gemini, our proprietary revenue management system, which was also rolled out last year, has exceeded our expectations. We leapfrogged our competitors and have an industry-leading RF tool that delivered 1 point of PRASM growth in 2018. Lastly, we further sharpened our product segmentation strategy to better deliver our customers the product they want, when they want it. These improvements and our host of other commercial and digital initiatives contributed about an additional point to PRASM. The culture change Scott talked about is delivered in an environment where innovation and change are welcome. Overall, we feel good that the plan we laid out in January 2018 is working as we head into 2019. Now for some details about each of the regions on Slide 13. Domestic PRASM improved 6% year-over-year in the quarter, leading across all regions. Domestic capacity increased 6.4% in the quarter and 6.7% for 2018. Corporate revenues were once again strong year-over-year, outpacing our overall top line growth of 11%. We continue to successfully shift our booking profile to reduce dependence on lower-yielding tickets booked further out from departure while increasing our share of higher yielding business tickets generally booked closer in. Gemini worked well last year in implementing this strategy. Our RM posture as we enter 2019 continues and accelerates this practice, relative to the industry. Following two years of very strong Atlantic PRASM growth, we saw Q4 PRASM growth of more moderate 1.6%. Passenger load factor was strong, increasing 5.2 points year-over-year. However, that increase was not large enough to offset declining close yields. Our outlook continues to show coach yield weakness, and as a result, slower PRASM growth in the Atlantic in the coming months. PRASM across the Pacific was up 4.5% year-over-year in Q4, our third consecutive positive quarter for PRASM. We continue to watch demand levels in business class for China play and have yet to see any reduction in demand for January, resulting from these trade disputes. After negative PRASM growth in Q2 and Q3 of 2018, Latin performance inflected sharply positive, increasing 3.8% in the fourth quarter. We are optimistic about strong PRASM from the Latin region, even with continued weakness in Brazil and Argentina. Looking ahead, we anticipate first quarter consolidated system PRASM to be flat to up 3% year-over-year. The shift of the Easter holiday to mid-April is expected to be an 80 basis point headwind for Q1, with an equal tailwind for Q2. As we look at the revenue environment, the primary change we observe is pricing across the Atlantic. While it has gotten weaker, we believe it will improve as we enter peak travel in Q2. Overall, we do not think anything fundamental has changed as we look at the demand environment. That being said, the government shutdown and other factors have created some uncertainty in our Q1 outlook, and as such, we've guided to a 3-point range in yield revenue this quarter. As Scott mentioned earlier, domestic business bookings for the week of January 7th, the first clean booking week of the year were strong, indicating to us that our momentum continues to be on track. Our capacity outlook for 2019 remains at 4% to 6%. Our passenger segmentation strategies remain on track. Induction of widebody jets equipped with our all-aisle access flatbed Polaris seats continues to be on target. The mid-continent strategy continues with our Denver rebank scheduled for February. We're pleased with the results we've seen in both Houston and Chicago and see even more upside in Denver, and the possible itineraries at all three hubs have grown about 12% year-over-year. The basic economy footprint has continued to grow. We continue to closely monitor our relative share performance related to basic economy sales. We feel it is important to differentiate our basic product and we continue to be pleased with the operational benefits of our bag policy. Another key component to our passenger segmentation strategy is Premium Plus, our new intercontinental premium economy seats. Early sales figures for Premium Plus have average fares of approximately two times the coach fare, above what we had planned for. Our ancillary revenue had a fantastic year as well, with revenues up 13% for the year. Increase in fees paid to upgrade into first class was a key area of success. In late 2018, we also started the sale of a limited number of preferred seats that will be a new revenue stream in 2019. As always, most passengers have the option of either picking a non-preferred seat for free or waiting to select an eligible seat for free at the time of check-in. In summary, we're all set up for a strong first quarter and we'll continue to focus on enhancing the customer experience.

Thanks, Andrew. Good morning, everyone. Yesterday afternoon we released our fourth quarter and full year 2018 earnings and our first quarter and full-year 2019 Investor Update. You can refer to those documents for additional details. For the highlights, Slide 17 is a summary of our GAAP financials and Slide 18 shows our non-GAAP adjusted results. For the fourth quarter, we reported adjusted earnings per share of $2.41. That's 67% higher than a year ago and above the high end of our own expectations. Adjusted pre-tax income was $814 million and adjusted pre-tax margin was 7.8%, up nearly 100 basis points versus the fourth quarter of 2017. For the full year, we reported adjusted earnings per share of $9.13, which is 33% higher than 2017. This is a fantastic result and above the high end of our guidance. Adjusted pre-tax income was $3.2 billion and adjusted pre-tax margin was 7.7%. We are all proud of these results, and we believe they provide powerful evidence that our growth strategy is working. Slide 19 shows our total unit cost for the fourth quarter and full-year 2018 and our forecast for the first quarter and full-year 2019. Turning to Slide 20. Non-fuel unit costs in the fourth quarter decreased 0.7% on a year-over-year basis, better than the midpoint of our expectations going into the quarter. We continued to benefit from improved asset utilization, smarter maintenance practices, and lower aircraft ownership costs. For both the first quarter and full year 2019, we plan to again manage our non-fuel unit costs to flat or better and expect our cost discipline this year to remain industry-leading. We believe that running an efficient airline is a prerequisite to growth, and we expect to continue to benefit from a lot of the same initiatives we had in 2018 and to take advantage of new opportunities. For example, as we begin to exit certain aircraft types, such as our oldest Airbus A320s and Boeing 757, we will benefit from optimizing the retirement schedule and related maintenance costs for these aircraft. It's also worth noting that we continue to benefit on the cost side from running a more reliable operation. Greater reliability allows for more efficient planning, allowing for less over time, as well as improved irregular operation recovery and, generally, fewer buffers across the system. As you see on Slide 21, we repurchased $240 million in shares of our common stock in the fourth quarter at an average price of $88. Over the full year, we repurchased about $1.25 billion of our shares at an average price of $71 per share. I expect we will continue to be opportunistic with our share repurchases as our shares trade below our view of intrinsic value. During December, we ordered four additional Boeing 777-300ER aircraft, with two of these aircraft delivering this year and two delivering next year. These aircraft are highly efficient for routes that have demand for large premium cabins. Also in December, we finalized an order for 24 additional Boeing 737 MAX aircraft, with deliveries beginning next year. These aircraft will allow us to replace older and smaller gauge aircraft domestically and support our capacity plan. The unit cost advantage of these more fuel-efficient and larger aircraft is expected to be in the double digits and support our CASMex initiatives for years to come. Our adjusted CapEx spend for 2018 ended at $4.2 billion, above our earlier expectations. This difference is largely due to opportunistic purchases of used aircraft and aircraft off-lease, which were not originally in our plan. We continually work to maximize both return on invested capital and our aircraft ownership costs as we update and upgrade our fleet. Even with this incremental spend, however, we had strong free cash flow of approximately $2 billion for the year. For 2019, taking into account the additional firm aircraft order I mentioned, along with existing aircraft orders, continued opportunistic purchases of used aircraft and other high-value investments, we currently anticipate spending approximately $4.7 billion in adjusted CapEx for 2019. Finally, Slide 22 includes a summary of our current guidance, including the projected fuel price range for the first quarter. The range provided for capacity, revenue and cost implies a first quarter expectation of adjusted pre-tax margin between 2.5% and 4.5%, implying at the midpoint of this range, 150 basis points of margin improvement on an adjusted basis year-over-year. Also on Slide 22, we provide a summary of our full-year 2019 guidance. We are confident that we will deliver our adjusted EPS guidance of $10 to $12 this year. As you all know, fuel has been extremely volatile over the last few months and we're frankly not in the business of forecasting where jet fuel prices settle. What we are confident about is our ability to nimbly manage our airline to deliver bottom line results in a wide range of macro environments. In that spirit, we run numerous scenarios for fuel from as low as $40 per barrel to as high as $80 per barrel. We're committing today to meet or exceed our guidance of $10 to $12 in adjusted EPS this year within that very wide range of fuel prices. Before we take questions, last Wednesday, we released our December and full-year 2018 traffic results. Moving forward, we will no longer be issuing these monthly traffic results. As we focus on our long-term earnings targets, we believe monthly updates are unnecessary distractions from the steady progress we expect to deliver.

Thank you, Gerry. First, we will take questions from the analyst community, then we will take questions from the media. Please limit yourself to one question and, if needed, one follow-up question. Brandon, please describe the procedure to ask a question.

I'd like to start with a quick cost question for Gerry. The 4% pilot raise that's effective this month or has it already gone into effect this month? I obviously have estimates. But can you share with us in dollars what that drives in terms of incremental 2019 expense? I just want to better understand the underlying W2 component of pilot compensation as we look forward to next year and I don't necessarily trust Form 41 on this?

Jamie, that's a detail we can just follow up with you later.

Second, when I think about last year's RASM, and what that potentially portends coming into this year, I think most of the focus understandably was on the mid-continent growth, the speed with which RASM ramped quickly in those markets. But the reality is, you've also called a considerable number of presumably underperforming unprofitable markets across the network. Is there any way to quantify which has had more of a positive impact than the other? I mean, adding the new stuff or cutting the weak stuff. The reason I ask is that I've got to imagine most of the underperformers have already been cut, which suggests that RASM going forward is going to be much more indicative of how the network actually handles the growth component, if that makes sense. Any color?

I'm not sure I agree. I think while we did get rid of a few routes, approximately 30 that were underperforming financially, I think there's more to come. What I would say is the potential of our - or the way we look at it is our pipeline of ideas and changes were not just for 2018; there are initiatives for 2018 that apply for 2019 and then there's a whole list of other initiatives that come online. I'll just give you a few examples. The Gemini RM system, which we turned on early last year, we really didn't get fully sold until Q2. So, we think there are tailwinds from that that will continue to come. In 2019, we have another 60 widebody jets that will get Polaris all-access aisle seats. We're going to rebank the Denver hub on February 14th, that's not in our baseline numbers. The number of departures for the bank will go from 43 to 50. We've also cut the number of pre-6 am flights by 50%. For 2019, our 6 am flights have RASMs that are 9% greater than our 5 am flights. Last fall, I talked about the transfer of aircraft from New York to Dallas, that transfer, we're doing Phase 2 of it as we speak right now. We've moved about 33 aircraft flying around, and amazingly enough, the margin point change for that is 50 points for those 33 aircraft and almost all of that will be in 2019. We have this full capacity we added in 2018, in the '19, for example, our Singapore and Sydney new flights. That's about 1% of our company, and we expect those two new flights to perform much better this year than they did last year. We'll obviously continue to add our catchment area of growth line from mid-continent hubs. That's worked well. But even better than that, the number of flights that are in bank in 2019 versus 2018 that all of these hubs is going from 89% to 95%, in-bank flights have better RASM. We are growing our premium cabins from New York to LA and San Francisco. It's really important for us. We're going to continue to grow our co-brand card. We're going to continue to fill up Premium Plus. The point is, there is a whole host of RASM initiatives as we go into 2019 that we think are going to fuel United Airlines. They're not all about growth; in fact, many of them are not at all about growth as we go forward.

I think this is probably too for Scott. Hey, Scott. How will these strong run of financial results and the business momentum you guys have been showing impact the tone or the pace of the negotiations with the pilots, particularly on some of these more complicated issues?

So first, I'm actually afraid to answer a question after everything that Andrew said. I kind of want to stop the call after that. Hard to go up from there. Look, good results create a good background for everyone on getting contracts done, doing deals with other partners. It certainly doesn't hurt the tone at the table. We're having good discussions with ICAO. We have good relations with all of our unions. We're looking forward to getting competitive deals done that are good for our people and good for the company. We're confident that we're going to get there. But good results help the tone of everything.

I guess, my first question is around the growth rate. You reiterated your 4% to 6% growth plan in '19. 4Q is at the high end of this. 1Q is going to be towards the higher end. I guess, just in this kind of backdrop of slightly slowing global economic growth, why is the high end the prudent way to start off the year?

We ended 2018 on a high note and we look at how things are doing right now and we think we're still on a high note. There are definitely risk factors out there and we've widened our range for RASM, but we feel really good about our plan. As Scott already said, this is a lot more than growth that is driving the RASM of the company. All those other initiatives are just as important and unique, I think, to United at this point. So, we're excited to go in that direction and believe we can deliver on the results we've talked about and promised for the year.

Maybe it's for you as well, Andrew. When we look at the 2018 performance, which was very strong from a revenue perspective, when I understand the effect that regional variances and easy comparisons had versus strategy and also like what - whether you see 2019 having more of the dollar benefit from the initiatives you put in place than 2018. Basically, I'm trying to see how we should see comps and regional variances versus your strategy over '18 and '19.

I think we fought really well in 2018 and I'm not going to attribute it to easy comps. In particular, for the fourth quarter, I'm not going to attribute it to easy comps. I think we had a reasonable setup and we hit it out of the park in the fourth quarter and we are really happy about it. As we go forward to the next year, we have a whole host of initiatives. We are not going to break them out and say what each one is worth. By the way, there are plenty of initiatives that we didn't talk about and plenty of initiatives that increase margin but do lower RASM, it's just the nature of the piece. And so we feel really bullish as we go into this year that there is a little bit more uncertainty, which is why we widened the range of the RASM guide. But we believe our initiatives are going to still deliver and lead to the EPS targets that Mike and the team have laid out.

So, Scott, a little under a year ago you laid out the rationale for the hub connectivity strategy. You identified about a 10 point margin gap in the mid-con hubs at United. Can you give us a sense for how much of that gap you guys have closed to date, and whether or not it's feasible to actually kind of get those mid-continent hubs to parity? I'm not sure if there is some geographic differences that might not sort of let that get all the way to closing the 10% gap.

We haven't actually updated that analysis. We probably will at some point. But I guess, I'd just point it out that at least part of the relative margin performance at United where I'm doing this math in my head, but try to beat the industry on average by a couple hundred basis points on year-over-year margin last year that I would say half of that is probably from the growth strategy. Half is from all the kinds of other initiatives that we talked about today and that we continue to talk about. So, that's probably a good indicator of how much we closed the gap so far. That would tell you that there's a lot of runway left and a lot of room to go, and ultimately, I think we'll get to margins that are at least in the ballpark of where our competitors are.

Thank you. Ladies and gentlemen, this concludes the analyst and investor portion of our call today. We will now take questions from the media.

I guess, this is for Scott. I'm trying to understand the 11% increase in business bookings. How much of that is repeat from existing customers? I mean, are they just - are your old customers just spending 11% more than they did a year ago, or how much of it is getting new customers, including maybe taking some away from your competitors?

I don't know is the short answer. Look, we have 11% more bookings. I'm sure some of them are new customers. I'm sure a lot of them are old customers. I think the better way to think about it as opposed to that lens is that businesses still have enough confidence to be getting out and traveling and on the road. Despite all the doom and gloom you hear, you watch CNBC in the morning, businesses aren't coming through with that. Yes, I agree that people are nervous and they're watchful and they're waiting for something bad to happen, but it hasn't happened yet. The economy is performing better than you would think if you just listened to some of what people say. So right now, the economy is performing pretty well and you just see that in strong business bookings. I suspect our competitors - this is really just a share thing. I suspect, actually I think even Delta yesterday talked about strong demand as well. So, this is just overall strong demand.

This is Greg. We've seen pockets of staffing issues around the system, but really what's happened is it hasn't really impacted line waits all that much, and we haven't seen an impact in terms of people not being able to make their flights. Typically, if we're having that issue, we hold the flights for those customers. And we just haven't had to do that. So the TSA has done a pretty good job of covering for it when they've seen some staffing shortages.

Look, we continue to have constructive conversations with them. We have a good relationship and good partnership, and we are succeeding together, but we're going to leave the negotiations at that table.

I wanted to ask a little bit more about your use of regional aircraft as well. You mentioned that last year, the use wasn't very optimal. Regional costs have clearly gone up in part because they are having to pay more to attract pilots. Have these added costs factored into your decision not to deploy them in mainline markets this year?

This is a long-term strategy, and we want to make sure that our smallest regional aircraft are flying in short-haul catchment markets and our mainline aircraft are flying in mainline markets. We just didn't have the right fleet mix historically to do that and we still don't. This is a process that evolves over time. What you'll see is fewer 50 seat regional jets, in particular, flying on routes that are between major hub cities. That's the right thing to do. It was the right thing to do two years ago. It's the right thing to do today, and we're going to continue to execute on it. I think that's the right way to look at it.

We've got a program in place with a number of our partners to facilitate hiring at those regional partners as well as matriculation eventually to the mainline. It's a program that's working really well for us and we're happy with the results.

You guys have been adding a lot of premium seating, business class in Polaris. What happens if there is a slowdown, and just how prepared are you guys for a recession or just economic slowdown in general, given that you're putting such a focus on corporate travel and high-paying customers?

Leslie, we watch the data, as we said several times in this call, we watch the data even more closely. We've built an airline, as Gerry talked about, our very strong balance sheet. We've got incredible flexibility with the fleet. We've built an airline that we think has a lot of resilience and flexibility in it, and created a culture where we can be more quick and nimble about taking actions if we need to. We feel pretty good that, in the event things change in the world for the better or for the worse, we've got the ability to respond nimbly and keep the airline running well and performing well.

Thank you. And we will now turn it back to Mike Leskinen for closing remarks. Thanks to all for joining the call today. Please contact media relations for any media questions. And I will be reaching out to the analysts. Thank you very much.