United Airlines Holdings Inc (UAL) — Q2 2020 Earnings Call Transcript

Thank you, operator. Good morning, everyone, and welcome to United’s second quarter 2020 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 Form 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 the line available to assist with Q&A. And now, I’d like to turn the call over to Scott.

Thanks, Kristina, and thank you all for joining our call today. This, obviously, was not the environment that I expected for my first call as CEO. But I have to say that I've never been more proud than I am of the team at United, and I want to thank everyone for their leadership, support, and dedication to the company that we all love during what is the most difficult time any of us have experienced, both for our airline and our families. Our frontline hasn't allowed a dramatic reduction in our schedules or headlines about potential furloughs or new mask requirements to interfere with their commitment to taking care of our customers and each other. In fact, our customer satisfaction scores in June improved nearly 30 points year-over-year. There's just no better evidence of our determined commitment to care for our customers and keep them safe. It's what United Together is all about. Brett will talk in more detail about how our core four values have informed our industry-leading commitment to the safety of our customers and employees. The second quarter of 2020 was historic for the airline industry for all the wrong reasons. At the beginning of April, we saw the sharpest, deepest drop in demand in history, far worse than 9/11 or the Great Recession or any other stress test scenario that anyone had modeled. Near the end of the quarter, just as optimism about our recovery was beginning to build, we watched demand fade once again as COVID-19 spiked in the Sunbelt. But we will make it through this crisis. And I've never been more confident that we will make it through this crisis. I think we'll look back on the second quarter of 2020 as an extraordinary three-month period filled with achievements that I wasn't – that weren't even sure were possible when we started back in April. We can't control the course of the pandemic, though we are doing our part to help by leading with safety. The United team has been doing an exceptional job of controlling what we can and generating what we expect will be the best, or in this case, least bad, financial results of any of our network competitors. Some of the achievements this quarter included the fastest, most realistic, and accurate assessment of the demand environment, completing the largest debt financing in the history of the airline business, backed by our loyalty program; dramatically reducing our cost structure; and implementing a variety of industry-leading measures designed to protect our customers and employees from the spread of the coronavirus. While some of you have noted that previous strength, including our high exposure to international and business demand, will create larger headwinds for United, those of you who've joined these calls before will not be surprised to hear that our no excuses philosophy is not suspended just because times are tough. In fact, that philosophy is more important than ever in times of adversity, and it has served us well because in spite of what could have been easily explainable excuses, the United team pulled together to overcome them, and we expect to deliver the best financial results among network carriers. As Andrew and Gerry will discuss in more detail, we expect that our realistic, smart, and opportunistic commercial strategy backed by a dynamic and thriving cargo business, combined with other dramatic cost-cutting and cash flow strategies, resulted in United's losses and daily cash burn being lower than either of our network competitors in the second quarter. That's important because, as we've discussed before, minimizing the depth of the hole we dig in this crisis is critical to preparing United to thrive on the other side. I look forward to the day where we're past the pandemic and can stop talking about cash burn. But the country, the world, and aviation are where we are right now. I remain confident that the virus will be depleted. And when it is, I'm very bullish about our future because I believe the current headwinds related to international and business travel will once again return to being an important and unique strategic advantage for United Airlines. If we can produce leading financial results, even with these larger headwinds right now, just imagine what we'll do in a healthier operating environment. My recap of the second quarter would not be complete if I didn't mention how conversations about confronting systemic racism reverberated through our society, including here at United, like never before. As a company, we'll have much more to say, and more importantly, do on this topic in the future. But for now, let me reiterate that I'm personally committed to using the influence and visibility of my new role at United to put our values, especially our commitment to equity and inclusion, into action. Now if you've doubted just how busy Q2 was for United, let me remind you that we also named Brett Hart as our new President. Brett's been a trusted colleague, valued adviser, and a good friend since I joined United almost four years ago. He's been a widely respected leader at United for much longer than that. It's my honor to introduce him as my partner for the first time on an earnings call in his new role as our President. Brett, over to you.

Thanks, Scott, for that kind introduction. I also appreciate your long-term commitment to action on diversity, equity, and inclusion. I’m excited about how our partnership can bring about meaningful and lasting change at United and in the communities we serve. Let me begin by saying how proud I am of what our team has accomplished over the last few months in the face of near-zero demand for air travel back in April. While we have a long road ahead of us, we believe the $16.1 billion of liquidity we have raised since the start of the crisis and our dramatic reduction in cash burn have set us up to not only survive this crisis but to emerge in a position of strength during the recovery. Throughout this crisis, we have never lost sight of the fact that the very first pillar of our core four is and always will be safety. With this guiding principle, we have introduced a number of industry-leading safety measures to do our part to prevent the spread of the coronavirus and to protect our employees and customers, including requiring all flight attendants and passengers to wear masks, asking all passengers to complete a health assessment during check-in, offering customers the option to change flights for free if their flight is expected to be at least 70% full, and partnering with Clorox and the Cleveland Clinic, just to name a few. Along with our unwavering commitment to safety, at the very outset of the pandemic, our former CEO and current Chairman, Oscar Munoz, and Scott made it clear that our number one priority was to preserve as many United jobs as possible for the long term. To this end, very early in the crisis, we began efforts to reduce our non-labor expenses and eliminate any discretionary or non-essential project spend. I want to thank our over 26,000 team members who have all contributed to reducing our expenses through early separation programs, voluntary unpaid leave programs, or reduced work schedules. Our voluntary separation and retirement programs are almost closed. And so far, over 6,000 employees have opted to participate. At a time of unprecedented uncertainty, these contributions by our employees were one of the most meaningful actions that could be taken. Unfortunately, this crisis has lasted longer and become worse than most experts anticipated. And so these efforts, while meaningful and appreciated, simply are not enough and only get us a small step of the way there. We are left to make some of the most difficult decisions in the history of United Airlines, specifically on the size of our workforce. On October 1, we are planning to be a smaller team and airline in response to the depressed demand environment. Transparency and candor in a situation like this, where no one is at fault, is the most core thing we can do for our team. We have been in active communication with our unions to identify voluntary programs that could mitigate furloughs. In this uncertain world, giving our United team members a choice as much as we can is an important element of our strategy. These voluntary programs will be balanced offers, which reduce labor costs while providing flexibility to our team and to United, so that when demand returns, and it will return, we have the jobs and the people ready to go and can avoid as many involuntary furloughs as possible. While this unprecedented health crisis has changed the way we operate, that hasn’t changed the commitment our employees have to run a great airline. As part of the leadership team, we will continue our promise to do everything in our power to preserve as many jobs as we can for the people of United. With that, I’ll turn it over to Andrew to discuss the revenue environment.

Thanks, Brett. The second quarter was clearly the most difficult quarter in United's history. We acted quickly and decisively to confront demand changes. In fact, our change in total revenue in the quarter was down 87%, which was consistent with our total capacity being down 88%. Our network peers flew more capacity than United, and we believe our careful management of capacity, pricing, and cargo during the quarter is the primary driver of our good results relative to our network peers in terms of absolute losses and cash burn. We feel as good as we can about these relative results. In a world of limited demand, driving our cash burn down is absolutely a function of the amount of capacity we offer. We clearly have a long way to go as we navigate COVID-19, but we got off to a relatively good start. At the start of the pandemic, many feared our outsized exposure to business traffic and international traffic would be a drag on performance relative to other network carriers, but this was not the case as we made smart decisions about capacity. We will not be focusing on market share during the worst financial crisis the industry has ever faced. Instead, our focus is on ending cash burn and returning United to profitability. As we look towards an eventual recovery, international demand will be slower to recover than domestic. When international demand does recover, we believe United's coastal gateway hub will recover quicker than others, a benefit of having the best U.S. gateways to start with. Orders are up around the world now, and international revenue is low. We believe at United that we have already felt the worst of the international passenger revenue decline impact. Borders will open someday, and we believe United is well positioned to experience the fastest international revenue growth when they do. Corporate traffic, which was down 96% in June, will also be slower to come back than leisure, but we believe it will. We are social creatures. Video technology has proved to be a reasonable temporary measure, but we do not expect it to replace meeting in person over the long term. In fact, we have a hypothesis that more work-from-home employees may drive increased business travel over the medium term as some people trade their commutes by car for less frequent commuting by airplane from a remote location. So in the short term, we will make appropriate adjustments to our network to reflect less business traffic by putting a higher proportion of our capacity into leisure and visiting family and relatives market. We expect the recovery in demand we will see to be jagged. Everyone has a view of what the recovery will look like, but we will not pretend to be able to predict the path of the virus. We do expect that demand recovery, which stalled in recent weeks, will begin to recover again when new cases start to fall, quarantines are lifted, and borders are reopened. However, we continue to believe a full recovery is contingent upon effective therapeutics and a vaccine. Our best guess is demand, as measured by revenue, will recover over time to be down approximately 50% and then plateau at that level until a vaccine is widely distributed. We discovered how disruptive the virus could be to demand very early on in the pandemic, and we used those learnings to shape our near-term capacity decisions. For April and May, we reduced capacity approximately 85%. We also temporarily reduced our average seats per departure in May and June by 23%, which lowered our trip costs, helping us conserve cash while the CARES Act Payroll Support Program supported the salaries of the United team. In each of our mid-Continent hubs, we came up with an entirely new schedule while maintaining the comprehensive network and sufficient connectivity. Domestic PRASM in Q2 was down by 47%. We did see steady progress throughout the quarter as our schedule changes were implemented and demand began a slow, but steady rebound. Domestic PRASM performance in June improved to be down only 15%, reflecting an improved demand outlook even as we are deploying multiple actions to minimize flights operating above 70% load factors. We updated 66 flights per day in June, restricted inventory in flights booked above 70%, and blocked certain seats from sale. While we have very high confidence in the safety onboard aircraft, we continue to deploy multiple actions to manage high load factor flights to increase customer confidence. Our approach for international wide-body long-haul operations has been to leverage our cargo capabilities to partially offset declines in passenger revenues. For the quarter, international ASMs were down 92%, but we maintained passenger service throughout the crisis to Australia, Japan, Brazil, and multiple points in Europe, even with increasingly restricted border policies. We also operated over 3,800 old cargo charter flights in the quarter, which contributed to our over 36% improvement in cargo revenue in the quarter, while our competitors saw cargo revenue decline. The United cargo team clearly hit a home run in the quarter, and cargo is on track to have another great quarter. The recent uptick in COVID cases in late June and early July have temporarily stalled the demand improvements we were seeing in June. Third-quarter domestic capacity is expected to be down at least 55%. Domestic RASM results for United in July and August will clearly not be as good as late June, given industry dynamics, stalled demand, and our own capacity increases. United's August schedule is already adjusted downward the other week, given recent changes in demand, and our September schedule is still not finalized. Domestic load factors in the coming weeks are expected to average just below half full, a reduction from the 57% we saw in June. In the event customers are booked on flights that are above 70%, we will continue to let them know in advance and offer an alternative flight at no additional fee if they'd like to make a change. We expect that passenger revenue in the third quarter will fall approximately 83% versus Q2, down from 93.5%, with consolidated capacity expected to be down approximately 55%. Just a few weeks ago, prior to the case spike, we had expected revenues in the quarter to be down less than 80%. With the end of the Payroll Support Program, our marginal costs will increase later this year, and that will impact how much incremental capacity we can add post-summer, if any. However, given a look at industry dynamics, we expect to have the most conservative deployment of third-quarter capacity of anyone. My update on past earnings calls reported on United's progress on our array of commercial and customer initiatives. We can't be sure that every aspect of our past commercial and promotional plans will be relevant in the future. But our team is agile, and we're ready to respond to an ever-changing world. We have proven that over the past few years, and we'll prove it again over the next few. Thanks to the entire United team. Your dedication in these difficult times will allow us to come out of this period strong. And with that, I will turn it over to Gerry. Thanks.

Thanks, Andrew. For the second quarter of 2020, we reported a pre-tax loss of $2 billion and an adjusted pre-tax loss of $3.2 billion. These results represent how this global pandemic continues to materially disrupt our business in unprecedented ways and, therefore, requires unprecedented responses to ensure we come out of the crisis as strong as possible. Since the start of the crisis, we focused on aggressive cost-cutting to minimize our daily cash burn and aggressively pursued opportunities to bolster our liquidity position. Since March, we have raised a total of $16.1 billion of additional liquidity, largely through debt offerings, stock issuances, and the CARES Act, Payroll Support Program grant and loan. Included in our capital-raising actions was the truly first of its kind debt financing using our MileagePlus program, which brought in $6.8 billion in liquidity. Working with Goldman Sachs, our lead underwriter, we were able to formulate an innovative structure that allowed us to unlock some of the inherent value in the program. We were able to achieve our key objective of raising a substantial amount of liquidity at attractive interest rates in a manner that doesn't impair our flexibility to use MileagePlus to support our business going forward. I certainly appreciate the comments made by one of my peers recently, who recognized that this structure will serve as a model for the use of loyalty programs to raise liquidity by the industry in the future. We continue to target over $18 billion in available liquidity by the end of the third quarter. We believe this level of liquidity will position us to manage the airline well if the crisis continues to depress demand far into 2021 and even beyond, depending on the pace of recovery. While we view this as enough liquidity, should we desire to raise additional liquidity, we have at least $9 billion of available collateral value, excluding both MileagePlus and the collateral we expect to hold available for our CARES Act loan, and this additional collateral we can borrow again, subject, of course, to market conditions. Having built up a substantial cash cushion, we will continue to make every effort to preserve our liquidity until we are out of the crisis. Through the hard work of our employees across the business, we reduced our second quarter average daily cash burn to $40 million, including approximately $3 million of principal payments and severance expenses, ending up at the low end of our original second quarter guidance range. Over the last three months, we have reduced our total operating expenses, excluding special charges, by 54% and eliminated all sources of discretionary spend. What is left is simply what is absolutely needed to operate the airline and nothing more. We also significantly reduced our adjusted capital expenditures since the crisis began and have paused all investments that didn't have an immediate return. In fact, we now expect our 2020 adjusted capital expenditures to be approximately $3.7 billion, down from our previous guidance of less than $4.5 billion, and, of course, down from the $7 billion we originally forecasted before the crisis. We continue to take delivery of new aircraft only when financing is available, and we've come to an agreement with Boeing that we will not be taking delivery of any new aircraft in 2022. Our team is working tirelessly to examine how we can further variabilize our cost structure to ensure that we come out as a stronger industry player once the pandemic ends. One area we do continue to look at is our overall fleet. We currently have close to 600 aircraft temporarily grounded. While we do not have anything specific to announce on aircraft retirements at this time, our priority is to remain agile. Looking ahead to the third quarter, we expect our average daily cash burn in the third quarter to be approximately $25 million, with $6 million representing debt principal payments and severance expenses. This cash burn estimate assumes passenger revenue is down around 83% for the quarter. As we look to the fourth quarter and next year, nobody has good visibility on the pace of demand improvement. As a result, our primary focus will continue to be minimizing cash burn for the foreseeable future. Unfortunately, this means that we will need to bring all of our costs in line with our reduced revenue, including labor costs. And this has led to the difficult but necessary decision to reduce the size of our workforce in the fourth quarter. We believe that when demand returns, based on the work the entire United team has accomplished in cutting costs to respond to the crisis, we will be in the best position to reach cash burn breakeven, which we expect will be in an environment where demand and capacity are down around 50%. We will let you all make your own forecast as to when that will happen. In closing, I will reiterate that there is still a tremendous amount of uncertainty ahead. But we believe that United is in a position of strength to manage through what we expect to be a jagged recovery. And with that, I will turn it over to Christina to start the Q&A.

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

Hey, good morning. So, I wanted to ask you about the headcount plans. Obviously, the 6,000 employees that have signed up for the voluntary out is well below the numbers that have been commented on before in terms of reductions that might be required to right-size the network. How should we be expecting this to play out over the course of the next couple of months? I mean, obviously, the CARES loan closes off in September, or the CARES provisions anyway. What can you tell us about sort of the scope of expected actions here and the timing on when these announcements might be made?

Hey, David, good to talk to you. What I'd say is the 6,000 voluntary; first, I'd like to thank everyone at United, all the 6,000. And there's another approximately 26,000 people, who've taken temporary voluntary programs at United so far. So thank all of them for their selfless action and doing what they can to help United and their fellow coworkers get through this. It's a testament to how much people care about this company and doing the right thing. But look, I think of it as, there's 32,000 people so far who've raised their hands and taken a voluntary program. We are still working with some of our other unions as well. So I expect, if we get those deals done, we will have the opportunity to have any more. But at least I think of it as that 32,000 number is probably the more relevant metric because some of those are temporary. And look, we know that there's going to be a recovery. And if we can keep people temporarily, maybe not on the payroll full-time but engaged, connected to the company, certified, trained and ready to bounce back, because the bounce – the recovery is going to be quick, that's really important to us. So we feel pretty good – we feel really good actually about where we are in the voluntary program so far.

Can you comment on the tone and status of the relationship with labor? Is it competitive or collaborative? How are the negotiations progressing regarding mitigating furlough actions and possibly receiving additional support from labor to navigate through this situation?

I won't discuss the specifics of the negotiations, but I can say that we have been open and honest from the start with everyone involved, including our employees and labor union. This transparency is important as we all have a common goal of navigating through this temporary crisis together. While we wish there could be no discomfort in this process, we acknowledge that the pandemic is more severe and prolonged than we had anticipated, which means there will be some challenges. Therefore, our discussions focus on how to reduce the impact in the most considerate way possible alongside our team, and I feel very positive about our current position.

Hey thanks. Just in terms of the cash burn improvement sequentially, maybe you could provide some detail there. So, your capacity is up meaningfully, and I appreciate those capacity plans have a downward bias, given changes in demand. But higher capacity up, call it, 190%, which will drive higher variable costs, and yet demand feels like it's taken a bit of a step backward. So, is this a function of the recovery you expect later in the quarter? Is this cost driven, or is this all working capital driven?

Hey, it's Gerry. So, the short answer is it's a combination of everything. And I think you're referring to our prior guidance, which had third quarter cash burn a little higher than what we're currently expecting. I would say, versus when we established that guidance, while demand has taken a turn, it's still a little higher than what we assumed back then. We're also doing a nice job continuing on saving on costs, including – well, cash costs, so including in that would be some CapEx that we're saving. So, it's sort of a combination of everything that has driven us to be able to refine our forecast and estimate a lower cash burn than we assumed a few months ago for the quarter.

Thank you, Gerry. Just to follow up on your comments about a potential stabilization at a 50% decrease until we have a vaccine, I'm curious about the transition from an 83% drop to a 50% drop. What measures are we taking to achieve that? Do you anticipate an improvement in corporate demand after the summer leisure period, or what does that journey from an 83% decline to a 50% decline entail? I appreciate your insights on this.

Yes. Hey Duane, I'll try that. I don't think we know what the exact path will be, and we'll acknowledge that we don't know what the exact path will be. But what I would say is we've been reasonably accurate, very much center of the fairway in forecasting both the course of the pandemic and the impact of demand so far and we expect it to be jagged like this. For what it's worth, I also think that while we took a step back in the last few weeks, as Andrew said, that has plateaued, I think that we, as a country and a society, have learned some lessons about what we should do, particularly wearing masks. I believe we'll be more up from here. The kind of demand that I think is going to come back, but also, I think it's important for people to understand, and I said this earlier on TV today that an aircraft actually is a uniquely safe environment. That is confusing to people because you hear about being in indoor spaces and the transmission of a virus. But aircraft are designed to have airflow that goes from the ceiling down to the floor and out. That air is either 50% of the air coming back into the cabin has been re-filtered through a HEPA-grade filter, and 50% is coming from the outside. Combined with our mask policies and our cleaning policies, that makes an aircraft a uniquely safe environment that is not the same as being in another indoor space. This confusion is why we must promote that flying is safer than driving for anyone wanting to travel. I believe that our steps taken recently to ensure passenger safety while traveling will certainly facilitate a reasonable recovery in visiting family and relatives. A lot of other leisure travel is not going to get back to 100%. My guess is, I think Disney World sounds like they're doing a great job, but it's not going to be at 100% capacity. But you know business demand, I think, will start to come back. The small kind of group stuff will start to come back, but we're not going to have 180,000 people show up at the Consumer Electronics Show in Las Vegas this January, like they did last January. Those kinds of meetings just aren't going to happen. So, you add all that up, I think we're going to be a gradual trajectory from today's level of demand, up to 50%, where we'll plateau. Then, I think there'll be a rapid recovery once we get to kind of a widespread vaccine. I'm not sure how long it takes to get to 50, but that’s an elaborate explanation of how we get to 50, why we think it will be 50, and what's important to get there.

Hi, everybody. Good morning, thank you. So you had 196 wide-bodies at year-end '19. Knowing what we know now, which admittedly isn't much, do you think you have more or less than 100 in the fleet at the end of 2023?

Andrew?

I guess I'll take that. Scott described how this is going to come back. And by the way, I think our international gateways are going to come back quicker. I think our international gateways naturally have a lot of place that other gateways don't have, which you see in our numbers, so the answer is more.

More than 100. Okay. Got it. And then, thank you. If you fly the same amount of capacity in the fourth quarter as you do in the third quarter, can you generate more revenue in the fourth quarter than you do in the third quarter, knowing what you know now about like corporate and VFR mix and all that stuff?

What I would say, Hunter is we're – we did a pretty good job of it in Q2. We've got a little bit ahead of ourselves in July, but that's really based on how demand changed and some – the pricing environment that we see out there. But I think the answer to your question is, yes because we're going to get better and better at forecasting this. We’re now getting results in that we're looking at every day about where we're making more and less money, both domestically and overseas. And we're refining the forecast. And we're tilting our capacity more towards what we'd say VFR markets and leisure market, which is also going to help. So I think as we optimize and refine the schedule, we can continue to push the numbers in the right direction.

And Hunter, I want to take a minute to brag on the commercial team. Andrew may not have been as direct about it. United Airlines and our – the whole company, but led by our commercial team has done a better job, I think, than any airline in the entire world in recognizing what the pandemic has meant for demand and taking advantage of opportunities where they present themselves, whether that was for passenger demand. Our cargo team, which led by Jan Krems, achieved a 36% increase in cargo revenue. I mean, who would have ever thought we could do something like that? And I know some of the stuff that they're working on that is creative. I have confidence that the United team uniquely is going to be able to find opportunities to more appropriately match capacity to demand but also to uniquely outperform by finding the pockets of demand where there is real opportunity.

Hi, everyone. Thank you for your time. Can you provide insight into your operating expenses, which decreased by 54% in the second quarter? Additionally, how do you anticipate your cash burn for Q4, considering both the scenario where revenue increases by 50% and the scenario in which conditions do not improve, similar to the framework you presented with your Q1 results?

Gerry?

Yeah. For the third quarter, I would say that number is going to be around down 45% just given where we are with capacity. Too early to tell going forward until we set capacity beyond the third quarter, but it gives you a sense of where we are.

Okay. And then, I guess, Gerry, just on the nature of this CapEx change, is this driven by United, or is it more related to slippage on the MAX certification and does the $700 million that you're taking out of 2020 now show up in 2021? Thank you.

The answer is no. The $700 million does not show up in 2021. It's really three things. It's the impact of our agreement to move aircraft out of 2022. So instead of taking a fair number of MAX in 2022, we're now committed to take zero. That has an impact on pre-delivery deposits. There are also a couple of aircraft – some number of aircraft that were in the capital expenditure forecast that were Embraer 175 later this year that we now expect will be taken by a regional partner, so that's out of our CapEx. And then there is also just a little bit of other work done. So that's what brought the number down. I would point out that of that $3.7 billion we're now forecasting for the year, about $1 billion of that is actually the present value of aircraft lease expense. We're taking a fair number of these new aircraft under operating leases that we are accounting as CapEx, the present value of those leases. That's about it. But if you back that out, and you remember that $2 billion of CapEx was spent in the first quarter, so excluding the leases, our CapEx for the last nine months of the year is down to about $700 million.

Hey, good morning, everybody. Gerry, can you give us some more clarity on the air traffic liability right now in terms of its composition and whether there's been any appreciable increase in refund requests following the flattening demand in the quarantine here in my home state?

Hi, Jamie. It's Andrew. It's just shy of $5 billion. But there are some stats there, what's coming in as our new revenue and what's coming in is the redemption of the EPCs and other instruments like that. It's about two-thirds new revenue and one-third redemption of previous tickets. Refunds, as we get further and further into the pandemic, less and less of the booking curve was booked in the past, so the refund rates are coming down. Those numbers, I think, are all moving in the right direction, but roughly a two-thirds, one-third split and just shy of $5 billion right now for ATL.

Hey Thanks very much. Good morning. First, a quick question for Gerry, just a clarification, actually. Do you still have the ability to borrow more against MileagePlus, or has that exhausted the source of collateral? And can you talk about the relative attractiveness of doing more of that versus taking the federal loan that you're approved?

Yes. So we were able to, as you may remember, in that transaction, upsize the transaction from what we originally went to the market with, which basically used up the availability of the first-lien capacity. The way that deal is structured, though, because it is amortizing starting in year 3, as it amortizes, we're able to re-borrow against that collateral. So it becomes a facility if we want, that we can continue to borrow against in the future.

Well, first, what I would say is that we did have an advantage in that cargo tends to go to and from our hubs. So we have a well-established network with our people and our distributors and that just was really humming. I would say, and the other thing I'll point out is that our cargo revenue in the second quarter and the first month was actually kind of flattish. You can just imagine what May and June looked like. They were just really off the charts. Cargo revenue does come in rather close to departure time. So, it's a little bit more difficult to predict, but we expect it to have another great quarter. And really, as long as the global fleet of wide-bodies is not flying like it normally is industry-wide, we think cargo is going to be pretty strong in terms of yield production, which it is and our ability to do cargo-only charters. But again, a big thanks to our team. Again, really, this is one of the advantages of our hub system because cargo wants to go from our gateways to around the world. So, we can easily take advantage of it, and we did so expect more of that in the third quarter. Whether it's at the levels of 2Q, I think it's a little bit early to tell, but it definitely will outperform year-over-year based on what we're seeing here in July already.

Hey good morning everyone. Thanks again for your time. One quick clarification for Gerry first, on the down 45% recent costs, is that all in adjusted operating costs or something else?

Yes. That's all in ex-specials. Yes.

Okay, great. And so it sounds like it's maybe too early to nail down 4Q costs, given the uncertainty around demand capacity outlook. But how should we think about costs sequentially from that down 45% level you're expecting in 3Q? If we just assume capacity stays level with August as you're currently expecting, I'm assuming the changes to your labor force will be forced to drive those costs lower in 4Q versus 3Q, or are there other cost buckets that you cut spending temporarily that maybe come back and offset that labor impact?

Cathy actually, I'm not focused so much on those cost numbers as I am on cash burn. So I think in terms of cash burn, more than anything else. But to try to answer your question, I would say that, with your assumptions, costs are going to be about the same as what we're seeing now. Basically, that decline is flat going into the fourth quarter. Two things I would mention, by the way about the fourth quarter on cash burn. We do have in addition to our normal debt amortization, a $300 million maturity in the quarter. So principal payments in the fourth quarter will be higher than, for instance, in the third quarter. And, of course, there would be some one-time costs as we rightsize the labor force that we'll also have in the fourth quarter.

Hey, good morning, everyone. Just two quick ones here. Gerry, the $15.2 billion liquidity as of July 20th, does that include the last PSP installment? I think that's like $500 million or so. Is that in that number?

No. No. That typically would come at the end of the month.

Okay, great. My second question is for Andrew. Referring to some IATA data, they noted that ticket purchases made within three days were over 40% last year for the month of May, compared to about 15% to 18% previously. Are you experiencing similar trends, at least for May or June? Are those figures beginning to normalize, or are they still quite high close in? I imagine this is affecting your ability to plan, so could you provide some insight on this? Thank you.

Yeah, Mike, I would say forecasting is a little bit more challenging these days than normal. We definitely saw very high close-in demand in May, in particular, in early June, which quite frankly, it was nice to see, got the load factors and revenue moving in the right direction. I will say that tapered off a bit as the quarantine hit in New York City and then Chicago and elsewhere and borders got even more restricted. So I don't know where it is on the realm of normalcy, but it was very high in May and early June. It's lower now that these events have happened. Once things start to get back on the road to recovery, I do expect that the booking curve will have moved closer in. All of that's to say is that it's really difficult to predict revenue at this point and get the capacity equation optimized like we'd like to. But I think we're going to get better and better at it as we go forward, but that's where we are.

Hi. Thanks for taking my question. Just wanted to come back to the fleet real quickly. I appreciate the flexibility on making a decision, but is there a point in time you would need to make a decision, or essentially, how long can you push off deferring, kind of, making a decision on delaying or retiring an aircraft type?

Maybe I'll start, and Gerry can add on. But it's difficult to predict the virus's path. We've put a lot of aircraft into some type of storage, whether it be temporary long-term storage or short-term storage. We are moving aircraft in and out of storage based on maintenance cycles and engine time and all kinds of things. When we went into this, we didn't have a plan to necessarily retire any fleet type, and we're going to hesitate to make final decisions on that until we better understand the length and duration of the situation, to be honest. So there are a token number of very, very old 757s that had practically the engines on them. Those aircraft have definitely been permanently retired because they were part of our retirement plan. But we are definitely trying to keep our powder dry on the rest of the fleet until we have better visibility of what's going on. More importantly, we're using that fleet really effectively with green time for both airframe and engine to make sure that we do what's right for cash burn and long-term requirements of the fleet. I hesitate to make a decision today to retire a fleet when we just don't need to. That's my perspective on where we are today. And Gerry, do you want to add anything to that?

Yes. Let me just add a couple of things. One, even the Pratt-powered 757s, which if you look at what our original expectation was on their retirement, it is probably likely that they're not going to come back. But even those aircraft would be available if there was a rapid recovery. Just our expectations are those are the first to go. Just in terms of amount of time, we have plenty of time, measured in years. The aircraft are being cared for properly stored and can be pulled out of the desert when and if we need them.

Hi. Thanks for the time today. This question is for Scott. Scott, I wanted to follow-up on your previous comments about the revenue recovery of about 50% and then a plateau ahead of any virus vaccine. What sort of timeframe do you think that would be? Does that anticipate going into middle or late next year for that level?

Look, I'm not an expert on when a vaccine is going to be available and widely distributed. But I've been reading a lot about it. It seems pretty clear it's going to also require multiple vaccines. When we talk about a vaccine, it needs to be one that has been tested, found to be effective, manufactured, distributed, and given to a wide percentage of the population. So I think that’s probably longer than what is in some of the media. I certainly hope it's sooner, but we'll let you go to other experts to find what it is. At United though, we’re at least planning as a scenario that it takes until late next year before that really happens, and we hope it's better than that.

Hi. Good morning. I wanted to ask about that letter that you referenced that you and other airlines sent yesterday to the EU and the White House on a program to test passengers for COVID. Have you received any feedback from the respective governments on that? And how do you see international travel restrictions evolving in the coming months?

Yes, this is Brett Hart. Yes. To date, we don't have any formal responses, but we do expect to have productive discussions, and we're hoping to, in fact, be able to move forward on this policy. We think it's in everyone's best interest, obviously, various countries, including the United States. So we're hopeful. We have strong support across our industry, both in the U.S. and outside of the U.S. And this is something that we think, at the end of the day, will benefit all of our collective countries and our industry. So we're hopeful.

Yes. Hi, Scott and company. Your press release today on the expanded face mask policy highlights the upgauging you've done to reduce the number of passengers per flight. I just wondered if you're regretting not having started out at blocking some seats like some of your competitors, because it seems like their policy would be easier to explain to customers. Any regrets on that?

We have been taking significant actions to boost consumer confidence. In the second quarter, we operated with a 35% load factor and expect to increase that to 45% in July. It's crucial to emphasize that while we have strong confidence in the safety of our airplanes, the focus is on consumer confidence. Additionally, we are informing customers when our load factor reaches 70% or higher, offering them the chance to switch to another flight if they feel uncomfortable. So far, less than 1% of our customers have taken advantage of this option. Earlier in the call, I explained why airplanes are safe, and we maintain high confidence in their safety. Being on an airplane is not the same as being in an enclosed space like a restaurant or office building, or even a hospital, because the air flows from the ceiling down to the floor and back into the ventilation system, where it's either filtered through HEPA-grade air filters or half of the re-circulated air comes from outside. All of this, along with our mask policies and cleaning protocols, makes an aircraft one of the safest places to be if you need to leave your home. We are very confident in that, and the additional measures we are implementing are aimed at reinforcing consumer confidence.

Sorry about that. Thanks for taking this. I just wanted to ask about the mask policy. I guess I was curious to hear how uptake on that has been. Can you guys say how many people have been barred from future flights, how that’s going?

The vast majority of our employees and customers already follow the mask policy because they recognize it's the right thing to do for the safety of everyone. We have very high compliance. Since the mask policy has been in place, we've carried millions of customers, and we've had fewer than 30 that we have had to actually take action against. The vast majority of people are compliant and do appreciate it. It is a distinctly small minority that are those few that don't want to wear a mask. We'll welcome them back when this is all over and masks aren't required, but they're not going to be flying on United during the pandemic if they won't wear a mask.

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