United Airlines Holdings Inc (UAL) — Q4 2020 Earnings Call Transcript

Thank you, Jenny. Good morning, everyone, and welcome to United's Fourth Quarter and Full-Year 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 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. Thank you.

Thanks, Kristina, and thank you all for joining our call today. 2020 was a year of going through hell, but we kept going. And a few years from now at United, we'll look back at 2020 as the year that gave us the opportunity to structurally change the airline for the better. I want to express my sincere gratitude for the outstanding work of the United team during such a difficult time.

Thanks, Scott. I want to start by echoing Scott's words, expressing our gratitude to the entire United family for their hard work and perseverance throughout 2020. While 2020 was an extremely challenging year, I'm proud of the way our employees came together to respond, and as a result, close the year with our highest customer satisfaction scores. Scott is right that the pandemic has fundamentally changed our airline forever. We doubled down on innovation and took advantage of this opportunity to make sweeping changes across every aspect of our business. But nowhere were those changes more critical and more profound than the steps we have taken to ensure the safety of our customers and our employees. Testing, tracing, vaccines, and advocacy related to these elements with the U.S. and foreign governments are the best way to get borders open and people flying again, taking each of these in turn. As more countries around the world and states in the U.S. put up barriers to travel to contain the spread, we have advocated for passenger testing as an alternative to quarantines and restrictions.

Thank you, Brett. We concluded the fourth quarter with total revenue down 68.7% and passenger revenue down 75.7% on a capacity decrease of 57%. During the quarter, we adjusted our capacity downward due to demand being lower than anticipated. It was encouraging to see Christmas outshine Thanksgiving with fewer last-minute cancellations, but it brings to mind the record-breaking Thanksgiving performance of 2019, driven by our commercial and customer initiatives. The pandemic drastically changed our performance in 2020. Our cargo team excelled in the quarter with a remarkable 77% revenue increase, particularly proud of our role in transporting the first vaccines from Europe. As Scott previously mentioned, our team has been preparing for vaccine transport since April and played a vital role in distributing that invaluable cargo. However, total passenger revenue continued to be a challenge, dropping nearly 76%. Unsurprisingly, leisure and visiting friends and relatives travel showed some resilience, with our Latin region experiencing a 65% revenue decline for the quarter. Meanwhile, domestic passenger revenue fell 72%, and our Mid-Con hubs in Denver and Houston outperformed others in the system. The Atlantic and Pacific passenger revenues were significantly impaired at 88% and 91% down, respectively. Due to a surge in cases and stricter border controls, demand has stalled again, and we anticipate first quarter 2020 revenue to remain down 65% to 70% compared to 2019, with capacity reduced by at least 51%. This means we don't expect a significant improvement in revenue results compared to the fourth quarter based on our current outlook. Our forecast does not factor in a potential increase in bookings that could arise from improved vaccine distribution in the quarter or in April, where we do not expect regular spring break traffic. This is certainly a sobering outlook for Q1 compared to what many hoped for. The positive long-term news is that we've been engaging extensively with our corporate and travel agency partners and customers, which leads us to believe that a demand recovery is on the horizon, following an S-curve pattern. We anticipate being flat on the curve for early 2021. Recent international testing requirements may present short-term challenges, but in the medium and long term, they could be beneficial by restoring consumer and business confidence as borders reopen. Our surveys indicate that our cleaning and testing measures are significantly boosting confidence. Demand will surge sharply once vaccines are widely distributed and border restrictions are relaxed, which we expect may happen in the second half of 2021, or perhaps sooner if vaccine distribution accelerates. Leisure travel demand is anticipated to rebound quickly due to pent-up demand post-vaccine, while business travel may take 18 to 24 months to recover, with the expectation that it will remain subdued through 2022. Businesses are likely to reduce travel associated with internal meetings in the medium term but this might be counterbalanced by pent-up demand for standard business travel aimed at bringing delayed production and products back to market, as well as increased employee travel linked to remote work. We expect domestic capacity to outpace demand during the recovery period, while international capacity is likely to lag behind demand due to multiple structural changes announced across the industry. Traditional major markets in Europe and Asia are projected to recover in 2022, whereas emerging international markets may perform better in the near term. Given our demand recovery outlook, we foresee international profits returning more swiftly and robustly than domestic profits. Historically, domestic margins have outperformed international margins, but we predict domestic margins will face pressure at the start of this post-COVID cycle, based on our analyses. In the past cycle, United was not as well positioned to capitalize on domestic margin performance, but we are well prepared for the anticipated international opportunities ahead. We have strategically diversified our international network with increased services to Latin America, India, the Middle East, and Africa. United's hubs are optimally situated for international travel to Europe and Asia. We also intend to enhance connectivity in our Mid-Con hubs and increase aircraft size as we phase out single-class 50-seat jets. Though domestic margins may face greater pressure moving forward compared to the previous cycle, we plan to counterbalance this through adjustments in capacity and connectivity, where we currently lag behind key competitors. It is the right time to restart investments that will enhance customer satisfaction through consistent product offerings, including Polaris, better customer experiences through digital innovations, the increased deployment of the CRJ-550 as we retire smaller jets, and improved overhead bin capacity, among other enhancements. These investments are made with the goal of keeping our CASM-ex flat in 2023 relative to 2019. With ample liquidity available to us, many future investments have resumed, and new customer innovations are being developed for the coming years. Our commitment to maintaining high standards at United remains unwavering, even in the face of the pandemic’s challenges. Before the pandemic, we were on the right track, and most metrics validated that performance. I would like to highlight that our commercial team has effectively managed key revenue performance metrics relative to the industry throughout this crisis. I am particularly proud that our business focus, long-haul strategy, and coastal gateway strategy have allowed us to outperform the industry when it would otherwise be expected to lag behind. We believe that as key segments of our business start to resume, our comparative performance will improve even more significantly, which is why we remain optimistic about exceeding our 2019 EBITDA margins by 2023. While our business and the industry will be permanently altered in the wake of COVID, our dedication to enhancing customer experience and driving better financial outcomes is steadfast. I want to conclude by noting an uptick in customer sentiment regarding travel this year, with worries subsiding rapidly and more people planning trips. While we expect to see this translate into revenue in the latter half of the year, there’s a chance that we could enter the positive phase of the recovery curve sooner. Like my children, I am excited about the prospect of a trip to Disney soon. I want to express my gratitude to the entire United team for their remarkable efforts in 2020. And with that, I'll pass it over to Gerry.

Thanks, Andrew. Like most of us, I am happy to say good riddance to 2020. But if there was a silver lining last year, for me, it was being so impressed by the number of people at United who have gone above and beyond in every way. Whether it's our frontline employees, ensuring that our customers are provided a clean, safe, and reliable experience or the members of my entire finance organization who have been working long hours and weekends to ensure that we maintain financially sound footing through the crisis, thank you for everything you've been doing. For the fourth quarter of 2020, we reported a pretax loss of $2.4 billion and an adjusted pretax loss of $2.6 billion. Fourth quarter total operating expenses, excluding special charges, ended down 42% year-over-year, in line with our guidance. Our fourth quarter results bring our full year 2020 pretax loss to $8.8 billion and an adjusted pretax loss of $9.9 billion. By any measure, the size of this loss is stunning. However, it doesn't tell the full story of 2020. Going into the crisis last March, we had around $6 billion of liquidity. With the bulk of our revenue quickly disappearing, managing liquidity and cash flow became far more important than any other financial metric. We worked throughout the year to build a liquidity cushion to last beyond when our customers start flying again. I'm pleased to report that we ended the year with approximately $19.7 billion of available liquidity, including $1 billion of undrawn revolver capacity and $7 billion available to borrow under our CARES Act loan. This is over 3x the liquidity we had before the crisis. Turning to cash burn. Our fourth quarter cash burn ended a little better than our recent guidance. Including debt and severance payments, average daily cash burn was $33 million. Please keep in mind that everyone defines cash burn differently. As we said on our last call, once we raised enough capital and cut enough expenses to survive the crisis, cash burn as previously defined was no longer the best metric to use as an indicator of the performance of our core business. In the earnings release, we included a chart to give you better detail on cash burn and to demonstrate the progress we've made on core cash burn throughout last year. You can see from this chart how we managed various components of cash burn. In the second and third quarter, for example, we were able to negotiate payment deferrals that improved average daily cash burn by $2 million and $1 million, respectively. While in the fourth quarter, now having sufficient liquidity, we started to pay those deferrals back. Similarly, we deferred expenses such as heavy maintenance checks and engine overhauls as we simply grounded aircraft not required to support our schedule. However, in order to prepare for the recovery, we've restarted that work. In total, core cash burn in the fourth quarter improved by about half since the second quarter, dropping from an average of $38 million per day to $19 million per day. We expect core cash burn to remain flat in the first quarter as compared to the fourth quarter and continue to improve going forward. Even though cash burn continues, we currently expect to end the first quarter with about as much liquidity as we ended 2020 due largely to at least $2.6 billion we expect to receive under the Payroll Support Program extension. We received the first installment of $1.3 billion last week and expect to receive additional amounts in February and March. In addition, thanks to additional flexibility provided by the U.S. Treasury Department, we now have until May 28 to decide how much of the $7 billion available under the CARES Act loan we may borrow. Our strong liquidity position is due to both our successful capital-raising activity as well as our continued focus on cost control. In 2020, we were able to stop spending money on activity that was not necessary for our substantially reduced operation. While this focus will continue into 2021, with our strong liquidity, we are able to resume investments in our operational infrastructure to be ready for the recovery. While no one can confidently predict the timing of the recovery, we do know that if we don't start some of this work now, it will be impossible to be fully prepared when the recovery happens. For example, as I mentioned earlier, the airframe heavy maintenance and engine overhaul work we postponed last year now has to be done to ensure that we can ramp up the schedule as demand returns. Similarly, we postponed some work on some of our airport hubs last year since they either closed or were lightly utilized. Again, that work needs to be restarted to be ready to welcome back our customers. At the same time, however, we will be cautious and maintain the flexibility to slow down these investments if necessary. Looking at capital expenditures. While we currently expect nonaircraft capital expenditures to be around $1.4 billion in 2021, we have a plan where we can reduce this amount by half, if necessary. We expect aircraft capital expenditures in 2021 to be about $2.5 billion, including the 24 737 MAXs, 11 787s, and 4 Embraer 175s we expect to take delivery of this year. Just like 2020, we are only taking new aircraft this year that we can fully finance. Looking beyond just the first quarter of 2021, we have made structural changes to our cost base. These changes are ongoing, but some examples include permanently reducing management headcount, representing over $300 million of annual savings; simplifying our regional strategy by ramping down our regional partners from 8 to 6, which drives about $50 million of benefits; renegotiating contracts across the supply chain; and consolidating and streamlining maintenance operations, which drive over $100 million in savings. Thus far, we have identified $1.4 billion of annual savings and have a path to at least $2 billion in structural reductions moving forward, which will enable us to offset inflationary cost pressures. As we continue to make these structural changes, we are confident in our commitment to achieve 2023 CASM-ex flat to 2019 and 2023 EBITDA margins that will exceed 2019 levels. We hope to get there earlier than we are targeting but are confident in the trajectory into 2023. As we return to profitability, another primary goal is to restore the strength of our balance sheet. This means maintaining sufficient liquidity, reducing debt and unencumbering assets. This crisis has afforded us a number of valuable lessons about the balance sheet and capital allocation. Before COVID, we modeled our worst-case scenarios based on the financial impact of 9/11, followed by a recession. It turns out we weren't even close. Going forward, we will focus on being ready for sustained destruction of global air travel demand like we are seeing today. In addition, we need to be more cognizant of the fact that cash associated with advanced ticket liability may not be a reliable source of working capital during a crisis. As a result, we expect to establish a higher minimum liquidity target than before the crisis. On the positive side, we've developed a greater understanding of the value of our assets that are available as collateral and how investors differentiate the various collateral types. This will steer our decisions as we unencumber assets, ensuring that higher-quality collateral is available to use to quickly raise substantial incremental liquidity just like we did over the last 9 months. Given the amount of debt we have taken on, it will take a number of years to restore the balance sheet. As a result, it may constrain our ability to make all of the investments in our business that would otherwise benefit our people, our customers, and the communities we serve. However, we will make thoughtful choices when it comes to paying down debt versus making investments. Taking a balanced approach to capital allocation, combined with establishing a sustainable cost structure, will enable us to achieve our EBITDA margin for 2023 and beyond. With that, I will turn the call back to Kristina to start the Q&A.

Thank you, Gerry. We will now take questions from the analyst community. Operator, please describe the procedure to ask a question.

Hey, good morning, everyone. And Scott and team, thanks for the more positive outlook on 2023. But I guess, Andrew, you mentioned that maybe domestic would be a little bit more challenged here if we lead with leisure recovery. How do you guys really differentiate in that environment? Is it really connectivity through your hubs? You did talk about gauge efficiency as well. Could you expand on that?

Sure. You got it right on the nail on the head there in terms of we do have these gauge gaps. And as we retire 50 seaters, I think you should see our gauge start to move in the right direction. And then the plan we had in terms of domestic connectivity really hasn't changed. We have sufficient shortfalls there as well. So as we close those gaps, we think that's going to provide us a nice tailwind. But the other key component of that is we have the largest exposure on the international side, I think, of any of the big large U.S. carriers. And we do think there are a bunch of structural changes there that will lead to stronger relative performance over that period of time, and that should benefit United more than our competitors. So we think we have that lever on the international side, and then we have the gauge and connectivity lever on the domestic side, which should make, I think, a real big material difference to our performance in 2023.

Yes. I guess just as a quick follow-up to that. The simple, maybe more negative investor view might be, hey, you're going to face a lot of domestic higher-density competition. So do you think that these differentiating factors for you guys in your network could actually lead to a revenue premium if fares stay low domestically?

I view the RASM premium as a potential opportunity for us. As we adjust our capacity in relation to the size of our hubs and the cities they serve, we recognize that we've been operating with an undersized capacity and we plan to correct that. This will likely provide us with a favorable cost advantage. We believe this represents a unique opportunity for us to outperform others in the market who have already made similar adjustments. On the international front, our network is showing significant improvements in light of current market conditions, which are evident in the news. This is expected to greatly benefit United. When we consider all these factors, we are confident about our performance in 2023 and that is why we are eager to make this commitment. Moreover, with Scott's insistence on accountability, we are determined to meet our goals.

Hey, guys, thanks for the time. So, Scott, I guess, if you're looking out to 2023, expecting the EBITDA margins to get to an above sort of 2019 level, given Andrew's commentary on the S curve of demand recovery, is there a way you can help us think about the rate of change in that EBITDA margin recovery? Is this something where we're going to get back to break-even and stabilize a little bit and then come back as yields get better? Like how should we be thinking about the improvement in the EBITDA margin kind of from where we are to the higher end of that S curve?

I'll make an attempt, and Gerry and Andrew can add their thoughts if they wish. This really centers on when demand will begin to recover. The team has effectively managed to reduce our costs and cash burn early in the crisis, which is commendable. Our key concern now is determining when we will reach the point of recovery in demand. That pivotal moment is expected to occur when a significant portion of the population gets vaccinated. Additionally, we need to establish a scientific and medical consensus that receiving the vaccine not only protects individuals from COVID but also prevents them from spreading it. This crucial step has yet to be reached. Once it is, we anticipate a very rapid surge in demand, akin to the shape of an S curve. The exact timing of this remains uncertain. We have been relatively conservative in our projections compared to others, perhaps more realistic, and I believe the recovery timeline may extend a bit further out than some expect. However, the focus isn't entirely on timing. We've mentioned 2023 because, while there is optimism about a spring recovery, the reality is that it could happen anytime this year. We are confident that we will eventually hit that S curve turning point, after which we should see a quick rebound to about 85% to 90% of 2019 demand levels. Within a few months after that, while it's difficult to predict precisely, we should move from being cash negative to significantly cash positive, though this will depend on when the recovery in demand actually occurs. Following this point, demand will gradually rise towards the 2019 levels. To pinpoint the inflection moment, I’ve told employees that it will likely be on the same day when people feel comfortable going almost anywhere in the country, dining in restaurants at full capacity. This environment is essential for demand generation in aviation, which includes people returning to offices and enjoying entertainment events. These factors will drive demand for travel again, and they likely won't reopen until we reach the vaccine inflection point. Many may have differing opinions on when that will happen, but when it does, we have ample data indicating substantial pent-up demand, which will lead to a steep increase in demand over weeks and months.

Thanks very much, operator. Hi, everybody. Thanks for the time. Actually, I think, Scott, this might be for you. Can you just talk in more detail about what you're doing with the Eco-Skies program and the environmental? I know this is like completely off topic from COVID, but I just like - sorry...

Thank you. I share your feelings, and I'm pleased to discuss something beyond the immediate future. You're right; this is crucial for the long term. I've cared about climate change since the 1980s, and we now have a chance to make a real impact. While many initiatives, especially traditional carbon offsets, are well-intentioned, they aren't close to scaling up to tackle our climate change challenges. Our carbon emissions are now 4,000 times higher than in the pre-industrial era, and we simply don't have the space to plant 4,000 times as many trees. Without a significant breakthrough, like making fusion technology a reality, we need to focus on large-scale carbon sequestration. We're proud to partner with Occidental and 1PointFive on a major project aimed at extracting carbon from the atmosphere and storing it underground permanently. This type of investment is necessary not just for aviation, but for the entire industrial sector if we want to make a real impact. We must begin investing now to drive down costs. Two decades ago, wind and solar energy were not seen as viable economically, but now they are because of significant cost reductions. Government support will be essential for this progress, but I genuinely believe it's a feasible solution and the only way I can see the math working out to truly address climate change. We are deeply committed to this issue, not only as aviation leaders but also as responsible global citizens. Thank you, Helane, for your question.

So just to confirm on the 2023 margin guidance, I think you've implied this, but are you also saying that you expect ASMs and load factor to get back to 2019 levels by that period?

Gerry or Andrew?

We definitely don't manage to load factors. This is Andrew, but we do expect RASM to get back to where it needs to be to reach that target. And Gerry, do you want to add anything else?

Yes, we don't have to be back to 2019 levels to hit those margins. On the cost side, the cost savings are starting now, obviously. We'll hit the full run rate when we get back to 2019 capacity, but we're seeing those benefits even today. So we don't have to get all the way back to 2019 to get back to those margins.

I think for Scott or Gerry, there's been a fair amount of talk on the call about increased liquidity on the other side of COVID and wanting to unencumber assets. I'm wondering how equity plays a role in that. I think Delta went out of their way to say that they do not plan to issue any other equity. I'm wondering if you could kind of provide similar commentary.

Yes. As you know, we have been issuing equity with the earnings release, the amount of equity we sold under our ATM program. Look, no decisions have been made going forward. We're going to understand the need to balance the entire capital structure. So the best I can say is we've made no decisions one way or another about additional equity.

Thank you. Well, I'd love for Luke to come to me with ways that he can invest $45 million because I'm confident that if we can find ways to invest more money in the loyalty business for everyone else, that will produce a higher return. By the way, buying more airplanes also helps the loyalty business or flying more routes because it makes the program more attractive to others. But your point is well taken that finding ways to invest in the loyalty business is a really high return and stable set of cash flows and earnings right now even through the pandemic and going forward.

I was wondering if you could discuss the international front further. Specifically, how do you see the competitive and partnership landscape evolving in Latin America, especially in light of significant changes that occurred before COVID, such as Delta's partnership with Latam and Avianca's Chapter 11 restructuring? I'm curious about how you view these changes from both a competitive and partnership perspective.

Sure, Savi. It's Andrew. I believe the events that began before COVID have now taken their course, leading to changes in the board. We have a strong partnership with Copa, and our collaboration with Avianca continues, along with Azul. We're very enthusiastic about this portfolio of partners in the region, as it fulfills our needs. So far, the adjustments in those other partnerships have not negatively impacted us; in fact, I think they've been beneficial. Our performance has improved relative to before. We have an excellent group of partners in the region, and while there are many factors at play, our partnerships are quite solid. We're well-prepared to deepen those relationships. Although some of this progress has been hindered by COVID over the past six months, the team is eager to resume efforts to ensure these partnerships are crucial for driving our business across the region.

Just as it relates to the net negative COVID test requirement that kicks in next week, I guess this is probably to Andrew and Brett. Are you seeing any notable change in either bookings or cancellations as that becomes effective on the 26? And then just the headline out this morning that the administration is also considering, in addition to that, an enforceable 10-day quarantine. Not sure how they're going to enforce it, but anything that you're hearing from your government people on kind of both those fronts?

I'll start by saying that the new requirements had an effect, but it was primarily focused on beach destinations in Mexico and to some extent the Caribbean. It did not have a widespread impact on our Atlantic or Pacific businesses, which were already significantly down as we mentioned before. Similarly, it did not broadly affect many parts of our Latin American business, but it did influence the close-in beach destinations we can observe. Sure. There are many factors affecting the ATL due to the number of credits we have available. In the last quarter, our cash sales were at 70%, with the remaining 30% in other sales. We expect that 30% to decrease further. Additionally, the number of refunds we’ve been processing has been decreasing, which is a positive trend. However, the ATL is not behaving as it typically does in a regular year, so we are monitoring it closely. The seasonality is different, and we anticipate it will remain different until we move past the current crisis.

All right. We're going to now end the analyst portion of the questions and move on to the media. I think we might be having some technical issues on the operator. Just a moment.

Can you all hear me now?

Yes.

Yes.

Great. Okay. Yes, I was wondering if there's been any discussion of kind of taking another look or revisiting the study you all did with DARPA to adjust some of the assumptions in light of some of the new strains that are emerging or if that's something that's even necessary.

I guess I'll start and ask the rest of the team. The conclusions from the study should be the same because it's really about the size of the virus and how much it transmits. And so a mutation that makes a slight change in the surface of the virus wouldn't change the results of that study. So I'm not aware that either us or DARPA really sees the need to redo the study. I see our ops team, Toby and Jon Roitman, on in case they have anything different to add. I think they're saying no.

Yes. This is Brett Hart. I'll take this one. What we certainly appreciate is and it's evident in the last round of support that we received is that both the administration and Congress understand how critically important we are as an industry to the overall economic recovery. So we're continuing, as we always do to these, in direct communication with the administration and the Congress. And we're confident that if there is another round of support, that they will give us full consideration and that they will understand, at that point in time, our needs in terms of supporting our overall industry. So we just received the funding. We're grateful for that. It's really important for us and for our industry. But if there's consideration in the future, we're confident that our interest will be taken into consideration.

To follow up on Aly's question on aid, you did seem to indicate yesterday that you can't count on more aid coming through and that you may need to furlough more employees when this round of PSP expires. Can you give us some indication of how many employees, whether voluntary or involuntary, you would have to furlough?

This is Brett Hart. No, we don't have any information on that front at this point. The best way to think about this is that we're focused on the demand environment, which could change before we have to make decisions. There are also other factors to consider. Right now, we're grateful for the chance to welcome our employees back and get them fully engaged. We will make those decisions at the right time, but we are not in a position to make any assumptions about potential furloughs in the future.

I have a two-part question. First, regarding the 2023 targets, will that include any fleet retirement of older aircraft or hard targets related to your upgauging strategy for the regional side? The second part is about Andrew's comments on the international competitive situation. Does United perceive that as an opportunity for increased capacity, and what do you anticipate will happen with the two larger transatlantic alliances and their actions? Will overall capacity remain low?

This is Gerry. I'll begin with the fleet plan and emphasize our goal to preserve as much flexibility as possible with the fleet to meet demand. We have only decided to retire a portion of our 757-200 fleet, specifically about 13 aircraft equipped with the oldest engines. This decision was influenced by several factors, including the charge we incurred this quarter. For the remainder of our fleet, especially the mainline fleet, we plan to maintain flexibility. Regarding the upgauging process, it will largely depend on the availability of larger MAX aircraft. We understand that the 737 MAX 10 will not be available until 2023, so it is not included in our targets for 2022.

Sure. What I'd say is that when you make fleet changes in this business, it's easy to retire aircraft, but it's a lot harder to induct new ones and replace them for a million different reasons. And so when we look out at the world, we see airlines have made a lot of different moves, and they generally go back to bigger aircraft being retired. We've clearly kept our flexibility open on this front, as we've said over and over again. And from a planning perspective, one of the moves we've made is to move some of these aircraft into new markets. For example, we announced New York to Johannesburg and other service to Africa and more service to India as we plan to make sure that we don't necessarily have to put all of our capacity back into the original core markets we had in 2019. So we'll see how that goes. I can't predict what other airlines will do. I'm just looking at fleet plans and the structural changes that we've seen in the global long-haul markets.

I had a question about vaccine passports. I know that a few months ago, you were trialing a secure digital platform for test results, just a better way to validate negative PCR tests. I wondered if you're doing the same thing for vaccines as travel picks up I know the proof of the vaccine is probably going to be required for a lot of international travel.

Either Linda or Toby, you guys want to take that?

Sure. Thanks, Scott. We are definitely focused on making it as easy for our customers as we can to manage through all the different rules, whether it's around testing requirements, vaccine requirements. And certainly, technology is going to be a big piece of that. And so what I'd say is stay tuned. We've got a lot of really good things coming very shortly.

My questions also have to do with the new COVID testing requirement that takes effect next week. Andrew, can you quantify at all the impact on bookings and cancellations, especially to Mexico, since this went into effect? And on a related note, are you confident that there's the infrastructure in place like in Mexico, such a popular destination right now for travelers? I mean I'm getting rims of press releases from high-end hotels, but the average traveler going to Mexico doesn't stay at a Four Seasons. So does that concern you at all in terms of how it's linked to demand?

Sure, Dawn. It is definitely related to demand. In terms of the impact on United's overall business, I can start by saying that since most of the world already had some type of requirement for testing or quarantines in place, it seems that there hasn't been a significant negative impact based on the announcement from a few weeks ago and what is expected next week. The exception to this is Mexico, particularly the beach resorts, which had no regulatory testing requirements and experienced a notable volume. However, in the broader context of United Airlines, the beach resorts represent a small portion of our overall business today. This factor is reflected in our revenue outlook. Now, I'll hand it over to Toby because it is important for travelers to feel safe and secure when planning a trip to Cancún and returning efficiently to the United States. Toby, would you like to address the second part of that question?

Sure. What I would add just, Andrew and Dawn, is we're working really, really hard with lots of partners to be able to increase the supply of tests. And one thing good about this new order is that they allow an antigen test, which is much, much easier and faster and cheaper to get. So more to come like Linda said. We are going to work really, really hard to make sure it's really, really easy to travel with United even with the new testing requirements. And we're going to absolutely focus on the areas that you mentioned, at the short end, the beaches, the friends and family first.

Dawn, there's no doubt, the test requirement is a short-term negative. But as these tests get out there and that it reopens borders not only to Mexico but around the world, we think that's a good medium and long-term change and will prompt more and more demand. But in the very short term, it is a slight negative. But we are going to respond with automation and digital technology and communication. So our customers know how to take that trip and know what they need on the outbound and know what they need on the inbound. And we will have a lot more to say about that in the very, very near future because this transparency is important to everybody. We'd like to get people moving again, and we know this is the way to do it. And we have plans in place that we will detail very shortly that describe exactly how we're going to do that.

Thank you, everyone, 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.