United Airlines Holdings Inc (UAL) — Q1 2021 Earnings Call Transcript

Thank you, Brandon. Good morning, everyone, and welcome to United's First Quarter 2021 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 expectation. 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 Operations Officer, Jon Roitman; 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.

Good morning and thank you for joining our call today. My, what a difference a year makes. Last year at this time, demand was almost completely shut down. And we'd been burning up to $100 million per day. Thanks to our people's hard work, dedication and commitment to doing the right thing for our customers, we're in a dramatically different place now. We're proud of the fact that after being up over 30 points last year, our Q1 customer NPS scores were the highest quarterly ever in United's history despite severe winter storms and higher load factors, a testament to the enduring changes we've made to improve the customer experience. We're also pleased to confirm last week that our core cash flow for the month of March was positive and we continue to expect positive core cash flow moving forward. This confirms the view that we first shared in October 2020 that we could see the light at the end of the tunnel. We're more confident than ever in the recovery and in the long-term earnings power of United Airlines. Even with business and long-haul international demand still off by over 80 percent, we can now squarely focus on returning to positive adjusted EBITDA as our next milestone. In fact, we now see a clear path to reaching that milestone, even with business and long-haul down as much as 70 percent. In addition, we expect to return to positive net income once business and long-haul international recover to down 35 percent. And as we've maintained from the beginning of the crisis, we're increasingly confident that both business and long-haul will eventually recover fully. When that recovery begins, no airline is better positioned to capitalize on it than United, which is why we're so confident about returning to profitability and ultimately exceeding 2019 adjusted EBITDA margins in 2023. We continued our return to new vision in the first quarter and we're making progress towards those milestones. One, a key pillar of returning to new is changing how customers feel about United, so they choose to fly United. In the quarter, we continued to pivot our operational measurement and decision-making to center on our commitment to customers. Jon will talk about this in more detail but at United, we're innovating in ways that not only make us more efficient and improve our cost structure. These changes also drive a better customer experience. We're also solidifying and expanding our leadership in sustainability. Last week, we announced the launch of Eco-Skies Alliance, a collaboration with global corporations to build on United's already dominant position when it comes to the use of sustainable aviation fuel. And earlier this year, we announced an agreement with Archer Aviation as part of our effort to invest in emerging technologies for a more sustainable future and we're excited for more to come on this front. United is clearly the sustainability leader in global aviation. But I'm encouraged by conversations I've had with other CEOs around the world, including others in our industry, which revealed that more and more companies are looking to real solutions, like carbon sequestration, to decarbonize our industry and our global economy. Three, the future United Airlines is also committed to being the acknowledged industry leader in diversity, equity, and inclusion. As Brett will detail further, early this month, we outlined our plan to train 5,000 pilots at our Aviate Academy by the end of the decade, with a goal that half of the students will be women and people of color. Four, turning to restoring our balance sheet, last week, we announced a new debt offering using our slots, gates, and routes as collateral with proceeds to be used to exit the CARES loan. And we expect that this will be our last COVID crisis-related debt raise. Five, as Jerry will also detail in the first quarter, we made further progress on our commitment to $2 billion in structural cost reductions to offset inflationary pressures, with nearly 95 percent of the savings now identified. As we return anew, this is not the old United Airlines you remember. The new United and our culture have changed for the better for our customers, our employees, and our shareholders. As business and international long-haul demand recover, we expect to quickly ramp the positive adjusted EBITDA margins, followed by profitability, and then exceeding 2019 adjusted EBITDA margins by 2023. We remain confident in that trajectory and if anything, recent results put us ahead of pace for reaching those goals. And with that, I'll hand it over to Brett.

Thanks, Scott. I want to start by reiterating Scott's comments on how the United team performed in the first quarter. In the face of continued uncertainty and some severe winter storms, our team never failed to pull together, and we couldn't be prouder of their performance. As just outlined in the first quarter, United made further progress on our commitment to return to new by once again ramping up investments in our customer experience including, modernizing the gate areas in our hubs, reconstructing and expanding United clubs in Newark and Denver, enhancements to the onboard experience like pre-order meal functionality, and providing individualized customer feedback to our flight attendants and hard product investments, such as the continuation of our Polaris seat retrofit program and the overhaul of the interior of our narrow-body aircraft. In addition, we continued to innovate and lead the industry in safety and cleanliness. We've developed new tools to deliver a safe travel experience for our customers. We are now offering an expanded COVID testing and preclearance program for travelers to Hawaii, partnering with Abbott to pilot at-home COVID tests for international travelers, rolling out proprietary industry-leading technology and the creation of our travel-ready center where customers can review COVID-19 entry requirements, upload any required records, including proof of COVID-19 vaccination, have them certified, and access their boarding pass in advance of arriving at the airport. United is the only airline to offer this integrated capability. In the first quarter, United additionally achieved hospital-grade certification for cleaning and safety from the Airline Passenger Experience Association and SimpliFlying. United was the first major U.S. carrier to be certified diamond, the highest possible certification in this scientifically-based assessment. And we continued to pursue more ways to make the flying experience as safe as possible. United is also the first airline to roll out touchless check-in for customers with bags. The first to require passengers to take an online health assessment before traveling and is the only U.S. airline that is allowing customers to enter contact information for both domestic and international travel to facilitate COVID-19 contact tracing. As we announced earlier this month, we recently restarted the process of hiring pilots and have already announced plans to bring on over 300 as demand continues to rebound. We expect to train more than 5,000 pilots over the next decade. We recognize that the competition for the best pilot talent is only going to heat up. So we aren't standing still. United is the only major U.S. airline to own a flight school. It's called Aviate Academy, and we recently began accepting applications for the inaugural class. As Scott mentioned, we have ambitious plans to use the program to ensure that the next generation of United pilots is representative of the communities and customers we serve. One of the biggest barriers to the pilot profession is a financial barrier for the training program. Working with our partners at JPMorgan Chase, we've established financial aid programs to offer millions in scholarships so deserving applicants are no longer turned away just because they can't afford the training. This allows us to successfully recruit the most talented and motivated students and provide a clear path to becoming a first officer at United Airlines. By going to more places to find the best talent and eliminating the financial barriers that have previously prevented smart and ambitious young men and women from pursuing a career as a pilot, we will ensure that the next generation of United pilots continues to live up to the exacting world-class standards of United and our pilots have proudly maintained throughout our history. This program is an excellent example of how our commitment to diversity, equity, and inclusion is more than a reflection of our deeply held values; it is also a genuine competitive advantage that will deliver important benefits to United's customers and shareholders for years to come. With that, I'll turn it over to Jon.

Thank you, Brett, and good morning, everyone. I would first like to thank my co-workers around the globe, as everything I'm going to talk about would not be possible without them. We will return to new as a much more nimble, agile, modern, and efficient operation that puts the customer at the center of everything we do. As Jerry will mention later, we are well on our way to meet our $2 billion cost efficiency target. In operations, we've made the most of the downturn and we're able to develop and execute on a number of projects that will drive meaningful and durable efficiencies. We're quick to market with initiatives during the pandemic and we intend to be quick to market with upcoming modernization work as well. I'd like to highlight a few of the most impactful initiatives that are underway. We recently rolled out agent on demand, a platform that allows customers to scan the QR code anywhere in the airport and be connected with a customer service representative live through video chat. This has proven to be a great way for customers to immediately access the care and service they need, especially during weather events. It also allows us to leverage our network of customer service professionals around the globe more efficiently. Technical operations is enhancing our industry-leading United tech mobile platform, which puts relevant and critical functionality at the fingertips of our more than 4,000 line maintenance technicians, allowing them to return aircraft to service more efficiently than ever. And we are rolling out similar functionality to other areas of the maintenance team as well. By the end of this year, we will have transitioned our global aircraft parts inventory to a modern warehouse tracking system, which will enable us to manage these assets more efficiently. Also, we're using data analytics and predictive maintenance to further improve reliability and increase aircraft availability. We're also using technology to modernize our existing ground service equipment. We're installing GPS tracking on more than 20,000 pieces of equipment. This will enable us to track our ground assets, deploy them more precisely and reduce our equipment requirements. It will also save time as employees will be able to quickly glance at their device to find the equipment that they need. Another big theme of our return to new is emerging as a more customer-friendly airline. Over the past year, we've revolutionized our operating philosophy and culture. If you think about the traditional airline industry operating metrics, A14, D Zero, completion factor, they've been around for decades without much change. These metrics are important, but driving towards them can sometimes create suboptimal outcomes for customers. For example, obsessing about D Zero, in many instances, leaves connecting customers behind. Connection saver helps solve this at United as we use data to determine when we can hold a flight without causing additional disruption downline. Every day we save many hundreds of connections; in fact, in recent winter storms, we averaged over 2,000 saved connections per day. At United, we're committed to updating our infrastructure and changing our mindsets to become more customer-centric. We're using data and automation centered on new customer insights to make it simple for employees to make the very best decisions for our customers. In addition, we're leaning hard into artificial intelligence and predictive analytics to solve problems before employees have to deal with them. During the pandemic, we've also strengthened our communication capabilities to connect with our customers during every step of their journey. Sometimes weather and other events disrupt travel, and when that happens, we will clearly communicate the situation to our customers in real time and offer actionable options. Nothing demonstrates this better than a recent storm in Denver. The storm was massive, lasting multiple days, preventing us from operating at the airport for a day and a half. Several days before the storm, long before any other airline, we proactively reached out to more than 200,000 customers to inform them of the risks of their travel. We offered rebooking options and actually added 22 flights before the storm to provide more options for our customers by far the largest such action we've ever taken. Our forecast shows 45,000 passengers scheduled to fly through Denver each day through the storm. But through our new proactive strategy, we helped more than half of those customers reschedule their travel and avoid the risk of disruption to their plans. Our forward-leaning approach was the right one for our Denver operation and more importantly, the right one for our customers. We recovered our operations days before our competitors and received stellar feedback from our customers with NPS scores of those that we re-accommodated approximately 50 percent higher than our system average. Consider this customer comment: 'We recently had a similar weather disruption when we were traveling on another airline. We would have appreciated it if the other airline had been proactive in changing our flight. Changing online was super easy too.' The bottom line is that the United team didn't let this crisis go to waste. We've used the time to streamline our processes and pursue innovative ideas that are good for our employees, our customers, and our shareholders. And with that, I'll turn it over to Andrew.

Thanks, Jon. During March, we finally reached that demand inflection point we've been looking for, and we continue to see that resurgence today. Vaccine distribution gains in the U.S. have renewed our desire as Americans to travel. Near-term demand strength was driven by domestic and short-haul international leisure and VFR customers, not by our business or long-haul customers, well, at least not yet. Consumer confidence about air travel is clearly strengthening, and we see that in all of our customer feedback. In 2020, United led with the smallest decline in TRASM of every single one of our domestic competitors. And for Q1, we expect that continued great relative TRASM performance. The pace of the demand recovery really started to accelerate at the end of the quarter, with March passenger revenues up 69 percent versus February. Overall, our PRASM in Q1 2021 was down 43 percent and TRASM was down 27 percent versus 2019. Capacity was down 54 percent and total revenue was down 66 percent versus the first quarter of 2019. Our ATL balances increased by about $725 million in Q1 versus Q4 as the booking curve began to finally return to normal. It's nice to see the ATL balance moving in this manner, as it's the strongest indication of the strengthening of consumer confidence in travel. About 12 percent of our new tickets are using credits accumulated largely during the pandemic. Throughout the pandemic, we have focused on making it simpler for customers to use their credits by making it easier to find, save, check balances, and redeem on united.com and our app. The ease of use of credits is yet another example of our customer focus along with the elimination of change fees in 2020. The customer focus combined with many other commercial and product initiatives such as the completion of Polaris and the opening of new and expanding clubs provide our customers with an increasingly consistent world-class experience. At United, we're focused on returning to profitability as quickly as possible, and the best way to do that is to balance capacity, real demand, and a leading product that our customers choose first. This combination leads to maximizing TRASM. That approach has allowed United to lead the industry not only in TRASM performance during the pandemic but also on core cash burn, in spite of the fact that United has the largest exposure to long-haul international and business demand based on our network. One reason for our strong performance also has been our cargo team, which continued to execute well with record Q1 revenues of $497 million, up 74 percent versus 2019, and up 88 percent versus 2020. This is just absolutely amazing performance. Our loyalty program, MileagePlus, continues to demonstrate its underlying intrinsic value and growth potential. In the quarter, loyalty other operating revenues was down 23 percent versus overall passenger revenues down 73 percent versus 2019. Our card partnerships are a critical driver of this performance. Co-brand spending is growing healthily again, and new account acquisition has accelerated, largely a fraction of the strong market response to our new non-fee gateway card and our mid-tier Quest card. We also appreciate the productive relationship we built with Chase not only in our cards business but also helping the Aviate program come to life. As we see more new customers flying United, we're doing a great job of enrolling them in our loyalty program. New member enrollments are accelerating back towards pre-pandemic numbers, with a month-over-month enrollment rate increase of about 50 percent in March and April already outpacing March. For the second quarter, we expect our TRASM to be down around 20 percent versus the second quarter of 2019 and capacity down around 45 percent. Continued strong cargo demand, a resurgence in passenger demand, and the lengthening of the booking curve positioned United to remain focused on maximizing PRASM and TRASM in the coming months. For April, our book of domestic load factors are only slightly behind 2019, and for May, we're ahead, a marked change from recent history. With these healthy book load factors, we've taken the opportunity to manage yields closer to 2019 levels. We booked domestic leisure yields above 2019 starting in mid-June and expect passenger load factors in excess of 80 percent. Our ability to reach 2019 yield levels at this point provides us confidence we're on the road to recovery with a realistic capacity plan to achieve that. Long-haul international travel represents a significant opportunity for United. We have seen in recent weeks that immediately after a country reopens with proof of a vaccine, leisure demand returns to the level of 2019 quickly. We've adjusted our schedule to take advantage of these opportunities this spring and summer. A few weeks ago, there was a rumor that Greece was going to open. As soon as that rumor occurred, our Greece bookings took off. Athens is our second-best booked Atlantic market this summer, and we're excited to announce yesterday the addition of a second daily flight to Greece this summer from our Dulles hub, complementing our newer flight to Iceland which also permits access with vaccine proof and is our best booked Atlantic destination this summer. As a result, we announced plans to operate Chicago service this summer, in addition to our normal Newark service. We also announced plans to begin service between Newark and Croatia this summer in another country that permits access with proof of a vaccine. Looking back into Q1, we feared the new mandatory testing obligation for returning from Mexico would dampen our results this spring. We even cut capacity to Mexico beach resorts anticipating this reduction. Well, we were wrong, and we quickly reinstated that capacity as more of our customers quickly adapted to the new requirements. As we look forward to our capacity levels in most parts of the year, Latin America is now above 2019 levels. Wherever we look in Latin America where access is permitted, we see leisure demand at 2019 levels or greater. We look forward to the opening of more and more countries as vaccine distribution increases and governments ease restrictions. We have the aircraft standby ready to fly this summer. For example, we anticipate operating between 8 and 10 daily flights to London Heathrow this summer, if and when a travel corridor is permitted to open. We believe it's very possible that our fourth-quarter adjusted EBITDA will be positive this year even if long-haul and domestic business travel remains depressed at approximately 70 percent versus 2019 levels for the remainder of the year. However, after seeing the strong inflection point for domestic leisure traffic this March, we remain cautiously optimistic we could see a lot more demand later this summer for business traffic, both at home and around the world, lifting our financial results. We continue to talk to our corporate clients about the timing and what a rebound of business travel looks like as we consider our capacity plans for the second half of 2021. We expect the post-summer positive inflection point in business travel demand and a strong acceleration into 2022, hopefully surpassing the down 70 percent levels I mentioned earlier, maybe by early fall. Our best guess is that a rebound will be correlated with schools reopening in person and more people returning to the office. A year ago, United got it right by forecasting a deeper and longer impact from COVID when everyone else thought it was short, but we are now uniquely positive on the recovery given the data we see and expect a full return in business and long-haul international demand. Again, every data point we see confirms that demand will recover, and United is uniquely set up to thrive in that environment. We have our fleet standing by, including our full wide-body complement. We chose not to retire our 767 fleet and remain committed to that call. In fact, we expect that the continued use of the 767 fleet will provide us a unique size and cost platform in many markets, providing us a strategic edge going forward. Early in the pandemic, we entered an industry-leading deal with our pilots to avoid furloughs and minimize costly training events, which has us ready to bounce back, a win for United and our pilots. However, to be clear, business traffic recovery so far, given where we are, a full schedule is not warranted in the coming months. We also took the opportunity in the pandemic to rationalize our use of single-class 50-seat RJs down to three partner airlines, allowing us to deliver a more reliable and cost-efficient product. Our fleet of dual-class 50-seat CRJ 550 continues to expand, allowing us to deliver a world-class product to smaller communities across the United States. We are now on track to operate our full schedule from Newark later this year after slot waivers have ended, and all flights will be operated with dual-class aircraft by the time we get into 2022. NPS results from our CRJ 550 passengers are some of our best. United has 94 large narrow-body airplanes arriving in 2022 and 2023, which will finally start us on the path of raising our aircraft gauge. We've long talked about this gauge mismatch versus our gigantic markets and our primary competitors. Closing our North American gauge gap is one of our biggest opportunities and it's been proven successful many times over by others and will also be a large positive to our NPS scores. We also remain bullish on our plan to grow connectivity in our Midtown hubs and the improved revenue financial performance that plan will bring, regardless of the domestic competitive environment over the next few years. We are focused on our 2023 EBITDA results beating 2019 levels and delivering on the more than $2 billion in structural cost savings as we become more and more efficient in everything we do. With that, I wanted to thank the entire United team for their amazing work this quarter. And I'll hand it off to Gerald.

Thanks, Andrew. Good morning, everyone. For the first quarter of 2021, we reported a pre-tax loss of $1.8 billion and an adjusted pre-tax loss of $3.1 billion. We ended the quarter with $21 billion of available liquidity, including funds available under our revolving credit facility and the CARES Act Loan program. Average daily cash burn for the first quarter of 2021 was $9 million per day, representing a $10 million per day improvement versus the fourth quarter of 2020. As evidence of the improving demand environment, average daily cash flow in the month of March was positive, and we expect core cash flow to remain positive moving forward. We are excited to reach this milestone and no longer expect to discuss cash burn metrics going forward. Instead, we will begin to discuss metrics such as adjusted EBITDA margin that reflect our focus on the return to profitability. Last week, we priced and expect to close tomorrow, a significant debt transaction that represents the final piece of our COVID liquidity plan. Using our international route franchise and key domestic slots as collateral, we will be replacing the CARES Act Loan with a combination of $4 billion in secured notes and $5 billion in term loans with both better economics and an improved maturity profile. Specifically, if we had borrowed the full $7.5 billion available to us under the CARES Act loan and including existing debt maturities, we would have had over $10 billion of debt maturing in 2025. With this new transaction, we've effectively spread these maturities over the period from 2025 to 2029. In addition, with most of the new transaction issued in the term loan market, we retained prepayment flexibility, which will be enormously helpful as we reduce debt and strengthen the balance sheet moving forward. Finally, the transaction allows us to extend our revolving credit facility by three years from 2022 to 2025. While we no longer expect to use the CARES Act loan, we are grateful to the United States Treasury Department for the critical support they provided to the airline industry. Without the backstop provided by their loan commitment, we would not have achieved our liquidity goals through the crisis. We believe we now have more than enough liquidity to allow us to successfully navigate through the remainder of the COVID crisis and position ourselves for a strong recovery. In fact, going forward, we expect our debt-raising activity to be routine in nature, such as financing for new aircraft or refinancing transactions. As Scott noted, we are not currently expecting a full recovery in business and international demand this year. Despite that headwind, we expect our second-quarter adjusted EBITDA margin to improve by over 40 percentage points from negative 65 percent in the first quarter to close to negative 20 percent in the second quarter. Moving forward, we expect to see continuing improvement in adjusted EBIT margins in future quarters. And as Andrew said, even if business and long-haul international demand are down 70 percent, we believe it's very possible our adjusted EBITDA will be positive later this year. And while the timing isn't certain, any kind of business or long-haul international recovery gives us a straightforward path to positive net income and a return to 2019 adjusted EBITDA margins, ended higher. On costs, we will be able to leverage our cost structure more efficiently as we ramp our operation back up. We currently expect our second quarter operating expenses excluding special items to be down around 32 percent versus the second quarter of 2019 on capacity down around 45 percent. Looking quarter-over-quarter, this represents a two-point change in year-over-year operating expenses on an increase in capacity of almost 10 points versus the first quarter of 2021. As our operation normalizes along with demand, we expect incremental structural benefit from identified cost savings initiatives. We are confident that we will achieve over $2 billion in structural cost reductions, which are both permanent and independent of any additional benefits related to increased average aircraft gauge that we can expect as we take delivery of large narrow-body aircraft in the coming years. Of the $2 billion, we now have identified initiatives totaling $1.9 billion in savings, up from the $1.4 billion identified as of January of this year. Here are some examples. As previously discussed, we have more than $300 million of annual savings driven by management and administrative positions that have been permanently eliminated as we strive to be a leaner and more efficient organization. This reduction is durable as evidenced by the fact that we recently exercised the option to permanently return three floors to our landlord at our headquarters in Chicago. In addition, we've identified over $900 million in savings related to a combination of productivity programs and cost benefits driven by our voluntary separation programs. Nearly 13,000 people voluntarily retired through our programs in the past year. In addition to these retirements, we will be a more efficient organization going forward due to initiatives like agent on demand and digitized technical data that Jon discussed. Agent on demand is not only a win for its efficiency, but it's also a win for our customers. You don't have to wait in line to get an answer to a simple question, and congestion at the gate will be reduced. Finally, we expect to see more than $400 million in structural cost savings due to long-term contract renegotiations as we took advantage of the unusual circumstances of the past year, as well as more than $200 million resulting from real estate consolidation. These initiatives give us further confidence in our ability to achieve CASM ex-flat or better to 2019 by 2023. While the pace of recovery has certainly accelerated in recent weeks, we remain committed to structural cost reductions and ultimately paying down debt. We are also squarely focused on returning to profitability and pre-crisis margins as reinvesting in critical areas while reducing fixed costs will enable us to maximize United's earnings power post-pandemic. And finally, we have more confidence than ever in the United team and our ability to achieve our goals, including positive adjusted EBITDA, followed by profitability, and ultimately exceeding 2019 EBITDA margins by 2023 at the latest. With that, we can start the Q&A.

Thank you, Jerry. 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 the questions.

Appreciate the color on how you're thinking about leisure and business recovery. I was curious on the international front, if you could talk about based on what you're seeing and hearing today, how you think the individual three entities will recover over the next couple of years?

Hi, Savi. It's Andrew. I'll give it a try. I think short-haul Latin is already there. It's not a very business-centric region for us, and demand there looks very strong, yields are a little bit weak. But that's moving ahead nicely. I do think we're pretty bullish on that part of the world. In regards to Asia and Europe, it's really hard to say at this point, I would tell you, I think Europe is on a faster recovery pace than Asia, but only time will tell. And as I said earlier, we're prepared to begin quite a bit of flying to the U.K. this summer, if that does open up. So I do think Europe is likely a little bit ahead of Asia. Latin America is ahead of both at this point. Hopefully that provides some color for you.

That's helpful. And if I might just clarify a question from Jerry on the kind of last debt raised here is, what do you expect from a kind of the interest expense standpoint looking forward once this is won and done?

Hi, Savi. Look, there's no question when you more or less double your debt, you're going to double interest expense. But we're done with our significant debt raising, that's COVID-related and as I said going forward, there will be more routine type transactions and ultimately, we are going to be paying down debt reducing the interest expense. But one thing I'd point out is that we got through this crisis, call it $20 billion of debt raise at actually very attractive rates. Historically, when airlines have been dealing with crises like these, you’d see them issue debt at double-digit interest rates. All this post-COVID debt we raised had probably a blended interest rate just over 5%. So extraordinarily attractive rates, even in this environment, no question. We have a lot of debt, more debt than we would like, obviously, and we will focus very hard over the next few years on managing that debt down.

I guess two questions here. The first two, Andrew, you talked about having wide bodies ready to go for the summer, the Max airplanes that have been grounded, how many were grounded due to electrical? When do they come back? And then, the high-density 777s that have been grounded do they come back this summer, or is the risk that they don't come back at all?

Thanks for the question, Mike. I think I'll hand it over to Jon Roitman, our Head of Operations, and he can talk about the return to service for both aircraft.

Great. Thank you, Andrew. And thanks for the question. Let's start with the Max. We have 17 of our 30 Max aircraft that are out of our schedule, obviously, due to the electrical grounding issue that Boeing identified. And we have really good collaboration with Boeing and the FAA. We think the solution, once it's formally identified, is relatively straightforward. And we're looking forward to getting those aircraft back in the very near future. Relatively Pratt-powered 777, again, really productive collaboration with Pratt, Boeing and the FAA. This progress and relative to that airplane, we're looking forward to getting that aircraft back to safe operations in the future.

Great. And then just a second question and maybe you can answer this, Andrew. I know you recently launched the JFK service. And I know that you're out there looking for additional slots, permanent slots. I did see from your recent debt raise that some of the slots that were excluded from collateral pool were I think something on the order of 88 slots at JFK. Are those daily slots, and at what point do those slots come back to you? Presumably, they're on some sort of long-term lease?

That's an awfully complicated question, Mike. I'll try to keep it high level, but we may have to go offline. So the company is engaged in slot transactions over many, many years, quite frankly, long before I got here. So at this point, in JFK, we're operating a few flights per day to Los Angeles and San Francisco, which we're excited to do after our five-year absence. And we're looking forward to being able to maintain our JFK slots, and grow our operation. But we are working with the FAA to use idle field capacity that's available to us going forward versus the slots that you were referring to in those documents. But I'll be happy to take this offline if you need any more answers than that. Slot transactions over many years are pretty complicated to track in this type of call.

So I have two questions. One is probably for Scott or Brett; I think it's amazing that you guys are going down this path of culture and diversity and increasing the number of women and obviously, I would think that right with women and others in the pilot ranks. And you're being trolled on some social media platforms and other platforms for that decision. And people are saying that it's an unsafe choice. So what do you say to them? To convince them that people like me, I mean, not me, obviously, but people like me can be a safe pilot? And then, the other question is a business-related question with respect to how you're thinking about—I think Andrew said that Latin was outperforming the rest of international right now. Are you thinking about that just in terms of adding more service to the region to capture more travel down there, or are you kind of happy with the exposure you have? So thanks very much.

This is Brett. I will take the first question. As you think about the question, we think that a true untapped well of talent out there is with women and people of color. We think that there have been true limitations in terms of their ability to get into this profession, and one has been a clear understanding of the path to becoming a pilot with a major carrier like United, which we are clarifying with the Aviate program—the Aviate Academy. But also, and most particularly, it is the financial impairment, and we all know that it can cost upwards of $100,000 to go through the entire process of becoming a pilot and eventually becoming a pilot at a major commercial airline. So we think that at the end of the day, there's an enormous amount of talent out there in these areas where we can, quite frankly, be advantaged by pursuing. You just have to make sure that people understand that the opportunities are available. And the other thing to keep in mind is that there's nothing about our selection process, nothing about the certification process and the FAA, nothing about the training program that is changing in any way, shape, or form. We're talking about 5,000 pilots over the course of what is the better part of the next decade, with up to 50 percent we're targeting for women and people of color. That is not an outrageous number of people in a country of over 300 million people. And I'm sure you agree with that and I'm sure that most people can understand that logic as well, but we're excited. At the end of the day, we think this will be a competitive advantage for us.

Helane, in regards to the second part of your question, in Latin America, what I would say is this summer, we're planning to be at our 2019 levels already, and there are very few parts of our airline where we're at that level. We have a great Latin American franchise. However, it's been historically very Houston-centric and we've taken the opportunity in the recent months and going forward to diversify that portfolio to now include more out of Los Angeles, Washington, and New York, and our intention is to keep that. And so we're really excited about that. We're going to take our Latin system from a very Houston-centric model to more diversified across the entire United network.

Believe this one is for Scott. I want to talk about labor for a minute. I'm kind of curious what you might prioritize in a post-COVID world that might be new and out of the box. I kind of look to you as sort of the most likely airline to craft something that's flexible and creative. Is it maybe some flexibility on like minimum pay or scope? Well, what are your priorities if you think about sort of re-crafting these CBAs?

Well, thanks for giving us the kudos for being the ones that are most likely to think creatively. I think you're correct. But unfortunately, we have some ideas, but they have to be win-win solutions. I think there are some ways to create win-win solutions. We demonstrated that with our pilots, going through the crisis, where we negotiated a deal with them that's going to turn out quite well for them. Because the payroll support program meant that some of the insurance policy that we bought wasn't really needed. But it was fantastic and important for us to be able to keep the airline intact and be ready to come back on the other side of the crisis. And it's an example of the kind of win-win solutions that we can have. I think we've created a lot of trust as we've gone through the crisis with our union partners and with the front line. One addition—in addition to minimizing our cash burn, one of the other benefits of being accurate about predicting the course of the crisis has been the credibility that we've gained with our team. And because I think we're going to have some opportunities, but I'm not prepared to share here today until we get them nailed down with our teams at a negotiating table. But thanks for the kudos.

Yes, no problems, guys. Thank you. And then, Jerry, just to follow up on an earlier question on the debt. Any updated thoughts on how you're thinking about—well, I guess, it's a simple question. I can think about the ATL now that it's building again. And then, how much of these debt maturities over the next few years do you expect to roll versus pay down? Just sort of as you see things right now. Thank you.

Hey, look, we're all happy to see the ATL building as we kind of get back to a healthy industry. In terms of debt maturities, well, certainly this year, we have what I would describe as normal debt maturities, I think it's out somewhere to $1.5 billion and $2 billion. And we will continue, particularly for aircraft debt as it amortizes and matures, aircraft become unencumbered. That's a good thing. There'll be a mix. We are laser-focused on paying down debt. And the pace of that will depend on the pace of the recovery, and so we'll balance a combination of paying down debt, maybe a little bit of refinancing of some of the debt. And then, the big sort of variable we have is how much new aircraft financing we would do. One of the quickest ways to move to lower debt balances is to pay cash for aircraft, but even that's not off the table going forward. So we'll see.

First one for Andrew, when in the absence of much corporate demand, how much of your domestic capacity is allocated to basic economy fares right now? And how does that compare to this point in 2019?

Hi, Jamie. I will try to answer it that way. I would say that, given where we are in the pandemic and how demand looks and everything else that we've seen occur over the last 12 months, basic economy is a small portion of our business right now—below in single digits is what I'm saying.

Okay. That's helpful. And not meaningfully different this time in 2019, I mean, single digit then as well?

In the past, it was a higher number.

I don't, well, if anything, I don't think in the long-term, it altered it a whole lot. Other than I would say that as we went through the pandemic, the fact that United Airlines had—should have the most exposure to COVID of any airline in the country. We have the biggest business demand; we have the largest international network, and those are the two things that are still down over 80 percent. We should have by all rights been hit the hardest. But we have—it's hard to sort through all the numbers because everyone reports cash burn and things differently, including us, by the way. But if I look at cash flow from operations, which I started to do because that at least is a GAAP metric and there are fewer adjustments to it, then you adjust it for size. We pretty consistently have been the number one or number two airline, not just compared to our big network carrier competitors but compared to a low-cost carrier competitors. And that's remarkable. And I mean we had a head start in this race and we have managed to stay ahead. And what that means is we have prepared ourselves and primed ourselves for when the recovery really comes back. And the fact that we can be at the front of the pack or near the front of the pack while we have, essentially two-thirds of our business down 80 percent, which by the way, just for round numbers, sort of roughly a third of our business is domestic leisure, a third is domestic business, a third is long-haul international; those numbers aren't exact but they're close enough for government work. And we saw two-thirds of our business down 80 percent, and we're still able to put up those kinds of results. Those two things are coming back. I am confident I'll give you one anecdote, Jamie, I'm giving a long answer to the question. But I'll give you one anecdote on business demand, which is I've been talking to one of the CEOs of one of our biggest travel partners as we've gone through the crisis. And I can remember last summer that CEO telling me that I needed to prepare for business demand to permanently be down by 50 percent. Because they realized—because Zoom was great and they were—it changed how they were going to interact. By the time we got into the fall, that same CEO had said, 'Well, we're going to get back to 100% with our customers, because we realize we have to do that. And we're losing ground with customers by not being in front of them and losing opportunities. But we're never going back to all the internal meetings that we used to have. So we'll be down 20% to 30%.' I talked to that same CEO earlier this year and said, 'Well, as soon as the restrictions are lifted, at least for the first year, we've lost some of our cultural connectivity. We've had a lot of new hires, and there's no way they can be a part of our culture sitting at home. So we're going to probably have to go 20% to 30% more than we did in 2019.' And I tell that story because it's what we have thought at United all the way back to a year ago, which is that we expected full recovery in business demand because business travel is about relationships. It is not about transactions. It is about relationships, and you cannot build human relationships through a medium like this. And so that's a long way of saying, we have our business are still the hardest impacted by the endogenous environment, the lack of business demand and the lack of international travel. But we're performing at the front of the pack in spite of that, and those two things are coming back. And when they do, we are going to be in the lead. I have no doubt about it, but this is going to be the number one airline. Because if we can be at the front of the pack or near the front of the pack with those two massive headwinds when those headwinds turn into tailwinds, it's going to be really gangbusters here at United. So I'm excited about the future and what it means for competing with low-cost carriers and with everyone else around the world.

Andrew, first question for you on the domestic turn environment around leisure, is there a way you can help us understand kind of how fares today for leisure travel on a like-for-like basis are trending relative to maybe 2019 level? Not only just in the quarter, but as you look out in the booking curve for the summer months? I'm just trying to get a sense for—the industry engaged in sort of demand stimulation here? Or is this just a question of demand is coming back and you're able to take fares up with that rising demand?

Sure, I'll give it a try. David, we've been really focused on trying to figure out how to manage yields going forward. And quite frankly, as we look forward to this summer, particularly certainly in mid-June, we see our domestic leisure yields as positive versus 2019. And that's one of the things from an RM perspective we've been talking about a long time is how do we get our pricing and yield to really, sorry, yields to look like they were in the past. I think we've made incredible progress. That is not necessarily true in Q2. Our yield outlook is, as you see reflected in our revenue outlook, not as strong; we were selling lower yields in the Q2 period earlier in the year. But we do see this inflection point, it is in mid-June. And I'm really pleased to see that we expect to have loads that start with eight, and yields, hopefully from a domestic leisure point of view, that are positive year-over-year. I mean, we still have a long way to go. And this summer is still quite a ways off. But I'm really actually quite bullish that we've turned the corner on that.

That's really helpful. Thank you. And then Jerry, maybe to follow up on the question before about the leveraging, if we get to that level of say, 2023 and EBITDA margins are better, can you bookend, or is there a way to think about an annual rate of debt reduction, like how steep should we be thinking about that deleveraging sort of curve happening? And I know there's going to be a lot of quotes and things with their capital risk, things like that. But if you think about how much cash you might ever want to pay down at that future even margin level, what number should we be penciling out on an annual basis?

And you answered your own question. There are lots of puts and takes. And it will also depend on the cadence of new aircraft deliveries and what we expect to do there. So it's a little premature to answer that, that question. And we have a lot of flexibility in our ability to pay down debt. That's why we kept as much debt as we could free payable to give us that flexibility.

I wanted to ask you about visibility, just the general concept of revenue visibility, as the booking curve recovers, your visibility should start to recover. Your capacity plan feels fairly tight out into Q2, certainly relative to some of your legacy peers. It doesn't sound like you're expecting much of any acceleration close in, which could happen. It could happen in a month like June. So where does visibility stand today versus normal times? And are we getting back to putting out guides that you hope to exceed?

I'll start Duane. So thanks for that question. You guys on the analysts on this call have been remarkably polite to us today. Because as we can see in both the stock price and in our pre-calls according to Mike Leskinen, then the only thing everyone cared about was, why is the revenue guide different than other airlines? We obviously going to take this opportunity to—that's close enough to your question to attempt to address it. First, I rewind to 13 months ago, March 10 of 2020 at the JPMorgan conference, where we talked about the fact that we thought this was going to be deep and last longer, and we were the only airline who did that. This now is the fifth quarter in a row since then, where we've been on calls where our outlook felt more conservative I suppose, than our competitors last four, it's turned out to be true. And on March 10 of last year, we actually first coined the term hope is not a strategy. And I just happened to be reading another book on Winston Churchill, the splendid and the Vile, I've read a bunch; I love Winston Churchill. And I came across last night, a quote that I think is relevant for this. The day after— the morning after Churchill had just been nominated the Prime Minister—become the Prime Minister of England, in the darkest hour, the whole quote is great, but the end of it is, although impatient for the morning, I slept soundly and had no need for cheering dreams that are better than dreams. And my God, I couldn't agree more. We have used facts, data science, and logic to guide our approach. And just forcing back already said this on the call that our business is sort of 1/3 domestic leisure, 1/3 domestic business, 1/3 international. We've already said the domestic business and international are down 80 percent. And it's not likely that that's going to change tomorrow, they're getting better, they're going to gradually get better as business travel comes back and as borders reopen. But with business travel with two-thirds of your business off 80 percent, it's really hard for me to make the math work and say 90 percent or 100 percent of the schedule is the optimal answer. Yes, we could fly 40 percent more capacity, we'd probably generate 10 percent more revenue. And we'd probably drive 20 percent more costs. And so we would burn more cash. For what it's worth, nobody knows when business demand or international are going to come back for sure. But we've been more accurate than most. And so I'll give you my best guess. I think business demand really starts to come back with the fall semester as kids are back in school. We have to have people back in office buildings. If you go to—I’ve been going to Chicago, I've been to New York. But if you go to downtown Chicago, the streets are empty; have to have people back in office buildings, which I think probably starts in the fall that begins business travel, I think it probably really begins in earnest in January, when people have come back and had a chance to put business travel back into the budget that's not in the budget for this year. But business travel back into their budgets, and business travel can really begin in earnest. International demand is going to be entirely contingent on when borders open. We took over 3,000 bookings yesterday for our new services that we launched to Greece, Iceland, and Croatia, if the U.S., U.K. opens up. I think you're going to have a hard time finding a hotel room in the U.K. because there's going to be so many people wanting to go. But international borders aren't going to all reopen immediately. And my guess is that happens sometime next year. And so, in terms of visibility, we're not going to have a ton of visibility ahead of you when you do. When you start to see people in office buildings in downtown Manhattan, and it's hard to get a table at lunch, you'll know the business travel is probably back. When you see borders open and the ability to go with vaccines internationally, you'll start to know that international travel is back. And while we've been more conservative about the short-term forecasts, we have been consistent and remain consistent, that we have incredible confidence in the long-term. I'm more convinced than ever with every data point we see that both business demand and long-haul international are coming back. That's why we focused on 2023. As opposed to what the next quarter is going to be the next quarter is about timing of things that are outside of our control. The 2023 is an area where we can have high confidence. I actually think it's probably a little earlier than that now, but certainly by 2023. And so while we are a little—while we are more conservative about the near term, it's also being accurate means we burn less cash, which means we have more resources to invest in the recovery. And the other analogy I’ve been using is, we're still in the preseason right now, the regular season hasn't started yet. And these are the warm-up games. And I don't care as much about winning the preseason games as I do about winning every single game in the regular season and then winning the Super Bowl. And we're setting our team up to win the regular season and the Super Bowl when it begins, but it hasn't started yet. It's going to start; it's clear that we see the light at the end of the tunnel. But it just hasn't started yet. So hopefully that got close enough to your answer to Duane.

Two quick ones, I think. Andrew along the lines of getting back to positive yields and loads, start with—that eight by June what percentage of 2019 capacity does that assume you're flying domestically? What's the capacity assumption behind that?

As you go through the quarter, that June is our inflection point where we add a lot more capacity. We will get back to you with the exact domestic number, but it's in June where we have the inflection change, and we're definitely doing a lot more domestic than we are doing international.

Okay. And then just a clarification. I think you said that co-brand spend is now positive versus 2019. Correct me if that's wrong? And then maybe a question for Andrew or Scott, like when you think about kind of the factors that give you confidence that demand will not be structurally impaired as a result of COVID? How important is what you're seeing on the co-brand portfolio? Thank you.

To your first one, I did not say that, just to be clear. I think the portfolio is, in many ways, just a great asset for United along with the whole frequent flyer program. And we are pleased to nurture it and grow it. And again, it has not been impacted nearly as much as the top-line passenger revenue number as we thought would be; and it is actually the case, you're really pleased by that. So, we're really focused on growing it. We've seen things starting to return to normal, though we're not exactly at normal. We've wanted two new cards recently, the most recent is the Quest card. And Chase has been an excellent partner in building all of this. And we think we have a lot of runway in front of us for the card, as well as for the entire program. So a lot more to come on this. We have high expectations, and we think we're going to deliver a lot of value out of the program in the long run.

Thanks for having the call today. I want to follow up on the 777 powered by the Pratt-Whitney engines. Walk us through the schedule that will take to inspect those plans and get them returned to service. And when do you anticipate the first planes being returned to service?

As I alluded to before, it's just too premature for us to outline what that schedule looks like. I'll just tell you that, again, we've had really productive collaboration with and there's progress. And we're really looking forward to getting the aircraft back in the air safely.

Yes, as you're talking about doing hiring. When would you expect that you would get totally to 2019 hiring levels, mean staffing levels again? Or do you think that even when traffic is bad, you'll be functioning with fewer employees? And how many fewer employees?

So we do expect when we return to new to be more efficient. We look at things like our management, administrative headcount, and we're going to keep it at a permanently lower level, for example. So I think we will be back to 100 percent headcount when we're back to a little more than 100 percent of our 2019 capacity, which is likely to happen into this year or sometime in the next year.

I wanted to ask a two-part question. First on the 737 MAX and the return there. Could you talk a little bit about what sort of time lengths that work will take and when you expect those to get through, and if there are any more MAX if you're inspecting for any other issues? And then, secondly, a question for Andrew on yields, could you talk a little bit about how that, through the summer and then change into the fall as far as any capacity cuts that come in the fall and you expect yields to improve then or how's that looking for the winter?

As I mentioned before, that we have progress, and the solution seems relatively straightforward for sure. We're in the space of just getting the service bulletin requirements finalized. And it should be a pretty short process, once that's completed. Really looking forward to getting that aircraft back. And there's no other issues with the MAX other than the 17 of our 30 that are out of our schedule right now due to the grounding issue.

Thanks, Brandon. And I'm going to let Andrew finish answering the last question. And then I'll give closing remarks.

Hi, Justin. Regarding your yield question, as we said, we are seeing a lot more clarity in terms of this summer, where our yields are domestically or leisure oriented business are starting to look positive, which is great to see. As we enter into the fourth quarter, that’s really a long time away, particularly in the latter parts of the pandemic. So I don’t want to—my crystal ball is not perfectly clear, to be honest. And a big part of it plays into the rebound in business traffic, which again, we expect to see quite a bit more of as we get into the fall, particularly as the kids go back to schools and folks start to return to their offices in September. So October is usually a very strong business month for United Airlines. And I think the industry and we'll have to see how that works out. But we're carefully managing our capacity, and we expect to be significantly larger as we kind of go through the process over the next few months. In the fall, and we’re making sure we do that with the right pricing and yield strategies for United Airlines. So we're moving in the right direction. And I think those are my comments.

Thanks, Andrew. And thanks to 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.