United Airlines Holdings Inc (UAL) — Q3 2021 Earnings Call Transcript

Thank you, Brendan. Good morning, everyone and welcome to United Third Quarter 2021 Earnings Conference Call. Yesterday, we issued our earnings release, which is available on our website at www. ir.united.com Information. And yesterday relief and large range conference forward-looking statements which represent the Company's current expectations or beliefs concerning future events are forward-looking statements are made based on 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 for a more thorough description of these factors. Officer out during the course of the 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 table at the end of the earnings release. Joining us in Chicago today to discuss our results and outlook. Our Chief Executive Officer Scott Kirby, President Brett Hart, Executive Vice President and Chief Commercial Officer Andrew Nocella, and Executive Vice President and Chief Financial Officer Gerry Laderman. In addition, we have other members of the executive team online for Q&A. And now I'd like to turn the call over to Scott.

Good morning everyone, and thank you for being here today. I want to begin by expressing my gratitude to the United team for looking after our customers and each other during a busy summer. What we have accomplished over the past 19 months is even more noteworthy than usual, as we have participated in humanitarian efforts around the world, such as transporting over 160 million vaccine doses, bringing back thousands of Afghan refugees, and delivering tons of oxygen canisters and medical supplies to India, among other initiatives. Despite the personal challenges posed by the pandemic, our team has maintained reliable operations and astounding customer service, steering clear of the significant issues that have affected many in the aviation sector. The United team is emerging from COVID as a leader in global aviation, particularly in safety with the successful implementation of our early vaccine requirements. We started the third quarter with strong momentum as pent-up leisure demand surged, and while we anticipated some risks from the Delta variant, our bookings began to trend positively. Andrew will provide more details about the ups and downs of the latter half of this year, but from my viewpoint, the long-term recovery is on track with the reopening of Europe, Australia, and Singapore, and we expect a significant uptick in business demand beginning in January. Before we delve into a discussion about the near-term environment, I want to highlight four major trends that we believe position United Airlines as the preferred long-term investment for shareholders. First, we will lead in cost management; despite high inflation, it remains within our expectations, and we are on track to reduce CASM ex by around 4% in 2023 and 8% by 2026 compared to 2019. I understand there are skeptics, but it simply reflects the math of 30% growth. Moreover, there are significant industry-leading, unique structural and technological efficiency changes we’ve implemented at United. As I walk through airports or read comments about hiring challenges at other airlines, it’s clear that we’ve become much more efficient during COVID. Second, our geographical footprint offers a competitive edge. Throughout the pandemic, United has faced more challenges than any other U.S. airline due to our larger business coastal hubs and international exposure. While United's domestic and Latin revenues have been performing at 70% to 90% of 2019 levels, the Atlantic and Pacific routes, which are our largest, have suffered declines of 20% or more. Nevertheless, we've managed to achieve results comparable to or better than the industry in minimizing losses. Importantly for investors, we anticipate these geographical challenges will turn into long-term advantages, as the supply of international wide-body aircraft is set to differ significantly from domestic narrow-body supplies post-pandemic. We expect that the Atlantic and Pacific markets will outperform the domestic market for years to come, transforming a current geographical disadvantage during COVID into a sustainable advantage for United's global network. Third, we are unlocking the potential of United Next and increasing our revenue premium. Our improved product and the exceptional service from United professionals, as mentioned earlier, are already contributing to better NPS scores and customer selection. We anticipate this improvement will accelerate as we receive delivery of hundreds of new customer-friendly narrow-body aircraft and retrofit our existing narrow-bodies over the next several years. This will establish United as the airline of choice for customers and enhance our premium revenue. Fourth, concerning ESG, United is leading in global aviation through our genuine commitments to climate action and diversity, exemplified by United 887. This is increasingly important to customers, employees, and regulators, and I believe this will be evident in customer choices and valuations in the future. All of this informs our United Next financial outlook. We are determined to meet our CASM ex target and remain on track; regarding revenue, our United Next projections assume it will take until 2026 to return to our 2019 RASM outlook. While we are optimistic and expect a stronger TRASM trajectory, this cautious assumption still leads to an adjusted pre-tax margin of around 14% and an adjusted EPS of around 20 based on our current share count. In conclusion, COVID has unfolded remarkably close to our expectations from May of last year. Back then, we anticipated that demand would remain subdued until Christmas of 2021 and that business demand wouldn’t truly pick up until January of 2022. However, we always believed that total demand, including international, would ultimately recover fully. That forecast now appears to be quite accurate. We have discovered new and successful international markets in India and Africa, expect a robust recovery in Europe, and are just beginning to see openings across the Pacific, starting with Australia and Singapore. United's perspective has been uniquely insightful, both during the crisis and regarding the strength of the recovery. This insight allowed us to make long-term decisions regarding our fleet and permanent modifications to our cost structure, positioning us to benefit from those choices. Now, I’ll hand it over to Brett.

Thanks, Scott. I'd also like to thank our employees for their hard work in the quarter. July was our busiest month since the start of the pandemic. Despite regularly changing mandates, restrictions, and new protocols that have been part of commercial air travel in 2021, our team did a fantastic job helping our customers get to their destination as seamlessly as possible. As evidenced by our record high NPS scores year-to-date. We're now past what we believe is the worst of the booking impact from this wave of the Delta variant. Looking ahead, there are some recently announced regulatory changes that are driving momentum in bookings. We were pleased by the announcement that the U.S. entry restrictions on travelers from Europe, the UK, India, and other international locations—the so-called 212 (f) restrictions—will be lifted by November 8th and replaced by a global proof of vaccination requirement for all international visitors entering the U.S. We look forward to more specific details, including the effective date of the changes to avoid any confusion about the new requirements for our customers and employees. Since the announcement, we have seen a 35-point increase in year-over-two-years system bookings from international point-of-sale agencies for travel in November and December. This gives us even more confidence in our expectation that 2022, particularly over the Atlantic, will be robust. Additionally, we have repeatedly innovated and upgraded our United app, our industry-leading tool which outlines for our customers the travel recommendations and requirements as they relate to quarantines, vaccinations, or COVID-19 tests. This tool gives United customers an advantage as they navigate the evolving rules and regulations and reduces as much stress as possible at the airport. We are ready for the returning international travelers. Lastly, as Scott mentioned, with the exception of a small number of employees who sought religious or medical accommodation, more than 99.7% of our U.S. employees chose to get vaccinated. We're committed to providing the safest environment possible. It also means that our customers can book with confidence, knowing that United operations and their travel experience will not be hampered by changes to government vaccine regulations. Speaking of the reliability of our operations, we have been proactive on the hiring front. During the first three quarters of 2021, we have hired nearly 1,000 pilots, which is more than we hired in all of 2019, and welcomed three new classes of flight attendants. On ESG in the third quarter, we partnered with Honeywell and made yet another investment that contributes to our journey to become 100% green by 2050. Last month, we announced the industry's largest sustainable aviation fuel agreement in which we commit to purchase 1.5 billion gallons of SAF over 20 years, making our total commitment more than double the combined total of the rest of the world's airlines' public SAF commitments. Last week, we also became the first airline to fly a flight on 100% sustainable aviation fuel. These are both important steps in our goal to reduce our emissions by 50% on a carbon intensity basis by 2035 and to net zero by 2050. The third quarter was also punctuated by the crisis in Afghanistan. We were called upon to assist the U.S. military in bringing 15,000 Afghans to the U.S. and troops back home. We've operated approximately 40 so reserve air fleet aircraft flights to-date. We also converted our maintenance hangar at Dulles Airport to a temporary shelter. We're travel we are evacuees good rest, get a warm meal and take a breath after enduring such a remarkable journey. More than 8,000 employees raised their hands to participate in these initiatives. Working as crew members, medics, and for many, their bonds have personal ties that our military betterment. I want to take this opportunity to extend my heartfelt thanks for their service. We're also helping Afghans begin their new lives in the U.S. through our partnership with MP Microbus, where we have donated 15 million miles and continue to support incentivized donations from our MileagePlus members. As you can see, the spirit of innovation at United has not been dimmed by the pandemic. We've relied on it to adapt to the changing economic or regulatory environment and put our expertise to work to help those in need. That makes me incredibly proud of this Company and it gives us all more confidence in our ability to meet the financial targets we've laid out. I'll now hand it off to Andrew to describe in more detail how we plan to do that.

Thanks, Brett. Before talking about the third quarter results or the fourth-quarter outlook, it's important to acknowledge that the impact of the Delta variant on our business was substantial. However, we expect the worst of this wave is now past. In the last few weeks, we've seen on several of our leading business indicators return to where we were in July or better. Those indicators included, number one, passenger cancellation rates are close to 2019 levels and consistent with pre-Delta levels. Two, other than domestic co-brand spend for the quarter, new card acquisitions above 2019 levels and retention levels better than 2019. Three, passenger bookings for November and beyond travel have been above 2019 levels for the last week of strong bounce back from a few weeks ago as demand for Atlantic travel is consistent with 2019 levels since the announcement of lower travel restrictions, and yesterday was up 19%. Domestic business demand has rebounded to pre-Delta levels. The levels are better and our largest accounts are now increasing at a similar rate to our smallest. Business traffic across the Atlantic is now tracking consistent with or slightly better than domestic business traffic. Brazilian demand has rebounded quickly, matching the strength we've seen in, for months in near Latin demand. Book yields for upcoming holidays are positive as well as early 2022 are robust. Award booking levels have exceeded 2019 levels this week for the first time. While we believe these leading indicators are solid evidence of a bright outlook for United, another set of positive indicators we've been tracking in recent months is the relative strength of our premium leisure business during the pandemic. These indicators include: one, domestic first-off revenue reached 2019 levels this summer with paid load factors 5 points above. 50% of our revenue in transatlantic leisure markets came from the premium cabins in 2021, a 13-point improvement versus 2019. Paid load factors for our economy plus increased by 10 points relative to 2019 this summer. And ancillary fee revenues in Q3 were a record $9.17 per enplaned passenger. And that's basically in 2019 levels, despite 28% less massive. Whenever I talk about United Next, our long-term strategy, I tend to focus on domestic gauge growth of 30% and it's important. However, United Next also includes gross premium season counts across our domestic fleet, simply closing gaps to add to our primary competitors, matching demand in our seven hubs that we missed in the past few years. This recent trend of increased premium leisure demand is a material incremental revenue for us for our long-term outlook and has the potential to increase overall leisure yields by 2 to 3 points versus our original longer-term outlook. We still believe this traffic will return in full. Our plan will succeed even if it only returns to 85 to 90% of these levels given these yield gains if they proved permanent. Further in our revenue and premium leisure efforts, we've made the decision to outfit our 14 remaining 767-300s with our new mid-tier premium plus products. So that all 767s now include this product. We can also confirm that we will offer this separate mid-tier cabin on future deliveries of the A321XLR. In 2024 relative to 2019, premium plus performance across the Atlantic was our best performing segment. Our revenue segmentation strategies have always been about offering a range of products customers want to choose from Polaris to Premium Plus to Basic Economy. Effective segmentation makes our business model more durable when faced with elevated levels of competition, something we anticipate domestically in the coming years. I will now turn to my normal update of performance in the quarter and our near-term outlook. I will often provide an early preview of our internationally focused 2022 capacity blend. Traveling for the third quarter was down 5% and total revenues were down 32% versus 2019. United did achieve positive year-to-date track for July, as expected. Customer yields were positive in July and August versus 2019 but fell by 10% in September, given the large temporary industry supply-demand imbalance caused by the Delta variant. The impact of lower pricing and yields will continue into the fourth quarter with October performance only marginally better than September. Close-in bookings continue to track below 2019 levels but are getting better, we feel, for the last few. Just as in previous quarters, our partner operation again delivered a record quarter for United. Total cargo revenue was up 84% from 2019 and was the best third quarter on record. United cargo has once again reviewed all cargo flights that are available wide-body jets for the remainder of the year, which we expect will lead again to strong results in cargo performance. Turning to our fourth-quarter outlook, we now expect total revenue to be down 25% to 30% versus Q4 2019 with November and December at the top end of the range. The Delta variant's impact on leisure demand is now gone. Its impact on business travel on yields in the fourth quarter continues. We expect capacity to come down 23% in the fourth quarter versus 2019, down 13% for domestic and 35% for international. We continue to slowly add back capacity consistent with our capabilities to deliver a consistent operation for our customers while also matching our expectations for demand. By December, we expect domestic capacity will only be down 9% as we prepare for a very strong holiday season. Our fleet of 52 777s is not expected to fly this quarter and we continue to have 57 just temporarily grounded. We expect most of these grounded jets to return to service by June 2022, in time for strong summer demand. As I indicated earlier, if we look into Latin America and across the Atlantic, we have reacted well to the lowering of the restrictions for travel November 8 and beyond. We remain optimistic that our Latin and Atlantic lines will gradually build to 2019 levels and above by summer 2022 and business traffic will accelerate early next year. We currently expect capacity for 2022 to be approximately 5% versus 2019. Our plan considers our expectations of macro demand, supply, and pricing and focuses 100% of our growth in the international markets where we expect capacity to be about 10% versus 2019. As a result, we expect domestic capacity for 2022 to be approximately flat. We remain agile to move lengths around as needed or even ground unneeded wide-body jets if conditions warrant. Consistent with our planned international growth for 2022, last week we announced ten new Atlantic routes with a focus on premium leisure destinations, such as Bergen, the Azores, and Italy. Most of our new routes have compensated for the premium leisure business as we continue to diversify our global revenue streams, which in the past were very business-centered. We're also diversifying our geographic scope across the Atlantic to India, Africa, and the Middle East. Many of our new routes also have low historic shares by United and our Star Alliance partners. One additional common feature of all these routes is the potential of our leading gateways in New York and Washington. We have one more significant international network announcement planned for later this month as we work towards finalizing our 2022 outlook. As the leading U.S. airline, we do expect our demand recovery to be slower versus other parts of the world. We've seen some really great news in recent days with the partial opening of Australia and Singapore. Most of our capacity from the Pacific in Q4 is being supported by cargo revenues. We continue to expect international long-haul demand to be a strong period of margin improvement versus the last cycle. We are positioned in our capacity to take advantage of that trend, not only have many wide-body jets been retired across the industry, but we also expect that the industry premium seat capacity for the largest Atlantic carriers will be down approximately 10% per departure to 46 seats as many aircraft, including the 747 and 787 with large premium cabins, have been grounded. United wide-body jets have an average of 46, approximately the same number as our primary lead competitors. As we rebuild our global network, our Polaris lounges are now set to reopen over the next few months, starting with our brand new lounge in Washington tomorrow. Briefly, I wanted to talk about our United Next signature interior. We have now taken delivery of 13 jets with the signature interior and our team and our customers have been impressed. Each of these jets has NPS scores materially higher than any other domestic mainstream cabin we fly. We see back monitors at every seat. We will soon begin modifications of the remainder of the narrow-body jets so that by early 2025, the entire mainline fleet has this consistent superior look and feel. Thanks for indulging me in this rather long explanation of where things stand. But more importantly, where we're taking United. I have to give thanks to the entire United team for delivering this summer in pretty difficult conditions. And with that, I'm going to hand it off to Gerry to discuss our financial results and outlook.

Thanks, Andrew. Good morning, everyone. Andrew, I appreciate your verbose remarks, but everyone can take comfort in the fact that I will be shorter. For the third quarter of 2021, we reported pretax income of around $600 million and an adjusted pre-tax loss of around $500 million. This was obviously different from our expectations when we spoke to you in July. But as Scott and Andrew discussed, this loss is solely attributable to the impact of the Delta variant on customer travel in the month of August and September. The good news is that our third-quarter CASM ex up 15% was better than our guidance, and we are on track for further improvement in the fourth quarter. We currently expect CASM x in the fourth quarter to increase 12 to 14% versus the fourth quarter of 2019 on capacity down around 23% versus the fourth quarter of 2019. Looking beyond this year, we are in the middle of putting together our financial plans for 2022 and expect to share more color with you in January. However, I wanted to highlight a few items now that give us confidence in our CASM x outlook. First, we are exceeding our target on structural cost savings as we have identified approximately $2.2 billion in initiatives, which we expect to fully benefit from by next summer. As proof of this success, we estimate that we can fly to schedule 10% larger than 2019 with the same number of employees we needed in 2019. This includes a significant and permanent reduction in management employees. Second, we expect the return of 52 grounded 777s to service in the first half of next year. This allows us to more appropriately match the right aircraft to the right markets, which will ultimately drive the step function CASM x improvement, as these low CASM and high-gauge aircraft return to the fleet. Third, our outlook for 2022 includes higher inflationary pressure than we are seeing today across all aspects of our business, ranging from vendor wage pressures to supply chain bottlenecks. It is for these three reasons that I have confidence that our 2022 outlook of CASM x lower than 2019 is both fair and achievable. Importantly, it also sets a firm foundation for achieving the negative 4% and negative 8% CASM x goals for 2023 and 2026, which we've already discussed. In fact, I feel more confident today that our 2023 and 2026 goals. Importantly, we're committed to achieving these cost targets while also investing in a superior product and experience for our customers. For example, all of our new narrow-body aircraft are being delivered with state-of-the-art interiors, including overhead bins that accommodate everyone's carry-on bags and Bluetooth enabled seatback entertainment with a long list of choices displayed on large quality screens. We're also retrofitting the rest of our fleet to be consistent with these standards. In fact, I was recently on a new 737 MAX 8 flying home from Newark to Houston with all those Belgium verticals; the flight was completely full and everyone found room for their bags. The flight attendant made sure the customers knew about all the amenities as they engaged with everyone from pre-boarding throughout the flight and as our customers deplane 15 minutes earlier, by the way. As I strode through the cabin during the flight, by my count, at least two-thirds of the passengers were enjoying the seat-back system. I even noticed several children entertained with our new children's amenity kit. After this flight, I was curious about the Net Promoter Score and sure enough, the NPS for the flight was over 40% higher than the system average last year. We will continue to make these types of revenue-enhancing product investments while we continue to reduce unit costs across our plans for efficient gauge-driven growth, as well as through our $2.2 billion structural cost savings program. Turning to capital expenditures, we currently expect to take delivery of three 737 MAX aircraft and one 787 aircraft through the end of this year, in addition to the 24 mainline aircraft already delivered this year. A number of 787 deliveries that were previously expected this year are now expected to recur next year, which resulted in the related Capex shifted out of 2021 into 2022. Including this change, we now expect adjusted Capex to be around $3 billion in 2021. We expect to use a mix of debt financing, leases, and cash to fund the acquisition of new aircraft, and we'll balance the mix with our United Next financial targets in mind, including adjusted total debt to adjusted EBITDA below four times in 2023 and below 2.5 times in 2026. As the recovery progresses, we expect to pursue economically prudent deleveraging while balancing our capital commitments. In the third quarter, we made a $375 million voluntary contribution to our pension, which will drive PBGC premium savings and access to returns on the fund. While we are not required to make any meaningful contributions to our pension for several years, we view our pension obligations as just another form of debt. This is effectively the most expensive pre-payable debt we currently have, and we took the opportunity to do so. In closing, as the impact of the Delta variant appears to be receding, we continue our focus on managing the business efficiently to maximize our earnings power for the long term. Our focus on costs and revenue initiatives will drive improving margins, leading to a 2026 adjusted pre-tax margin of around 14% and adjusted EPS of around $20 at our current quarter-end share count. While we have never expected the recovery from the pandemic to be easy, we're confident that United's best days are ahead as we execute on our United Next strategy in the coming years. And with that, I'll pass it to Kristina to start the Q&A.

Thanks, Gerry. We'll now take questions from the analysts community. Please limit yourself to one question and if needed, one follow-up question. Brendan, please describe the procedure to ask the question.

Hey, good morning, everyone. And thanks for taking my question. So Gerry, speaking of capex, can you talk to us about what 2022 could look like here? And then maybe a longer-term question for you or Scott, how do you manage the balance sheet risk versus what is a very ambitious outlook and obviously trying to improve profitability by leveraging those things you've put out there?

So we'll have some more detail on 2022 Capex in January, but I can tell you that the bulk of the reduction this year is just shifting into next year; those 787 in particular that caused the reduction this year would just be additive for next year. So when you add those to the 48 narrow-bodies we have, you will see a step-up in capex, although I think if you took this year or next year together blended, it’s sort of consistent. But you should assume that most of the capex reduction this year simply got moved into the first half of next year. Longer term, we are laser-focused on reducing net debt balance and deleveraging. We could've done some more if we had more pre-payable debt, we simply don't. So we're going to, over the next few years, focus on reducing that debt as we have the opportunity to economically prepay that debt. That’s a critical component of our United Next plan.

I guess if I can follow up on that, Gerry, if you get upside to earnings, you can get margins faster based on gaining a yield premium and leveraging the international network. Is that how you plan to manage the balance sheet and potentially get leverage down faster?

The answer is yes, as we implement the plans, the returns that profitability generates will be directed towards paying down the debt. Additionally, we have the flexibility to manage aircraft deliveries and retirements to adapt to the evolving environment, particularly if the recovery takes longer than expected.

Hi. Good morning, everyone. So Scott or maybe Andrew. I think the consensus out there to this point is that the international recovery is expected to take a bit longer than the domestic recovery. So just curious if you could elaborate on your plans to grow, to get international capacity back above pre-pandemic levels before domestic. And then also, just curious on how you think about your Pacific growth as it relates to that 10% international growth next year.

Sure. I'll take that. Definitely, the growth rates and the recovery will be different by the different regions of the world and the Pacific is going to be disclosed and we've said that a number of times. When you go through all of our data, what I would tell you is that we really need to start to break down our entities into a little bit more detail. Particularly going across the Atlantic, we expect, and again, I said already today that our bookings across the Atlantic are now approaching the past 2019 levels. We expect a very strong bounce back next year in particular, starting into spring and summer. And then the second point I will point out is that a lot of our Atlantic capacity is not going to the traditional core European markets. We've gone aggressively into the Middle East and Africa as well. For example, we have a new flight to Oman; we’re flying to Cape Town and Johannesburg, Lagos and Ghana. So our numbers on the Atlantic appear to be elevated across the Atlantic, as we’re going into new revenue pools that we feel very good about. We feel very good about the pricing in those revenue pools. And we feel really good about the bounce-back in those revenue pools. We’re seeing that data already today. So we are accounting for a slow Pacific recovery. We are accounting for strong Atlantic, and that strong Atlantic really is across multiple different entities within the Atlantic today, which allowed that kind of bounce back that we’re anticipating. And again, the numbers over the last few weeks have been incredible going across the Atlantic. So we remain really bullish as we think we have the right plan and we think we've pointed the aircraft to where we can make the most money next year.

Got it. Understood. And then just my second question. Obviously, operational challenges have been increasing at a lot of your competitors, yet you haven't seen those same type of disruptions. One, what do you think that is? And then, I guess, more importantly, what do you see as the biggest operational risks as you begin to ramp capacity back up to those 2019 levels? Thanks.

Thanks for bringing that up. You're correct that our experience at United has been notably different from that of many other airlines, including our larger competitors, who have faced operational challenges over the past year. This can be traced back to the realistic assessments we made in February of last year, as we anticipated the pandemic would last through the end of 2021. This led to a different planning and management approach, fostering a very collaborative environment. We now meet three times a week for three hours, either in person or virtually, which allows everyone to stay informed about each department's activities. In some cases, we can step into each other's roles if necessary. Managing an airline after reducing operations by 90% and then trying to restore them is a complex process that none of us in aviation have faced before. Our planning and assessments positioned us well, enabling us to make unique decisions, such as negotiating a deal with pilots. This allowed us to scale down operations while keeping everyone in their roles, thus avoiding the crew shortages that other airlines have experienced. We’ve improved our onboard processes with flight attendants to minimize conflicts related to masks, resulting in over a 50% reduction in mask-related issues this year. Our team is extremely professional, and the atmosphere at United is noticeably different from what’s reported about other airlines. We also carefully managed our growth, not overstretching in response to recovering demand, which we deemed risky for our customers. We adjusted the customer experience without sacrificing it for more flights, managing our operations quite differently than our competitors. Looking ahead, one of the biggest risks in U.S. aviation relates to vaccine mandates. United implemented our vaccine mandate ahead of government requirements purely for safety. Other airlines that are easing their vaccine requirements may face challenges, such as needing to test tens of thousands of employees each week as many may seek exemptions. This could lead to significant complications if numerous employees fail tests or don't complete them on time. It would be a major challenge for those airlines. However, customers can book confidently with United knowing we've addressed this issue. If booking with an airline without such requirements, customers should be aware of the potential risks involved.

Hey, good morning, everybody. Scott, I like the four big-picture trends that you discussed in your opening remarks. Question on the expectation for the Atlantic and Pacific to outperform the domestic over the next several years. Is that really a comment on how strong the Atlantic and Pacific might be? Or is it shorthand for we expect the domestic to structurally suffer going forward? Why shouldn't I look at it with that sort of devil's advocate view?

Well, Jamie, I’ll hand it to Andrew, who would better answer it than me, but most of it is supply demand. The supply-demand balance is just significantly different in the long-haul international wide-body market. Hundreds of airplanes around the globe have been retired, and those take a really long time to change, and the supply-demand balance is more balanced. And it's as simple as that.

Jamie, I can add that we just have a structural advantage when it comes to global long-haul given where our gateways are. And this is the time for us to move forward and deploy our capacity in ways that make sense and are profitable in new regions of the world. In some respects, I think we're uniquely able to do it as a U.S. flag carrier, and we're going to take advantage of that. Jamie, I don’t want to go into too much detail. Certain countries have fuel surcharges that fluctuate based on oil prices, dictated by local regulations. In other areas, we manage this ourselves. I believe we have this situation under control, although fuel prices are high. However, we see high fuel prices as an indication that business demand is picking up as more people return to work in factories globally, which is a positive sign. That said, it will take some time to accommodate the higher fuel costs, as supply and demand dynamics were temporarily disrupted. Overall, I think the industry, particularly United, is moving in the right direction. The outlook appears much better as we approach next year, especially around the President's Day and spring break holidays. I am optimistic about yield quality then, and as I mentioned earlier, our yields for the upcoming holidays and early next year are showing positive trends, which is encouraging to see.

Good morning, everybody. Thanks for taking my question. Kind of a follow-up to Jamie's question actually, over the past few months. You guys had mentioned doing some domestic point-to-point flying. How should we think about where you are now and the gradual process of maybe phasing that out as some of your international pulls up and you move more towards domestic capacity out of your hubs?

Sure, it's Andrew. We did during the middle of the pandemic opportunistically look at some point-to-point flying, and we had that out there. As we return to normal, which we're doing rapidly now, we are almost 100% focused on our seven hubs. For all kinds of reasons, we think our best opportunities there and our best opportunity for higher margin are there. That's where our focus will be. We do have a little bit of point-to-point flying in our system, which has proved very successful, so we will continue to do that. That is not our strategic focus. Our focus is on our core hubs.

Good morning, everyone. Just on that capacity I was wondering if you could help me understand just next year how that progresses from down 23% currently in the fourth quarter. I'm guessing a lot of it comes over the summer, but I was wondering if you could help bridge that kind of getting from down 23% to up 5% next year?

We scheduled our capacity to align with our expectations of demand. In the early part of the year, the numbers remain low, while later in the year, they increase. We haven't finalized our budget for next year yet, so we don't have specific figures at this point. It's important to note that our deliveries for next year are largely focused on the latter half, which will be significant as we begin implementing our United Next strategy. We'll provide more details on our capacity metrics later this year or early next year once our budget is finalized.

That's all. Thank you. And then if I may, I, we've not talked a lot about cash flow given that we have strong liquidity and the earnings are turning around here, but I'm just kind of curious if you could provide some color on just the cash flow components over the next 12 to 18 months, especially how you're kind of thinking about ATL here.

Hi, Gerry. So I won't provide some more color in January. I would say the idea as we'll return to normal, ATL will begin to return to normal as always, see the normal peaks and valleys that are driven by seasonality on sort of other matters. The biggest other things for us to look at is, as I said earlier, every payment and when we start seeing those debt maturities kick in and repayment upstream to kick in next year. Relatively modest year on debt repayment, about $3 billion down, 3 billion of scheduled debt payments. But we are going to focus on other opportunities to use that cash to manage the balance sheet, starting as early as next year.

Thank you. Andrew, in your extensive list, you talked about domestic business demand rebounding to 2019 levels. I'll admit I missed the context on that. Was that a premium comment? And kind of where are we on corporate now relative to kind of the exit rate last quarter?

What I said was over the last week, we've seen our total bookings for domestic and for the Atlantic and exceeding the same period of 2019, which is great to see. We have not recovered fully on business traffic and have a long way to go. The recovery on Atlantic business traffic is now similar to or in fact slightly ahead of the recovery for domestic business traffic, which we obviously feel good about to see that number and see how quickly the Atlantic business traffic is recovering. Over the last few weeks, in particular, the numbers are heading towards down 50%, but they are not there just yet. But just looking at the trends of only the last few days, I would tell you our level of being bullish about business has increased a lot. The numbers for the Delta variant costs things to go down quickly, and now that we're past the Delta variant, it appears that they're going to go up hopefully just as quickly. It is a bit more volatile than I think we'd otherwise like to see, but we definitely like the upward volatility that we're seeing right now.

That's helpful. And then just for my follow-up on non-fuel costs, can you speak to the cadence and I guess the dependency here is when you expect longer stage flying to be more fully restored at these fuel prices. It seems like March is maybe our best shot at the earliest. But is the cost story more of a second half at this point? I appreciate your thoughts there.

Sure. I saw the costs roll and they track the capacity. So what you'll see and what we talked about in January is the first half of the year versus the second half of the year, and you'll see as the 777s come back and the other aircraft come in. As we hit the full run rate on the $2.2 billion initiatives next summer, you'll see the second half of the year being significantly different than the first half of the year. But you could essentially track the capacity to the return.

Hi, good morning, everyone. A bit of a different take on Jamie's question earlier, but has the current demand backdrop or the competitive capacity backdrop in the U.S. changed your plans on this domestic expansion and all since you introduced United Next back in June? Was it your view back then that 2022 domestic capacity would be flat or is it just with some of these international border re-openings that the opportunities have changed?

The latter; the international border opening and the recovery that we're seeing over the last few weeks just leads to maximizing opportunity to deploy those flights overseas, and that's what we've done. Will be more on the Atlantic and Pacific, obviously, given what I said earlier. So we are going for Europe and we've been in a bunch of new markets that are brand new to United Airlines. In fact, you're a U.S. carrier flying, so we're really excited about those. But we've also announced more service to the Middle East with Amman, Jordan. We've announced a lot of service in Africa, which is not really well. So pharmacies should expect more of that. So there's a lot going on there as well as South America, which we think is on the recovery, particularly Brazil in recent days, given the change there has looked really good across specific. And, again, much slower, we do expect across the South Pacific faster than the North Pacific, but we're really, really agile across the Pacific and be able to cancel down or change that based on the demand we see. We have the best Pacific network of any U.S. carrier and we expect it will bounce back first and will bounce back stronger. But that being said, we're going to be really careful when we choose to load that extra capacity.

Hey, good morning. So it seems like after Labor Day, a lot of folks went back to the office and they are fair to be there and now it kind of feels like people are working from home a little bit more again, because they realize commuting is really not fun. I'm kind of wondering if you're expecting that with business travel next year, Scott, like, are you expecting this big pop in pent-up business travel demand that are once all excited to get back on the road and you're at 100% recovered and then maybe slowly sort of bleed back to like a lower watermark as the year progresses, as sort of the euphoria wears off?

Well, it's Andrew, and what I would say is that the Delta variant clearly delayed some offices’ returns. United today is hearing Willis Towers, so we’re all back in our office. When we talk to our corporate clients, we definitely see a hodgepodge; some are in and some are not, but people are generally more and more returning to their office environments. What we've been told, and it changes, depending on the week, is that we should expect really an acceleration of business traffic next year with a lot of end-of-demand, a lot of clients that need to get back on the road and they're anxious to do so. And when they do so, they'll gladly have and I know I'm excited to get back on the road and have been traveling a lot more in the last few weeks. So a lot TBD. I can't exactly answer that question other than the feedback we get is it's going to be very strong. We also expect consumer demand next year after being not able to travel as they would like for almost two years. We think it's going to be really strong, including here domestically, by the way. We believe our profit-maximizing opportunities are across the Atlantic right now into India, Africa, and the Middle East. But we also think there's going to be a domestic recovery that's really significant, strong, and in fact, hopefully by February, March, April, it's going to overcome this much higher price of fuel, and that's true on directory. We feel good about it and that's our plan.

Thank you, Operator. Hello everyone, and I appreciate your time. I have a couple of questions. First, regarding the return of the triple seven-seater, Gerry, what will be the cost to bring those back? Is that included in your capital expenditure forecast for this year, or will it be part of your forecast for 2022?

The triple sevens, our aircraft are already maintained. There's not a CapEx component to bringing them back. There is an OPEX component of getting them ready. And so that's included in our forecast; it was not included in any forecast as whether there's any contribution to that from other parties. We're assuming in our forecast that we are incurring that cost.

Okay, that's very helpful. And then the other question I have is with regard to all these new markets. Little letter (a) is, are you concerned that your alliance partners will be put off by the fact that you are overflying their hubs to do this on your own? And little letter (b), can I give you a list of cities I'd like to go to that are on my bucket list?

I would have thought with the cities we just added that we got to your bucket list, but let me know. But we work with our great aligned partners. We really do have the best aligned partners in the world. What I would tell you about how we came to the decision on what city-pairs to add for this summer is many of these pairs United and our star alliance partners have very low shares. The traffic between the U.S. and those markets is carried by other alliances, not ours. And that's why these markets are great. The other thing I will tell you is sometimes you have to make the market and there is a lot of service to a lot of different places around the world. But for example, the Azores is a great opportunity for you virtually and all your colleagues to head on a great vacation. That was very, very difficult to reach in previous years. That'll be a lot easier to reach on United Airlines milestone that New York starting this summer.

Hey, good morning, everyone. Hey, Scott, back to your point about the vaccine mandates being the biggest risk. Where are you maybe in conversations with the government as it pertains to the GSA, which I think the latest data shows that only about 60-65% vaccinated? Are you making any sort of contingency plans? Or as we approach the holidays, are we going to have to have additional United people that help staff and get people through the airports? Just where things stand on that. Thanks.

Well, I have confidence. They will get there. They've been working hard. I think they did a great job during the pandemic in really tough times. The same department was also instrumental in bringing the tens of thousands of revenue back from Afghanistan. So I think we all should give kudos and credit to the Department of Homeland Security, Secretary Mayorkas and the TSA for everything they are doing. I'm pretty confident that we'll get there. I mean, I think they are implementing vaccine requirements correctly. I mean, at United, we have proven that if you just do it, if you put the requirement out there and you're not compromising, you're not wishy-washy, you don't backtrack, you get over 99%, and I think they’ll do the same thing and we’ll get there.

Okay, very good. And then just a quick follow-up. Scott, you talked about hitting your targets with I think only 85% to 90% of corporate coming back, and there’s a lot of talk about premium leisure travel. I'm just curious if there is something secular going on with that passenger segment, or is this just United catching up to the rest of the industry and just having premium seats that are on par with everybody else? Thoughts there. Thanks.

Hey, Mike. This is Andrew. I would tell you it's probably a little of both, although we have really not started to materially change the aircraft mix from when we announced United Next a few months ago. So we have a lot of that benefit coming in 2023 and beyond, but there hasn’t been an amazing amount of premium leisure business. Our existing cabin mix has been performing much better this year; we've seen higher load factors than we've done in the past. We're anxious to prove out that this is a permanent change, but part of it's industry-wide. There is more inventory being made available closer in for the seats because corporate travel hasn't rebounded completely. So corporate travel is 100% and we'll have to see where the premium leisure yields are. I think we have to balance both; I would have a better outcome given this change if any of this proves permanent, which again, we're bullish on. It's been quite material in such a short period of time. So we'll have to wait and see for sure because we need to balance that with corporate demand when it comes back. But all that being said, in the unlikely event corporate demand is not 100%, we do have other levers to push, and this one, as we are increasingly obvious over the last three months, is an opportunity to do something a little bit different and get more revenue on board the aircraft.

Hi, everyone. Thanks for the time. I think you hinted at it in the prepared remarks, but when you think about potential swing capacity in 2022, is it fair to assume that the swing capacity in the domestic market could move lower rather than you making an adjustment on the international side? Just given the competitive landscape, I get that demand dictates all that, but just curious on your thoughts at a high level.

We have a lot of flexibility to move our aircraft as needed, whether domestically or internationally. Throughout the pandemic, we've proven our ability to adapt. It appears that we're getting back on track with our normal schedule, which is why I mentioned that there will be less point-to-point flying in the future. However, we will remain flexible to respond to needs both domestically and internationally, including adjustments with wide-body jets if they're not required. We will see how this develops later this year.

Okay. And then just a follow-up to what Hunter was talking about on the business side. I'm just curious about what sectors you're seeing the most pent-up demand for business travel, or maybe like what sectors you're actually most bullish on longer-term that you think you can gain share? However, you're thinking about that in the current context. Thank you.

Well, with everything we've done in United, we didn't gain share everywhere. To make that really clear to you, and all of our competitors. That being said, what we’re seeing right now is consulting and obviously very strong as they get back on the road and start helping businesses all around the globe. But we're also seeing rebounds across the board, but we'll think they're moving in the right direction.

Hey, thanks so much. I guess one of the big complaints from customers throughout the industry over the course of the last several months is just about the instability of schedules: late close-in changes and everything being up in the air. I'm just curious when you think we might see that level out, just see some more stability and get back to kind of normal or if this is part of the new normal going forward.

Hi, Andrew. What I would tell you is that we needed to be flexible as we went into this phase, as we took the airline down to basically 10% within a matter of a few weeks and we learned a bunch of things about how flexible we can be in our process. That being said, to run an airline and this size, we need the process; we need consistency; and we need to load our schedules early so that it’s convenient for our customers so they can book with certainty. More or less, as of this week or next, we’ve returned to a normal schedule load process, where we load our schedules 90 days in advance and finalize as close to 90 days as possible. During the pandemic, that number was dramatically lower and caused a level of disruption that was unfortunate but necessary. We did talk to our customers about it, and we reacted to that. Overall, in that regard, disruptions should be in the past, very rare if not already.

Hi. Good morning, everyone. My question is about regional airlines. Do you know if the carriers that fly for you, under your name, are going to be subject to the same federal mandate? Or is that done at some of the lower end? Any operational concerns about getting them into compliance for the next few weeks? And then also, if you have any information about how your approach changes cargo, just given all the supply chain issues, good part, especially before the holidays. Thanks.

Hi, this is Brett Hart. What we will say is that our regional carriers, we know that they're evaluating the applicability of the Executive Order on their business and we're in discussions with them. I think it’s pretty clear where we stand with respect to towards the vaccinations, but they are in the process of working through that now. We will certainly be in the process of helping them in that process to the extent that we can. Andrew, do you want something to add to that?

Yeah. In terms of cargo, we've had a record quarter, a record year. We expect that to continue well into the fourth quarter and actually beyond. Given where the country stands in terms of the backup that supports but also in terms of consumer demand. We're transporting more things by airplanes today than we traditionally have not, and in talking to the cargo team, we expect that to continue well into next year, if not all year, based on demand for these products. And again, where the ports are and the services that we provide which are just, I think, second to none on the cargo side. And Leslie, if you look at our numbers, you can see our numbers every quarter.

Okay, thanks very much. Scott, following up on your caveat emptor comment earlier, I wondered if you have any evidence that people are booking to United because of your mandate, and I guess are you counting on some of your rivals struggling to have enough staff over the holidays?

Well, the story, I think it'd be hard to sort that out even if it was happening, but I would also say, I don’t want that to happen. I don't want that to be a competitive advantage because it is, without question, the right thing to do.

Good morning, everyone. I have two questions. First, I want to clarify your comments on triple seven. You said that you expect them to return to full service sometime in the first quarter of next year. Is that your estimate, or has clarity around the grounded fleet to put a turn per service in the first half of 2022?

Hi, this is Brett. We haven't heard from the FDA, but we have been working tirelessly with Pratt Whitney over the past six months, and we do expect the aircraft to return to service in the first quarter of next year safely.

My second question is about the supply chain bottlenecks. You mentioned supply chain pressures and your comments on airlines. Can you share some color and details on these bottlenecks and how you're navigating from them?

Hey, it's Gerry. We're not seeing anything different from what others are seeing, and where we are seeing shortages and potential shortages, we're just trying to stay ahead of it. It's not impacting the operation or the product, but it does have some impact just on costs. It's just more expensive as the whole world is seeing sometimes to get the supply that you need.

Good morning. On the question of premium increased demand for your customers for premium products, how are you seeing that play out? Are they just kind of booking those upfront that using miles for upgrades and getting free upgrades? I guess I'm curious, have when you're traveling, been like dying to book the seat online and just didn't have the chance? Or do they have more cash to book with now? What do you see playing out there?

We'll let this play out over time. What we've observed in recent months is that there is a greater willingness among consumers to spend a little extra to upgrade to a premium seat in the main cabin or to fly first class across the Atlantic. We've noticed a stronger recovery in our leisure-oriented routes, such as Athens or Italy this summer, compared to the main cabin. Many consumers have saved money during the pandemic and are now seeking a better flight experience while still being mindful of pricing. We’re in good shape regarding staffing, and customers can book with confidence on United Airlines.

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