United Airlines Holdings Inc (UAL) — Q1 2022 Earnings Call Transcript

Thanks, Brandon. Good morning, everyone, and welcome to United's first quarter 2022 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Also, during the course of our call, we will discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now I'd like to turn the call over to Scott.

Thank you, Emily, and thank you all for joining us today. I want to start this morning by saying a huge thank you to the United team. Our mission is uniting people and connecting the world, and the foundation of United's success will always be the strength of our people. In the first quarter of this year, our team members continued to go above and beyond to take care of our customers and each other in what was a really difficult industry operating environment. The United team is stronger than ever. Our customers are seeing it, and I, along with the entire leadership team, am grateful to them. Our United Next strategy is firmly on track, and we're well on our way to our goal to build the biggest, best, and most profitable major airline in the history of the industry. Even during the early days of the pandemic, we were determined to do much more than just survive the pandemic and get back to normal. We've spent the last two years getting United Airlines ready for this moment. We finally reached the inflection point as we transition from pandemic to endemic, and demand is stronger than I've ever seen in my career, and that's even before business travel fully recovers. Though it continues to accelerate at a rapid pace and before international, especially Asia, fully recovers. We expect that will lead to the best TRASM and highest quarterly revenue in our history in Q2, and despite the higher fuel prices. We're forecasting approximately a 10% operating margin this quarter. The rapid acceleration we're seeing in business and long-haul as they move to catch up, still strong domestic leisure demand gives us great confidence in the future outlook. But there are three reasons we believe investors should think that the hard work and strategic thinking that we're focused on during the pandemic have United best positioned going forward. The first, the United brand and customer preference. Throughout the pandemic, we've talked about our desire to de-commoditize air travel. And we've told you how strong our NPS scores are. If I look back at history, what we're really doing is trying to replicate what Continental successfully accomplished back in the '90s and Delta did about 15 years ago. Those two airlines shifted to a strong customer focus, and customers began to choose them because of their improved customer interactions and brands. The result was rapid improvement in relative TRASM, which led to rapid improvement in cash flow and earnings, which led to significant stock price outperformance. For anyone paying attention, there have been hints, but the same thing was happening at United throughout the pandemic, as we led major carriers in TRASM seven out of the last eight quarters. But that really was the warm-up. I recognize we still have a lot to prove, and we must keep executing, but our TRASM outlook for Q2 is another strong indicator that customers are now choosing United much like they began choosing Continental and Delta 30 and 15 years ago. Second, CASM-ex. There are a lot of industry pressures on capacity and CASM-ex, but I'm confident that United is set up to outperform by a wide margin. We do have timing issues with 777s, Boeing delivery delays, and all the industry infrastructure required to bring capacity back reliably. And doing so reliably is our top focus. But ultimately, our gauge is going to grow approximately 30% by 2026. And that, more than anything, is going to drive the significant CASM-ex outperformance we expect at the same time improving the product for our customers. Three, United is uniquely positioned to benefit from fading COVID headwinds. As Andrew will detail, business travel is rapidly returning, but it's still not fully recovered, and we expect United will benefit more than any other airline as that recovery continues, and international, especially Asia, is far from fully recovered. United is just more exposed to those sectors that we expect to have the most acceleration in the coming quarters. If you're going to invest in airlines, I think any of those three reasons should move United to the top of your pecking order. But I'll give you one more, I think, underappreciated reason for why you should invest in airlines in the first place. At United, we've talked in the past about the vastly improved supply dynamics in the long-haul international markets, but we've been worried about the domestic markets. For reasons I'll describe, I now think the domestic market is also going to be robust. I think every single person listening to this call that has a spreadsheet with a forecast of industry capacity in the years to come is wrong and probably wrong by a lot. The pilot shortage for the industry is real, and most airlines are simply not going to be able to realize their capacity plans because there simply aren't enough pilots, at least not for the next five plus years. Given the work that we've done on our brand and customer experience, United, of course, isn't having any problems hiring pilots. We are always top tier for pilot pay. Have a ton of growth opportunities for pilots coming soon. And we have, by far, the largest number of higher paying wide-body flights and positions. But that's not all. United increasingly is where employees, including airline pilots, want to build a career. They see the lucrative financial opportunities that I just mentioned, but they also recognize that United is an airline where they can be proud to work. From running a consistently top-tier operation to exciting new investments in our customers' experience to supersonic aircraft orders to being a force for good in the communities we serve. We're building an airline that leads, and that is where the best in the industry want to build a long-term career. In fact, we now see a lot of pilots from other airlines applying to be pilots at United, and that's new behavior. While we are in a good position for the smaller and mid-tier airlines, there just aren't enough pilots to staff their growth aspirations. The other really large airlines will also probably be able to attract enough pilots. But for anyone else, I just don't think it's mathematically possible to meet the pilot demand for the capacity plans that are out there. You can already see the issues that are occurring at multiple, smaller and mid-tier airlines over pilot shortages. And looking forward, when United alone is ramping up to hire about 200 pilots per month, that situation is only going to get worse. This is not a temporary issue. Because of that, I now think the domestic TRASM environment is going to be much stronger in the years to come than we previously thought because supply is going to be constrained by lack of pilots. You put all that together, and we feel very bullish. The last two years have obviously taught us that macro events can quickly change our outlook. But our Q2 base expectation has us just 350 basis points shy of our 2019 adjusted operating margin, and we expect that our plans to bring the 777s back, continue to gradually add back capacity and grow gauge are going to drive CASM-ex down significantly from their still COVID elevated levels. We're also confident that the robust business travel recovery still has a lot of room to run, and we anticipate improvement in long-haul Asia that is not yet reflected in our revenue results. That means we're more confident than ever that we'll meet or exceed our approximately 9% adjusted pretax margin target for next year, and particularly with our view of the supply dynamics in both domestic and international getting to at least our 14% target for 2026 seems pretty straightforward. I've been in this industry for a long time now and seen some ups and lots of big downs. Looking back, there seems to be about once in a decade opportunity where the sentiment gets so bearish and the actual future outlook is so different from that sentiment that there's a significant outperformance for airline stocks for a few years. I think supply constraints, pilots being the biggest one, means this is that time again. And when that's happened in the past, the whole industry tends to do well, but usually one or two airlines do much better than the rest of the pack. We've already listed the reasons above, and I suppose I'm not entirely objective, but it sure seems like United is a bet you want to make in that environment. Before I turn it over to Brett, I want to congratulate our CFO, Gerry Laderman, on becoming a first-time grandfather. I'm sure you'll hear the excitement in his voice later today. Well, maybe not. But I promise you, Gerry is really excited. And congratulations to that cute baby grandson.

Thanks, Scott. Last month, we were honored to be included in Time's 100 most influential companies for 2022. Our placement on Time's list last quarter coincided with the announcement of Scott's appointment to the Homeland Security Advisory Council and the White House's announcement of my appointment to President Biden's Board of Advisors on Historically Black Colleges and Universities. United continues to be firmly committed to being a leader in corporate America and investing in the future of our company for both customers and employees. We're proud to be recognized for the hard work of the entire United family over the last year. Becoming the best airline means not only being an industry leader on safety and innovation, but also reliably getting our customers where they want to go on time and with their bags. Throughout the pandemic, and during the recent recovery, the commercial aviation system has been stressed by supply chain constraints and staffing shortfalls at the FAA, TSA, and airport vendors, among other factors, all of which test the stability of every airline's operation. Some airlines built larger schedules that tested the limits of what they could operate, leaving their customers and their reputation to pay the price. United shows a different path. We anticipated many of these challenges even taking steps on our own to mitigate them. Importantly, we also made a conscious decision to prioritize our operational reliability by limiting the size of our schedule. That decision may have cost us some profits in the near term, but it's the right long-term decision for our customers, our company and the bottom line. We'll continue to use that approach as we plan to add capacity in the months ahead. In recent weeks, the people of United and our customers have come together to assist the people of Ukraine. United has donated $100,000 and more than 2 million frequent flyer miles to help transport relief workers and supplies to those on the front line of the crisis. As early as March, we announced fundraising efforts to support our humanitarian relief partners, and our customers stepped up as they so often do. They donated 12.6 million frequent flyer miles and nearly $0.5 million to provide health care, shelter, food, and other lifesaving services to refugees. We appreciate our customers' generosity and are proud to team with them to support the victims of the conflict in Ukraine. We continue to make progress towards our hiring needs as we look towards United Next. This January, we celebrated opening our Aviate Academy in Arizona and welcomed the next generation of pilots to the United family. This flight training school is the first of its kind, and we believe it will help to maintain a pipeline of qualified pilot candidates for United as our industry looks to combat the pilot shortage. We are particularly proud of providing the opportunity for aspiring pilots from diverse backgrounds to study and train at the Aviate Academy. Over the next eight years, we plan to train 5,000 new pilots at Aviate, with the goal of at least half being women or people of color. We are also continuing our path as the industry leader in sustainability. United remains the only airline that is committed to becoming 100% green by reducing 100% of our greenhouse gas emissions by 2050 without relying on traditional carbon offsets. In 2021, we established a strong midterm goal of reducing our carbon intensity to 50% compared to 2019 by the year 2035. Our dedication to creating a greener tomorrow through real change is stronger than ever. We are investing in solutions that have the potential to actually reduce and ultimately remove the emissions from flying. In March, we announced a collaboration with Biotech Cemvita to commercialize the production of sustainable aviation fuel. While we are proud to have invested in more sustainable aviation production than any other airline in the world, we're also focused on making solutions like these scalable for the future. We also continue to engage with cross-industry partners and policymakers to support the case for urgent climate action. Through these and other actions, we are committed to making a real difference in climate change. A key part of our sustainability progress will be enabled by technology. But at United, we're also focused on using technology to enhance the travel experience. Currently, nearly three-quarters of our customers use our app on the day of travel. A valuable tool that helps our customers manage their travel instead of having to call the contact center or speak with an agent. While this helps our employees to be more efficient, we know from our survey data that customers who use our mobile app are more satisfied with their experience with United. This is why we continue to invest in new features like enhanced flight search options, better visibility into flight credits, contactless payment through the United Wallet and a new bag drop shortcut, allowing you to zip through the airport lobby faster when you check a bag at the airport. As we adapt to COVID-19 becoming endemic, we need our customer and employee experience to reflect this new phase. We are pleased to see indoor mask requirements are now gone for 99% of the country as well as onboard domestic flights, select international flights depending on arrival country's mask requirements, and at U.S. airports. We strongly believe the administration should eliminate the pre-departure testing requirements for transportation as well. While travel demand is surging, we believe eliminating these requirements will ease the travel experience for our customers. In closing, I would like to express appreciation to our entire United team who has been critical throughout this inflection point. While we've always remained committed to our United Next strategy, the recent momentum and demand environment gives us even more confidence in United's path forward. I'll now hand it over to Andrew to discuss this in more detail.

Thanks, Brett. I normally start each earnings call with an update on the previous quarter's revenue performance. However, today, it just seems more appropriate to start off with our Q2 outlook. We've clearly passed a major inflection point with demand and yields and have a confident view of the future. Q2 TRASM is expected to be up 17% versus Q2 of '19, a step change increase from our Q1 TRASM, which was down 3%. We're confident that United is currently set up to achieve record TRASM and revenue results in the second quarter. The revenue inflection point started in March with TRASM up 9% versus 2019. Revenue momentum is coming from just about every category, including higher yields, ancillary seat sales, strong premium leisure demand, MileagePlus, rebound in business demand, and a record summer season across the Atlantic this summer. Even parts of Asia are rebounding. We often have talked about United's high exposure to business traffic and the resulting headwind that the pandemic caused. United produced industry-leading TRASM results during most of the pandemic even when faced with this substantial headwind. Now, with business traffic rapidly recovering, I expect United to have a tailwind versus more leisure-focused carriers, a fact I think we can see in our Q2 guidance. Business revenue for the last few weeks has been down about 30%, with the last week now down only 20% versus the same period in 2019. Large corporations are now returning to travel at a faster rate than small. This is really important to United's Q2 outlook. As of last week, business yields are now close to up 10% ahead of 2019. Given these revenue trends, business TRASM contribution is expected to be approximately 100% of 2019 levels soon. After all the debates about the return of business traffic, it's nice to see this important milestone, even with many businesses not fully back in the office. Demand for business, leisure, and cargo traffic continues to be strong even as we pass on 100% of the fuel price increase versus 2019. The United bookings for Q2 are strong, and we believe we still have sufficient room to sell peak period travel at robust yield. Yield momentum is generally very strong across most of our regions. Across the Atlantic, we expect to grow by 25% this summer, becoming the largest airline in that region for the first time. We also see momentum in Australia and many other countries that have opened their borders and expect further gains when the inbound U.S. test requirements are relaxed. In Q2, we expect to operate Pacific capacity down about 65% versus 2019 and Latin American capacity up 9% versus 2019. Cargo continues to produce strong results with revenues up 26% in Q1 of 2022 versus 2021 and up 119% versus 2019. Ocean shipping and supply chain disruptions continue to boost our revenue outlook for cargo. During the pandemic, we found many traditional United structural advantages, including our business-centric postal health and long-haul network to be temporary disadvantages. United's network during the pandemic, even with all of the changes we implemented, was simply less focused on domestic markets, small communities, Florida, and near Latin America, which all performed better during the pandemic. And our Pratt Whitney 777s were grounded, which meant we couldn't take full advantage of strength to and from Hawaii. Imagine now United's revenue potential in the context of our Q2 guide on areas which have been structural advantages, including business traffic, coastal gateways, and global long haul fully bounced back combined with a new moderate and fuel-efficient fleet. Imagine the United where 50-seat single-class jets only fly to small communities and don't compete against competitors operating mainline jets at a fraction of the unit cost. Imagine a world where United offers premium seats everywhere our competitors do when, in the past, we often had none. We have a hard time imagining these things and the impact on our revenues. I just want to point you to our Q2 revenue guide. Global long-haul flying is an area where we have a structural advantage. Opening of the border is transformational for us. We are confident that retaining all of our wide-body jets during the pandemic was the right call. As we think about growth potential for the long haul, we remain bullish on all of the long-haul opportunities. I've often talked about the challenges we expect on the domestic front in the coming years with supply growing faster than demand. However, we increasingly doubt the ability of the industry to execute on previously planned growth levels. There is no single fix to issues constraining capacity, and as a result, there's no quick fix. At a macro level, we expect less supply in the coming years. However, we still expect industry capacity growth to be more elevated in Florida, smaller communities where United has less exposure. With this updated domestic outlook, our view of the revenue performance and profitability of domestic flying has improved. We have confidence in our ability to execute our United Next plan with known constraints, the largest, of course, being the pilot shortage. The pandemic delayed many of our commercial initiatives, including the full rollout of Premium Plus and Polaris cabins on the long-haul fleet. But today, we are nearing the end of these projects, so that we have a consistent and leading product. We continue to offer basic economy with even more flexibility to our customers seeking the best possible price. Our investments in planes, clubs, and gates will be transformational. We'll provide our customers with choices that others don't offer across multiple product types and desired service levels, along with the very best global network and the very best partners of any U.S. carrier. I wanted to thank the entire United team for their dedication over the last two years. We're set up well for the future, and that future begins today. With that, I will hand it off to Gerry.

Thanks, Andrew, and good morning, everyone. For the first quarter of 2022, we reported a pretax loss and an adjusted pretax loss of around $1.8 billion. Our CASM-ex ended the quarter in line with the guidance we provided last month at up 18% versus the first quarter of 2019. Looking ahead, even with the elevated fuel prices, which we expect to persist for a while, right now we are seeing our revenue more than cover the increased fuel cost, and as a result, we expect to achieve meaningful pretax income in the second quarter. Furthermore, based on our current revenue expectations, we also expect to produce a pretax profit for the full year 2022. We currently expect our CASM-ex to be up around 16% in the second quarter on capacity down around 13%, both versus the second quarter of 2019. We also expect that our unit costs will continue to sequentially improve over the remaining quarters of 2022 as the 52 grounded 777 aircraft return to normal service, we start to take delivery of additional large narrow-body aircraft, and our aircraft utilization increases. We believe these capacity levers will drive a step function change in CASM-ex through 2022 as the relationship between our capacity growth and CASM-ex improvement continues to meet our expectations. Our team has done a tremendous job managing all the costs under our control, and we expect that focus to continue. However, the impact of continuing elevated inflation and the exact timing of the 777 return to service generally makes precise forecasting difficult. Nonetheless, we are confident that our CASM-ex exit rate for the year will set us up well for 2023 and beyond. Turning to fleet. As you know, new aircraft deliveries constitute the vast majority of our capital expenditures. We are reducing our adjusted CapEx expectations for the year by approximately $600 million to $5.3 billion as a result of supply chain and manufacturing challenges pushing some of our expected 787 and 737 MAX deliveries from this year to next year. While it is difficult to say with precision how many aircraft may fly, right now we are assuming two of eight 787s and seven of 53 737 MAXs will slip to 2023. Those aircraft will join the 737 MAX 8, 9 and 10 as well as Airbus A321neos we expect to take delivery of next year. Bringing into our fleet the aircraft we have on order is critical to the success of United Next and to our ability to continue to bring meaningful improvements in both CASM-ex and fuel efficiency. Turning to balance sheet and cash. We ended the quarter with $20 billion in available liquidity. Our Treasurer, Pam Henry, and I regularly discuss our optimal level of cash. Now keep in mind, we have both been around the industry for a long time, so it is difficult for us to think in terms of too much cash. However, it is fair to say that as the recovery continues, you will see us reduce our cash as we begin the deleveraging journey. In fact, we started this journey in the first quarter as we elected to prepay an unsecured maturity previously scheduled for repayment later this year, in addition to making our normally scheduled principal payments. This resulted in our total debt declining by over $700 million during the quarter. Furthermore, in the first quarter, United produced $1.5 billion of cash flow from operations driven largely by an over $2 billion increase in our advanced ticket liability. We're pleased that our operating cash generation is approaching 2019 levels as an additional indication of the recovery's progress. I want to close by reiterating our confidence in our 2023 and 2026 earnings targets. We remain committed to achieving an adjusted pretax margin of approximately 9% next year and continue to have confidence in our 2026 target of about 14%, representing profitability well above 2019 levels. As we move into the second quarter, I want to thank my finance team for their dedication to remaining nimble and focused on our long-term goals. Our profitability outlook for both the second quarter and full-year is a welcome milestone for all of us as we redouble our focus on United's path ahead. Looking even further ahead, since Scott mentioned my newborn grandson Ezra, I can tell you that I am now more focused than ever to ensure that when Ezra grows up, he will recognize United as the airline people want to fly and where employees are proud to work and perhaps, most importantly, for his generation, the airline that has met all of its commitments to the environment. And with that, I'll pass it to Emily to start the Q&A.

Thanks, Gerry. We will now take questions from the analyst community. Brandon, please describe the procedure to ask a question.

Hey, good morning. Just given the pilot commentary on the call, I'm just kind of curious what role you see your regional partners playing and what that means to your kind of hub-and-spoke strategy?

Hi, Savi. It's Andrew. When we developed the United Next plan a while ago, we assumed that there would be a much smaller contribution of regional flying in the plan, and we're marching down that road. It is more accelerated than we planned, but it is kind of where we thought this was going a while ago. So I think we're fine with that. And I think we are rejigging the network is probably the best term to make sure that we can generate the appropriate level of revenues with this new service level in the smaller communities. And I think our outlook for Q2 says we're actually doing that really well. And so our reliance on regional jets is going to be dramatically lower in the future. That being said, we still plan to operate close to 300 of these aircraft, most of them being large regional jets in the future, along with our CRJ-550s, and so we have a spot at United flying to smaller communities because that is the right aircraft but just a lot less than what it used to be.

That makes sense. Andrew, just to follow up a bit, that information on revenue is really helpful. I'm curious about the performance during peak versus off-peak times, as it seems like you've observed notably strong peaks while off-peak may not be as robust. How are you considering this as we move past the peak summer travel season?

I believe one of the key points I mentioned earlier is that the revenue per available seat mile from business travel is nearing a return to 100% of what it was in 2019. We now consider business traffic to be almost fully recovered, especially with the capacity levels we are observing in the market. As we move past the summer, we will increasingly rely on business traffic and are very confident that it will perform well. We anticipate continued growth as we enter the fourth quarter, with October expected to be a remarkably strong month for business, reflecting current trends. We're optimistic about the business outlook, especially after much discussion about the timing and extent of the recovery. While we are close to fully recovering revenue, there is still progress to be made as offices have not yet returned to full capacity. We actually believe there is more potential for growth in this area than many had anticipated just a few months ago.

Hi, everyone. Thank you for the time. I realize that earnings and margins matter the most, but a lot's changed since the United Next plan and puts and takes are evolving. When you look at the United Next plan, where are you willing to be the most flexible with? Like it just seems that the CASM-ex target is just too correlated to deliveries, and that's the most impressive. Again, I realize that margins matter the most and all that stuff. But just how do you plan on navigating the timing issues of some of those stuff?

I'll start and then let Gerry add. You're absolutely right that margins are crucial. Things have shifted a bit, but our core vision and strategy remain unchanged. Inflation is higher than we anticipated. We accounted for high inflation over a year ago, thinking we were being conservative, but we've all been taken aback by its intensity. We experienced a full point of CASM-ex headwind this year due to revenue-related expenses, which justifies increased CASM. There are also some timing issues, mainly with the 777 aircraft, and to a lesser extent, Boeing deliveries. The 777 is our most efficient plane, and once the entire fleet is operational, there will be a significant improvement. However, we are uncertain about the timeline as it's taking longer than expected. Despite these issues, the overall levels will increase due to inflation. The key point is the structural drivers for margin, focusing on how we will be expanding and the implications of that growth. Inflation raises the bar for everyone, impacting low-cost carriers more than us, allowing us to fully recover from inflationary costs. What's crucial is the relative CASM, which remains unchanged primarily due to gauge growth. We're the last major airline in this position, and it's simply a matter of time until we see the results. I find it encouraging that we are already 350 basis points above 2019 margins, and no matter how high CASM-ex inflation rises, it will significantly improve from the 16% we see this quarter, translating directly to margins. Regarding revenue, we are essentially at the start of the resurgence of business and international travel this quarter. We are optimistic about revenue growth, so unless something adverse occurs globally, reaching 2019 margin levels in 2023 seems quite achievable. Gerry?

Yes, just to give you a little bit more comfort, so in a world where what we're seeing continues for a while, this sort of high single-digit inflation, that really only translates to a couple of percent on CASM-ex. And as Scott said, revenue is more than making up for that. So you're not going to see dramatically different numbers on CASM-ex. But everything we're seeing makes us very comfortable that those margin targets are going to be achieved.

Okay. Great, and then I think next year, there seems to be a misconception with your deliveries next year on the MAXs that they're like all MAX 10 aircrafts. And I don't think that's the case, but you guys haven't quantified how many deliveries you're expecting from the MAX 10 version. Can you provide a number for that for 2023? And then if there is a delay, what's the optionality that you have to kind of backfill some of that capacity or deliveries next year specifically? Thank you.

We can't provide specifics on the timing of the first MAX 10 delivery, which influences the total number of deliveries. However, we never intended for all of next year's deliveries to be MAX 10s; in fact, less than half are planned for that model. We will monitor the situation, but I am confident we will receive the MAX 10. For precise timing, it's best to consult Boeing. Regarding flexibility, they are manufacturing plenty of MAX 8s and 9s for us, allowing for some adjustment in the timing of those deliveries compared to the 10s. We are comfortable that we will be receiving 8s, 9s, and 10s next year.

Hey, thanks. Regarding the constraints for United and the industry, could you discuss the specific constraints for United this year? We've previously talked about the aircraft delivery rate. In terms of your reduction in growth, how much of that is related to pilots versus the aircraft delivery rate or the timing you mentioned for the 777s? Additionally, could you elaborate on why you believe the industry will experience a pilot shortage for an extended period, certainly beyond 2022?

Okay. I'll start, and Gerry or Andrew can add. The biggest issue we have is not a labor shortage; we've hired 6,000 people this year and are bringing on 200 pilots monthly. The main concern is the 777s, which make up 10% of our capacity and are currently grounded. We also realize that the overall infrastructure isn’t prepared for rapid growth rates. This includes the FAA, TSA, and fuel vendors. Even though we have enough personnel, these constraints hinder a reliable schedule. We’ve made significant progress with our customers during the pandemic, enhancing the United brand, and we’re not willing to jeopardize that goodwill for short-term profits. Month-to-date, we’re leading in on-time performance and completion factor, benefiting our customers. Regarding the pilot situation, we've conducted an in-depth analysis since several of our regional partners are struggling with hiring. Currently, we have 150 airplanes grounded, and I don't expect them to return. Historically, the industry has produced between 5,000 and 7,000 pilots annually, typically closer to 5,000. This year, the industry plans to hire 13,000 pilots, and the demand is even higher for next year. However, only 5,000 to 7,000 are available, which was a revelation for us. Fixing this issue quickly is unlikely. While setting up flight schools is feasible, pilots need to accumulate from 25 to 1,500 hours, which isn’t currently realistic. Of that 5,000, if it’s at the lower end, United Airlines will hire half of them, which is a significant but often overlooked challenge.

That's great detail, Scott. I'd appreciate that. I guess along those lines, is this idea going to influence your capacity as well? So given the epiphany of this pilot math, and you're and a couple of others willing to really kind of protect the operation, does that influence more than 2022? Is that a 2023 influence as well and beyond?

Not yet. We're concentrating on reaching the goal of hiring 200 pilots a month and successfully navigating them through training. The upgrades are in progress, and it's apparent that there are challenges. Transitioning from steady hiring to a significant increase is not straightforward. Additionally, many retirements during COVID have led to this sudden jump in demand across the industry. It's interesting to see the constraints affecting other airlines. We faced some challenges but have managed to get ahead and feel confident in reaching our goal of hiring 200 pilots a month. However, we've also learned about the need to pace our efforts. For example, when it comes to the 777, we're planning to increase from around 42 or 44 flying aircraft to 96, more than doubling the fleet. Initially, we thought we could implement this quickly, but we've come to realize it will take time. We're likely looking at a nine-month timeline before all of them are in operation, even if we finish this month, due to the current system limitations. Nevertheless, we're optimistic about our hiring capabilities and want to ensure solid execution before considering a faster pace. United Airlines offers a strong strategic advantage for pilots, making it the best place to work in the industry.

Appreciate the thoughts.

Good morning everybody. I was kind of hoping for a bullish call.

Always the best lines, Jamie.

First question.

I never want to get, though, is that all you got.

Good question. I don't have that number off the top of my head. But I can tell you, there are parts of Asia that are rebounding pretty rapidly, including Australia and Asia, and Korea is obviously in Asia. But Japan and China have not. But what I will tell you is that our cargo strength in that direction is incredibly strong. So from a TRASM point of view, relative to 2019, compared to other regions of the world, it is behind the other regions of the world but maybe less than you would otherwise think.

Yes. I’m going to share a lighthearted story at the end that might embarrass Gerry and Andrew. But regarding Delta, they deserve recognition for what they did 10 to 15 years ago by creating a brand that made customers choose them. They transformed people's perceptions, including employees and customers, leading to a preference for their airplanes. This demonstrated that air travel doesn't have to be viewed as a commodity, though many say it without acting on it. I believe we've been working on this during the pandemic, and while we have much to prove and a long way to go, we've shared our NPS numbers and received positive anecdotes from customers, Capitol Hill members, and CEOs across various industries about the difference in flying United. Our employees take pride in our achievements, including our commitment to sustainability and diversity in the Aviate Academy. They feel we are taking the lead again, which translates into a customer-focused energy. If you ask our employees, pilots, and flight attendants how they feel about United compared to other airlines, you'll see a marked difference. This is crucial because we are a people-centric business, and having a brand that customers trust is fundamental to our success. Despite having the best hubs at United Airlines, we haven't fully realized our potential yet. Achieving our potential involves making necessary adjustments and building a strong brand for United Airlines, which we are currently doing. The signs are already evident; we are likely to be number one this quarter, making it eight or nine quarters in a row, despite facing significant challenges like the slower recovery of business travel compared to domestic leisure and international travel. Just wait until those recover as well. On a humorous note, I once mentioned during one of our A-team calls that Gerry unexpectedly disappeared from the screen and returned wearing a Continental Airlines T-shirt, which I can't recall exactly but had something about stock price compared to the S&P 500. Andrew mentioned he has a similar shirt, but he couldn't find it. That reflects what is happening at United. Gerry, would you like to add anything?

Jamie, there are two things I want to mention. First, let's continue this conversation next week at the Wings Club launch, and I encourage everyone to attend. Second, I was there and witnessed what was happening. This focus has been ongoing for several years across the business. For instance, with our aircraft, we aren't just introducing the impressive new MAX models; we are also retrofitting our older aircraft. This effort benefits our customers and creates a work environment that our crews can take pride in. It demonstrates a lot of similarities to what happened at Delta 15 years ago. While I wasn't part of that situation, I can see the parallels very clearly.

I'll add another point, which is this is going to be a record quarter for United. What we didn't talk about was Q2 of '19 was a record quarter for United. And I think that's really relevant. The momentum is incredible, and it's incredible off of an unbelievably great quarter in our history and one of the best ones ever. So...

Well, listen, I appreciate you bringing the topic up. It's, quite honestly, something that I hadn't really thought of yet. So it definitely gives me something to ponder. Thank you very much. Appreciate it.

Good morning everyone. Good results and a positive outlook. Gerry, congratulations. I have a question regarding jet fuel prices in the New York market. I understand that the Colonial pipeline ends about a mile south of Newark, but I've heard that the flows have increased recently. How are you handling the fuel situation in the New York market? Are you sourcing fuel again from Colonial or possibly tankering in? What steps are you taking to manage this? Also, could you provide an estimate of what percentage of your operations is currently near New York harbor? Thank you.

Sure, Mike. First, I want to highlight that the disruption in that market has eased. The crack spread was previously measured in dollars, but now it's diluted to cents. While it remains higher when comparing New York to the Gulf Coast, we do have several options available. One option is the pipeline, and we can also use tankering as needed. Therefore, we feel secure about our exposure, and with the issue resolving, that is beneficial.

Great. And then just a quick one here. Just Andrew, when we look at cargo revenue, over $600 million, I mean, it's been fantastic to run over the past couple of years. But presumably, that's not just the growth rate not being sustainable, but maybe the absolute level because I do believe you were still flying some airplanes cargo only. Does that level off? Do we see that sort of max out at some level as you move airplanes back into passenger service? Just your thoughts on that? Thank you.

Yes. I think there's a little bit less room in the bellies when there's a lot of luggage on board. So there is an offset. And some of the airplanes go to places that don't have strong cargo demand, but have strong passenger demand. However, that's offset by the fact that there are 52 777s, which are gigantic cargo machines, that are not flying. So those 52 aircraft are going to add, as Scott said, over the next nine months, reenter service, providing a lot more overall belly capacity. So that's my view on that. Should we expect yields which are at record highs for cargo to start to moderate a bit? Absolutely. And we have that in our outlook and still feel really good about where we're going because of the belly capacity of the 777 coming back online from a total revenue perspective.

Very good. Thanks for that. Thanks everyone.

Thanks. Good morning everyone. Scott, you said in your prepared remarks also in the media yesterday, this is an unprecedented revenue environment in your career. With your commentary on the pilot shortage, it seems like a pretty unprecedented capacity constraint as well. So that puts the industry in a pretty sweet spot. Usually, when demand outstrips supply, that results in a pretty strong pricing environment that you're seeing right now. But do you think the industry is also at the cusp of a multi-quarter long-term RASM or PRASM upside dynamic. A, kind of how long do you think that lasts? And b, do you think there is a point of demand disruption here where consumers at some point may not be able to take it?

I will begin with demand destruction. I don’t believe we’re anywhere near that point. First, let me provide a micro perspective followed by a macro view. We are just now returning to pre-pandemic levels in real dollar terms. Air travel continues to be a fantastic value; in fact, many of you likely spend more on a single night at a hotel, or on your rental car or even your Uber or taxi ride to the airport, compared to your airfare. Air travel is still an excellent deal. I don’t think we’re close to the point of demand destruction. On a broader scale, we’re just approaching 2019 revenue levels. However, nominal GDP has increased by 16% since 2019. We typically align our performance with nominal GDP, so from a broader perspective, I see that there’s potentially another 16% growth available. Today’s results are strong as they are. Looking at it from a micro level, business demand hasn’t fully returned yet, though international travel is recovering. It seems reasonable to expect that we still have a significant journey ahead for revenue recovery, even if I’m not sure it’s exactly 16%. Therefore, I believe this is just the beginning of our revenue recovery and the first real steps towards a turnaround in TRASM.

Got it. And as a follow-up, I know it's only been a few days, but have you seen any pickup in domestic travel interest post the dropping of the mask mandates?

I don't think we can determine that from the data.

So Scott, as you think about the improvement in traffic that you're seeing, are you also seeing an increase, or maybe Andrew, in loyalty sign-ups and credit card acquisition?

Helane, we are experiencing growth across the board. In terms of MileagePlus, we are achieving record card acquisitions and spending, and our retention rate for the card has never been better. We are performing extremely well at this moment, and MileagePlus is significantly contributing to these results.

That's very helpful. Thank you. And then for Gerry, on the percentage of floating rate debt seems, I don't know, relatively high. So are you concerned about higher interest rates causing an increase in interest expense from that? Or is that the first step that you're thinking about paying debt?

I don't actually see our floating rate exposure as particularly high. Most of our debt is fixed rate aircraft-related debt, so it's not something we are overly worried about. Currently, LIBOR remains at a relatively low level, making floating rate debt still attractive. One advantage of floating rate debt is that it's generally pre-payable without a premium, and while not all of it can be prepaid now, a significant portion can. Therefore, our current debt situation is not a concern. However, as we transition into a higher interest rate environment, we will consider how to manage the balance sheet in light of that.

That’s very helpful. Thank you.

Hey good morning everyone. Thanks much for the time. So this kind of touches on what you were answering to Ravi's question, Scott, but a conversation I was having a lot last year is when do we lap pent-up travel. It sounds like in your comments that both domestic and some international markets in Trans-Atlantic and LatAm are running well ahead of 2019 at the same time for the summer. I guess do you see that slowing at any point? And I guess, if you do like how should we think about long-haul international and corporate pent-up travel perhaps backfilling that? Or is this just like the wrong conversation to be having and we should be talking about something structural has happened to where we think demand for air travel is? Would love your thoughts. Thanks.

I believe there has been a structural change in the market. No one predicted it better than United Airlines. Two years ago, when we said business travel would fully return, we were the only ones saying that. Now we are seeing it happen this quarter. My personal experience and conversations with others confirm that once people start traveling again, they realize how much they missed it. This isn’t just pent-up demand; it represents a new, higher level of travel. Personally, I will be traveling more for both leisure and business in the future, and I think many others will feel the same way. After being away from travel for a while, people recognize the importance of being together. We're generally more productive when we meet face-to-face rather than over video calls. We've noticed this trend in our corporate accounts—they may start slowly but then surge past previous levels once they resume traveling. I believe this is the direction we’re headed. You don't need to share this view to invest in United Airlines or airline stocks since we are still behind the GDP trend line. However, I genuinely think we will eventually surpass our previous levels in a sustainable way, but that's just my perspective.

Okay, great. Maybe one for Gerry. I realize how difficult it is to time the decisions of the FAA on the 777 and the 78s. I guess just based on your latest conversations, do you have any broad-stroke kind of upper and lower limits of where we should be thinking about capacity for this year and then maybe what that means for unit cost? Thanks so much for all the time.

Yes, as we said, the capacity for this year is going to be driven largely by the timing of 777. So it will obviously improve over the course of the year. It's tough to put a precise number to it, as I said. What we do know though, is that the 777s in particular as well as the large narrow-bodies are all going to greatly benefit CASM, which is why we're comfortable that we will get to where we want to be by the end of the year on CASM.

Hey, good morning everyone and congrats on the strong outlook here being back to normal. Andrew, I just wanted to follow-up. I think you guys explained it, but 100% RASM on business travel. So that just means adjusted for your capacity relative to where you were. Is that correct?

That's correct because capacity is down a little bit. Yields are up for that component of traffic 10% and volume is down about 20% right now. So it's all mathematically getting as close to 100.

And I guess, what is the outlook on recovery on international business travel demand? Is that ramping up this summer as well? Or do you really need to see the testing requirement removed?

Well, it is ramping up. So what I would tell you is in the current quarter, the business cabins are filled more with premium leisure business than traditional corporate business. The corporate business bookings across the Atlantic have largely returned to normal. So as we get into the summer, we do expect particularly going across the Atlantic, really decent business traffic relative to 2019 with revenue again at 100% or greater. The same is true in Latin America. It is a smaller business component than Europe. The same is not true for Asia, where we really haven't seen a meaningful recovery in business traffic at this point to the bulk of our Asian network.

Good morning. Thanks for taking my question. So Scott, I couldn't agree with you more on the need for travel. On the look forward for business, how much of that is small to midsize versus corporates? And then what are you seeing on your survey work or other data that you look at with respect to the mix of large corporate buyers from health care, finance, tech, consulting and the like? Any changes in the mix, frequency and/or seasonality there? Thank you.

I'll start. The booking curve has changed. It's looking closer in than it did in 2019 is the first part. All the sectors are returning, some faster than others. Media, transportation, industrial seem to be moving quicker than technology. All that being said, I just want to point out San Francisco, which is a really important market to us. San Francisco, the top 16 metros in the United States, was a lag, and it was the number 16 in terms of recovery a month ago. It's now number eight. And so there's been a rapid bounce-back in San Francisco. So when I think we get the updated data, I think we're going to see technology is back to line. It's the only way I can explain what I've seen in the macro numbers for that. So I think we're really kind of bullish on that, and the numbers are supported in that case. Does that answer the question? Or do you have a follow-up?

Yes, a follow-up is separate. Thank you for that color. So the comments about industry capacity estimates out there being wildly off and what feels like a renaissance, if you will, for unit revenues. Assuming we can get oil and hold it below $100 and your deliveries take place as expected, and we moved deeper into this new stage of the recovery, is there an opportunity, what's holding you back from getting to those margin targets faster? Thank you.

I think we will get there faster.

Thanks 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 quarter.