United Airlines Holdings Inc (UAL) — Q2 2022 Earnings Call Transcript

Thank you, Hilda. Good morning, everyone, and welcome to United's second 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 Operating Officer, Toby Enqvist; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerald Laderman. In addition, we have other members of the executive team on the line available to assist in the Q&A. And with that, I'll hand it over to Scott.

Thanks, Kristina. Good morning, everyone. And thanks for joining our call today. I'd like to start by thanking our employees for navigating an unprecedented return of customers this quarter, as well as managing through challenges seen around the world regarding the infrastructure that supports global aviation. It's great to return to profitability for the first time since the start of the pandemic, and despite the legitimate worries about rising fuel prices and the growing risk of a slowdown or recession, we expect continuing improvement in revenue, earnings, and margin going forward. We're still short of our pre-pandemic margins, and we remain focused on first getting back to 2019 levels of profitability, and then on achieving our 2023 and 2026 United net adjusted pretax margin targets. During Q2, very strong clouds emerged which will drive the narrative around United and our industry for the next six to 18 months. And here at United, we're prepared for the risks they pose. First, we've seen industry-wide constraints that have created significant operational disruptions and imposed constraints on the industry's ability to grow. Second, sharply elevated fuel prices, and third, the growing likelihood of an economic slowdown or recession. To address the challenges posed by the commercial aviation ecosystem that is straining to handle the number of planes operating today, we've elected to keep United Airlines smaller and overstaffed to give us more buffer against these external constraints that we just can't control. We'll also continue to prioritize reliability by overstaffing until the entire aviation infrastructure returns to normal. This means that there will be cost pressures until that catches up and we can return to traditional utilization and staffing. The second macro trend is, of course, fuel price. At current fuel prices, United's fuel bill would be $9 billion higher than 2019. For what it's worth, we're building our long-term plans assuming that this is the new normal for fuel prices. The good news is that rising fuel costs affect all airlines, and at least for United, we've seen this largely become a pass-through expense today. Finally, there's the question about what's going to happen with demand. We continue to see strong demand. One unique aspect for United, particularly, and aviation in general, is that we are still probably in the sixth or seventh inning of the COVID recovery. Two macro demand trends—recession versus continuing COVID recovery—are working across purposes. For now, though, the COVID recovery trend is at least canceling out and arguably exceeding the economic headwinds. So where does that leave us as we look to the future? Clearly, all three looming risks—industry infrastructure constraints, significantly higher fuel prices, and economic slowdown—bias toward reducing capacity over the next six to 18 months. But the truth is that 8% is about as much as we think is physically possible for us to fly, given the shortfall and regionals, reduction in long-haul Asian flying, aircraft delivery delays, and other infrastructure constraints that are impacting all of aviation. Perhaps what's most amazing about all this, despite three known storm clouds, we remain optimistic about the short-term narrative. You can see that our Q3 results are expected to continue to accelerate back toward 2019 margins. Lower stage length does lead to slower ASM growth and pressures on CASM-ex, which Gerry will detail shortly. However, these same factors also lead to higher TRASM. To hit our adjusted pretax margin of 9% next year, TRASM could decelerate by eight points from current levels, and we'd still hit the target. That translates to about $11 per share in adjusted EPS. And that perhaps is the most important point: At United, we will do whatever it takes to hit our margin target. We made a huge step up in Q2 and we continue to get closer to 2019 levels here in Q3. We believe utilization will return to normal and Boeing deliveries will get back on track, which are the keys to CASM-ex. But we're going to get to our pretax margin next year regardless. Thank you again to our employees for all they've done to help our customers during this busy summer travel season. It has been tough, but I'm encouraged to see the improvement in operating results and customer NPS so far in June and July. And with that, I'll turn it over to Brett.

Thank you, Scott. I want to start by thanking the entire United team for their hard work these past few months. We are pleased to see how the recovery has taken hold and progress has been made in our international business as border and testing requirements began to ease. As Scott mentioned, weather and air traffic constraints have severely impacted the entire industry over the last few months. However, because of the United team's unwavering hard work, we were able to return to 2019 levels of operational performance in the second quarter for most of our network, with the exception of Newark. While June completion was the most challenging since 2019, our mainline operation was ranked number one among legacy peers for the quarter. The good news is that the biggest constraint we have seen at United, congestion at Newark, has improved. But we’ll need to operate at lower utilization and higher staffing levels until the broader aviation infrastructure improves. United continues to collaborate with the U.S. Department of Transportation on the operational disruptions and challenges impacting the aviation industry and our customers. By having an active partnership with the government and FAA, we hope to address the main drivers of these challenges and find solutions together. We've seen early signs of progress and are grateful for the partnership and leadership the FAA has demonstrated. Late last month we received a waiver to proactively reduce our schedule in Newark to ease operational disruptions for our customers. Our on-time partner performance in Newark has also improved significantly—nearly 14 points month over month so far. As we continue to manage the infrastructure challenges that face the aviation industry and the broader economy, we're strategically maintaining higher staffing levels, and we'll need to operate at lower utilization. We continue to adjust our near-term capacity plans to fly the most reliable schedule we can. Finally, we are hiring to support a larger operation so that our whole United team can receive proper classroom and on-job training in advance of when they are needed, as we plan to grow scheduled towards our long-term goals. The pilot shortage continues to impact the broader airline industry. United remains dedicated to hiring at least 200 pilots a month. And with our international routes, wide-body aircraft, and high career earning potential, we are confident that United is the best place for pilots to build a career. In closing, I want to extend my most sincere gratitude to the entire team at United for their hard work this quarter. Our employees are truly the good that leads the way for our airline. And now, I'd like to hand the call over to my colleague, friend, and our new Chief Operating Officer, Toby Enqvist.

Thank you, Brett, for that kind introduction. After working for this great airline for over 25 years, and most recently as Chief Customer Officer, the things that customers value the most have not changed. We need to get them to their destination safely and on time. Hence, running a reliable operation is critical to our success. With the recent wave of industry-wide operational disruptions across the globe, it was the innovative tools, such as ConnectionSaver and Agent on Demand from our team that helped moderate the stress not only for our customers but for our employees as well. We will continue to innovate to make data-driven decisions to improve the efficiency and reliability of our operation in the future. At United, we've been preparing for this bounce back in demand for some time. We were the only airline that signed a letter of agreement with our pilots in the fall of 2020 to ensure that when demand returns, and it has, in a more meaningful way than we could have ever imagined, we’d be ready. For example, today, we have 10% more pilots available for blocked hours compared to before the pandemic. Furthermore, we broke ground on 12 new simulator bays to support the amount of pilot training that we expect will be required in the near, medium, and long term to meet our growth plan. We also began actively addressing our infrastructure well before demand started to come back, focusing on major airport infrastructure projects to support future needs. We completed or broke ground on new projects at Newark, Chicago O'Hare, Houston, and Denver. There are many other infrastructure constraints outside of our control, and we worked with those partners to expedite their return to normal. Finally, the July Fourth weekend was our best completion and zero performance for that reason since 2017. In partnership with the FAA, our Newark operation is significantly improving this month. As of July 15, we have seen a 78% reduction, which is the highest post-pandemic month in FAA capacity delivery, allowing an additional 12,000 customers on-site each and every day. Delays are now less likely to impact the rest of our system. I look forward to being even more ingrained in the day-to-day operation of this airline. Hopefully next time I'm on this call, the operational challenges that our industry faces today will be in the rearview mirror. I'll now pass it on to Andrew to discuss our great revenue results.

Thanks, Toby. I'm pleased to report that revenues accelerated in the quarter versus Q1. TRASM finished 24% higher with capacity down 15% compared to Q2 '19. Top line revenues for June were $4.6 billion, which is 12% above our previous best month ever on 14% less capacity. Q2 leisure demand was exceptionally strong, and we successfully revenue-managed our capacity, largely compensating for higher fuel costs and inflationary pressures. Passenger yields were up 20%. Business demand continued to rebound into the quarter to 75% of Q2 '19 volume levels and 80% of revenues. Although business demand continues to grow, the rate of progress has slowed in the last few weeks compared to early in the quarter. With the economy potentially worsening, the recovery of business travel is something we'll be watching closely. Cargo demand remained strong in Q2, with yields up 107% compared to 2019 levels, and total cargo revenue up 95% versus '19. As the industry returns to normal passenger schedules, we expect cargo yields to decline in the coming months but remain solidly above 2019 levels. I also want to mention that our cargo volumes remain strong and are only constrained by the available space now being used by passenger luggage. If a drop-off in cargo revenues is an early sign of a recession, we don't see it. MileagePlus had a strong quarter with revenues up 23% compared to Q2 '19. Our co-branded credit card broke numerous records in terms of spend, retention, and new cards issued. Our ancillary and premium revenue streams also performed well, with ancillary revenue per onboard passenger up almost 30% versus '19. Additionally, steep product revenues per passenger were almost up 40%. Premium leisure continues to be a bright spot, with premium cabin domestic revenue growth outpacing the economy cabin in the second quarter. This trend is critical as our United Next capacity plans grow premiums even faster than the main cabin over the next few years. For Q2, Pacific PRASM increased 15%, albeit on a capacity down 67%. Atlantic PRASM was up 6%, despite a backdrop of a 9% capacity increase compared to '19, and Latin PRASM was up 14% in the quarter on 8% more capacity. Overall, international PRASM was up 13%. Domestic PRASM increased 25% with an 8% increase in gauge compared to Q2 '19, combined with a material reduction in RJ feeder traffic and many constraints limiting optimal capacity deployment. The strength of the post-COVID recovery, combined with capacity constraints, offsets any macroeconomic headwinds, enabling record TRASM results. Now turning to the third quarter, we are focused on carefully managing our capacity, yield, and operation with schedules we can reliably and profitably deliver. We expect third quarter capacity to be down approximately 11% compared to Q3 of '19. Q3 TRASM is expected to improve by 24% to 26% compared to the same period in 2019. International TRASM is now picking up further. We're well into the Q3 booking curve and pleased with the revenue trends. We are not counting on a significant rebound in business bookings in the quarter to meet our TRASM guide. United's capacity in the fourth quarter will also remain below our original targets, approximately down 11%. The revenue environment across passengers, ancillary fees, domestic premium seating, MileagePlus, and cargo is all materially different in a positive way compared to 2019. It appears that airline industry revenues are rapidly returning to pre-pandemic GDP relationships, which is crucial for our 2023 capacity planning outlook. We continue to evaluate capacity plans for 2023 and now expect United capacity to be up about 8%. To be transparent, our growth outlook of 8% is significantly lower than our previously planned growth. However, we at United believe we can execute our plan comfortably. We feel that 8% growth is the right choice and achievable for United. Taking care of our customers is our number one priority, and we believe that moderating capacity growth will allow us to deliver the service levels our customers expect. The entire industry faces at least three core challenges over the next 18 to 24 months: one, industry infrastructure shortfall; two, high fuel prices; and three, macroeconomic concerns. Some airlines, including United, face a fourth risk that not all others may experience: delivery delays from Boeing. These constraints are clearly having a significant positive impact on revenue production. Higher fuel prices and macro-economic factors may not have directly impacted industry capacity, but infrastructure constraints and aircraft delivery delays will require time to resolve and cannot be ignored. We believe pilot recruitment, training, and retention will be real constraints for the industry for years to come. As Scott previously mentioned, our calculations to reach our 2023 margin guidance have changed. We expect higher costs, higher fuel, lower capacity, but most importantly, higher revenues. Thanks to the entire United team. And with that, I will hand it over to Gerry to discuss our financial results.

Thanks, Andrew, and good morning, everyone. First, I would like to add my thanks to the entire United team for achieving our first quarter of profitability since the start of the pandemic. For Q2 2022, we reported pretax income of $459 million, or $611 million on an adjusted basis. Our Q2 CASM-ex ended up 17% compared to Q2 of 2019, which was in line with our prior guidance, even though capacity came in lower than we had initially anticipated. However, the cost story for the quarter was not about CASM-ex; it was about fuel and the ability of the airline industry to withstand record high fuel prices while recovering from the pandemic. The volatility in fuel prices was exacerbated by unusual pressures in certain geographic regions where we had limited opportunity to mitigate exposure. For example, in April and May, the cost of jet fuel based on Newark harbor pricing was often several dollars higher per gallon than Gulf Coast jet fuel. Nonetheless, our strong unit revenue performance enabled us to offset most of the fuel pressure, achieving an adjusted operating margin in Q2 of just over 8%. While this margin is lower than our May guidance of 10%, the difference mainly results from approximately $150 million in additional fuel expenses for the quarter compared to what we had forecasted in May. Looking forward, we expect Q3 CASM-ex to increase approximately 16% to 17% while capacity decreases by 11%, both compared to Q3 of 2019. Our third quarter costs are impacted by the current operating environment, where supply chain issues, labor shortages, and COVID variants create challenges throughout the economy. We are mitigating the overall impact to our operations and customers by overstaffing and limiting capacity. While this creates near-term balloon shifts on CASM, we believe it is the right approach for our customers and ultimately for our profitability. We also expect to manage more cancellations due to infrastructure issues. For instance, over several weeks in September, we are reducing our schedule in Newark by about 200 flights per day due to runway construction. These cancellations incur additional CASM-ex pressure, as many variable costs cannot be avoided due to short lead times for the schedule adjustments. Nevertheless, we expect to be profitable in Q3 and anticipate our adjusted operating margin to be 10%, assuming a fuel price per gallon of $3.81. Additionally, we continue to expect an adjusted pretax profit for the full year 2022. Beyond Q3, we will continue to manage our capacity growth prudently into next year. We now expect our Q4 capacity to be down 10%, with our CASM-ex up 14%. As Andrew mentioned, we now expect full-year 2023 capacity to be up no more than approximately 8% compared to 2019, down from our original goal of 20%. Even with this lower capacity for next year, we believe we can still reach our adjusted pretax margin target. After accounting for the impact of lower capacity, which causes fixed costs to be spread among fewer available seat miles (ASMs), along with about three points of inflationary pressure, we expect CASM-ex to be up about 5% compared to 2019. Assuming a fuel price per gallon of $3.40 based on the current forward curve, unit revenues can decline by as much as eight points from current levels, and we would still achieve our 9% United Next adjusted pretax margin target. And as Scott mentioned, we remain committed to delivering on our targets, regardless of changing assumptions. Moving to our fleet, our new aircraft delivery schedule continues to shift to the right. We now expect to take delivery of no more than 46 MAX aircraft and five 787s this year. We anticipate full-year 2022 adjusted CapEx of about $5.2 billion, which will be lower to the extent that fewer aircraft are delivered. We started taking delivery of our first new aircraft of the year during the last week in June, ultimately receiving four 737 MAX aircraft. We are evaluating the most appropriate ways to finance these deliveries in light of our liquidity position and other cash usage in the current macro environment. Ending the second quarter with approximately $22 billion in liquidity, we utilized cash on hand to purchase the four aircraft we've received this year. Currently, we expect to finance over half of our total 2022 aircraft deliveries using cash, while maintaining flexibility as we continue to monitor the economy and the recovery. Paying for these aircraft with cash while reducing current maturities and prepaying certain debt builds our unencumbered asset base, which is a win-win for the balance sheet. So far this year, we have reduced our total debt by over $1 billion, and with scheduled debt payments between $3 billion and $4 billion annually for the next several years, we will have the ability to deleverage our balance sheet through standard amortization. In conclusion, as we execute our network, cost, and balance sheet plans that form the nucleus of our United Next strategy, we grow more confident every day that we will achieve our 2023 and 2026 adjusted pretax margin targets. And with that, I will hand it over to Kristina to start the Q&A.

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

Good morning, everyone. Congrats on getting back to profitability. Scott, you sort of touched on the capacity change, and maybe this is for you or Andrew, but based on our math, it looked like you were going to probably be up about 20% under the previous plan from a year ago. And now it's at 8%, 12 points. Obviously, that's a lot, and it's a sizable headwind for CASM. But can you give us a little more insight? Is that a slower improvement or increase in gauge? Is that a more gradual restoration of bringing back 777s? What's driving those changes?

Hi, Mike, it's Andrew. Let me give it a shot here. As we looked out into the year, there are a couple of big buckets that differ and get us from the 20% you just referenced to our current projection. The first is the change at United Express, where we're simply flying far fewer airplanes and at lower utilization. This definitely lowered our available seat miles (ASMs) by around four to five points in total. Part of that, which is substantial, is the fact that United's mainline aircraft have taken over many of these shorter-haul routes, which produce fewer ASMs. That accounts for a significant portion of the difference. The second major difference is our assumptions regarding global long-haul flying and the recovery of our Asian network, including the ability to overfly Russian airspace. This contributes another three to four points of discrepancy as we shift aircraft from long routes to shorter ones, leading to a reduction in ASMs, albeit with a similar number of departures. Importantly, we plan to operate the full airline in the second half of next year, but these two factors have materially changed our ASM productivity structure. While RJ operations will also transition, we are on track toward our 2026 targets.

Okay. Great. And just a quick follow-up: The pretax target for next year and CASM guidance assumes a pilot deal is done, right? Is that correct?

So our CASM numbers assume all the costs that we would expect for next year.

Yes, it includes labor deals.

Great. Thanks, Scott. Thanks, Gerry.

Thanks very much, operator. Hi, everybody. Thanks for your time. Could you talk a little about the new routes that you started, the leisure-focused Atlantic routes, and how they're performing relative to expectations? Will that part of the strategic plan to increase capacity in other markets continue?

Helane, it's Andrew. Let me address that. We launched these routes at the beginning of the last season, and they’ve all started to spin up successfully. I would note that all performed incredibly well during their initial weeks of operation, including routes that we had not flown to previously. Looking at our RASM guide for the next quarter, embedded in that is an acceleration of international RASM. We're pleased with how they're tracking and expect success in the context of our strategies going forward.

Got it. Thank you. And just on the Newark runway situation, how is that going relative to the plan and the construction at Terminal A that I believe was also impacting operations? I'm not sure where they stand on their expected finish.

I'll let Toby correct me if I misstate anything here. The runway construction is expected to take one of the runways out of service for a few weeks in September, which will result in about 200 flight reductions daily during that period. Obviously, this significantly affects our capacity. The costs we incur remain in place even when we reduce flights. We're hopeful that the construction of the new terminal will remain on schedule for the fourth quarter, as it's an upgrade that will greatly enhance the customer experience once completed. However, the current congestion levels at Newark are quite high and present significant operational challenges for us.

Good morning, everyone. Andrew, you mentioned in your prepared remarks about some softer corporate bookings recently. How do you think the operational difficulties across the industry influence the way corporate clients are traveling or booking right now? Have you had any discussions with your major corporate clients on those dynamics?

We've seen our corporate clients express frustration, particularly regarding the London Heathrow situation, where we have a larger number of operations. Unsurprisingly, this is affecting some bookings. That said, our overall bookings are still robust, with growth throughout the Atlantic routes, and our RASMs are improving. We are committed to ensuring our customers reach their destinations on time and safely.

Got it. And just on the corporate business—sorry if I missed this in your earlier remarks—how much had it recovered in Q2? What are your expectations as we head into Q3 and the latter half of the year?

It recovered to 75% on volume and 80% on revenue compared to 2019. While the domestic recovery rate has slowed, international demand continues to look strong, even amid news regarding airports like London Heathrow. We're confident about international performance coming up, but our TRASM outlook does not anticipate any significant changes in the coming month.

Good morning. Thank you. You mentioned a regional shortfall as one of the factors impacting the 2023 outlook; though, perhaps, it’s not different than your 2026 outlook. Many have expected labor inflation, but recently, one of your competitors provided substantial pay increases that essentially eliminate the historical pay gap between regional and mainline pilots. What’s your perspective on the impact of this if the rest of the regional industry follows suit?

Savi, while this is a significant change, it’s one we anticipated. RJ ASMs historically represented around 7.5% of our ASMs; we expect it to be between 3.5% and 4% as we adjust for economic factors. This shift means that service to small communities will evolve. United will likely focus on more mainline aircraft with lower frequency, which we believe is a more profitable opportunity. Customers in these markets are likely to appreciate mainline options in the long term; we're simply shifting our economic balance and responding to changes in the market.

That's helpful, Andrew. If I might follow up, much of the United Next plan revolves around upgauging. Do you have enough small and narrow-body aircraft to address that regional market? Do you currently hold the right fleet mix to address it?

As we assess our fleet mix, we can always make adjustments. Our goal is to ensure profitability by aircraft and financial targets. We expect our network will look different by 2026 than it did in 2018 or 2019, with reduced frequency in smaller communities but utilizing larger aircraft. We're not inclined to pursue a 120-seat narrow-body at this stage, but this may evolve. Some smaller markets may no longer have RJ service, unfortunately, leading to recently shut down routes, but overall, this is our outlook at the moment.

Good morning, everybody. Andrew, just continuing on Savi's topic, was scope relief initially envisioned as part of United Next?

The United Next plan never included more than 255 76-seat RJs.

Okay, that clarifies why there wasn't any change in scope as part of the TA, right?

Thanks. Appreciate the question. Is it fair to say that the growth plan for next year is lower, but the capital plan remains the same? I understand there's a lack of confidence around deliveries, but could you indicate where you think total CapEx will be in 2023?

Yes, to clarify, aircraft deliveries are the dominant component. Our non-aircraft spending should remain around the same as this year, estimated around $1.5 billion.

So the existing CapEx target of around $6.5 billion to $7 billion is the right way to think about it for aircraft in 2023?

Yes, for next year, we're estimating it to be about $7 billion to $7.5 billion for aircraft specifically.

Okay. Thank you. And regarding other revenue, you've seen notable growth relative to 2019, despite no change fees. Can you provide insight into the biggest drivers of this growth? How much is the absence of change fees contributing, and are any aspects nonrecurring?

In simple terms, our other revenues offset the loss of change fees with increased ancillary fees, especially for luggage and seats. Our digital team has excelled in this area, for which I'm grateful. We're offsetting 100% of the change fee loss this way, and we anticipate continued strength in this area during Q3.

Hi, thanks. You've been outspoken on the challenges with staffing and air traffic control issues. The FAA has pushed back against some claims, suggesting that it's not just them but the airlines as well, reflecting data from the Bureau of Transportation Statistics. Can you elaborate on the current relationship with FAA? Are there signs of progress or deterioration?

We've certainly faced challenges, but it's essential to point out that each airline can differ in performance. Our staffing levels are solid, with 10% more pilots. The issues we've faced are distinct from others. The FAA has responded positively to our concerns, allowing us to reduce our schedule in Newark by 50 flights, leading to improved performance at that hub. We've noted significant reductions in air traffic control delays—over 70% better than prior months. The focus and responsiveness from the FAA have always been appreciated, and we hope to maintain this collaborative relationship as we move forward.

Got it. So do you see the staffing issues at their end resolved, or is it still ongoing?

There's tight staffing everywhere in the economy, not just the FAA. We're working together to ensure that, despite the current operational challenges, the system can recover. We're committed to creating a more resilient operation with our partners.

Can you elaborate on what supply chain issues you still face, aside from the pilot shortages at the regional level? Are you still facing shortages of essential aircraft parts and provisions? Do you have an idea of when those shortages may ease?

Gerry here. The short answer is no. Our supply chain teams have adequately prepared for these challenges, recognizing extended lead times, and we have ensured that necessary components are in stock.

Does that include provisioning supplies for aircraft? What about staffing challenges at airports affecting your daily operations?

There are specific areas in the country where labor challenges are more impactful than in others, but overall, we’ve managed effectively. For critical supplies, we are prepared and face no major operational concerns.

I'm curious how you're thinking about the network for the remainder of the year and into 2023, given some recent softness in the corporate sector, including major corporations like Apple. Additionally, where do things stand with pilot negotiations, which seemed to have been on pause?

From a network perspective, we plan to keep our schedules a bit thinner as we proceed into Q4 and early next year, maintaining reliability in line with available capacity. We’ll focus more on leisure until corporate travel returns fully. We already toughened our regional network and, sadly, had to drop several routes.

Regarding pilots, our relationship with our unions remains strong, and we’re acting to resolve some discrepancies raised by our pilots. We believe in open communication and are actively negotiating to ensure a resolution.

Finally, can you provide insight on the booking curve for leisure and corporate travelers, and how this compares to the pandemic’s start and 2019 overall?

The current booking curve mirrors what we observed in 2019 fairly closely.

Thank you. Earlier, you’ve mentioned challenges you've encountered related to staffing and air traffic control. The FAA has suggested some blame lies with the airlines, supported by data from the Bureau of Transportation Statistics. Can you comment on this and share your current relationship with the FAA? Are there any signs of improvement or worsening?

Firstly, I’d emphasize that each airline's situation varies. We've staffed our airline sufficiently and have had unique challenges. While we raised our concerns about ATC delays with the FAA, they have been responsive to our needs. We’ve reduced flight schedules in Newark for operational improvements, resulting in a drop in delays. We appreciate their cooperation. We’ve seen a notable reduction in ATC delays, indicating that our dialogue has been productive. Staffing issues aren't exclusive to the FAA; the whole system is tight right now. Our focus is on allowing the entire system to rebalance. It's not about pointing fingers; it’s about cooperation between airlines and government entities.

Can you outline what supply chain issues you still face beyond pilot shortages at the regional level? Are you facing shortages of basic equipment necessary for daily operations? What might signal an easing of these shortages?

Not currently, Mary. Our supply chain team has stayed ahead of these issues working to ensure we have sufficient stock until the market stabilizes.

Does that include provisions for aircraft? What about staff availability at airports affecting routine operations?

While certain regions experience more labor challenges, we believe we've managed workflows effectively. However, finding all desired supplies is infeasible, as we’ve had to make some adjustments in offerings. This does not affect operational capacity.

Thank you, Gerry. We will now take questions from the analyst community. Please limit yourself to one question and if needed, one follow-up question. Thank you for joining the call today. Please contact Investor and Media Relations if you have any further questions. We look forward to talking to you next quarter.