United Airlines Holdings Inc (UAL) — Q1 2025 Earnings Call Transcript

Thank you, Sarah. Good morning, everyone, and welcome to United Airlines Holdings' first quarter 2025 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 based upon information currently available. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-Ks 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. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. 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 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 Mike Leskinen. In addition, we have other members of the executive team online available for the Q&A. And now, I'd like to turn the call over to Scott.

Thanks, Kristina, and good morning, everyone. The first quarter of 2025 clearly shows that a softer macroeconomic environment is driving both volatility in the market and softer demand for travel. But for United, specifically, two big picture themes have been confirmed. First, United's performance is strong even in this weak environment because we've won the battle for brand loyal customers. Second, because we've won those brand loyal customers, our earnings and financial metrics are demonstrating resilience that United has never had before. The strains on the macro economy have impacted demand, but even in that strained environment, United just had the highest first quarter pretax margins since COVID began. We expect to be one of only two airlines that are profitable in the first quarter. Our resilience is further demonstrated by the fact that if the environment remains relatively weaker yet stable, we can stay within our full-year guidance range. However, we read the same headlines as you, and we think there's a reasonable chance that bookings could weaken from here. But even if we're in that recessionary environment, we still expect to earn between $7 and $9 per share for the full year 2025. When I say that there's been a structural, permanent, and irreversible change, I mean that United has won brand loyal customers, who are sticky, lifelong customers. We are now the brand loyal leader by a wide margin in six of our seven hubs and tied with one other airline in Los Angeles. Most folks around the country see us as the leader or one of the leaders in brand loyal customers. Andrew will share some facts about customers that live in the Bay Area, Denver, and Chicago in his remarks. But it is those gains that allow us to be resilient even in this weaker economic environment. To be clear, even though those customers are sticky and we believe those market share gains are permanent, we are capitalizing on our momentum and doing more to attract even more brand loyal customers. We're building huge new clubs in Houston and San Francisco, about to open an additional new club in Denver. We're installing the fastest Wi-Fi in the world on our planes with Starlink, which will start flying next month. Adding new features to the most powerful travel app in the world every couple of weeks. Our operation is reliable and resilient as ever. The weakening environment hasn't caused us to reconsider these investments. In fact, we're leaning into this because they're at the center of our biggest competitive advantage: winning brand loyal customers. I want to extend a huge thank you to our employees for their incredible service that makes this possible. Periods of economic softening are part of the business cycle. The question for you is: what should we do now that we see economic softness? Tactically, we're being very diligent about expenses and removing capacity, particularly off-peak utilization flying, and Andrew and Mike will discuss those in a few minutes. Strategically, our priority remains clear and unchanged: win the brand loyal customers because that gives us the best margins in good times and allows our lead to grow even larger during lean times. The reason is that for any given customer living in any given city, if you're not the brand loyal airline, you're the spill airline. The only way a spill airline gains passengers is through lower prices. When times are good, that strategy can work somewhat well. But when times get tougher, the brand loyal airline like United has more seats to sell, which we do sell at lower prices. This disproportionately impacts all the spill carriers with which we compete. Some of the recent guidance updates from other airlines serve as a stark reminder of this point. Historically, Southwest was the airline with the highest percentage of brand loyal customers. For most of its history, Southwest focused on smaller secondary cities where they had a superior schedule for customers. They also enjoyed a significant customer advantage as the only airline that didn’t have change fees or bag fees. That created a high percentage of brand loyal customers to Southwest. At its core, that’s why Southwest historically boasted the highest margins in good times and consistently outperformed by an even wider margin when faced with tougher times. But as they’ve moved into expensive hubs of other airlines, both of those advantages have disappeared. Now, United and one other airline are the leaders in brand loyal customers. It is always perilous to claim 'this time is different,' and in fact, we assert exactly the opposite. It’s going to be exactly the same again. History is just repeating itself. The only change is that United is now one of the two brands leading in brand loyal customers. In conclusion, UnitedNext is the right strategy. It has been executed well by our people, and it’s producing strong and resilient results in both good and challenging times. United has never been in a stronger competitive position. Customers benefit, our employees benefit, and our shareholders will also benefit from the value being created. Brett, over to you.

Thank you, Scott, and good morning. Despite a challenging macro environment, 2025 is off to a solid start. We operate in a dynamic and evolving landscape. Global trade policies, including tariffs, shape that landscape, and as Scott mentioned, broader economic uncertainties remain top of mind. We are closely monitoring the potential impact on the prices we would pay for aircraft. As a reminder, Boeing accounts for the majority of our future total order book, and most of our Airbus A321neos are produced in Alabama. As such, we do not currently anticipate a meaningful direct impact from tariffs relating to aircraft purchases. Turning to our performance this quarter, we are seeing the results of our continued investments in operational excellence, and we are delivering an exceptional customer experience. These achievements are a testament to the commitment and excellence of our employees. None of it would be possible without you. Thank you. In Q1, we served more customers than ever in the first quarter for United, and we finished number one in on-time departures among our US large peers, including customers who were helped with ConnectionSaver. We achieved our highest NPS scores and our best on-time arrival score since the pandemic, as well as the second lowest first quarter seat cancellation rate in company history. We accomplished all of this with safety at the forefront. United is committed to getting every customer to their destination safely and on time. We continue to invest in enhanced pilot training and safety technology, making it easier for our employees to report safety concerns. Our United team is engaged across the industry and with the government to ensure the safety of our aviation system. In the first quarter, we reached two major milestones on the accelerated rollout of Starlink technology across our fleet, completing our first Starlink installation on a United Express aircraft, and securing FAA certification to begin operations on the Embraer 175 fleet. We're on track for our first Starlink-enabled regional flight later this spring, with our entire two-cabin regional fleet expected to be retrofitted by year-end. We continue to expect the first mainline aircraft with Starlink to take flight before the end of 2025. We believe Starlink will revolutionize the in-flight experience for our customers, and United is leading the way for the future of Wi-Fi for the airline industry. With that, I will hand it over to Andrew to discuss the revenue environment.

Thanks, Brett. United's top line Q1 revenue increased 5.4% to a company record $13.2 billion. TRASM for the quarter was up 0.5%. We've been hard at work adjusting how we fly in the historically weaker Q1 period, and our efforts paid off with a material year-over-year improvement in our margin. Demand trends did turn down as we exited January, resulting in lower revenue production than we had originally forecasted for Q1. Domestic main cabin RASMs were down 5% year-over-year and represent the bulk of the gap between our Q1 revenue expectations and actual results. As we would expect in times of economic weakness, we saw the weakness magnified on off-peak flights. For example, the revenue gap on domestic flights departing prior to 7 AM or after 8 PM outside the golden hours is usually 30% lower, but in Q1, that gap expanded to 40% lower. Therefore, we are canceling more off-peak flying and reducing lower utilization going forward. The weakness in the main cabin was somewhat offset by premium performance. Overall premium cabin unit revenues were up mid-single digits in Q1. International Polaris RASMs were up 8%, and international premium plus RASMs were up over 5%. Domestic premium seat RASMs were flat. Our long-term strategies to build premium capacity and customer choice were helpful given main cabin demand trends in Q1. Business traffic trends we saw late in Q4 and early 2025 moderated later in the quarter. Loan business revenue grew 7% in Q1, year-over-year versus 15% in Q4. Contracted business sales for all future travel are currently up low single digits year-over-year, which has moderated from being up double digits at the start of the year. Loyalty revenue remained strong and grew 9% to $1.5 billion in the quarter. Co-brand spend was also strong, up 9%. Co-brand spending growth in early April remains consistent with March performance. Q2 customer demand is not what we were planning just a few months ago, but we continue to expect our top line revenue growth for Q2 to be positive. We have adjusted RM strategies going forward to accommodate more lower-yielding passengers, a necessary reaction to the current environment. The effect of these RM changes is that we will spill less traffic to our competitors, but we will run with lower yields. Since making these RM changes about six weeks ago, bookings have stabilized, and we are currently booked ahead of last year at this same point in time by one point. We at United have a high number of brand loyal customers, and our focus on our seven hubs puts us in a position where we are not a spill carrier. We decide how much traffic we spill to other carriers based on the amount of capacity we offer and the yield we're willing to accept. In Chicago during Q4 2024, we expanded our passenger share lead of local origin traffic to 22 points ahead of our next largest competitor. In 2019, that lead was only six points, and in 2015, we even had a negative gap. From Denver, we've increased our gap ahead of our largest competitor in that market to ten points for Denver-based passengers. United also gained 2.1 points in market share in late 2024 in the Bay Area. United will operate our narrow-body aircraft with 2% less utilization in the coming quarters, effectively lowering our domestic capacity by two points. Recently, we have reduced domestic capacity for the summer in our sell-in schedule by three points, with one more point to be removed shortly. Among our primary competitors, we operate the highest percentage of our domestic departures in the golden hours between 7 AM and 8 PM. We usually have the lowest overall aircraft utilization. However, lower utilization is usually viewed as a negative in our industry, but for United, it has been one key to our relative success. Our domestic schedules for the quarter are still being developed, and we will consider more significant changes if needed. The international environment is also strong for United, and we believe it looks good for Q2, as of now. The makeup of our international traffic skews heavily towards US point of origin business. While most of our international travel demand is US-based, we are seeing modest declines in non-US origin passenger volumes. For the second quarter, international passengers from Europe are currently booked 6% lower than last year, and Canadian origin passenger volumes are slightly worse, down 9% year-over-year. For United, US-origin demand has more than compensated for these reductions. Considering the potential impact of recessions on business traffic, it is important to note that relative to pre-pandemic, our revenue makeup is less reliant on this revenue source. Business revenue now accounts for eight points less of our passenger revenue and contributes 4.4 points less to our load factor. So far, we've seen no deterioration in high-end consumers' willingness to purchase a premium experience. We attribute this to the fact that the economic uncertainty has a larger impact on more budget-minded discretionary travelers than those seeking a premium experience. Q2 booked premium PRASMs to date have remained solidly positive for international flights and flat for domestic flights. United has followed a consistent strategy for the last nine years to win brand loyal customers, which has been successful. This is significant for investors seeking confidence that United's margin outperformance is structural, permanent, and irreversible. Thanks to the entire United team, and I'll hand it off to Mike to talk about our financial results.

Thanks, Andrew. For the first quarter, we delivered earnings per share of $0.91, ahead of expectations and within our guidance. Our pre-tax margin was 3.3%, up 3.6 points year-over-year, and the strongest first quarter we've had in the last five years. We expect these results to lead the industry and further demonstrate the success of our United Next plan. As Andrew just described, at the start of February, we saw a steep drop in US government and government-adjacent travel. We guide, however, with a no excuses philosophy. So while there’s pressure on revenue, we doubled down on managing costs to ensure we delivered within the first quarter EPS guidance range. Those efforts, along with the favorable timing of a few maintenance events, led to a first quarter CASM X result of only up 0.3% year-over-year. These actions, combined with lower fuel costs, enabled us to deliver on our guidance. I'm proud of the team for their hard work to ensure we honored our first quarter financial commitments. Looking to the second quarter, we expect earnings per share to be between $3.25 and $4.25. We are acutely focused on booking trends and the potential impact of tariffs, which we are closely monitoring. It is a risk. However, as of now, our bookings have stabilized. Looking out to the third quarter and beyond, we have already taken action to reduce less profitable flying, including Redeye flying, capacity on routes heavily trafficked by US government, and transborder flying, aided by the accelerated retirement of 21 aircraft. We were the first airline to notice the slowing demand from US government spending and to take appropriate action. We expect our domestic capacity to decrease four points from our original plan starting in the third quarter. There is a tremendous amount of uncertainty in the economy, and we have already observed a reduction in demand and consequently revenue. However, stability at that lower demand level has been witnessed in the last six weeks. Conversely, we expect a significant reduction in our fuel cost. If demand remains stable for the remainder of the year, the combination of revenue decline and reduced fuel costs, alongside the substantial contingency built into our initial guide, leaves me cautiously optimistic that we can still deliver full-year earnings per share within our guidance range of $11.50 to $13.50. While we've seen stability in demand for the past six weeks, we acknowledge the real risk of the US economy entering a recession. If we do enter a recession, we model an additional five-point reduction in total revenue for the remainder of the year, on average per quarter. In that scenario, we would implement an additional downward adjustment to capacity and we have not included any further relief in fuel prices, even though that may occur. Even under that scenario, we expect overall full-year earnings per share to fall between $7 and $9. While this does not align with our expectations at the start of the year, it would mark the first time United has remained solidly profitable during a recession. We believe this would justify significant multiple expansion as we would have proven our financial resiliency, greatly improved competitive position, and durability of a decommoditized business powered by brand loyal customers. Regarding our balance sheet, we ended the first quarter with $18.3 billion in liquidity, including our undrawn revolver. We generated over $2 billion of free cash flow and reduced our debt by $1 billion. In fact, over the last twelve months, we have generated over $5 billion in free cash flow, representing approximately 130% of our net income. At our current equity valuation, this represents an over 20% free cash flow yield. Our net leverage decreased to 2.0 times from 2.2 times at the end of 2024, marking a continued progress toward our long-term net leverage target of under two times. Recognizing our progress, Fitch upgraded United to BBB with a positive outlook, while Moody's also changed to a positive outlook. Regarding our buyback, as of April 10th, we have repurchased approximately 5.6 million shares in 2025 at an average price of $80. History has taught us that even industry leaders are susceptible to steep market overcorrections during times like this, and we built our buyback strategy around being opportunistic. We believe this is precisely the right moment to repurchase shares at our currently depressed valuation, with approximately $1 billion remaining in authorization. Regardless of the economic path ahead, we anticipate resilience in our financial results. We are confident that the long-term earnings power of our company remains unchanged, and frankly, it is possible that some weaker airlines may be compelled to curtail money-losing capacity sooner than they otherwise might have. Thus, our perspective on the intrinsic value of our shares remains intact. In fact, as previously mentioned, we believe our multiples should expand as we prove that our business is stronger and more resilient, even during economic stress. For as long as our share price remains depressed, we plan to continue utilizing a meaningful portion of free cash flow to repurchase shares at what we perceive to be discounted prices. As I've stated over the last several quarters, free cash flow generation remains a top priority. While demand has softened, we continue to expect to generate full-year free cash flow approaching $3 billion in a base case, and positive free cash flow even in a downside recession scenario. To conclude, United's competitive position in this industry is only strengthening. We are focused on leveraging our network strengths, continuing to win brand loyal customers, and delivering on our financial commitments. Now, back to Kristina to start the Q&A.

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

Oh, hey. Good morning, everybody. So first one, probably for Scott or Mike. Presumably, this past January, you had an internal forecast for 2026 earnings. If we embrace something closer to the recessionary scenario that you just laid out, would your 2026 forecast be higher, lower, or the same today?

Hey, Jamie. Thanks for that question. I think it's insightful and maybe the most important question we discussed today. So thank you. We can end the call after my question. Yeah, there you go, going for doughnuts. I’m gonna slightly modify your timing from 2026 to say, the twelve months once we return to a normalized growth economy. I happen to think that will occur by 2026, but it sort of depends on the macro environment. The short answer is yes. Our margins would be higher. I would refer back to what we've been telling you for the last five years. It started with one, we were going to decommoditize and build United into a brand loyal airline. That's been a part of the UnitedX strategy and our entire strategy coming out of COVID. The second related to cost convergence, which would be a fundamental structural change for the industry. The third is revenue diversity. We see this, and we discussed international and loyalty, which is strong across the board. That has been another structural change. Part of this too includes finally solving the puzzle on price-sensitive travel with economy engage. All the things we've talked about in the last five years reinforced what we’ve expressed in the last call concerning comparative advantage. We believe the airline world is evolving toward a place where airlines will primarily fly in locations where they have competitive advantages, and the kinds of capacity wars that have occurred in the past will become a thing of the past because all trends we've discussed have separated the gap between brand loyal airlines and the rest. What this challenging environment will do is accelerate what was going to happen anyway and yields to airlines focusing on markets where they have comparative strengths. This implies that moving forward, there will be less unprofitable flying in the industry, which means less overall flying. That will happen sooner. I am confident that United Airlines will have higher margins than we would have if this situation took longer to play out. In fact, I will go one step further and claim that when we return to the twelve months following this economic period, not only will we have higher margins, I believe they will be solidly double-digit margins.

Okay. Thank you for that. And then, you know, Mike, I know you touched on this in your prepared remarks, but your premium high-margin competitor refuses to buy back stock until they meet their leverage targets. You were obviously pretty active last quarter or through April 10th. I'd love to believe it’s because you like our down thirty-thirty analysis, but seriously, our question on this is why? Is it simply a function of cash lying around, burning a hole in your pocket, given the delivery delays? I guess what Mark Streeter and I are trying to reconcile is your plan to de-risk the balance sheet and achieve IG ratings, while also executing some pretty material repurchases through April 10th. Any additional color?

Thanks, Jamie. I appreciate the question. When contemplating buybacks versus deleveraging, we aim to optimize our overall cost of capital. Therefore, as our stock price decreases, and the gap widens between our market price and our view of intrinsic share value, it becomes more opportunistic to buy back shares. That's what you've observed; we’ve accelerated buybacks as the share price dropped. We are very careful to ensure we install guardrails around this and effectively continue our deleveraging strategy. I'm quite vocal about our desire to see net leverage drop below two times. It's essential to us to advance toward investment grade, and it’s critical that any buyback is funded by free cash flow without drifting into debt-fueled buybacks. With those constraints, we feel confident about the future and are thrilled about purchasing our shares at these low prices.

Scott and Mike, thank you very much. Appreciate it.

Hi. Good morning, everyone. Mike, you mentioned the cost performance in your prepared remarks; it’s really impressive here in Q1. I would imagine it’s hard to do better moving forward. Is that the right way to think of it? Can you maybe speak to additional cost levers you might have if the revenue environment moves towards your recession scenario?

Thanks, Andrew, for the question. We're very proud of our Q1 cost performance. But before discussing Q2, let me emphasize our focus on establishing a cost-effective culture at United. We are intentionally allocating spending to areas that enhance the customer experience, yet we know there are many areas where we can improve efficiency as an airline. These prospects are wide-ranging, such as refining our procurement organization and leveraging technology and data. We have always stated that maintaining a reliable operation represents the best path to achieving lower costs. Most critically, a reliable operation is the best way for us to win brand loyal customers. So we feel confident about it. I do expect Q1's CASM X performance to be the best of the year, as some maintenance costs drifted from Q1 into Q2. However, I expect CASM X for the full year to surpass my expectations from January. We will continue to push hard to identify efficiency opportunities. We made considerable progress in Q1.

Got it. Understood. For my second question, I would like to understand your thoughts on the four to five points of lower revenue production in a recessionary scenario. Why is that the right figure to anchor to? And what’s embedded from an industry perspective to achieve the seven to nine dollars in EPS? Thank you.

It's a great question. I will maybe let Andrew chime in at the end, but from a high level, what you've seen from our expectations in January to what we anticipate now shows about a five-point reduction in revenue. The recession scenario would represent an additional five-point reduction starting anytime we enter that recession, which will likely be in the third quarter. To summarize, that would mean a total ten-point reduction from our expected run rate. How long we remain at that reduced level will require your own assumptions. Unfortunately, we do not possess a crystal ball to determine the depth of a recession, but that’s our expectation of what a typically classified recession would entail. We have provided you the tools needed to create alternative scenarios, but this is our forecast.

Hi, everyone. Thank you. I appreciate the detail on spill traffic commentary. This seems like a period in which you would want to eliminate spill traffic carriers from your hub markets. Isn’t that the primary objective of basic economy? Could you talk about how to continue down the path of eliminating spill traffic overall?

We are simply striving to build a great airline for United Airlines customers. That's our unique goal. In truth, our plan has not changed in the last five years. Tactical adjustments, like removing a portion of our utilization, have been made. Everyone else will act as they see fit, which naturally applies pressure on them. As United improves, the contrast between us and other airlines becomes clearer and more evident. Yet, our focus is on creating the best experience for United Airlines customers. The gap to other airlines develops naturally without our needing to force it. It's up to them to answer the challenge. If they don’t, so be it.

Okay. That's helpful. You're probably not going to like this question, but I've been receiving it repeatedly. If we examine the first half's implied EPS performance and compare it to your expectations for the second half to meet the $11.50 range, it implies that you're going to outperform year-over-year versus 2024. I'm trying to understand what’s driving that improvement if you're just hovering at the bottom in the current environment. What additional levers do you have that make you feel more confident? Perhaps it’s premium or loyalty, or maybe it’s improved cost management. Any insights would be appreciated.

First and foremost, the full-year guidance, ranging from $11.50 to $13.50, considers current booking trends persisting. It acknowledges that we’ve consumed all the contingency we built into that guidance. However, it also assumes that we will maintain excellent cost management while not discovering new areas for improvement. Lastly, it presupposes that second-half fuel costs are about twenty cents lower than first-half fuel costs, which are factored in addition to the anticipated capacity reductions aimed at profit maximization. Thus is our approach towards achieving the full-year guidance.

No, you’re good. I appreciate it. Thank you.

Hey, good morning, and thanks for taking the question. Scott, this is a relatively unique period for the industry where you and your other brand loyal airline have a significant margin advantage against the lower cost and spill airlines. How do you contemplate leveraging that margin advantage? Are you considering using it to capture share now, or are you more inclined to prioritize maintaining that margin? When you’re aiming to build a better United Airlines, how do you balance those distinct pressures?

I don’t perceive that there is any inherent conflict. In fact, I would reiterate a point I tried making from the start. The brand loyal airline has historically triumphed. The brand loyal airline in the United States has always had the highest margins. The brand loyal airline has consistently outperformed during recessions. What continues to differentiate is which brands are regarded as the loyal ones. We confidently believed we would win brand loyalty here, begin to outperform the industry, and that when the inevitable business cycle turns, we would outperform during those times. All of that is occurring. Hence, we feel confident. We won't do anything radical; we have had various markets where we have seen major shifts, both upward and downward. Our capacity and plans remain unchanged in these scenarios. We have the advantage of building a leading airline for brand loyal customers, and executing that plan is all we've done. Our own strategy allows us to keep to our standard game plan because we have the brand loyal customers to support it.

As you consider building brand loyalty, also mentioned is segmenting the cabin, adding amenities like faster Wi-Fi and constructing lounges. It seems the industry as a whole is adopting this approach. How do you maintain that leadership in brand loyalty over the next several years, especially with other airlines investing similarly? Is it just a matter of execution, or are there further innovations you're considering to secure that leadership position?

I’ll try to address that. We are committed to continuously innovating, growing faster, and climbing higher. This is the definitive culture we foster at United. Moreover, there are numerous initiatives in development that we haven’t yet disclosed. Despite being flattered that others are trying to mimic our approach, they are lagging behind us. That dynamic enables us to maintain our advantage, and we will continue to operate at our existing pace or even faster.

Hey, good morning, everyone. Thanks so much for the time. You’ve provided a rich amount of detail on your full-year guidance, but could I ask for one more insight on the different levers? I thought it was quite helpful to contextualize the revenue downside in the base versus recessionary cases. Could you provide high-level thoughts on how much, say, an unexpected expense reduction and lower non-fuel costs might offset expectations, thus allowing you to maintain your original EPS range?

To provide directional insights, fuel has served as the most significant tailwind, as you would anticipate. It's a primary reason I believe fuel hedging doesn't make sense in this industry. As revenues typically decrease, so too does fuel. Therefore, I’d classify fuel as the largest impact contributor. The second major factor was our management of costs. We've developed multi-year plans to meet some of these benchmarks, yet we accelerated some of those efforts. Further, our decision to retire aircraft earlier led to reduced maintenance costs. Thus, I would categorize my priorities in that order: fuel first, then cost management, followed by our capacity decision.

Sure, Katie. I think we had a very strong Q1 for international, and I anticipate a similar performance in Q2; however, the year-over-year RASM won't be equivalent. At this juncture, I do expect international RASMs to remain positive across every single international entity, with the Pacific likely displaying the strongest results, followed by the Atlantic and Latin markets. Thus, the core dilemma remains in domestic flights, particularly in the main cabin, and that will represent our challenge in Q2, just as it was in Q1, which will result in a negative RASM environment for domestic flights in Q2 based on everything we presently observe.

Hi. Thanks for the time, and congratulations on the results. I’d love to explore your broader international market strategy, given your franchise and the growth you have with your operations out of Hong Kong. With the potential for heightened geopolitical tensions, what are your thoughts?

Sure. International has been strong, as far as I’m concerned, ever since I joined United. We continue to work hard to ensure domestic gets in line, yet international continues to improve. The more effort we exert, the better results we get. There exists an S-curve dynamic here. The world is becoming smaller; things once perceived as impossible five years ago are attainable today, and I remain optimistic about this progressing in the coming five years. Therefore, we continue to explore a wide array of opportunities outside the United States and believe it to be a lucrative environment as we traverse through this cycle. Certainly, there will be fluctuations typical in any marketplace, and we will adapt our aircraft as required. Nevertheless, we remain quite positive about the international landscape. Our results in Q1 were exceptional and we experienced robust performance across all international segments. Looking forward to Q2, I believe that we will once again witness strong outcomes.

I would add two structural supply constraints that will lead to better international performance over time. Firstly, aircraft: the combination of all the aircraft grounded during COVID and the supply chain issues—this applies not just at the manufacturers but much deeper in the supply chain—will create significant limitations for wide-body international travel. I expect this to persist well into the future. Secondly, airport capacity is also constrained: acquiring slots in Manila is laborious and struggling to gain access in other international markets underlines this. Therefore, if I were to place a favorable bet, I’d choose international travel over domestic. I'm not going to unwind this short-term optimism; however, I am also less confident when predicting one year out versus five or ten. For the longer horizon, I'm inclined to place all my bets on international due to these real and substantial supply constraints.

That’s incredibly insightful. Thank you very much. I'd like to follow up regarding Starlink on our mainline fleet: What’s the anticipated rollout cadence, and how do you envision potential share gains as this product launches?

We are highly enthusiastic about Starlink and the significant enhancements it opens for our customers in terms of connectivity and MileagePlus. Let’s not overlook that these improvements are interconnected. We've made a wealth of investments—from Starlink to superior food offerings—and those collective efforts are leading us to where we are today. This progress has been beneficial for brand loyalty, and we're proud of that initiative. There's more to anticipate.

Good morning, guys, and great quarter. Relative to the environment, could we discuss international? It clearly appears strong, but in the prepared remarks, you indicated that international non-US origin volumes are down, with Europe down six percent and Canada down nine percent. How does this interplay with your share-gain potential as you expand internationally and potentially convert those customers? Moreover, could you comment on Pacific market strength?

Certainly. We wanted to disclose that data because, as most know, there has been erroneous data regarding transborder traffic lately. The realities are straightforward: while we see a modest dip in foreign-origin business, we handle approximately 80% of our segments with US origin traffic. As such, we’re easily able to fill those seats with domestic demand. Consequently, our international outlook appears solid. Regarding the Pacific markets, that entity continues to lead the way. Japan is performing exceptionally well for us and our partner, ANA. That’s noteworthy. The South Pacific is having an excellent year, along with all other Pacific segments. Overall, I believe the international landscape looks bright, contributing to United profitability considerably. We remain upbeat regarding our short-term and long-term perspectives.

Regarding your seven to nine dollar scenario amid a recession, how should we consider your operating margins and free cash flow in that context?

At $7 to $9, the operating margin is a straightforward calculation. We can discuss that offline, but essentially, we would expect to be near breakeven and still generate positive free cash flow within that $7 to $9 range. There would be some flexibility around CapEx, but likely not this calendar year.

Good morning, thanks for the opportunity to inquire. I’d like to address some cost assumptions and how union agreements may evolve during a downturn. In particular, regarding flight attendants, do you think progress tends to slow in a recession or remains similar?

Our employees have done an outstanding job, as reflected in our resilient results. When I claim we've won brand loyal customers, I refer directly to our personnel. The most effective form of engagement involves flight attendants greeting the customers with positivity and warmth. The more positive interactions at the gate lead to better service. In a recession, productive contracts will be facilitated; whether we face that scenario doesn’t change this reality, and we're nearing the goal line with our flight attendants. Fingers crossed.

Okay. That doesn’t influence your view on timing. For my next question, you noted that while you don’t assume the cycle is different, United's position has changed. You are indicating that the consumer may differ as well, with more spending concentrated among wealthy consumers, supporting resilience in international travel. What are your thoughts regarding international flying during a recession? Do you think it may decline, even if we see some resilience?

Indeed, international has demonstrated greater resilience, yet different consumers react differently based on the prevailing situation. The discretionary consumers are more vulnerable, making them less inclined to undertake foreign vacations. Conversely, the affluent consumer—desiring global excursions and premium experiences—seems less affected, which benefits our business and aligns with our brand. We are focused on retaining these customers.

This is Mike. I would like to add that a significant shift in our customer demographic has occurred. Particularly, we see heightened premium leisure travel, with reduced reliance on corporate travel. This trend is proving beneficial for us.

Thank you for your recent book recommendation, 'Capital Returns.' The book discusses many themes that resonate in guiding investment strategies. Scott, would you summarize your key takeaways? Mike and Andrew, how might this book influence your considerations for growth and capital allocation?

I’m glad to see you read my recommendation. I have another one I've recently enjoyed, a physics book by Brian Greene regarding the search for a unified theory; it's spectacular. Returning to ‘Capital Returns,’ it offers valuable lessons on thinking strategically. One concept that resonates with me is the importance of challenging consensus views; when the market is rushing to purchase aircraft, that’s usually the wrong moment. We made the right investments during COVID when the general view suggested a complete collapse of the travel industry. The demand for travel will inevitably rise over time, slightly quicker than GDP growth, notwithstanding short-term fluctuations like we see now. I’m not stressed; rather, I focus on supply. That will lead to better outcomes. Informing my response to the international question is my confidence in the long-term, unfettered future due to genuine supply constraints. Consequently, I'm frustrated that Boeing failed to deliver our 787s faster, despite being the only airline willing to commit during the downturn. While our investment is paying off immensely, it could have yielded more substantial rewards. Regardless, it's a solid book, and I have distributed copies to our finance and network teams.

Duane, I’d like to highlight two major takeaways from the book. First, we should remain disciplined and contemplative about aircraft investments. They necessitate a thirty-year commitment; therefore, it’s critical that our anticipated returns surpass our cost of capital. In view of existing supply constraints, we feel sure about the returns for replacing aging aircraft, thereby reinforcing our decision-making process. The second point emphasized in the book is that buybacks should be pursued opportunistically. Should circumstances alter, we might pivot toward dividends; however, when shares are undervalued, we should seize the chance to repurchase them. All while observing our balance sheet to drive toward investment grade—those actions need to be undertaken thoughtfully.

I would add that the book encourages us to focus on supply-side forecasts. As Scott pointed out, international airports worldwide and the major US airports are not expanding runway or gate capacities. As GDP grows, we're creating increasing demand without corresponding supply increases, so I maintain an optimistic outlook for the key cities where our hubs are located in the United States and those we service internationally. The challenges of expanding schedules while facing constricted capacities will foster further success for us.

Oh, hey. My question is going to be a little less intricate. Could you inform us of your current basic economy volume percentage? I believe last quarter you mentioned it was around fifteen percent. When comparing year-over-year increases in basic economy revenue versus your total revenue, it's nearly twofold. Where does that percentage stand today? Could this be primarily due to upgauging in the 'next' program, or are we seeing more robust competition at the lower price segment driving higher volumes?

In Q2, I expect us to be more competitive towards lower fare segments, leading to increased volume, which was less feasible in Q1 due to the swift demand decline noted in mid-February and March. We were unable to promptly react to effectively fill seats, resulting in domestic load factors plummeting by over three points. In Q2, I anticipate a small deficit in load factors year-over-year, likely around one point due to our expanded inventory system to accommodate more basic, lower-yielding customers; hence, we’ll experience reduced spill to competing airlines. Expectations show the basic economy segment will grow in Q2, reflecting market conditions and may fluctuate accordingly; we’ll control how much low-end traffic we allow to flow. Regarding the upcoming Real ID deadline on May 7, we don’t expect issues with passport-holding customers, but we acknowledge a broad array of factors. We hope everyone is sufficiently prepared with their real ID or passport as potential consequences for those unprepared could emerge. We are actively working together with authorities regarding this situation.

Hi. Good morning, and thanks for the opportunity to ask questions. I wanted to dive into how you're conceptualizing brand loyal customers since I see it’s a crucial aspect of your business. You mentioned share of local customers previously. Is that a metric through which we could evaluate your progress externally?

Absolutely, it's a composite of various factors. However, if we analyze our overall market share across the cities we service, our numbers have risen across the board. For instance, our origin market share in Chicago, which is where we see notable loyalty, demonstrates that local customers have instilled trust in United. Additionally, we’ve successfully linked these customers with co-brand credit cards to ensure their loyalty to United remains steadfast. That was our initial strategy yes, and we believe it’s proving effective. We measure numerous metrics and see the fruitful results in our stronger revenue growth relative to the industry. Of equal importance, evidence of our margin increases relative to competitors adds further credibility. Our second-quarter capacity growth in the domestic market hovers in the high single-digit range. You might wonder how prudent this move is given the dramatic unit revenue shifts. Are we deliberately prioritizing incremental market share, sacrificing margins in the process? Or is our focus still on margin while respecting that capacity growth? It’s misleading to assume we're ignoring both aspects; we always emphasize margins. Our historical record of capacity decisions reflects successful results. Considering our Q1 outcomes—total absolute performance—I’m confident in our summer strategy, concentrating peak-time departures, which ultimately solidified our margins. We were the initial airline to signal any shifts in fleet strategy recently and divest from less profitable capacity. We feel confident about the current plan, which excels in comparison till this point; also, we maintain our readiness to make adjustments come September, should industry needs arise. At this moment, we have an approved strategy.

Thanks. Morning everyone. Just a follow-up on multiple scenarios; how do you perceive loyalty and co-brand revenue evolving if we encounter a broad-based consumer recession similar to 2008? Given that the entire loyalty landscape has transformed, do you expect it to remain as resilient as during the pandemic, or do you foresee increased risks?

Ravi, I appreciate that question. The loyalty business and its revenue stream have displayed resiliency throughout the upheavals of the COVID pandemic. Current data indicates that resilience will persist, reinforcing expectations of continued secular growth even amid economic downturns. Thus, that component of income will act as a stabilizing force across all financial scenarios.

I wish to emphasize that brand loyal customers play a pivotal role in all of this. As we enhance our premier member program and increase our ratio of cardholders, the cycle strengthens like a flywheel, showcasing our commitment to consistently growing this segment. We remain resolute in our efforts, ensuring the longevity and strength of this business.

To confirm, your assumptions about fuel price within both full-year guidance ranges are unchanged, and should a downturn in revenue materialize during the recession scenario, further price declines in fuel are a plausible outcome. Hence, we’re clear about these assumptions without getting into offsets.

Thank you. Hey Scott, with China stating they're halting Boeing shipments, and an engine supplier likewise scrapping shipments subject to tariffs, do you perceive a crisis developing within the aerospace industry? What are your primary concerns?

I believe it’s too soon to declare a crisis. Aerospace remains a quintessentially successful high-tech manufacturing sector yielding great export power for the U.S. We are still at the beginning stages of how all these tariffs will settle, and I believe that by the endgame we'll see aerospace confirming as a favorable proposition for the U.S. market. So my suggestion to everyone is to stay patient. Let's refrain from impulsive reactions and take a wait-and-see approach.

You mentioned that most of your deliveries come from Boeing. If compelled to take an Airbus plane, would you pay tariffs?

We're in an advantageous position. We're primarily focused on either Boeing or Airbus aircraft, as Brett mentioned; we rank as Boeing's second-largest customer, behind only the U.S. government. The majority of our Airbus deliveries originate in Alabama, minimizing our tariff exposure. I view this as an opportunity to solidify our partnership with Airbus. They've demonstrated they can navigate some tariff challenges. I believe everyone involved will find resolutions, but right now, we face less exposure and enjoy a robust working relationship.

Good morning. You mentioned in the press release about adding gates at O'Hare. Can you discuss how this aligns with United's overall strategy and the O'Hare expansion?

Absolutely. You’re correct—gaining six gates later this year excites us; we look forward to executing our United Next growth plan. Our existing facilities are crowded, and we recognize that demand is high. This gate expansion enables us to maintain our growth trajectory while benefiting from solid economic prospects in Chicago. O'Hare remains critical to our strategy, and we anticipate seeing strong future prospects.

Will recession affect that growth?

Potentially, but presently we are operating a record schedule in Chicago this summer. Our plans remain unchanged, focusing on consistent growth in alignment with our six-month strategy preceding the year. While we expect this period to pass, we're optimistic about Chicago's future. So far, the growth outlook looks very bright.

Thank you, Mike. We will now take questions from the analyst community. Please limit yourself to one question and if needed, one follow-up question.