Q3 2019 Earnings Call
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I'll now turn the presentation over to your host for today's call, Mike less Goodwin Vice President of corporate development and Investor Relations. Please go ahead Sir.
Thank you Brian Good morning, everyone and welcome to the United's third quarter 2019 earnings Conference call yesterday, we issued our earnings release and separate Investor update. Additionally, this morning, we issued a presentation to accompany this call. All three of these documents are available on our website at IR Dot United Dotcom information in Yesterdays release.
Mr update the accompanying presentation and the remarks made during this conference call may contain forward looking statements 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.
Number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release Form 10-K , and other reported five reports filed with the SEC by United Airlines Holdings, and United Airlines for more thorough description of these factors also during the course of our call we will discuss several non-GAAP financial measures.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Please refer to tables at the end of our earnings release Investor update and presentation copies of which are available on our website.
Joining us here in Chicago to discuss the results and outlook, our Chief Executive Officer, Oscar Munoz, President Scott Kirby's Executive Vice President and Chief Operations Officer, Greg Heart Executive Vice President President of Technology, and Chief Digital Officer, Linda Joe Executive Vice President and Chief Commercial Officer, Anjuna sale and.
Vice President and Chief Financial Officer, Jerry Laderman. In addition, we have other members of the team in the room available to assist with unit and now I'd like to turn the call over it off Thank you, Mike and my thanks to all of you for joining us today.
Before I start as we always do we want to thank each and every one of our United colleagues for their determination and passion for serving our customers.
Truly is their dedication that has helped us build a track record of delivering our financial targets and returning a solid value to our investors that we have.
So to the result, we had another strong quarter results as you can see on slide four reported adjusted pre tax earnings of 1.4 billion with an adjusted pre tax margin of 12.1%.
Adjusted earnings per share of $4 in seven cents was 33% higher than the third quarter of last year and that reflects 250 basis points of adjusted pre tax margin expansion third quarter is our best so far this year.
It also reflects the third consecutive quarter that our pretax margin has grown in the fourth quarter on an adjusted basis.
This strong performance performance gives us the confidence to raise our full year 2019, adjusted EPS guidance to a new range of $11 in 25 cents to $12 in 25 cents.
We're now ahead of pace towards achieving our 2020 adjusted EPS target of 11 to $13, which we set nearly two years ago.
And we extended this quarterly streak of pre tax margin expansion. Despite the obstacles like historically severe weather volatile global market and of course, the grounding of the Max aircraft.
We didnt overcome these obstacles by cutting back on the value we provide to you our customers and that just the opposite we continued to invest in a variety of improvements in the United experience that are benefiting our customers and elevating the value proposition flying United here, just a few items are connections David what you've heard about that is already saved over 50000 customers.
For missing their connections year to date, which is accruing customer gratitude and appreciation over time, while ensuring each aircraft arising on time.
We're also now selling lights on the new Crj, 550, which will transform regional flying and give us a uniquely United advantage serving customers in our school city as they connect to international destinations.
As we told you before will offer a first class cabin economy, plus CD Wi Fi and more amenities and any other 50 seat regional aircraft operating today.
So from the award winning refresh United App to expand complimentary snack options, we are continuing to invest in our customers experienced across the board.
But ultimately will makes all of us enhancements truly come alive and people, who deliver them and serve our customers every day and that is why our backstage event for our flight attendants. So pivotal it's proven to be an absolutely game changing experience for our employees I believe the reason for their enthusiastic responses that backseat brings a core principles life and variety.
Of tangible ways about identically resonate with our employees and our customers.
It's been really satisfying to travel to systems as we introduce corps fourth and witness how our employees have embraced this framework of safe Kerry dependable and efficient and if inspiring to see how they've taken personal ownership of the concept finding creative compelling ways to and Bonnie every customer every flight everyday.
In closing when you look at the sum of all these efforts what you see the picture of what proof not promise looks like in practice and so we have less than a quarter left of 29 team and we believe our momentum remains strong.
I promise you and I used that word with earn confidence we expect the best lies ahead I look forward to welcoming journalists from around the world to our first ever media here in Chicago on October 24th and 25 will be an excellent opportunity to showcase when it's driving our confidence in a bright future United Airlines and the new spirit of Benighting, So with that I'll turn.
It over to Scott. Thanks, Oscar I'd also like to thank all the People's United Airlines with incredible job, they're doing taken care of customers are producing strong results. Thanks to our teams no excuses mentality, we delivered another quarter of adjusted pre tax margin expansion. This continued an eight quarter street coming in above the midpoint of our guidance range.
Andrew Jerry will talk more about the recent results in the near term future, but I want to address a couple of the bigger picture questions that had been top of mind for our investors.
First we are getting a lot of questions are about our ability to continue driving flat CASM X in the years to come.
It certainly will be easy, but our goal remains to drive CASM ex at the same time, we will of course continue to make the anticipated increases in compensation for all of our employees. After all is the people of United Airlines that are driving these results and they deserve to share in the rewards as Oscar mentioned earlier, we also expect to continue making.
Product and customer experience investments next year consistent with our core for framework are being safe Kerry dependable and efficient we've been doing that this year with investments like connection Savior re Directv dramatic improvements to Wi Fi and much much more we already see the positive impact of those investments material enough.
Races, and customer satisfaction net promoter scores, which are driving customers to choose United Airlines and contributing to our strong financial results.
So how can we continue to invest in our people and our customer experience and drive towards flat CASM ex for one thing we plan to take advantage of increasing engaged we have large hub in big cities across the country and because of that we should be the airline with the highest gate, but at this point we are in fact, United seven to eight years behind our large competitors on gas.
Page growth with approximately 13% fewer seats for domestic departure compared to delta.
As our fleet mix shifts to a higher percentage of larger gauge mainline aircraft instead of regional aircraft. We begin closing that gap in earnest starting next year and we're planning for approximately 3% more seats for departure by the end of 2020.
We expect gauge growth to continue through the middle of the next decade. In addition to gauge growth. We've also built a disciplined action oriented innovative no excuses culture here at United where we make difficult decisions to drive efficiency throughout the company, which provides us with the resources to continue investing in our people product the customer experience.
The second big concern that we're hearing from investors, what's going to happen to industry PRASM, but the return to the Max.
We don't have unique insight into the economy that will make our opinion any better than yours, but we're more optimistic than most about industry revenues and more importantly, we feel good about our track record of overcoming hurdles in producing results without making excuses we.
We're in the early innings of our journey to make United The best airline in the world for our customers are employed and our owners. We believe we'll continue to have uniquely United opportunities that will allow us to continue to differentiate our performance in 2020 and beyond.
The bottom line is that we expect to meet or exceed our 11 to 13 dollar adjusted EPS target for next year.
I'd now like to take a moment to talk a little bit about the team and culture here at United.
Many of you probably play fantasy football I don't by the way, but my wife Kathleen is it a couple of weeks and actually the commissioner of one of our league. So I hear about it a lot.
A successful company in a lot like a successful fantasy football team.
And you're looking for players you can count on were more than just stand out individual performers.
Good for talent in players and part of a good team playing in a good system and who overcome obstacles to help their team win and the reason is simple football as a team sport well running in airlines. The team sport also and here you nine you've got a talented team and a great system. The now has a track record of overcoming obstacles and competing at the highest level.
On these earning call we're increasingly trying to introduce you to more of the town on our team Gevo, our SVP of human resources and Labor relations joined the call last quarter and today, you'll hear from both Greg Hart, Our EVP, Chief operating officer, and Linda Joe Joe Our SVP of Technology, Chief Digital officer, even better.
Good out there and fly United and you'll see a person what our incredible frontline team is doing every day to take care of our customers. This really is a need United Airlines and we're continuing to build a new culture around a talented team that determines to be the best airline in the world for our customers employees and owners.
Right now, we're winning and we're more confident than ever about our future there have been and will be speed bumps along the way we will not be defined by them, we will be defined by our ability to overcome them Im really proud of this team and really proud to be a part of it and with that ill turn it over to my talented colleagues Greg. Thank you Scott I appreciate the opportunity to be.
Here today and I also want to thank all of our 95000 inflows. This has been an incredible year and I want to take a moment to mention some of the great achievements of our team.
We are consistently number one for ontime departures at all hubs, where we face of large competitor and the quarterly team first place in Chicago Denver in Los Angeles. In fact September was the 15 month in a row, we've outperformed our three major competitors in LTX that 31st month in a row in Chicago, We performed our two main.
Pedicures and the 55th month in a row in Denver that we've outperformed or two major competitors, achieving first place and Ontime departures and all of those hubs and we did this while carrying more customers than ever.
This is really something to be proud of and as a true testament to the team's ability to quickly and effectively respond to the range of operational challenges we face every day.
While doing their very best to take care of our customers.
Our teams have achieved this incredible track record record. Despite the fact that we are facing some hard hitting weather across the system.
Tropical storm Imelda caused severe flooding in Houston and impacted over 20% of our scheduled flight system wide for three days in September .
We also had 9% of our flights impacted by aircraft control delays in for this compares to about 4% at our competitors.
Tough weather and irregular operations are nothing new to United, but it's incredible CR team gets better and faster at recovering from the defense.
To enable the success we have equipped our employees was the right tools to manage all types of situations Leonard Linda enter team has done an incredible job putting technology in the hands of our employees to better communicate with each other to solve problems in the operation our take care of customers in the moment.
We are running a great operation at United and we couldn't be prouder. The team. We are the industry leader when it comes to our ability to recover from irregular operations caused by weather and we'll continue to learn and only get better from here I'll now pass the call on Linda Thanks, Greg It's crazy on call today.
Hi, This is Eric on the progress in quietly making on the digital time operational improvements in growth plan in total.
Core we create a staff take action oriented culture.
These are people the partner closely with the business unit instantly rollout in test new entities.
Well not all of them work, but the fastest allows us to quickly test new ideas. This cargoes that down in double down what we're seeing.
So you're going to highlight a few examples of those higher timing.
Starting with our digital channels.
And our award winning mobile App, we enable our customers purchase and Janesville ticket to inflate products to any of our channel at any time before their track all of the confidence that they change their mind, we have there Matt.
For example, a customer can prepay for her back at times ticket purchase, but she doesn't actually end up setting a bang the vaccine automatically refunds were.
For the only airline and union.
Or in the customer checks the app when she arrives at the airport and seamlessly might be too far down the upgrade less seeking purchased an operating right now.
We also continue to build on personalization of our mobile App development like mine site, which is unique United are in that are in that product offers artificial intelligence indication features that increases customer engagement and drive take rates, even higher, especially with our millennial customers.
These examples making small but they have helped us grow ancillary revenues by over 18% year to date.
I want to speak briefly about how we work our digital T. and does not sit in front far off building or city or embedded in the airline and rather than take years retooled and features are rolled out in weeks often just one airport from one region, where we get real time feedback made changes to the repeat it until we get it right.
As you've heard from Andrew in the past, our new revenue management platform, Gemini and helping us get more granular.
Delivered significant value to United to more precise forecasting and predictive modeling.
This wasn't a big man implementation. The one that started small modified and extended until covered all of our markets.
And the operation because this approach when solving the problem loan aircraft slots, we have to take the playing out service, we have new tools to consider several possible aircraft dilates future scheduled maintenance the seat layout and many other factors and the need for real time recommendations to our routers, which aircraft to slot.
This gets are down our customer and on their way all on creating the least amount of downstream disruption.
Well, let's touch on today is this a small sample.
We have created tools developed at and streamline processes will benefit our customers inartfully, while improving revenues in driving cost savings and there are hundreds of projects working on now side by side with Greg and Andys team, We believe will drive customer engagement in power our financial performance for years to come with that I'll pass it over to Andrew three.
Catherine.
Thanks Linda.
In the third quarter, PRASM grew 1.7%, which was slightly above the midpoint of our guidance with September being the strongest month into quarter PRASM performance in our domestic network was up 2.1% on a 1.7% increasing capacity driven by solid close in bookings.
International performance was mix, we continued robust results in Latin America, offset by headwinds in Asia Latin.
Latin America was our best performing international region in the third quarter third quarter PRASM increased 7.2% on a 0.4% increasing capacity. We had great result in many parts of Latin America, including double digit increases in Mexico, Brazil, and Puerto Rico.
Formants across the Pacific further weakened in the quarter with a negative 3.4 present decrease in PRASM on a 2.3% increasing capacity.
All of the weakness occurred in Hong Kong and to a lesser extent Beijing and Shanghai as we indicated earlier in the quarter, Hong Kong, Beijing, and Shanghai reduce our Q3 system performance by about half a point.
Atlantic PRASM was up 0.8% in the quarter on a 2.8% increasing capacity strong you at point of sale demand offset weaker European point of sale demand.
Looking ahead to the fourth quarter, we expect our consolidated passenger unit revenue to be up zero to 2%, we see potential for stronger yields among leisure travelers. During the holiday season. We think is is a positive indication of the increase in effectiveness of our commercial initiatives and customer focus here at United.
Our PRASM outlook is also impacted by our ability to quickly adjust to change in market conditions as demonstrated in third quarter. This summer, we announced the suspension of Chicago, Hong Kong and New York to win a serious which were offset with capacity increases to other parts of Latin America and a global network is largest hard through clearly always be a few.
Not that have demand issues, Hong Kong demand, while week has for the moment stabilized we expect Pacific year over year PRASM performance in the fourth quarter, two improved versus the third quarter.
We continue to push the booking curve closer into departure date saving more seats for a closer in higher yield business traveler, which in turn allow stronger yield performance early in the booking curve for leisure customers Gemini, our new arent system and Linda mentioned earlier is working well with this strategy.
Additionally, our sales team has been busy signing up new corporate accounts totaling over 500 year to date a record number for United So far. This is just wanted to many initiatives that we havent place help us drive our RASM performance in 2020, we believe United Network is uniquely suited to be the lead an airline for business here in the.
Yes, as well as across the Globe would are great partners. Our network is performing well as we continue to build connectivity schedule depth and small community service focused on our mid continent hubs. However, our coastal gateway hubs also saw improved profitability on many network realignments over the past year, we're running.
Disciplined airline mill will make hard decisions like to spend in service and as a result, all of our hubs are profitable on a rolling 12 month basis, It's a nice achievement on our road to our adjusted EPS targets.
Turning to slide 13, we continue to focus on our commercial initiatives.
Our first set of 10 dual class Crj five fit these are scheduled into service in the next couple of weeks with find focus here in Chicago later, followed by New York.
We expect to have 54, Crj five fiftys line by default of 2020 .
We announced several changes to the mileage plus program in the third quarter first milestone expire anymore, which will help engage new members and less frequent travelers in the program second we replaced our upgrade certificates plus points, which started in December will be easier to use and understand plus point can be managed in our industry.
Mobile App, a first for any U.S. Caroline third we will adjust how members earned status going forward to be more reflective of their total value.
As a reminder, we're also now dynamically pricing award redemptions in Q4 for the first time, which allowed both lower and higher redemption price in a win for our customers and our investors.
Segmentation initiatives continue to perform well and we have a lot of them in different phases. The rollout basic economy allows us to offer a low price point profitably premium plus will accelerate in 2020 and beyond the more consistently offered across the globe on our widebody Jets are high business class configuration seven.
Basic Sevens are now operating most flight from London to Chicago, and New York.
Installation the Polaris East continues and in 2020, our passengers will find and increasingly consistent experience on our Intercontinental fleet a wide bodies.
And we now regularly offer with plans to continue in 2020, Boeing 787, DAP 10 surge from New York to California, and have recently started selling premium plus seats on these selected flight we estimate that our economy plus seat her departure on mainline jet is now more than 50% larger than our competitors, providing our frequent flyers.
With more upgrade opportunities.
And Serbin has an excellent driver for ancillary revenue growth as we look to next year. We expect these uniquely uniquely United initiatives. This year to date by 50 deployed in key high yield market and the ancillary revenue drivers that limit spoke about earlier to drive incremental revenue growth moving forward.
Thanks to the entire United team for a great third quarter with that I'll turn it over Jerry to discuss our financial results.
Thanks, Andrew Good morning, everyone before I start I want to mention that one prominent analyst recommended that we have no theatricals on the call. This morning.
Deference to this panelists it tends to be as planned as possible [laughter].
Yesterday afternoon, we issued our third quarter 2019 earnings release, and our fourth quarter Investor update.
You can refer to those documents for additional detail.
For the highlights slide 15, with a summary of our GAAP financial and slide 16 shows our non-GAAP adjusted results.
We're pleased to report adjusted earnings per share for $4.07 for the third quarter up 33% versus a year ago.
Adjusted pretax income was $1.4 billion and adjusted pre tax margin was 12.1%.
250 basis points year over year, and marking the fourth consecutive quarter of adjusted pre tax margin expansion.
These strong results demonstrate our ability to offset challenges across our global network as we continue to grow margins.
Slide 17 shows our total unit costs for the third quarter and our forecast for the fourth quarter and full year 2019.
Turning to slide 18.
Non fuel unit costs in the third quarter increased 2.1% on a year over year basis.
Hey above our original expectation.
This was due to our capacity growth through the quarter coming in at 1.9% slightly below our original expectations.
As we discussed on the last call we have some pressure on non fuel unit costs in second half of this year due to the timing of a number of maintenance events, which moved from the first half of the year for the second half of the year.
We expect fourth quarter CASM ex to be up year over year by approximately 3.5%, which brings projected full year 2019, CASM packs to be up around 1.2% has compared to last year.
Almost all of this year over year increase in unit costs compared to our original plan of year over year flag or better is driven by the Max grounding temporary suspension of our India flights and suspension of our Sean Chicago Hong Kong play.
Looking ahead to 2020 , we are in the middle of our budget process and will provide formal guidance in January .
However, based on preliminary numbers, we expect non fuel unit costs next year to be flat as compared to this year.
This will put us slightly above the target we established almost two years ago to maintain flat CASM ex during the three year period from 2018 through 2021.
We began making investments in customer experience over the past year on those investments have resulted in improved financial results. We expect to continue to make more investments next year that we believe will enhance margins. While these improvements represent about 1% of CASM ex growth overall, we're very proud of the costs.
Cost control, we've delivered and we'll continue to deliver.
Through next year, we expect the three year compound annual growth rate for non fuel unit costs to be judged 0.3%, which would be a remarkable and industry leading achieved.
And allow us to deliver our commitment to use to meet or exceed our adjusted EPS target.
As you can see on slide 19 during the quarter, we took delivery of six additional use Airbus Athree 19 aircraft and nine new Embraer 175 aircraft.
Also spent $363 million to repurchase shares of our common stock in the third quarter had an average price of $88 in 22 cents per share.
This brings our year to date repurchases through the third quarter two $1.4 billion.
During the quarter, we raised $1.2 billion of WTC debt at a blended interest rate of about 2.8% the lowest rate on record for this type of debt and another proof point that the market already views us as an investment grade credit.
We maintained a healthy balance sheet that allows us to be opportunistic with share repurchases and strategic investments.
Lastly, slides 20, and 21 have a summary of our current guidance.
The range provided for capacity revenue and cost implies an expected fourth quarter 2019, adjusted pre tax margin between 7% and 9%.
As Oscar mentioned earlier, we now expect full year 2019 adjusted earnings per share to be between $11 in 25 cents and $12 in 25 cents with three quarters behind US we're proud of our financial performance and ability to nimbly manage the business.
Finally.
Our cost management is an integral part of our path towards continued margin expansion and our entire team is taking a rigorous approach to our budgeting process to ensure that we offset inflationary pressures next year and achieve our financial targets with that Mike will now begin the QNX.
Thanks, Jerry first we'll take questions from analysts community then we'll take questions from the media. Please limit yourself to one question if needed one follow up question Brandon Fleet described the procedure to ask the questions. Thank you Sir and the question answer session will be conducted electronically if you'd like to ask a question. Please press star followed by one of your Touchtone phone.
If you'd like to be removed from the Q. Please press the pound side or the hash key.
The speakerphone. Please make sure your mute function is turned off to a lot of your signal to reach our equipment.
Once again, if you'd like to ask a question. Please press star one that Youre touchtone phone.
Please hold for mobile, but well be a simpler Q.
It from Bernstein, we have David Vernon. Please go ahead.
Hey, good morning, guys. Thanks for taking the question Hi, Andrew I wanted to follow up on initially talked about before which is the premium economy rollout.
Have you guys gotten any closer to being able to kind of give us a.
A sense for what the unit revenue headwind or tailwind or tailwind from that's going to be in 2020.
I don't have in 2020 to 30 to 40 I can tell you in Q3. It was a half a point on the systems that was pretty substantial.
So half a point tailwind from those from the premium economy rollout and that should be a bigger impact next year smaller back im not going to give you that number today, but what I would say is that we are becoming increasingly consistent and great team is rolling out. These aircraft very very quickly. So we expect by next summer premium economy really consistent across the system. So we're pretty bullish.
What about its contribution next year, it's one of the reasons why we think RASM the outlook for RASM next year is.
Is.
Pretty good.
Okay, and then maybe just as a quick follow up if you think about the impact of dynamically pricing. The award tickets is that can you can you help let's give give us a sense for what that should do from.
Either a utilization or or.
Deal benefit kind of as we think about the 22000 2021 time frame.
What I'd tell you is that we're able to kind of knew the redemption awards around in a way that allows us to price lower end price higher which we think will be a net benefit to the airline, but im not going to give any more detailed map. If we do we do think this is a win for everybody and that we have a lot more lower priced inventory available out there.
Based on our ability to be more surgical in that way we prices.
Have you seen any change in the redemption rates on that so far the starring niblett.
No we are continuing to redeem miles I think at the same page, it's going in is going very well.
Alright, thanks, very much on time.
Okay.
From credit Suisse, we have Joe Keitel. Please go ahead.
Hey, good morning, Thanks very much.
First question really on the on high level 2020 capacity growth outlook now I'm not looking for explicit guidance, we have the 4% to 6% guide posts that you've given us, but Scott since you mentioned that we're going to start to see some some gauge growth and the operation next year I was just hoping you could you could.
Talk a little bit about how we should think about departures engage in stage and the overall composition.
I have your growth for next year.
Sure. This is Andrew we're still developing the plan for next year. So it is still preliminary that being said assuming the Max returns there and we don't know when that will be.
Based on the fleet plan, we have we aren't driving to increase the gauge it airline it happens more in the back half in areas of the year than the first half quite a bit and back more in the last 90 days, but frankly.
But as we looked at our load factors were fine aircraft in the size of aircraft. We have out there. We think this is the next great opportunity, it's going to be a significant helped to CASM ex as we're sure Jerry will talk about.
Later, so that's kind of where we're going but theres still a lot of moving pieces to plans not finalized, but we believe there's a ton of opportunity for gauge group at the airline given our hubs are located in the larger cities across the country and we're currently find the smallest gauge of antibody.
Okay got it and then I actually just another quick follow up for you. Andrew You mentioned your corporate sales team has signed a record 500, new accounts. This year I think thats, what you said.
Can you just give us a sense for how that breaks down roughly between brand new corporate accounts for United versus customers that may be left United several years ago, and now you're winning them back.
Hi, there is definitely a mix of those but quite frankly, a lot of the disproportionate share our brand new customers.
Clear yet some of these customers flu United without a corporate deal. So we want to be very clear about that but now they are signed up in a corporate deal where we can provide them the appropriate discounts in green and bigger share of their spend so I think I think it's a pretty big deal. Our sales team is doing an excellent job out there and quite frankly, the product that we're delivering everyday is.
Making their job easier and easier so we can win back customers.
Maybe left us many many years ago and we've also can gain new customers. So it's just been and say how bullish we are about the progress we've made on the shelf front and we believe that a lot of that activity in terms of the revenue Greece shows up in 2020 and beyond.
Appreciate the answers I'll jump back into queue. Thanks.
It from Morgan Stanley , we have Rachi flow Boenning. Please go ahead.
Hi, Good morning, guys first an obvious one on the on the calendar side for I guess, Jerry and Scott.
Your preliminary CASM thoughts for next year and still include.
A reset of all your open labor contracts.
Yes, Jerry so all of our CASM guidance that we put out including the original three year at numbers in crudes.
Something for any open labor contract.
And does that apply for 2020 as well.
It applies pretty much for any CASM guidance, we put out.
Period, So yes, yes [laughter].
For any guidance I would put out we make it a point to put in.
Scenarios for for everything so we're not going to make excuses and this is consistent with our guidance practice of putting anticipated labor increases in the guide.
Okay understood. It just seems like things are more moving around and I wanted to clarify so thank you for that and then Andrew relatively quick one for you you talked about health and leisure going into the fourth quarter can you provide a little bit a color on how corporates looking and then maybe some color on domestic versus international.
Sure just trying to protect that piece by piece I mean, I would think.
What we're seeing is corporate volumes are steady.
They are not grown rapidly, but they are steady.
But even more importantly, Matt we're seeing leisure yields as we entered the quarter being pretty strong so that gives us a lot of confidence about our outlook as we go into.
As we go into the quarter so.
For example, the premium cabins.
Were slightly down across the Atlantic and across the Pacific and.
In the previous quarter, and that's probably true in the next quarter.
But the main cabin is outperforming that and so we're pretty pleased by that outperformance and Thats driven again by leisure travelers are our main cabin travelers more than business travelers and terminal view of the World International had tough comps in the Q3 time period.
As we go into Q4.
Rational is likely to outperform domestic on year over year PRASM increases as I said earlier I expect the Pacific to do better in Q4 and in Q3.
Interest and I'd also say that I've never seen a bigger disconnect between the global headlines in terms of the economy and its potential impact on travel than the numbers I see here at United up for our yields in future RASM builds across the Globe Latin America looks continuing to look very strong.
Europe simply going to be probably the weakness of the three.
But also still doing I think very well from a female perspective, so overall I couldn't be more happy about where we stand and the outlook for Q4, I think it looks really solid.
It from JP Morgan, we have Jamie Baker. Please go ahead.
Hey, good morning, everybody up first question for Jerry.
How do we think about CASM relief as the Max's or reintroduced obviously and above planned growth rate next year.
Provides its own relief, but specific to the Max and the costs drag that it's currently creating how sticky are those costs and how quickly do they exit as the aircraft is is reintroduced and also for any one time maintenance costs and I understand it's going to defer whether the planes finished.
From a long term storage.
Do you intend to take those as one offs or is that also baked into the CASM guide.
So.
Our plan for the Max's next year is actually some with what we were planning this year.
The issues going to be JV if.
Let's say they are further delays next year than more we are currently assuming that could create again CASM pressure like it did.
This year.
But.
Other than that for us, it's sort of business as usual and baked into that CASM.
I wouldn't call our guidance, yet, but the CASM.
Expectation that I mentioned earlier.
This is Greg I mean, its costs associated Greg.
Thank you the services minimal not material at all.
Okay perfect.
And second question, probably for Scott or for Andrew how have your multiyear forecasts for Latin America changed in the last month or so obviously your material.
Revision in terms of alliance structure down there I realize you're pursuing your own strategy with several partners. We also have American adding capacity with its own metal.
I know you don't guide by geography, but have you made any internal revisions to your forecast.
To how you're thinking about Latin America on a multiyear basis.
We have not I will tell you that I think our recent performance has actually gotten better.
Given on ranges in the region, which is I think fascinating.
It is doing incredibly well as you can see by the numbers, we put up this quarter and last quarter.
So we're pretty happy by it.
It's on our biggest international entity and therefore, we've been working really hard wood, a great set of partners Copa obviously and as usual.
And we're going to put together a fantastic joint business and we're going to be competitive in the region.
As a group in a way that I think is actually just been enhance.
Over the last few weeks, so pretty pleased by where we stand and our position in to the long term.
Okay. Thanks for the color thanks, gentlemen.
From vertical research partners, we have Darryl Genovesi. Please go ahead.
Hi, good morning, everyone. Thanks for the time.
Scott I don't want to downplay.
The CASM ex performance that clearly industry, leading but I do I would like if you're able.
To get a little bit better feel for.
For the investments that you're talking about it in particular.
I guess your operational reliability has become much better the customer experience better as you've outlined limits team is going to make some investments is there way to tie all that back to your expected RASM performance relative to the industry.
Maybe I'll turn its Andrew.
I'll give you maybe one or two examples so we announced I think six or nine months ago. The high Jay 767 that be flying across the Atlantic.
When we do that we took a bunch of seats out the aircraft and we caused the CASM of that aircraft wine from New York to London to go up by about 25% quite frankly.
And so as we give our guidance for next year part of that guidance includes.
Significant CASM headwind related to the reconfiguration of those aircraft, but we reconfigured those aircraft to get higher rather limited back our performance as we look forward to me well in excess of the increase in CASM, otherwise, we would not have done and on and so I think thats working well, but when you add up you think about the fact that.
Our CASM is definitely higher in that aircraft and as a result, it's going to drive higher RASM.
And as one of the reasons, we think from have decent RASM results for next year. The Crj 550 is not all that dissimilar or now and have a premium cabin on being offered on shoretel flights that we didn't have before we know our CASM of that particular aircraft is going to be up you know a high single digits.
Relative to would otherwise could be but we think the RASM gains related to that is more than that so those are just too I think really very specific examples of us pushing higher costs onto the airline in terms of casmex, but no and we're going to get it back in terms of RASM and no more managing our total as the mix.
Number two a really great spots.
Those are just two examples.
This is when I can add one really about improving onboard lifetime.
Great seen the tech ops is just on an incredible job to make the product were stable you, 63% less maintenance deferral, 20% less onboard recess buyer in flight crew.
Translating into his customer there just using it more 30%, 30% increase in our data consumption and a 17% increasing customer satisfaction.
Great, Okay, but the one that arrow yeah.
Hey downloads that you know I've been around long enough to see where there were times, we manage it managed for revenue there are times, we managed for cost.
And as you know those never work. They might you are hearing everybody say is all this is managing to margin and s. So those investments that we're making are going to drive those financial results.
Perfect. Thanks very much on.
From Wolfe Research, we have Hunter Kate Please go ahead.
Hi, good morning.
Scott you guys, you're clearly driving some transformational changes we do business and your success is obviously emboldening some pretty big thinking so with that backdrop, Scott what does the likelihood that you push forward get partial content agreements with GDS is in your next negotiation and if thats not a near term issue how important that important is that.
You bet you eventually get there.
But we.
We're quite proud of the culturally that were that we are creating here at United and you're right that theres transformational change going on we talk about some of the big picture items. The reason I have talked about the team in the culture on some of these call as recently as because I literally could talk for the next our top of my head examples of things that are going on through.
About the airline.
That no one else is doing and that the team of people United Airlines is doing and doing quickly and that's showing up in our bottom line.
Results.
As to the GDS specific.
It kind of depends on where those partners are and what they want to do.
We want to be able to deliver our products to our customers were actually willing to Bury a fair price of to do that we want to be able to deliver our product as to our customers in the way they want to consume it and purchase it.
As long as we can do so at a fair price and importantly, as long as GDS as or OTI age or anyone else can actually display the products to the customer.
So any pushback that we have in the months quarters years to come.
With the third party providers is more likely to be about their ability to service the customers in a way that we think is appropriate.
Okay.
Alright.
And then on CASM ex the third party expense was up over 100% year on year in Fourq here. The guide why did and other revenue tracking higher and is $65 million a quarter a good run rate to use as we model that out for 2020.
Thanks.
Hey, Jerry so.
Right what happened with other revenue is what you're also seeing there is the impact of the declining cargo.
Which offset.
What you would have seen at the gain in third party.
Maintenance revenue.
Okay.
Right.
And then that the run rate into 2020, Jerry if you would.
Or run rate do you 60, but should we take 65 only in a quarter and third party expense and put it into that run rate for 2023rd party expense.
Yes, it's it's a good number to use.
Okay, great. Thank you.
From Cowen we have Helane Becker. Please go ahead.
Thanks, Operator high team. Thank you very much for the time this morning.
So I'm not sure whether it's Scott or Oscar to answer this question, but.
Maybe even Greg last week I think you said you were going to higher 10000 pilots over the next decade.
Yeah.
Seems right when we look at your numbers, we see about 6500 of about.
12, 2000, 13000 may be retiring in that timeframe. So Ken so it works out to like a thousand a year right can you say what percent of those hires are gonna be growth versus retirees.
You know headline that's a difficult question answer right now because a lot depends on where refine obviously, if we're flying long haul flights, we gone augmented crews wished to drive a little bit more.
And the for pilots, but the majority of the vast majority of those hires will be replacing retirement with our wave are starting to hit us in a 22 or to 20 threes.
So that's kind of what we're looking as the vast majority of 10000 will be replacing folks currently on our Celerity list.
Okay, well so those two upscale just as a follow up as you upped gauged aircraft is it more do you need more pilots per plane or.
I guess the other part of it is the training costs associated with moving pilots around.
Like I caution you did not try to back use our pilot.
Hi level pilot hiring number to try to back into what our tenure growth plan assumption that we don't actually [laughter] I'm not going to you heard your thing [laughter], there's nothing to be read into that number. It's a nice round numbers that in the order of magnitude of a little higher over the next decade.
Okay. That's really helpful. Thank you ill keep it out one question.
From Bank of America, we have Andrew Didora. Please go ahead.
Hi, good morning, everyone.
Gary a question just on terms of some free cash flow components can you maybe help us understand.
Some of the the bigger buckets, there, particularly in terms of planned pension contributions anything we should be thinking about on cash taxes, and then should we still be expecting capex of about a $1 billion higher next year than originally planned in 2019.
So let me start Capex you guys you narrow next year is a peak year for us for aircraft deliveries.
Particularly the 17 or so wide body aircraft on top of hopefully a significant number of Max's and other aircraft.
And so when you start, adding all that up and assume kind of a normal level of non aircraft Capex you actually get to a number that's potentially closer to 7 billion then 6 billion.
So it's going to be higher than just a 1 billion more than this year, which is still running we think it about a 4.9 billion that we said with respect to pensions this year with a little bit run unusual year.
Yes, we effectively in September .
Prepaid.
Contribution to that we'd normally would have made.
In the first quarter of next year to save.
The substantial amount of some fees, we otherwise would have been hit with.
So this years total pension contribution slightly over 600 million.
I would expect next year.
To be.
Could be potentially zero, but.
What you should assume right now is probably.
300 million at some point during the year.
Got it and just curious on when do you think become a cash taxpayer.
Oh, I really hope, it's not for a while other then.
Small amount of taxes, you are one of the benefits.
That we now have that.
Is making up for the.
Burned through Vienna Wells is the 100% expensing.
On new aircraft.
That we.
We are now able to able to case.
Pretty much on all the new aircraft that are delivering.
This year and for the next few years.
Great. That's helpful I'll keep it to that thank you.
From Deutsche Bank, we have Mike Linenberg. Please go ahead.
Yeah, Hey, just two quick ones here I guess first to Andrew as we think about your 2019 excuse me 2020 capacity.
Headline number and we think about how it.
Relates to the original plan, how many points assuming that the Max does come back in January which does seem less likely that if we assume the current schedule how many points tied to the Max in India does does that drives that that headline number relative to the original plan.
At about 2.2 and half points.
I think one and a half points is our estimate.
Okay.
Okay. Thanks, and then just my second question on you know Jerry for the for the year on the tax rate.
You were guiding to 21% to 23% for the first three quarters. It now bumps up by about 100 bids for the full year. What does that is what's in the fourth quarters that timing is that just ended year reconciliation anything other than that thanks.
It was the result of some choices we had to make on how we were going to take some bonus depreciation that slightly increases the effective tax rate.
But economically is.
The right decision to make.
There is substantial cash savings as a result, it's counterintuitive, but to get some actual cash savings effective tax rate crept up a little bit.
That's great I mean look at the ended the date you had a higher EPS guide. So that's what that's all we care about thank you.
Yes.
From Stifel, We have Joe Girardi. Please go ahead.
Hey, good morning.
Is loop bonder on the call but chance.
No it's not.
Okay and my opinion, he probably should be I think he's an asset of United that you know is doing a lot from an innovation standpoint for the loyalty program. So they maybe Scott or Andrew.
You know the level of innovation I think within United program is clearly very different than it is elsewhere in the industry and so I'm wondering if you could just talk about.
In terms of kind of the game if occasion personalization of the loyalty program, what's the what that's meaning from.
Engagements standpoint, with your with your members and then how relevant that is along with the improvement in operations to a card issuer. When you think about the economics that you'll be able to get.
Well, it's all all these things work together.
And we set out about two years ago with loop, leading the charge along with Linda on the digital side, you kind of rethink the whole program and would it should look like.
How would you make it even better for our customers quite frankly.
And plus points is a really good example of use an amazing innovation that we put forward.
That will be available on the capital the easy to use and it'll be simple new value bulk patients I think will be much easier to understand for our customers going forward. So really excited about that we're really excited to lead the charge and loop is doing a great idea and all of this as I said in a previous call has resulted in.
A lot more engagement by our customers we can see.
Their propensity to hold the credit card are to join the club are the fly more often our dot by higher fares as all increased versus the previous year by significant.
A significant amount and that's all kind of coming together and I think I'll ask about Linda can the digital technology used to make all that happen Justin phenomenal yeah. Thanks, Andrew I think.
You know the way to think about phone will be for granted obviously in the way. It's designed it's design, but ultimately about giving the right offers to our customers we get them to one clients and so we are thinking of all different ways to.
The leverage where customers want to go up and then create very targeted offers a mile plays a great example that wherever we are you thinking that occasionally get customers to really try things that they haven't tried before when that product or new locations and then rewarding them.
Currency limited their program.
So, we'll let loose now that you're pretty item.
Yeah, I appreciate that it didnt.
Scott or Andrew there was some headlines and in a month or two ago that your deal with Chase runs through 2024, 2025, which has a lot longer than I think most deals run so Scott or Andrew can you talk about your ability to close the.
The gap at earnings between you and your peers.
Without a new deal or whatever you'd like to say along those lines. Thank you.
What I would say drove we're working really hard with chase and our new acquisitions last year were up 20% and this year are going to be up 20%. So.
The teams are working together really well and creating a lot of value and that's about all I can really sad. It. So we're pretty happy with the recent increase in new car credit card acquisitions.
Thank you.
From Goldman Sachs, We have Catherine O'brien. Please go ahead.
Good morning, everyone. Thanks for the time.
Over the next five or six years. It looks like you have more wide body aircraft coming up to the global average retirement age than you currently have an order should we think about some of those aircraft they being replaced by new technology long waits narrow bodies, which helped the secondary market.
Any thoughts there will be helpful. Thank you.
Maybe I'll start off and Jerry can help me on this.
We invested in our Sevensix sevens, and our triple Sevens to extend their life.
Those aircraft are incredible machines and continue to perform well for the company both from a reliability standpoint, and an economic standpoint.
So.
The new Polaris interior is just recently been put on them.
So I'm not sure what you're assuming for retirement age, but we're pretty happy with these wide bodies and.
They can fly for a bit longer.
Okay, Yes.
Yes, I would just add yes over the next certainly over the next five years, there's really no need to retire.
And if the wide bodies were currently fine and Thats not our focus right now on the next fleet to retire.
To be honest next week.
To retire.
We'll start looking at the remaining 757.
That will start coming out.
Okay. That's great. Thanks, much for the color and then maybe just high level you guys have discussed quite a few exciting projects that you're looking forward to next year, that's more premium plus.
More Crj 515 is really how should we think about ranking some of these projects in terms of what you see is being the largest drivers of our revenue enhancement for next year and and is there anything else. That's on the list that featured primarily and then how much revenue growth. We should see next year just outside of capacity growth. Then thanks, so much the time.
Well, it's pretty clear we have a large number of commercial initiatives ongoing.
And they're all in different stages, the rollout with our segmentation.
Lots of the I think really expand and in doing very well for the company. So we're not going to line item the value that each one of these brings to the bottom line I provided a small hint that.
Our premium plus broaden our projects across the globe already given this half a point or RASM in the third quarter, which is pretty substantial given that we just started.
So there is a lot to come and there are initiatives that are coming that we have yet to announce.
Which is really side and that's why we're pretty bullish as we look at the outlook for next year that we know we're going to be and we're on a road to our EPS target.
That's great looking forward to hearing more and mark thanks.
Thank you and this concludes the analyst and Investor portion of our acuity for today, we will now take questions from the media once again as a reminder, if the other question. Please press star one on your telephone keypad.
We're standing by for questions. Please hold for a moment, while we assemble acute.
From Wall Street Journal, we get Allison tighter. Please go ahead.
Hi, Thanks, everyone. I was wondering if you could sort of share anything about what you're hearing.
That's fair regulatory process in the Max if you're getting a sense any disagreements between say at Yoplait light pushback.
Certification or.
If that happens whether you might consider pushing back your own returned to service. It is it something hasn't yet dolphin.
Yeah. This is Oscar there's ongoing dialogue between.
A lot of chatter from many different folks.
I think the ultimate goal of all regulators around the world is too obviously do the facts and data research on the aircraft that its qualifications and make the right decision so as far as what we hear what you here I'm not sure. It's entirely part and then I think we're all focused on making sure that aircraft to state and returned to flight.
On one that is and so to that extent, there's nothing much else to say on that subject.
I mean, if there was some kind of staggered regulatory process. So would that affect your plans like does that create any issues with your alliance partners different regulatory authorities different view the plane.
I think we'll cross that bridge when it comes to but I don't think so I. Thank you know we are off we are overseen by the FDA and we'll certainly look to that aspect and across the country across the world. We hope, but I think we're driving towards a somewhat staggered sort of rollout, but not necessarily one that's going to be in and measured in lot of.
Time.
Thank you.
And from Bloomberg, we have just in Bachman. Please go ahead.
Hi, Thanks for the time today. My question is about your non food non fuel unit costs over the next few years and the goal to be flat.
But as you think of the deferred revenue initiatives and the plans that United has to to grow those revenues and profits over time, how do you balance that against the employee base that obviously would want to share and in some of that and how do you. How do you see the longer term cost picture playing out in terms of employee contract.
We absolutely as I said in my opening comments I think that our people are the ones that are delivering these reserve result, and they deserve.
Two of increasing competition and we will get those.
We built that into our plan we have the ability.
To keep costs flat.
Because we're doing it in other ways, we're doing it by putting by gauge growth. So flying larger airplane is lower CASM, we're doing it but constantly getting more efficient we're going to be the second here in a row here as we go through the budget process for example, where despite growing the airline despite all kinds of new initiatives and display.
But giving a pay raises to management administrative employees, we're going to keep total spending there.
So we're doing a really effective job this team at managing fixed costs to keeping them fixed as we grow the airline.
By growing the Cajun same time that gives us the money to invest in our people product and customer experience.
Great. Thank you.
Thank you, we'll now turn it back to like lets get in for closing remarks.
Thank you all for joining the call today, please contact Investor Relations. If you have any further questions and we look forward to talking with you next quarter.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for Jody you may now disconnect.