Q4 2019 Earnings Call
Fourth quarter in full year 2019, my name is spread to know the your conference facilitator today.
Probably be initial reports from management, we will open the lines for questions.
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I'll now turn the presentation over to your hosts for today's call, Mike Luscan, Vice President of corporate development and Investor Relations. Please go ahead Sir.
Thank you Brad good morning, everyone and welcome to unites fourth quarter and full year 2019 earnings conference call.
Yesterday, we issued our earnings release in separate Investor update. Additionally, this morning, we issued a presentation to accompany this call. All three of these documents are available on our website and IR that United Dot Com.
Information in Yesterdays release, and Investor update the company presentation and the remarks made during this conference call may contain forward looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance.
All forward looking statements are based upon information currently available to the company.
The number factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release Form 10-K , and other reports filed with SEC by United Airlines Holdings, and United Airlines for more thorough description of these factors also during the during the course more 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 the tables at the end of our earnings release Investor update and presentation copies of which are available on our website and now I'd like to turn the call over to offer.
Thank you Mike.
Play the joining all this morning.
He was a banner year for us and United highlighted by a four quarters streak of growing profit margins.
This is winning streak allowed us to reach our 2020 adjusted EPS target at 11.
Eliminate also $13 per share one full year ahead of schedule.
This incredible performance, we're not of impossible that the dedication to the finance collection airline professionals.
I want to thank the 96000 members of the United family work, so hard to serve our customers.
I'm also pleased that they will share in our success with profit sharing payment that's on average 45% higher than last year with all that we've had to overcome in 2019, There's no group of airline employees in the world is more deserving.
You'll hear more details about our financial performance from Scotland, and Jerry but I also want to include I'll quickly touch on our fourth quarter results. Our adjusted earnings per share of $2.67 was 11% higher and fourth quarter of last year. This reflects 50 basis points of adjusted pre tax margin expansion in this last for fourth quarter, which as I mentioned is.
The fourth consecutive quarter than our pre tax margins room in the fifth consecutive quarter adjusted basis.
As you'll hear today, we're all quite proud of what we accomplished last year I'm. Most excited about way of needs for our ability to plan and deliver for our customers employees.
And over the long term and that and that also includes the announcement that we made at the end of 2019 about leadership of this company with keeping this bright future in mind.
Thank you back to where United was when I took over as CEO in September 2015, and where we are today. This company success is a testament to the power long term commitment to our proved not promise philosophy.
Why every metric and benchmark on which the health and strengthen the company's measured and judge.
I did have today finds itself in a much stronger position in the United to four years ago.
I made it a personal priority to guarantee our future by a sending a deep bench of talent in order to give our customers employee base and investors confidence in our direction and leadership today I am 100% confident that we have the absolute best leadership team any airline hands down.
Taking advantage of that talent and cumulative experience by initiating a deliberate well planned and transparent transition is what healthy companies do not exactly what we're doing between now and the end of May on I'll assume my new role as executive Chairman.
It was important for us preserving as continuity and my partnership with Scott. These will continue to work to capitalize in bright future. The lays ahead not just in 2020, but through the new tech.
That's why we're eagerly anticipating the chance to get together for Investor day in March to share more about that long term strategy, so with that Scott overview.
I'd like to start by thanking you Oscar for all the you've done for United and for me personally in the last five years.
Turning to the totally different airline today that was with US for became the CEO Oscar made his mission to change the culture, United by bringing the people of United together as a team you put the customer at the center of our decision, making and created an innovative fast paced environment, where we seek to make the airline better every day and in every way for me personally.
Ask or has been a mentor and our friend from day, one Oscar was direct reminding me that there was more to our business. The numbers. Many corporate executives talk about the importance of employees and customers Oscar doesn't just talking about it he lifted 24 seven I.
I will be a much better CEO and person because Oscar reinforces the importance of focusing not only the numbers, but also our employees and customers leading by example, as Oscar has the only way to truly change it culture and make a difference.
Fortunate to have the opportunity to step into Oscars big issues as part of a plan and thoughtful transition and even after his executive chairman Oscar won't be far away as we continue on the path toward building the best airline in the world.
That great path in delivering result, I couldn't be prouder with team accomplished in 2019, we once again achieved our guidance metrics and restart 2020, adjusted EPS goal a year earlier, we've done that by creating a culture of teamwork across the entire company and focus by focusing on doing the right thing.
For our customers you'll hear more today from Gray, our chief operating officer news pinch hitting for Toby.
Bill today, and then added to sell our chief customer our Chief commercial officer on some other things we're doing to improve customer experience 2019 demonstrates the resilience and potential of United Airlines, We faced a number of significant headwinds last year started out longer than expected government shutdown the grounding of the Max and.
We'll issues in places like China, Ron and Pakistan, among others, rather than use those headwinds as excuses. However, the United team simply buckled down and persevere and was AIDEA, we weren't perfect, but we didnt use the bad step as an excuse that's one reason I view 2019 is a really good proof point, where we're headed in 2000.
20.
To be able to grow full year adjusted EPS by 32% adjusted pre tax margins by 170 basis points. Despite all those headwinds is pretty remarkable.
We know 2020 will come with its own unique set of challenges back a couple of cropped up just the last 48 hours, we won't make excuses for those either we also can't sit here and tell you that we know exactly how long the Max will be grounded or what the economic impacted the agent grown of ours will be the safety impacted the grown of ours is of course, our foremost concern.
We've been coordinating closely with the CDC to ensure that we're taking all the necessary steps to ensure that our customers and employees can travel safely at this point public health agencies are not recommend any travel restrictions, but we'll follow their advice closely because they and we have some experience in situations like this.
By working closely together, we have in the past effectively managed situations like this one of the keep our people say.
And in doing so we've seen demand bounce back managing through uncertainty is something that every airline in the world has to do inherent United our formula isn't complicated, but safety first and focused on delivering for our customers. Our team executed that strategy beautifully last year. It's important part of why we're so confident about what lies ahead in 2020 and beyond.
In closing I am truly honored to be given the chance to leave this great team all of us that United are committed to making this the best airline in the world you'll hear more of the call today and in our Investor Day in March about some of what's ahead in the long term, but we're all excited and committed to getting better every day for our customers employees and shareholders and with that.
I will turn it over to Greg.
Thanks Scott.
Our focus is to ensure our customers have a great experience with United across their entire travel journey consistency as key as we deliver carrying service to every customer on every flight every day.
With that in mind I'd like to thank our over 160 million customers from around the world, whether you're taking an important business trip or well deserved personal vacations. We know you have multiple airlines to choose from and we truly appreciate your business.
Improving our customer experience works hand in hand, with our growth strategy strengthening customer loyalty and increase in our appeal within travelers, we're investing in the areas that customers tell us matter, most and we're seeing positive returns on our customer satisfaction scores more importantly customers are increasingly willing to recommend united to their family and friends and that is good for the bottom line.
In 2019, we sell united's largest ever year over year improvement in net promoter scores, where this progress comfort.
As we shared with you over the past year, we made several foundational investments.
More important than any investments in our hard products. We continued our commitment to core for and carrying customer service through various employee engagement investments such as our back stage 2019 event series, where he brought all of our 25000 flight attendants to Chicago.
We elevated the flight experience for all travelers by expanding our economy, SEC snack selection and offering free Directv.
We launched connection Sabre, a new system that identifies price to hold for customers, making tights connections.
We began operating the Crj fyfifteen offering first class and kind of plus sitting seating as well as plenty of carry on storage space on a 50 seat aircraft.
Customer feedback has been fantastic and since its launch the 550 is delivering our highest customer satisfaction scores on our short haul routes.
We introduced new benefits for our mileage plus members with no expiration dates on our miles and offering free or discounted clear memberships to provide an easier more predictable security experience at all of our ups.
Looking forward, we are even more excited about our portfolio of plant customer focus.
Investments this year as announced at our meeting day, we'll begin to upgrade our aircraft interiors, featuring new overhead bins offer one to one bag the customer storage ratio.
We're updating our single class 50 seat regional aircraft with new seats in any personal device entertainment.
We're enhancing our food offering which includes preorder capabilities.
We'll also be upgrading airport facilities at our hubs and some are large line stations. Finally, we'll continue our commitment to improving customer service. Starting this week will bring all of our airport.
Tech Center customer service Representatives to backstage 2020, an immersive today experienced focused on caring for our customers.
The investments we have planned in 2020, our broad improving the customer experience across many touch points will try a number of new ideas focused on key markets quickly return what is impactful to our customers and plan to roll out the best ideas more broadly.
With that ill pass it off to Andrew talk more about our commercial initiatives.
Thanks, Greg.
2020 will be a year or many of our commercial and customer initiatives mature and green gain critical consistency.
The year is already off to a nice start ticketed revenue for business is strong for the first two full weeks of each year and encouraging indicator for the rest of the year.
Before going into a few details about early expectations for 2020, Let's review our performance in the last quarter for the fourth quarter PRASM grew at your 0.8% performance at the ended the year was really strong globally in met our PRASM plan, one exception parts of Asia, which I'll speak about in a moment.
In fact, the Sunday after Thanksgiving with one for the record books were system PRASM increased 15% year over year, our best day or best ever.
PRASM performance in our domestic network was up 0.6% on a 2.6% increasing capacity in the quarter. This PRASM increase was realized despite the 737, Max grounding, which limited our mid continent in activity plans.
International performance was even better than domestic in the quarter would a 1.5% increase in PRASM on at 3.8% increasing capacity are really pleased with the international momentum were seeing relative to industry results.
Over the last few months.
Latin America was our best performing international region in the fourth quarter, Latin PRASM increased 6.3% on a 4.4% increase in capacity.
Performance across the Pacific sequential improvement in the quarter relative to the third but was still negative PRASM decreased 1.2% on a euro 0.7% decrease in capacity almost all the weakness occurred in Hong Kong, Beijing, and Shanghai All of these all three of.
These were 2.6 point drag on Pacific performance, and as 0.3 point drag on system performance.
Atlantic PRASM was down 0.2% in the quarter on a 7.6% increasing capacity due to weakness in the manufacturing sector, Germany point of sale demand continued to be soft, particularly for premium business. All of that was partially offset by strong use point of sale man.
Looking ahead for the first quarter 2020.
I expect our consolidated passenger unit revenue to be flat to up 2% demand Hong Kong remains difficult to predict however, I will say that book PRASM for Hong Kong is not expected to be a drag on PRASM results in the first quarter. We've also started to see demand trends for Germany stabilize in recent weeks with stronger demand.
And from Industrials, which has been sluggish for most of 2019.
On each conference call I'd like to point out a few initiatives, we have rolling out and their impact on the business and our customers, while we're improving the experience applying United for all of our customers. Many of our commercial initiatives are focused on capturing high premium demand in our hub markets in 2020 and beyond.
The business travel New survey btn into key assessment of how airlines are perceived by corporate buyers and global travel agents. The primary source of premium business for United.
I did finish in second place in late 2019 in this important survey and proven more than ever before and several year really distinguishing ourselves for many of our competitors.
Certainly it's a great example of listened in and responding effectively to corporate buyers need congratulations to both our sales team and our frontline staff weve empowered to make us happen.
Premium plus our NIM mid tier wide body jet product is ideally suited for hub market and creating a 0.6 point tailwind for system PRASM in Q4, a slight acceleration versus Q3 and a trend that we expect to continue for most of 2020.
We're also now selling premium plus seats on select flight became Newark, and La and San Francisco and are seeing great results. Our analysis suggests that premium plus is having minimal impact on demand will Rx business class seats.
For the first half of 2020, we expect to grow business class capacity across the Atlantic by almost 20% we had in the past undersized business best cabins in key business markets like London, Heathrow, and Switzerland, offering to many economy cabin seats are now rightsizing the size of our premium cabins more.
Business that passive these yet another initiative proven to help us achieve our full network potential.
2020 will be a big year as we expect to finish most of our plan Polaris seeking installation and Polaris club.
Our Washington, Dulles Polaris loan to schedule that opened this spring and by the ended the year, 90% of our wide body jets are anticipated to have the new flare seats, including all of our Triple Sevens and 77 three hundreds in fact this past weekend. We loaded are scheduled for May and beyond we're all 55 of our Triple 70.
200 yards have new Polaris and new premium plus seed selling as of May eightth of this year.
We also launched our new cabin upgrades system called plus points in late 2019. The goal is simple to automate upgrades. We create we also created skip the weightless feature for Polaris upgrade that's available from time to time in different geographies currently available and South America.
We look forward to resume at our mid continent growth plan designed to maximize connectivity once the Max This line again, even without the Mac for making progress in smaller communities with the addition of the tier date by 50.
We also recently modified our Denver banks structure.
And will be in fact, this February and we're already seeing positive response in our bookings for that change.
I also wanted to make a moment and talked about growth of our ancillary revenues for the year. We grew ancillary revenues by over 12% on a 3.5% more capacity as we look deeper into 2020, we expect this momentum to continue as we focus on better ways to distribute distribute economy plus again.
Product on more shelves is one of our highest priorities and a better display on the 90 dotcom, which is already in beta testing is a first step.
And then another important milestone is that the record performance a record performance of United Ecomm and other direct channels, which now account for 50% of tickets for United in 2019.
I also wanted a note that why you choose has grown by 45% in 2019 as we fixed many of the bandwidth problems, while the technology and bandwidth doesn't yet exists we're getting ready for the day when domestic Wi Fi will be free for our customers.
Thanks to the entire United team for a great 2019 with that ill turn it over to Jerry to discuss our financial results.
Thanks, Andrew Good morning, everyone and for those of you in Dublin for Aviation week good afternoon.
Yesterday afternoon, we issued our fourth quarter and full year 2019 earnings release, and our first quarter and full year 2020 Investor update you can refer to those documents for additional detail.
For the highlights slide 14 of the summary of our GAAP financial and Fyfifteen shows our non-GAAP adjusted results.
We're pleased to report adjusted earnings per share of $12 in five cents for the full year up 32% versus 2018 for the year adjusted pre tax income was $4.1 billion and adjusted pre tax margin was 9.4% up 1.7 points year over year.
Our fourth quarter adjusted pre tax margin was of 8.2% was up half a percent marking the fifth consecutive quarter of adjusted pre tax margin expansion.
As Austria got mentioned earlier, our resilient throughout the year helped us offset challenges across the system and drive margin improvement.
Slide 16 shows our total unit cross growth for the fourth quarter and full year 2019, and our forecast for the first quarter of 2020.
Turning to slide 17.
Non fuel unit costs in the fourth quarter increased 2.7% on a year over year basis.
This came in better than our original expectation of around 3.5%.
As our team worked relentlessly to offset various cost pressures.
This brought our full year 2019, CASM ex the up 1%.
As I've said before the grounding of the Max impacted CASM ex by at least 1%. So excluding this impact unit costs in 2019 would've been flat or better year over year.
Looking ahead, we expect first quarter, 2020 , CASM X to be up 1% to 2% year over year.
As you can see on slide 18 during the quarter, we took delivery were for new and to use mainline aircraft as well as nine new regional aircraft.
We also announced in order to purchase 50, new Airbus Athree 21, XLR aircraft, which we plan to take delivery of beginning in 2024.
The XLR, we're not going allow us to finish retiring our last remaining Boeing seven price have in 200 by replacing them with aircraft that there are approximately 30% more fuel efficient but in addition, the XL ours range capabilities will also open potential new destinations to further develop our route network.
And provide customers with more options to travel the globe.
Also in the fourth quarter, we repurchased $216 million worth of shares of our common stock at an average price of $88, a 95 cents per share, bringing our share repurchases for the full year to $1.6 billion.
As of yearend 2019, we had $3.1 billion left an authorization and we'll continue to be opportunistic in our share repurchase strategy.
Our adjusted capital expenditures for 2019 ended at $5 billion. This came in slightly above our guidance of $4.9 billion has our Airbus order that we announced in December drove some incremental pre delivery payments.
We currently anticipate spending approximately $7 billion, an adjusted Capex for 2020 .
We continue to expect this to be a peak capex year, driven largely by the acquisition of 17 wide body aircraft. This year. In addition, as Greg and Andrew mentioned before we are making a lot of high return customer centric investments that we will expect we're not going improved customer experience, but we'll have cross vehicle.
More profitable Caroline.
As we think about both Capex and our share repurchase program, we're very cognizant of their impact on our fortress balance sheet that we have established and plan to maintain.
The discipline, we have shown as we continue to maintain strong liquidity in large and growing crew of unencumbered assets and a very manageable scheduled debt repayments has been rewarded with tremendous access to attractive debt financing throughout our capital structure.
In addition, our success in managing the balance sheet in reducing financial risk continues to be recognizes just last week, Moody's joined S&P and upgrading our credit ratings to positive outlook.
Lastly, slide 19 has a summary of our current guidance for the first quarter and full year 2020 .
As you can see we will no longer be providing capacity guidance for the quarter or full year or CASM ex guidance for the full year.
Our focus is our long term earnings targets and as we move forward, we will plan for capacity at levels that allow us to achieve those targets.
We currently expect full year 2020 adjusted earnings per share to be between $11 and $13.
While some may view this guidance to be little Conservative we're rolling three weeks into the new year and are still facing uncertainty in both the timing of the reintroduction of a Max and speed at which are associated capacity will ramp up.
As always we plan to update this target throughout the year as we continue to execute on all of our initiative and we absolutely aspired to end the year in a higher range, regardless of known and unknown headwinds that we as an industry routinely face.
The most recent examples of Boeing's announcement yesterday on the Max and the uncertainty around the Corona virus in Asia.
We will gain more clarity on these items in the weeks to calm.
And at our Investor Day in March we were we will provide an update to our outlook. In addition at our Investor Day, We plan to once again provide multi year EPS guidance with that Mike will now begin the QNX.
Thank you Jerry first we will take questions from analysts community. Then we will take questions from the media. Please limit yourself to one question and if needed one follow up questions. Operator, please describe the procedure to ask a question.
Thank you hit the question and answer session will be conducted electronically.
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Please hold for a moment wealthiest simple or Q.
Great.
And first up from Barclays. We upgraded Oakland's can you. Please go ahead.
Hey, good morning, everyone and congrats on what was the.
In hindsight challenging here in 2018.
So I guess you know incrementally on the Capex because this is a pretty big year at 7 billion and I think if we go back to your slides in 2018.
Like maybe five to 6 billion was more of the expected range. So can you talk to some of the opportunities that you see there that you're willing to put capital behind this year and maybe even go a little bit deeper on the non aircraft side as well.
So the you as I said the.
The spike in Capex is really attributable to those wide body aircraft.
17 aircraft is.
It's just the peak year for that and really when you're looking at our fleet plan, you've kind of half the look at it over several year time horizon grinder take sort of more of the run rate number. So it's really nothing more than that for this year I would also point out that in that number we are assuming.
The delivery of some Max aircraft and so we end up with no Max aircraft I would expect that number to come down a little bit on the non aircraft side I would say from what I'm seeing right now the number is a little bit higher this year than last year, but that is all attributable to really finishing the various three.
Configuration projects that we have.
To get the players modifications, Don and some of the other customer centric modification finished.
I appreciate that Jerry and I guess as quick follow ups Scott.
As you take over here what do you think is the right metric for investors to focus on is it something like free cash flow or should we be thinking that United store in this transformation mode. There's a lot of opportunities out there to focus more on earnings revenue what should we focus on.
Well.
All of the metrics are highly correlated with earnings.
So I think the principal metric is probably earnings.
Our earnings drive higher free cash flow higher earnings to drive higher margins higher earnings drive higher return on invested capital.
And so I think we're kind of dancing on the head of the pen when we try to distinguish between those because they are also highly correlated.
And because they're all highly correlated I think will focus more as we are at our guidance on earnings.
Thank you.
From Wolfe Research, we have Hunter Kate Please go ahead.
Hey, good morning, everybody.
Hey, Scott sort of a philosophical question on pricing that not sort of the tactical one that you've been very clear over the years about the need to match the lowest fares in your market to win the long game I'm. Just wondering if that's becoming outdated I know you never get anchored in your opinions, but I'm wondering if there's a point we feel good enough about the quality of your service.
So you're providing towards sort of blanket price matching becomes only unnecessary, but actually harmful to the brand even though long run.
So we are increasingly focused on improving the brand.
Airlines and the perception of looks customers, we're making significant investments that we took that we've talked about backstage in Greg talked a number of those investments. It's increasingly clear that there is a large segment of customers who choose based on the quality of the product of the quality of the customer experience there.
Also customers out there who still choose their product based on price and really what I would say is what we've done is try to create a segmentation where we can offer.
Both sets of customers.
They are looking for and.
Our basic economy product tends to be more focused on price of the rest of our products.
Can be less focused on being price competitive.
Okay. Thanks, and then what percentage of your credit card holders or premium a premier status holders either one has ZIP codes outside of your hub city catchment areas, where was it before this recent growth spurt and where do you want it to be.
At hunters, Andrew eight I'd say I don't have the number off the top of my head I think it's in the neighborhood of 50%.
Firstly and secondly.
The 505.
And I think we'd like to continue to diversify outside of our hubs.
We are doing but we'll have kristina contact too.
If you more detailed.
Hi, guys. Thank you.
From vertical research, we have Darryl Genovesi. Please go ahead.
Hi, good morning, everyone. Thanks for the time.
Jerry I realize you don't want to provide an explicit 2020 CASM ex guide, but can you. Please help us understand some of what's changed since you're off to a recall when you guided 2020 CASM ex flat.
For instance, what percentage of your 2020 capacity to the Max represent back then and then relative to that what's the CASM ex hit associated with not having it for any.
Yep.
Period of time, however, you want to define it.
Sure Let me let me start this way we have not changed.
Our.
Commitment over the next several years that our goal remains flat CASM ex as I said in 2019, but to the Max we would have been at least flat and actually 2020 that same is generally true and let me give you a little bit of color on the Max.
Looking at it today, we currently anticipate the Max creates about one to two points of CASM ex pressure.
So even if the Max remains out for the full year, taking the worst case.
We expect that to be less than two points of CASM ex fuel CASM ex pressure, but let me remind you that none of this.
The eight from our.
I want to deliver on our EPS target.
Okay.
Thanks for that and then just a quick follow up on the non op, what's driving the year over year decline in the first quarter.
To pension, it's probably down a little bit, but if there's anything else.
And also do you see that carrying through the year.
So thats generally actually some changes we made in some of our.
Post employment benefit some of our post retirement medical plan, where we were able to.
Save some money without changing the benefits at all that's really the principal driver there.
Okay. Thank you very much.
From JP Morgan do we have Jamie Baker. Please go ahead.
Hey, good morning.
Everybody up first one probably for Jerry.
Relates to the 11 to 13 dollar guide for this year.
Hoping you could talk a bit more about how that might evolve there was a time when it would have suggested that it could move higher clearly conditions evolve going away that prevented that from happening and I don't think this came as a surprise I'm I'm not being critical a bit in fact, I'm just curious as to how your model for too.
2020 evolved over say the last.
Four to five months, what the various puts and takes work whether 12 to 14 was ever Bonder.
So Jamie let me tell you that you know from my perspective, it could have been 10 to 14.
Yes. It just looking at the first two weeks of January and I look at the spot price or jet fuel everyday and the impact of has on the forward curve for the rest of the year and if you look at it to you would've seen a lot of volatility.
So.
Given that given some of the other.
Unknown is out there in some of the announced that we just don't know how they're going to impact us as I mentioned earlier.
And my general nature of.
Being a little conservative.
So that's where we came out and as I mentioned, we absolutely aspire.
To raise the rain during the course of the year, but we'll have to see what happened.
Over the course of the next few months.
Okay. That's helpful. I appreciate it and.
Second and just related to the Max I believe you have one Sim.
In Denver could you tell us what the Stim order book looks like something I've never asked before and more importantly, as Boeing inevitably has to shift around the skyline what would your interest be in rescheduling deliveries given the presumed aspiration of.
Other global operators, and whether there's an opportunity to monetize simulator access.
Hey, Hey, Jimmy this is Greg Greg.
How are you.
Hey, we've got.
Certainly one six train device Max fix trained device up and running will have a full motion sum up and running and the next I want to say six to eight weeks and over the coming months, we'll take delivery of two more soon so we actually feel really comfortable in terms of where we are.
Relative to simulator capability, obviously, we assumed a quicker delivery string from Boeing than what we've seen and were.
For the Napoli prepared for whatever might come in terms to deliver stream.
As for today monetize that access.
Hi.
Capacity.
Yet Jamie it's something we've done here at United in the past, we actually Havent thought about it too much we've been focused on our plans internal plans to make sure that we.
Could meet whatever delivery stream, we have on aircraft. It's obviously something that we'll think about.
But I would expect.
To have us have too much third party activity and our siblings excellent I appreciate it and on a personal note welcome back from Guam.
Jamie.
From Bank of America, we have Andrew Didora. Please go ahead.
Hi, good morning, everyone. Thanks for taking the question.
Sorry, just a follow up on the unit cost and I know, you're you're not giving a full year outlook, but the one Q guide of one to two was better than what we were thinking feel better than the back half of 2019. It up 2.5% just trying to get a sense for is this one to two what could quarterly run rate, while the Max's out or was there some.
Some timing, we could we should consider here I.
Yes, basically any color you can provide about the cost cadence throughout the year would be helpful. Thanks.
Sure.
As you identified there's always timing when you're looking at quarterly.
CASM numbers last year, you may remember there were some.
Maintenance events weighted more heavily towards the back ended the year. So the first half the year CASM ex was better than the back half, but we always take that into account when we looked at the full year and look at our commitment to deliver but for the Max flatter better CASM ex.
Is that the which we should think about kind of the out years once once the Max baucus sort of flat to flat to down CASM. That's what's the plan is right now without stealing the thunder for from March.
It's been our commitment we have been public for several years on that but thats our commitment keep in mind one of the Tailwinds, we're going to have which has now been delayed a little bit is on gauge.
You look at our would have been our our Max delivery schedule, you would've seen the Max 10 coming in and those aircraft.
In addition to growth, replacing smaller gauge aircraft. So that's still a terrific had tailwind that we have.
Over the next few years.
Great. Thank you very appreciate it.
[noise] from Goldman Sachs, We have Catherine O'brien. Please go ahead.
Good morning, everyone. Thanks for the time.
So a question I think this year your performance commendable, despite having the Max and really appreciate your note pieces mentality, but can you help us think about the negative impact to the Max fire to trying to get a handle on what the core business could produce without that headwind should we think about any impact above and beyond that CASM ex headwind you alluded to earlier.
Well keep in mind the had we had the Max we would have benefited both on the CASM sign on the revenue side as well, but we as the other carriers, who did not have the Max.
Yes, our loss.
Lost income as a result.
Right I guess is maybe like any.
Any yes.
Any color on like maybe like margin detrimental or if.
You're willing to share.
Look I would say weve been careful to not use any of the events that have happened as excuses.
We delivered on getting a year early to our 11 to $13 EPS goals.
We're not going to start now using them as excuses. So we'll keep our conversations private with Boeing of what we think the impact was.
Just leave it at that.
Okay Fair enough and then maybe Thats one quick follow up so you've always had a really strong international network and of course, you been focused on strengthening part to your domestic over the last couple of years.
Hi, good I thought the highest percentage of passenger revenue booked that international network do you think that's the right mix or do you think we're going to see that changes it continue to strengthen their domestic network. Thanks.
[laughter] tender speaking, it's a really good question and obviously these things cycle over time, there is definitely a long period of time were international margins are greater than domestic clearly over the last few years domestic margins have been greater and we've been pivot in here at United.
To fix our mid continent gaps that we talked about regularly.
And we still think that is a priority. Unfortunately, the Max delay has delayed our ability to properly fix the connectivity in our mid continent hubs.
And so we're going to be focused on that as we go forward for the next few years.
The underlying all of that is really I think the best Global network of any airline soon from the United States and we're really proud of that and we think it has a lot of opportunities we do think feasting cycle.
And we'll be ready when the international environment as even better than we did see strong momentum late last year, where that environment is better and international profit margins in fact or higher.
And I think thats going to come someday the future, but right now focused on domestic so we have a lot of strength and we have a lot of optionality in our international network.
Great. Thank you.
[noise] from Evercore, we have Duane Pfennigwerth. Please go ahead.
Hey, thanks.
On on co brand expansion potential I'm, certainly not going to ask you about timing, but.
Points in time, a United talked about kind of a gap to where a market rates were and those were kind of agreements you were close to.
Some of that commentary was before deltas expansion, what amex and so my question is in your opinion to adult to reset the bar for the market or just catch up to where the market already was.
I.
Obviously deltas.
Advertise their humulin Amex, a lot and we see it.
We're in close contact with our partner to Chase and we continue to work with them on making sure that ARPU brand part is the biggest invest it can be it's been growing a lot over the last few years. In fact, we're about to launch a new business card, which are really proud of so there's a lot more to come in this space I think is what I would tell you today.
Exactly where the market is.
Where we are and where others are I think it's really a little bit difficult Hell, sometimes based on what is reported and what's not reported but we'll continue to make sure that the United Co brand is the best it can be.
Thanks, and then just for a follow up or the premium ceded ceding expansion.
Clearly came across in the presentation, you're talking about making it easier to up sell premium economy I Wonder if you could quantify how many points of RASM that potentially represents when you're when you're ramped thanks for taking the questions.
Sure well actually I think talked about that more at Investor day coming up, but we have definitely tilted our capacity.
As we entered 2020, we expect premium products to be a bigger portion of our revenue by for the year and we expect that to have.
You really meaningful impact on rather than but we'll we'll save all those details for a few weeks from now.
Thank you.
From U.S., we have Myles Walton. Please go ahead.
Thanks, Good morning.
And are you you talked about the the ancillary growth growth about 12% and I think you tied it to the greater point of sale. It dot com indirect channels, reaching 50% I'm curious can you give some some maybe meet around the argument of what the conversion rate looks like for the ancillary when they're on the direct channels and also how high you think that.
That direct channel.
Can get through over the next couple of years.
It's a it's a big hard number news so getting from 50 to 60 is not something that's going to happen overnight, but we would like to see 90 dot com and our direct channels.
Move towards the mid Fiftys over the next few years, it's a big goal.
We'll see if we can get there that being said, there's no doubt were motivated to move in that direction, because the conversion rates on United Dot Com.
For ancillary revenues are simply dramatically higher we don't give the exact numbers, but they are higher. So we are continuing to work to make that number higher and United Dot com by changing how we display and show things in the products we offer.
We're also working toward our partners that are third party distributors to see how we can make those numbers get better as well. So I think there's a lot more upside, but I talked about earlier was the fact that economy plus.
Being put on the shelf on United that in the past I Didnt think we properly display that.
And with this new beta test, we have going on on properly displaying United the economy plus feet, we think that could.
I have a meaningful impact on economy, plus seat sales going forward, we have to get our products on the shelf for them to shelves to sell properly.
Just one clarification I think the response to previous question you talked about the dash 10, getting pushed out further and that was part of the the up gauging our seat growth per departure, I think youve given previous metric about 3%.
Growth in seat power departure is that still still valid for 2020.
I want to get that number is different valid in Q1 I then there is.
He is a negative number on gauge in Q1, which were disappointed by.
But somebody can get you to annual number I think it's not it's no wonder valid Unfortunately.
Okay. Thank you.
From Cowen and company, we have telling Becker. Please go ahead.
Thank you very much Alfredo hub, Hi, Tim and thank you very much for taking my question.
Scott when you got stuff or actually anybody can answer that she knows the answer when you look at what you had talked about a couple of years ago about replacing smaller aircraft with larger aircraft in key markets.
Just update us on where that stands now like is that program completely done. So all the capacity growth that you're doing in 2020 has got to be and.
New markets and then connecting the dots.
Well I'll, let Andrew.
I'll, let Andrew add to it but it's nowhere close to Doug and there was a big setback the Max has been a big setback.
There were a number of markets that would have been up gauge.
Last year that would be being up games this year.
The following year that are behind because of the Max play I think thats absolutely correct.
Yeah, we're just we're not where we hoped we'd be at this point, we have a lot more gauge to calm going forward is Jerry also hinted at but maybe the other way to look at it is our scheduled debt.
We're just not where we need to be competitive scheduled depth and we're trying to correct that and we're also trying to engage in the right direction in the Max delays kind of forwarded our progress on that front leads for 2019 and looks like for a big chunk.
2020 at this point.
Okay. Thank you I appreciate the time.
From Raymond James We have savvy sites. Please go ahead.
Hey, good morning.
I might just that.
Well that at the follow up on the regional.
You were talking about can you give a little bit more color on.
Eric you're seeing today.
On that front I know you mentioned.
That being a pressure and Germany.
Bottoming or rebounding <unk> is it fair to assume that those entities.
Just any additional color would be helpful.
All right I think.
For the quarter.
At a macro level.
The entities I expect to come in and basically the same linked quarter. So I expect that the.
Latin American Division will be our best.
I think domestic second and then.
Your third in Asia last again.
In terms a little bit more color you know, we're just watching the situation in China, Beijing, and Shanghai and also Hong Kong.
Very carefully.
We do think that Hong Kong.
Based on current trends is no longer drag on PRASM, which was nice to see.
I do expect in Beijing, and Shanghai will still be a slight drag on PRASM, but I wouldn't I can tell use that demand over the last eight weeks.
To Beijing, and Shanghai is actually increase to.
From a revenue perspective for the last 12 months, our ticketed revenues to Beijing, and Shanghai been down 4%, but over the last eight weeks they've been up 3%.
So I do think we've turned the corner there absent any other significant.
Situations that arise in China.
Equally Beijing and Shanghai, So good good progress there.
We're wash in Australia very carefully.
The wildfires it really had some impact on demand.
Well it will keep a close on that but all the rest of Asia Japan.
It looks very good and Twond, Taiwan as well in South America, I think is kind of leading the charge as well as Mexico in Central America. So that all looks I think you're good at in Europe .
Weve into point, our new 767 high Jay to London, Heathrow, I think thats, having a nice tailwind on the system that has offset some of the Germany weakness that indicates in Germany. We did see demand from our key corporate clients and travel agency sales go positive over the last few weeks.
Which is really nice to see after pretty much 12 months of negative numbers. So we're we're optimistic that Germany is on demand and moving into right direction at least at this point, which had lots of do industrial so overall across the globe. There are definitely a few spots, but we generally see encouraging trends.
It from Stifel, We have Joseph Denardi. Please go ahead.
Yeah. Thanks, good morning.
Jerry can you just provide a little bit more color around the step down in Capex, you're expecting in 2021. If you look at the last 10-Q from October it shows about a two and a half billion dollar decline in aircraft purchase commitments year over year, but that was I guess before the Airbus order you referenced so.
Can you just maybe update us on what that looks like now in 2021 versus 2020. Thank you.
It's a little early to be able to give you.
A good number largely because.
Into a Boeing tells us.
What the back delivery schedule is going to look like.
It's just a top.
Next year would have been.
Europe significant Max deliveries, we don't know what's going to happen yes.
A little premature we also don't know.
How many of the Max is that we assumed for this year might get pushed I mean, all we know today is that there was 16 aircraft built there sitting up in borrowing facilities.
We'd like to get those.
When aircraft for delivering but particularly with Boeing having.
Shut down the line they need to tell us and the other customers.
How they're going to allocate slots to everybody and that will drive.
A lot of the 2021 Capex number so it's just too soon cow. Okay. So Gary is the step down a function of is it hundreds of millions or is it billions.
Again, it's just too soon to tell on that.
Okay.
I don't expect it to be billions plural.
But it's really too soon.
Okay.
Maybe just a question for Scott or Andrew.
Try and stump Scott what percent of the tickets sold in 2019 were on fares, which were in the market in order to match a competitor's fares.
Versus what percent of tickets sold or.
Thats, what Jim and I said was the right fair. Thank you.
And I'm sure I understand that the question.
But I'm trying to understand how much your revenue is subject to kind of the the the worst competitor in the market. How often do you have to just match fares versus.
How often can you go with what you think is the best fair at that point.
Well typically all of our fares are matching something.
There'll be multiple fares in the market I guess your question is how often are reselling the lowest fare in the market is really the rival the as ask the question.
I don't know the percentage of time I would guess, it's a single digit percent of our deeper sold at the lowest fare available in the market I would agree with that I mean Gemini.
Gives us the guidance in terms of with the demand forecast is open up or close down.
And so and that said.
Market by day by day by everything so materials elsewhere.
But I think what you're really getting at is like the lowest fare in the market is probably selling.
Quite selling single digit presented mercy absolute book.
It from Bernstein, we have David Vernon. Please go ahead.
Hey, guys. Thanks for the time on Andrew just to start out on the premium product or the point premium plus rollout on the tailwind you guys cited kind of grew from 50 to 60 Bips for three to four Q.
Trying to get a sense for what the tailwind should be in 2020 as you ladder in I think a broader rollout of that product should that should that benefit sort of increase as we get through the year, assuming stable conditions not looking really for guidance just trying to make sure I understand now that rollout is going to going to affect the base business.
Yes, so what I would say is there the rollout will continue in that were being in critical mass.
And therefore, I'm optimistic we'll see that number engine, even a little bit more as we head into Q1, and Q2 and maybe even Q3, particularly when all the triple seven tap the product.
Demonstrate that lap as we really get into the later part of Q3 in Q4, and there is little bit different in that I think our expertise in how we managed product will be.
Big driver in weather can expand or not beyond that number and so I hesitate to say that as we enter fourth quarter of 2020 that we can keep it at that same pace, but we're optimistic that there is still a lot out there as we learn how to better manage it from day to day in pipeline.
And that should expand even a little bit more than 2021 is I think you said there you're gonna get to 8% of Asms by 2021 right. Yes, the maturity of the product really by early 21, we have it on all the airplanes are going to have it on in fact I think at this point we plan to have it on every one of our Intercontinental wide bodies with the exception of 14.
767, three hundreds but every other aircraft is going to have it and it's going to be very very consistent. So we're excited to get out there and we think we do think it provides a continued tailwinds and whether it's a half a point or so over 60.2 basis points.
That seems aggressive as you get that far out but it is to continue in tailwind alongside other actions that we're taking on this front, whether it's more first time seats on our 319.
Hi, Jay 77 decline to London, Heathrow, and Switzerland. So there's a lot of initiatives on this front, we continue to roll out that we expect provide a tailwind that's unique to United for next year or two at least.
In from Buckingham Research, we have Dan Mckenzie. Please go ahead.
Dan Mckenzie your line is open.
Hey, Thanks morning, guys, Andrew given the news this weekend I'm wondering if you could help us think about the revenue shock absorbers. So first.
It does put preliminary revenue outlook in bed. Some some volatility in the demand data and then setting aside the news from this weekend I'm wondering what corporate clients are telling you about their international travel needs in a post trade deal world.
The thought.
That there could be some some acceleration in international demand to come.
Can't see today.
I think thats the case.
We actually and just in the last few weeks obscene, Beijing, and Shanghai demand increase relative to where we work for most of last year. So.
I don't have an official readout from corporate clients on that part, but I will say as we looked at corporate demand for last year I think it was really healthy, but when you look at it divided by the different divisions around the globe. What you find is our Asia Pacific corporate demand was back negative.
For the rest of the World was positive. So just provides an easier comp so I'm I'm optimistic that absent the issue that we had this last few days.
That we're going to see stronger results.
Additionally, in the Asia Pacific region.
As it relates to that.
In regards to really I think forecasting.
As we looked at each quarter.
And we assess where we think things will turn out we clearly have a tendency to put a little bit of I'd like to say wiggle room.
In the numbers for unknown things that will happen is it's been pretty predictable that there'll be something unknown that will happen.
In any part of the globe and so we do leave room for that and I think that you can see that over our track record of the last two years plus on RASM Guide.
What do we left exactly enough room, only only time will tell but we do feel comfortable with current trends and the room Weve left in.
But we will have to wait and see how things unfold over the next week or so to really be able to firmly answer at least how that relates to what's happening in China today.
This point.
Perfect. Thanks, so much for the time you guys.
And from Deutsche Bank, we have Michael Linenberg. Please go ahead.
Hey, Thanks, everyone take two quick ones here I'm carry on just the 7 billion of Capex, what's the rough split aircraft versus non aircraft.
It is roughly call it 5 billion aircraft rather than the 2 billion on aircraft. Okay. Great and then just question to Andrew Andrew I, you know I had heard somewhere that youre, considering adding more seats to your 77 eights and nines.
It is that true and what happens to your premium seeding the on those airplanes. If that does go through does that is it's coming down or is it just a different configuration. Thanks.
Sure. So the 79, just the heart of our 77. Please we have the most of those aircraft.
And the seating configuration on that aircraft as it relates to business class seats I think remains identical if that's up to some of it will go back to you, but we didn't change the number of business class seats on the 79 is it just surgery configuration.
Over the next 12 months or so so we're fine there we did find a little bit of room and the coach cabin.
So the density the number seat some aircraft did go up a little bit. So the aircraft has more seats in total we didnt lose any jay seats on that okay on those seven eight.
We did reduce the size of the Jake last cabin.
I don't know the number of that up I think is 20 to 30 seats.
Relative to where today, which is 30 60.
We did that because the missions that we're going to use in the seven eight on are likely to be more leisure oriented that have lower business class demand. We have literally 150, plus wide bodies with very large Jay class cabins and back some cabins getting bigger and all the other aircraft types on this particular aircraft type.
Which mainly of 12 units.
We did reduce the size of the cabin to reflect how we will use the aircraft in the future, which has a more leisure oriented tilt and business tilt and we thought that was the right.
Segmentation seats on board that aircraft, given how it'll be use but again, it's 12 aircraft out of a fleet of almost 200 widebody aircraft.
It doesn't move the numbers.
Thank you and will not take questions from the media. Once again, if you have a question at this time, please tell star one on your telephone.
Please hold for a moment, while we have similar Q.
And from Bloomberg, we have Justin Bachmann. Please go ahead.
Hi, Thanks for the time today. This question I think it's for Oscar or Scott I wanted to.
Ask about your decision to get rid of the capacity guidance and what sort of growth United will see over the next year or two or three in terms of both the mid continent, and if that's just a function of the Max uncertainty or if you're now at a period, where you're you're slowing things down because you feel that youve regain that share that.
That United did not have in the past thanks.
So we have.
Decided well we want to focus our efforts and our guidance on earnings that's the key metric that we're trying.
To focus on and.
If that means we should grow 5% to hit our earnings growth targets. The Dutch we'll do it means we should grow 1% to hit our earnings growth targets and that's what we'll do.
We're really focused on earnings and so we always actually intended.
As weve built increasing credibility with hitting our numbers to stop giving full year capacity guidance, beginning next year, but giving out one competitor already do it and given the uncertainty that we have with the Max we did a you're really the only thing that are changing guidance had to do at the Mac because we did a your early because.
Have a lot of uncertainty this year, but we always intended to do it it's really a focus on driving towards our earnings target.
Having all of us focused on earnings metrics right metric.
Great Thanks, but as far as Youre your comfort with the mid continent strategy, where does that resume Andrea had talked about sort of a halt given the Max is that is that coming back when you get the Max.
I wouldn't say to halt this is Andrew I would I'd say, we're just not where weve otherwise I'd like to be because of lack of the Mac. So we would have built connectivity we focused in fact in Denver.
So that the Denver growth actually does continue we have we're not where we'd like to be in Houston or Chicago.
So only time, telling the only thing I'll add is this year do 550, which has been a I think as smashing success so far.
Is doing really well and that does also help our mid con activity, but the Max aircraft were a key ingredient to what we're trying to accomplish and they're not available to fly and therefore, we're behind schedule on where we'd other I'd like to be and we're likely to be behind schedule for the foreseeable future given the latest and.
It's been from Boeing.
Great. Thank you.
And from Wall Street Journal, we had elephants tighter. Please go ahead.
Hi, Thank I was wondering if you could talk little bit about how likely simulator training requirements could affect sort of the pace in the cadence of return to service. Eventually you know what kind of complications might that introduce and how long do you think it'll take.
Any color you have looks great.
Thanks. Thanks for the question. This is Greg we don't anticipate any.
Issues, if simulator training as required by the essay.
We as we've talked about earlier, we have ample simulator capacity and we're working on plans.
Allow us to.
Slide by whatever guidance at the Epay issues.
Got it thanks, if I could follow up.
I guess I'm just wondering if there is any kind of thinking like a worst case scenario you know, it's the Mac does it.
Is there sort of a contingency plan for that like in a backroom somewhere or is that even something you consider.
Possibility. If you would just have to give up on the back through how might that play out.
We continue to assume there will be a safe return of the Max.
And we're actually encouraged at what we hope is more a more realistic timeline.
Target, we will be announcing soon our own pushback.
A service that gives us time from.
With Boeing is now saying about the Max returned to service, but to give us time to get the airplane back up and running including time for classroom training and simulator training for our pilots before they flat.
At this point, we're assessing the impact of the schedule, but we do not anticipate find the Max This summer.
Thank you. This concludes our question and answer portion will now turn it back to like what's going in for closing remarks.
Thanks, Brandon and thanks to all of your for joining the call. Today. Please contact me relations. If you have any further questions and we look forward to talking to you next quarter.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.