Q4 2020 United Airlines Holdings Inc Earnings Call

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[music].

Good morning, and welcome to the United Airlines Holdings Earnings Conference call for the fourth quarter and full year 2020. My name is Jenny and I'll be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions at that time. If you have a question. Please press star followed by one on your Touchtone phone.

This call is being recorded and is copyrighted. Please note that no portion of the call maybe recorded transcribed or rebroadcast without the company's permission your.

Participation implies your consent to our recording of this call. If you do not agree with these terms simply drop off the line I will now turn the presentation over to your host for today's call Christina them on Yelp director of Investor Relations. Please go ahead.

Thank you Jenny good morning, everyone and welcome to United fourth quarter on full year 2020 earnings Conference call yesterday, we issued our earnings release, which is available on our website at IR day United.

Information in yesterday's release and the remarks made during this conference call may contain forward looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance on.

All forward looking statements are based on information currently available to the company a number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release form 10-K, and 10-Q and other reports filed with the SEC.

Here at 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 for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Please refer to the tables at the end of our earnings release.

Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby President, Brett Hart Executive Vice President and Chief Commercial Officer, Andrew Nocella, and Executive Vice President and Chief Financial Officer. Jerry Letterman. In addition, we have other members of the executive team on the line available to assist with Q&A now.

Now I'd like to turn the call over to Scott. Thank you.

Thanks, Christina and thank you all for joining our call today.

2020 was a year of going through Hell, but we kept going in a few years from now on United will look back at 2020 is the year that gave us the opportunity to structurally change the airline for the better.

I want to express my sincere gratitude for the outstanding work of the United team during such a difficult time one.

One of the most visible examples is that our employees are delivering on our customers are noticing on net promoter scores are up over 30 points year over year and are by far the highest they've ever been.

<unk> been leading the charge in the industry and health and safety network flexibility creative financing and the list goes on.

United team is taking this opportunity to evolve our airline for the future and I couldnt be proud of.

I'd also like to thank everyone in Washington D C and both parties along with our Union partners, who worked for the extension of the payroll support program.

United emerge as a leader at the beginning of this crisis and we further solidified that position in the first fourth quarter, we had significant accomplishments in 2020, including being the first airline to recognize the potential severity of COVID-19, which allowed us to get a head start on dealing with the crisis and we've continued to be the most accurate at forecasting the courses of ours.

Without on safety initiatives throughout the crisis, including being the first airline to require mass partnering with DARPA to do the most comprehensive analysis of airflow onboard aircraft ever done and using those findings to support the need to present to run auxiliary power and thus have robust air flow as passengers board and Deplane.

Something United uniquely is doing well.

We brought on permanent changes to improve air travel for customers such as taking the step to permanently eliminate domestic change fees.

We completed two first of its kind transactions with mileage plus and an innovative W. E. T C. Along the road to raising over 26 billion from start of the crisis.

We'll add on minimizing cash burn early and continuing throughout the crisis and we were the first to see the light at the end of the tunnel, which has allowed us to begin preparing for the coverage, which does mean some spending in the near term.

We continue to lead on testing testing testing with flights to Hawaii, Newark to London, Houston to Latin America, and many other destinations to drive safe travel.

Our cargo team continues to lead the passenger industry with cargo revenue up 77% this quarter and their advanced preparation work allowed us to partner with Pfizer to transport the first mass shipment of COVID-19.

19 vaccine into the United States and that's just to name a few.

Aggressively managing the challenges of 2020 dependant on our ability to make big changes quickly, but the truth is that COVID-19 has changed United Airlines Forever as we recover from this crisis, we've stopped using the return term returned to normal because it creates an environment, where it's just too easy to go back to doing what we were doing before.

Instead, we want to focus on a return to new approach that applies to a wide variety of goals.

When this is over our employees customers the general public and shareholders will see United or New United Airlines, specifically, there are seven areas, where you'll see a united United number one our commitment to changing how customers feel about United We've made early downpayments on this is the first among globe.

U S airlines to permanently eliminate change fee and the differences in the experience and interaction with our employees or what have led to the 30 plus point increase in M. P. S. Theres more to come on this but it was intense on the list. This first despite the fact that this is an earnings call normally geared to more explicit financial goals.

Number two I, 100% Green commitment to climate change is also unique and new not only amongst airlines, but amongst global corporations leaders, including Ceos around the world need to accept the fact that we cannot and will not make a serious debt and climate change unless we began investing in carbon sequestration.

So United was proud to announce that would be a large partner along with Occidental on 1.5, and the world's largest direct air capture and sequestration project, where each plant, where we're moving enough carbon directly from the atmosphere and permanently buried underground each year to be the equivalent of literally planning 40 million trees per year.

Number three our employees and customers and shareholders can rightly be proud of our unique and groundbreaking climate platelets, but they can also be proud of our diversity equity and inclusion actions and transparency you will see some more substantive announcements in the weeks to come.

Number four innovation has driven our relative success during the pandemic and it will be a hallmark of United in the future we've changed our culture to be willing to have robust debate, even amidst this incredible uncertainty, but we force ourselves to at each meeting with an actual decision and then move rapidly to get it implemented.

And we have by far the best and fastest digital team of any airline in the world. If you look at the changes we've made early and throughout the crisis to our customer facing yet for the new technology, we're testing and airports, where the COVID-19 testing testing capabilities that we're making available for customers. There's simply no question that United has leapfrogged.

Rest of the aviation industry.

Number five we will be focused on restoring the balance sheet, Jerry will give you more detail, but it's clear that our view that we had an appropriately conservative balance sheet coming into the crisis was just wrong number six we will permanently reduce our cost structure by $2 billion per year. The pandemic has forced us to look at hard ways to.

Change the business and become more efficient this will allow us to keep CASM ex flat versus 2019 into 2023 as a permanent 2 billion cost reduction will offset normal inflationary pressures.

Take it as a personal commitment from myself Gerry on the entire management team that we will hit our flat CASM ex target in 2023 and all of the above is what gives us confidence that by 2023 at the latest so possibly earlier, depending on the pace of demand recovery, our EBITDAR margins EBITDA margin.

We will exceed 2019 levels.

Andrew will give you more details on the near term, but I'd, just say that nobody including US has a perfect crystal ball on how soon this really will be over but from the beginning other crisis. Our approach has been to be clear eyed about the challenges and likely course of the recovery.

That's often a made us appear more pessimistic and that's perhaps still true today, but be realistic instead of either optimistic or pessimistic has given us a clear advantage as you first heard me say back in March hope is not a strategy.

It is not our strategy and that remains true as we plan on recovery, we remain flexible and can either delay or hopefully accelerate our plans for the recovery based on the actual data from weather demand inflection point happens in the spring to summer or even the fall. What we know is that the recovery is coming and we're very confident in the <unk>.

Long term.

Close by saying, how proud I am to be a part of the best team in the World Aviation 2020 tested United Airlines and our people in unprecedented ways. We went through Hell and it changes forever. The lessons of 2020, Werent easy, but we've learned them and when this is over and we returned to news will be a better airline for our employees and our customers.

And because of that will be on more profitable airline for our owners.

I'll hand, it over to Brett.

Okay.

Thanks Scott.

I want to start by echoing Scotts words, expressing our gratitude to the entire United family for their hard work and perseverance throughout 2020.

While 2020 was an extremely challenging year I'm proud of the way our employees came together to respond and as a result, but it was a year with our highest customer satisfaction scores.

Got it right that the pandemic has fundamentally changed our airline forever.

We doubled down on innovation and took advantage of this opportunity to make sweeping changes across every aspect of our business, but nowhere, where those changes more critical and more profound and the steps we've taken to ensure the safety of our customers and our employees.

Shifting tracing vaccines and advocacy related to these elements with the U S and foreign governments are the best way to get orders opened and people are flying again.

Taking each of these in turn.

More countries around the world and states in the U S put up barriers to travel to contain the spread.

Advocated per passenger testing as an alternative to quarantines and restrictions.

We've led the way with pilot programs, such as San Francisco to Hawaii, and Newark to London to demonstrate that testing isn't effective.

Alternative and debt a travel air travel is very safe and by February we should have testing available for all of our hubs during.

During the fourth quarter, we announced our partnership with the centers for disease control to establish the first global effort to collect improved passenger contact information, which will help CVC and public health authorities to contain the spread of the virus more effectively.

Scott has already mentioned our work to transport back to us, but we have also been working with state and local governments to move our employees up from prioritization of essential workers for vaccination, both for their safety and the safety of our customers.

Lastly advocacy.

We are actively lobbying here in the U S and in places like London, and Brussels and around the world to get borders open again with a combination of testing and vaccines.

We have incorporated all of these themes in our proposal to present <unk> and his team.

<unk> standing up the White House task force to safely restore air travel.

We bring together government the private sector and labor partners to address what needs to be done to get this vital industry back on its feet and bring back that thousands of good paying jobs that had been lost.

On another top United policy priority, we commend president Baidu for his decision to reenter the U S into the Paris climate agreement.

Realizing the ambitions set forth under the Paris accord is a responsibility, we all including United Airlines.

Last month, we pledged to be 100% green by 2050, which means getting to net zero carbon emissions without relying on traditional carbon offsets.

We will focus on investments in new carbon capture technology and continue our global leadership on sustainability sustainable aviation fuel and we're genuinely excited about the prospect of partnering with the new administration on average to find new long term sustainable solutions for tackling the admissions from flaring and advancing clean.

<unk> energy currently.

We also applaud the executive order on advancing ratio of equity support for underserved communities early reports, indicating future executive order supporting international testing, which we also commit.

We stand ready to work alongside the New administration as well as leaders in both parties to bring the country together defeat COVID-19, realizing revitalize our economy promote ratio of quality and drive sustainable growth around moving.

As Jerry will discuss more in detail.

We ended the quarter with $19 7 billion of available liquidity, which we expect to be enough to manage through the remainder of the crisis.

<unk> United team worked hard to establish a foundation for our long term success and we are focused on leading the recovery and bringing back all of our team members on a permanent basis.

On that note. We're excited to welcome back on 13000 team members under the terms of the payroll support program.

We are grateful to Congress for recognizing the vital role airline employees play in the nation's economy.

Sure.

As Andrew and Gerry will detail shortly revenue environment continues to be challenging and while we are preparing for the recovery and exceeding 2019 EBITDA margins by 2023, we remain realistic about it as timing, but we hope it come sooner.

We are grateful for the role PSP funding plays and recovery planning as we continue to prioritize protecting United United jobs from the long term.

PSP extension combined with our various agreements with our unions in particular, our agreement with our pilots which runs through October of 2022 provides significant flexibility to manage through uncertainty and prepare for the recovery.

We worked hard to align our labor cost with demand and that is only possible by working closely with our union partners on various voluntary programs.

Additionally, we have 315 million of annual savings driven by management and administrative positions that were permanently reduced as we strive to be leaner and more efficient organization.

With that I will turn it over to Andrew to discuss the revenue environment.

Thanks, Brett we ended the fourth quarter with total revenue down 68, 7% and passenger revenue down 75, 7% on capacity down 57% within the quarter, we reduced capacity versus our initial guidance with demand tracking below our expectations.

Nice to see Christmas perform better than Thanksgiving with fewer close in cancellations, but I can't help but think about 2019, thanks, Kevin requirement, where United shattered all revenue records lifted by the momentum of our commercial and customer initiatives, obviously with the pandemic. Our 2020 performance was quite the opposite.

Our cargo team continued to execute in the corner with an impressive 77% increase in revenue and of course, we gained good traction from flying the first of the vaccines from Europe, which we're very proud to have done as Scott mentioned before our team has been preparing for the vaccine transport since April and playing a critical role in distribution of that.

Very precious cargo.

Our total passenger revenue continued to be pressured and was down almost 76% in the corner Unsurprisingly leisure and VFR destinations continue to be a source of some strength, our Latin region led the charge with passenger revenues down 65% from the corner on loyalty and other revenue in the quarter was down about 20% showing the.

AMC of net business.

Domestically passenger revenue was down 72% from the corner, our mid con hubs in Denver, and Houston outperformed the other hubs in the system Atlantic Pacific passenger revenues continue to be severely impaired it down 88%, 91% respectively.

On the spike in cases, and even tough on border controls.

<unk> has once again install and we expect first quarter 2020 revenue total revenue to remain down 65% to 70% versus 2019 with capacity down at least 51% in other words, we don't expect a material improvement over the fourth quarter revenue results based on what we see today our outlook does not.

<unk> taken due accounts any potential positive uptick in bookings driven by improved vaccine distribution in the corner nor on in April where we expect does not see a normal spring break.

Well I guess, that's a pretty sober and outlook for Q1 relative to what many had hoped for but really encouraging long term news is we have been spending a lot of time talking to our corporate customers are traveling <unk> partners and general customers and no on demand recoveries come in and expect it will look like the following.

The recovery will look like an S curve, we expect to remain on the flat part of that curve for early 'twenty and 'twenty one.

Recent international test from requirements will be a short term negative, but a medium and long term positive as the wafer consumers and businesses to regain confidence and border should come down our surveys indicate the cleanup and testing actions United has implemented are beginning to increase confidence materially.

Demand will increase sharply at the point, where on vaccines have been widely distributed and border restrictions are eased and not prior I expect that in the second half of 2021, possibly sooner and vaccine distribution improves.

Leisure demand will recover quickly likely in a few months driven by pent up demand following the vaccine.

Business demand will take 18 to 24 months to recover and assuming that we correct. We expect that to be assuming that's correct. We expect that to remain down from 2022.

Businesses will have less travel related to internal meetings on the medium term, but that will be offset in part by pent up demand for standard business travel related to get any production of product back to market that had been delayed and increased employee travel related to remote work.

We expect domestic capacity will be running ahead of demand during the recovery. We also expect industry international capacity to be high to be behind demand due to many structural changes announced industry wide two day traditional major markets in Europe, and Asia will recover in 2022, and we expect to emerge.

International markets to be stronger in the near term.

So what does all of that mean for United in our short and medium term plans given our demand recovery outlook, we expect international profits will return quicker and stronger than domestic.

From the past in the last cycle domestic margin performance was clearly above international and we expect domestic margins may be under some pressure at the beginning of this next post COVID-19 cycle given all the data we have analyzed 90, clearly was less well positioned to take advantage of the domestic margin performance in the last cycle, but we are well positioned.

To take advantage of these of the expected international opportunity in front of us.

We at United have diversified our international network given these expectations with increased services in Latin America, India, Middle East and Africa, United subsidies are optimally positioned to be two best participate in this recovery.

Coastal gateway cities are simply the best cash gateways for overseas travel to Europe and Asia.

Also plan to get back on track with enhancing connectivity in our mid con hubs and pushing aircraft age up as we retire our single class 50 seat jets on domestic margins may be under more pressure in the next cycle relative to the last we intend to offset that pressure with changes to gauge and connectivity of measurement. We trail on key competitors on bi.

Substantial margin.

Timing is that right to restart investments in our business that will drive better customer satisfaction ex satisfaction through consistency of products such as Polaris.

He has the experience of our customer buying digital innovations.

Increased use of the CRD $5 50, and retire the simple class 50, seaters larger overridden and many more these investments are all contemplated with the commitment to flat CASM ex in 2023 versus 2019.

Sufficient liquidity available to us many investments for the future have restarted and new customer innovations are under development on the coming years.

As everyone knows we have a no excuse policy United prior to the pandemic. We were on the right course, and just about every measurement validated that performance.

I also wanted to note that the commercial team has done a great job on managing the key PRASM and RASM measurements relative to the industry. So far in this crisis.

Most proud of is the fact that our business focus on long haul focus and our coastal gateway focus would otherwise, saying our performance should trail the industry and it is quite the opposite when these key portions of our business resume even in part we expect from a relative performance would be even that much better given our relative exposure. This is why we.

Look forward to exceeding our 2019 EBITDA margin by 2023, our business and industry will be from ever changed due to COVID-19, but our commitment to enhancing the customer experience and driving better financial performance is unwavering.

I want to end today by noting that we have seen an inflection point in customer sentiment about travel early this year with the level of worrying falling quickly on the number of people planning on a trip jumping while we expect this to really translate into new revenue from the second half of the year, it's possible that when we begin to enter the positive part of the Oscar.

On earlier, just like the Curby family My kids are in demand and attributed Disney soon.

Wanted to thank the entire United team for their amazing work in 2020, and with that I'll hand, it off to Jerry.

Thanks, Andrew.

Like most of US I am happy to say good driven 2020.

But if there was a silver lining last year from me it was being so impressed by the number of people at United.

Gone above and beyond in every way.

Whether it's our frontline employees, ensuring that our customers have provided a clean safe and reliable experience for.

For the members of my entire finance organization, who have been working long hours and weekends to ensure that we maintain financially sound putting through the crisis. Thank you for everything you've been doing.

For the fourth quarter of 2020, we reported a pretax loss of $2 4 billion.

And an adjusted pre tax loss of $2 $6 billion.

Fourth quarter total operating expenses, including excluding special charges ended down 42% year over year in line with our guidance.

Our fourth quarter results bring our full year 2020 pretax loss to $8 8 billion.

And on an adjusted pretax loss of $9 $9 billion.

By any measure the size of this loss is stunning.

However, it doesn't tell the full story of 2020.

Going into the crisis last March we had around $6 billion of liquidity.

With the bulk of our revenue quickly disappearing managing liquidity and cash flow became far more important than any other financial metrics.

We worked throughout the year, because total liquidity liquidity cushion to ask beyond when our customers start flying again.

I'm pleased to report that we ended the year with approximately $19 7 billion of.

Available liquidity, including $1 billion of Undrawn revolver capacity and $7 billion available to borrow under our cares Act loan. This is over three times on liquidity, we had before the crisis.

Turning to cash burn our fourth quarter cash burn and did a little better than our recent guidance.

Including debt and severance payments average daily cash burn was $33 million.

Please keep in mind that everyone defines cash burn differently.

As we said on our last call once we raised enough capital and credit net expenses to survive the crisis cash.

Cash burn as previously defined was no longer the best metric to use as an indicator of the performance of our core business.

In the earnings release, we included a chart to give you better detail on cash burn and to demonstrate the progress we've made on core cash burn throughout last year.

You can see from this chart, how we manage various components of cash burn in the second and third quarter. For example, we were able to negotiate payment deferrals that improved average daily cash burn by $2 million and $1 million, respectively. While on the fourth quarter now having sufficient liquidity, we started to pay those deferrals back.

Similarly, we deferred expenses, such as heavy maintenance checks and engine overhaul as we simply grounded aircraft not required to support our schedule.

However in order to prepare for the recovery we've restarted back worked.

In total core cash burn in the fourth quarter improved by about cash since the second quarter dropping from an average of $38 million per day to $19 million per day.

We expect core cash burn to remain flat in the first quarter as compared to the fourth quarter and continue to improve going forward.

Even though cash burn continues we currently expect to end the first quarter with about as much liquidity as we ended 2020 due largely to at least $2 6 billion, we expect to receive under the payroll support program extension.

We received the first installment of $1 $3 billion last week and expect to receive additional amounts in February and March. In addition, thanks to additional flexibility provided by the U S. Treasury Department. We now have until May 28 to decide how much of the $7 billion available on cash.

Cares Act loan we made borrower.

Our strong liquidity position is due to both our successful capital raising activity as well as our continued focus on cost control in 2020, we were able to stop spending money on activity that was not necessary for.

For our substantially reduced operation.

While this focus will continue into 2021 with a strong liquidity, we are able to resume investments in our operations infrastructure to be ready for the recovery.

While no one can confidently predict the timing of the recovery. We do know that if we don't start some of this work now it will be impossible to be fully prepared when the recovery happens.

For example, as I mentioned earlier the airframe heavy maintenance on engine overhaul work, we postpone last year now has to be done to ensure that we can ramp up the schedule as demand returns.

Really we postponed some work on some of our airport clubs last year since they were either closed or lightly utilized again that work needs to be restarted to be ready to welcome back our customers.

At the same time, however, we will be cautious and maintain the flexibility flexibility to slow down these investments if necessary.

Looking at capital expenditures, while we currently expect non aircraft capital expenditures to be around $1 $4 billion. In 2021, we have a plan where we can reduce this amount by half if necessary.

We expect aircraft capital expenditures in 2021 to be about $2 5 billion.

Including the 24 737, Max is $11 77, and four Embraer 175, we expect to take delivery of this year. Just like 2020, we are only taking new aircraft. This year that we can fully financed.

Looking beyond just the first quarter of 2021, we have made structural changes to our cost base.

These changes are ongoing but some examples include permanently reducing management head count representing over $300 million of annual savings.

Simplifying our regional strategy by ramping down our regional partners from eight to six which drives about $50 million of benefit.

Renegotiating contracts across the supply chain, and consolidating and streamlining maintenance operation, which drive over $100 million in savings.

Thus far we have identified $1 $4 billion of annual savings.

And have a path to at least $2 billion on structure reductions moving forward, which will enable us to offset inflationary cost pressures.

As we continue to make the structural changes we are confident in our commitment to achieve 2023, CASM ex flat to 2019, and 2023 EBITDA margin that will exceed 2019 levels. We hope to get there earlier than we are targeting but are confident in the trajectory.

Into 2023.

As we returned to profitability and other primary goal is to restore the strength of our balance sheet.

This means maintaining sufficient liquidity, reducing debt and unencumbered assets.

This crisis has afforded us a number of valuable lessons about the balance sheet and capital allocation.

Before Covid, we modeled our worst case scenarios based on the financial impact of 911, followed by a recession. It turns out we werent even close.

Going forward, we will focus on being ready for a sustained destruction of global air travel demand like we're seeing today.

In addition, we need to be more cognizant of the fact that cash associated with advanced ticket liability may not be reliable source of working capital during a crisis.

As a result, we expect to establish a higher minimum liquidity target than before the crisis.

On the positive side, we have developed a greater understanding of the value of our assets that are available collateral and how investors differentiate their various collateral types.

This will steer our decisions as we unencumber assets, ensuring that higher quality collateral is available to us to quickly raised substantial incremental liquidity just like we did over the last nine months.

Given the amount of debt we have taken on it will take a number of years to restore the balance sheet. As a result, it may constrain our ability to make all of the investments in our business that would otherwise benefit our people our customers and the communities. We serve however, we will make thoughtful choices when it comes to paying down debt versus making investments.

Taking a balanced approach to capital allocation combined with establishing a sustainable cost structure will enable us to achieve our EBITDA margin for 2023 and beyond.

With that I will turn call back to Christine to start the Q&A.

Thank you Jerry we will now take questions from the analysts please limit yourself to one question and if needed one follow up question.

Setting tax try to get to my questions on that.

Bob.

Please describe the procedure to ask a question.

Thank you the question and answer question will be conducted electronically.

Like to ask a question. Please press the star followed by the one on your Touchtone phone, if you would like to be removed from the queue. Please press the pound or hash key.

If they're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Once again, if you would like to ask a question. Please press the star followed by one on your Touchtone phone.

And our first question comes from Brandon on Glen scheme from Barclays. Please go ahead.

Hey, good morning, everyone and Scott and team. Thanks for the more positive outlook on 2023, but I guess, Andrew you mentioned that maybe domestic could be a little bit more challenged share if we lead with leisure recovery.

You guys really differentiate in that environment is it really connectivity through your hubs.

You did talk about a gauge.

Deficiency as well could you expand on that.

Sure.

You got it right on the Domino on hand are there in terms of we do have these.

Page gaps and as we retire 50 Seaters I think you should see our gauge strength to move on the right direction.

Then the plan we had in terms of domestic connectivity really hasn't changed.

Sufficient shortfall there as well so as we close those gaps we think thats going to provide us a nice tailwind, but the other key component of that is we have the largest exposure on the international side on I think of any of the big large U S carriers and we do think there is a bunch of structural changes there that will.

Lead to stronger relative performance over that period of time.

And that should benefit United more than our competitors. So we think we have that lever on the international side and then we have the gauge and connectivity level lever on the domestic side, which should make I think a real big material difference to our performance in 2003.

Yes, I guess, just as a quick follow up to that simple.

Maybe more negative investor view might be hey, youre going to face a lot of domestic higher density competition. So do you think that these differentiating factors for you guys on your network could actually lead to a revenue premium if fair stay low domestically.

As well our RASM premium I guess first maybe on the way I would I would look at it.

To be more specific but absolutely we think as we move to gauge given the size of our hubs.

Cities are located in we are undersized the gauge of the airline and we're going to move to correct that and as you can imagine that will have a nice cost tailwind. So we think that is so unique benefit a lever we can pull from that quite frankly, others have already pulled.

<unk> gives us relative outperformance in again on the international side I think our network fix yourself from the structural changes that you see in the environment today, and I don't need to rattle them off they show up in the headlines almost every day.

Is going to be a really big benefit to United So we add those things up.

Believes that our performance in 'twenty three.

We needed to be and Thats why we are excited to make that commitment and again, Scott gave us the no excuse policy and a while ago and so we're going to hit it.

And our next question comes from David Vernon from Bernstein. Please go ahead.

Hey, guys. Thanks for the time, so Scott I guess, if youre looking at a 2023 expecting the EBITDA margin to debt.

And above sort of 2019 level given andrew's commentary on the curve of demand recovery is there.

There a way you can help us think about the rate of change and that EBITDA margin recovery is this something where we're going to get back to breakeven and stabilize a little bit and then come back as youll get better or how should we be thinking about.

The improvement in the EBITDA margin kind of from from where we are to the higher end of that S curve.

I'll try and Jerry and Andrew can pile on if they want.

It really is about when demand is going to recover I think this team has done on them.

Pretty remarkable job.

Quickly quickly getting our cost and cash burn.

Down early in the crisis.

And now it really depends on on when we hit the inflection point for the recovery in demand then that inflection point will happen when there's a critical mass of the country that has been vaccinated, but also when we are free.

<unk> scientific and medical conclusion that once you get the vaccine youre not only immune from catching Covid you are no longer a transmission vector for Covid, that's an important step that hasnt happened yet.

That needs to happen and when that happens is if you look at the shape of an S curve I think there'll be a very rapid increase in demand.

Anybody's guess on when that happens we have been more conservative I suppose.

Perhaps than others. Unfortunately, we've been more realistic as well so far.

I think it's a little further to the right than perhaps others, but it's really not the point and the reason we said 2023, while there can be hope that its going to happen in <unk>.

During the 60 days from now.

Whether it happens in the spring or the summer or the fall.

What we're really confident of is what we will sometime this year hit that S curve turning point.

And then there'll be a very steep increase in demand and we will rapidly go back to call it 85% to 90% of 2019.

Demand levels and somewhere in there within a matter of months. So it's hard to call precisely will move from be cash negative I think quite a bit cash positive.

And I'm not sure of the timing because it's all dependent on the timing of when the demand recovery happens.

We will be on the top part of the S curve, where we gradually move back towards.

The 2019 levels.

So that's the shape of what we think the demand curve is that inflection point by the way if youre looking for I think as the same time I have been telling employs the same day that you feel like you can go kind of almost everywhere in the country and go to a restaurant to be at 100% capacity is probably when it happens for us because thats the kind of environment, we need where people are back.

And the offices in office buildings aren't limiting capacity, where restaurants are on at 25% capacity, where Disneyland is open for Broadway shows are open and you are able to go to them again those are all the things that drive those are the demand generators for aviation.

And when those things are open again is when people are going to start traveling again, theres, probably arent going to be open until there is can we hit the inflection point with vaccines.

Everyone can have their opinion on when that's going to happen, but when it happens I think there is there is we have lots of data lots of surveys lots of evidence there is huge huge pent up demand and youll see a really steep inflection in demand just to.

Over a matter of weeks and months I think.

And our next question comes from Helane Becker from Cowen and company.

Alright, thanks, very much operator, hi, everybody. Thanks for the time.

I think Scott this might be for you.

Talk to you in more detail about what youre doing with the eco skies program and environmental I know this is like completely off topic from Covid, but.

Yeah.

Well it goes well thanks can you guys.

You guys have for that and how we should think investments in that business and sorry.

Alright.

A second COVID-19.

Well thank you.

You too.

And I love being able to talk about something other than what's going to happen in the next 60 days.

Because you are right. This is more important for the long term and.

And I have been personally interested and.

And then Karen about climate change all the way back to the <unk>.

And we now have an opportunity to really make a difference.

What is clear.

Is that as well, meaning as many other programs are particularly traditional carbon offsets.

They are simply nowhere close to being able to scale to address the climate change problem that we have we produced four as a society World. We produced 4000 times as many carbon emissions as we did in the pre industrial era and there are simply not enough room on the planet the plant 4000 times as many trees and so.

Absent some breakthrough like fusion technology, moving from theoretical to actually real we're going to have to engage in widespread.

Wide scale carbon sequestration, when we were honored to be a partner with Occidental and one five.

The first kind of large scale it maybe even call it demonstration plant and project.

<unk> take carbon directly out of the atmosphere and permanently.

Questor it underground.

And this is the kind of investment that needs to happen not just for aviation but across.

On the industrial economy.

You make a debt and make a difference and we need to start investing because that's how we move down the cost curve 'twenty.

20 years ago, Nobody thought wind farms or solar were economic and today they are.

Because you move exponentially down the cost curve it is going to need government support.

For this to happen.

But I think it is it certainly <unk>.

Feasible solution and it's the only way that I can get the math to add up and actually make a real difference in climate change so.

Obviously, we have a lot of passion about it.

Not just aviation executives, but as citizens of the world.

And thanks, Helane for asking the question.

Okay.

Okay.

And our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead.

Thanks, Good morning, everyone. So just to confirm on the 2023 margin guidance. So I think you implied this but are you also saying that you expect ASM sand load factor to get back to 2019 levels by that theory.

Jerry or Andrew.

Okay.

Definitely don't manage to load factors as said Andrew we do.

Right.

And to get back to where it needs to be to reach that target.

Gary do you want to add anything else.

They don't have to be.

Back to 2019 levels to hit those margin on there.

The cost side.

The cost savings are starting now obviously.

We'll hit the full run rate when we get back to 2019 capacity.

But we're seeing those results.

That's even even today. So we don't have to get all the way back from 2019.

On to get back to those margins.

Okay got it.

Just a follow up to the previous response on the on the ESG initiatives.

Clearly we saw on the auto side that no traditional Oems adopted.

A transitory, but a two pronged approach of working on Evs, while they continue to work on Ice's vehicles do you feel like you need to do something similar in kind of looking at some of these proposed E. Vito project for short haul air travel.

Is that something that will get you a lower carbon footprint.

While you work on potential solutions for long haul flying.

Robyn. Thank you for your question, we're having some technical issues on our on cash sorry.

Sure No problem on my question was kind of similar to some of the traditional auto Oems that were working on electric vehicle technologies simultaneously with internal combustion engine on.

I'm wondering if you were studying electrification or using <unk>.

<unk> grown this passenger drones.

Potential shortfall electrification solution until a longer haul green solution on margin.

Hey, Ravi this is my question.

The answer is yes, we are looking at electrification across everything we do here at United Airlines.

We're spending a lot of time looking at a different development companies out there.

Excited about partnering where we see potential success stories. So I'd ask you to stay tuned.

But youre right.

Right to point out that that's an exciting area in aviation.

And our next question comes from Jamie Baker from Jpmorgan. Please go ahead.

Hey, good morning, everybody.

Jerry a question on the EBITDA guide you sort of touched on this during your prepared remarks, but mark and I were hoping you could give a little more color as to what sort of balance sheet.

You envision in 2023 corresponding to the guide.

Liquidity targeted leverage where your interest expense might be running on an annual basis at that point.

Stuff like that.

Sure, Jamie and to be honest one of the reasons why EBITDA margin is a better metric to use in the short term is because as you know.

To get through the crisis.

The balance sheet.

Yes.

Actually more debt than we had going into the crisis on interest expense for the next few years is going to run.

Really pretty high.

So as I said, we're going to be balancing the pace at which we bring that down as Scott said, a very high priority for us.

But to be fair between this year on next year.

Of course, depending on the pace of recovery.

I wouldn't expect the balance sheet could be materially.

Different from from where we are right now.

Of course.

We still have some flexibility we have until the end of may to decide what to do about cares act loans and so there could be some adjustments but.

It's really in 2023 and beyond when we start making significant.

Progress on on that debt.

Okay. That's helpful.

Follow up and this builds on some of Andrew's comments, but totally understand the structural arguments on the international side.

And the likelihood that debt is a.

<unk> tailwind in 2023 could we get a feel for.

How much better you believe interval international margin could be relative to domestic and if you choose not to answer could you share what that domestic international margin.

Split was in 2019, so we have to understand the base that we're building from.

I'll give it a try and Jamie went out.

Ill give you all the numbers you want I think guidance.

International.

Trails are domestic in the past cycle I would say in the recent year or so by approximately two to three margin points.

And obviously domestic is better.

And the next cycle.

I don't have an exact crystal ball, but I do think that international will be.

Probably slightly ahead of domestic.

And just to be clear trailing two to three points that's relative to your aggregate margin not two to three point deficit.

From domestic correct.

Two to three points from domestic okay, alright Super helpful. Thank you everybody.

Our next question comes from Darryl Genovesi from vertical research. Please go ahead.

Hi, guys. Thanks, Thanks for the time.

Andrew maybe just to follow up on that point and I mean, you said a couple of times now that you are anticipating a better supply demand balance internationally than domestically over the next years I think.

Some investors deposit, but youre just talking on your book.

So can you just give us a sense per why you're so confident that that will be the case I mean are you counting airplanes that have been retired.

Net other airline on other airlines away from you or do you have some particularly.

High degree of confidence in sort of foreign country GDP growth or just can you just give us the basis for for that view.

Alright.

One we're counting the number 747 and <unk> hundred <unk> debt.

Have been pointed at the United States that are no longer in the flying fleets of many airlines around the globe to we're looking at.

Michigan portion.

On the capacity operated by someone across the Atlantic.

That has publicly said, they're not going to do it anymore. So I add up all those facts there are simply fewer wide body aircrafts and.

On the fleets around the world in particular fewer of the very large ones was a very large business class cabins.

And then there is at least one big competitor.

It's no longer flying across the Atlantic those things when you decided to retire fleet those things you could obviously bring fleets back but there are a lot harder to end up then to retire and that gives us a lot of confidence from world is very different on the international front over the next cycle and where we had been.

Great. Thanks.

And then maybe one for Scott or Brett.

We have an administration change yesterday.

So much pump and circumstance.

Executive orders are assigned.

But based on everything we know today.

Is there anything that you would call out about the likely regulatory environment prospectively positive or negative either as it relates to.

Covid or anything else.

Darryl this is Brett.

Obviously with the activity yesterday, and what we expect to see today, it's going to be.

In the first run a pretty active.

Okay environment, but it will be focused on.

Addressing immediate issues so.

In that respect, we're very supportive of it.

Even with respect to any mandate to make them know related for instance to testing and the rest.

Had ample time to build.

A really strong infrastructure.

For testing and we've set up programs in various parts of the country.

We can replicate that and create a seamless environment, it's going to take direct engagement with.

With the government here in the U S and quite frankly, some of these executive orders me from Sir.

Certainly require direct engagement on.

From a foreign government perspective, as well to make them work seamlessly.

But we are actively engaged in those discussions so on.

While we anticipate an active regulatory environment from the outset.

Suggests for.

What might be unusual for an airline.

There is not.

A bad thing.

Initially, especially because of our engagement with both sides.

The Io both in Congress and with.

On the administration, so we're prepared for.

Whatever may happen in the early months of the administration.

And we feel very good about our ability to have an influence on that process as well.

And our next question comes from Hunter Keay from Wolfe Research. Please go ahead.

Yes.

Hey, everyone. Good morning, Thanks for all the thoughtful remarks on the script.

Jerry you talked about potentially a constraint ability to invest is that a capex comment and then.

If you look at the 10-K last year, you had $70 billion of contractual obligations at year end 19.

Roughly half of which was over this EBITDA margin guidance period $35 billion $16 billion in regional CPA as yet $35 billion on aircraft commitments.

Or is that contractual obligation number going to shake out.

We see the next 10-K.

Where will it go a year from now and where will it come down.

Several questions, let me let me.

Start with the choices, we're going to make about paying down debt and investing.

Yes.

Okay.

As I said, we'll be thoughtful about it as critical for us.

Two GAAP our debt balances.

Back down to a comfortable level.

Yes.

Part of that is really to drive the ability to unencumber assets.

What we were able to do.

Turning to this crisis.

Use available assets to raise liquidity quickly.

To build that cushion, that's allowing us now to get through and we basically need.

To reload and be able to do that again, so it's critical that we.

Reduced debt and unencumber assets at the same time.

On keeping liquidity balances above where we thought.

In the past was required so that without question.

Going too.

Constrain some of the investments talking about investments broadly.

Capital on operating investments.

But we have to be balanced about debt.

Yes.

To quote on old friend of mine, but not going to take the cheese off the pizza. So there is a limit.

As you know.

Cost exercise.

Two months.

Luckily we have experienced in that and so I think we will achieve that balance.

The other thing you will see us.

Managed a little better.

Being able to build better flexibility into some of the commitments we made.

If you look at what I said about non aircraft Capex this year.

While on the one hand the plan is.

<unk> spent about $1 4 billion.

Offering and that's going to be embedded going forward in our planning process to make sure that whatever commitments are.

We know how to modify those if necessary.

If required.

Some of that May not show up in the commitment table.

Mhm.

But the flexibility is going to be critical on things going forward.

I'm with you. Thank you, yes that was a long question sorry reported badly.

Current you talked you talked about this this returned to new.

I want to talk about door reimburse.

Tender out into the field this year to generate corporate business what are the some of the things that youre going to let her pitch to your corporate that's unique to United and that fit in a post COVID-19 world, presumably with tighter corporate travel budgets.

Well look I'll, let Andrew actually answer, but one thing that I'll say that I'm excited about doing and I think she's going to be phenomenal.

And excited to have her joining the team.

<unk> talked to her about come into United The number one thing that I talked about is trying to change the mentality that all of us are too many of us, including myself and aviation have had.

About a focus on price is the way to win customers in the hotel to a remarkably good job of having brand value and.

Getting customers to like them getting customers to be loyal for reasons other than price and so I have asked or every single time, she's going to meeting with any of US and people are talking about price is the way for us to compete to stand up and throw something at <unk>.

And get us to change that approach and find ways.

So really.

Make our brand valuable.

More value as valuable as it should be.

Get our customers to like us and to choose us because they like us They trust us they like what we stand for and they have confidence in it as opposed to competing on price Andrew.

I can't add much on that Scott I would just say as you started to call off with it's important that we continue to innovate here at United.

As we talked to <unk> about this opportunity and we're excited to have her start in just a few weeks she's ready to come with a blank sheet of paper.

New ideas and new thoughts and we will do things differently.

We look forward to competing and winning in the arena is a great addition to the team.

Okay. Mr. Kirby.

So a lot of time.

[laughter] curve again.

Yes.

And our next question on back in College.

Our next question comes from Duane <unk> from Evercore ISI. Please go ahead.

Hey, Thanks, Mr. Kirby.

The entire United team.

Team.

Just wanted to follow up from way back on the call, but the flat CASM ex in.

In 2003 could you put a finer point on the range of capacity outcomes.

Underlying that and with respect to the margin guidance in 2023 or are we just assuming the fuel curve or is there some fuel inflation baked into that.

Yeah I'll take that.

So look we've run a number of different scenarios on.

Demand and capacity.

And even we don't have to get to 2019 capacity.

To deliver on our CASM commitment.

So there are lower scenario, but it really depends in part on a couple of things including timing.

Including some of the costs out of our control inflationary pressures.

Bye.

Look our track record on costs.

I think yeah.

Should earn on some credibility I think from you that.

We can get these cost numbers in.

In reasonable capacity scenarios.

On pure on that would say about fuel as we do assume by 2023 of the relationship between revenue and fuel is back to kind of the relationship we saw pre pre COVID-19.

Okay and then just from my follow up on on change fees from a from a long run margin perspective, how do you think about offsets.

From no no change fees is it is it a function of base fare how the industry is going to need to revenue manage is it other revenue or is it a function of these cost initiatives.

Duane.

It's really all of the above I mean change fees.

When we talk to our customers.

Or the biggest obstacle we had to getting the brand in our NPS and everything where we needed to be so when we add it all up it is definitely a different calculation and our revenue management systems will be slightly different.

How we how we need everything will be slightly different and I do think we will be more often than our first choice of our customers when maybe in the past we had not been due to this particular issue.

So a little bit of share in that calculation as well when you add all that up when we thought about this long and hard.

About a year ago, leading up to the change we made late this summer we think it's a positive for our business.

Positive for our customers and so we're in it and we know this isn't the right path.

But it is a complicated calculation and I understand that many of you have spreadsheet models, which have a revenue line items. This change fees and net line item now has a very different number and that's a problem for your models.

We went through that same assessment as we made that decision and looked at all the competing factors from what was the right outcome and that's the path, we've chosen and Thats, what <unk> seen so I know your model doesn't fit that and Nobody's model actually did when we started this process, but we're confident that it will as we move through the end of this crisis simulate towards 2020.

Great.

And our next question comes from Myles Walton from UBS. Please go ahead.

Thanks. Good morning, So I was hoping you could talk I know on cash burn is not something you're assuming they want to talk to but you are still obviously haven't quite a consumption and you talked about the core sequentially stable, but obviously implied would be.

Another $10 million on top of that and so maybe just two things one.

When does that non core cash burn gravitate towards normal levels, and then secondly, others have been more optimistic of <unk> coming in with advanced bookings in cash really taking an inflection it doesn't sound like you are as confident so maybe just touch on both of those.

Yeah, let me start with cash burn.

So first.

Generally nothing has changed in our.

On thoughts about when we get back to cash.

Even so when demand drives revenue to be less than down 50% versus 2019.

Whenever that happens and some people may.

On the more optimistic than perhaps we are and assist in our forecasting and planning.

But.

That's the range, where we start seeing cash cash breakeven.

In terms of some of these items when they normalize.

Well keep in mind that.

Some of the sort of the non core shop.

Non core items include Princeton.

Yeah.

Debt payments.

That will be steady this year actually.

Yes.

A very manageable year on on principal payments, we don't have any major.

Our balance of debt coming due.

And so that R&D fairly.

And throughout the year.

On some of the other numbers.

As we get through this crisis.

Are these more one time items like severance begin to begin to go away.

And look I'll just add on.

Jerry on.

We created a fair bit of angst.

<unk> investors.

By not.

Being willing to say that we think the influx.

Inflection point on demand is right around the corner 60 days away.

And and we hope it is.

From the beginning that hope is not a strategy.

The other thing we've tried to do all the way going back to the JP Morgan Conference in March.

Completely transparent and honest with you about what we think and the truth is none of us know.

None of us have known from the beginning when this within none of US know even today exactly when this is going to be over and if you're listening to us.

Your perspective is just as valid as ours.

Because we don't have any unique data that you Couldnt also look at four four the turning point.

We are confident about is that the turning point as company.

While our base case is that turning point is coming a little bit later than maybe some other thing that turning point is coming on it's going to come at the same time for all airlines.

So it really doesn't matter what our forecasts are today versus tomorrow. The turning point is coming that's what it is I think the most important message is the reason we focus on 2023 today, we hope it's earlier and we can create pretty reasonable scenarios that getting back to 2019 EBITDA margins happens sometime earlier than 2020.

Three.

But we have high confidence in.

In 2023.

And we're not as confident about how quickly it comes back but confident that it is going to turn.

That is going to turn at some point this year and all of this about what's going to happen in the short term is really about does that demand inflection point happen in the spring on March 22nd or does it happen during the summer because it happened in the second half of the year, but it is going to happen.

For us at least that's the biggest takeaway is that it is coming and we're confident that in.

Ultimate conclusion.

And our next question comes from Catherine O'brien from Goldman Sachs. Please go ahead.

Good morning, everyone and thank you so much for your time.

So.

My quick math, I think you share at about $500 million of your structural cost program on on the call can you just share with the biggest the biggest drivers are areas of the rest of that $1 4 billion, you've identified and what additional areas. We're looking at from the 600 million yet to be identified sits at four 2 billion.

Our target.

Share Katie Eichmann.

You're a little bit more color.

Keep in mind that when we.

We're going through a program like this is not one or two big items.

If it were one or two big items. They would have already been included so think about this.

It's just across the board a couple of key words, probably the biggest one is efficiency.

That's going to be driven a lot by that.

Technology innovation.

That will unlock both labor efficiency, and just better utility utilization of assets.

We're going to be able to look at our real estate and start consolidating and combining some facilities.

Continue to streamline processes.

Technology investments and allowing our customers to do more self service all these things add up.

But that's where that's where it's all going to come from.

Okay understood. Thanks Terry.

Maybe one for Andrew.

Alright, and then next 60 day question here, but.

During last earnings season, we've heard from many other industries that net booking trends are starting to be less correlated to COVID-19 headlines.

Is that still true today.

Current trends many more correlated to changes in traveling on the restrictions or vaccine headlines.

I know youre.

On your only sharing.

Of course, it is helpful. But have you seen on improved confidence in booking further out.

Over the last couple of months into that and then just love to hear kind of like what's driving the ebb and flow of that.

Right now if any.

Yes.

Sure.

As we said long ago. This would not be on streamline on recovery and that has definitely turned out to be the case.

When we do look at next summer bookings.

They are down but they are down a lot less than where we are today and I think we've said that publicly before and I think thats true.

Our industry in general so it is nice to see that next summer is booking advanced bookings are better than.

Where we are today, but the numbers are still down weather.

Demand is correlated headlines today, I guess I'm less sure theres, so much moving around going on clearly.

We saw headlines around Thanksgiving that cause our cancellation rates to go up there is no doubt about that.

Performance for Christmas was not as severe for cancellation rates.

But the headlines from are also not that great and there's obviously a lot going on in our country.

But I'm not surprised that are given where we are from our Q1 outlook based off of entering this most difficult time period from our country in terms of getting people vaccinated as quickly as possible. So.

I'm optimistic, but I'm also realistic and Thats, how we created on a revenue guidance for the corner and that obviously drives our ATM on a bunch of other things that are relevant in all of these calculations.

So more to come I know that didn't exactly answer your question on headlines.

I think I'd, just maybe need a few more weeks to see where we are at the end of January to kind of get maybe a better sense of that but it is.

More sluggish.

More similar to what we saw on Q4, and therefore, it's not a straight line recovery and that's what our outlook and ask.

Will be communicated today here reflects.

And our next question comes from Michael Lindenberg from Deutsche Bank.

Hey, good morning, everyone, Hey, just as it relates to.

Net negative Covid test requirement that kicks in next week I guess this is probably to Andrew and Brett are you seeing any notable change in either bookings or cancellations as that becomes effective on the 26 and then just the headline out. This morning that the administration is also considering in addition to that a enforced.

<unk>.

10 day quarantine not sure how theyre going to enforce it but.

Anything that Youre hearing from your government people on kind of both those fronts.

I'll kick it off.

The new requirements did have an impact.

Net impact was very focused now on.

Quite frankly beach destinations in Mexico some income.

And on the Caribbean. So it wasn't the order didn't have a broad impact on our Atlantic business, Our Pacific business majority is down considerably as we communicated earlier.

They didn't have a broad impact on large chunks of even our Latin American business, but it did have an impact on our very close in beach destinations that we can see.

Okay.

And then just quick follow up here on just.

Theres been a few articles out about Amazon, possibly getting into the distribution of airline tickets, but thats something that would make sense for United given Amazon's bandwidth.

Yes.

And distribution is important.

The entire industry and I'm sure Amazon will do it if it makes sense to Amazon on.

Obviously, we sell on ticket to United Dot Com, it's incredibly efficient.

Also had a great partners throughout the entire system and at Amazon joined.

Joining into the ring, we will look at partnering with them as well and Thats something I don't know if that will happen, but we value all our distribution partners.

On the distribution networks for us.

We will work in that direction, so interest in development and we'll see where it goes.

Our next question comes from Joseph de Nardi from Stifel. Please go ahead.

Thanks, Ed good morning.

I think for Scott or Gerry Theres been a fair amount of talk on the call about increase liquidity on the other side of Covid and wanting to unencumber assets I'm wondering how equity plays a role on that.

Delta went out of their way to.

To say that they do not plan to issue any other <unk>.

Equity I'm wondering if you could.

Provide similar commentary thank you.

Yes.

No.

We have been issuing equity.

We put in the earnings release, the amount of equity we sold under our.

ATM program.

But no decisions have been made going forward.

We're going to do this I understand the need to balance.

<unk>.

On the entire capital structure.

So the best I can say.

We've made no decisions, one way or another about additional equity.

Okay Fair enough and then Scott what generates a higher return on capital for United is it buying a new <unk> hundred 20, or giving loop $45 million to invest in <unk>. Thank you.

Well I'd love to look to come to me with ways that he can invest $45 million because I'm confident that if we can find ways to invest more money on the loyalty business.

For everyone else.

Debt that will produce a higher return by the way buying more airplanes also helps the loyalty business.

Volume or routes because it makes the program more attractive to others, but your point is well taken.

The finding ways to invest in the loyalty business.

It's a really high return and stable set of of of.

Of cash flows and earnings right now even through the pandemic and going forward.

And we don't have any announcements to make publicly yet, but I can assure you behind the scenes.

That we are working hard on how do we think of that.

Airline frequent flyer program.

But on a loyalty program.

Well to tell you our goal to double the EBITDA debt to.

Oh that I've given you the double the EBITDA in the next few years.

From the loyalty program.

But thinking about it differently, which will mean some of those investments go to the loyalty program instead of new airplanes.

And our next question comes from Savi <unk> from Raymond James. Please go ahead.

Hey, Good morning, I was wondering if you could talk I know you mentioned a little bit on the international front, but I was wondering if you could talk about how about the competitive on partnership landscape may may or may not look different in Latin America, especially given some notable changes that were on day rates pre COVID-19, including Delta joining on Latam I will let him joining delta and then.

Partner Avianca, having gone through chapter 11 restructuring just curious how you see that landscape changing both from a competitive point on from your partnership with anthem.

Sure Savi, it's Andrew.

I think.

What was the dominant as it started to fall prior to Covid have fallen and the.

Our board will be rearranged as a result.

We clearly have a strong strong partnership with cover Copa and our partnership with Avianca continues and of course <unk>.

Well, we're really excited about that portfolio of partners on the region.

And it covers.

We need to cover and we're really thinking and to date.

I will say that.

Over in those other partnerships.

Not hurt us in fact, I think it's helped us our performance.

It has gotten relatively better so we have a great set of partners in the region.

There's a lot of moving pieces, but ours are pretty good.

We're all set to make sure those partnerships can get even deeper.

I think some of that work has been slowed down due to COVID-19 over the last.

Six months or so, but the team is ready to get back on it and make sure that these partnerships are key to driving our franchise from an entire region.

That's helpful. Thanks, Andrew if I might.

Just ask a quick question on on ticket sales today, just kind of curious.

How much of that mix is kind of credit or voucher use and why.

On a year can expectations as 2021 progresses, and you see maybe a recovery in purchasing.

Sure.

A lot of moving pieces in the <unk> because of the amount of credits that we have out there in the past quarter, we were at 30% cash sales.

I'm, sorry, 70% cash sales, 30% everything else.

And we.

We see that continuing net number that 30% to continue to move down the amount of refunds. We've been issuing has also been coming down which is nice to see but the ECL is not moving like normally moves in a typical year and so we watch that carefully but it has a different seasonality and we expect it to continue.

To be different until we get past the crisis.

At this point.

Alright.

Now and then I'll ask Christian other questions in advance from media I think that we might be having some technical issues on my behalf.

Justin on that.

Yes.

I would like to ask a question. Please press the star followed by the one on your Touchtone phone.

Sure.

Yes.

Okay.

And we have Alison Sider. Please go ahead.

Sure.

Valley are you there.

Maybe we need to go to the next one we're not hearing you Ali.

Operator, you can go to the next person.

Alright, COVID-19 another minute here, if not we might have.

No.

Hey, guys.

<unk> adjusted the media question.

Operator.

Got it from a media question.

And we have Alison sider on the queue.

Please go ahead.

Hi can you hear me now.

Yes, yes.

Oh, great Okay.

Yeah I was wondering if there's been any discussion of kind of taking another look or revisiting. The study you all did with DARPA to adjust some of the assumption in light of some of the new strains that are emerging or if that's something that's even necessary.

I guess I'll start and ask the rest of the team.

The conclusions from the study should should be the same because it's really about the size of the virus.

And how much it transmit and so on mutation that makes it a slight change on the surface surface of the virus.

What changed the results of that study.

So I am not aware that either us or DARPA.

We really see the need to reduce it study.

Our ops team.

Toby and John Roitman on case, they have anything different to add.

I think they are saying no.

Oh, great. Thank you very much and I guess one more.

Given kind of your timing.

Or sort of the continued uncertainty if there's any thought of seeking additional government aid this spring.

Yes. This is.

Brett I'll take this on what.

We certainly appreciate it and it's evidenced.

The last round of support that we received.

On both the administration and Congress understand how critically important we are has an industry to the overall economic recovery. So we're continuing as we always do to peace and direct communication with the administration and Congress.

And if there is another round of support on that.

They will give us full consideration and that they will understand at that point in time.

R&D.

In terms of.

Supporting our overall industry so.

We just received the funding we're grateful for that on petroleum.

It's really important for us and per our industry.

But if there is consideration in the future we're confident that debt our interest will be taken into consideration.

Thank you.

And our next question comes from Tracy Rucinski from Rudolf. Please go ahead.

Hi, Tim.

Follow up on Ali's question on age.

On you did seem to indicate yesterday that you can't count on more aid coming through and that you may need to furlough more employees. When this round of PSP expires can you give us some indication of how many employees whether voluntary or involuntary.

You would have to furlough.

The spread hard no. We don't we don't have any information on that front at this point I mean look the way the best way to think about this is.

We're obviously focused on the demand environment.

And that could change.

Between now and the time that we have to make these decisions.

But we will be focused on the demand environment. There are a number of other factors that go into play as well.

This point in time, what we have.

We're grateful for the opportunity to welcome on our employees back in.

To get them fully engaged.

And and we will make.

Those decisions when they're when they're timely.

But we're not in a position right now to make any assumptions.

Assumptions about cash.

For those on the future.

Is there a concern.

If demand does come back very quickly on what you're saying that you could be.

Sorry to ask then.

And not have enough pipeline in place to service that demand on as quickly as competitors to on its furloughing.

On may be able to.

No we have no concern on that front.

As we have said and continue to say we fully expect.

Demand to return at some point in the future and we have been taking steps on to ensure that we are in a position.

To react to that.

Mediately. So we don't have concerns on that front.

And our next question comes from Justin Bachman from Bloomberg News.

Hi, everybody. Thanks for the time today, I hope sort of a two part question on.

First on the 'twenty three targets if that includes any type of fleet retirement of older fleet or any kind of hard targets on your up gauging strategy for maybe the regional side and then the second part of the question was Andrew's commentary about the.

International competitive situation and whether United sees that as an opportunity for greater capacity on its side or what you expect to play out in terms of the the other two larger trans Atlantic alliances and what they may do.

Or if overall capacity will remain low thanks for the time.

Hey, this is Jerry I'll start on just the plan.

On points out that.

We want to maintain as much flexibility as we can on the fleet. So that aircraft are there to support.

On the.

The demand the only decision we've made on retiring aircraft are.

Upset of our $75 seven 200 fleet.

One day or about 13 of them that we've.

Paradise warm day.

That are among the oldest in the fleet debt.

For a number of reasons decided those are retiring.

Which is weighted to the charge we took in the.

Quarter on.

The rest of the fleet the mainline fleet particular, we'll maintain flexibility.

And then just in terms of the up gauging process.

Going to depend.

On a lot on the.

On the availability of the larger Max's and we know that the 7% to seven Max 10 is not available until 2020.

Three so.

Yes, that's not factored into into the.

Uh huh.

Targets at all from 2023, and I'll turn it over to Andrew do you want to talk about the regionals.

Sure. Thanks Kerry it's good to hear from you Justin.

Is that.

When you make fleet changes in this business.

It's easy to retire aircraft, but it's a lot harder to induct new ones in replacement for a million different reasons and so when we look out at the world. We see airlines have made a lot on different moves and the generally.

Go back to bigger aircraft.

And retired.

Really are.

Our flexibility open on this front as we've said over and over again and from a planning perspective, one of the moves we've made is to move some some of these aircraft into new markets.

For example, we announced New York to Johannesburg, and other.

Other service to Africa.

And more service in India, as we plan to make sure that we don't necessarily have to put all of our capacity back into the original core markets. We had in 2019. So we will see on it goes on.

I can't predict what other airlines will do on this.

Looking at fleet plans and the structural changes that we've seen in the global long haul markets and given you some of those facts.

Great. Thanks.

And our next question comes from David Slotnick from business Insider.

Hi, everyone and hope everyone staying healthy.

I had a question on FX in passports.

Excuse me.

A few months ago, you were trialing.

On a secure digital platform for test results.

A better way to validate negative PCR test.

I Wonder if you are doing the same thing for vaccine those travel picks up in other proof of the vaccine is probably going to be required for a lot of international travel.

Hi, there Linda or Toby you guys want to take that.

Sure. Thanks, Thanks, Scott.

We are definitely focused on.

Making it as easy for our customers as we can to manage through all the different rules, whether it's around testing requirements vaccine requirements and certainly technologies can have a big piece of that and so what I'd say is stay tuned we've got a lot of really good things coming very shortly.

And our next question comes from Leslie Joseph from CNBC. Please go ahead.

Hi, good morning, everyone.

Could you talk a little bit about the demand trends.

The vaccine or the testing requirement.

It was announced and it goes into effect and.

Really what's the effect on some of the maybe shorter trips in Mexico and the Caribbean.

Sure Leslie Andrew you hit.

You hit it right on out there that.

The demand trends have not really changed much in most places, including overseas where they have changed.

And then Mexican Beach resort destinations.

And certain Caribbean Beach resort destinations.

In particular, Mexico had no restrictions prior to these changes so the impact on those Mexican destination to just more than other places that already have significant on requirements and testing requirements are.

Any impact on traffic. So the summary quick answer is we have seen a change the change is very focused on Mexican beach resorts relative to the remaining parts of the United International Network, which already were impacted by testing requirements to begin with.

Okay. Thank you.

And our next question comes from Dawn Gilbertson from USA today. Please go ahead.

Hi, Good morning, My questions also have to do with the new.

Covid testing requirement.

It takes effect next week, Andrew can you quantify at all the impact.

On bookings and cancellations, especially too to Mexico. Since just went into effect and on a related note are you confident.

That there is the infrastructure in place.

In Mexico, such a popular destination right now for travelers I mean, I'm getting reams press releases from high end hotels, the average traveler going to Mexico doesn't stay at a four season. So does that concern you at all on in terms of how it's linked to demand.

Yes, sure Don good to hear from you. It definitely is linked to demand. So in terms of the impact on United to overall business, maybe I'll, maybe I'll start there is debt.

Because most of the world already had some type of requirement for testing or quarantines in place.

Most of the World I don't believe based on the numbers. We're looking at had a negative impact based on the announcement from a few weeks ago and what's going to happen next week and one place that is different that had no regulatory testing requirement was Mexican beach, Mexico in general, but the beach resorts, which add a material amount.

Volume again from the Grand scheme of the size of the United Airlines.

The features are a small part of our overall business net of our client today.

So that's reflected in our in our revenue outlook.

I will turn it over to Toby because.

One thing we need to do is make sure if he would like to take a trip to <unk> you can feel safe and secure about your ability to do that in return efficiently back to United States. So Tony do you want to take the second half of that question.

Sure what I would add this.

And then on as well.

We're working really really hard with lots of partners to be able to increase the supply of task on one thing. Good about this new order is that they're allowing antigen test, which is much much easier and faster and cheaper to GAAP. So more to come like Linda we're going to work really really hard to make sure it's really really easy to travel with United either.

With the new testing requirements and we got on absolutely focus on.

The areas that you mentioned that the short end the beaches.

But some from family first.

There's no doubt the testing requirement as a short term negative.

But as these tests and get out there.

Debt it reopens borders not only to Mexico, but around the world.

We think thats, a good medium and long term change and will prompt more and more demand, but in a very short term a slight.

Negative, but we are going to respond with automation and digital technology and communications. So our customers know kind of take that trip and know what they need on the outbound and know what they need on the inbound and we will have a lot more to say about that from the very very near future because of this transparency.

It is important to everybody, we'd like to get people moving again and we know this is the way to do it and we have plans in place that we will detail very shortly that describe exactly how we're going to do that.

No further questions at this time.

Thank you operator, and thanks, everyone for joining the call today, please contact investor or media relations. If you have any further questions and we look forward to tack on the next quarter.

Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.

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Good morning, and welcome to the United Airlines Holdings Earnings Conference call for the fourth quarter and full year 2020. My name is Stephanie and I'll be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions at that time. If you have a question. Please press star followed by one on your cash.

Tom thumb.

This call is being recorded and is copyrighted. Please note that no portion of the call maybe recorded transcribed or rebroadcast without the company's permission your participation implies your consent to our recording of this call. If you do not agree with these terms simply drop off the line I went on I'll turn the presentation over to your host for today's call.

Kristina Munoz director of Investor Relations. Please go ahead.

Thank you Jenny good morning, everyone and welcome to United <unk> fourth quarter on full year 2020 earnings Conference call yesterday, we issued our earnings release, which is available on our website at IR day at United.

Information in yesterday's release and the remarks made during this conference call may contain forward looking statements, which represent the company's current expectations or beliefs concerning future events on financial performance.

All forward looking statements are based upon information currently available to the company a number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release form 10-K, and 10-Q and other reports filed with the SEC I hear it's 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 for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Please refer to the tables at the end of our earnings release.

Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Perry President, Brett Hart Executive Vice President and Chief Commercial Officer, Andrew Nocella, and Executive Vice President and Chief Financial Officer, Jerry Letterman.

We have other members of the executive team on the line available to assist with Q&A and now I'd like to turn the call over to Scott. Thank you.

Thanks, Christina and thank you all for joining our call today.

2020 was a year of going through Hell, but we kept going in a few years from now at United will look back at 2020 is the year that gave us the opportunity to structurally change the airline for the better.

I wanted to express my sincere gratitude for the outstanding work of the United team during such a difficult part one.

One of the most visible examples is that our employees are delivering on our customers are noticing on net promoter scores are up over 30 points year over year and are by far the highest they've ever been.

We've been leading the charge in the industry and health and safety network flexibility creative financing and the list goes on the United team is taking this opportunity to evolve our airline for the future and I couldn't be prouder.

I'd also like to thank everyone in Washington D C and both parties along with our Union partners, who worked for the extension of the payroll support program.

I had emerged as a leader at the beginning of this crisis and we further solidified that position in the fourth quarter.

We had significant accomplishments in 2020, including being the first airline to recognize the potential severity of COVID-19, which allowed us to get a head start on dealing with the crisis and we've continued to be the most accurate at forecasting the course of the virus.

Without on safety initiatives throughout the crisis, including being the first airline to require mass partnering with DARPA to do the most comprehensive analysis of airflow onboard aircraft ever done and using those findings to support the needs of Arizona to run auxiliary power and thus have robust airflow is pastures board and Deplane something.

<unk> uniquely is doing well.

We brought on permanent changes to improve air travel for customers such as taking the step to permanently eliminate domestic change fees we.

We completed two first of its kind transactions with mileage plus and an innovative W. E. T C. Along the road to raising over 26 billion started to cry.

Without on minimizing cash burn early and continuing throughout the crisis and we were the first to see the light at the end of the tunnel, which has allowed us to begin preparing for the coverage, which does mean some spending in the near term.

We continue to lead on testing testing testing with flights to Hawaii, Newark to London, Houston of Latin America, and many other destinations to drive safe travel or.

Our cargo team continues to lead the passenger industry with cargo revenue up 77 per cent this quarter and their advanced preparation work allowed us to partner with Pfizer to transport the first mass shipment of Covid.

19 vaccine into the United States and that's just to name a few.

Aggressively managing the challenges of 2020 dependant on our ability to make big changes quickly, but the truth is that COVID-19 has changed United Airlines Forever as we recover from this crisis, we've stopped using the return term returned to normal because it creates an environment, where it's just too easy to go back to doing what we were doing before.

Instead, we want to focus on a return to new approach that applies to a wide variety of goals. When this is over our employees customers. The general public and shareholders will see United or new United Airlines, specifically, there are seven areas, where you'll see a united United number one.

Our commitment to changing how customers feel about United We've made early downpayments on this is the first among global U S airlines to permanently eliminate change fee and the differences in the experience and interaction with our employees or what have led to the 30 plus point increase in M. P. S. Theres more to come on this but it was intentional on our list.

First despite the fact that this is an earnings call normally geared to more explicit financial goals.

Number two on 100 per cent green commitment to climate change is also unique and new not only amongst airlines, but amongst global corporation leaders, including Ceos around the world need to accept the fact that we cannot and will not make a serious debt and climate change unless we began investing in carbon sequestration.

So United was proud to announce that would be a large partner along with Occidental on 1.5, and the world's largest direct air capture and sequestration project, where each plant will remove enough carbon directly from the atmosphere and permanently buried underground each year to be the equivalent of literally planning 40 million trees per year.

Number three our employees and customers and shareholders can rightly be proud of our unique and groundbreaking climbing equipment, but they can also be proud of our diversity equity and inclusion of actions and transparency, you'll see some more substantive announcements in the weeks to come.

Number four innovation has driven our relative success during the pandemic and it will be a hallmark of United in the future we've changed our culture to be willing to have robust debate, even amidst this incredible uncertainty, but we force ourselves to at each meeting with an actual decision and then move rapidly to get it implemented.

And we have by far the best and fastest digital team of any airline in the world. If you look at the changes we've made early and throughout the crisis to our customer facing yet for the new technology, we're testing and airports, where the Covid test testing capabilities that we're making available for customers. There's simply no question that United has leapfrogged.

Rest of the aviation industry.

Number five we will be focused on restoring the balance sheet, Jerry will give you more detail, but it's clear that our view that we had an appropriately conservative balance sheet coming into the crisis.

Wrong number six we will permanently reduce our cost structure by $2 billion per year. The pandemic has forced us to look at hard ways to change the business and become more efficient and this will allow us to keep CASM ex flat versus 2019 into 2023 as the permanent 2 billion dollar cost reduction will.

Offset normal inflationary pressures.

Take it as a personal commitment from myself, Jerry and the entire management team that we will hit our flat CASM ex target in 2023 and all of the above is what gives us confidence that by 2023 at the latest so possibly earlier, depending on the pace of demand recovery, our EBITDAR margins EBITDA margin.

Well exceed 2019 levels.

Andrew will give you more details on the near term, but I'd, just say that nobody including US has a perfect crystal ball on how soon this really will be over but from the beginning other crisis. Our approach has been to be clear eyed about the challenges and likely course of the recovery.

That's often a made us appear more pessimistic and that's perhaps still true today, but be realistic instead of either optimistic or pessimistic has given us a clear advantage as you first heard me say back in March hope is not a strategy, but at least it's not our strategy and that remains true as we plan on recovery we remain.

Flexible and can either delay or hopefully accelerate our plans for the recovery based on the actual data, but weather did the demand inflection point happens in the spring the summer or even the fall. What we know is that the recovery is coming and we're very confident in the long term.

Rose by saying, how proud I am to be a part of the best team in the World Aviation Twenty-twenty tested United Airlines, and our people in unprecedented ways.

Went through Hell and it changes forever the lessons of 2020 weren't easy, but we've learned them and when this is over and we returned to new will be a better airline for our employees and our customers and because of that will be a more profitable airline for our owners.

I'll hand, it over to Brett.

Okay.

Thanks Scott.

I want to start by echoing Scotts words, expressing our gratitude to the entire United family for their hard work and perseverance throughout 2020.

While 2020 was an extremely challenging year I'm proud of the way our employees came together to respond and as a result, but it was a year with our highest customer satisfaction scores.

Got it right that the pandemic has fundamentally changed our airline forever.

We doubled down on innovation and took advantage of this opportunity to make sweeping changes across every aspect of our business, but nowhere, where those changes more critical and more profound and the steps we've taken to ensure the safety of our customers and our employees.

Testing tracing vaccines and advocacy related to these elements with the U S and foreign governments are the best way to get borders open people flying again.

Each of these in turn.

More countries around the world in states in the U S put up barriers to travel to contain the spread.

Advocated for passenger testing as an alternative to quarantines and restrictions.

We've led the way with pilot programs, such as San Francisco to Hawaii, and Newark to London to demonstrate that testing isn't effective.

Alternative and that a travel and debt air travel is very safe and by February we should have testing available for all of our hubs during.

During the fourth quarter, we announced our partnership with the centers for disease control to establish the first global effort to collect improved passenger contact information, which will help CVC and public health authorities to contain the spread of the virus more effectively.

Scott has already mentioned our work to transport vaccines, but we've also been working with state and local governments to move our employees and prioritization of essential workers for vaccination, both with their safety and the safety of our customers.

Lastly advocacy.

We are actively lobby even here in the U S and in places like London, and Brussels and around the world to get borders open again with a combination of testing in vaccines. We have incorporated all of these things on a proposal to president Biden and his team.

Standing up a white house task force to safely restore air travel.

We bring together government the private sector and labor partners to address what needs to be done to get this vital industry back on its feet and bring back that thousands of good paying jobs that had been lost.

On another top United policy priority, we commend president by inquiries decision to reenter the U S into the Paris climate agreement.

Realizing the ambitions set forth under the Paris accord is a responsibility, we all own including United Airlines last month, we pledged to be 100% Green by 2050, which means getting to net zero carbon emissions without relying on traditional carbon offsets we.

We will focus on investments in new carbon capture technology and continue our global leadership on sustainability sustainable aviation fuel and we're genuinely excited about the prospect of partnering with the new administration on efforts to find new long term sustainable solutions for tackling the admissions from flooring and advancing a cleaner.

Energy products.

We also applaud the executive order on advancing ratio of equity support for underserved communities early reports, indicating future executive order supporting international testing, which we also commit.

We stand ready to work alongside the New administration as well as leaders in both parties to bring the country together defeat COVID-19, realizing revitalize our economy promote ratio of quality and drive sustainable growth around EBITDA.

As Jerry will discuss more in detail.

We ended the quarter with $19 7 billion of available liquidity, which we expect to be enough to manage through the remainder of the crisis.

<unk> United team worked hard to establish a foundation for our long term success and we are focused on leading the recovery and bringing back all of our team members on a permanent basis.

On that note. We're excited to welcome back on 13000 team members under the terms of the payroll support program.

We are grateful to Congress for recognizing the vital role airline employees play in the nation's economy.

Sure.

As Andrew and Gerry will detail shortly revenue environment continues to be challenging while we are preparing for the recovery and exceeding 2019 EBITDA margins by 2023, we remain realistic about it as timing, but we hope it come sooner.

We are grateful for the World PSP funding plays and recovery planning as we continue to prioritize protecting United United jobs from the long term.

PSP extension combined with our various agreements with our unions in particular, our agreement with our pilots, which runs through October 2022 provide significant flexibility to manage through uncertainty and prepare for the recovery.

We worked hard to align our labor cost with demand and that is only possible by working closely with our union partners on various voluntary programs.

Additionally, we have 315 million of annual savings driven by management and administrative positions that will permanently reduce as we strive to be a leaner and more efficient organization.

With that I will turn it over to Andrew to discuss the revenue environment.

Thanks, Brett we ended the fourth quarter with total revenue down 68, 7% and passenger revenue down 75, 7% on capacity down 57% within the quarter, we reduced capacity versus our initial guidance from on demand tracking below our expectations.

Nice to see Christmas perform better than Thanksgiving with fewer question on cancellations, but I can't help but think of back 2019, Thanks, Kevin Department, where United Shattered All revenue records lifted by the momentum of our commercial and customer initiatives, obviously, when the pandemic. Our 2020 performance was quite the opposite.

Our cargo team continued to execute in the quarter with an impressive 77% increase in revenue and of course, we gained good traction from client first is the vaccine from Europe and from our primary PRASM guidance that Scott mentioned before our team has been preparing for the vaccine transport since April and playing a critical role in distribution of that.

Very precious cargo.

Our total passenger revenue continued to be pressured and went down almost 76% in the corner on top.

Privately leisure and VFR destinations continue to be a source of strength our last region led the charge on the passenger revenues down 65% from the corner on loyalty and other revenues in the quarter was down about 20% showing the resiliency of that business.

Domestically passenger revenue was down 72 percentage on the corner, our mid con hubs in Denver, and Houston outperformed the other half from this system Atlantic and Pacific passenger revenues continue to be severely impaired it down 88%, 91% respectively.

On the spike in cases, and even tough on border controls.

<unk> has once again install and we expect first quarter 2020 revenue total revenue to remain down 65% to 70% versus 2019 with capacity down at least 51% in other words, we don't expect a material improvement over the fourth quarter revenue results based on what we see today our outlook does not.

<unk> take into account any potential positive uptick in bookings driven by improved vaccine distribution in the corner nor on in April where we expect does not seem on a normal spring break.

Well I guess, that's a pretty sober and outlook for Q1 relative to what many on how poor the really encouraging long term news is we have been spending a lot of time talking to our corporate customers. Our travel agency partners and general customers and no on demand recoveries come in and expect it will look like following.

On a recovery will look like an S curve, we expect to remain on the flat part of that current for early 'twenty and 'twenty one.

Recent international testing requirements will be a short term negative, but a medium and long term positive as a way for consumers and businesses to regain confidence and border should come down our surveys indicate the cleanup and testing vaccines United has implemented are beginning to increase confidence materially.

Demand will increase sharply.

These have been widely distributed and border restrictions are eased and not prior expect that in the second half of 2021, possibly sooner and vaccine distribution improves leisure demand will recover quickly likely in a few months driven by pent up demand.

On the vaccine.

This demand will take 18 to 24 months to recover and assuming that we correct. We expect that to be assuming that's correct. We expect that to remain down from 2022.

Businesses will have less travel related to internal meetings on the medium term, but that will be offset in part by pent up demand for standard business travel related to get production that product back to market that had been delayed and increased employee travel related to remote work.

We expect domestic capacity will be running ahead of demand during the recovery. We also expect industry international capacity to be high to be behind demand due to many structural changes announced industry wide two day traditional major markets in Europe, and Asia will recover in 2022, and we expect to emerge.

International markets to be stronger in the near term.

So what does all of that mean free 90, and our short and medium term plan.

Given our demand recovery outlook, we expect international profits will return quicker and stronger than domestic.

On the path from the last night on domestic margin performance was clearly above international and we expect domestic margins may be under some pressure at the beginning of this next post COVID-19 cycle given all the data we have analyzed 90, clearly with less well positioned to take advantage of the domestic margin performance in the last cycle, but we are well positioned.

To take advantage of these of the expected international opportunity in front of us.

We are United have diversified our international network given these expectations with increased services in Latin America, India, Middle East and Africa, United Some cities are optimally positioned to be two best participate in this recovery.

<unk> console gateway cities are simply the best pathway gateways from overseas travel to Europe and Asia.

Also plan to get back on track with enhancing connectivity and our mid con hubs.

Pushing aircraft gauge as we retire our single class 50 seat jets on domestic margins may be under more pressure in the next cycle relative to the last we intend to offset that pressure with changes to gauge and connectivity of measurement. We trail on key competitors on by a substantial margin.

Timing is now right to restart on investments and our business that will drive better customer satisfaction from tax satisfaction through consistency of products such as Polaris easy experience every customer buying digital innovation.

Increased use of the CRD $5 50, and retire the simple class 50 theaters larger over it and many more these investments are all contemplated with the commitment to flat CASM ex in 2023 versus 2019.

With sufficient liquidity available to us many investments for the future have restarted and new customer innovations are under development for the coming years.

As everyone knows we havent no excuse policy United prior to the pandemic, we were on the right course, and just about every measurement validated in that performance.

I also wanted to note that the commercial team has done a great job on managing the key PRASM and RASM measurements relative to the industry. So far in this crisis.

Most proud of and the fact that our business focus on long haul focus and our coastal gateway focus would otherwise say our performance trailed the industry and it is quite the opposite when these key portions of our business resume even in part we expect on a relative performance would be even that much better given our relative exposure. This is why we.

Look forward to exceeding our 2019 EBITDA margins by 2023, our business and industry will be from ever changed due to COVID-19, but our commitment to enhancing the customer experience and driving better financial performance is unwavering.

I want to end today by noting that we have seen an inflection point in customer sentiment about travel early this year with the level of worrying falling quickly and then other people planning a trip from jumping while we expect this to really translate into new revenue for the second half of the year, it's possible that when we begin to enter the positive part of the Oscar.

Our earlier just like the Curby family My kids are in demand and interest in Disney.

Wanted to thank the entire United team for their amazing work in 2020, and with that I'll hand, it off to Jerry.

Thanks, Andrew.

Like most of US I am happy to say good driven 2020.

But if there was a silver lining last year for me it was being so impressed by the number of people at United.

Gone above and beyond in every way.

Whether it's our frontline employees, ensuring that our customers have provided a clean safe and reliable experience for the members of my entire finance organization, who have been working long hours and weekends to ensure that we maintain financially sound putting through the crisis.

You for everything you've been doing.

For the fourth quarter of 2020, we reported a pretax loss of $2 4 billion and an adjusted pre tax loss of $2 $6 billion.

Fourth quarter total operating expenses, including excluding special charges ended down 42% year over year in line with our guidance.

Our fourth quarter results bring our full year 2020 pre tax loss to $8 8 billion and an adjusted pretax loss of $9 $9 billion by.

By any measure the size of this loss is stunning however, it doesn't tell the full story of 2020.

Going into the crisis last March we had around $6 billion of liquidity.

With the bulk of our revenue quickly disappearing managing liquidity and cash flow became far more important than any other financial metrics.

We worked throughout the year to build on liquidity liquidity cushion to ask beyond when our customers start flying again.

I am pleased to report that we ended the year with approximately $19 7 billion.

Available liquidity, including $1 billion of Undrawn revolver capacity and $7 billion available to borrow under our cares Act loan. This is over three times the liquidity, we had before the crisis.

Turning to cash burn our fourth quarter cash burn and did a little better than our recent guidance, including debt and severance payments average daily cash burn was $33 million.

Please keep in mind that everyone defines cash burn differently.

As we said on our last call once we raised enough capital and credit net expenses to survive the crisis cash.

Cash burn as previously defined was no longer the best metric to use as an indicator of the performance of our core business.

In the earnings release, we included a chart to give you better detail on cash burn and to demonstrate the progress we've made on core cash burn throughout last year.

You can see from this chart, how we manage various components of cash burn in the second and third quarter. For example, we were able to negotiate payment deferrals that improved average daily cash burn by $2 million and $1 million, respectively. While on the fourth quarter now having sufficient liquidity, we started to pay those deferrals back.

Similarly, we deferred expenses, such as heavy maintenance checks and engine overhaul as we simply grounded aircraft not required to support our schedule.

However in order to prepare for the recovery we've restarted back worked.

In total core cash burn in the fourth quarter improved by about cash since the second quarter dropping from an average of $38 million per day to $19 million per day.

We expect core cash burn to remain flat in the first quarter as compared to the fourth quarter and continue to improve going forward.

Even though cash burn continues we currently expect to end the first quarter with about as much liquidity as we ended 2020 due largely to at least $2 6 billion we.

We expect to receive under the payroll support program extension.

Received the first installment of $1 $3 billion last week and expect to receive additional amounts in February and March in addition.

Thanks to additional flexibility provided by the U S. Treasury Department. We now happens on May 28 to decide how much of the $7 billion available on the cares Act loan we made borrower.

Our strong liquidity position is due to both our successful capital raising activity as well as our continued focus on cost control in 2020, we were able to stop spending money on activity that was not necessary.

For our substantially reduced operation.

While this focus will continue into 2021 with a strong liquidity, we are able to resume investments in our operations infrastructure to be ready for the recovery.

While no one can confidently predict the timing of the recovery. We do know that if we don't start some of this work now it will be impossible to be fully prepared when the recovery happens.

For example, as I mentioned earlier, the airframe heavy maintenance and engine overhaul work. We've postponed now last year now has to be done to ensure that we can ramp up the schedule as demand returns.

Lee we postponed some work on some of our airport clubs last year since they were either closed or lightly utilized again that work needs to be restarted to be ready to welcome back our customers.

At the same time, however, we will be cautious and maintain the flexibility flexibility to slow down these investments if necessary.

Looking at capital expenditures, while we currently expect non aircraft capital expenditures to be around $1 $4 billion in 'twenty and 'twenty. One we have a plan where we can reduce this amount by half if necessary.

We expect aircraft capital expenditures in 2021 to be about $2 $5 billion.

Including the 24 737, Max is $11 77, and four Embraer 175, we expect to take delivery of this year. Just like 2020, we are only taking new aircraft. This year that we can fully financed.

Looking beyond the first quarter of 2021, we have made structural changes to our cost base. These changes are ongoing but some examples include permanently reducing management head count representing over $300 million of annual savings simple.

Simplifying our regional strategy by ramping down our regional partners from eight to six which drives about $50 million of benefit.

Renegotiating contracts across the supply chain, and consolidating and streamlining maintenance operations, which drive over $100 million in savings.

Thus far we have identified $1 $4 billion of annual savings.

And have a path to at least $2 billion in structure reductions moving forward, which will enable us to offset inflationary cost pressures.

As we continue to make these structural changes we are confident in our commitment to achieve 2023, CASM ex flat to 2019, and 2023 EBITDA margin that will exceed 2019 levels. We hope to get there earlier than we are targeting but are confident in the trajectory.

Into 2023.

As we returned to profitability and other primary goal is to restore the strength of our balance sheet.

This means maintaining sufficient liquidity, reducing debt and unencumbered assets.

This crisis has afforded us a number of valuable lessons about the balance sheet and capital allocation.

Before Covid, we modeled our worst case scenarios based on the financial impact of 911, followed by a recession. It turns out we werent even close.

Going forward, we will focus on being ready for a sustained destruction of global air travel demand like we're seeing today.

In addition, we need to be more cognizant of the fact that cash associated with advanced ticket liability may not be reliable source of working capital during a crisis.

As a result, we expect to establish a higher minimum liquidity target than before the price.

On the positive side, we have developed a greater understanding of the value of our assets that are available per lateral and how investors differentiate their various collateral types.

This will steer our decisions as we unencumber assets, ensuring that higher quality collateral is available to us to quickly raise substantial incremental liquidity just like we did over the last nine months.

Given the amount of debt we have taken on it will take a number of years to restore the balance sheet. As a result, it may constrain our ability to make all of the investments in our business that would otherwise benefit our people our customers and the communities. We serve however, we will make thoughtful choices when it comes to paying down debt versus making investments.

Taking a balanced approach to capital allocation combined with establishing a sustainable cost structure will enable us to achieve our EBITDA margin for 2023 and beyond.

With that I will turn call back to Christine to start the Q&A.

Thank you Jerry we will now take questions from the analysts please limit yourself to one question on estimated one follow up question.

We are studying tax try to get to my questions on that platform.

Operator, please describe the procedure to ask a question.

Thank you the question and answer question will be conducted electronically.

I'd like to ask a question. Please press the star followed by the one on your Touchtone phone, if you would like to be removed from the queue. Please press the pound or hash key.

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And our first question comes from Brandon on Glen <unk> from Barclays. Please go ahead.

Hey, good morning, everyone and Scott and team. Thanks for the more positive outlook on 2023, but I guess, Andrew you mentioned that maybe domestic could be a little bit more challenged share if we lead with leisure recovery.

You guys really differentiate in that environment is it really connectivity through your hubs.

You did talk about ph.

Deficiency as well could you expand on that.

Sure.

You've got it right on.

And are there in terms of we do have these.

Age gaps and as we retire 50 Seaters I think you should see our gauge start to moving the right direction.

And then the plan we had in terms of domestic connectivity really hasnt changed.

Sufficient shortfall there as well so as we close those gaps we think thats going to provide us a nice tailwind, but the other key come on.

On to that as we have the largest exposure on the international side on I think.

Any other big large U S carriers, and we do think there is a bunch of structural changes there.

That will lead to stronger relative performance over that period of time.

And that should benefit United on more than our competitors. So we think we have that.

That lever on the international side, and then we have the gauge and connectivity level lower on the domestic side, which should make I think a real big material difference to our performance in 2003.

Yes, I guess, just as a quick follow up to that simple.

Maybe more negative investor view might be hey, youre going to face a lot of domestic higher density competition. So do you think that these differentiating factors for you guys on your network could actually lead to a revenue premium if fair to stay low it domestically.

Well, our RASM premium I guess first maybe on the way I would look at it.

To be more specific but absolutely we think as we move to gauge given the size of our hubs.

Cities are located and we have on your size the gauge of the airline and we're going to move to correct that and as you can imagine that will have a nice cost tailwind. So we think that is a unique benefit a lever we can pull on that quite frankly, others have already pulled.

<unk> gives us relative outperformance in again on the international side I think our network seat yourself from the structural changes that you see in the environment today, and I don't mean to rattle them off they show up in the headlines almost every day.

Is it going to be a really big benefits for United So we add those things up and believe that our performance in 'twenty three is where we needed to be and that's why we're excited to make that commitment and again Scott gave us no excuse policy on a while ago and so we're going to hit it.

And our next question comes from David Vernon from Bernstein. Please go ahead.

Hey, guys. Thanks for the time, so Scott I guess, if youre looking at a 2023 expecting the EBITDA margin to get to.

On above sort of 2019 level given andrew's commentary on the curve of demand recovery is there a way you can help us think about the rate of change and that EBITDA margin recovery is this something where we're going to get back to breakeven and stabilize a little bit and then come back as youll get better or like how should we be thinking about the the improve.

And the EBITDA margin kind of from from where we are to the higher end of that S curve.

I'll try and Jerry on Andrew can pile on if they want.

It really is about when demand is going to recover I think this team has done a pretty remarkable job of.

Quickly quickly getting our cost and cash burn.

Down.

Early in the crisis.

And now it really depends on on when we hit the inflection point for the recovery in demand in that inflection point will happen when there's a critical mass of the country that has been vaccinated, but also when we.

Affirmed our scientific and medical conclusion that once you get the vaccine youre not only immune from caffeine Covid you are no longer a transmission vector for Covid, that's an important step that hasnt happened yet.

Needs to happen and when that happens is if you look at the shape of an S curve I think there'll be a very rapid increase in demand.

It's anybody's guess on when that happens we have been more conservative I suppose.

Perhaps than others. Unfortunately, we've been more realistic as well so far.

And I think it's a little further to the right than perhaps others, but it's really not the point and the reason we said 2023, while there can be hope that its going to happen in spring at 60 days from now.

Whether it happens in the spring or the summer or the fall.

What we're really confident of is what we will sometime this year hit that S curve, turning point and then there'll be a very steep increase in demand and we're rapidly go back to call it 85% to 90% of 2019.

<unk> levels and somewhere in there within a matter of months. So it's hard to call precisely will move from be cash negative.

Quite a bit cash positive.

And I'm not sure of the timing because it's all dependent on the timing of when the demand recovery happens.

And then we'll be on the top part of the S curve, where we gradually move back towards.

The 2019 levels.

And so that's the shape of what we think the demand curve is that inflection point by the way. They are looking for it I think as the same time I have been telling me employs the same day that you feel like you can go kind of almost everywhere in the country and go to a restaurant to be at 100% capacity is probably when it happens for us because thats the kind of environment, we need where people are.

Back in the offices and office buildings aren't limiting capacity, where restaurants aren't at 25% capacity, where Disneyland is open for Broadway shows are open and you are able to go to them again those are all the things that drive those are the demand generators for aviation.

Those things are open again is when people are going to start traveling again.

Probably arent going to be open until there is can we hit the inflection point with vaccines.

Everyone can have your opinion on when that's going to happen, but when it happens.

I think there is there is we have lots of data lots of surveys lots of evidence there is huge huge pent up demand and you'll see a really steep inflection in demand.

Just over a matter of weeks and months I think.

And our next question comes from Helane Becker from Cowen and company.

Alright, thanks, very much operator, hi, everybody. Thanks for the time.

I think Scott this might be for you.

Talk more detail about what youre doing with the eco skies program and environmental I know this is like completely off topic from Covid, but.

[laughter] goal well thanks.

You guys have for that and how we should think investments in that business and I'm, sorry, but I'm really sick of Covid.

Well, thank you think of it too.

And and I love being able to talk about something other than what's going to happen in the next 60 days.

Because you are right. This is more important for the long term and.

And I have been personally interested and.

Cared about climate change all the way back to the 80%.

And we now have an opportunity to really make a difference and what is clear.

Is that as well, meaning as many other programs are particularly traditional carbon offsets.

They are simply nowhere close to being able to scale to address the climate change problem that we have we produced four as a society World. We produced 4000 times as many carbon emissions as we did in the pre industrial era and there are simply not enough room on the planet to plant four times as many trees and so.

Or is it some breakthrough like fusion technology moving from theoretical to actually real.

We're going to have to engage and widespread.

<unk> scale carbon sequestration, when we were honored to be a partner with Occidental and one five.

The first kind of large scale it maybe even call it demonstration plant and project.

Take carbon directly out of the atmosphere and permanently <unk>.

Sequester it underground.

And this is the kind of investment that needs to happen.