Q3 2022 United Airlines Holdings Inc Earnings Call
Good morning, and welcome to United Airlines Holdings Earnings Conference call for the third quarter 2022.
My name is Candice and I will be your conference facilitator today.
Following the initial remarks from management, we will own.
The lines for questions at that time, you May press pound too on your telephone keypad to enter the queue. 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.
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I will now turn the presentation over to your host for today's call Kristina Munoz director of Investor Relations. Please go ahead.
Thank you Candice good morning, everyone and welcome to United's third quarter 2019 earnings call.
Yesterday, we issued our earnings release, which is available on our website at IR Dot Dot com information in yesterday's release and the remarks made during this conference call may contain forward looking statements, which represent the company's current expectations or beliefs concerning future events.
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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 expectation.
Please refer to our earnings release Form 10-K, and thank you and other reports filed with the SEC by United Airlines Holdings, and United Airlines for more thorough description of these factors.
Also during the course of our call we will discuss several non-GAAP financial measures for a reconciliation of these non-GAAP measures. 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 Bell and Executive Vice President and Chief Financial Officer. Jerry Letterman. In addition, we have other members of the executive team on line available to assist with Q&A.
Now I'd like to turn the call over to Scott, Thanks, Kristina and good morning, it's great having everyone on the call today.
I wanted to start by congratulating and thanking everyone at United for your hard work dedication and perseverance due out in the last two and a half years. Our people stayed focused on our unique long term strategy and we're now beginning to see the strong and differentiated results. Our operation is firing on all cylinders in fact based on most metrics is running.
Than ever that isn't just better for customers. It also reduces costs and leads to strong financial performance that creates the foundation for United Max really positions United to be the world's best airline, we recognize that the near term geopolitical and macroeconomic risks and overall pessimism facing the global economy, including Airlines are unusually high right now.
However, there are three industry tailwind propelling the COVID-19 recovery for aviation and United that are currently overcoming those macro headwinds. We believe we will continue to do so in 2023 and increasing order of importance first aviation uniquely is still in the Covid recovery phase.
One example, Japan just opened last week and regardless of where do you think demand for business travel will ultimately return, 100% or something worth almost certainly is going higher from here.
Second there has been a permanent structural change in leisure demand because of the flexibility that hybrid work allows with hybrid work every weekend can be a holiday weekend.
Why September anomaly off peak month was the third strongest month in our history people want to travel and have experiences and hybrid work environment Untether them from the office and give them the new plant newfound flexibility to travel far more often than before I'll bet. Many of you listening today have taken an extra trip or two this year because you.
Can work remotely through a couple of those days. This is not pent up demand, it's the new normal and third the strong demand environment is happening against the supply backdrop that currently has the industry, 10% to 15% smaller relative to GDP than it was in 2019 and these multiple constraints pilot shortages aircraft deliveries.
Sure just from both Boeing and Airbus Air traffic control saturation and airport infrastructure constraints around the world are all real and they are constraints that will take years to fully resolve.
These three trends are why all airline revenues keep surprising to the upside.
But theyre also real and durable which is why we're so optimistic about 2023 and the longer term despite the economic challenges.
For what it's worth you don't need to believe all three of those trends for estimates to go up probably any one of them would do though are happen to be confident that all three are already happening and are sustainable and in that strong industry environment unite is uniquely positioned to benefit from the long term United really did chart a different path due to pandemic than any other.
Their airline differentiated fleet growth decision increased exposure to growing international markets real technology changes to change the customer experience and run the airline more efficiently long term investments in the infrastructure needed for growth to Newark gates or building 14, additional simulator bay during the pandemic Downing our own pilot train.
You've got to be in a cultural transformation to be fast creative innovative and customer focus.
Is just one quarter and we know we have a lot to prove that our third quarter margin results and fourth quarter guidance with operating margins above 2019 are early indicators of both the absolute and relative potential of the new United Airlines.
Im very proud of the United team for executing incredibly well and I'm confident that we're well positioned for success next year and the years to come after that with that I'll hand, it over to Brett.
Thanks Scott.
Also want to start by recognizing the entire United family for their hard work in the quarter our.
Our team never fails to pull together and we couldnt be more proud during.
During the quarter, our operational performance set records, our on time arrival and Miss connection rates were the best for a third quarter in company history, when excluding low flying orders during the pandemic.
Saved over 1500 daily connections on average with our connection savor tool. This means over 137000 additional customers got to their destinations on time.
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In addition, our team did a fantastic job, helping our customers and their bags get to their destination as seamlessly as possible in fact, our mishandled bag ratio in September was better in 2019 levels.
Our daily controllable cancels, which are driven by maintenance or crew challenges dropped over 95% in September versus what they were in January .
With a reduction in these cancels alone we were able to add 1% of incremental capacity to the third quarter. This provides a better experience for our customers, but also leads to much more cost efficient flying.
We look forward to continuing these trends into the final part of the year, putting that altogether and despite all the challenges around the industry.
Was the best third quarter operationally full schedule in United's post merger history huge kudos to the team.
One of the most significant changes for United operationally and per cost has been returned to the Pratt and Whitney Boeing Triple severance that Theyre grounding, we've had to make suboptimal operation was schedule change adjustments that have led to a more complex operation and the work required to return these aircraft to service, creating a heavy burden on our tech ops organization.
Organization for.
For the first time this for the first part of this year, we had over 500 of our technicians dedicated to this fleet in Victorville, California.
Over 175000 hours of work spent to get these aircraft back into service. This.
This drove inefficiencies in our tech and our technician staffing with negative cost and operational impacts.
The Great news is that this work is behind US. These technicians that returned to their basis, which has led to the improvement in our performance metrics with these aircraft will be back in service our fleet can be more efficient we are positioned for both our operations and our customers.
Like to thank the entire tech ops organization for their significant effort and returning these aircraft to service.
We are proud that a career at United remains in high demand. This.
This year, we're on track to hire 7000 Airport personnel 4000 flight attendants 'twenty 300 pilots in 2000 technicians momentum is high.
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Essent announcement for flight attendant literally receive over 5600 applications in just 48 hours.
Ultimately, we expect to welcome 15000, new team members this year and another 15000 next year to support our United Mexicana.
And with that I will.
I'll hand, it off to Andrew talked about the revenue environment in more detail.
Brett.
<unk> for the third quarter finished up 25, 5% versus the same period in 2019 and about 10% less capacity.
Timber was our third best trades, a month in our history, excluding the loan buying pandemic funds. We saw a number of record revenue days that were more typical of a peak summer period and off peak in many way September where we operated with an 86% passenger load factor five points better than September of 19 was indicative of what we believe to be the new.
New normal where hybrid work gives customers the flexibility to turn any weekend into a short trip and we believe because of that the off peak periods are now stronger.
All parts of the network performed well in the quarter.
First across the Atlantic United increased capacity by 22% versus the third quarter 2019, adding 10, new cities at 18, New routes. We also push into new regions, becoming a relevant competitor to Africa for the first time.
New nonstop service between Washington, and Cape Town. In fact will begin later this year subject to government approval.
Planting PRASM increased 21% versus the third COVID-19, which we consider outstanding United is now the largest airline across the Atlantic where our strategic partnership with Lufthansa and Air Canada is working better than ever last week, we announced yet another Atlantic expansion plan for 2023 of nine new routes.
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A few weeks ago, we announced a new partnership with Emirates. This partnership will allow United to resume service to Dubai, the largest in desktop in the middle East after a seven year absence, Dubai is unique as a hub in the region as it had both significant local markets.
And a large amount of premium demand, but also have massive connectivity.
While our Pacific flying as our lease recovered so far from the pandemic, we continue to expand capacity as economies open overall capacity in the region was down 59% versus 2019 and Pacific PRASM increased 41% versus 2019, we continued to experience much stronger cargo yields.
We will be focused on resuming the bulk of our Pacific capacity, excluding China in the next year now that Japan is fully open for business.
Continue to build our partnership with Virgin Australia will begin new nonstop service to Brisbane from San Francisco and a few weeks. We're the only airline that maintain continued service to Australia from the U S. During the pandemic and now United expects to be the largest airline operating to and from Australia. This winter for the first time ever.
Latin America, PRASM was up 20% on 4% more capacity than 2019.
Domestic PRASM was up 24% on 10, 5% less capacity versus 19, our domestic gauge versus 19 will also increased 11% as we continued to replace regional jet flying with mainline jets gauge increases are being absorbed well without much of a negative impact on PRASM.
Cargo volumes were strong even as we faced much more competitive capacity yields in the quarter did continue to fall consistent with our expectations relative to pandemic highs, our 90% greater in 2019.
The corporate business traveler recovery in the quarter was about 80% of volume of 19 and stable over the quarter.
While larger corporations clearly lagged the recovery rate, we believe new network patterns and hybrid work environments are having positive and offsetting impacts on revenue.
It's also worth noting that business traffic for long haul segments across the Atlantic have recovered at a faster pace on domestic it's our observation that a zoom meeting is simply less practical and a global said, we remain optimistic that business traffic will continue to get better from this point forward, our traditional view on business traffic recover rates relative to us not to.
Thousand 19 may now be obsolete.
Measurement given the changes in how customers now travel in a remote work environment or business and leisure chips off into our combined.
New revenue segmentation efforts versus 19 have been increasingly successful premium plus our new mid tier global long haul product is now 7% of our long haul capacity producing yields that are twice that of the main cabin.
Or if it's a better market and sell main cabin seats have also produced strong results with seat revenue per passenger up 21% from 2019.
September was a strong revenue month, and we are entering the fourth quarter with a lot of momentum in October is on track to day to quickly replace September as our third best Trouser month ever excluding the low flying pandemic bonds and.
In fact, we currently anticipate a similar trend some increase in the fourth quarter as we saw in the third of between 24 and 25% on between 9% and 10% less capacity.
While I recognize recent headlines would otherwise indicate our revenue performance should be bolder and I hope this strong rhythm outlet puts those thoughts duress.
I wanted to briefly address some of the recent changes on RJ operating costs. We expect that these recent cost changes to alter the balance of pilots.
Nick career at United Express versus are you LCC with competitive pay about express versus Vlccs for the first time, we'll be better able to staff, our United Express operation, albeit at higher costs, United Transpire lets you join our AVN program can transition to a United maintenance job in four years, making it the best short term.
Term and long term career option.
We do expect that given the overall pilot shortage today at non legacy carriers. It may take a while and probably until 2026 to fully utilized in our three to 400 rj's, we'd like to operate.
By our express partners finally.
A quick update on our mileage plus program.
Every key indicator we measure is positive we've seen a record number of memberships to date with more enrollments. So far this year than all of 2021 mileage redemptions. This quarter were the highest for any third quarter in our history and new co brand accounts were up over 25% year over year, and we saw the highest quarter of spend in the hidden.
Tree of the program in the third quarter momentum is strong and we expect 2023 to set new records as we continued to grow the program.
Wanted to say, thanks to the entire United team and with that I will hand, it over to Gerry.
Thanks, Andrew and a big thank you to the whole United team for achieving another quarter of profitability.
As Brett mentioned, a recent operational performance has been record setting and we believe the worst of the operational driven cost pressures we've talked about on previous calls are now behind us.
Accordingly, we've completed all remedial work on our 52 powered triple seven when the vast majority are back in service with over the last few expected to be online by next month.
On previous calls we have noted a significant as the mixed headwinds driven by the grounded triple seven.
But it was more than just the capacity implications we believe together.
As we piece together a schedule with a sub optimal mix of aircraft.
Also incurred a variety of direct and indirect costs in many of our operating groups as we waited for the return to service of a significant portion of our wide body fleet.
We've put in context, how impactful it is to have these aircraft flying again.
Our fleet was able to produce over 20% more ASN for mainline aircraft per day in the third quarter as compared to the first quarter.
This provides a meaningful improvement in our utilization, which is one of the primary drivers of improved unit cost.
Looking at the numbers for the third quarter, we reported pre tax income of $1 1 billion on an adjusted basis and an operating margin of 11, 5% also on an adjusted basis. This was one point better than our most recent guidance driven by a combination of stronger revenue.
And better costs.
Our third quarter CASM ex was up 14, 5% versus the third quarter of 2019. This is a one five points better than earlier expectations.
The outperformance was driven in large part by our improved operational performance.
A reliable operation is an efficient operation and a key to our strong unit cost performance today and for the future.
As an example, Paris strong operation benefits our cost in September we saw a 27% reduction in the premiums and overtime paid as compared to an average month in the first half of the year.
That equates to a $35 million improvement in September alone.
This reduction in premium pay is expected to reduce fourth quarter CASM ex by more than a point compared to the first quarter of this year as.
As we look into the future retaining top tier operational performance will continue to be a key element to our execution on cost.
Looking ahead, we expect fourth quarter 2022, CASM ex to be up between 11, and 12% with capacity down 9% to 10% versus the fourth quarter of 2019.
As Andrew mentioned, we expect the revenue environment to remain strong throughout the fourth quarter.
As a result, we expect our fourth quarter 2022, adjusted operating margin to be about 10% exceeding the fourth quarter of 2019.
And adjusted diluted earnings per share a metric we are happy to talk about again of $2 to $2 25.
In the third quarter, we took delivery of 11, Boeing 737, Max aircraft and one Boeing 787 aircrafts and.
In the fourth quarter, we expect to take delivery of 20, Max's and $4 780 Sevens.
Assuming these aircrafts are delivered for the full year 2022, we now expect total adjusted capital expenditures to be $4 7 billion.
Our most recent capacity guidance for next year assumed 179 aircraft deliveries from now through the end of 2023.
There's certainly a downside risk to that assumption.
Any circumstance next year, we expect to take delivery of more aircraft in one year than any other airline in history.
We continue to work closely with Boeing and Airbus regarding our delivery and we plan to provide you an updated outlook for 2023 in January .
Turning to the balance sheet, we ended the third quarter with over $20 billion of liquidity, including our Undrawn revolver, which allows us to maintain flexibility as we meet the uncertainties that remain in our industry.
We used some of our cash to purchase all of our aircraft delivered to date this year and we expect to use cash back half of the remaining deliveries in the fourth quarter.
And remember that every aircraft purchased for cash today increases our pool of unencumbered assets, which further protects our future.
In addition to aircraft purchases beginning in 2023, we will have the opportunity to prepay a portion of our debt at par in.
In the current rate environment is a tremendous benefit to have the flexibility to prepay debt continue to pay cash for new aircraft or access the financing markets Opportunistically for new aircraft deliveries.
And at all times, we remain committed to restoring our balance sheet and working towards our long term leverage target.
I again want to thank the whole United team for all we accomplished this quarter, we are executing our plan and making good progress towards our United next goal and with that I will turn it over to Christina for the Q&A. Thank.
Thank you Jerry we will now take questions from analysts.
These limit yourself to one question if needed one follow up question Candice. Please describe the strategic question.
The question and answer session will be conducted electronically.
I'd like to ask a question. Please press the pound two or <unk> on your Touchtone phone. Please make sure your devices and muted to allow your signal to reach our equipment pressing pound to a second time.
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Okay.
Our first question comes from Michael Lindenberg from Deutsche Bank.
Oh, Yeah, Hey.
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Just one quick one here Brian .
You brought up.
Third 37000 of saved connections during the quarter I think you said 500, a day can you can you just give us a sense of what that translates into savings from our re accommodation cost perspective, I mean are we talking about tens of billions of dollars here I'm just trying to get a sense of this new technology and how it's helping us with your product. Thank you.
Okay.
Okay.
Mike It's a number of thing yes, the savings is in the million.
More importantly.
It dramatically improves customer satisfaction people are comfortable now by United because they know.
We're looking after them.
For us it's much more about MTS and the overall experience.
Great and then.
Alright, there Mike.
Please go ahead.
Yeah.
Mike.
Mr. <unk>. Please go ahead sorry.
Sorry.
I was made at our back on just a quick one on on capacity maybe preliminarily for next year, Andrew I know, Gary you said that January we're going to get an update on kind of how youre thinking about 2023, but Andrew the comment that you made that next year. It looks like Youre preparing for all of Asia Pacific.
Recover or back of the plan with the exception of China I think your prior number was that you would grow no more than 8% is that number now been adjusted down by a couple of hundred basis points any sort of initial view on 2023 capacity. Thanks.
Well, Jerry well, let me tell you so I'll have to wait.
We'll let you know that in due course, Mike probably in January what I'll say about Asia Pacific just to give you some color on that is excluding China.
In December of this year, our schedule as published is 89% recovered.
So we are already well on our way to clients the full transpac schedule, excluding China at this point as we enter into next year early in the year.
Hey, Mike One thing I would add is that if youre looking at the most optimistic side of what we've said in the past I would say, there's a downward bias to that.
If nothing else I mentioned 179 aircrafts scheduled for delivery through the end of next year I'll.
I will take the under on that number.
Our next question is from Ravi Shanker from Morgan Stanley .
Thanks, Good morning, everyone.
So if we were to close our minds back 12 months, I think you and the rest of the industry where sort of.
Struggling with an environment, where youre seeing very peaky peaks and very trough to trough and I think in your commentary you sort of indicators on what's happening right. Now is the exact opposite where even the shoulder seasons are actually kind of picking up and kind of running at similar to almost speak light levels and you also spoke about like a permanent structural change.
And the leisure and corporate traveller, what does all of this mean for the way United is going to like build your network and your fleet over the next three to five years do you need to make any structural changes to adapt to this new normal or do you think that you're going to you can make it work with the current system.
Well I think this new normal is actually really allows us to become more and more efficient.
For example, Tuesdays and Wednesdays are not as much of a trough is seems to be in a traditional week or for holiday traffic holiday traffic has now spread out more so it doesn't necessarily peak as much on one or two days it actually spread across a few days and we see that time and time and again, we also see like secondary holiday.
<unk> are incredibly strong not just the primary holidays and ultimately what this could mean is that we operate are less peak schedule.
And a less peak schedule, we think comes would really enormous efficiency gains and that the marginal cost of an ASM in February is very different than that in July . So a lot more to come on that subject, but I think a really interesting opportunity for United as it transitions from a very peaky schedule.
To something Thats less peaked.
Great and just a quick follow up you said a couple of weeks ago that you expect 2023, trans Atlantic to be 10% above 2022 levels.
Again, just kind of unpack that a little bit more kind of are you seeing signs in the data that gives that confidence or kind of just what gives you confidence that like a nine month outlook given the current macro thank you.
I don't think I gave that number or somebody else may have but look we announced a number of new routes I think just last week going across the Atlantic our partnerships are doing really well.
Frankly, where the dollar stands is incredibly useful from a U S origin point of view for transatlantic travel.
This season was incredible based on the numbers you've seen this fall is also incredible based on everything we're seeing says it's full speed ahead across the Atlantic.
And we are very bullish on the outlook not only there but across our entire global network Theres just a lot of good indicators across the entire network. Once economies open traffic rebounded very quickly and we expect to see that in Japan over the coming months.
Next we have Helane Becker from Cowen.
Thanks, very much operator, hi, everybody. Thanks for the time.
Can I just ask a question about the routes that were added this past summer on the North Atlantic a lot of them were leisure focused and I just wondered.
How they compared versus your expectations and.
Weather.
All of those units are coming back next summer or if some of them were below expectations. The new routes that you announced last week.
Are they.
Kind of replacing them.
Sure, we announced a number of new routes for this past summer and all of them, but one will be coming back for next summer. So I think that just tells me we had a pretty good success rate going across the Atlantic and so we're again, we're bullish across the Atlantic and all but one will be coming back for an exit.
Yeah.
And then are they just a follow up on that are they.
Can you talk about relative to system average are they better or worse than system average.
I won't give you all the details Helene because all my secrets out, but I will say that one or two of those routes, we added where our best routes across the Atlantic.
Okay.
Yeah.
Next we have Steve Trent from Citigroup.
Okay.
Good morning, everybody and thank you very much for taking my question.
Just one from me I was curious how youre thinking about the Star Alliance going forward.
I mean, not to say that you guys are looking to start or anything like that but it was intriguing to see new.
New alliances with Emirates, and Virgin Australia.
And one of your South American partners seems to be getting involved with abra. So just sort of on a high level I would just love to hear your thoughts about how you think about these.
Alliances outside of your sort of traditional networks. Thank you.
Sure I'll go to try.
First of all our alliance, particularly.
Going across the Atlantic with Lufthansa and Air Canada is first and foremost that is gigantic and everyone alliance across the Atlantic.
We have the best partners in the best sub supply two in Europe and that is in <unk>.
We'll continue to be our primary focus I just want to be clear on that and of course across specific with M&A.
To the South Pacific with Air New Zealand.
These are all things we focus on every day here and are key to our global network that being said the middle East was the way we use the term a white spot.
For United.
Our.
Global Gateway support all kinds of markets across the globe.
And when we looked at the opportunity to do a partnership with Emirates.
It did fill in this white spot and allowed us to access a lot of destinations that we could not otherwise access with our existing partnerships and so that motivated that and the same is true in Australia, where Virgin Australia is a fantastic franchise.
So excited to partner with them, we were already the largest airline to Australia now I hope to be not only the largest airline to Australia, but the most profitable airline to Australia and I think that comes with the strong network, we have and great partnerships across the board definitely with Virgin Australia. So we will continue to look for opportunities that don't inter.
Fear with our core strategic immunized alliances.
And that's what these two things in my mind represented.
Quite frankly at this point you might as global efforts pretty comprehensive I am not sure. There is many more of those out there in the world, but we will keep looking.
That's super helpful. Really appreciate the time, thank you again.
Sure.
Our next question is from Jamie Baker from Jpmorgan.
Hey, good morning, everybody. So Jerry the sequential drawdown in the air traffic liability was larger than I would've expected.
I'm, just trying to square that with the strength in bookings so how do I reconcile these two metrics.
And wasn't that unusual it was just seasonal.
Yes, as we get back to the sort of the normal booking trends that we see over time side.
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Was there anything unusual there okay. It was just the sheer dollar magnitude that that surprised me, but youre right if I look at it.
Percentage of trailing revenue I suppose it's it's not that you made.
Question So Scott.
There is an airline business model that I would describe it is predicated on an abundance of cheap capital and abundance of aircraft and abundance of pilots.
And the pilot wage arbitrage.
And seating density so how should we think about that business model in an environment, where none of that say for density seems to exist any longer.
Everybody in the room is worried about what I'm going to say more on it's going to be restrained on this call. We feel like obviously super optimistic about already values.
But recognize the market isn't there with its quite yet and I was going to be restrained.
But thats sort of threatening look I think there's a huge change.
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Hi.
Perhaps even more for Georgia, I described that business model of the ponds.
Because it is predicated on growing 15% to 20% of your only way you keep your cost growth was 15% to 20% of your growth and that is now going to be impossible.
Others are going to get on top of.
Call. It next week and played with some temporary issue.
There is a real pilot shortage is real.
Years to resolve is not the only one that way.
Boeing and Airbus are probably two to three years away from getting back to producing airplanes at the same rate the air traffic control system.
They do a great job at the FAA I'm trying to manage the system.
But we have fewer controllers in the United States and we had 30 years ago, we have tripled the operations that we're.
Oh sort of okay. In September it does not work in July and it's not their fault they do incredible work.
And the FAA to put their fingers in the diet tried to do their best to manage day to day, but they've been pulled in so many directions, they've had to do drone space launches with so many more people working on certification and aircraft issues without their budget going up and until Congress authorizes more controllers that is going to be a hard constraint.
On the operations of all airlines during the summer and so there's just no airlines, including us, but it's going to be able to grow at 15% to 20% a year anymore.
And I think Thats, a real advantage for us at United.
A real challenge for those business models with the whole business model is predicated on three things.
One growing 15% to 20% year.
To Jamie people in <unk> and three.
Not nickel and Diming them, 50, and $100 bring them to death.
With add on fees that they don't know until they show up at the airport I think that the doomed business model.
Yeah.
Our next question is from Scott Group from Wolfe Research.
Hey, Thanks, Good morning, I am wondering what the better Q3 Q4 CASM means for next year at this point do you see more upside or downside risk to the plus 5% guidance on CASM for next year.
Hey, Scott So we'll provide obviously more color in January but what I can tell you right now because I think I said in my prepared remarks.
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These numbers just increase the confidence we have in.
Hitting our numbers for next year.
I think thats the way to look at it and the fact that we are confident in our ability to hit our pre tax margin target I think says a lot.
Okay and then.
Just on this idea of like the new normal so if youre right that theres more leisure demand and better off peak performance, but perhaps maybe there's less business travel. So what's the net impact of more leisure maybe less corporate less peaky scheduled what's the what's the net impact of all this on long term margin.
Well I think so far and you can see by our results over the last 90 days and our outlook for the next 90 days, because we think it's a pretty good trend.
So obviously I would say that it's positive for margin there is still a lot more to come and I have to say that the.
Business traffic according to get stopped.
Business traffic, we will continue to get better from this point.
You keep garner.
Okay.
And so I'm optimistic that all of that is like headwinds that United Airlines based in the pandemic are still in the transition period to tailwind and particularly the coastal gateway impact I think we still have a long way to go particularly on domestic traffic from our coastal gateways. So I think theres a lot more upside.
Yeah.
Alright next question conference recording has stopped.
I'm, so sorry about that I will have to have that turned off for you right away.
Our next question.
Is from Duane <unk> from Evercore ISI.
Hey, thanks.
Why don't we start right there on corporate recovery.
Can you offer some thoughts on recovery by market or hub in the U S. How would you mark to market or speak to the momentum of the recovery in say New York.
Versus Chicago versus San Francisco.
And Andrew or Scott I'd, just be really curious as you look into the future would really appreciate your thoughts on on kind of the bay area and how travel patterns may have changed there and kind of the upside you see into next year.
Yes, I'll try that a little bit of color here, Scotland fab.
I will say we track this by hub we attracted by.
Industry vertical.
And the the ones that are the biggest for United Airlines are in fact, the ones that trail the most.
So tech trails, the most and professional services trail, the most and yet our results I think are leading the industry.
We've quickly and affirmatively adapted to this new environment that being said I still think those are going to recover and in particular I'm convinced they're going to recover on global long haul at a faster pace than the recover enable on short haul.
Domestic and I will say even in the last few weeks, while it has had been a radical change there is a positive slope.
Two the recovery rate that was I think it's really nice to see.
So from that perspective, I will say that business traffic.
C coastal gateways in New York, and San Francisco still trail.
And that of the interior hubs on average.
France recorded only the main conference is recorded.
And Thats why as we go forward.
As those tailwind get stronger and we do believe it will get stronger I think that uniquely benefits United given where we are given we're doing fine today with these new dynamics I think we'll just do better in the future.
Appreciate those thoughts and maybe a follow up for Gerry on the 179 aircraft.
We plan to take between now and the end of 2023, how much of that financing is in place how much do you still have to do it.
How has your expectation for cost of capital change Jerry you've seen a lot of these cycles. So we.
We haven't seen rate momentum like this how are you thinking about.
Sort of supporting that aircraft book over the balance of the next couple of years, thanks for taking the questions.
So good question Duane So yes, it's too early to tell you our entire plan for the mix of financing or paying for cash for next year's aircrafts. So more to come on that will remain as I said opportunistic.
Yes, there's no question, we're in a higher interest rate environment, but keep in mind.
The financing portion of ownership costs for our new aircraft is such a small fraction of the overall cost of that aircraft and the benefit so overwhelms that.
Even in the current interest rate environment, it really doesn't.
Have a dramatic impact on us.
Sure I love doing Wtc's at 3%.
But several atc's at 6% or a little bit higher.
Used to do seven eight years ago. So.
There's nothing new here.
Our next question is from Conor Cunningham.
From Melius research.
Hey, everyone. Thank you for the time just on the business travel recovery, you talked a little bit about it.
Hi.
What is actually under what is your assumption for business travel in the fourth quarter. That's underpinning your revenue guidance and then can you just speak to just the international volume side that sounds great, but I think theres still some work to do on the yield side. My guess is that that's a pretty good tailwind into 'twenty. Three so just any high level thoughts there would be it would be helpful.
Yes.
When we did the forecast it's pretty much flat. So we're not expecting a significant recovery on the traditional way we measured it im not sure thats the right way to measure it anymore and to be clear, so we'll be agile on that as well.
We go forward from this at this point.
Okay and then.
So if you back out right.
Yes, I didn't finish your question on cabin.
I think your perspective is somewhat correct. There we've seen incredible strength in the new premium plus cabin and in the coach cabin. We've also seen really good strength in the Polaris cabin, but not as good I have to say as the back of the airplane.
And so as that business continues to come back.
We will have hopefully likely see I think further strength in the French section of the aircraft.
The numbers are pretty dominant strong premium a load factor point of view.
But the more leisure oriented nature of some of the players traffic today does fly at a lower yield than has traditionally been in that cabin. So as that returns to normal ever faster slow that occurs that will continue to provide I think more of a tailwind going forward.
Okay, and then just to piggyback on Scott's question earlier just the.
Bending the cost curve all of that stuff, we're trending in the right direction. It seems and just from a high level I know theres a lot of unknowns on the capacity side, but we're not.
When I think about the buckets of the headwinds and tailwind as we go into 'twenty three you know less disruption costs lastly, triple seven maintenance by.
Pes, obviously trending higher regional expense just can you can you bucket any leather like high level things that we may be missing out there as we think about 'twenty three overall, thank you again.
I don't think Youre missing anything.
Yes, the inflationary pressures are there.
I think we're pretty comfortable that.
We have a good handle on that and thats been incorporated into our thinking.
All year.
As we have the tailwind from the returning of the Triple Sevens tailwind from this.
This record setting operation that we have going on so.
There isn't any magic to it I think.
Okay.
I think we've been pretty clear with all of the.
Components are.
Our next question is from Dave Vernon from Bernstein.
Hey, good morning, guys. So Andrew I wanted to follow up on that point, you made about running less peaking schedule.
If I look back historically, I think back historically anyway, first and fourth quarter load factor that drop off.
Yeah.
Okay.
Super Thank you.
Youre going to be.
Peter here.
We can now try again, we got the first sentence or two that you cut out.
Alright.
So I guess, Andrew I'm trying to dig into this idea of running less picky operation and I'm wondering if the quarterly dropbox from sort of <unk> to <unk>, if that should be a little bit more moderate kind of coming out of the pandemic because of some of the changes you're making in terms of of scheduling the airline and just building to the new normal.
Yes, exactly true in fact, one of the good examples will be our European schedule for this winter, we would use to cut off Tuesday, or Wednesday in a non peak day on many of our transatlantic flights from New York and this winter. If you look at them I think a higher percentage of them operate daily throughout the.
Entire week than the.
The other example is the first two weeks of December so after Thanksgiving, but before Christmas we're already booked two to three points ahead.
Where we expect it to be and versus 19 again that off peak period as unique as swimmingly well.
And so more and more.
We'll digest all this and to the extent, we can run an operation that has fewer peaks in it, particularly having the summer peak.
So much higher than the rest of the year that create a dramatic amount of efficiency because when you think about it we staff our pilot workforce for the flying that we do in from June 15th August 15th and if we can staff for a much larger chunk of time that should be incredibly efficient.
Outstanding Thank you for that and maybe just as a quick follow up.
Can you help us kind of Orient, where we are on premium product inventory sort of from left from the from the hard aspects of service in terms of <unk> cabinets that kind of thing from where we were in 2019.
I'm, just trying to get a sense for how much more runway. There is in that premium innovation I know, it's a long runway. There is a lot of room to catch up but I'm just trying to think like is there any way.
Well you.
You have to separate it domestically versus internationally on the international front.
We have almost all of our aircraft that have gone through the <unk> I think we're down to one or two 780 sevens that need to be done and.
The bulk of our 76400, you have one or two of those done and so we'll be done with that player's mind shortly versus 19.
We also have the premium plus cabin, which was.
You just had been started but was not significant in today I think it's about 7% of our long haul ASM.
So that is out there I think the big tailwind comes domestically.
As these United next aircraft arrived.
Dual class cabins, plus a large.
Premium section in coach.
And as you can already see firm or per seat sales, which I think were up about 20% in the quarter.
As we replace a single glass rj's with those jets.
There's a lot more of that ancillary revenue to come so I think domestically there is just.
We've only just started would be my take on that front internationally I think our premium distribution in terms of seats in Polaris.
Is at this point pretty stable given given where we are just finishing up the reconfigurations.
Okay.
We will now switch to the media portion of the call. If you would like to ask a question. Please press pound two or <unk> on your Touchtone phone. Please make sure. Your device is unrelated to allow your signal to reach our equipment pressing pound to a second time will remove your line from the queue. Once again, if you would like to ask a question.
These press pound too on your phone please hold for a moment will be assemble our queue.
Our first question comes from Alison Sider from the Wall Street Journal.
Hi, Thanks, so much.
Scott I wanted to ask you about your on your comments on the FAA and ATC staffing.
You mentioned talking to Secretary Buda Jets earlier this week like how are those conversations going because publicly he still tend to see most of the problems come from the airlines and.
I think it's more constructive behind the scene.
Well, yes.
Really good call with the Secretary on Monday.
As you referenced because this is really.
Something that we need to help them solve it's not the faa's fault and so I think you're talking about started thats probably the most important point. This is an agency that has done an incredible amount of work over the last couple of decades, and they've been asked to do far more.
The asks of the age the number of people without agency that are working on drones space launches aircrafts certification programs.
Just massively higher than it was before and they were forced to fund to that by taking head count out of the operational budget the day to day operational budget.
And.
It's hard to just look at the basic fact that there's fewer controllers today than they were 30 years ago.
That's sort of it doesn't pass the smell test for anyone I don't think.
And but thats not their fault, that's an issue that we have to help them solve an FAA reauthorization glass. The conversations are about how can we help you solve that I've had.
One conversation with someone from the administration three conversations with people on the Hill just in the last 24 hours about that subject.
And our goal in the airline industry is to help solve that problem.
Because until it's done.
Byproduct teeth, because the fundamental issue, it's going to be challenging in peak periods. It mostly works okay in a month like September .
But we're going to always have struggles in a month like July .
Until we get staffed up.
To a level that's more reflective of the amount of airline operations that are in this guide today.
So I think we're aligned between us and the FAA on the need to work by in a bipartisan way on the <unk>.
A reauthorization bill.
The increased scrapping.
And by the way this is about hundreds of billions of dollars of investments in infrastructure. This is the human infrastructure that goes along with all of that concrete that we're building.
We had the Sunday in Denver.
When we have a 114 operations per hour beautiful Big airport for parallel runways built.
But.
<unk>.
A couple of cycles.
Port operations, not clear Blue Sky Sunday was cut from 114% to 68.
We don't.
Get to use our infrastructure unless we have the human capital to support it and this is about getting the human capital to support all the infrastructure that we're building.
Our next question is from Leslie Joseph from CNBC.
Hi, Good morning, just wanted to clarify you said 15000, new employees. This year and 15000 next year. That's way ahead of I think what the goal is by 2026 with United next how much of that is to replace people retiring and maybe some of the attrition and then also if you have any update on the pilot.
Negotiation do you.
Spec too.
<unk> raised the pay compared with the original Ta that was.
Sent out thanks.
Thanks.
Yeah, Hi, this is Bret Hart so.
Our hiring is actually right on schedule in terms of what we expect.
Across the next four to five years with respect to.
United next.
And sure some of that is.
As to.
Replace people, who are no longer with the topic with the vast majority of that is geared towards our meeting our overall plan.
And by the way, we're having no trouble finding terrific talent throughout the system.
We are convinced at this point than we are.
An employer of choice. So we have no issues meeting our needs and and and we expect to continue to hire as we said earlier.
Respect to the pilots.
Our discussions with our pilots are obviously ongoing.
Yes.
So.
Yes.
Typically comment.
Much beyond that but we're.
We're continuing to make what we hope will be progress in that area.
Next we have David Shaffer from MTR.
Hi, good morning.
I'd like to ask a question, that's maybe been a little bit addressed already but that is about the the holiday travel season from a from a passenger perspective.
What are you expecting in terms of demand for holiday travel how is it different I think you've addressed this a little bit about that.
More spread out.
And also the pricing with prices going up.
Not just airline prices, but prices for everyone. How do you how do you expect the demand to continue especially with fears of inflation not just inflation, but a recession.
Sure I'll give them to try.
We are definitely seeing a lot of strength for the holidays or obviously approaching the Thanksgiving time period, and our bookings are incredibly strong and as I said earlier and as you indicated the bookings are a little bit different this year and that they are more spread out across multiple days.
Then they were on any single day.
They're very very close to the holiday in the past so that definitely is a new travel pattern for us and we're also seeing that develop for the Christmas time period as well.
The price points. They are definitely is this inflationary pressure in the country.
Everybody can see it as they are booking a hotel room and <unk>.
Booking or even go into the grocery store quite frankly.
And we are managing our prices to make sure that we can produce the results we need to do and also create great value and benefits to our customers.
We're putting back in order that money back into the customer itself as we invest in these new aircrafts, which youre going to be fantastic, whether they're with feedback videos or Wi Fi Wi Fi onboard.
And so on and so forth. So I'd like to think that money is going to great use to create a much better experience on board.
Airlines as well as as you can see in great operations to make sure we're getting our customers for Thanksgiving or Christmas or anytime home to see Grandma on time with their luggage as they expected.
Okay.
Yeah.
I will now turn the call back over to Kristina Munoz for closing remarks.
Thanks for joining the call today, please contact Investor Relations. If you have any further questions and we look forward capital to unlock a quarter.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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