Q1 2023 United Airlines Holdings Inc Earnings Call

April 19, 2023

I'm going to leave the detailed quarterly results and guidance, Jerry and Andrew but today I will take a few minutes to talk about for emerging themes that have come to the foreground I think are important to the United investment case.

One there appears to be a clear change in seasonality. This is causing peak leisure demand month March through October with even stronger while months that were historically reliant on business demand are weaker, particularly impacts January February and the first half of November and December . We believe demand is just structurally different than it was pre pandemic and we're still.

Figuring out that new norm.

And we've expected all along long haul international is moving into the weed over domestic Andrew will give more details, but this is a multiyear structural change based on aircraft retirements and pilot downgrades and essentially all long haul U S airlines around the world.

Got it.

But my third theme is an appropriately cautionary point our guidance and everything we are discussing today is our base case scenario based on what we're seeing right now.

And what we're seeing right now is still strong demand at airlines the macroeconomic weakness is being offset with a counter trend of consumer spending continuing to rebalance back to services and by the way, we still remain below our historical GDP relationship arguably indicating more room to run in the revenue recovery.

However, it seems clear that the macro risks are higher today than they were even a few months ago as demonstrated by the banking scare with Silicon Valley Bank.

We saw an immediate drop in close in business demand that lasted for about two weeks, but now appears to recover our base case, therefore remains a mild recession or a soft landing which is consistent with what we're currently seeing in our bookings, but we agree that the tail risk is higher than normal while we feel good about our 10% to 12 full year EP, yes.

If the economy softens further we prepared for it but having a lot of flexibility in the business on capacity if needed be improving our balance sheet to withstand a near term issue with approximately $19 billion of liquidity and having reduced our total debt, including pension by $4 6 billion over the past 12 months and see it.

My fourth theme, which is controlling what we can and hitting our CASM ex target in the new different and more challenging operating environment, we can't control what happens with the macro economy, but we can and are doing a great job of controlling our costs.

Can't run your airline like it's 2019 different harder now cancellation rates are the leading indicator of forward capacity and therefore, CASM ex and United is leading the way on this front Jerry will discuss some of the year over year tailwind that will drive lower CASM ex in the back half of this year, but we only need CASM ex to be.

Approximately one point better than the second half of the year to hit our full year targets. We remain solidly on track to wrap up over the last three years, our industry is confronted a rapidly changing environment.

It hasn't been perfect, but we've gotten a lot more right than wrong.

Big picture, we've gotten it right and took the steps in the last three years to drive in exactly this environment International is stronger the operating environment is more challenging with MS. Reliability is harder, but also had a premium for producing bottom line result, and we have confidence that our gauge growth and execution are keeping united uniquely on.

Track for our near and long term CASM ex trajectory, that's not to say that there aren't real near term risks risks because we all know there are but we feel really good about the strategic and tactical execution here at United and I want to again, thank the entire United team for their hard work. This quarter, we had a busy summer season ahead or to achieving.

Even more operational and financial records with that I'll turn it over to Brent.

Thank you Scott and thank you to our United team for their hard work this quarter.

As Scott mentioned, we continue to see the benefits of running a strong operation.

The first quarter, United led the industry with the lowest seat cancellation rate despite around 20% of our flights being impacted by weather most of many of our competitors. This was the first time since 2012, but we led on this metric.

Digitally United was first or second in the quarter for on time departures at nearly all of our hub locations, including those heavily impacted by winter weather like over here in Denver, our airline is built to run well and recover fast and we expect our operations to reflect that the peak summer season.

We continue to navigate the challenges in the current operating environment.

Specifically constrained industry infrastructure.

<unk> is working with the U S Department of transportation and FAA regarding operational disruptions in air traffic staffing challenges.

The FAA is decision to consider commercial air traffic with managing the growing number of space launches combined with the FAA recent move to get carriers more flexibility and how we all fly in and out of the New York area airports shows that the FAA is listening to feedback and finding ways. We can all work together.

In March we took steps to reduce our schedule in the New York region and DCA by around 30 daily departures over the summer period to provide the aerospace relief requested by the FAA sketch.

Schedule reductions are largely regional jet focused and will be redeployed at our other hubs minimizing the capacity impact to the system.

It is our hope that this will drive improved customer experience offline United in the New York area and throughout our network.

We are excited to announce that we reached a tentative agreement with our nearly 30000 employees represented by the International Association of Machinists.

With voting on the agreement expected to be completed by May one.

We are very proud of the work that our team does daily to support our operations and create a positive travel experience for our customers.

Regarding other labor agreements, a new contract with our technicians represented by the IGT was ratified in January .

In active negotiations with our flight attendants represented by the FAA and our pilots represented by ALPA.

As a reminder, we reached an agreement with our dispatchers represented by Pasco last year.

We look forward to sharing further updates in the future.

I once again want to thank our team for being the best in the industry. We remain confident in our outlook as we leverage our industry, leading operational performance and network advantages.

With that I'll hand, it over to Andrew to discuss the revenue environment.

Thanks, Brett.

First quarter topline revenues of $11 4 billion finished consistent with our updated guidance of up 51% versus 2022.

<unk> was up 22, 5% year over year, while we were below our initial guidance, we expect that our <unk> performance in the first quarter will be top tier.

As expected other revenues in the quarter, while strong are growing at a slower rate than passenger revenues. The opposite trend we saw last year and over the course of the pandemic.

We will cover revenue declined 37% year over year. It means 39% above the same period in 2019.

Mileage plus other revenue had yet another strong quarter and was up 25% year over year, driven by our strategic partnership with Chase.

It's credit card continued to set records in Q1, including the highest first quarter ever for card spend new accounts up over 30% year over year and account attrition near historic lows. We also welcome Richard none to the United team as the new CEO of mileage plus.

As Scott indicated we believe we are seeing different revenue seasonality for the United Network post pandemic and that change to impact our relative margin in Q1.

<unk> seasonality positively impacted March through October 2022 were new remote work schedule stimulated business, particularly premium leisure Ulta.

Ultimately if these trends continue we expect to be able to operate a more consistent level of capacity between March and October in future years.

However, we believe the new seasonality negatively impacted Q1 in January and February along with the first half of November and December .

With United relatively small presence in the Caribbean, and Florida, where demand is usually strong in Q1 and over the winter months, the United Network is more reliant on business traffic that has not fully recovered to pre pandemic volumes in these periods.

United Global Network and East West strengths are simply better aligned to March through October post pandemic, where leisure and premium leisure business compensates for less traditional business traffic.

As we head into Q2 2023, we are tracking ahead of 2022 and all the ways that we measure business traffic a really good sign for revenue momentum.

While it's still early on we do see corporate business for May and June tracking well ahead of the previous months at this time.

The business traffic rebound, we're seeing is strongest in global long haul markets, where a video conference is not a substitute for an in person meeting.

The recent Bacon scared did initiate a slowdown in demand across multiple customer types in the quarter impact on business demand for domestic line was the most significant impact on domestic leisure was smaller in impact over on overall international demand was actually minimal.

In the weeks after the scare we saw business demand relative to the same period of 2019 declined by <unk> eight points after steady progress experience to the quarter to that point. This trend has since reversed back to pre bank and scare levels.

In Q2, we expect total revenue to be up 14% to 16% versus the second quarter of 2022 with capacity up approximately 18, 5% our expectation to our revenue in the second quarter continued to show strength with approximately 8% to 10% growth in domestic revenues and almost 30% for international.

Second quarter bookings and revenues do look good versus the same point in 2022 with book yields up 13% and 31% above 2019, respectively.

For 2023, we expect to expand international flying by approximately twice the rate of domestic leaning into the favorable supply demand balance that we expect.

We'll be focused on extending united's leading position across the Atlantic and Asia and the South Pacific.

We believe this capacity deployment plan will set us up to meet our financial objectives, given the stronger revenue outlook, we are seeing for international flying and the rebound in Polaris Gavin.

We will also passed two critical milestones by this summer with all United International Widebody Jets, having the latest generation Polaris seat and a premium plus cabin.

While further return of corporate business will help profitability in all quarters, we're not assuming that will occur in our 2023 revenue outlook.

It's scheduled capacity. This summer is up 39% in the Atlantic, but industry capacity, excluding United is estimated to be down about 1%.

United will operate an average of 207 daily flights across the Atlantic This summer.

Across the Pacific United plans to be up 14%, excluding China with industry capacity down about 7% both versus 2019.

Overall international ASM will be 46% of United's capacity this summer versus 43% in 2019.

Yesterday, we announced another set of capacity increases to the South Pacific Ideally time for the southern Summer later. This year. These include the first ever non stop service from San Francisco to Christchurch, and New services from Los Angeles to Auckland, and partnership with Air New Zealand, and Los Angeles to Brisbane, where it will connect to our new partner Virgin.

Australia.

Rebuilding connectivity back to our original 2019 standards in our mid Con hubs in Dallas will also be a long term focus for our domestic line the loss of regional jets during the pandemic without mainline jets, the backfill them cost connectivity to suffer seek bank sizes at our high flow hubs are down 10% to 20% versus 2019.

<unk>.

We were able to build connectivity in margins in 2018 and 2019, when we increased bank size connectivity and we expect to execute a similar strategy in 2023 and 2024. However, this time around we will do it with the appropriately size 737 jets instead of single class Regional Jets.

As requested by the FAA, we've reduced our planned flights from New York City, this summer, including to and from Newark.

We believe this will be the first time in years that Newark will operate within the airports capacity abilities, and most hours and consistent with the slot allocations. We're.

Take that between the new terminals in capacity consistent with our runways capabilities the customer experience will improve dramatically and we appreciate the partnership with the FAA to make this happen.

United will gain up to 17, new mainline gates in terminal, a and New York This summer versus 2022, which will improve newark's reliability and customer experience along with the new Newark Gates, We will open a new United Club in terminal a and in terminal C. Later, this year, adding 38000 square feet and will be up 161% in <unk>.

Club space relative to 2019.

As impressive as that clubs based measurement is in Newark, a club members in Denver will experience the opening of three United clubs over the next year that include a total of 97000 square feet or 149% increase versus 2019.

Construction of our new gates and Denver is also almost complete and we will have 90 days up from 66%. We had in 2019, which we expect will allow us to dramatically increase bank sizes and connectivity in 2024 and 2025.

At United We remain focused on our high ground structural strengths focused on global long haul correcting connectivity issues in our mid con hubs that surfaced during the pandemic and of course gauge increases that are consistent with our large hub markets. Our capacity plan for this year remains in place without adjustment as we operate with strong operational results.

With that I wanted to say, thanks to the entire United team and I'll turn it over to Gerry.

Thanks, Andrew and good.

Turning to everyone.

Start with our first quarter results at.

Our pre tax loss of $256 million was in line with expectations and at the better end of our updated guidance issued last month.

We saw losses in January and February due to seasonal weakness, but march turned solidly profitable.

Our first quarter fuel price of $3 33.

Came in at the lower end of our revised guidance range. This was still about 14 points higher than our expectation at the start of the quarter due to a spike in jet fuel prices in late January and early February .

Turning to non fuel costs, our first quarter CASM ex came in slightly better than our revised guidance range at down 1% versus the first quarter last year.

Our operational performance in the first quarter was truly exceptional and our CASM ex is largely due to the cost benefit of a reliable operation.

On the balance sheet, we ended the quarter with approximately $19 billion and we put it.

We continued to leverage the flexibility provided by our cash with financing opportunities and paying down debt.

We generated over $3 billion in operating cash burn in the first quarter, the highest for any quarter in United's history and.

And we produced free cash flow of over $1 billion.

Over the last 12 months, our total debt, including pension liability.

Has declined by approximately $4 6 billion.

And we remain on track to meet our 2023 target of adjusted net debt to adjusted EBITDAR of less than three times.

Okay.

Looking ahead.

We expect second quarter CASM ex to be flat to up 2% with capacity up approximately 18, 5% both versus the second quarter of last year.

Strong cost performance underpins our confidence in the earnings trajectory of the business and in the second quarter. We expect adjusted diluted earnings per share of $3 50 to $4 with a fuel price of $2 80 to $3.

As noted in our Investor update this fuel prices based on prices as of April 12.

And as others mentioned, our strong operational performance in the first quarter sets the tone for the remainder of the year and it's key to our conviction in achieving our CASM ex targets.

For the full year, we continue to be on track to keep CASM ex approximately flat versus 2022 with non fuel unit costs in the second half of this year declining versus the second half of last year.

To give context as to why we expect CASM ex in the second half of this year to improve on a year over year basis versus the first half of this year. It is helpful to consider the 2022 cost baseline.

With Covid still significantly impacting the business in the first half of last year, we have certain unique headwinds in the first half of this year when comparing cost on a year over year basis here are two notable examples.

Revenue in the first half of 2022 was much lower than the second half of 2022, which meant that distribution costs were also much lower than the first half of last year versus the second half.

This drives the year over year comparisons for the first half of this year to be commensurately higher than the second half of this year.

A similar phenomenon phenomenon exists with maintenance expense.

Omicron abated and the recovery took hold we ramped up our maintenance activity in the back half of 'twenty two to more normalized levels again, the difference in year over year costs are much more muted in the second half of this year versus the first half.

So simply put the two items represent a 1% to two point CASM ex headwind in the first half of this year, which won't exist in the second half. These.

These drivers along with strategic cost management gauge growth in running a reliable operation support our expectation that we will hit our flat CASM ex target for the year.

When combined with our revenue outlook, we remain confident in our trajectory towards $10 to $12 and adjusted diluted EPS for the full year, whether we face a mild recession or a soft landing.

As we invest the starting gate for our United next plan I am encouraged by the progress we've made not only financially, but in our operation and across the entire organization.

While we continue to live in uncertain times I know that we will successfully manage everything under our control as we continue on our path to reach our full year financial objectives, and with that I will turn it over to Christina for the Q&A.

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

Please describe the procedure to ask a question.

Thank you.

<unk> and answer session will be conducted electronically.

I would like to ask a question. Please press pound two to enter the queue.

Please hold for a moment, while we assemble our queue.

The first question comes from Catherine O'brien from Goldman Sachs.

Your line is muted. Please go ahead.

Good morning, everyone. Thanks for the time.

So there's been a lot of investor concern recently, you're at a domestic slowdown so I think I'll just get right to that.

Still to enter the international strength.

Can you just help us think about what's driving the domestic unit revenue performance to underperform International at least based on first quarter versus 19 is there a shift in leisure demand international from domestic that might be exaggerated right now post pandemic.

International business is stronger as you know prepared remarks, something else and then I saw you had another record first quarter build in the air traffic liability would also be helpful. Just to talk through how much you have on the books domestic versus international first quarter. Thanks, So much.

Sure Catherine we're getting the question about domestic strength a lot.

<unk>.

It really address the way when we go about thinking about how to describe the conditions of this Q2, we have to recall Q2 of last year Q2 of 2022 is the best domestic travelers quarter ever for United with RASM up 25% versus Q2 of 2019, which by the way was the prior record holder we sit.

He has done a really hard comp for Q2 2023.

And also last year at this time international markets were not widely open to travelers in my view selected domestic trips out of caution just creating unprecedented demand relative to the number of seats available to sell.

This year's conditions are different international travel is more or less completely open and we'll see customers clearly excited about taken a long haul trip domestic capacity is also now comparable to 2019 levels.

So here are the facts domestic ASM that United will be up about 10% in Q2 2023 year over year and our tried them outlook for domestic will be negative low single digits from what I've said today total domestic revenue should finished well above 2022, given our <unk> outlook.

CD growth of about 10%. We're currently booked about 10% of head and gross revenue at this at this point compared to last year, and we're about 54% into the booking curve for the quarter.

I just don't see these facts as weak when revenue is on target to again break the record and try them is likely to be just a bit behind an amazingly strong 2022 and.

In summary, when Q2, 2020, threes and the books will likely bar second.

Domestic traffic quarter ever with record total domestic revenues the only thing negative I think I can say is that as good as domestic looks it's just not matching global long haul revenue outlook, which is very strong and we are United has focused a majority of the capacity.

No.

On the ATL.

It's seasonally move in a normal way I don't know Jerry wants to add anything else.

Okay to your question about international versus domestic Youre actually the first person to ask us that question. So we'll follow up with you.

Okay. Okay.

The next question comes from Jamie Baker from Jpmorgan. Your line is muted. Please go ahead.

Hey, good morning, everybody.

Just chuckling at Terry's response to Katie there.

The ATL Jerry to build obviously helped with free cash flow generation in the quarter, presumably the Ato will incrementally moderate in the second half as it often does do you still think you can cover this year's 9 billion in Capex.

And generate positive free cash flow.

Yes, Jamie I think we can.

Okay.

Okay fair enough.

Second to Andrew.

Relative to the international component you have got a lot of new route activity could could you.

<unk> to sort of like same store sales.

Same store RASM or revenue I guess relative to those new routes and how does the ramp to profitability you had all of these new markets compare to that in the past I mean, our new markets maturing much faster or does it take about the same amount of time as it ever did I'm just.

I'm trying to think about the read through is some of these trends normalize next year.

Yes.

Mobile long haul.

Virtually no spool up right now Jamie It gives you the the supply demand equation is just not what it has ever been in the past.

While United supply across the Atlantic and Pacific is dramatically up and we are happy to just dramatically up obviously industry slides down so what I would tell you is that the new routes come in very quickly with very strong profitability, which is why we keep adding them.

That being said in terms of same store sales I will say that.

London Heathrow is probably our weakest at this point because there is just that there is a large amount of capacity in London Heathrow relative to the rest of the world and we've grown there.

And our connections within Europe .

And our key hubs are have not fully recovered just like they haven't domestically and so we actually do see some relative weakness in certain parts of the global networks offer them a strong base, but the new routes to your question are just coming in with home runs on day one.

Thank you gentlemen for your answers take care.

The next question comes from Conor Cunningham from Melius Research. Your line is muted. Please go ahead.

Hi, everyone. Thank you just the 2023 cost X rate seems pretty encouraging I know you mentioned maintenance and distribution as being a main driver for the first half the second half of it still seems to me that youre holding incremental costs that might be the cost of doing business right now, but just curious if you could talk about what potentially rolls off in <unk>.

Next year.

As we start to think about CASM ex there. Thank you.

So I am not sure I would call it rolling off keep in mind next year, one of the benefits were really going to start seeing is that growth in mainline gauge.

As the aircraft continue to come in.

Process is really just starting this year. So next year, we get the full run rate.

The.

Larger gauge aircraft and take even more next year, so when you're looking sort of where the.

<unk>, our next year gauges gauges, one and the comps year over year are going to be better.

This year is really finally getting to the run rate.

Post COVID-19 sort of.

Yes.

Full operation.

So I think as an industry, we're done with a lot of the surprises we all kind of saw coming out of Covid with.

Some of the cost pressures.

So I think from a cost side of the business the business has become more stable and a little more predictable.

Okay. Okay. That's helpful. And then just on the evolving booking curve in seasonality that you have been talking about just curious how youre going.

Going to combat those challenges going forward.

As mentioned in there talking about looking at like all of our booking tinkering with inventory just curious what the strategy is that United If there is one to combat those.

Those changes in the booking curve. Thank you.

Sure well, we think we clearly have the best RM system in the world by the way, that's what I'll start off with.

While there has been a small change in the number of tickets not flown in the quarter due to the increased flexibility created when United illuminating change fees. It's our view that it's not really material and it's fully accounted for by our RM systems and I'll add on to that or no show rate is lower as well and we will not be changing our overbooking levels at this point.

Okay. Thank you.

The next question comes from Savi <unk> from Raymond James Your line is on mute. Please go ahead.

Hey, Thank you good morning, everyone.

Just a question on the Max deliveries it looks like you had.

Three more deliveries in the prior plan and <unk>, but for the full year kind of slipped a little bit just curious how you're feeling about confidence on some of the maxillary, especially given the recent news.

And Savi from from what we know on the recent news, we don't think Thats going to have much of an impact on us certainly won't have an impact on second quarter.

Right.

I think you may have you may have seen this yourself as Boeing has gotten back on track on delivering aircrafts the issues that they had over the prior few years, they've really managed well.

And.

Yes, the impact from what we know today for the full year just.

Will be minor.

That's helpful, Gary and maybe along those lines.

Just follow up on the.

Fuel efficiency, there's a little kind of surprised by kind of what we saw here in the first quarter, it maybe a little bit less than what we've seen last year.

What's your expectation around how that trends.

Kind of going forward, especially kind of given that thats. Another part of the kind of the.

Cost benefits in the United next Lynn.

Well as we start seeing.

More and more of the Max's, we'll start seeing that improvement that we've sort of talked about on United neck. Remember, we just started taking delivery of those those incremental aircraft and there'll be a nice.

Pop in that as well once the Max 10 delivers.

At some point.

So just from a critical mass standpoint, when does that when do you think roughly that is based on like what what you know today I guess.

Yes, it starts to kick in next year critical mass maybe the year after.

Okay.

Quarter by quarter.

Alright.

The next question comes from Mike Lindenberg from Deutsche Bank. Your line is muted. Please go ahead.

Yeah, Hey, good morning.

When I look at your sort of loads from fourth quarter to March quarter. I mean, you can see that seasonal hey, Andrew when I saw that I sort of thought maybe it had to do with a higher no show rates, but you sort of just address that that is not an issue.

As you add more service to places like New Zealand, Australia, South Africa, Brazil et cetera.

Does that.

We should see improvement in that rate, maybe you never actually are able to get to the level of say, an American or a delta from a seasonal perspective, but to some extent you should be able to mitigate that as we think about the seasonality is that is that kind of where we're headed and we see that really start to narrow versus the industry.

Yes.

It's a good question.

And our intent is to get it to narrow.

But we view, we're simply smaller in Florida due to a lot of reasons that that can't be addressed in a matter of a few quarters. They have to be addressed over years and so while our goal is to narrow that gap in Q1.

I don't think to be blunt, we're going to we're going to be able to eliminate it.

Clearly the introduction of counter seasonal flying into the South Pacific definitely helps put it in the right direction and we will be looking for more opportunities and we'll be looking to grow Florida, I think faster than probably most of our competitors.

Because we're just so relatively small but ultimately I do think Q1 is going to continue to be our weakest quarter and a recovery of business traffic in Q1, we will do the most to help our relative Q1 results. Okay. Thanks, and then just sort of as a follow on and tied to that when you look at the announcement that you did make yesterday.

It seems like it's going to need a decent amount of additional capacity and when I look at your fleet. This year I think $2 $700 in the March quarter. It does not look like we're going to see any more wide bodies coming in.

Funding a lot of that new service later this year should we assume that maybe it's going to China is not going to come back as much are you going to pull from other parts of the operation I'm, just trying to figure out where you're going to get the aircraft because some of these routes require more than one airplane just to do daily round trips service.

It definitely was quite a few aircraft heading towards the South Pacific What I would tell you is that we just seasonally reduced Europe than we had otherwise, but many of those wide bodies into our domestic system.

This year, our maintenance this year those aircraft will be applied to the South Pacific, which we think is their best use in regards to China, we continue to be stuck at for flights per week.

We are preparing to supply more than that.

But have been unable to get that done so far.

But hopefully later this year, we will be flying more to China, and we have the aircraft to do so if the conditions are.

Allow us to do so.

Great. Thank you.

Yeah.

The next question comes from Julian filling worse from Evercore ISI. Your line is on mute. Please go ahead.

Hey, good morning.

I wanted to ask about one of the themes Scott started the call with on flexibility.

And maybe a follow up to Mike's question, just there, but first on seasonal shaping capacity given the new normal.

Is there a is there a greater emphasis recently on seasonally shaping capacity.

And how does maybe lack of regional lift or lack of ability to kind of flex up on regionals limit your ability to do that if at all.

It's a really good question.

I'm hopeful that after further evidence that we'll be able to operate a more stable schedule all the way from March through the end of October , which I think we.

We will definitely benefit our cost structure, having less of a peak. However, we are not there just yet.

We need to make it through this year, we need to see how their remote work schedules continue to play out we need to in particular see how this September in this October do they were fantastic, obviously last year and I think that will help us validate for next year, whether we actually changed the seasonal shaping as I just described hopefully.

We can but we're not ready to really jump into the deep into that pool. Today. So we will continue to peak the airline.

In July as we normally do and we'll see where we go from there in terms of regional Jets.

The regional Jets is definitely hurt our connectivity.

This is this is an issue I talked about it and we're very focused on rebuilding that connectivity with the right jets.

Going forward and in fact, we don't intend to ever go back to the fleet of approximately 600 regional Jets. We had in 2019, we think the economics have changed we think the business has changed and we need to change with it.

That being said.

The good news front the regional jet pilot situation has recently in our mind stabilize.

No longer losing pilots at the same rate we were earlier very early this year or last year and the production of block hours in a regional jet division at the end of this year will be consistent with the production of block hours that we started the year with and I can tell you that our original budget for that was not that we thought we would continue to.

See deterioration so the good news there is the regional jets are going to be able to at least temporarily.

Help us boost our connectivity as we wait for all of our mainline jets from Boeing to deliver over the next two or so years.

Thanks, Andrew for that detail and then just sticking with the flexibility theme on capacity and the idea that you could kind of take capacity lower if the environment warranted how much lower could you take it I guess relative to the high teens, 20% in the back half and just conceptually are we solving for March.

<unk> this year or are we solving for CASM. Thank you for taking the questions.

I don't think we're ever solving for CASM, we're solving for a margin of course.

10 to 12.

So that will that will always be our focus and we're going to maintain the flexibility.

I'm pretty bullish about the international.

Environment, and Thats going to generate.

The large lions share of our ASM growth this year.

And I expect international to be strong all the way through to the end of October .

And so far it shows that it's still early obviously when we look at that.

We're very optimistic and domestically.

Jerry Center, something really good fleet plan, where we have a significant number of older <unk> hundred 20, <unk> hundred 19 aircraft that we could easily fly less or we could put on the ground. If we thought that was necessary as we saw to reach the right margin and EPS targets that we have for the year.

Thanks for the thoughts.

The next question comes from Helane Becker from Cowen. Your line is Unmated. Please go ahead.

Very much operator, hi, everybody. Thank you for the time too.

Two questions. One did you say what pension contribution would be this year.

If not could you and then the other question I had was just on.

United Nextgen, where you are in 23 versus the plan.

Our progress is on maybe some of the bigger items.

I think you just addressed Andrew.

The regional jet and the narrow body shift in mix, but maybe.

Connecting smaller cities or connecting bank changes or something like that.

Yes, we did not say anything about pension.

Nothing's changed from.

On a recent disclosures there.

We expect no pension contributions this year, our pensions are in good shape and both with the pension calculations that can be made.

And interest rates having.

Nicely reduced the liabilities.

Wouldn't expect any pension contribution is actually for a couple of years.

Oh, that's great.

Alright.

On the United next comments.

As I've indicated a bit earlier.

My number one focus domestically is this connectivity issue, we can clearly see it when we looked at our RASM by fly Fi market.

That we're just we're missing a lot of connectivity relative to where we were.

And so as we go forward, we're going to be very focused on rebuilding that connectivity and getting the bank sizes back to where they were.

Hopefully in 2019, but it is going to take some time, but we're optimistic just like we did it in 2017 and 2018.

That we're going to do it again, and it's going to be very accretive to margin profitability and of course to RASM.

As we build back the connectivity. So it is really important focus of our domestic <unk>.

<unk>, we're ready to get that implemented as soon as possible.

That's very helpful. Thank you.

The next question comes from Ravi Shanker from Morgan Stanley . Your line is Unmated. Please go ahead.

Thanks, and good morning, everyone.

I think despite the.

It's kind of tough macro outlook pretty clear what are you guys are expecting that.

Things are fine for now, but there is high probability of a tail risk event can you help us with kind of what data points, you're looking at to determine if these tail risks are either receiving are materializing are these kind of airline specific data points out of the broader macro data <unk>.

And if the latter.

What were some of those data points you're tracking.

Well, maybe maybe I'll start.

And talk about it from a business traffic recovery and what we're seeing in there because I do think one of the most common questions I get is business traffic recovering and what is it going to look like.

First of all I wonder whether the old methods of measuring business travel will be the same in the future but for now it's all we really have to really benchmark against 2019, I will say that we look at as we look at business traffic three different ways. The first is from larger corporations that have a contract with United second from.

So the demand is from agencies that specialize in business traffic and the third is based on ticket attributes.

Third is clearly the most encompassing view as it includes small and medium sized businesses that don't have an agency.

Don't have a contract for United.

So in Q4, the revenue recovery rate was between 7% and 85% for these three categories in Q1, the revenue recovery rate for these three measurements ranged from 85% to 97% and for the first two weeks of April the recovery of range from 95% to 101% I think is that in the last two weeks of April .

<unk> was a surprise to us as we've seen more conservative measurements start to approach 100%.

Fact that large corporations are getting close to 100% is a nice tailwind to United as many of you know this is critically important.

Critically important component to our regions I'll also say that the recovery in global long haul business is a few points of head of domestic and all of these measurements are just a good sign that our planned international revenue increases our capacity increases are moving in the right direction.

We obviously need more time to see if this trend will hold but what I can tell you in the last week or so after reviewing this data would become a lot more positive even as many of the headlines continue to predict a recession as I said in my opening statements. The trends for May look ahead of March I can also confirm in absolute dollars. The last 14 days they've been the best.

Booking days for business traffic revenue that we've seen since the pandemic I'll also add since this step up in business demand is very recent is not incorporated into our revenue outlook for the quarter.

That's incredibly helpful. Thank you for the color there and just as my follow up question was going to be about SMB versus enterprise corporate I'll switch it up and ask you about the cargo business, obviously, a small portion of the business. It probably very volatile given that there wasn't one of the bigger I've got a plan to make our winners how are you seeing that evolved through 'twenty, three and 'twenty four and what's the norm.

Zelda.

Yes.

Cargo stepped down in Q1 and stepped down exactly what our plan still well ahead of 2019, which is nice to see but we are seeing very low.

Prices are low yields.

Cross the system, particularly outside of United We've been I think we've done a great job of holding yields where theyre at through are really.

Really the best cargo team of the World in my opinion.

But not only is airfreight challenge now, but also sea freight.

Where rates are incredibly low.

We're holding our own.

And again, we're executing consistent with our plan and we've got this baked in for the rest of the year, we do expect to see more and more pressure on cargo yields going forward.

But the United team is executing in an amazing way our relative size to our primary competitors you can see it in the numbers.

And so I am still actually bullish about the business relative to 2019, but look its last Q1 in particular, we reached an unbelievable high based on where we were with the pandemic and Covid we.

We didn't expect we would be able to achieve that number and we didn't but again we're on plan.

Great. Thank you.

The next question comes from Sheila <unk> from Jefferies. Your line is muted. Please go ahead.

Good morning, everyone and thank you.

I wanted to ask you maybe a tough question you've been fairly outspoken about airlines needing more in place by the same level of operations.

ASM per employee are now just 3% below 2019 versus 67 in the second half of 'twenty two.

And presumably there's some advance hiring as you are preparing for new aircraft is there room to further close the gap versus 2019 on this basis as we think about ASM Maxim new aircraft deliveries.

Yes.

Well I guess, we'll see but I feel really good about what we've done with running with higher resources than we did pre pandemic is leading to the best operation that would be one of the countries run the best operation frankly that we've ever run.

That's great for our customers that's great for our brand I also think it's turning out at least right now in this environment to be the lowest CASM.

<unk>.

That by being able to run a reliable operate in the most expensive.

Being able to run a reliable operation.

It is what is giving us the best CASM results in the industry and giving us confidence about CASM results going forward. So I think we are at the right place at the moment.

It's obviously very.

The operating environment gets easier down the road, obviously easy.

Two adjustment, especially as we are growing just slow down the hiring.

A month or two and you right back to where you were so easy to adjust.

But I feel I'm really proud of how the team has done operationally and I think it has been the lowest CASM outcome, we could've had by running a reliable operation.

And if I could just ask a question about your premium performance, which was pretty good premium relative to 2019 up 25% compared to total domestic side can.

Can you break that out in any sort of way, whether it's RASM or yield performance. How we should think about the continued growth there.

Sure.

Really happy actually with our progress on the premium side in all of our cabin, but particularly for Polaris, we've been just making a ton of progress in the first cabin given the rebound in business traffic, but we still have more to come in March for example, our load factor was up 10 points year over year and five points versus 2019, we.

So a lot of seats, but we sold business travel seats accounted for seven points down year over year.

And premium leisure comp traffic compensated.

For that by being up seven points.

So just to offset it but that came at a lower yield. So we're carefully also trying to keep the increased premium leisure demand and revenue created since the pandemic, while accommodating more and more of the traditional business traffic. There are lots of puts and takes with this given our load factors, but we do think that there is potential to get this done, particularly as we continue to integrate.

The new 730 sevens, which come into our fleet with a large amount of premium seating.

Most of our growth is tilted towards premium season at this point, particularly as we retire the single class a regional jets from the network and so.

I think we're just hitting on all cylinders on this front and the progress we're seeing and Polaris in particular with higher load factors backfill and temporarily leased with premium leisure and.

And ultimately as long haul business traffic as I said earlier is coming back faster.

We're optimistic that we're going to get Polaris completely back to where it was in terms of relative profitability margin.

Later this year.

Great. Thank you.

The next question comes from Scott Group from Wolfe Research. Your line is muted. Please go ahead.

Hey, Thanks, good morning, so when I look at domestic capacity for the second quarter.

Back below 2019 levels, it's only up marginally from Q1, which is a lot less than normal I guess.

Is this it.

When you go back to the plan from the beginning of the year is this a change in how youre thinking about domestic capacity is this a sort of a one off quarter or is this more of a multi quarter more prolonged view of domestic capacity.

I do think it is a little bit lower than Q1, I think you're absolutely correct on that it's where the numbers shook out we clearly leaned as hard as we could as quickly as we could into global long haul, which really turns on in March and April and Thats, what shook out for domestic because we thought that was the.

The best place to put the capacity.

But you should see a little bit more domestic ASM growth in the second half and what we're seeing in the second quarter.

Okay, and then I know it's early you talked about next year. Another focus on mainline gauge any early preliminary thoughts on how youre thinking about overall capacity growth in 'twenty four.

I don't think were prepared to give our guidance for 'twenty four.

We're excited to continue implemented United Max and most importantly for domestic we're excited to make sure that we rebuild the connectivity as quickly as we can.

Back to where we were pre pandemic and I think that's our biggest driver of domestic RASM next year.

And.

That's really all I can say at this point.

Yes.

Okay. Thank you.

The next question.

The next question comes from David Vernon from Bernstein. Your line is muted. Please go ahead.

Hey, Thanks, guys and thanks for fitting me in here two questions for you guys on the new seasonality Andrew can you maybe talk a little bit more about some of the short term challenges and opportunities are dealing with from a revenue management perspective things like overbooking, and how you're sort of managing yields with this this sort of shift in customer behavior, which seems relatively new.

And then Scott I'd love to get your long term perspective on what do you think you might it might need to do a little bit differently. If we're going to be relying more on the leisure market things like do you still get the same bang.

For the Buck out of like a Polaris Lounge. For example, if this shift continues longer term. Thank you.

Sure.

I'd say the booking curves have adjusted.

They are both international and domestic are booking further out the international more extreme than domestic.

And so we our RM systems have adjusted to this very very quickly and we're booked ahead in our global long haul system based on the change in the booking curve domestic has also moved out there.

I think four points greater outside of 21 days and there is inside of 21 days right now and.

And again RM systems have adjusted for that that.

That being said.

Managing to keep yield domestically.

Domestically as close as possible to where we were last year.

And as we look at this we expect we're going to run lower load factors and our domestic entity in Q2 as a result, that's part of our plan.

We think it's the right strategy and we do think.

We will be able to fill up some of these seats were closer into higher yielding business.

And the fact that business has had the significant recent recovery in the last two weeks. It makes me even more bullish that we've executed the right strategy, there and that we do have capacity available to accommodate closer in business demand to the extent it materializes in Q2.

And on the longer term, it's an interesting question first.

And conclude that.

Yes.

We will see what happens with business demand in the near term, though the most obviously is we can do things that are happening in revenue management, Andrew talked about we have the best revenue management system and team in the industry that is true.

Huge investments can be independently concluded during the pandemic.

The team is just.

None of these things they are generally not that surprising we didn't really appreciate fully the seasonality shift.

Our revenue management system is working well.

And that's one of the obvious places Andrew talked also about pivoting the network. It's another one of the straightforward thing to do by more of the Florida plant more leisure destination.

In terms of things like flourish classic Andrew also talks about the fact that while we have less business traffic decline.

Actually we have a lot more premium leisure.

So I wouldn't anticipate at least in the near term any radical shifts in the strategy, mostly probably come in terms of capacity deployment.

We could do but have fungible assets.

<unk> easy for us to do.

Okay.

We will now switch to the media portion of the call.

As a member of the media would like to ask a question. Please press pound two to enter the queue. Please hold for a moment, while we assemble our queue.

Yes.

Yeah.

The first question comes from I player Bushy. Your line is muted. Please go ahead.

Hi.

I wanted to ask about summer operations, you mentioned cutting flights.

Mark earlier in the call I wanted to ask about what other operational changes United's, making the center too.

Lloyd a repeat.

<unk> last summer.

Hey, Terry this is Toby.

While we've done a lot of.

Talk about the mirror and New York first so we work with the FAA FA gave a waiver for the summer. So we are down about 30 flights per day in Newark, and at peak times, that's going to make a big difference also like Andrew said, we're not the only ones, but for the first time in a long while in New York, who actually will be scheduled to.

On a blue Sky day at least what the capacity of the airport can actually hold so we're really bullish on that and on top of that Andrew mentioned isn't it.

The remarks, as well, we actually going to have 17, new normal.

The inline gates and the brand new terminal a in Newark, and if you guys haven't been there.

Tastic term element is a world class terminal, replacing a 1969 banjo terminal that we were in last year. So just right off the bat right there.

It's going to be a huge improvement the other thing again, United actually Ben If you guys remember, we actually did pretty well.

CLS Summer I think the biggest issues, we had was actually the infrastructure, especially in the Trans Atlantic and I'll actually just in Europe , two weeks ago and talked to our biggest airports Heathrow Frankfurt and Munich and there are one year ahead of <unk>.

All the hiring and all the other things there so again.

Summer, it's picked up it's not going to be perfect, but we are in a much much much better place than we were last year and reached a joke I mean, all the terminals in Europe , It's actually opened this year.

Large turf terminals in Europe last year, both in Amsterdam in Heathrow and others that most importantly, even open.

And they are wide open and open for business since they're so again.

We call it summer readiness, we are not taking it lightly summers are Super Bowl.

Pumps operate it's going to have some buffer, it's surely with weather and things, but we're going to be in a much much better place than we were last year.

Hey, guys.

Delta said.

They they were flying less than they had expected they were trying to reduce the debt.

Turnaround time for maintenance on aircraft is there just any of that detail that you could share with us.

I would just.

I think that we've already done that so we're talking about we're not building our own like it's 2019, we built those buffers Yun prospectively.

And in advance and Thats why we ran the best operation in the country. Because we were ahead of the curve.

And perhaps others are catching up to that but we were ahead of that curve.

And that's what led to the best operation in the country in the first quarter.

Thank you.

Yeah.

Our next question comes from Leslie Josephs.

Your line is on muted. Please go ahead.

Hi, Thanks for taking my question just.

Just curious on the retrofits, how many of those do you expect to get this year and how many were you expecting before in but what's the outlook for 2024 and then it's been almost seven years since it was launched Polaris and just curious if you are and how are you thinking about kind of a successor to that.

Okay.

That's a great question and I will not answer the latter question other than the teams are always.

Working on innovations that United across all our business functions and I am sure somebody somewhere is working on something great. When it comes to seats.

We'll leave it at that.

In regards to retrofits and I don't have the numbers here, we will have somebody call you back, but the reality is the supply.

Supply challenges across the board.

It would be <unk> system chips.

Yes.

And many other things are just more challenging than they've ever been in our business.

And while we converted our first <unk> hundred 19, a few weeks ago that should decline hopefully any day now and the new interior and we have multiple lines that we'll be doing this summer. So youll see a rapid increase in the number of aircraft with the signature interior through retrofits and through new aircrafts. The total time to convert all of.

The aircraft is just going to be longer than we expected. Unfortunately.

Probably by a year or two to be Frank.

So we will get there it will just take a little bit longer than we had originally intended.

You will see material progress, we will get some of the numbers out to you separately by the end of this year.

And do you expect that to hurt your revenue premium at all for people that are booking up are choosing United because it has those features.

I would I would tell you is that the increasingly hard to get them on an aircraft to United signature interior is going to go up rapidly.

Just the tail of this is going to take a little longer to get done so our investment in our brand and our products and our services and how we're differentiating ourselves from our competitors I think our customers already see it.

And they are going to see it a lot more in the coming quarters, it's going to be a little bit slower than we had hoped.

But I know people are noticing and already we can see the NPS scores on these converted aircraft are definitely the new aircraft.

And we're excited to get it done as quickly as we possibly can.

Thank you.

The next question comes from Alison Sider.

Your line is muted. Please go ahead.

I think yes, I was wondering if you could talk a little bit about.

Anything that you might it might be doing kind of in the wake of the.

The handful of near collisions that the industry has been seeing.

Are there any particular steps that you're taking to respond to that or like do you have any theories about what's been going on.

So.

Im proud of the aviation industry for the level of safety that we have which is at least an order of magnitude higher than any others appropriately. So.

And when aviation professionals talk about safety is our number one priority that is deeply embedded in the duvernay and everyone not just united but across the industry in United Airlines in particular.

Tom.

The pyramid in terms of.

Safety.

Our team.

I think he is doing a really good job.

Say in today's environment, where youre coming back out of Covid and their new people working at airports, who are new to air traffic controllers or whatever it is.

And increasing the amount of training time and training quality of training, we're spending more money and a lot more time and resources there.

Can we put.

Our vice President.

Champion has been a champion for safety for his entire career.

Our new role where he is exclusively responsible.

Four.

Safety and quality.

Or.

Our theaters.

And I think we're leading on that and continuing to push to make the system. What is already the second system in the world, even stronger and I feel good about the path, we're on and Mark being charged with the responsibility and having as many resources as he needs into a one person that doesn't have to lift the budget.

Because he can do whatever it needs to do to make sure that we achieve.

<unk> is going to stay at these types of always busy.

So when you look in some of your own data.

Any kind of trend rate sort of connection between sort of the newness of people add.

Incidents or potential incidents or anything like that.

Well one of the great things about aviation.

As we use and we share data we.

Have a great safety systems, where our own employees can report.

Repercussions to them that encourages reporting.

Because it's been I guess.

Well over a decade since theres been.

Payroll.

Exit in the United States.

What that means is we would have to look for things that are close to the outer tolerance or out of tolerance to find it and.

And sharing that data across the industry as a strength that I think is unique to aviation and what leads to our higher safety standards.

We have teams of people and our competitors have teams of people on this one we don't compete we shared the data with each other on doing that and they are always always always looking for no matter. How good we get what's the next place that we can get even better that process as well as continuing to work well they haven't even elevated since.

Responsibility.

Now as we come out of Covid and feel great about where we're headed.

Okay.

I will now turn the call back over to Christina <unk> for closing remarks.

Thanks for joining the call today, please contact Investor Media Relations. If you have any further questions and we look forward to talking next quarter.

Thank you all this concludes today's conference you may now disconnect.

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Yes.

Good morning, and welcome to the United Airlines Holdings Earnings Conference call for the first quarter 2023.

My name is Silas and I will be your conference facilitator today.

Following the initial remarks from management, we will open the lines for questions at that time. Please press pound to enter the question queue.

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

Your participation implies your consent to the recording of this call.

You do not agree with these terms simply drop off the line.

I'll now turn the presentation over to your host for today's call Christina venues.

Director of Investor Relations. Please go ahead.

Thank you good morning, everyone and welcome to United's first quarter 2023 earnings Conference call yesterday, we issued our earnings release and Investor update which is available on our website IR dot United 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 and financial performance all forward looking statements are based upon information currently available to accompany 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 by United Airlines Holdings, and United Airlines for a more.

Our thorough description of these factors unless otherwise noted we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Please refer to the tables at the end of our earnings release joining.

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, Gary alignment. In addition, 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. Thanks for straightening.

And good morning, everyone I want to start by thanking the entire United team for delivering an exceptional operations this quarter, given our hub geography, and almost all of it is the most impacted by weather air traffic control delays of any U S. Airline. Despite this in Q1, we had the lowest mainline flight and seek cancellation rates of any airline in the country.

That's important not just for the obvious customer and brand impact, but it's also the key to hitting our planned capacity and CASM ex target.

I'm going to leave the detailed quarterly results and guidance to Jerry and Andrew but today I will take a few minutes to talk about for emerging themes that have come to the foreground I think are important to the United investment case.

One there appears to be a clear change in seasonality, that's causing peak leisure demand month March through October the even stronger while months that were historically reliant on business demand are weaker, particularly impacts January February and the first half of November and December . We believe demand is just structurally different than it was pre pandemic and we're still <unk>.

Figuring out that new normal.

And as we've expected all along long haul international is moving into the weed over domestic Andrew will give more details, but this is a multiyear structural change based on aircraft retirements and pilot downgrades and essentially all long haul U S airlines around the world except United.

But my third theme is an appropriately cautionary point our guidance and everything we are discussing today is our base case scenario based on what we're seeing right now.

And what we're seeing right now is still strong demand at airlines the macroeconomic weakness is being offset with a countertrend of consumer spending continuing to rebalance back to services and by the way, we still remain below our historical GDP relationship arguably indicating more room to run in the revenue recovery. However.

It seems clear that the macro risks are higher today than they were even a few months ago and as demonstrated by the banking scare with Silicon Valley Bank.

We saw an immediate drop in close in business demand that lasted for about two weeks from now appears to recover our base case, therefore remains a mild recession or a soft landing, which is consistent with what we're currently seeing in our bookings, but we agree that the tail risk with higher than normal while we feel good about our 10% to 12 full year EP, yes.

If the economy softens further we prepared for it.

Having a lot of flexibility in the business on capacity if needed be improving our balance sheet to withstand a near term issue with approximately $19 billion of liquidity and having reduced our total debt, including pension by $4 $6 billion over the past 12 months.

This is actually my fourth theme, which is controlling what we can and hitting our CASM ex target in new different and more challenging operating environment, we can't control what happens with the macro economy, but we can and are doing a great job of controlling our costs.

Can't run your airline like it's 2019, it's different than harder now.

Relation right are the leading indicator of forward capacity and therefore CASM ex.

United is leading the way on this front Jerry will discuss some of the year over year tailwind that will drive lower CASM ex in the back half of this year, but we only need CASM ex to be approximately one point better than the second half of the year to hit our full year target. We remain solidly on track to ramp up over the last three years.

Our industry is confronted a rapidly changing environment.

It hasn't been perfect, but we've gotten a lot more right than wrong.

Big picture, we've gotten it right and took the steps in the last three years to thrive in exactly this environment.

International is stronger the operating environment is more challenging which means reliability is harder, but also had a premium for producing bottom line result, and we have confidence that our gauge growth and execution are keeping united uniquely on track for our near and long term CASM ex trajectory, that's not to say that there are real near term.

Because we all know there are.

But we feel really good about the strategic and tactical execution here at United and I want to again, thank the entire United team for their hard work. This quarter, we have a busy summer season ahead.

TV, even more operational risk neutral records with that I'll turn it over to Brent.

Thank you Scott and thank you to our United team for their hard work this quarter.

<unk> mentioned, we continue to see the benefits of running a strong operation in the first quarter, United led the industry with the lowest seat cancellation rate despite around 20% of our flights being impacted by weather.

Most out of any of our competitors. This was the first time since 2012, but we led on this metric. Additionally.

<unk> was first or second in the quarter for on time departures at nearly all of our hub locations, including those heavily impacted by winter weather like over here in Denver.

Our airline is built to run well and recover fast and we expect our operations to reflect that the peak summer season.

We continue to navigate the challenges in the current operating environment.

Specifically constrained industry infrastructure, United is working with the U S Department of transportation and FAA regarding operational disruptions and air traffic staffing challenges.

The Faa's decision to consider commercial air traffic with managing the growing number of space launches combined with the FAA recent move to give carriers more flexibility and how we all fly in and out of the New York area airports shows that the FAA is listening to feedback and finding ways. We can all work together.

In March we took steps to reduce our schedule in the New York region and DCA by around 30 daily departures over the summer period to provide the aerospace relief requested by the FAA.

Schedule reductions are largely regional jet focused and will be redeployed at our other hubs minimizing the capacity impact to the system.

It is our hope that this will drive improved customer experience offline United in the New York area and throughout our network.

We are excited to announce that we reached a tentative agreement with our nearly 30000 employees represented by the International Association of Machinists.

With voting on the agreement expected to be completed by May one.

We are very proud of the work that our team does daily to support our operations and create a positive travel experience for our customers.

Regarding other labor agreements, a new contract with our technicians represented by the IGT was ratified in January .

Still in active negotiations with our flight attendants represented by the FAA and our pilots represented by ALPA.

As a reminder, we reached an agreement with our dispatchers represented by Pasco last year.

We look forward to sharing further updates in the future.

I once again want to thank our team for being the best in the industry, we remain confident in our.

Outlook as we leverage our industry, leading operational performance and network advantages.

With that I'll hand, it over to Andrew to discuss the revenue per barrel.

Thanks, Brett.

First quarter topline revenues of $11 4 billion finished consistent with our updated guidance of up 51% versus 2022.

<unk> was up 22, 5% year over year, while we were below our initial guidance, we expect that our <unk> performance in the first quarter will be top tier.

As expected other revenues in the quarter, while strong are growing at a slower rate than passenger revenues. The opposite trend we saw last year and over the course of the pandemic.

I'll cover revenue declined 37% year over year. It remains 39% above the same period in 2019.

Mileage plus other revenue had yet another strong quarter and was up 25% year over year, driven by our strategic partnership with Chase.

As Scott indicated we believe we are seeing different revenue seasonality for the United Network post pandemic and that change did impact or a relative margin in Q1 <unk>.

<unk> seasonality positively impacted March through October 2022 were new remote work schedule stimulated business, particularly premium leisure Ulta.

Ultimately if these trends continue we expect to be able to operate in a more consistent level of capacity between March and October in future years.

However, we believe the new seasonality negatively impacted Q1 in January and February along with the first half of November and December .

United's Global network and East West strengths are simply better aligned to March through October post pandemic, where leisure and premium leisure business compensates for less traditional business traffic.

As we head into Q2 2023, we are tracking ahead of 2022 and all the ways that we measure business traffic a really good sign for revenue momentum.

While it's still early on we do see corporate business for May and June tracking well ahead of the previous months at this time.

The business traffic rebound, we're seeing is strongest in global long haul markets, where a video conference is not a substitute for an in person meeting.

The recent bank and scared did initiate a slowdown in demand across multiple customer types in the quarter impact on business demand for domestic line was the most significant impact on domestic leisure was smaller in impact over on overall international demand was actually minimal.

The weeks after the scare we saw business demand relative to the same period of 2019 declined by eight points after steady progress experience to the quarter to that point. This trend has since reversed back to pre bank and scare levels in <unk>.

Q2, we expect total revenue to be up 14% to 16% versus the second quarter of 2022 with capacity up approximately 18, 5% our expectation to have revenue in the second quarter continued to show strength with approximately 8% to 10% growth in domestic revenues and almost 30% for international.

Second quarter bookings and revenues do look good versus the same point in 2022 with book yields up 13% and 31% above 2019, respectively.

For 2023, we expect to expand international flying by approximately twice the rate of domestic leaning into the favorable supply demand balance that we expect.

We'll be focused on extending united's leading position across the Atlantic and Asia and the South Pacific.

We believe this capacity deployment plan will set us up to meet our financial objectives, given the stronger revenue outlook, we are seeing for international flying and the rebound in Polaris cabin we.

We will also passed two critical milestones by this summer with all United International Widebody Jets, having the latest generation Polaris seat and a premium plus cabin.

While further return of corporate business will help profitability in all quarters, we're not assuming that will occur in our 2023 revenue outlook.

It's scheduled capacity. This summer is up 39% in the Atlantic, but industry capacity, excluding United is estimated to be down about 1%.

United will operate an average of 207 daily flights across the Atlantic This summer.

Across the Pacific United plans to be up 14%, excluding China with industry capacity down about 7% both versus 2019.

Overall international ASM will be 46% of United's capacity this summer versus 43% in 2019.

Yesterday, we announced another set of capacity increases to the South Pacific Ideally time for the southern Summer later. This year. These include the first ever Nonstop service from San Francisco to Christchurch, and New services from Los Angeles to Auckland, and partnership with Air New Zealand and to Los Angeles to Brisbane, where it will connect to our new partner Virgin.

Australia.

Rebuilding connectivity back to our original 2019 standards in our mid Con hubs in Dallas will also be a long term focus for our domestic line.

Loss of regional Jets during the pandemic without mainline jets, the backfill them cost connectivity to suffer peak.

<unk> bank sizes at our high flow hubs are down 10% to 20% versus 2019.

We were able to build connectivity in margins in 2018 and 2019, when we increased bank size connectivity and we expect to execute a similar strategy in 2023 and 2024.

However, this time around we will do it with the appropriately size 737 jets instead of single class Regional Jets.

As requested by the FAA, we've reduced our planned flights from New York City, this summer, including to and from Newark.

Believe this will be the first time in years that Newark will operate within the airports capacity abilities, and most hours and consistent with the slot allocation.

<unk> that between the new terminals in capacity consistent with our runways capabilities and customer experience will improve dramatically and we appreciate the partnership with the FAA to make this happen.

You made it will gain up to 17, new mainline gates in terminal, a and Newark December versus 2022, which will improve newark's reliability and customer experience along with the new Newark Gates, We will open a new United Club in terminal a and in terminal C. Later, this year, adding 38000 square feet and will be up 161% in club.

Space relative to 2019.

As impressive as that clubs face measurement is a newer our club members in Denver will experience the opening of three United clubs over the next year that include a total of 97000 square feet or 149% increase versus 2019.

Construction of our new gates and Denver is also almost complete and we will have 90 gave up from 66%. We had in 2019, which we expect will allow us to dramatically increase bank sizes and connectivity in 2024 and 2025.

At United We remain focused on our high ground structural strengths focused on global long haul correcting connectivity issues in our mid con hubs that surface during the pandemic and of course gauge increases that are consistent with our large hub markets. Our capacity plan for this year remains in place without adjustment as we operate with strong operational results.

With that I wanted to say, thanks to the entire United team and I will turn it over to Gerry.

Thanks, Andrew and good.

Turning to everyone.

Starting with our first quarter results.

Pre tax loss of $256 million was in line with expectations and at the better end of our updated guidance issued last month.

We saw losses in January and February due to seasonal weakness March turned solidly profitable.

First quarter fuel price of $3 33.

Turning to non fuel costs, our first quarter CASM ex came in slightly better than our revised guidance range at down 1% versus the first quarter last year.

Our operational performance in the first quarter was truly exceptional and our CASM ex is largely due to the cost benefit of a reliable operation.

On the balance sheet, we ended the quarter with approximately $19 billion in liquidity.

We continued to leverage the flexibility provided by our cash with financing opportunities and paying down debt.

We generated over $3 billion in operating cash burn in the first quarter.

Highest for any quarter in United's history.

And we produced free cash flow of over $1 billion.

Over the last 12 months, our total debt, including pension liability has declined by approximately $4 $6 billion and we remain on track to meet our 2023 target of adjusted net debt to adjusted EBITDAR of less than three times.

Okay.

Looking ahead.

We expect second quarter CASM ex to be flat to up 2% with capacity up approximately 18, 5% both versus the second quarter of last year.

As noted in our Investor update this fuel prices based on prices as of April 12.

And as others mentioned, our strong operational performance in the first quarter sets the tone for the remainder of the year and is key to our conviction in achieving our CASM ex targets.

For the full year, we continue to be on track to keep CASM ex approximately flat versus 2022 with non fuel unit costs in the second half of this year declining versus the second half of last year.

To give context as to why we expect CASM ex in the second half of this year to improve on a year over year basis versus the first half of this year. It is helpful to consider the 2022 cost baseline.

With Covid still significantly impacting the business in the first half of last year, we have certain unique headwinds in the first half of this year when comparing costs on a year over year basis here are two notable examples.

Revenue in the first half of 2022 was much lower than the second half of 2022, which meant that distribution costs were also much lower than the first half of last year versus the second half.

This drives the year over year comparisons for the first half of this year to be commensurately higher than the second half of this year.

A similar phenomenon phenomenon exists with maintenance expense.

As <unk> abated and the recovery took hold we ramped up our maintenance activity in the back half of 'twenty two to more normalized levels again, the difference in year over year costs are much more muted in the second half of this year versus the first half.

So simply put the two items represent a 1% to two point CASM ex headwind in the first half of this year, which won't exist in the second half. These.

These drivers along with strategic cost management gauge growth in running a reliable operation support our expectation that we will hit our flat CASM ex target for the year.

When combined with our revenue outlook, we remain confident in our trajectory towards $10 to $12 and adjusted diluted EPS for the full year, whether we face a mild recession or a soft landing.

As we invest the starting gate for our United next plan I am encouraged by the progress we've made not only financially, but in our operation and across the entire organization.

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

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

I would like to ask a question. Please press pound two to enter the queue.

Please hold for a moment, while we assemble our queue.

The first question comes from Catherine O'brien from Goldman Sachs.

Your line is muted. Please go ahead.

Good morning, everyone. Thanks for the time.

So there's been a lot of investor concern recently, you're at a domestic slowdowns I think I'll just get right to that I know, United still twins to international strength.

Our national business is stronger as you know prepared remarks, something else and then I saw you had another record first quarter build in the air traffic liability. It would also be helpful. Just to talk through how much you have on the books domestic versus international first quarter. Thanks, So much.

Sure Catherine we're getting.

Question about domestic strength a lot.

And.

Could really address the way when we go about thinking about how to describe the conditions of this Q2, we have to recall Q2 of last year Q2 of 2022 is the best domestic travelers quarter ever for United with RASM up 25% versus Q2 of 2019, which by the way it was the prior record holder we sit.

He has done a really hard comp for Q2 of 2023.

This year's conditions are different international travel is more or less completely open and we see customers clearly excited about taken a long haul trip domestic capacity is also now comparable to 2019 levels.

So here are the facts domestic ASM that United will be up about 10% in Q2 2023 year over year and our <unk> outlook for domestic will be negative low single digits from what I've said today total domestic revenues should finished well above 2022, given our <unk> outlook.

CD growth of about 10%. We're currently booked about 10% of head and gross revenue at this at this point compared to last year, and we're about 54% into the booking curve for the quarter.

I just don't see these facts, it's weak when revenue is on target to again break the record and tried them is likely to be just a bit behind an amazingly strong 2022 and.

In summary, when Q2, 2020, threes and the books will likely bar second.

No.

On the ATL.

I think it's seasonally move in a normal way I don't know Jerry wants to add anything else on the ATM. Okay. On your question about international versus domestic Youre actually the first person to ask that question. So we'll follow up with you.

Okay. Okay.

The next question comes from Jamie Baker from Jpmorgan. Your line is muted. Please go ahead.

Hey, good morning, everybody.

Chuckling at Jerry's response to Katie there.

The ATL Jerry to build obviously helped with free cash flow generation in the quarter, presumably the ATL will incrementally moderate in the second half as it often does do you still think you can cover this year's $9 billion in Capex.

And generate positive free cash flow.

Yes, Jamie I think we can.

Okay.

Okay fair enough.

Second to Andrew.

Relative to the international component you have got a lot of new route activity could you speak to sort of like same store sales.

Trying to think about the read through is some of these trends normalize next year.

Yes for <unk>.

Mobile long haul.

Virtually no spool up right now Jamie It gives you the the supply demand equation is just not what it has ever been in the past.

Being said in terms of same store sales I will say that.

London Heathrow is probably our weakest at this point because there's just.

There is a large amount of capacity in London Heathrow relative to the rest of the world and we've grown there.

And our connections within Europe .

In our key hubs are have not fully recovered just like they haven't domestically and so we actually do see some relative weakness in certain parts of the global network offers of a strong base, but the new routes to your question are just coming in with home runs on day one.

Thank you gentlemen for your answers take care.

Yes.

The next question comes from Conor Cunningham from Melius Research. Your line is muted. Please go ahead.

Hi, everyone. Thank you just the 2023 cost sector rate seems pretty encouraging I know you mentioned maintenance and distribution as being a main driver for the first half the second half of it still seems to me that youre holding incremental costs that might be the cost of doing business right now, but just curious if you could talk about what potentially rolls off of that.

Next year.

Should we start to think about CASM ex there. Thank you.

So I am not sure I would call it rolling off keep in mind next year, one of the benefits were really going to start seeing is that growth in mainline gauge.

As the aircraft continue to come in.

Practice is really just starting this year. So next year, we get the full run rate.

The.

Larger gauge aircraft and take even more next year, so when youre looking sort of where the.

Tier ones are next year gauges gauges, one and the comps year over year are going to be better.

This year is really finally getting to the run rate.

Post COVID-19 sort of.

Yes.

Full operation.

So I think as an industry, we're done with a lot of the surprises we all kind of saw coming out of Covid with.

Some of the cost pressures.

So I think from a cost side of the business the business has become more stable and a little more predictable.

Okay. Okay. That's helpful. And then just on the evolving booking curve in seasonality that you have been talking about just curious how youre going.

Going to combat those challenges going forward.

As mentioned in there talking about fucking up like all of our booking tinkering with inventory.

I'm curious what the strategy is that United if there is one to combat those.

Those changes in the booking curve. Thank you.

Sure well, we think we clearly have the best RM system in the world by the way, that's what I'll start off with.

While there has been a small change in the number of tickets not flown in the quarter due to the increased flexibility creative when United Illuminating change fees. It's our view that it's not really material and it's fully accounted for by our RM systems and I'll add onto that our no show rate is lower as well and we will not be changing our overbooking levels at this point.

Okay. Thank you.

The next question comes from Savi <unk> from Raymond James Your line is on mute. Please go ahead.

Okay. Thank you. Thank you and good morning, everyone.

Just a question on the Max deliveries it looks like you had.

Three more deliveries.

We're planning <unk>, but for the full year kind of slipped a little bit just curious how you're feeling about confidence on that in the maxillary as especially given the recent news.

Hey, Savi from from what we know on the recent news, we don't think Thats going to have much of an impact on us certainly won't have an impact on second quarter.

Right.

I think you may have you may have seen this yourself as Boeing has gotten back on track on delivering aircrafts the issues that they had over the prior few years, they've really managed well.

And yes the.

The impact from what we know today for the full year just will.

<unk> will be minor.

That's helpful, Gary and maybe along those lines.

Just a follow up on the.

Fuel efficiency, there's a little kind of surprised by kind of what we saw here in.

First quarter, it maybe a little bit less than what we've seen last year.

What's your expectation around how that trends.

Kind of going forward, especially kind of given that thats another part of the.

Cost benefit.

Next Lynn.

Well as we start seeing.

More and more of the Max is we'll start seeing that improvement that we've sort of talked about on United Max Remember, we just started taking delivery of those those incremental aircrafts and there'll be a nice.

Pop in that as well once the Max 10 delivers.

At some point.

So just from a critical mass standpoint, when does that when do you think roughly that is based on like what what you know today.

Yes, it starts to kick in next year critical mass maybe the year after.

Okay.

The trend.

Quarter by quarter.

Alright.

The next question comes from Mike Lindenberg from Deutsche Bank. Your line is muted. Please go ahead.

Hey, good morning.

When I look at your sort of loads from fourth quarter to March quarter. I mean, you can see that seasonal Andrew when I saw that I sort of thought maybe it had to do with a higher no show rates, but can you sort of just address that that is not an issue.

As you add more service to places like New Zealand, Australia, South Africa, Brazil et cetera.

Does that.

We should see improvement in that rate, maybe you never actually are able to get to the level of say, an American or a delta from a seasonal perspective, but to.

To some extent you should be able to mitigate that as we think about the seasonality is that is that kind of where we're headed do we see that really start to narrow versus the industry.

Yes.

It's a good question.

And our intent is to get it to narrow.

But we do we're simply smaller in Florida due to a lot of reasons that that can't be addressed in a matter of a few quarters, we have to be addressed over years and so while our goal is to narrow that gap in Q1.

I don't think to be blunt, we're going to we're going to be able to eliminate it.

Clearly the introduction of counter seasonal flying into the South Pacific.

Really helps put it in the right direction, and we will be looking for more opportunities and we will be looking to grow Florida, I think faster than probably most of our competitors.

We're just so relatively small, but ultimately I do think Q1 is going to continue to be our weakest quarter and recovery of business traffic in Q1, we will do the most to help our relative to Q1 results.

Okay. Thanks, and then just sort of as a follow on and tied to that when you look at the announcement that you did make yesterday.

There definitely was quite a few aircraft heading towards the south specifics what I would tell you is that we just seasonally reduced Europe than we would otherwise, but many of those wide bodies into our domestic system.

This year, our maintenance this year those aircraft will be applied to the South Pacific, which we think is their best used in regards to China, we continue to be stuck at for flights per week.

We are preparing to supply more than that but have been unable to get that done so far.

But hopefully later this year, we will be flying more to China, and we have the aircraft to do so if the conditions are.

Allow us to do so.

Alright, thank you.

Yeah.

The next question comes from Julian filling worse from Evercore ISI. Your line is on mute. Please go ahead.

Hey, good morning.

I wanted to ask about one of the themes Scott started the call with on flexibility.

And maybe a follow up to Mike's question, just there, but first on seasonal shaping capacity given the new normal.

Is there a is there a greater emphasis recently on seasonally shaping capacity.

And how does maybe lack of regional lift or lack of ability to kind of flex up on regionals limit your ability to do that if at all.

Okay.

It's a really good question.

Im hopeful that after further evidence that we will be able to operate a more stable schedule. All the way from March through the end of October , which I think will definitely benefit our cost structure, having less of a peak. However, we are not there just yet I think we need to make it through this year, we need to see how their remote work schedules continue to play out.

We need to in particular see how this September in this October due.

Fantastic, obviously last year and I think that will help us validate for next year, whether we actually changed the seasonal shaping as I just described and hopefully we can but we're not ready to really jumped into the deep into that pool. Today. So we will continue to peak the airline in July as we normally do.

And we will see where we go from there in terms of regional Jets.

Lack of regional Jets is.

Definitely hurt our connectivity.

This is an issue I talked about it and we're very focused on rebuilding that connectivity with the right jets.

Going forward and in fact, we.

We don't intend to ever go back to the fleet of approximately 600 regional Jets. We had in 2019, we think the economics have changed we think the business has changed and we need to change with it.

That being said on the <unk>.

Good news front the regional jet pilot situation has recently in our mind stabilize.

We're no longer losing pilots at the same rate we were earlier very early this year or last year and the production of block hours in our regional jet Division at the end of this year will be consistent with the production of block hours that we started the year with and I can tell you that our original budget for that was not that we thought we would continue.

See deterioration so the good news there is the regional jets are going to be able to at least temporarily.

It helped us boost our connectivity as we wait for all of our mainline jets from Boeing to deliver over the next two or so years.

Thanks, Andrew for that detail and then just sticking with the flexibility theme on capacity and the idea that you could kind of take capacity lower if the environment warranted.

How much lower could you take it I guess relative to the high teens, 20% in the back half and just conceptually are we solving for margins. This year or are we solving for CASM. Thank you for taking the questions.

I don't think we're ever solving for CASM, we're solving for margin and of course, the 10 to 12.

So that will that will always be our focus and we're going to maintain the flexibility.

I'm pretty bullish about the.

International environment, and Thats going to generate.

Large lions share of our ASM growth this year.

I expect international would be strong all the way through the end of October .

And so far it shows that it's still early obviously, when we look at that but we're very optimistic and domestically.

Jerry Center, something really good fleet plan, where we have a significant number of older.

<unk> hundred 20, <unk> hundred 19 aircraft that we could easily fly less or we could put on the ground. If we thought that was necessary as.

As we saw two reached the right margin and EPS targets that we have for the year.

Thanks for the thoughts.

The next question comes from Helane Becker from Cowen. Your line is Unmated. Please go ahead.

Thanks, very much operator, hi, everybody. Thank you for the time.

Two questions. One did you say what pension contribution would be this year and if not could you and then the other question I had was just on.

United Nextgen, where you are in 23 versus the plan and our progress is on maybe some of the bigger items.

I think you just addressed Andrew.

On the regional jet and the narrow body shift in mix, but maybe.

Connecting smaller cities or connecting bank changes or something like that.

Hey, Helane, yes, we did not say anything about pension nothing.

Nothing changed from.

Our recent disclosures there is but we expect no pension contributions this year, our pensions are in good shape and both with the pension calculations that can be made and interest rates having.

Nicely reduce the liabilities.

Do not expect any pension contribution is actually for a couple of years.

Oh, that's great to know.

Alright.

On the United next comment.

<unk> indicated a bit earlier ago. My number one focus domestically is this connectivity issue, we can clearly see it when we looked at our RASM by fly Fi market.

We're just we're missing a lot of connectivity relative to where we were and so as we go forward, we're going to be very focused on rebuilding that connectivity and getting the bank sizes back to where they were.

Hopefully in 2019, but it is going to take some time, but we're optimistic just like we did it in 2017 and 2018.

We're going to do it again, and it's going to be very accretive to margin profitability and of course.

As we build back the connectivity. So it is really important focus of our domestic.

<unk>, we're ready to get that implemented as soon as possible.

That's very helpful. Thank you.

Okay.

The next question comes from Ravi Shanker from Morgan Stanley . Your line is muted. Please go ahead.

Good morning, everyone.

I think despite the.

Kind of tough macro outlook pretty clear what are you expecting that.

And if the latter of kind of where some of those data points you're fracking.

Well, maybe maybe I'll start.

And talk about it from a business traffic recovery.

And what we're seeing in there because I do think one of the most common questions I get is business traffic recovering and what is it going to look like.

First of all I wonder whether the old methods of measuring business travel will be the same in the future but for now it's all we really have to really benchmark against 2019.

I will say that we look at as we look at business traffic three different ways. The first is from larger corporations that have a contract with United.

From.

That advantage from agencies that specialize in business traffic and the third is based on ticket attributes.

Third is clearly the most encompassing view as it includes small and medium size businesses that don't have an agency or don't have a contract for United.

So in Q4, the revenue recovery rate was between 70% to 85% for these three categories in Q1, the revenue recovery rate for these three measurements ranged from 85% to 97% and for the first two weeks of April the recovery of range from 95% to 101% I think is that in the last two weeks of April .

<unk> was a surprise to us as we've seen more conservative measurement start to approach 100%.

Fact that large corporations are getting close to 100% is a nice tailwind to United as many of you know this is critically important.

Critically important component to our regions I will also say that the recovery in global long haul business is a few points of that are domestic and all of these measurements are just a good sign that our planned international revenue increases our capacity increases are moving in the right direction.

We obviously need more time to see if this trend will hold but what I can tell you in the last week or so after reviewing this data have become a lot more positive even as many of the headlines continue to predict a recession as I said in my opening statements. The trends for May look ahead of March I can also confirm in absolute dollars. The last 14 days have been the best.

Booking days for business traffic revenue that we've seen since the pandemic I'll also add since the step up in business demand is very recent is not incorporated into our revenue outlook for the quarter.

That's incredibly helpful. Thank you for the color there and since my follow up question was going to be about SMB versus enterprise corporate I'll switch it up and ask you about the cargo business is obviously, a small portion of the business. It probably very volatile given that there was one of the bigger I've got a plan to make our winners how are you seeing that evolve through 'twenty, three and 'twenty four and what's the norm.

Is that was there.

Yeah. So I mean cargo stepped down in Q1 and step down exactly what our plan still well ahead of 2019, which is nice to see but we are seeing very low.

Prices are low yields.

Cross the system, particularly outside of United We've been I think we've done a great job of holding yields where they are add through are really.

Really the best cargo team in the World in my opinion.

But not only is airfreight challenge now, but also sea freight.

Where rates are incredibly low.

So we're holding our own.

I think again, we're executing consistent with our plan and we've got this baked in for the rest of the year, we do expect to see more and more pressure on cargo yields going forward.

But the United team is executing in an amazing way our relative size to our primary competitors you can see it in the numbers.

And so I'm still actually bullish about the business relative to 2019, but look its last Q1 in particular, we reached an unbelievable high based on where we were with the pandemic and Covid we.

We didn't expect we would be able to achieve that number and we didn't but again we are on plan.

Thank you.

The next question comes from Sheila <unk> from Jefferies. Your line is muted. Please go ahead.

Good morning, everyone and thank you.

I wanted to ask you maybe a tough question you've been fairly outspoken about airlines needing more in place by the same level of operations.

The ASM per employee are now just 3% below 2019 versus six to seven in the second half of 'twenty two.

And presumably there's some advance hiring or azure.

Preparing for new aircraft is there room to further close the gap versus 2019 on this basis as we think about <unk> new aircraft deliveries.

Yes.

Well I guess, we'll see but I feel really good about what we've done with running with higher resources than we did pre pandemic is leading to the best operation that if you wanted the countries run the best operation frankly that we've ever run.

That's great for our customers that's great for our brand I also think it's turning out at least right now in this environment to be the lowest CASM.

<unk>.

That by being able to run a reliable operate in the most expensive.

Being able to run a reliable operation.

It is what is giving us the best CASM results in the industry and giving us confidence about CASM results going forward. So I think we're at the right place at the moment.

It's obviously very.

The operating environment gets easier down the road, obviously easy.

To adjust that especially as we are growing just slip in hiring.

A month or two and you right back to where you were so easy to adjust.

I'm really proud of how the team has done operationally and I think it has been the lowest CASM outcome, we could've had by running a reliable operation.

If I could just ask a question about your premium performance, which is pretty good premium relative to 2019 up 25% compared to total domestic side can.

Can you break that out in any sort of way, whether it's RASM or yield performance. How we should think about the continued growth there.

Sure.

We're really happy actually with our progress on the premium side in all of our cabins, but particularly for Polaris, we've been just making a ton of progress in the first cabin given the rebound in business traffic, but we still have more to come in March for example, our load factor was up 10 points year over year and five points versus 2019, we.

So lots of seats, but we sold business travel seats accounted for seven points down year over year.

And premium leisure comp traffic compensates for that.

By being up seven points.

So just to offset it but that came at a lower yield. So we're carefully also trying to keep increased premium leisure demand and revenue created since the pandemic, while accommodating more and more of traditional business traffic. There are lots of puts and takes with this given our load factors, but we do think that there is potential to get this done, particularly as we continue to integrate.

The new 730 sevens, which come into our fleet with a large amount of premium seating.

Most of our growth is tilted towards premium season at this point, particularly as we retire the single class a regional jets from the network and so I.

I think we're just hitting on all cylinders on this front and the progress we're seeing and Polaris in particular with higher load factors backfill and temporarily leased with premium leisure.

And ultimately as long haul business traffic as I said earlier summit back faster.

We're optimistic that we're going to get claris completely back to where it was in terms of relative profitability margin.

Later this year.

Great. Thank you.

The next question comes from Scott Group from Wolfe Research. Your line is muted. Please go ahead.

Hey, Thanks, good morning, so when I look at domestic capacity for the second quarter.

Back below 2019 levels, it's only up marginally from Q1, which is a lot less than normal I guess.

Is this it.

I do think it is a little bit lower than Q1, and I think youre absolutely correct on that it's where the numbers shook out we clearly leaned as hard as we could as quickly as we could into global long haul, which really turns on in March and April and Thats whats shook out for domestic because we thought that was the.

It's the best place to put the capacity.

But you should see a little bit more domestic ASM growth in the second half and what we're seeing in the second quarter.

Okay, and then I know it's early you talked about next year. Another focus on mainline gauge any early preliminary thoughts on how youre thinking about overall capacity growth in 'twenty four.

I don't think we're prepared to give our guidance for 'twenty four.

We're excited to continue implemented United Max and most importantly for domestic we're excited to make sure that we rebuild the connectivity as quickly as we can.

Back to where we were pre pandemic and I think that's our biggest driver of domestic RASM next year.

And.

Thats really all I can say at this point.

Okay. Thank you.

The next question.

The next question comes from David Vernon from Bernstein. Your line is muted. Please go ahead.

Hey, Thanks, guys and thanks for fitting me in here two questions for you guys on the new seasonality Andrew can you maybe talk a little bit more about some of the short term challenges and opportunities youre dealing with from a revenue management perspective things like overbooking, and how you're sort of managing yields with this this sort of shift in customer behavior, which seems relatively new.

For the Buck out of like a Polaris Lounge. For example, if this shift continues longer term. Thank you.

Sure.

Say as the booking curves have adjustment.

Theyre, both international and domestic are booking further out the international more extreme than domestic.

So we our RM systems have adjusted to this very very quickly and we're booked ahead in our global long haul system based on the change in the booking curve. Domestic has also moved out there is I think four points to greater outside of 21 days and there is inside of 21 days right now and.

And again RM systems have adjusted for that.

That being said, we are managing to keep yield domestically.

Domestically as close as possible to where we were last year.

And as we look at this we expect we're going to run lower load factors and our domestic entity in Q2 as a result, that's part of our plan.

We think it's the right strategy and we do think.

We will be able to fill up some of these seats were closer into higher yielding business.

And the fact that business has had the significant recent recovery in the last two weeks. It makes me even more bullish that we've executed the right strategy there and that we do have capacity available to accommodate closer in business demand to the extent that materializes in Q2.

And on the longer term, it's an interesting question first.

And conclude that.

Yes.

We'll see what happens with business demand in the near term, though the most obviously is we can do things that are happening in revenue management, Andrew talked about we have the best revenue management system and team in the street that is true.

Huge investments can be independently concluded during the pandemic.

The team.

None of these things they are generally not that surprising we didn't really appreciate fully the seasonality shift with the revenue management system is working well.

And that's one of the obvious places Andrew talked also about pivoting the network. It's another one of the straightforward thing to do by more to Florida plant more leisure.

Destination.

In terms of things like flourish classic Andrew also talks about the fact that while we have less business traffic decline.

Actually we have a lot more premium leisure.

So I wouldn't anticipate at least in the near term any radical shifts in the strategy, mostly probably come in terms of capacity deployment.

Was there anything.

It could be fungible assets.

Relatively easy for us to do.

Okay.

We will now switch to the media portion of the call.

As a member of the media would like to ask a question. Please press pound two to enter the queue. Please hold for a moment, while we assemble our queue.

Yeah.

Okay.

The first question comes from Claire Bushy. Your line is muted. Please go ahead.

Okay.

I wanted to ask about summer operations, you mentioned cutting flights.

In New York earlier in the call.

Want to ask about what other operational changes United is making the center to avoid a repeat of the disruption last summer.

Hey, Kerry this is Toby.

Well, we've done a lot talk about Merck and New York first so we work with the FAA FA gave us a waiver for the summer. So we are down about 30 flights per day in Newark, and at peak times, that's going to make a big difference also like Andrew said, we're not the only ones, but for the first time in a long while in New York.

<unk> grew actually will be scheduled to on a blue Sky day at least what's the capacity of the airport can actually hold so we're really bullish on that and on top of that Andrew mentioned movement.

Remarks, as well, we are actually going to have 17, new normal.

Mainline gates and the brand new terminal a in Newark, and if you guys haven't been there.

Plastic term element is a world class terminal, replacing a 1969 banjo terminal that we were in Moscow. So just right off the bat right there.

That's going to be a huge improvement and the other thing again, United actually Ben If you guys remember, we actually did pretty well.

CLS summer I think the biggest issues rehab was actually the infrastructure, especially in the Atlantic and I'll actually just in Europe , two weeks ago and talked to our biggest airports Heathrow Frankfurt and Munich and there are one year ahead of us.

All of the hiring and all of the other things there so again.

Summer, it's picked up it's not perfect, but we are in a much much much better place than we were last year, we reached a joke I mean, all the terminals in Europe , It's actually opened this year.

My heart start terminals in Europe last year, both in Amsterdam in Heathrow and others that most importantly, even open.

And they are wide open and open for business again.

We call. It summer readiness, we are not taking it lightly summers are Super Bowl proppant pumped to operate it's going to have some tough thats surely with weather and things were going to be in a much much better place to remember last year.

Hey, guys.

Delta said.

They they were flying less than they had expected they were trying to reduce the debt.

Turnaround time for maintenance on aircraft is there just any of that detail that you could share with us.

Well I would just.

I think that we've already done that so we're talking about we're not building our own like it's 2019, we built those buffers prospectively.

And in advance and Thats why we ran the best operation in the country. You are ahead of the curve.

And perhaps others are catching up to that but we were ahead of that curve.

And Thats, what led to the best operation in the country in the first quarter.

Thank you.

Our next question comes from Leslie Josephs.

Your line is unneeded. Please go ahead.

Alright, Thanks for taking my question just.

Just curious on the retrofits, how many of those do you expect to get this year and how many were you expecting before and what was the outlook for 2024 and then it's been almost seven years. Since you launched launch Polaris and just curious if you are and how are you thinking about kind of a successor to that.

Okay.

That's a great question and I will not answer the latter question other than the teams are always.

Working on innovations that United across all of our business functions and I'm sure somebody somewhere is working on something great. When it comes to seats.

Well hopefully we'll leave it at that.

In regards to retrofits and I don't have the numbers here, we will have somebody call you back, but the reality is the supply.

Supply challenges across the board.

It would be <unk> system chips.

Yes.

And many other things are just more challenging than they've ever been in our business.

And while we converted our first <unk> hundred 19, a few weeks ago. It should decline hopefully any day now in the new interior and we have multiple lines that we'll be doing this summer. So youll see a rapid increase in the number of aircraft with the signature interior up through retrofits and through new aircrafts. The total time to convert all.

The aircraft is just going to be longer than we expected. Unfortunately.

Probably by a year or two to be Frank.

So we will get there it will just take a little bit longer than we had originally intended.

But you will see material progress, we will get some of the numbers out to you separately by the end of this year.

And do you expect that to hurt your revenue premium at all for people that are booking up are choosing United because it has those features.

I would I would tell you is that the increasing off to a good amount in aircrafts the United signature interior is going to go up rapidly.

The tail of this isn't going to take a little longer to get done so our investment in our brand and our products and our services and how we're differentiating ourselves from our competitors I think our customers already see it.

And theyre going to see it a lot more in the coming quarters, it's going to be a little bit slower than we had hoped.

But I know people are noticing and already we can see the NPS scores on these converted aircraft are definitely the new aircraft.

And we're excited to get it done as quickly as we possibly can.

Thank you.

Okay.

The next question comes from Alison Sider.

Your line is muted. Please go ahead.

I think yes, I was wondering if you could talk a little bit about anything.

Anything that you might it might be doing kind of in the wake of that.

The handful of near collisions that the industry has been seeing.

Are there any particular steps that you're taking to respond to that or like do you have any theories about what's been going on.

So.

Im proud of the whole aviation industry for the level of safety that we have which is at least an order of magnitude higher than any others appropriately. So.

And when aviation professionals talk about safety is our number one priority that is deeply embedded in the DNA of everyone not just united but across the industry.

And in particular, the tiptop of that peer.

Pyramid in terms of safety.

Our team.

I think he is doing a really good job.

In today's environment, where youre coming back out of Covid and their new people working at airports, who are new to air traffic controllers or whatever it is.

And increasing the amount of training time and training quality of training, we're spending more money and a lot more time and resources there.

And in fact, we put a vice president.

Maybe Mark Champions, who has been a champion for safety for his entire career into her new role.

He is exclusively responsible.

For safety.

Safety and quality.

Four.

Our theaters.

And I think we're leading on that and continuing to push to make the system.

Already the second system in the world, even stronger and I feel good about the path, we're on and Mark being charged with that responsibility and having.

As many resources as he needs into a one person that doesn't have to lift the budget.

He can do whatever it needs to do to make sure that we achieved.

Keep this going to intersect these guys have always been.

So when you look in some of your own data.

Any kind of trend or any sort of connection between sort of the newness of people add.

Incidents or potential incident, there or anything like that.

Well one of the great things about aviation.

As we use and we share data.

We have great safety systems, where our own employees can report.

Without repercussions to them that encourages reporting.

It's been I guess.

Well well over a decade since there has been.

Payroll.

Yes.

In the United States.

What that means is we would have to look for.

Close to the out of tolerance around a tolerance to find it.

And sharing that data across the industry as a straight debt I think is unique to aviation and what leads to our higher safety standards.

We have teams of people and our competitors have teams of people on this one we don't compete we shared the data with each other on doing that and there are always.

Always always looking for no matter how good we get what's the next place that we can do it.

Good even better that process as well as continuing to work well they haven't even elevated since.

Lance ability.

Right now as we're coming out of Covid and feel great about where we're headed.

Okay.

I will now turn the call back over to Christina <unk> for closing remarks.

Thanks for joining the call today, please contact Investor Media Relations. If you have any further questions and we look forward to talking to you next quarter.

Thank you all this concludes today's conference you may now disconnect.

Q1 2023 United Airlines Holdings Inc Earnings Call

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