Q3 2023 United Airlines Holdings Inc Earnings Call

October 18, 2023

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

I will now turn the presentation over to your host for today's call Christina Edwards Director of Investor Relations. Please go ahead.

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

Good morning, everyone and welcome to United Third quarter 2023 earnings Conference call Yesterday, we issued our earnings release, which is available on our website at IR, 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.

Following the initial remarks from management, we will open the line for questions at that time. Please press pound too on your telephone keypad to enter the question queue.

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

And financial performance all forward looking statements are based upon information currently available to the company.

Number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release Form 10-K, and 10-Q and other reports filed with the SEC by United Airlines Holdings, and United Airlines for more thorough description of these factors unless otherwise noted we will be discussing our financial metrics on a non-GAAP basis on this call.

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

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

I will now turn the presentation over to your host for today's call Christina Edwards Director of Investor Relations. Please go ahead.

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.

Thank you Skyler and good morning, everyone and welcome to United Third quarter 2023 earnings Conference call Yesterday, we issued our earnings release, which is available on our website at IR, 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.

Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby President Brett Hart.

Negative Vice President and Chief Commercial Officer, Adrian Yourself and are you at.

And financial performance.

Forward looking statements are based upon information currently available to the company a number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release Form 10-K, and 10-Q and other reports filed with the SEC by United Airlines Holdings, and United Airlines for more thorough description of these factors unless otherwise noted.

Decorative vice President and Chief Financial Officer.

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. Thank you Christina.

Want to start.

By saying how heartbroken we are by the horrific attacks on Israel escalating conflicts in the region that has millions of it is the people in harm's way here at United and tragedy strike anywhere around the world. We focus first on safety and secondary and how we can use.

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.

A unique capabilities to help while we suspended our service to Tel Aviv. We were the first you have cured extra points Athens, where customers connect from airlines operated between Tel Aviv.

Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby President Brett Hart.

We also upgrade some regularly scheduled.

The Vice President and Chief Commercial Officer, Andrew any thoughts and are you.

Don dedicated TV support basket continued point of mind Goodbye.

Thank you, Dave Vice President and Chief Financial Officer, Mike <unk>.

Maximize flexibility for customers with tickets utility we're closely monitoring the situation on the growth and staying in close touch with state Department officials. So that we can resume service as soon as possible.

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

We look forward to a sufficient sensation of violence in the region as we've done in the past crises around the globe. We expect to continue to play a meaningful role in the humanitarian response, turning back to the business I want to start by welcoming Mike to the leadership team.

Sure.

By saying how heartbroken we are by the horrific attacks on Israel escalating conflicts in the region that has millions of visits to the people in harm's way here at United We tragedy strike anywhere around the world. We focus first on safety and second on how we can use our unique capabilities to help while we suspended our service to Tel Aviv, we were the first U.

All know them well, but I'm excited to have him as a partner who agrees with my no excuses approach with 100% committed to making United work for our employees customers and shareholders. I also want to congratulate Kristina for a recent announcement from clients here in Chicago is one of the top 40 under 40 and the <unk>.

As carriers add extra points to Athens, where customers connect from airlines operating between Tel Aviv.

We also gained some regularly scheduled flight to Athens.

Dedicated Tel Aviv support basket continued point of mind, Dubai to maximize flexibility for customers with tickets utility we're closely monitoring the situation on the ground and staying in close touch with state Department officials. So we can resume service as soon as possible.

Third quarter was another solid milestone to demonstrate that <unk> is working as we expected and growth. We're adding is profitable. So fuel spikes. This quarter. We're very encouraged about our results. It is clear to see one from the numbers. Our topline revenue grew 12, 5% to $14 5 billion, making it the highest third quarter in our history. Our costs were also on track.

Look forward to this assertion deflation of violence in the region and as we've done in the past crises around the globe. We expect to continue to play a meaningful role in the humanitarian response, turning back to the business I will start by welcoming Mike to the leadership team you all know him well and I'm excited to have him as a partner who agrees with my no excuses approach it was $100.

With our plans as we delivered strong operations in both August and September .

<unk> diverse revenue streams have also allowed us to handle variations in demand and produced solid absolutely been better relative results, it's evident in the numbers.

Committed to make the United work for our employees customers and shareholders.

And what other airlines are expected to account for 98% of the total industry revenue growth this quarter and over 90% of the industry total pre tax profitability.

Also want to congratulate Kristina for a recent announcement from cranes here in Chicago is one of the top 40 under 40.

Even in a tough industry environment unites diverse model zoning strong absolute and even more impressive relative margins. So what is it about revenue diversity that makes us different first because of our size and industry, leading global network. Our loyalty program is the most attractive program in the world for customers and therefore generate significantly directly R E.

The third quarter was another solid milestone to demonstrate that <unk> is working as we expected and the growth we are adding is profitable.

Fuel spikes this quarter, we're very encouraged about our results. It is clear to see one from the numbers. Our topline revenue grew 12, 5% to $14 5 billion, making it the highest third quarter in our history. Our costs were also on track with our plans as we delivered strong operations in both August and September designs.

Vit significant loyalty, but also a significant opportunity to do even more with it in the future.

Expect to hear a lot more details from us on this front.

<unk> diverse revenue streams have also allowed us to handle variations in demand and produced solid absolutely even better relative results.

You had an investor day in early 2024.

We have unmatched geographic diversity with a large domestic network complemented by the largest long haul international network in both our solve the problem.

Evident in the numbers, the United and what other airlines are expected to account for 98% of the total industry revenue growth this quarter and over 90% of the industry's total pre tax profitability, even in a tough industry environment unites diverse model is building strong absolute and even more impressive relative margins. So what is it about revenue diverse.

While this is a great attribute it does create some short term risk and volatility as we're seeing right now with a transitory hit the margins this quarter as a result of the tragedy in Missouri.

We feel that both business travelers and it's been nice to see recent momentum in that segment, but also also increasingly the leisure customers as well.

That makes us different first because of our size and industry, leading global network. Our loyalty program is the most attractive program in the world for customers.

Got a lot more agile pivoting capacity of the leisure markets not surprisingly have found that our core customers can now fly us in both business and leisure markets as we add seats the leisure destination.

Therefore generate significantly directly our EBIT significant loyalty, but also a significant opportunity to do even more with it in the future.

To move domestic capacity in the leisure markets. When they are strong as a consequence of a driver of our strong relative revenue performance.

To hear a lot more details from us on this front starting at an Investor day in early 2024 second we have unmatched geographic diversity with a large domestic network complemented by the largest long haul international network and both are solidly profitable.

We continue to advance and improve our segmentation efforts. This project almost a decade in the making but all the way from basic economy.

This allows us to compete profitably on price on the low end and all the way up to Polaris on long haul international benign who's able to give our customers the real choice one.

While this is a great attribute it does create some short term risk and volatility as we're seeing right now with a transitory hit the margins this quarter as a result of the tragedy of industry.

So what does that mean going forward. It's short it's a confirmation that <unk> is working as we expected we thought the industry operating environment would be difficult. We've got that medium term capacity aspiration will be higher than demand growth. We thought that domestic would be a lot cover the international in the short to medium term, but we also thought United wind shear grower gauge a grower.

Third we filled both business travelers and it's been nice to see recent momentum in that segment, but also we're also increasingly the leisure customers as well.

Got a lot more agile pivoting capacity the leisure market not surprisingly have found that our core customers can now fly is in both business and leisure markets as we add seats the leisure destination.

Productivity and that would allow United specifically to improve our results.

Ability to move domestic capacity the leisure markets. When they are strong as a consequence will driver of our strong relative revenue performance.

By the way, we also expected and now believe we will have an even faster than the domestic market is going to see a shakeout that leads to an improvement in margins over the medium to long term, it's impossible to call the timing exactly but I would guess that we see meaningful industry changes, but <unk> 24 and for what it's worth that's what has happened every single time, we've been through one of them what is it.

We continue to advance and improve our segmentation efforts. This is a project almost a decade in the making but all the way from basic economy.

This allows us to compete profitably on price on the low end and all the way up to Polaris on long haul international United is able to give our customers the real choice they want.

The cycles in my career.

So what does that mean going forward. It's short it's a confirmation that <unk> is working as we expected we thought the industry operating environment can be difficult. We've got that medium term capacity aspirations will be higher than demand growth. We thought that domestic would be a lot covered in international in the short to medium term, but we also thought United Wiltshire grower gauge and grow it.

And as that is happening I will continue to closely tracking the airline industry revenue to GDP relationship.

Talked about this in the past, but that ratio declined by approximately 35% for the past few decades I don't think we'll make all that up but almost everything we do makeup go straight to the bottom line. So in conclusion I'm proud of the team that you know, we're creating something special here, even in a tough industry environment were producing strong absolute results, while producing the best relative result.

Productivity and that would allow United specifically to improve our results.

By the way, we also expected and now believe we will have an even faster that the domestic market is going to see a shakeout that leads to an improvement in margins over the medium to long term, it's impossible to call the timing exactly but I guess that we see meaningful industry changes by <unk> 24, and for what it's worth that's what has happened every single time, we've been through one of them one of them.

In our history. We believe we have a lot of runway ahead of us with United Nuts, and our diverse revenue streams, along with our ability to catch up on engage in connectivity position, United well, we expect that the current stress in certain segments of the industry is also going to lead to structural changes that lay the foundation for an even better future for United our employees our customers.

The cycles in my career.

And as that is happening I will continue to closely tracking the airline industry revenue to GDP relationship.

And our shareholders with that I will.

Turn it over to Brett.

Thank you Scott and thank you to each member of the United team dedication is what continues to propel us to the top.

<unk> talked about this in the past, but that ratio declined by approximately 35% in the past few decades I don't think we'll make all that up but almost everything we do make a go straight to the bottom line. So in conclusion I'm proud of the team.

I also want to acknowledge the tragic conflict in Israel and United Our top priority is the safety of our crews and customers. We are closely monitoring the situation.

We're creating something special here, even in a tough industry environment were producing strong absolute results, while producing the best relative result in our history. We believe we have a lot of runway ahead of us with United next and our diverse revenue streams, along with our ability to catch up on gauge and connectivity position United well, we expect that the current stress in certain segments of the industry is.

Following our coordination with the state Department, we have suspended flights to Tel Aviv until till the end of October offering waivers to impacted customers.

We will continue to monitor the situation and adjust as needed Mike will provide more detail on the impact of these capacity adjustments shortly.

Last quarter, we announced changes to our operation to better hedge against disruptions, including taking advantage of FAA granted waivers to reduce our flight schedule alone for necessary aerospace relief and the highly congested region.

Also going to lead to structural changes that lay the foundation for an even better future for United our employees, our customers and our shareholders. So with that I'll turn it over to Brett.

Thank you Scott and thank you to each member of the United team dedication is what continues to propel us to the top.

While July was a difficult weather month, the Newark waivers and other proactive measures to improve reliability up to avoid pre pandemic levels of ATC related delays.

I also want to acknowledge the tragic conflict in Israel and United Our top priority is the safety of our crews and customers. We are closely monitoring the situation.

In the third quarter. The late arrivals were down 16 points versus the third quarter of 2019. Additionally in August we had the fewest cancels of August in history, our operating the third largest quarter.

Following our coordination with the state Department, we have suspended flights to Tel Aviv until till the end of October and we are offering waivers to impacted customers.

We will continue to monitor the situation and adjust as needed Mike will provide more detail on the impact of these capacity adjustments shortly.

Wide bodies schedule F.

In September the FAA granted extensions to the New York Aerospace waivers, allowing the ability to maintain or reduce flight schedule at Newark, and will help minimize air traffic delays through the rest of the year.

Last quarter, we announced changes to our operation.

Better hedge against disruptions, including taking advantage of FAA granted waivers to reduce our flight schedule along for necessary aerospace relief and the highly congested region.

And flexibility enabled by waivers are providing to be six are proving to be successful and ensuring operational reliability and resiliency at our largest international hub.

While July was a difficult weather month, the Newark waivers and other proactive measures to improve reliability optimal at pre pandemic levels of ATC related delays.

Meaningfully improve the travel experience for our customers traveling in and out of Newark and throughout our network.

In the third quarter. The late arrivals were down 16 points versus the third quarter of 2019. Additionally in August we had the fewest cancels are any August in history operating the third largest quarter.

Looking to our system operations during the quarter, we carried over 482000 revenue passengers daily.

The most in any quarter in United's history with top tier system customer do zero zero in August and September .

Wide bodies schedule F.

In September the FAA granted extensions to the New York Aerospace waivers, allowing the ability to maintain a reduced flight schedule at Newark, and will help minimize air traffic delays through the rest of the year.

We're grateful to the FAA for allowing us to make necessary adjustments in Newark, and thank our employees, who work hard to get our customers to their destination safely and on time.

While most of our network has recovered to 2019 capacity levels are beyond our China network has been last to recover.

The flexibility enabled by waivers are providing to be six are proving to be successful and ensuring operational reliability and resiliency that our largest international hub and have.

At the start of the quarter, we were operating four flights a week from San Francisco to Shanghai and this month, we increased that to a daily flight.

Meaningfully improve the travel experience for our customers traveling and out of Newark and throughout our network.

Next month, we will be the first U S Airlines returned to Beijing, The daily flight from San Francisco.

Looking to our system operations during the quarter, we carried over 482000 revenue passengers daily.

We believe this measured approach to bringing China capacity back online as appropriate as demand slowly recovers.

The most in any quarter in United's history with top tier system customer D zero zero in August and September .

Increased flights are a significant step forward in rebuilding our Asia Pacific network.

We're grateful to the FAA for allowing us to make necessary adjustments at Newark, and thank our employees, who work hard to get our customers to their destination safely and on time.

Late last month, our pilots ratified their industry, leading agreement as contract enables us to continue providing great career opportunities in United.

And I'm excited for the future as we continue to execute our United <unk> plant.

While most of our network has recovered to 2019 capacity levels or beyond.

At this point were ratified agreements for four out of our five major work groups provide attendance represented by.

China network has been last to recover.

At the start of the quarter, we were operating port flights a week from San Francisco to Shanghai, and this month, we increased that to a daily flight.

Are in active negotiations and we look forward to sharing an update when we have one.

Next month, we will be the first U S Airlines returned to Beijing, The daily flight from San Francisco.

As a reminder, we began accruing for private pay rate increases in the first quarter of this year and our outlook has and continues to represent our expectation for this agreement.

We believe this measured approach to bringing China capacity back online as appropriate as demand slowly recovers is.

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

These increased flights are a significant step forward and rebuilding our Asia Pacific network.

Thanks, Brett.

Total revenue for the third quarter increased 12, 5%.

Late last month, our pilots ratified their industry, leading agreement as contract enables us to continue providing great career opportunities at United and I'm.

One point ahead of our guidance mid point RASM was down two 8% PRASM was down 1% and capacity increased 15, 7% year over year.

I'm excited for the future as we continue to execute our United ex plan.

<unk> came in a bit below our original outlook, mostly due to the changes in our Hawaii flying levels in response to the fires.

At this point, we ratified agreements for four out of our five major work groups provide attendance represented by.

It's nice to come in ahead of our revenue outlook as a strong Q3 outcome further validates that our United next commercial strategies are working well and that we have differentiated United from our competition.

Are in active negotiations and we look forward to sharing an update when we have one.

As a reminder, we began accruing for private pay rate increases in the first quarter of this year and our outlook Hasnt continues to represent our expectation for this agreement.

Demand for the Atlantic and the Pacific was truly outstanding and we see that trend continuing into the fourth quarter.

That I will hand, it over to Andrew to discuss the revenue environment.

Third quarter domestic PRASM results were consistent with our year over year performance in the second quarter of down two one points in other words, we saw no real change in our domestic trends in the quarter over quarter review, our focus on prudent gauge growth centered in our hubs resulted in strong positive marginal revenue on our incremental.

Thanks, Brett.

Total revenue for the third quarter increased 12, 5%.

One point ahead of our guidance midpoint RASM was down two 8% PRASM was down 1% and capacity increased 15, 7% year over year.

He came in a bit below our original outlook, mostly due to the changes in our Hawaii flying levels in response to the fires.

<unk> we.

We did focus a majority of our third quarter growth on international Flying International.

Our capacity increased 22% and international PRASM was up one 3% year over year.

International profit margins remained well ahead of domestic.

So domestic margins remained solidly profitable.

Demand for the Atlantic and the Pacific was truly outstanding and we see that trend continuing into the fourth quarter.

We also saw strong performance across most of the globe clearly Europe was the standout with capacity being up 12% with positive PRASM performance Asia Pacific led international PRASM up three 8%, an 86% more capacity.

Turning to our outlook for the fourth quarter, we expect total revenue to be up approximately 10, 5% on approximately 15, 5% more capacity. This implies <unk> will be down around four 5% year over year. Our guide assumes we begin limited service to Tel Aviv to begin in November <unk> accounts for approximately 2% of.

<unk> we.

We did focus a majority of our third quarter growth on international Flying International capacity increased 22% International PRASM was up one 3% year over year.

United to consolidated capacity.

As we think about the sequential trend in unit revenues I know many of you are wondering if we're seeing a slowdown.

International profit margins remained well ahead of domestic.

So domestic margins remained solidly profitable.

Resurgence of the Pacific <unk> is resulting in many long haul flights being added increase in United's long haul international baseline by five points versus Q3.

United's Q4 unit revenue expectations are consistent with Q3 adjusted per stage.

Turning to our outlook for the fourth quarter, we expect total revenue to be up approximately 10, 5% on approximately 15, 5% more capacity. This implies <unk> will be down around four 5% year over year. Our guide assumes will begin limited service to Tel Aviv to begin in November <unk> accounts for approximately 2% of.

United has taken full advantage of the demand surge across the Pacific with capacity being added to key markets, including the long pending resumption of daily slides to Beijing, and Shanghai from San Francisco and the addition of <unk> just to name a few.

Kevin doing capacity planning in my entire career I haven't said that our team is the best in the business United properly allocated our 2023 growth international markets over domestic and in domestic markets. We wisely invested engaged not scope or depth lessened, 1% of United's domestic capacity. This winter is in new markets.

United to consolidated capacity.

As we think about the sequential trend in unit revenues I know many of you are wondering if we're seeing a slowdown.

Resurgence of the Pacific Flying is resulting in many long haul flights being added increase in United's long haul international baseline by five points versus Q3.

Founded in 2019.

<unk> plan and for 2024 will be even more important to achieve our financial goals, while we're not going to provide guidance for 2024 today, we have a plan to let the 30% growth we've added to the Atlantic since 2019 mature in 2024 and expect to fly a similar level of capacity in 'twenty four 'twenty three.

United's Q4 unit revenue expectations are consistent with Q3 adjusted per stage.

United has taken full advantage of the demand surge across the Pacific with capacity being added to key markets, including the long pending resumption of daily flights to Beijing, and Shanghai from San Francisco and the addition of <unk> just to name a few.

We also plan on little to no growth for the first half of next year on domestic clients.

This preview of our 2020 for capacity I think we will allow United to continue to produce top tier results as we align with industry conditions.

I wanted to touch on a few other important commercial elements today as well.

Recently the questions I get asked most often by our frequent Flyers is about potential changes to achieve premier status on United The good news is we have no material changes planned for 2025 program year. We've carefully managed our premier population in recent years to maintain a robust valuable set of benefits for each premier member.

In 2019.

Capacity planning for 2024 will be even more important to achieve our financial goals, while we're not going to provide guidance for 2024 today, we have a plan to let the 30% growth we've added to the Atlantic since 2019 mature in 2024 and expect to fly a similar level of capacity in 'twenty four 'twenty three.

We very much believe in never causing a situation where everyone has a premier status, which obviously results in no when receiving an adequate level of premier benefits are United in our strategy to offer premier members access to more premium seats and our each of our competitors is enhancing the value of our frequent flyer loyalty program.

We also plan on little to no growth for the first half of next year on domestic clients.

This preview of our 2020 for capacity I think we will allow United to continue to produce top tier results as we align with industry conditions.

I also wanted to take a moment to talk about revenue segmentation. We've worked really hard on protect and segmentation of our products in recent years not only do we have multiple product types appealing to a broad range of customers, but we also have new more effective ways to distribute our products by United Dot Com and <unk> technology.

I wanted to touch on a few other important commercial elements today as well.

Recently the questions I get asked most often by our frequent Flyers is about potential changes to achieve premier status on United The good news is we have no material changes planned for 2025 program here. We've carefully managed our premier population in recent years to maintain a robust valuable set of benefits for each premier member.

Neither is of course very focused on growing all of our premium products, given where our hubs are located but I look back at where United was in 2017, we simply didn't offer a premium products at many of our best customers, who are willing to pay for we put a plan in place with United and extra correct. This disconnect in our commercial plans and we're making quick progress.

<unk> plus is one of our best examples of segmentation has been a huge success premium plus third quarter 2023 capacity is five times that of 2019 with revenue up seven times 2019 and is now our most profitable cabin premium plus is now offered on all twin engine international aircraft to United and also onboard.

We will be on board, our new <unk> hundred 21, XLR Jets, which replaced our 757 starting in 2025.

Another important driver of revenues has been the success of domestic first class we plan on increasing our first class seats per departure from nine in 2019 to 16 by 2027 at 80% increase this increase in first class seats comes as more and more customers who are seeking elevated experiences.

<unk> is of course very focused on growing all of our premium products, given where our hubs are located but I look back at where United was in 2017, we simply didn't offer premium products that many of our best customers are willing to pay for we put a plan in place with United and extra correct. This disconnect in our commercial plans and we're making quick progress.

United is basic economy product represents the other side of the spectrum compared to many of our premium products basic has made the United more competitive versus ultra low cost competitors and giving our customers more choices basic economy is now 12% of our domestic passengers and we expect to be even more competitive in this segment of the market in the future with the arrival of <unk>.

<unk> plus is one of our best examples of segmentation has been a huge success premium plus third quarter 2023 capacity is five times that of 2019, but revenue up seven times 2019 and is now our most profitable cabin premium plus is now offered on all twin engine international aircraft to United and also onboard.

Large narrow body jets in 2024, and 2025, these new jets have low marginal CASM, allowing united to be price competitive with anyone at any time.

We will be on board, our new <unk> hundred 21, XLR jets, which replace our $75 seven starting in 2025.

It took time to perfect. The offer and we are only in the early stages of Inducting. These jets basic has changed the competitive dynamics of our industry.

I think it's also become increasingly care that United is core business model of multiple product choices and expanded the club network experience levels from basic economy to flourish provide travelers choices and for United grown premium product choices choices travelers, who are willing to pay for.

United is basic economy product represents the other side of the spectrum compared to many of our premium products basic has made United more competitive versus ultra low cost competitors and giving our customers more choices basic economy is now 12% of our domestic passengers and we expect to be even more competitive in this segment of the market in the future with the arrival of <unk>.

Beyond segmentation, the United Network split evenly between domestic and global capacity.

I'll, just add with diversified revenue streams provide united with our resiliency. Other business models, we will just not ever achieved RASM accretive gauge growth focused in our hubs in turn provides united with the unmatched ability to create cost convergence for years to come with our low cost providers.

Large narrow body jets in 2024, and 2025, these new jets have low marginal CASM, allowing united to be price competitive with anyone at any time.

It took time to perfect. The offer and we are only in the early stages of inductor and these jets basic has changed the competitive dynamics of our industry.

Thanks, again to the best team in the business and with that I will hand, it off to Mike.

I think it's also become increasingly clear that United its core business model of multiple product choices and expanding club network experience levels from basic economy to flourish provide travelers choices and for United grown premium product choices choices travelers, who are willing to pay for.

Industry dynamics are constantly changing and I continue to see the incredible opportunity ahead for United.

We believe our no excuses mentality and clear strategy with United next are laying the foundation for success.

Beyond segmentation, the United Network split evenly between domestic and global capacity, our leading positions.

I look forward to continuing the conversations I've had with the investment community. Thus far in my new role and I'm excited to lead the talented finance team here at United now, let's turn to the results.

Thanks, Paul.

Chinese customers.

For the third quarter, we delivered pre tax earnings of $1 6 billion and a pretax margin of 10, 8%.

Our earnings per share of $3 65 was ahead of expectations as our revenue growth came at a full point ahead of our guidance midpoint.

Thanks to the amazing commercial team for the great work. They truly are the best in the business.

Fuel remained volatile and worked against us in the quarter, our average fuel price for the quarter ended 30, <unk> higher than the midpoint of our July expectations.

And more than accounts for the entirety of the reduced outlook for the third quarter.

Our CASM X remained on track at up two 6% versus the third quarter of 2022.

Our operation to Tel Aviv has been impacted by the recent events in the region and is materially impacting our outlook as this market represents approximately 2% of our capacity.

For the fourth quarter, we expect CASM ex to be up approximately three 5% with capacity up 15, 5% both versus the fourth quarter of last year.

Our guidance incorporates no service to Tel Aviv through the end of October .

Flights are further suspended through the end of the year with reduced capacity by an additional approximately one five points and add approximately one five points of CASM ex is it's very difficult to cut the associated expenses relating to this flying so closer.

These changes bring capacity for the full year up around 17, 5% year over year, just below our guidance.

We're proud of that result, given all the headwinds United and our industry faced a huge testament to the hard work of our operations team.

Lower capacity, along with elevated maintenance expense has pressured CASM Max and pushed us above the high end of our CASM X range for the full year.

For the fourth quarter, we expect earnings per share of approximately $1 80, with an average fuel price of approximately $3 28.

Yeah.

Used for that brief interruption can we continued fellas.

Thank you for standing by we are now alive again to the audience.

Absent our Tel Aviv flying through the rest of the year, our fourth quarter earnings per share would be reduced by approximately 30.

Thank you Aldo said with diversified revenue streams provide united with our resiliency other business models will just not ever achieve RASM accretive gauge growth focused in our hubs in turn provides united with the unmatched ability to create cost convergence for years to come with our low cost providers.

Looking ahead to 2024, we feel good about the core fundamentals of our expenses. However, we are facing sizable headwinds with labor and.

Thanks, again to the best team in the business and with that I will hand, it off to Mike.

Thanks, Andrew and good morning, everyone before I get into the results I want to take a minute to say how honored and excited I am to join the United Executive team during such a transformative time industry dynamics are constantly changing and I continue to see the incredible opportunity ahead for United We.

We are working through our 2020 for budget and new projections for 2024 capacity CASM X and our other financials and will provide our customary guidance on our January call.

On the fleet in the third quarter, we took delivery of 18 Boeing 737 Max aircraft.

We believe our no excuses mentality and clear strategy with United Nextera laying the foundation for success.

And paying for 14 of those aircraft with cash.

We expect to take delivery of 20 737, Max aircraft in the fourth quarter and we took delivery of our first Airbus <unk> hundred 21 Neo last week.

This is a reduction of 12 aircraft versus our plan in July for the second half of the year.

For the third quarter, we delivered pre tax earnings of $1 6 billion and a pretax margin of 10, 8%.

Due to these aircraft shifting into 2024, we now expect our full year 2023, adjusted capital expenditures to be approximately $8 billion.

Our earnings per share of $3 65 was ahead of expectations as our revenue growth came at a full point ahead of our guidance midpoint.

Earlier this month, we announced our order for 68, <unk> hundred 21, nios and exercised options for 57 million tons for delivery in 2028 and beyond.

Thanks to the amazing commercial team for the great work. They truly are the best in the business.

She will remain volatile and worked against us in the quarter, our average fuel price for the quarter ended 30, <unk> higher than the midpoint of our July expectations.

Managing the delivery skyline for the future and United is critical.

This order builds on the success as we are already seeing with United next and reflects our confidence as we extend our planning into the next decade.

And more than accounts for the entirety of the reduced outlook for the third quarter.

With the retirement of our Boeing 757, and 767 fleet. Later. This decade. These aircraft are important additions as we work towards fleet simplification and capitalize on our cost reduction opportunity.

Our <unk> remained on track at up two 6% versus the third quarter of 2022.

Operate our operation to Tel Aviv has been impacted by the recent events in the region and is materially impacting our outlook as this market represents approximately 2% of our capacity.

Turning briefly to the balance sheet, we ended the quarter with almost $19 billion in liquidity, including our Undrawn revolver.

For the fourth quarter, we expect CASM ex to be up approximately three 5% with capacity up 15, 5% both versus the fourth quarter of last year.

Before we end our prepared remarks today, it's important to recognize that while our financial results remained strong as an industry. We are facing new and unique challenges are.

Our guidance incorporates no service to Tel Aviv through the end of October .

Our growth has helped us deliver strong relative cost performance and thats, even before we begin the accelerated gauge growth that we expect will come from the 737, Max 10, and the <unk> hundred 21 additions to our fleet.

Flights or further suspended through the end of the year would reduce capacity by an additional approximately one five points and add approximately one five points of CASM ex is it's very difficult to cut the associated expenses related to this flying so closer.

We are committed to continuing to deliver industry, leading cost performance.

And this will form the foundation for continued cost convergence and improving absolute profit profitability.

These changes bring capacity for the full year up around 17, 5% year over year, just below our guidance.

And because our growth is focused on our hubs, we're also growing with industry leading PRASM.

We're proud of that result, given all the headwinds United and our industry faced a huge testament to the hard work of our operations team.

There are and will always be headwinds facing our industry, but as we enter 2020 for United has great momentum and I'm confident a very bright future.

Lower capacity, along with elevated maintenance expense has pressured CASM Max and pushed us above the high end of our CASM X range for the full year.

With that I'll hand, it over to Kristina to start the Q&A.

Thank you, Mike we will now take questions now.

For the fourth quarter, we expect earnings per share of approximately $1 80, with an average fuel price of approximately $3 28.

Please limit yourself to one question and if needed one follow up question silent. Please describe the procedure to ask a question.

Absent our Tel Aviv flying through the rest of the year, our fourth quarter earnings per share would be reduced by approximately 30.

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 question queue.

Looking ahead to 2024, we feel good about the core fundamentals of our expenses. However, we are facing sizable headwinds with labor and.

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

An expectation of a new flight attendant agreement and continued higher maintenance expense, we believe our capacity growth along with improvements in utilization are helpful. Tailwind as we manage down expenses. We are working through our 2020 for budget and new projections for 2024 capacity CASM X and our other financials and will provide our customary.

The first question comes from Jamie Baker from Jpmorgan.

Hey, good morning, everybody.

So following up on some of the prepared remarks, probably for Andrew or maybe Scott I can't recall, a time when there has been such a chasm between domestic yields that United and those of <unk>.

Guidance on our January call.

On the fleet in the third quarter, we took delivery of 18 Boeing 737 Max aircraft.

How would you rank order the drivers of that how much is reflective of low end consumer weakness how much is your own success, what basic economy, how much its loyalty maybe the LMA and they are just selling out too far in advance just just trying to assess the permanence of the phenomenon. So if you.

And paid for 2014 of those aircraft with cash.

We expect to take delivery of 20 737, Max aircraft in the fourth quarter and we took delivery of our first Airbus <unk> hundred 21 Neo last week.

This is a reduction of 12 aircraft versus our plan in July for the second half of the year.

Could rank order the drivers that would be great.

Due to these aircraft shifting into 2024, we now expect our full year 2023, adjusted capital expenditures to be approximately $8 billion.

Yeah.

Hi, Jamie I'll try to give that a try I mean rank order and then maybe a little difficult but.

Earlier this month, we announced our early for $63 21, Nios and exercised options for 50 780 sevens for delivery in 2028 and beyond <unk>.

Let's see what we can do I do think your question is really one of the most important questions that anyone could asked today.

There is such a difference occurring versus the past and clearly what I think I would start off it is there's a large range of business models today that didn't exist in years past in this business and these models are clearly, creating winners and losers in a way many of US did not anticipate during the pandemic.

Managing the delivery skyline for the future and United is critical.

This order builds on the successes, we are already seeing with United next and reflects our confidence as we extend our planning into the next decade.

I would call telling all of you on the Q1 2000 2022 call that industry domestic margins will be challenging post pandemic clearly the thinking at the time was for most at least was that all airlines will be pressured equally at best are the legacy carriers, even more so right.

Turning briefly to the balance sheet, we ended the quarter with almost $19 billion in liquidity, including our Undrawn revolver.

Before we end our prepared remarks today, it's important to recognize that while our financial results remain remained strong as an industry. We are facing new and unique challenges are.

Alright, it was widely assumed that lower margin higher cost legacy carriers would shrink rebalancing supply and demand and outcome that has happened. So many times in the past so why not again the number of times I heard that the airline with the lowest cost wins the race I can't even begin to count.

Our growth has helped us deliver strong relative cost performance and that's even before we begin the accelerated gauge growth that we expect will come from the 737, Max 10, and the <unk> hundred 21 additions to our fleet.

So that kind of sets up what about the business models has shifted so much to cause this paradigm change. We're seeing today why are these low cost airlines. So unprofitable why does United have top tier results.

We are committed to continuing to deliver industry, leading cost performance.

And this will form the foundation for continued cost convergence and improving absolute profit profitability.

And because our growth is focused on our hubs, we're also growing with industry leading PRASM.

And first I just wanted to be really clear United domestic network is profitable. So it's not simply are great Global network, that's creating this outcome for us.

There are and will always be headwinds facing our industry, but as we enter 2020 for United has great momentum and I'm confident a very bright future.

First issue of course, Mike talks about interest costs every airline has to manage higher inflationary cost pressures, but the lowest cost carriers cost structure relative to the legacy carriers are clearly converging the shrinking cost gap is just a fundamental shift.

With that I'll hand, it over to Kristina to start the Q&A.

Thank you, Mike we will now take questions now.

Please limit yourself to one question and if needed one follow up question. Please describe the procedure to ask a question.

United in our industry, and I guess I would rank that number one.

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

We said, it's impossible to run your airline like it's 2019 high utilization was a critical ingredient for success of certain models and thats simply not possible where.

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

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

Where we are today and also having a large labor cost differentials are not possible.

The first question comes from Jamie Baker from Jpmorgan.

Low cost carriers also tend to operate with very high gauge already it will be much more difficult for them to drive costs materially lower with larger gain larger gauge planes like United United has increased domestic gauge more than any airlines since 2019, and our plan is to push that even further in the years to come.

Hey, good morning, everybody.

So following up on some of the prepared remarks, probably for Andrew or maybe Scott I can't recall, a time when there has been such a chasm between domestic yields at United and those of <unk>.

Another issue that I think we should talk about is it's difficult for many to grasp is not not every ASM is created equal it's easy to mistake made often in the middle of really large spreadsheets that everyone uses to evaluate our outlooks right now.

How would you rank order the drivers of that how much is reflective of low end consumer weakness how much is your own success of basic economy. How much is loyalty, maybe the LMA and theyre just selling out too far in advance just just trying to assess the permanents.

United We proved this point early in 2018 and 19 with our growth in revenue performance. When we just did it again in Q3.

Of the phenomenon. So if you could rank order the drivers that would be great.

Okay.

Market saturation of the low cost business model in certain regions is creating very low marginal RASM for some of our competitors. In fact, many of our competitors have marginal revenue percentages that are negative.

Hi, Jamie I'll try to give that a try I mean rank order and then maybe a little difficult but.

Let's see what we can do I do think your question is really one of the most important questions that anyone could ask today, because there is such a difference occurring versus the past and clearly what I think I would start off it is there's a large range of business models today that didn't exist in years past in this business and these models are clearly creating.

There are only so many seats, Florida can tune our Vegas can support in such a short period of time.

Also low cost carriers generally must operate at a very large JBT equipment to have low cost without the connectivity benefit of the hub and spoke business model expansion of the low cost model into smaller and medium sized markets with these very large jets lacking connectivity just creates low marginal RASM.

Winners and losers in a way many of US did not anticipate during the pandemic.

I would call telling all of you on the Q1 2000 2022 call that industry domestic margins will be challenging post pandemic clearly the thinking at the time was promote that lease was that all airlines will be pressured equally at best are the legacy carriers, even more so right.

Market saturation and the mismatch gauge and other connectivity continues to plague certain business model expansion opportunities with this type of business model are not endless in our view, but in response to that shortcoming. Many of our domestic competitors have doubled down with plans for even more growth in 2024.

2020 for marginal growth in markets will absolutely be no better than 2023.

No airline network team would say, let's add the bad markets in 2023, so we can save the good ones for 2024.

That kind of sets up what about the business models has shifted so much to cause this paradigm change we're seeing today why are these low cost airlines so unprofitable.

The other factor is the percentage of the ASM that these airlines have in new markets very fast growth rates simply create a high percentage of new capacity, which by its nature and the best of times is below average the fourth quarter. This fourth quarter, United has less than 1% of our <unk> in new markets versus 19. This.

Why does United have top tier results.

And first I just wanted to be really clear United domestic network is profitable. So it's not simply are great Global network, that's creating this outcome for us.

This is an absolute difference maker and capacity growth is designed as a strategy to maintain low cost without revenue accretive markets to add the entire business model can break and that is what we think is happening right now.

First issue of course, Mike talked about it just costs every airline has to manage higher inflationary cost pressures, but the lowest cost carriers cost structure relative to the legacy carriers are clearly converging the shrinking cost gap is just a fundamental shift.

<unk> domestic capacity growth has always been about correct and engage mismatched created by the over use of high cost passenger and friendly single class Regional Jets.

In our industry and I guess I would rank that number one.

It's impossible to run your airline like it's 2019 high utilization was a critical ingredient for success of certain models and that's simply not possible.

900, we have this diversity of revenue streams that provide us long term stability and earnings that won a one dimensional plan will never achieve we have a range of products, including array of premium seating options thats increasingly popular with our travelers we fly as much capacity in global markets as we do domestically, we fly to big cities and small.

Where we are today and also having a large labor cost differentials are not possible.

Low cost carriers also tend to operate with very high gauge already it will be much more difficult for them to drive cost materially lower with larger gain larger gauge planes like United United has increased domestic gauge more than any airline since 2019, and our plan is to push that even further in the years to come.

Have a great hub and spoke business model, United has significant margin accretive growth.

We've proven that time and time again United's business model can support dramatically higher gauge and once and once added we still less and less traffic to others United's higher gauge will create more and more cost convergence between now and 2027.

Another issue that I think we should talk about is it's difficult for many of the graph is not not every ASM is created equal it's easy to mistake made often in the middle of really large spreadsheets that everyone uses to evaluate our outlooks right at United We proved this point early in 2018 and 19 with.

Flex city of United's product offering is not a disadvantaged in fact is a structural advantage that generates revenues more than the cost it creates by the complexity and just cannot be replicated in the past United and other legacy carriers that have emerged from the crisis smaller, creating excess claims and other resources for others to grow there.

Our growth in revenue performance when we just did it again in Q3.

Market saturation of the low cost business model in certain regions is greeted very low marginal RASM for some of our competitors in fact, many of our competitors have marginal revenue percentages that are negative.

This time that will not happen. This time around it is not United with a low margins, we will not adjust our plans United's focus on global markets has clearly won the day in Q3 and you can see that in the results. Our focus on domestic gauge is absolutely the right. One we'll no longer spill as much revenue to us.

There are only so many seats, Florida can tune our Vegas can support in such a short period of time.

Also low cost carriers generally must operate a very large gaming equipment to have low cost without the connectivity benefit of the hub and spoke business model expansion of the low cost model into smaller and medium sized markets with these very large jets lacking connectivity just creates low marginal RASM.

There is as we've done in the past our focus on basic fares mean, we will be able to be even more competitive.

We will moderate our domestic growth plans as I said earlier for the first half of 2024, because we're focused on building our Asia Pacific line, where we see the strongest short term.

Short term results.

But I have to say maybe.

There may be off to a few other the timing and maybe off Jamie but the quarters are comment there's a lot of other variables and I'm, just really confident that sooner or later the industry. We will rebalance like it has done in the past and the United and a few others with similar diversified revenue streams are going to come out on top.

2020 for marginal growth in markets will absolutely be no better than 2023.

I know that was a long answer I didn't rank exactly the way that's great yes.

No airline network team would say less add the bad markets in 2023, So we can save the good ones for 2024.

Yeah.

Yes.

That's great I really do appreciate it but let me just follow up with a quick philosophical question. Okay. If.

The other factor is the percentage of the ASM that these airlines have in new markets very fast growth rates simply create a high percentage of new capacity, which by its nature in the best of times is below average the fourth quarter. This fourth quarter, United has less than 1% of our <unk> in new markets versus 19. This is.

If spill carriers cant make money, but full service airlines can doesn't that suggest we're actually at the optimal amount of domestic capacity rather than the oversupply that investors keep asking me about.

Well I guess I'll try now it's hard to build on its hard to follow and that was a great answer.

An absolute difference maker and capacity growth is designed as a strategy to maintain low cost without revenue accretive markets to add the entire business model can break and that is what we think is happening right now the United domestic capacity growth has always been about correct and engage mismatched created by the over use of <unk>.

Very comprehensive.

And probably why we feel.

That what Andrew said is why we feel so different that I recognize everyone. On this call Appeals are then the market close we feel really confident about where we're headed what this means for margins out in 2026.

High cost passenger and friendly single class regional Jets.

We are there we just feel really confident.

At United We have this diversity of revenue streams that provide us long term stability and earnings at one a one dimensional plan will never cheap we have a range of products, including an array of premium seating options. That's increasingly popular with our travelers we fly as much capacity in global markets as we do domestically, we fly to big cities and small.

But without asking answering the question about.

Sort of overall industry capacity I cut it at a high level think of this JV is to me one of the most remarkable statistics this quarter as the <unk>.

90% of industry revenue growth.

Going to be a two airlines.

90% of the pretax profitability, we just have better models.

We have a great hub and spoke business model, United has significant margin accretive growth and we've proven that time and time again.

And we've tried to do as we went through.

The goal was to create an airline that had better product service experience for customers across the board we can't just be.

This business model can support dramatically higher gauge and once and once added we still less and less traffic to others United's higher gauge will create more and more cost convergence between now and 2027.

Leisure airline we can't just be a low fare airline we can't just be a premium Maryland.

To deliver for all customers and we tried to create.

The complexity of United's product offering is not a disadvantaged in fact is a structural advantage that generates revenues more than the cost it creates by the complexity and just cannot be replicated in the past United and other legacy carriers that have emerged from the crisis smaller, creating excess planes and other resources for others to grow.

Products that were better.

On the high end, but also down to the low end.

Aye.

Believes strongly that air travel is not a commodity some of the industry I think its a commodity that's how you get to the low cost wins. If you believe it's Glenn I do not think that and I think we are proving our results of two airlines are proving that air travel is not a commodity so without commenting on what the total industry.

What is happening.

That differentiated.

Service experience are getting almost all of the revenue growth and customers are voting with their wallets and those models are working.

Thank you gentlemen, appreciate it take care.

To others as we've done in the past our focus on basic fares means we'll be able to be even more competitive United will moderate our domestic growth plans as I said earlier for the first half of 2024, because we're focused on building our Asia Pacific line, where we see the strongest short term short term results.

Our next question comes from Michael Lindenberg from Deutsche Bank. Please go ahead.

Yeah, Hey, good morning, everyone. Congratulations Mike on your promotion on Christina.

A recognition.

But I have to say maybe.

Scott I'm going to go to the other and kind of.

There may be off to a few other.

On the side of your business that caters to.

And you may be off Jamie, but the quarter.

Call it the higher end consumer and I.

Our comment there is a lot of other variables and I'm, just really confident that sooner or later the industry rule rebalance like it has done in the past and the United and a few others with similar diversified revenue streams are going to come out on top.

I guess when I think about just the recent top up order on the 780 sevens, adding to your current order I mean, it's significant I think it's actually one of the largest wide body orders out there at least for a U S carrier is the internal thinking at United just given the shape of the Oems whether it's the manufacturers of the engine makers that we could be.

I know that was a long answer I didn't ranked <unk>.

That's great.

Yeah.

Yes.

Andrew that's great I really do appreciate it but let me just follow up with a quick philosophical question, if spill carriers cant make money, but full service airlines can doesn't that suggest we're actually at the optimal amount of domestic capacity rather than the oversupply that investors keep asking me about.

Facing maybe some kind of wide bodies shortage in the back half of this decade, what are your thoughts on that.

Mike I'll give it a try.

I do think the production lines for wide body Jets don't produce nearly as many aircraft.

As as the narrow bodies as you know so there are definitely not as many that are going to be produced.

I guess I'll try now it's hard to build on its hard to follow after that was a great answer.

But more to the point the wide bodies, we just ordered are for 2028 and beyond.

Very comprehensive.

And probably what we feel.

That what I understood is why we feel so different that I recognize everyone on this call fuels or than the market. We feel really confident about where we're headed what this means for margins out in 2026.

And it's really our confidence in our plan, but it's particularly our confidence that we are going to increasingly pivot in the latter part of the decade to global growth.

And not domestic growth.

And so we secured those physicians, we're confident we will use them.

We are there we just feel really confident.

But without asking answering the question about.

We have a significant fleet triple Sevens 760 Sevens.

Sort of overall industry capacity I cut it at a high level think of as Jamie is to me one of the most remarkable statistics this quarter or is that.

That need to retire at some point later this decade at least for the 787 for sure.

90% of the industry revenue growth.

And so with the number of retirement that we have the confidence in our plan.

Going to be a two airlines.

90% of the pre tax profitability, we just have better models.

And some of the OEM issues that you just brought up this just made sense again, it's for 2028 and beyond it's a long time away.

And we've tried to do as we went through.

The goal was to create an airline that had better product service experience for customers across the board we can't just be.

But we are really confident in the plan, we're confident that global growth, we will have to lean into that and we will want to lean into that.

Latter part of the decade.

This is Mike I'll pile on.

A leisure airline we can't just be a low fare airline we can't just be a premium Maryland.

With the delays in the supply chain.

To deliver for all customers and we tried to create.

They've become persistent and so part of what we're doing.

Products that were better.

Controlling skyline for a longer period of time than we have historically this industry has been an industry that is in the past gone from putting out fires fire and United next strategies put in Alaska.

The high end, but OLED down to the low end.

Aye.

Believes strongly that air travel is not a commodity some of the industry think its a commodity that's how you get to low cost wins. If you believe it's a good one and do not think that and I think we are proving our results of two airlines are proving that air travel is.

Firmer footing to plan for the longer term so.

I would highlight that the.

The contractual delivery dates they've been pushing to the right and we will probably continue to see that and you see us as you see us playing internally, we will have some expectation of.

A commodity so without commenting on what the total industry.

What is happening.

That differentiated.

Service experience are getting almost all of the revenue growth and customers are voting with their wallets and those models are working.

Continued slipping, but make no mistake, we will make adjustments to the order book and the delivery times in a way that maximizes the returns to our shareholders and we will focus on return on invested capital. In addition to our pre tax margin as we take delivery of those aircraft.

Thank you gentlemen, appreciate it take care.

Our next question comes from Michael Lindenberg from Deutsche Bank. Please go ahead.

Okay, great. Thank you and just one quick follow up just any early thoughts on maybe this proposed regulation around credit cards.

Yeah, Hey, good morning, everyone. Congratulations Mike on your promotion on Christina.

A recognition.

Maybe a cap on merchant fees.

Scott I'm going to go to the other and kind of decide.

It is proposed legislation. So it obviously has to go through a process, but any sort of early take on it or maybe it's a TBD. Thanks for taking my questions.

The side of the business that caters to.

Call it the higher end consumer.

And.

Sure happy to I am happy to answer that.

It could be really really bad policy for consumers in this country.

It's a bill that would 84% of U S. Consumers have some kind of a rewards card in their wallets, but almost a vote on this call has been.

And they like and they like them a lot of our customers certainly.

Facing maybe some kind of wide body shortage in the back half of this decade, what are your thoughts on that.

Like them a lot and so I think it would be hard and Congress to take a vote that 84% of your voters are going to be upset with the outcome of that book and by the way the kill rewards program it would not exist anymore.

Ah.

I'll give it a try.

I do think the production lines for wide body Jets don't produce nearly as many aircraft.

<unk> card rewards programs.

When it happens.

As as the narrow bodies as you know so there are definitely not as many that are going to be produced.

And I think it's bad policy.

And I also think it kind of misses the mark because in the credit card. It is a couple of things.

But more to the point the wide bodies, we just ordered are for 2028 and beyond.

And misses the mark with small businesses I understand the frustration with small businesses.

And it's really our confidence in our plan, but it's particularly our confidence that we are going to increasingly pivot in the latter part of the decade to global growth.

But small businesses are actually theres, a middleman in between credit card companies, the banks and the small businesses and.

And I think that's probably where the bulk of the issues or some of those middle men charged square charges as little as 35 basis points and some of those middle men are charging business has three or 400 basis points.

And not domestic growth.

And so we secured those physicians, we're confident we will use them.

We have a significant fleet triple Sevens 760 Sevens.

So I think it probably misses the Mark and then the final point would be.

That need to retire at some point later this decade at least for the 787 for sure.

It's remarkable how good the cyber security is.

At the credit card processors, they've invested heavily in it.

And so with the number of retirement that we have the confidence in our plan.

Not easy to replicate.

And some of the OEM issues that you just brought up this just made sense again, it's for 2028 and beyond is a long time away.

Let me think about how many billions of transactions are happening every day and how rare breaches or problems are.

But we are really confident in the plan, we're confident that global growth.

And so I think this is one of those that I've spent a fair amount of time in D. C talking to people they didn't know much about it before.

We'll have to lean into that and we will want to lean into that.

The latter part of the decade, Hey, Mike This is Mike I'll pile on.

With the delays in the supply chain.

But as you talk to people about it.

In March I will those are a bunch of good points, we need to go through regular order, we do examine it and so I think as long as we do that as long as we examine at the record quarter, which is the right way to pass up.

Persistent and so part of what we're doing.

As controlling skyline for a longer period of time than we have historically this industry has been an industry that is in the past gone from putting out fires fire.

Sequential legislation the facts will win the day and nothing's going to happen and it won't it won't become law.

Our next strategy is putting us on a firm.

Footing to plan for the longer term so.

Thanks Scott.

Hey, I want to highlight that.

Our next question comes from Conor Cunningham with Melius research.

The contractual delivery dates they've been pushing to the right and we will probably continue to see that and you see us as you see us playing internally, we will have some expectation of.

Hi, everyone. Thank you just on cost I'm trying to understand the trends between your core cost performance and just how these supply chain transitory issues that you've laid out are kind of impacting I realize that it's probably really hard to tell right now, but can you just frame up why do you think some of these potential transitory.

Cost pressures may ease next year that would be helpful. Thank you.

Okay, great. Thank you and just one quick follow up just any early thoughts on maybe this proposed regulation around credit cards and <unk>.

And Conor this is Mike let me take a shot at that.

And I will I will acknowledge the <unk> CASM headwind, we face to face versus our expectations earlier in the year, let me try to size that.

Maybe a cap on merchant fees.

I know its proposed legislation. So it obviously has to go through a process, but any sort of early take on it or maybe it's a TBD. Thanks for taking my questions.

We flew we expect to fly in the fourth quarter about three points lower than we thought just three months ago now two points of that is due to captain upgrade issue that Scott talked about on our last earnings call.

Sure happy to I am happy to answer that.

It would be really really bad policy for consumers in this country.

It's a bill that would 84% of U S. Consumers have some kind of a rewards card in their wallet, but almost a vote on this call has been.

The captain upgrade issue has impacted the entire industry, we have navigated that really well at United.

It did hit US here at the end of the year, our new contract with Alpha those fixed that and so the on.

And they like and they like them a lot of our customers certainly.

And so I think it would be hard and Congress to take a vote that 84% of your voters are going to be upset with the outcome of that book and by the way.

On the horizon, we have a full full expectation that that constraint goes away, but for the fourth quarter that caused two of the three points. The other point was due to the to the to the violence in Tel Aviv and the loss of that flying that is something that we can reposition over time, and we would expect to be able to serve Tel Aviv.

Kill rewards program it would not exist anymore.

Card rewards programs.

It happens.

And I think it's bad policy.

And I also think it kind of misses the mark.

When the violence.

Because in the credit card it is a couple of things.

Ceases and so those three full points coming out relatively rapidly you can't take the cost out that was the majority of the chasm of.

And misses the mark with small businesses I understand the frustration with small businesses.

But small businesses are actually theres, a middleman in between credit card companies, the banks and the small businesses and.

The increase in the CASM for the fourth quarter industry is facing other issues, but that's what happened here at United.

And I think thats, probably where the bulk of the issues or some of those middle men charge, you square charges as little as 35 basis points and some of those middle men are charging business, three or 400 basis points.

And we expect to mitigate that in 2024 and beyond the other issue, which I'm not sure. How persistent is yet is is that maintenance costs maintenance costs throughout the years have been higher than we expected.

So I think it probably misses the Mark and then the final point would be.

Remarkable how good the cyber security is.

And for United It's Ben.

At the credit card processors, they've invested heavily in it.

A big piece has been the increased need for for spare parts.

Not easy to replicate.

That's on aircraft, but particularly when we repair engines as the work scope has been larger than expected.

Let me think about how many billions of transactions are happening every day and how rare breaches or problems are.

Some of that is related to supply chain.

And so I think this is one of those that I've spent a fair amount of time in D. C talking to people they didn't know much about it before.

And it's difficult to see when that ends.

I will and so those are the two components majority capacity.

And then some additional headwinds for maintenance in the fourth quarter were.

But as you talk to people about it.

We're not giving 2020 for guidance at this time the industry is facing cost pressures inflationary cost pressures labor cost pressures maintenance cost pressures, what I will commit to today is that United will be industry, leading in how we manage our costs cost convergence is.

In March they will build a bunch of good points, we need to go through regular order, we do examine it and so I think as long as we do that as long as we examine at the record quarter, which is the right way to pass up.

<unk> legislation the facts will win the day.

And it won't it won't become law.

Thanks Scott.

As a structural trend.

It is what is causing the lower cost carriers and theyre not lower costs for long the low cost carriers to struggle and it is a foundation to United next and so I don't know where all that's going to settle we will give you guidance as we would normally on the January conference call, but I will commit to industry leading <unk>.

Our next question comes from Conor Cunningham with Melius research.

Going forward.

Okay. That's super helpful. And then maybe maybe just a little bit on.

A lot of your cost of it next year kind of seems like it's somewhat capacity related our delivery of new delivery related then so I'm just trying to understand if you could maybe protect is there any swing capacity excess swing capacity that you may be able to have that that could protect somewhat some of that growth that you have next year that may be slowed as a result of some of these delivery delays.

Cost pressures may ease next year that would be helpful. Thank you.

Hey, Conor this is Mike let me take a shot at that.

And I will I will acknowledge the <unk> CASM headwind, we face to face versus our expectations earlier in the year, let me try to size that.

We flew we expect to fly in the fourth quarter about three points lower than we thought just three months ago now.

Thanks again.

How are you thinking about it the right way.

Two points of that is due to captain upgrade issue that Scott talked about on our last earnings call.

But we are given all the constraints. We are we are working to and the incremental flights from United being quite profitable given the great results from our commercial team, we're going to fly as much as we can to maximize profitability.

The captain upgrade issue has impacted the entire industry.

Have navigated that really well at United.

But it did hit US here at the end of the year, our new contract with Alpha does fix that and so on.

But we do pay some of those constraints the key around the.

Key around the pressure of growing as you do need to hire folks onboard before you actually.

Add the ASI and so that's a headwind United faces as long as as long as we're executing on the United next strategy, we're going to work to optimize that.

But what that doesn't go fully away until you would return to a slower growth rate.

When the violence.

Okay. Thank you.

Ceases and so those three full points coming out relatively rapidly you can't take the cost out that was the majority of the chasm of.

Our next question comes from Catherine O'brien with Goldman Sachs. Please go ahead.

The increase in the CASM for the fourth quarter industry is facing other issues, but that's what happened here at United.

Good morning, everyone. Thanks for the time and congrats Mike and Christina.

I noticed in the release you called out the basic economy was up 50% year over year, Andrew can you dig into what drove that is that 12% of domestic passengers.

And we expect to mitigate that in 2024 and beyond the other issue, which I'm not sure how persistent is yet is.

Is that maintenance costs maintenance costs throughout the years have been higher than we expected.

Significantly as also a pricing element.

And for United It's Ben.

Yeah.

A big piece has been the increased need for for spare parts.

It's a good question.

Last year.

That's on aircraft, but particularly when we repair engines as the work scope has been larger than expected.

Facing the surge in demand.

Just maybe the simplest way to say it is we sold out too soon and.

Some of that is related to supply chain and it's difficult to see when that ends.

And we didn't have appropriate room for basic passengers in our gauge with smaller.

And this year as we get closer to implement in all of our United and explained we were much more careful not to fill out too soon so our inclusive bookings are actually quite strong.

And so those are the two components majority capacity.

And then some additional headwinds for maintenance in the fourth quarter, we're not giving 2020 for guidance at this time the industry is facing cost pressures inflationary cost pressures labor cost pressures maintenance cost pressures, but I will commit to today is that United will be industry, leading in how we manage our costs cost can.

Interesting to say that as I read commentary from around the rest of the industry that kind of says the opposite and I do.

I have to wonder whether one is tied to the other obviously.

Because we say, we didnt fill out too soon because we have plenty of room.

<unk> is.

Is a structural trend.

And because we have just a normal booking curve for all of this we were able to accommodate those passengers.

It is what is causing the lower cost carriers and theyre not lower cost per long the low cost carriers to struggle and is a foundation to United Maxton. So I don't know where all that's going to settle we will give you guidance as we would normally on the January conference call, but I will commit to industry leading cash.

And this quarter. Unlike we did in the past and with the new gauge aircraft coming in the future. We will be able to continue to do that going forward. So I think thats. The simple isn't easily explanation as to why you saw that change in our basic economy passengers and look at the product we've talked about a lot provides choice for our customers on the low end we have loss.

Going forward.

Okay. That's super helpful. And then maybe maybe just a little bit on.

The products on the high end as well it gives us the diversity, we need and I think it's really allowed us to compete very effectively with all of our competitors, but particularly our ultra low cost competitors.

A lot of your cost of it next year kind of seems like it's somewhat capacity related our delivery of new delivery related and so I'm just trying to understand if you could maybe protect is there any swing capacity excess swing capacity that you may be able to have that that could protect somewhat some of that growth that you have next year that may be slowed as a result of some of these delivery delays.

That's great. Thanks, and then maybe one for Mike just on a follow up on the delivery.

Continued delivery delays, we're seeing with the recent announcements potentially.

Thanks again.

Potentially putting pressure on engine availability on neo deliveries and then I don't think the Max has been certified yet the correct me if I'm wrong.

How are you thinking about it the right way.

How do we think about that delivery outlook for next year are there alternative to the Max than maybe you would consider or.

I appreciate now that you guys have in the queue the contractual deliveries versus the expected, but should we expect to see that delta maybe grow when we get the Q later today. Thanks, so much for the time.

But we do pay some of those constraints the key around the.

Key around the pressure of growing as you do need to hire folks onboard before you actually.

Thanks for the question Katy.

That is what we can do is we can manage our expected deliveries versus the contractual deliveries.

Add the ASM and so that's a headwind United faces as long as as long as we're executing on the United next strategy, we're going to work to optimize that.

Size of the business appropriately the more that we.

Higher workforce for aircraft that don't come there arent delivered when we need them the bigger that the bigger that headwind is for us and so one of the first things I need to do in my new role is under is too.

But but that doesn't go fully away until you would return to a slower growth rate.

Okay. Thank you.

Our next question comes from Catherine O'brien with Goldman Sachs. Please go ahead.

As to properly size that buffer between expected and contracted deliveries. So that's 0.1 0.2, we have older aircraft and we will push some of those older aircraft to fly longer with.

Good morning, everyone. Thanks for your time, and congrats Mike and Christina.

I noticed in the release you called out the basic economy was up 50% year over year, Andrew can you dig into what drove that is that 12% of domestic passengers.

With expected delays in delivery I happen to love that option because that is also our return on invested capital enhancing.

Significantly as also a pricing element.

And so in the long run we want to simplify the fleet and those Max turns are going to be structurally lower costs. We're excited about them. The <unk> hundred 20 ones are are fantastic aircraft. Both of those aircrafts are fantastic for a network like United where gauge we get real advantage out of gauge I expect those deliveries to really.

Yeah.

It's a good question.

Last year.

Facing the surge in demand.

Just maybe the simplest way to say it is we sold out too soon and.

And we didn't have appropriate room for these basic passengers in our gauge with smaller.

And this year as we get closer to implement in all of our United and explained we were much more careful not to sell out too soon so our inclusive bookings are actually quite strong.

Start to drive lower CASM in 2025, not 2024 and so.

We should understand the timing of that but we've got numerous levers to manage the.

And to say that as I read commentary from around the rest of the industry that kind of says the opposite and I do have to wonder whether one is tied to the other obviously, but because we say we didnt fill out too soon because we have plenty of room.

The delays from the supply chain and we can do a better job optimizing based on delays that are becoming a little bit more predictable.

Great. Thanks for the time.

Our next question comes from Ravi Shanker with Morgan Stanley . Please go ahead.

And because we have just a normal booking curve for all of this we were able to accommodate those passengers.

Thanks, Good morning, everyone. Just wanted to follow up on the commentary earlier about you.

In this quarter. Unlike we did in the past and with the new gauge aircraft coming in the future. We will be able to continue to do that going forward. So I think thats. The simple isn't easily explanation as to why you saw that change in our basic economy passengers and look at the product we've talked about a lot provides choice for our customers on the low end, we have lots of <unk>.

You need to cater to all customers, which I totally get kind of given the broad base of the market, but obviously you were seeing some of your peers trying to push into premier are pushing at the low end.

And it's.

Just kind of.

In the face of it feels like the specializing maybe an easier thing to go after than trying to cater to everyone with.

Products on the high end as well it gives us the diversity, we need and I think it's really allowed us to compete very effectively with all of our competitors, but particularly our ultra low cost competitors.

The network and the product you have so kind of just wanted to dig a little deeper into kind of why that strategy being everybody every one rather than being just maybe a foodservice premium network airlines.

That's great. Thanks, and then maybe one for Mike just a follow up on the delivery.

I'll start I assume others may want to chime in on this but first I think there is a really important distinction in your question, we need to clarify we're not trying to be all things to all people within the United States around the globe.

Delivery delays, we're seeing with the recent announcements potentially.

Potentially putting pressure on engine availability.

Neo deliveries and then I don't think the Max has been certified yet the correct me if I'm wrong.

<unk> of our network that don't cover every single market in the United States and I think I think if you were to try and say we're going to cover every single Owen deep here in the United States as the world's largest airline.

How do we think about that delivery outlook for next year are there alternative to the Max than maybe you would consider or.

That would be incredibly challenging and that is not something we're trying to do we are trying in our hubs and all of those folks who serve wells from our hubs to make sure. We offer a diverse range of products that appeal to all the customers that fly on United Airlines and some of those customers by the way flying United Airlines for business.

Thanks for the question Katy and that.

That is what we can do is we can manage our expected deliveries versus the contractual deliveries in <unk>.

Size the business appropriately the more that we.

Higher workforce for aircrafts.

And sometimes the same customers fly on United for leisure vacation or other needs and so they have that optionality to purchase anything from basic economy to Polaris as part of that and if the joined mileage plus we have an ops, obviously, a larger chance they get upgraded into our large premium accounts economy sections are in queue.

Don't come there arent delivered when we need them the bigger that.

Because of that headwind is for for us and so one of the first things I need to do in my new role as <unk> is too.

To properly size.

That buffer between expected and contracted deliveries. So that's 0.1 0.2, we have older aircraft and we will push some of those older aircraft to fly longer with.

Our first class cabins, which are growing so that diverse set of revenue streams.

I know others I know it sounds complicated, but it is our secret recipe. It is what the market wants it's what our customers want.

With expected delays in delivery I happen to love that option because that is also our return on invested capital enhancing.

And we are not trying to be all things to all people, we're trying to make sure for the customers that fly United that they have a range of product choices for the particular trip theyre going to take on that journey.

And so in the long run we want to simplify the fleet and those Max turns are going to be structurally lower costs. We're excited about the <unk> hundred 20 ones are are fantastic aircraft. Both of those aircrafts are fantastic for a network like United where gauge we get a real advantage out of gauge I expect those deliveries to really.

And I would say it is it.

It is more complicated you're right, it's simpler to if youre going to try to appeal to one niche, but the niche. The niches are small number of markets that exist that you can only be a low fare low cost commoditize player. This small.

<unk> start to drive lower CASM in 2025, not 2024 and so.

The number of markets that exists that you can only be a premium Maryland is even smaller.

We should understand the timing of that but we've got numerous levers to manage.

And so they are just tiny niche and we're a big airline.

The delays from the supply chain and we can do a better job optimizing based on delays that are becoming a little bit more predictable.

I'll just pile on we fly 200 million passengers annually and those passengers.

Slide for different reasons, and they passengers will shift from leisure business passengers throughout their life and so it is important that we serve all of them and we serve all of them with a product that suits their needs.

Great. Thanks for the time.

Our next question comes from Ravi Shanker with Morgan Stanley . Please go ahead.

Thanks, Good morning, everyone. Just wanted to follow up on the commentary earlier about.

That's very helpful color. Thank you for that and maybe as a quick follow up and apologies if I missed this earlier.

You need to cater to all customers, which I totally get kind of given the broad base of the market, but obviously, we're seeing some of your peers try to push into premier are pushing at the low end.

There's some speculation about us potentially being at peak internationally right now specifically the trans Atlantic.

What would you say to that kind of going into 2024 kind of do you see enough runway I think you said coming out of the summer of 2022, 23 would be a lot bigger and kind of had that visibility are you confident that that strength continue into 'twenty 'twenty four as well.

And it's.

Just kind of the <unk>.

It feels like the specializing maybe an easier thing to go after than trying to cater to everyone with.

The networking the part you have so can I just wanted to dig a little deeper into kind of why that strategy being everybody every one rather than being just maybe a foodservice premium network airline.

But I would say right now, particularly today for example, we continue to see strength across the Atlantic, we particularly see it to southern Europe .

I can tell the industry does by all of our changes and that's great to see so we think that the trends are going to continue that being said I did say earlier in my comments that we're going to give the Atlantic arrest, we've grown a lot since.

2019 for sure and this year it will be a year of basically no capacity growth across the Atlantic I said I wasn't going to give capacity guidance, but clearly that's a big hint for a big part of the airlines So sorry, Mike.

<unk> of our network that don't cover every single market in the United States and I think I think if you were to try and say we're going to cover every single one deep here in the United States as the world's largest airline.

That would be incredibly challenging and that is not something we're trying to do we are trying in our hubs and all of the folks we serve well from our hubs to make sure we offer a diverse range of products that appeal to all the customers that fly on United Airlines and some of those customers by the way flying United Airlines for business.

And the other thing I've said is like the last part of the World to recover is Asia and Asia is still.

However, you want to look at it.

Very strong.

We're growing a lot of capacity on that front and we're going to focus our efforts, where we see that growth, where we see the profitability opportunity and if you look at our schedule is going into next year, you can see that a gigantic percent and change in our capacity is in fact Asia. So we put the capacity, where we think we need to put it we're really bullish on international we come along.

And sometimes the same customers fly on United for leisure vacation or other needs and so they have that optionality to purchase anything from basic economy to Polaris as part of that and have to join mileage plus they haven't obviously, a larger chance they get upgraded into our large premium accounts economy sections are in queue.

Long way, it's very profitable.

There is a lot more to come and as I said in the latter part of this decade, I think we'll lean into it even further we have the right hubs gateways, where we have the leading business demand the leading leisure demand in the lead in cargo demand.

Our first class cabins, which are growing so that diverse set of revenue streams.

I know others I know it sounds complicated, but it is our secret recipe. It is what the market wants it's what our customers want.

And that recipe is just unique to United and welcome to take full advantage of it.

I spoke to an earlier question around the.

I spoke to an earlier question around the constraints to industry capacity and there's nowhere that that's more true than for wide body aircraft.

In addition to that as Andrew alluded to but I will just emphasize we have.

And I would say it is it.

It is more complicated you're right, it's simpler to if youre going to really try to appeal to one niche, but the niche. The niches are small number of markets that exist that you can only be a low fare low cost commoditize player is.

The best International gateways, leaving the United States.

Of any carrier and so this is where as Andrew says we were born on third base and we're going to capitalize on that.

Great. Thank you.

The number of markets that exist that you can only be a premium Maryland is even smaller.

Our next question comes from Scott Group with Wolfe Research. Please go ahead.

And so they are just tiny niche and we're a big airline.

I'll just pile on we fly 200 million passengers annually and those passengers fly for different reasons.

Hey, Thanks, good morning.

So Scott yesterday, you said that adjustments are inevitable and you expect them by the second half of 'twenty four.

Passengers will shift from leisure business passengers throughout their life and so it is important that we serve all of them. When we serve all of them with a product that suits their needs.

I guess I'm wondering what are you just talking about theyre going to be capacity cuts by the second half next year youre talking about something bigger than that.

That's very helpful color. Thank you for that and maybe as a quick follow up and apologies if I missed this earlier.

And then what I just.

Yeah go ahead sorry.

There is some speculation about us potentially being at peak International right now is specifically peak Trans Atlantic.

Well I'm not going to predict what the exact changes are going to be but here's what I'd say.

What would you say to that kind of going into 2024 kind of do you see enough runway I think you said coming out of the summer of 2022 that 2023 would be a lot bigger and kind of had that visibility are you confident that that strength continue into 'twenty 'twenty four as well.

Yeah.

Theres been a structural change in the industry and the structural changes.

I've hinted at this earlier in today's call I don't think air travel as a commodity.

Some of the industry think it is I do not I think product service experience matter.

But I would say right now, particularly today for example, we continue to see strength across the Atlantic, we particularly see it to southern Europe .

Everything we've been doing in the last three years has been focused on improving that for our customers.

That's true across the board.

From the premium, but all the way down to the basic economy customers and it, particularly as it pertains to low cost carrier.

I can tell the industry does by all of our changes and that's great to see so we think that the trends are going to continue that being said I did say earlier in my comments that we are going to give the Atlantic arrest, we've grown a lot since two.

I think there's three things that we've done.

We changed the competitive.

Dynamics there.

As we are growing with higher gauge, we now have low marginal CASM.

2019 for sure and this year it will be a year of basically no capacity growth across the Atlantic I said, it wasn't going to give capacity guidance, but clearly that's a big hint for a big part of the airlines So sorry, Mike.

On those big airplanes, when we used to try to compete with them with regional Jets, we could've had a high cost product and we were as well.

Now have seats to sell.

On oil marginal CASM.

And the other thing I've said is like the last part of the World to recover is Asia and Asia is still.

Growing airplane.

As basic economy.

And that is a product that is.

However, you want to look at it.

Where we can be price competitive but offer a far superior product still when you can get on a low cost carrier.

Very strong we're growing a lot of capacity on that front and we're going to focus our efforts, where we see that growth, where we see the profitability opportunity and if you look at our schedule is going into next year, you can see that a gigantic percent and change in our capacity is in fact Asia. So we've put the capacity, where we think we need to put it we're really bullish on.

And still be price competitive and the <unk>.

Third is the pivot into leisure.

We've added more capacity, it's done really well.

We've added capacity in Toledo market and you put those three things together and what we've tried to do is create a product that customers will choose.

International we've come a long way, it's very profitable.

And there's a lot more to come and as I said in the latter part of this decade, I think we'll lean into it even further we have the right hubs gateways, where we have the leading business demand the leading leisure demand in the lead in cargo demand.

And so we've tried to do is create a cost competitive product for customers, but that is better and so they will choose to fly United and that is exactly what we've done twice.

So I see us have 92 airlines have 90% of the revenue growth.

And that recipe is just unique to United and welcome to take full advantage of it.

And that makes it hard if youre somewhat somewhere else I'm going to predict what is going to what they have to do.

I spoke to an earlier question around the <unk>.

I spoke to an earlier question around the constraints to industry capacity and there's nowhere that that's more true than for wide body aircraft in.

But if either one of those airlines and be really worried about not having a competitive product with United Airlines Thats the issue.

It strikes me I don't think I've heard you talk so much and so positively about basic economy in a while.

In addition to that as Andrew alluded to but I'll just emphasize we have the.

The best International gateways, leaving the United States.

It feels like a change in tone or strategy can you just talk about that and why it's happening now is it reflective of the competitive dynamic the demand environment, just it feels like a change in tone.

Of any carrier and so this is where as Andrew says we were born on third base and we're going to capitalize on that.

Great. Thank you.

Look I think it took us a while to work it out and also help some of our competitors with the other direction charging people $99 at the gate and pay your poise a commission to take there versus the way across the line.

Our next question comes from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks.

Morning, So Scott yesterday, you said that adjustments are inevitable and you expect them by the second half of 'twenty four.

And so while they've gone one direction, we've gone the other with an improved product, but the other thing that's really changed during the last year as we finally started to get the gateway we couldn't make this work were 650 regional jets around the country.

I guess I'm wondering what are you just talking about theyre going to be capacity cuts by the second half next year, you're talking about something bigger than that.

And like.

And then what I just want him.

That's why I think this is all coming together.

Yeah go ahead sorry.

Although it when a plan comes together this is coming together and I know, it's not reflected in our stock price yet.

I'm going to predict what the exact changes are going to be.

The market is skeptical of it because of the plan that is working exactly like we thought it would.

Got it.

Theres been a structural change in the industry and the structural changes.

And that is the big change for basic economy is a better product for us.

At this earlier in today's call.

Air travel as a commodity.

We've figured out how to make it work, but we now have the gauge to be able to sell the product.

Some of the industry think it is I do not I think product service experience matter.

Everything we've been doing in the last three years has been focused on improving that for our customers.

Okay. Thank you.

Yeah.

That's true across the board.

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

From the premium, but all the way down to the basic economy customers and it, particularly as it pertains to low cost carrier.

I think there's three things that we've done that.

Mike I was going to congratulate you on the promotion, but given them so far back in the queue No I'm just kidding congrats on the step up here.

We changed the competitive.

Dynamic there.

First as we are growing with higher gauge, we now have low marginal CASM.

I don't want to pile on on on basic economy, but I did think the disclosure was kind of interesting you called out 50% growth.

Sure.

On those big airplanes, where we used to try to compete with them with regional Jets, where we.

We had high cost product and we were as we now have seats to sell.

Is that simply a function of kind of inventory availability. So this time last year things are really tight.

On oil marginal CASM on big growing.

Second is basic economy.

And they are a bit looser this year. So we can.

And that is a product that is where we can be price competitive but offer a far superior product still and you can get on a low cost carrier.

So we think we can drive that growth.

And I guess, depending upon the environment that that 12% of customers was also an interesting stat. So you you can turn the dials.

And still be price competitive and.

And maybe you have kind of have a spirit airlines within United inventory to maybe kind of multiple spirit Airlines.

And the third is the pivot into leisure.

We've added more capacity and it's done really well.

When we've added capacity in Toledo market and you put those three things together and what we've tried to do it.

Within United inventory, I'm guessing, you're probably pushed back on that metaphor, but maybe you could just speak to kind of inventory availability as a driver there.

Is create a product that customers will choose.

So we've tried to do is create a cost competitive product for customers, but that is better and so they will choose to fly United and that is exactly what we've done.

Well, we'll probably save that for a more.

Smaller conversation to be honest, what I would say is that the comps last year, we just couldnt execute the way we wanted to execute and so it's off a small base. It creates it creates a big percentage, but it is a meaningful change.

<unk> seen us have 92 airlines have 90% of the revenue growth.

And that makes it hard appeared somewhat because there's someone else I'm going to predict what is going to what they have to do.

And as I said earlier, we're going to lean into it we have these big aircraft come in and we're going to be more competitive in the future not less.

But if I was one of those airlines and be really worried about not having a competitive product with United Airlines, that's the issue.

Helane Becker from TD Cowen you are on mute. Please go ahead.

It strikes me I don't think I've heard you talk so much and so positively about basic economy in a while.

Thanks, very much for the time Christiana congratulations.

Given I was quoted in the article I knew it was coming.

It feels like a change in tone or strategy can you just talk about that and why it's happening now is it reflective of the competitive dynamic that demand environment. It feels like a change in tone.

Same to you.

So here's my question.

I think about the fact that you have all these infrastructure issues, especially in the New York area that are going to persist for several years.

I look I think it took us a while to work it out and it also helped that some of our competitors with the other direction I mean charging people $99 at the gate and pay your point a commission to take there versus away across the line.

Should we think about two things you increased gauge.

Way to capture that demand, but then there is a point, where you want to capture higher ticket prices. So what's the.

And so they've gone one direction, we've done the other with an improved product, but the other thing that's really changed in the last year as we finally started to get the gateway we could make this work were 650 regional jets around the country.

The sweet spot, where you can do both where you can benefit from capacity limitations with higher aircraft and raise ticket prices. So that you improve margins.

And like.

That's why I think this is all coming together.

When a plan comes together this is coming together and I know, it's not reflected in our stock price.

The market is skeptical of it because of the plan that is working exactly like we thought it would.

We think about it through a different prism, we want to provide a good experience to our customers.

And that is the big change from basic economy or is it better product for us.

And New York, and New Jersey have not been a good experience for a decade.

We figured out how to make it work, but we now have the gauge to be able to sell the product.

And the core reason they have there.

<unk> scheduled in the airports and handling.

We are we think it is it is a win for everyone, particularly starting with customers.

Okay. Thank you.

Yeah.

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

To have the number a realistic number of flights at the airport capacity in our traffic control handling those airports and we're very grateful.

Mike I was going to congratulate you on the promotion, but given them so far back in the queue No I'm just kidding congrats on the step up here.

We're doing that from listening.

And following through on that and we're anxious to serve as many customers as we can and so we're up gauging. So we're flying more seats were flying fewer number of flights, but more seats.

I don't want to pile on on on basic economy, but I did think the disclosure was kind of interesting.

Called out 50% growth.

We're up gauging and so we're focused on delivering for our customers and that means flying bigger airplanes. Good news as bigger airplanes also have lower cost per seat and when the operation run better, it's even lower cost per seat, which customers ultimately benefit from it.

Is that simply a function of kind of inventory availability. So this time last year things are really tight.

And they are a bit looser. This year. So we can you know.

So we think we can drive that growth.

And that's what we're doing.

And I guess, depending upon the environment that that 12% of customers was also an interesting stat. So you can turn the dials.

So is the conclusion that I should have that the revenue is what it would have been had the infrastructure issue not existed and you feel more flights.

And maybe you have kind of have a spirit airlines within United inventory to maybe kind of multiple spirit Airlines.

But you would have had higher costs right, let's say you have lower cost and the same amount of revenue.

Within United inventory.

Is that right.

You probably pushed back on that metaphor, but maybe you could just speak to kind of inventory availability as a driver there.

I don't know that I can.

Get into that level of detail you have in your spreadsheet. What I think is we're going to have a much better experience for customers.

Well, we'll probably save that for a more.

Great.

Smaller conversation to be honest, what I would say is the comps last year, we just couldnt execute the way we wanted to execute and so it's off a small base. It creates it creates a big percentage, but it is a meaningful change.

Got it.

I think I think we will have lower costs, because we will have fewer irregular operations.

And we will have bigger airplanes.

That will probably keep prices.

And as I said earlier, we're going to lean into it we have these big aircraft come in and we're going to be more competitive in the future not less.

Certainly.

In line.

Our growing with inflation do better for our customers and we will be more profitable because we don't have all the expenses associated with disruption and we don't have all the frustration that comes from that from customers.

One of those few situations, where it's a win win win for everybody right.

The worst thing.

Active is irregular operations right that's what surprises.

It surprises us we built.

Lots of buffers into the system to control for that.

With a better.

With better air traffic control with the airport capacity appropriately we.

We can do a lot more optimization.

Got it that's very helpful. Thanks, everybody.

Our next question comes from Brandon Oh Glinski from Barclays. Please go ahead.

Yes.

Hi, good morning, and thanks for taking my question and congrats Mike and Kristina. So I know, it's been a long call I just wanted to get one more in here, but Andrew.

I know you are not typically guide into 2024, but you also mentioned domestic capacity I believe in your prepared remarks, we should think about it being you know pretty.

Pretty much flat I think in the first half of the year, but maybe you can clarify that.

What's driving that because I know under your next strategy you did want to up gauge domestically. So is this in concert with OEM delivery expectations pilots commercial I mean, what are you seeing thats driving that.

We're still putting our plan together, so I don't want to say its final, but and I did say in my prepared remarks that we would have guessed.

The exact words, but.

Low type of really slow growth domestically.

Our commercial efforts are just focus on overseas at this point and across the Pacific in particular into the South Pacific.

And so we are executing and execute really well on that capacity in my opinion.

And Thats, where our focus as Mike said there are a few constraints we have OEM issues.

And all that kind of leads to that outcome and we think it's the right outcome for our capacity for next year and we'll have a lot more to say in early 2024.

I appreciate that thank you.

We will now switch to the media portion of the call as a reminder for attendees. Please press pound two to enter the question queue for the media portion of the call.

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

Lastly, Joseph from CNBC Youre line is on mute. Please go ahead.

Hi, good morning. Thank.

Thanks for taking my question I was wondering if you are seeing.

If you can kind of put it into context, let me.

<unk> got a smelter as you've seen for Doug you made those changes last month and then also on your push to premium can you talk a little bit about the supply chain currently in and how far behind you are.

The cabin.

And when do you expect to catch up.

Sure.

Look I'll give a little bit of commentary.

Our our status matches up dramatically, yes, as dramatically a big number no.

So.

That's all I'll say on that front and in terms of the signature interiors, we are definitely facing some constraints, but I'll pass that over to Toby who runs that program for us and his lips out alright. Thanks, Andrew.

I think we're about a year behind.

The good news is that we're still thinking that new deliveries.

Right now <unk> about 120 airplanes that have the inferior.

<unk> design.

We ended up in the range reduced zone, and we're seeing some really good for us operational as well because the space for one bag for each passengers and <unk> has come out. So that's probably the biggest things. So I think right now we're targeting 2026 for 100%.

The complaint.

I'd just add to this is another one.

Right.

We believe back in 2020 that theres going to be a full recovery in demand and thought that the pandemic as tough as it was represented a once in the history of opportunity to get prepared and invest for the future.

Two of the things we did was get ahead of the curve, we built more club space.

So we now have 49% more club space than we did before the pandemic.

We just opened our two largest clubs in our entire system that are great for customer feedback is awesome one in Denver, one in Newark. So we plan ahead for that.

And well the signatures are behind we today have close to double the number of premium seats that we had pre pandemic. So this is a team that started back in the summer of 2020 to prepare for the recovery and premium demand.

And that's the reason Andrew said in his remarks, we don't need to change their programs and do anything because we prepared for this.

Okay and on the other end of the spectrum with basic economy, our customers to find that they're more price sensitive now or and I wasn't sure if 50% what percentage of your revenue.

Economy, Leslie Leslie I would say its unlikely well a lot more share shift that in the previous quarters and years. We didn't have the large gauge aircraft to accommodate all of the different range of passenger types and product types adequately.

And we are now just beginning but we have a lot more flexibility and we were able to accommodate those passengers and it happened and I think I would describe it as probably a fair amount of share shift.

Thank you thank.

Thank you.

Moving to the next caller Mary <unk> from Bloomberg News. Your line is on mute. Please go ahead.

Thank you I wanted to ask you about the situation in Israel, and whether you are assessing the potential for that to spread to other areas of the dip perhaps even to some areas of Europe , where you may have to cancel more flights because people might be poking away over worries and if youre seeing any of that already.

<unk> shifted to other other countries or other cities that you serve.

We're not seeing that at all.

Okay.

Okay. Thank you.

Moving to our next caller.

Justin Bachman from the Messenger. Please go ahead.

Yes, hi, good morning, everybody. Thanks for the time today.

I wanted to go back to Scott's point about the industry landscape changing and.

I was hoping that you might be able to elaborate a bit on that where.

If we are facing a situation, where every American choosing to fly Delta and United.

What does that suggest where for the rest of the industry as far as.

The other players do they become smaller more niche or is there just too many airlines out there.

Wanted to see if you could expand on what that suggests overtime.

Thank you.

Oh, they suggest that but I think what we're proving is that customers care about quality product and service and I think because of that the airlines that succeed are going to invest in quality product and service and if you don't do that you're going to fail.

Adjusted I'm going to jump in on this as well.

What has changed what has changed is cost convergence rate at this point, we're able to provide incremental seats to our customers at a price point that is competitive with the <unk> and we provide a better product and so customers are choosing to fly with better product.

A similar price.

And we are just getting started.

Right.

I fully understand that I'm, just thinking if you play that movie out what what does that suggest for the competitive landscape in two or three or four years.

If those trends continue and things don't continue as they have been.

That's a question for those airlines not for us.

Okay.

I will now turn the call back over to Cristina Edwards for closing remarks.

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

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

Speaker 1: I will be your conference facilitator today.

We were able to provide incremental seed.

Speaker 1: Following the initial remarks from management, we will open the line for questions.

To our customers at a price point that is competitive with the Lcs and we provide a better product and so customers are choosing to fly with better product at a similar price.

Speaker 1: At that time, please press pound two on your telephone keypad to enter the question queue.

Speaker 1: This call is being recorded and is copyrighted.

We are just getting started.

Speaker 1: Please note that no portion of the call may be recorded, transcribed, or rebroadcast without the company's permission.

Right.

I fully understand that I'm, just thinking if you play that movie out what what does that suggest for the competitive landscape in two or three or four years.

Speaker 1: Your participation implies your consent to our recording of this call.

If those trends continue and things don't continue as they have been.

Speaker 1: If you do not agree with these terms, simply drop off the line.

That's a question for those airlines not for us.

Speaker 1: I will now turn the presentation over to your host for today's call, Christina Edwards, Director of Investor Relations. Please go ahead.

Okay.

I will now turn the call back over to Cristina Edwards for closing remarks.

Speaker 2: Thank you, Silas. Good morning, everyone, and welcome to United's third quarter 2023 earnings.

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

Speaker 2: Yesterday we issued our earnings release, which is available on our website at ir.unite.com. Information in yesterday's release, and the remarks made during this conference call, may contain forward-looking statements, which represents a company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available...

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

Speaker 2: A number of factors could cause actual results to differ materially from our current expectations.

Speaker 2: Please refer to our earnings release, Form 10K and 10Q, and other report files with the SEC by United Airlines Full Things and United Airlines for more thorough description of these facts.

Speaker 2: 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 process.

Speaker 2: For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our...

Speaker 2: Joining us on the call today to discuss our results in Outlook are our Chief Executive Officer, Scott Kirby, President Brett Hart, Executive Vice President and Chief Commercial Officer, Andrew Nacellis, and our new Executive Vice President and Chief Financial Officer, Michael

Speaker 3: In addition, we have other members of the executive team on the line available to assist with the Q&A. And now I'd like to turn the call over to Scott. Thank you, Christina. I want to start today by saying how heartbroken we are by the horrific attacks on Israel and the escalating conflict in the region that has millions of innocent people in harm's way. Here at United, when tragedy strikes anywhere around the world, we focus first on safety and second on how we can use our unique capabilities to help.

Yes.

Speaker 3: While we suspended our service to Tel Aviv, we were the first U.S. carrier to add extra flights to Athens where customers connect from airlines operating between Tel Aviv and

Speaker 3: We also have gained some regularly scheduled flights to Athens and a dedicated Tel Aviv support desk and continued planning to monitor Dubai to maximize flexibility for our customers with tickets to Tel Aviv. We are closely monitoring the situation on the ground and staying in close touch with State Department officials so that we can resume service as soon as possible.

Speaker 3: We look forward to the cessation of violence in the region, and as we've done in the past crises around the globe, we expect the United to continue to play a meaningful role in the humanitarian response.

Speaker 3: Turning back to the business. I want to start by welcoming Mike to the leadership team. You all know him well, but I'm excited to have him as a partner who agrees with my no excuses approach. And there's 100% committed to making the United work for our employees, customers, and shareholders. I also want to congratulate Christina for her recent announcement as a from Craig and Karen Chicago as one of the top 40 under 40.

Speaker 3: The third quarter was another solid milestone to demonstrate that United Necks is working as we expected and the growth we are adding is proper.

Speaker 3: So fuel spiked this quarter, we're very encouraged about our results. It's clearly wide from the numbers. Our top line revenue grew 12.5% to 14.5 billion, making it the highest third quarter in our history. Our costs were also on track with our plan as we delivered strong operations in both August and September .

Speaker 3: United's diverse revenue streams have also allowed us to handle variations in demand and produce solid, absolute, and even better relative results.

Speaker 3: It's evident in the numbers. United and one other airline expected to count for 98% of the total industry revenue growth this quarter in over 90% of the industry's total pre-tax profitability. Even in a tough industry environment, United's diverse model is really strong, absolutely, even more impressive relative margin. So what is it about revenue diversity that makes us?

Speaker 3: First, because of our size and industry-leading global network, our loyalty program is the most attractive program in the world for customers. And therefore, it generates significantly directly or even significant loyalty, but also significant opportunities to even more with it in the future.

Speaker 3: I expect to hear a lot more details from us on this front starting in an investor day in early 2024. Second, we have unmatched geographic diversity with the largest domestic network complemented by the largest long hauled international network and both are solidly profitable. While this is a great attribute, it does create some short-term risk and volatility as we're seeing right now with a transitory hit to margins this quarter as a result of the tragedy of this.

Speaker 3: Third, we feel to both business travelers, it's been nice to see more recent momentum in that segment, but also also increasingly the leisure customers as well. We've gotten a lot more agile at pivoting capacity in the leisure markets and not surprisingly have found that our core customers can now fly us in both business and leisure markets as we add seats to leisure destination. Our ability to move domestic capacity in the leisure markets when they're strong is a consequential driver of our strong relative revenue placed

Speaker 3: And for, we continue to advance and improve our segmentation efforts. This is a project almost a decade in the making, but all the way from base economy, which allows us to compete, profitably on price on the low end, and all the way up to flyers on Long Hall International, United is able to give our customers the real choice to buy.

Speaker 3: So what does that mean going forward? In short, it's a confirmation that United Next is working as we expected. We thought the industry operating environment would be difficult. We thought that medium term capacity aspirations would be higher than demand growth. We thought that domestic would be a lot tougher than international in the short to medium term. But we also thought United would win share, grow our gauge, and grow our connectivity, and that would allow United specifically to improve our results.

Speaker 3: By the way, we also expected and now believe we'll have an even faster that the domestic market is going to see a shakeout that leads to improvement in margins over the medium to long term. It's impossible to call the timing exactly. But I guess that we see meaningful industry changes by 2h24. And for what it's worth, that's what has happened every single time we've been through one of these cycles in my career. And as that is happening, I'll continue closely tracking the airline industry revenue to GDP relations.

Speaker 3: I've talked about this in the past. That ratio declined by approximately 35% in the past two decades. I don't think we'll make all that up, but almost everything we do make up goes straight to the bottom line. So in conclusion, I'm proud of the team at United. We're creating something special here. Even in a tough industry environment, we're producing strong, absolutely results, while producing the best relative result in our history.

Speaker 3: We believe we have a lot of runway ahead of us with UnitedNext and our diverse revenue streams, along with our ability to catch up on gauge and connectivity position United will. We expect that the current stress in some segments of the industry is also going to lead to structural changes that lay the foundation for an even better future for United, our employees, our customers, and our shareholders. With that, I'll turn it over to Bob.

Speaker 3: Thank you, Scott. Thank you to each member of the United team. Your dedication is what continues to propel us to the top.

Speaker 3: I also want to acknowledge the tragic conflict in Israel. At United, our top priority is the safety of our crews and customers.

Speaker 3: Following our coordination with the State Department, we have suspended flights to Tel Aviv until the end of October . And we're offering waivers to impact the cost.

Speaker 3: We will continue to monitor the situation and adjust as needed. The mic will provide more detail on the impact of these capacity adjustments.

Speaker 3: Last quarter, we announced changes to our operation at Newark to better hedge against disruptions, including taking advantage of FAA-granted waivers to reduce our flight schedule, allowing for necessary airspace relief and a highly congested flight.

Speaker 3: July was a difficult weather month. The Newark waivers and other proactive measures to improve reliability helped avoid pre-pandemic levels of the ATC related.

Speaker 3: In the third quarter, the later rivals were down 16 points versus the third quarter of 2000.

Speaker 3: Additionally, in August , we had the fewest cancers of any August in history operating the third largest quarter wide body schedule.

Speaker 3: In September , that Bay granted extensions to the New York airspace waivers, allowing the ability to maintain a reduced flight schedule at Newark that will help minimize air traffic delays through the Russ.

Speaker 3: Flexibility enabled by waivers are providing to be successful, are proving to be successful in ensuring operational reliability, resiliency at our largest international hub. And have meaningfully improved the travel experience for our customers to be able to end and out of Newark and throughout our next.

Speaker 3: Looking to our system operations, during the quarter, we carried over 482,000 revenue passengers daily.

Speaker 3: most in any quarter of the United's history, the top tier system customer D-00 and August and set.

Speaker 3: We're grateful to the FAA for allowing us to make necessary adjustments in work. And thank our employees who work harder to get our customers to their destination safely and on time.

Speaker 3: While most of our network has recovered to 2019 capacity levels or beyond, our China network has been last.

Speaker 3: At the start of the quarter, we were operating four flights a week from San Francisco to Shanghai and this month we increased that to a daily.

Speaker 3: Next month, we will be the first US Air Line to return the Beijing for the daily flight and sample.

Speaker 3: believe this measured approach to bringing China to pass the back online is appropriate that the demand slowly recovers.

Speaker 3: increased flights are significant step forward and rebuilding our Asia.

Speaker 3: Late last month, our patents ratified their industry leading.

Speaker 3: Contract enables us to continue providing great career opportunities in your life.

Speaker 3: And I'm excited for the future as we continue to execute our United.

Speaker 3: At this point, we have ratified agreements for four out of our five meetings.

Speaker 3: of light attendance represented by AFA are in active negotiations. And we look forward to sharing an update when we have one.

Speaker 3: and the gang microwave for pilot rate pay rate increases in the first quarter.

Speaker 3: our outlook has and continues to represent our expectation for this agreement. With that, I will hand it over to Andrew.

Speaker 4: Total revenue for the third quarter increased 12.5%. One point ahead of our guidance midpoint, tourism was down 2.8%. Frasim was down 1% and capacity increased 15.7% year-to-year.

Speaker 4: Fafity came in a bit below our original outlook mostly due to the changes in our Hawaii flying levels in response to the fire.

Speaker 4: It's nice to come in ahead of a revenue outlook as a strong Q3 outcome further validates that our United Next commercial strategies are working well and that we have differentiated United from our competition.

Speaker 4: Demand for the Atlantic and the Pacific was truly outstanding, and we see that trend continuing into the fourth quarter. Third quarter domestic prasim results were a consistent with our year-over-year performance and the second quarter of down 2.1 points. In other words, we saw no real change in our domestic trends in the quarter of a quarter review. Our focus on prudent gauge growth centered in our hubs resulted in strong positive marginal revenue on our incremental capacity.

Speaker 4: We did focus a majority of our third quarter of growth on international flying. International capacity increased 22%. International Prasm was up 1.3% year-over-year.

Speaker 4: international profit margins remain well ahead of domestic. So domestic margins remain solidly profit.

Speaker 4: We also saw strong performance across most of the globe. Clearly Europe was a standout with capacity being up 12% with positive prize performance. Asia Pacific led international at Prasimup 3.8% on 86% more capacity.

Speaker 4: Turning to our outlook for the Ford quarter, we expect total revenue to be up approximately 10.5% on approximately 15.5% more capacity. This implies travel will be down around 4.5% year-to-year. Our guide assumes we begin limited service until we begin in November . Elevated accounts for approximately 2% of the United Consolidated Capacity.

Speaker 4: As we think about this sequential trend in unit revenues, I know many of you are wondering if we are seeing a slowdown.

Speaker 4: Resurgence of the specific flying is resulting in many long haul flights being added. Increasing United's long haul in that film phase on 5.5 points versus Q3.

Speaker 4: United's Q4 unit revenue expectations are consistent with Q3 adjusted for state.

Speaker 4: United has taken full advantage of the demand surge across the Pacific with capacity being added to key markets, including the long pending resumption of daily flights to Beijing, and Shanghai from Camp Francisco and the addition of mineralogist to name a few.

Speaker 4: Having done capacity planning my entire career, I have said that our team is the best in the business. United properly allocated our 2023 growth to international markets over domestic, and in domestic markets we've wisely invested in gauge, not scope or depth. Less than 1% of United's domestic capacity this winter is in new markets, not full in 2019.

Speaker 4: Ambassador Plan in for 2024 will be even more important to achieve our financial goals. While we're not gonna provide guidance for 2024 today, we have plans to let the 30% growth we've added to the Atlantic since 2019 mature in 2024 and expect to fly a similar level of capacity in 24 S20.

Speaker 4: We also plan on little to node growth for the first half of next year on domestic blinds.

Speaker 4: This preview of our 2024 capacity, I think will allow United to continue to produce top-tier results as we align with industry conditions.

Speaker 4: I wanted to touch on a few other important commercial elements today as well.

Speaker 4: Recently, the question I get at the most often by our Freak of Liars is about potential changes to achieve premier status on United. The good news is we have no material changes planned for 20, 25 program year. We've carefully managed our premier population in recent years to maintain our robust valuable set of benefits for each premier member. We very much believe in never causing a situation where everyone has a premier status, which obviously results in no one receiving an adequate level of knowing where the more pursue your courage, to yourself and not instill thoseness creates sometime a doubt that presented right before your studies or experience.

Speaker 4: Are United Extradigial for Premier members access to more premium seats than our each of our competitors is enhanced in the value of our pre-complier boiled.

Speaker 4: I also wanted to take a moment to talk about revenue segmentation. We've worked really hard on perfecting segmentation of our products in recent years. Not only do we have multiple product types appealing to a broad range of customers, but we also have new, more effective ways to distribute our products by United.com and NDC technology.

Speaker 4: United is of course very focused on growing all of our premium products given where our hubs are located. When I looked back at where United was in 2017, we simply didn't offer premium products that many of our best customers were willing to pay.

Speaker 4: We put a plan in place, we unite a next to correct this disconnect in our commercial plans and we're making quick progress.

Speaker 4: Premium Plus is one of our best examples of segmentation that has been a huge success. Premium Plus third quarter 2023 capacity is five times that of 2019, but revenue up seven times 2019. And it's now our most profitable cabin. Premium Plus is now offered on all twin engine international aircraft at United. And also on board, we'll be on board our new A321XLR jets which replace our 757 Starden in 2025.

Speaker 4: Another important driver revenue has been the success of domestic first class. We plan on increasing our first class seats per departure from nine in 2019, the 16 by 2027 at 80 percent increase. This increase in first class seats comes as more and more customers are seeking elevated experience.

Speaker 4: The United's basic economy product represents the elder-shotted spectrum compared to many of our premium products. Basic has made United more competitive versus ultra low-cost competitors, and given our customers more choice.

Speaker 4: Basic economy is now 12% of our domestic passengers and we expect to be even more competitive in this segment of the market in the future with the arrival of our large and air-bodied jets in 2024 and 2025. These new jets have low marginal chasms allowing United to be price competitive with anyone at any time. While it took time to perfect the offer and we are only in the early stages of inducting these jets, Basic has changed the competitive dynamics of our industry.

Speaker 4: I think it's also becoming increasingly clear that United's core business model of multiple product choices, an expanding club network, experience levels from basic economy to Polaris provide travelers choices.

Speaker 4: And for United to grow and bring in products, choice, travel, choices, travelers are willing to pay.

Speaker 4: Beyond segmentation, United Networks split evenly between domestic and global capacity.

Speaker 4: I'll just add with diversified revenue streams provide United with a resiliency other business models will just not ever achieve. RASM accretive gauge growth focused in our hubs in turn provides United with the unmatched ability to create cost convergence for years to come with our low-cost providers. Thanks again to the best team in the business. And with that, I will hand it off to Mike.

Speaker 5: Thanks, Andrew. And good morning, everyone. Before I get into the results, I want to take a minute to say how honored and excited I am to join the United executive team during such a transformative time. Industry dynamics are constantly changing, and I continue to see the incredible opportunity ahead for United.

Speaker 5: We believe our no excuses mentality and clear strategy with United Next are letting the foundation for success.

Speaker 5: I look forward to continuing the conversations I've had with the investment community thus far in my new role, and I'm excited to lead the talented finance team here at United. Now let's turn to the results.

Speaker 5: For the third quarter, we delivered pre-tax earnings of $1.6 billion and a pre-tax margin of $10.8 billion.

Speaker 5: Our earnings per share of $3.65 was ahead of expectations as our revenue growth seemed at a full point ahead of our guidance midterm.

Speaker 5: Thanks to the amazing commercial team for the great work. They truly are the best.

Speaker 5: Fuel remains volatile and worked against us in the quarter. Our average fuel price for the quarter ended $0.30 higher than the midpoint of our July expectation.

Speaker 5: and more than accounts for the entirety of the reduced outlook for the 30.

Speaker 5: CASMX remained on track at up 2.6% versus the third quarter of 2020.

Speaker 5: Our operation to tell the game has been impacted by the recent events in the region and is materially impacting our outlook as this market represents approximately 2% of our capacity.

Speaker 5: For the fourth quarter, we expect CASMX to be up approximately 3.5%, with capacity up 15.5%, both versus the fourth quarter of last.

Speaker 5: Our guidance incorporates no service to Tel Aviv through the end of October .

Speaker 5: If flights are further suspended through the end of the year, it would reduce capacity by an additional approximately 1.5 points and add approximately 1.5 points of CASMX. And it's very difficult to cut the associated expenses related to this flying so close.

Speaker 5: These changes bring capacity for the full year up around 17.5% year over year, just below our guidance.

Speaker 5: We're proud of that result given all the headwinds United and our industry faced a huge testament to the

Speaker 5: Lower capacity along with elevated maintenance expands, has pressured Cadmax and pushed us above the high end of our Cadmax range for the point.

Speaker 5: For the fourth quarter, we expect earnings per share of approximately $1.80 with an average fuel price of approximately $3.28.

Speaker 5: Absent our Tel Aviv flying through the rest of the year, our fourth quarter earnings per share would be reduced by approximately 30%.

Speaker 5: Looking ahead to 2024, we feel good about the core fundamentals of our expenses. However, we are facing sizable headwinds with labor and expectation of a new flight attendant agreement and continued higher maintenance.

Speaker 5: We believe our capacity growth along with improvements in utilization are helpful tailwinds as we manage down expenses.

Speaker 5: We are working through our 2024 budget and new projections for 2024 capacity, CASMX, and our other financials. And we'll provide our customary guidance on our January call.

Speaker 5: On the fleet, in the third quarter, we took delivery of 18 Boeing 737 MAX aircraft and paid for 14 of those aircraft with cash.

Speaker 5: We expect to take delivery of 2737 MAX aircraft in the fourth quarter and we took delivery of our first Airbus A321neo last

Speaker 5: This is a reduction of 12 aircraft versus our plan in July for the second half of the year.

Speaker 5: Earlier this month we announced our order for 68321 NEOs and exercised options for 5787s for delivery in 2028 and beyond. Managing the delivery skyline for the future of United

Speaker 5: This order builds on the successes we are already seeing with UnitedNEXT and reflects our confidence as we extend our planning into the next decade.

Speaker 5: With the retirement of our Boeing 757 and 767 fleet later this decade, these aircraft are important additions as we work towards fleet simplification and capitalize on our cost reduction.

Speaker 5: Turning briefly to the balance sheet, we ended the quarter with almost $19 billion in liquidity, including our undrawn revolver.

Speaker 5: Before we end our prepared remarks today, it's important to recognize that while our financial results remain strong, as an industry, we are facing new and unique challenges.

Speaker 5: Our growth has helped us deliver strong relative cost performance, and that's even before we begin the accelerated gauge growth that we expect will come from the 737 MAX 10 and the A321 additions to our fleet.

Speaker 5: We are committed to continuing to deliver industry-leading cost performance.

Speaker 5: And this will form the foundation for continued cost convergence and improving absolute profitability.

Speaker 5: And because our growth is focused on our hubs, we're also growing with industry leading the crisis.

Speaker 5: There are and will always be headwinds facing our industry, but as we enter 2024, United has great momentum, and I'm confident a very bright future. With that, I'll hand it

Speaker 2: Thank you, Mike. We will now take questions from the analyst community. Please limit yourself to one question and it needed one follow-up question. Silas, please describe the- and it needed one follow-up question.

Speaker 1: Thank you. The question and answer session will be conducted electronic.

Speaker 1: If you would like to ask a question, please press pound two to enter the question queue. Please hold for a moment.

Speaker 1: The first question comes from Jamie Baker from J.P. Morgan.

Speaker 6: Hey, good morning, everybody. So following up on some of the prepared remarks, probably for Andrew or maybe Scott, you know, I can't recall a time.

Speaker 6: when there's been such a chasm between domestic yields united and those of the LMAs how would you rank order the drivers of that you know how much is reflective of low-end consumer weakness how much is your own success with basic economy how much is loyalty maybe the LMAs are just selling out too far in advance just just trying to assess the permanent

Speaker 6: of the phenomenon. So if you could rank order the drivers, that would be great.

Speaker 4: Hi, Jamie. I'll try to give that a try. I mean, rank order and then maybe a little difficult, but let's see what we can do. You know, I do think your question is really one of the most important questions that anyone could ask today, because there's there's such a difference occurring versus

Speaker 4: and clearly you know what i think i would start off that is there's a large range of business models today i didn't exist in years past in this business and these models are clearly creating winners and losers in a way many of us uh... did not anticipate during the pandemic

Speaker 4: I would call telling all of you on the Q1 2020-22 call that industry domestic margins would be challenging post-pandemic. Clearly, the thinking at the time was, for most at least, was that all airlines would be pressured equally at at best, or the legacy carriers even more so.

Speaker 4: It was widely assumed that lower margin, higher cost legacy carriers would shrink, rebalance in supply and demand, an outcome that had happened so many times in the past, so why not again? The number of times I heard that the airline with the lowest cost wins the race, I can't even begin to count.

Speaker 4: So that kind of sets up what about the business models has shifted so much to cause this paradigm change we're seeing today? Why are these low cost airlines so unprofitable? Why does United have top tier results? And first, I just want to be really clear, United's domestic network is profitable. So it's not simply our great global network that's creating this outcome for us.

Speaker 4: First issue, of course Mike talks about in his cost. Every airline has to manage higher inflationary cost pressures, but the lowest cost carriers cost structure relative to the legacy carriers, or clearly convergent. The shrinking cost gap is just a fundamental shift after you're united in our industry, and I guess I would rank that number one.

Speaker 4: You said it's impossible to run your airline like it's 2019. High utilization was a critical ingredient for success of certain models, and that's simply not possible where we are today. And also having large labor cost differentials are not possible.

Speaker 4: Low cost carriers also tend to operate a very high gauge already. It will be much more difficult for them to drive cost materially lower with larger gauge planes like United. United has increased domestic gauge more than any airlines since 2019 and our plan is to push that even further in the years to come.

Speaker 4: You know, another issue that I think we should talk about is it's difficult for many to graph is not every ASM is created equal. It's easy to mistake made often in the middle of really large spreadsheets that everyone uses to evaluate our outlooks, right? At United, we proved this point early in 2018 and 19 with our growth and revenue performance when we just did it again in Q3.

Speaker 4: Market saturation of the low-cost business model in certain regions is increasing very low marginal rathms for some of our competitors. In fact, many of our competitors have marginal revenue percentages that are negative.

Speaker 4: There are not only so many seats as large a can tune or biggest can support in such a short period of time.

Speaker 4: Also, low cost carriers generally misoperative, very large gated, gated equipment to have low cost without the connectivity benefit of the hub and spoke business model. Expansion of the low cost model into smaller and medium size markets with these very large jets, lacking connectivity just creates low marginal razors.

Speaker 4: Sparket saturation and the mismatch of gauge and other connectivity continues to plague certain business models. Expansion opportunities with this type of business model are not endless in our view, but in response to that, shortcoming, many of our domestic competitors have doubled down with plans for even more growth in 2024.

Speaker 4: 2024 marginal growth in markets will absolutely be no better than 2023. No airline network team would say let's add the bad markets in 2023. So we can save the good ones for 2024.

Speaker 4: The other factor is the percentage of ASMs that these airlines have in new markets. Very fast growth rates simply create a high percentage of new capacity, which by its nature, in the best of times, is below average. This fourth quarter United has less than 1% of our ASMs in new markets versus 19. This is an absolute difference.

Speaker 4: When capacity growth is designed as a strategy to maintain low cost, without revenue or creative markets to add, the entire business model can break. And that is what we think is happening right now. United domestic capacity growth has always been about correct and engage mismatch created by the overuse of high cost, passenger and friendly, single-pass regional jet.

Speaker 4: At United, we have this diversity of revenue streams that provide us long-term stability and earnings that a one-dimensional plan will never achieve. We have a range of products, including an array of premium seating options that's increasingly popular with our travelers.

Speaker 4: We fly as much capacity in global markets as we do domestically. We fly to big cities and small. We have a great hub and spoke business model. United has significant margin of creative growth. And we've proven that time and time again. United's business model can support dramatically higher gauge and once and once added, we spill less and less traffic to others. United's higher gauge will create more and more cost convergence between now and 2027.

Speaker 4: The complexity of the United's product offer is not a disadvantage. In fact, as a structural advantage, it generates revenues more than the cost it creates by the complexity and just cannot be replicated. In the past, United and other elected be carriers that have emerged from the crisis smaller, creating excess planes and other resources for others to grow. This time, that will not happen. This time around, it is not united with the low margins. We will not adjust our plans.

Speaker 4: United's focus on global markets has clearly won the day in Q3 and you can see that in the result. Our focus on domestic gauge is absolutely the right one. We'll no longer spill as much revenue to others as we've done in the past. Our focus on basic fairs means we'll be able to be even more competitive. United will moderate our domestic growth plan that I said earlier for the first half of 2024 because we're focused on building our Asia Pacific line where we see the strongest short-term result.

Speaker 4: But I have to say maybe, you know, an arc timing, there may be off to a few other, the timing may be off, can we? But the quarters are coming and, there's a lot of other variables, and I'm just really confident that sooner or later the industry will rebalance like it has done in the past, and the United and a few others with similar diversified revenue streams are gonna come out on top. I know that was a long answer. I didn't write exactly the word at all. That's great. Yes.

Speaker 6: Yeah, Andrew, that's great. I really do appreciate it. But let me just follow up with a quick philosophical question, okay? If spill carriers can't make money, but full-service airlines can, doesn't that suggest we're actually at the optimal amount of domestic capacity rather than the oversupply that investors keep asking me about?

Speaker 7: Well, I guess I'll try now. It's hard to build on what, it's hard to follow in. That was a great answer, and very comprehensive.

Speaker 7: And probably why we feel, you know, that, what Andrew said is why we feel so different than I recognize everyone on this call.

Speaker 7: than the market skills. We feel really confident about where we're headed, what this means for margins out in 2026. You know by the time we're there, we just feel really confident. But without asking, answering the question.

Speaker 7: So overall industry capacity, I cut it at a high level think of this Jamie as to me one of the most remarkable statistics this quarter is that 90% of the industry revenue growth is gonna be at two airlines and I said the pretext of public building we just have better models.

Speaker 7: And what we've tried to do is we went through, the goal was to create an airline that had better product service experience across the board. We can't just be a leader airline, we can't just be a little fair airline, we can't just be a premium airline. We need to deliver for all customers. We try to create...

Speaker 7: products that were better on high end, but only down to the low end. I.

Speaker 7: I believe strongly that air travel is not a commodity. Some of the industry think it's a commodity. That's how you get the low-cost wins, if you believe it's a commodity. I do not.

Speaker 7: And I think we are proving our results at two airlines are proving that our travel is not a commodity. So without comming, you'll let the total industry go to this. What is happening is, you know, I just have that differentiating product service experience or getting almost all the revenue growth and customers are voting with their wallets. And those models are working. Thank you, gentlemen.

Speaker 1: Our next question comes from Michael Linenberg from Deutsche Bank. Please go ahead.

Speaker 8: Yeah, hey, good morning everyone. Congratulations, Mike, on your promotion, on Christina, on your recognition. Scott, I'm going to go to the other end, kind of at the side of your business that Cater's to, you know, call it the higher end consumer. And...

Speaker 8: I guess when I think about you know just the recent top up order on the seven eight sevens adding to Your current order. I mean it's significant. I think it's actually one of the largest wide body orders out there At least for a US carrier is the internal thinking at United just given the shape of the OEMs Whether it's the manufacturers or the engine makers that we could be facing maybe some kind of wide body shortage in the back half of this decade What are your thoughts on that?

Speaker 4: Mike, I'll give it a try. I do think the production lines for wide body jets don't produce nearly as many aircraft as the narrow bodies as you know. So they're definitely not as many that are gonna be produced. But more to the point, the wide body is we just ordered.

Speaker 4: are for 2028 and beyond. And it's really our confidence in our plan, but it's particularly our confidence that we are gonna increasingly pivot in the latter part of the decade to global growth and not domestic growth. And so, we secured those positions where confident we'll use them. We have a significantly triple sevens and sevens and sevens.

Speaker 4: that need to retire at some point later this decade, at least for the 77, for sure.

Speaker 4: And so with the number of retirements we have, the confidence in our plan and some of the OEM issues that you just brought up, this just made sense. Again, it's for 20, 28 and beyond. It's a long time away, but we are really confident in the plan. We're confident that global growth, we will have to lean into that and we'll want to lean into that in the latter part of the day.

Speaker 5: And my business might compile on, you know, with the delays in the supply chain, they've become persistent. And so part of what we're doing is controlling skyline for a longer period of time than we have historically. This industry has been an industry that is in the past gone from putting out fire to fire and tonight next strategy is putting us on a firmer footing.

Speaker 5: to plan for the longer term. So, A, I want to highlight that the contractual delivery dates, they've been pushing to the right and we'll probably continue to see that. And you see us, as you see us plan internally, we'll have some expectation of continued slipping. But make no mistake, we will make adjustments to the order book in the delivery times in a way that maximizes returns to our shareholders.

Speaker 5: And we will focus on return on invested capital in addition to our pre-tax margin and we take deliveries.

Speaker 8: Great. Thank you. It's just one quick follow-up. Just any early thoughts on maybe this proposed regulation around credit cards and, you know, maybe a cap on merchant fees. I know it's a proposed legislation, so it obviously has to go through a process, but any sort of early take on it or maybe it's a DVD. Thanks for taking my question.

Speaker 7: I'm happy to answer that, but it could be really, really bad policy for consumers in this country.

Speaker 7: um... if they bill that would eighty four percent of u.s. consumers have some kind of rewards card in their wallet uh... that all of the book and this call has been uh... and they like and i don't know why dark cussers

Speaker 7: like them a lot and so I think it'd be hard in Congress to take a vote that 84% of your voters are going to be upset with the outcome of that vote and by the way This is the kill rewards program. They would not exist anymore. We killed double-card rewards

Speaker 7: when it happens. And I think it's bad policy. And I also think it kind of misses the mark, because in the credit card, it does a couple of things. It misses the mark with small businesses. I understand the frustration with small businesses.

Speaker 7: But small businesses are actually, there's middlemen in between credit card companies, the banks and the small businesses. I think that's probably where the bulk of the issues are. Some of those middlemen charge, you know, square charges, a little of 35 basis points, and some of those middlemen are charging businesses to your 400 basis points.

Speaker 7: and if i think it probably misses the mark and then the final point would be you know it's remarkable how good the cyber security is uh... at the credit card process rate invested heavily in it it's not even replicate uh... i mean think about how many bill is the transactions are happening

Speaker 7: and then how rare breaches or problems are.

Speaker 7: And so, you know, I think this is one of those that I've spent now fair amount of time in DC talking to people.

Speaker 7: They didn't know much about it before, you know, because as it's come up, but as you talk to people about it, you know, they more and more say, well, those are a bunch of good points. We need to go through regular order. We need to do a bank exam in this. And so I think as long as we do that, as long as we examine it, can regulate order, which is the right way to pass, you know, consequential legislation, the factual win-the-day, nothing's going to happen, and it won't come off.

Speaker 1: from Conor Cunningham with Newiest Research.

Speaker 9: Hi, everyone. Thank you. Just on costs, I'm trying to understand the trends between your core cost performance and just how these supply chain transitory issues that you've laid out are kind of impacting. I realize that it's probably really hard to tell right now, but if you could just frame up when you think some of these potential transitory cost pressures may ease next year, that would be helpful. Thank you.

Speaker 5: Connor, this is Mike. Let me take a shot at that. And I will acknowledge the 4Q chasm headwind we faced versus our expectations earlier in the year. Let me try to size that.

Speaker 5: We expect to fly in the fourth quarter about three points lower than we thought just three months ago. Now, two points of that is due to Captain Upgrade issue that Scott talked about on our last earnings call.

Speaker 5: The captain upgrade issue has impacted the entire industry. We have navigated that really well at United, but it did hit us here at the end of the year. Our new contract with Alpha does fix that, and so on the horizon, we have a full expectation that that constraint goes away, but for the fourth quarter, that caused two of the three points.

Speaker 5: The other point was due to the violence in Tel Aviv and the loss of that flying. That is something that we can reposition over time and we would expect to be able to serve Tel Aviv when the violence cease.

Speaker 5: And so those three, four points coming out relatively rapidly. You can't take the costs out. That was the majority of the increase in the casm for the fourth quarter. Industry is facing other issues, but that's what happened here at United. And we expect to mitigate that in 2024 and beyond. The other issue, which I'm not sure how persistent is yet, is that maintenance costs. Maintenance costs throughout the years have been higher than we expected.

Speaker 5: At United, a big piece has been the increased need for spare parts. That's on aircraft, but particularly when we repair engines, as the work scope has been larger than expected. Some of that is related to supply chain, and it's difficult to see when that ends.

Speaker 5: I will add, and so those are the two components, majority capacity and then some additional headwinds for maintenance in the fourth quarter. We're not giving 2024 guidance at this time. The industry is facing cost pressures, inflationary cost pressures, labor cost pressures, maintenance cost pressures. What I will commit to today is that United will be industry leading in how we manage

Speaker 5: Cost convergence is a structural trend. It is what is causing the lower cost carriers and they're not lower cost for long, the low cost carriers to struggle and it is a foundation to unite it next. And so I don't know where all that's gonna settle. We will give you guidance as we would normally on the January conference call, but I will commit to industry leading chasm going on.

Speaker 9: Okay, that's super helpful. And then maybe maybe just a little bit on. So a lot of your cost stuff next year kind of seems like it's somewhat capacity related or delivery, new delivery related. And so I'm just trying to understand if you could maybe protect is there any swing capacity, excess swing capacity that you may be able to have that that could protect some of some of that growth that you have next year, that may, you know, be slowed as a result of some of these delivery delays?

Speaker 5: You're thinking about it the right way, but we are, given all the constraints, we are working to, in the incremental flights.

Speaker 5: from United being quite profitable, given the great results from our commercial team. We're gonna fly as much as we can to maximize profitability, but we do face some of those constraints. The key around the pressure of growing is you do need to hire folks on board before you actually.

Speaker 5: And so that's a headwind United faces as long as we're executing on the United Next strategy. We're going to work to optimize that.

Speaker 5: But that doesn't go fully away until you would return to a slower growth rate.

Speaker 1: Our next question comes from Catherine O'Brien with Goldman Sachs. Please go ahead.

Speaker 10: uh... you know i i noticed in in the release you called out the basic economy without fifty percent year-over-year intercubed big into a probe that

Speaker 4: You know, it's a good question. We last year facing the surge in demand, just, you know, maybe the simplest way to say it is we filled out too soon, and we didn't have a appropriate room for these basic passengers and are engaged with smaller.

Speaker 4: And this year as we get closer to you implement in all of our United next plans, we were much more careful not to fail out too soon. So our closing book and

Speaker 4: are actually quite strong, you know, it's interesting to say that as I read commentary from around the rest of the industry, that kind of says the opposite. And I do, you know, have to wonder whether one is tied to the other, obviously. But because we say we didn't sell out too soon, because we have plenty of room,

Speaker 4: And because we have just a normal booking curve for all this, we were able to accommodate the passengers in this quarter, unlike we did in the past.

Speaker 4: And with the new GAJ aircraft coming in the future, we'll be able to continue to do that, go forward. So I think that's the simplest and easily explanation as to why you saw that change in our basic economy passengers. And look, it's a product we've talked about a lot provides choice for our customers.

Speaker 4: On the low end, we have lots of products on the high end as well. It gives us the diversity we need and I think it's really allowed us to be very effectively with all of our competitors, but particularly our ultra low cost competitors.

Speaker 10: The scenes were important, the reasons why it?ed Facebook

Speaker 10: I don't think the max 10 has been certified yet, but correct me if I'm wrong. How do we think about that delivery outlook for next year?

Speaker 10: 10 maybe you would consider or, you know, I appreciate now that you guys have in the queue the contractual deliveries versus the expected, but should we expect to see that

Speaker 5: Thanks for the question, Katie. And that is what we can do as we can manage our expected deliveries versus the contractual deliveries in.

Speaker 5: size the business appropriately. The more that we hire a workforce for aircraft that don't come, that aren't delivered when we need them, the bigger that headwind is for us. And so one of the first things I need to do in my new role is to properly size.

Speaker 5: that buffer between expected and contracted delivery. So that's point one.

Speaker 5: Point two, we have older aircraft and we will push some of those older aircraft to fly longer with expected delays in delivery. I happen to love that option because that is also a return on the best of capital enhanced.

Speaker 5: And so, in the long run, we want to simplify the fleet, and those MAX 10s are going to be structurally lower cost. We're excited about them. The A321s are a fantastic aircraft. Both of those aircraft are fantastic for a network like United, where we get a real advantage out of GAGE.

Speaker 5: I expect those deliveries to really start to drive lower chasm in 2025, not 2024, and so we should understand the timing of that. But we've got numerous levers to manage.

Speaker 5: delays from supply chain and we can do a better job optimizing based on delays that are becoming a little bit more predictable.

Speaker 11: Thanks, everyone. I just wanted to follow up on the commentary earlier about you need to cater to all customers, which I totally get kind of given the broad base of the market. But obviously, we're seeing some of your peers try to push into premier or push into low end. And it's just kind of

Speaker 11: the face of it feels like specializing maybe an easier thing to go after or than trying to cater to everyone with uh... with the network in the party have so can have just just want to get a little deeper into kind of why that strategy of kind of being every any every one rather than being just maybe a full service premium network airline

Speaker 4: I think there's a really important distinction in your question that we need to clarify. We're not trying to be all things to all people within the United States or around the globe. There are a hard...

Speaker 4: of our network that don't cover every single market in the United States. And I think if you were to try and say we are going to cover every single O and D pair in the United States,

Speaker 4: the world's largest airline, that would be incredibly challenging and that is not something we're trying to do. We are trying in our hubs and all the folks who serve well from our hubs to make sure we offer a diverse range of

Speaker 4: that appeal to all the customers that fly on United Airlines.

Speaker 4: And some of those customers, by the way, fly on United Airlines for business, and sometimes those same customers fly on United for leisure, vacation, or other needs. And so they have that optionality to purchase anything from basic economy.

Speaker 4: to Polaris as part of that. And if they join Myelage Plus, they have an office, obviously a...

Speaker 4: larger chance to get upgraded into our large premium economy sections or into our first-class cabins, which are growing. So that diverse set of revenue streams

Speaker 4: I know it sounds complicated, but it is our secret recipe. It is what the market wants. It's what our customers want.

Speaker 4: And we are not trying to be all things to all people. We're trying to make sure for the customers that fly United that they have a range of product choices for the particular trip they're going to take on that journey.

Speaker 7: And I would say it as, it is more complicated. You're right. It's simpler to, you're going to only try to appeal to one niche. But the niche, the niches are small. The number of markets that exist that you can only be a low fare, low cost, commoditized player is small. The number of markets that exist that you can only be a premium airline is even smaller. And so, they're just tiny niches, and we're a big airline.

Speaker 5: This is Pylon. We fly 200 million passengers annually and those passengers fly for different reasons and they and the passengers will shift from leisure to business passengers throughout their life and so it is important that we serve all of them and we serve all of them with a product that suits their needs.

Speaker 11: That's very helpful, Culler. Thank you for that. And maybe as a quick follow-up, and apologies if I missed this earlier, there's some speculation about us potentially being at peak international right now, specifically peak transatlantic. What would you say to that, kind of going into 2024, kind of do you see enough runway? I think you said in the coming out of the summer of 2022 that 2023 would be a lot bigger and kind of had that visibility. Are you confident that that strength can continue in 2024 as well?

Speaker 4: Well, you know, I say right now, particularly today, for example, we continue to see strength across the Atlantic. We particularly see it to southern Europe .

Speaker 4: I can tell the industry does by all of our changes. And that's great to see. So we think that the trends are going to continue. As Daphne said, I did say earlier in my comments that we are going to give the Atlantic a rest. We've grown a lot since 2019 for sure. And this year will be a year of.

Speaker 4: basically no capacity growth across the Atlantic. I said I wasn't going to give capacity guidance, but clearly that's a big hint for a big part of the airline.

Speaker 4: and the other thing I've said is like the last part of the world to recover is a

Speaker 4: Uh, and that recipe is just unique to united and we're going to take full advantage

Speaker 12: That recipe is just unique to United and we're gonna take full advantage of it. I spoke to an earlier question around the, I spoke to an earlier question around the constraints to industry capacity and there's nowhere that that's more true than for wide body aircraft. In addition to that, as Andrew alluded to, but I'll just emphasize, we have the best international gateways leaving the United States of any carrier. And so this is where, as Andrew says, we were born on third base and we're gonna capitalize on that. Great, thank you.

Speaker 5: I spoke to an earlier question around the constraints to industry capacity, and there's nowhere that that's more true than for wide-body aircraft. In addition to that, as Andrew alluded to, but I'll just emphasize, we have the best international gateways leaving the United States of any carrier. And so this is where, as Andrew says, we were born on third base, and we're going to capitalize on that.

Speaker 1: Our next question comes from Scott Group with Wolf Research. Please go ahead.

Speaker 5: Hey, thanks. Good morning. So, Scott, yesterday you said that adjustments are inevitable and you expect them by the second half of twenty four.

Speaker 13: I guess I'm wondering what are you just talking about there going to be capacity cuts by the second half next year. You're talking about something bigger than that. And then when I just

Speaker 7: there's been a structural change in the industry. And the structural change is, I've hinted at this earlier in today's.

Speaker 7: I don't think air travel is a commodity. Some in the industry think it is. I do not. I think product, service, experience matter. Everything we've been doing in the last three years has been focused on improving that for our customers.

Speaker 7: That's true across the board from the premium, but all the way down to the basic economy customers, and particularly as it pertains to low-cost carriers. I think there's three things that we have done that have completely changed the competitive dynamic.

Speaker 7: First, as we're growing with higher gauge, we now have low marginal chasms.

Speaker 7: on those big airplanes. When we used to try to compete with them with regional jets, we couldn't compete. We had high cost product and we ran out of seats. We now have seats to sell on low marginal chasm, on big, growing.

Speaker 7: Second is based economy, and that is a product that is, you know, where we can be price competitive but offer a far superior product still than you can get on a low-cost carrier and still be price competitive. And the third is the pivot into leaser markets. We've added more capacity and it's done really well, you know, when we've added capacity into leaser markets.

Speaker 7: And you put those three things together. And what we've tried to do is create a product that customers will choose. And so what we've tried to do is create a cost competitive product for customers, but that is better. And so they will choose to fly United. And that is exactly what we've done. That's how you, that's why you see us have 90, you know, two airlines have 98% of the revenue growth.

Speaker 7: That makes it hard if you're someone else. I'm not gonna predict what they have to do, but if I was one of those airlines, I'd be really worried about not having a competitive product with United Airlines.

Speaker 13: You know, it strikes me, I don't think I've heard you talk so much and then so positively about basic economy in a while.

Speaker 13: It feels like a change in tone or strategy. Can you just talk about that and why it's happening now?

Speaker 7: Reflective of the competitive dynamic the demand environment just feels like a change I look I think it took us a while to work it out. It also helped that some of our competitors with the other

Speaker 3: I mean, charging people $99 at the gate and paying your employees a commission to take their persons away across the line. And so, well, they've gone one direction, we've gone the other with an improved product, but the other thing that's really changed in the last year is we finally started to get the gauge round. We could make this work when we're flying 650 regional jets around the country.

Speaker 7: And, like, that's why, like, this is all coming together. I love it when a plan comes together. This is coming together. And I know it's not reflected in our stock price yet, and the market is skeptical of it, but this is a plan that is working exactly like we thought it would. And that is the big change for basic economy. Is it a better product for us? We've figured out how to make it work, but we now have the gauge to be able to sell the product.

Speaker 1: Our next question comes from Dwayne Finningworth from Evercore ISI, please go ahead.

Speaker 14: You know, Mike, I was going to congratulate you on the promotion, but given I'm so far back in the queue. No, I'm just kidding. Congrats on the step up here.

Speaker 14: I don't want to pile on basic economy, but I did think the disclosure was kind of interesting. You called out 50% growth.

Speaker 14: Is that simply a function of kind of inventory availability? So, you know, this time last year, things were really tight and they're a bit looser this year. So we can you know, so we can we can drive that growth.

Speaker 14: And I guess depending upon the environment, you know, that that 12% of customers was also an interesting stat. So you can turn the dials.

Speaker 14: And maybe you have kind of half a Spirit Airlines within United Inventory to maybe kind of multiple Spirit Airlines within United Inventory. I'm guessing you'd probably push back on that metaphor, but maybe you could just speak to kind of inventory availability as a driver there.

Speaker 4: We'll probably save that for a more smaller conversation, to be honest. You know, what I would say is the, you know, the comps, last year we just couldn't execute the way we wanted to execute. And so, you know, it's off a small base, it creates a big percentage, but it is a meaningful change. And as I said earlier, we're going to lean into it. We have these big aircraft coming, and we're going to be more competitive in the future, not less.

Speaker 1: Elaine Becker from TD Cowan, you are unmuted, please go ahead.

Speaker 15: Thanks very much for the time. Christina, congratulations.

Speaker 15: Given I was quoted in the article, I knew it was coming. And Mike, same to you.

Speaker 15: So here's my question. As I think about the fact that we have all these infrastructure issues.

Speaker 15: especially in the New York area, that are going to persist for several years, how should we think about two things? You increase gauge, obviously, to capture the demand.

Speaker 15: But then there's a point where you want to capture higher ticket prices. So what's the...

Speaker 15: the sweet spot where you can do both, where you can benefit from capacity limitations with higher aircraft and raise ticket prices so that you improve margin.

Speaker 3: Elaine, we think about it through a different prism. We want to provide a good experience to our customers. And New York and New Jersey have not been a good experience for a decade. And the cool reason they haven't is there were more flights scheduled in the airport.

Speaker 7: We think it is a win for everyone, particularly starting with customers.

Speaker 7: To have the number a realistic number of flights that the airport capacity and air traffic control Handling those airports and we're very grateful to the FAA for for doing that for listening and and following through on that and We're anxious to serve as many customers as we can and so we are upgaging so we're buying more seats We're flying fewer number of flights, but more seats

Speaker 3: as we're outgaging. And so we're focused on delivery for our customers, and that means flying bigger airplanes. Good news is bigger airplanes also have lower cost per seat, and when the operation runs better, it's even lower cost per seat, which customers ultimately benefit from, and that's.

Speaker 15: So is the conclusion that I should have that the revenue is what it would have been had the infrastructure issue not existed and you flew more flight.

Speaker 16: But you would have had higher costs, right? This way, you have lower costs and the same amount of revenue. Is that right? And I don't know that I.

Speaker 7: kind of get into that level of detail you have in your spreadsheet. What I think is we're going to have a much better experience for customers.

Speaker 3: I think we will have lower costs because we'll have fewer irregular operations and we'll have bigger airplanes and I think that'll probably keep prices.

Speaker 7: Certainly, you know, in line to, you know, growing with inflation, be better of our customers and we'll be more profitable because we don't have all the expenses associated with disruption. And we don't have all the frustration that comes from that from customers. I mean, this is one of those few situations where it's a win-win-win for everyone.

Speaker 5: Lane, the worst thing, from a cost perspective, is irregular operations.

Speaker 4: Right. That's what surprises us. You know, we built lots of buffers into the system to control for that and with a better with better air traffic control with the airport that is passed appropriately, we can do a lot more optimization. Got it. That's very helpful.

Speaker 1: Our next question comes from Brandon Oglinski from Barclays. Please go ahead.

Speaker 17: Hi, good morning and thanks for taking the question and congrats, Mike and Christina, so I know it's been a long call. I just want to, you know, get one more in here, but Andrew.

Speaker 17: I know you're not technically got into 2024, but you also mentioned domestic capacity. I believe in your prepared remarks, we should think about it being, you know, pretty much flat, I think, in the first half of the year, but maybe you can clarify that. And what's driving that because I know under your next strategy. You did want to upgage domestically. So this in, you know, concert with OEM delivery expectations pilots commercial. I mean, what are you seeing that's driving that

Speaker 4: You know, we're still putting our plan together, so I don't want to say it's final, but and I did say in my prepared remarks that, you know, we would have, I forget the exact words, but low type of really slow growth domestically. Our commercial efforts are just focused on overseas at this point and across the Pacific in particular into the South Pacific.

Speaker 4: And so we've executed, we're actually really well in that capacity, in my opinion. And that's where I focus. As Mike said, there are a few constraints. We have OEM issues and all that kind of leads to that outcome. And we think it's the right outcome for our capacity for next year. We'll have a lot more to say in early 2024.

Speaker 1: We will now switch to the media portion of the call. As a reminder for attendees, please press pound two to enter the question queue for the media portion of the call. Please hold for a moment.

Speaker 1: Leslie Josephs from CNBC, your line is unmuted, please go ahead.

Speaker 18: Hi, good morning. Thanks for taking my question. I was wondering if you are seeing, if you can kind of put into context how many requests for status matches you've seen since Delta made those changes last month. And then also on your push to premium, can you talk a little bit about the supply chain currently and how far behind you are on upgrading those cabins and when you expect things to catch up?

Speaker 4: Sure, if you look, I'll give a little bit of commentary. Our status matches up dramatically. Yes. It's dramatically a big number.

Speaker 4: So that's all I'll say on that front.

Speaker 4: In terms of the signature interiors, we are definitely facing some constraints, but I'll pass that over to Toby, who runs the program for us.

Speaker 19: Thank you, Andrew. I think we're about a year behind, but the good news is that we're still picking up new deliveries, so we're right now flying about 120 airplanes that have the new interior design, which we got the new lasers, and which is really good for us operational as well, because there's space for one bag for each passenger, so no bags have to come out. So that's probably the biggest thing. So I think right now we're targeting 2026 for 100%.

Speaker 7: And let that just add though, this is another one of the things that United got right. Very nervous. We believe back in 2020 that there was going to be a full recovery of demand.

Speaker 7: and thought that the pandemic, and the time that was represented, it went in history opportunity to get prepared and invest for the future. So two of the things we did was get ahead of the curve on we built more plus space.

Speaker 7: So we now have 49% more clubs space than we did before the pandemic. And we just opened our two largest clubs in our entire system that are great for customer feedback. It's awesome. One in Denver, one in Newark. So we plan to head for this.

Speaker 3: And while the signature interiors are behind, we today have close to double the number of premium seats that we had pre-pandemic. So, you know, this is a team that started back in the summer of 2020 to prepare for the recovery and premium demand. And that's the reason I understood in his remarks, we don't need to change our programs and do anything because we prepare for this.

Speaker 18: Okay, and on the other end of the spectrum with basic economy, are customers just buying that because they're more price sensitive now, or, and I wasn't sure if 50%, like what percentage of your revenue is basic?

Speaker 4: economy. Leslie, I would say it's likely a lot more a share shift, that in the previous quarters and years, we didn't have the large-gauge aircraft to accommodate all the different ranges of passenger types and product types adequately. And we are now just beginning, but we have a lot more flexibility, and we're able to accommodate those passengers, and it happened. And I think I would describe it as probably a fair amount of share shift.

Speaker 1: To the next caller, Mary Schlangenstein from Bloomberg News. Your line is unmuted. Please go ahead.

Speaker 12: Thank you. I wanted to ask you about the situation in Israel and whether you are assessing the potential for that to spread to other areas and perhaps even to some areas of Europe where you may have to cancel more flights because people might be poking away over worries. And if you're seeing any of that already, where that's shifted to other countries or other cities that you serve. We're not seeing that at all.

Speaker 13: Yeah, hi, good morning, everybody. Thanks for the time today. I wanted to go back to Scott's point about the industry landscape changing. And I was hoping that you might be able to elaborate a bit on that where

Speaker 5: You know, if we're facing a situation where every American chooses to play Delta and United, what does that suggest where, you know, for the rest of the industry, as far as?

Speaker 20: you know other players do they become smaller more niche or there are just too many airlines out there i just wanted to see if you can expand on on what that suggests over time

Speaker 3: I don't think I would suggest that, but I think what we are proving is that customers care about quality, product, and service. And I think because of that, the airlines that succeed are going to invest in quality, product, and service. And if you don't do that, you're going to fail.

Speaker 5: And Justin, I'm going to jump in on this as well. What has changed is cost convergence, right? At this point, we're able to provide incremental seats to our customers at a price point that is competitive with the ULCCs, and we provide a better product. And so customers are choosing to fly a better product at a similar price, and we are just getting started.

Speaker 20: Right. No, I fully understand that. I'm just thinking, if you play that movie out, what does that suggest for the competitive landscape in two, three, four years, if those trends continue and things don't continue as they have been? That's a question for the

Speaker 1: I will now turn the call back over to Christina Edwards for closing remarks.

Speaker 2: Thanks for joining us all today. Please contact Investor Media Relations if you have any further questions, and we look forward to talking to you next.

Speaker 1: Thank you all. This concludes today's conference and you may now disconnect.

Q3 2023 United Airlines Holdings Inc Earnings Call

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