Q2 2025 United Airlines Holdings Inc Earnings Call
Good morning and welcome to United Airline Holdings earnings conference call for the second quarter of 2025.
Krista: My name is Krista and I will be your conference facilitator. Today.
Krista: Following the initial remarks from management. We will open up the Lions for questions at that time. If you have a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw your question, again, press star 1
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Speaker Change: I will now turn the presentation over to your host. For today's call, Christina Edwards, managing director of investor relations. Please go ahead.
Christina Edwards: Thank you, Krista, good morning, everyone and welcome to United's second quarter 2025 earnings conference call. Yesterday, we issued our earnings release which is available on our website at IR, united.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, which 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 FCC by United Airlines Holdings and United Airlines. For more thorough description of these factors.
Christina Edwards: Unless otherwise noted, we will be discussing our financial metrics on the non-gaap basis on this call. Please refer to the related definitions and reconciliations in our press release.
Christina Edwards: For a Reconciliation of these non-gaap measures to the most directly comfortable Gap measures, please refer to the tables at the end of our earnings release.
Scott Kirby: And Outlook are chief executive officer, Scott Kirby Executive, Vice President, and chief operations officer, Toby and quit, Executive Vice, President and chief commercial officer, Andrew nasella and Executive Vice President and Chief Financial Officer. Mike leskinen. In addition, we have other members of the executive team on the line available for tuna and now I'd like to kick the call over to Scott.
Scott Kirby: Thanks Christina. Good morning everyone. Uh, second quarter was yet another proof point that the United St, next strategy continues to work and it's a 2 brand loyal, Revenue diverse Airlines. Continue to generate the bulk of Industry, profits, I'm extremely proud of the team for executing a strong operation and navigating through a Volvo macro period and the unique short-term issues that impacted United New York, while still managing to grow earnings and margins for the first half of the Year New York face unique challenges this quarter. But with the help and Partnership of the FAA and Dot, it has rebounded, stronger, and has been the best performing airport in the New York City area. But I know that everyone including us cares more about the future than the past. So I'm going to start today with the 2 macros of our industry supply and demand.
Scott Kirby: For our supply perspective, it's deja vu all over again. This is almost the exact same setup that we had a year ago. At this time, with weak rasim results across the industry leading to supply Clips starting in mid, August leading to better margin results, which then led to strong stock price performance.
Scott Kirby: But demand also matters in this equation. And demand while it's stabilized was about 5 Points weaker in the first half of the year than we were expecting at the start of the year as we've looked closely at the data, we've had a hypothesis. It seems increasingly correct demand was weak for the last 5 months due to a high levels of uncertainty for both businesses and consumers. I'm sure that's not a shocking thesis. But in the past few weeks, the level of uncertainty is decline.
The tax situation is settled after the reconciliation bill passed, the geopolitical situation in the Middle East, appears to have stabilized. And while tariffs are not yet certain, I think the market most businesses have a much better read on how they'll manage in a narrower range of outcomes and encouragingly that higher level of certainty has translated into a meaningful inflection point in demand. It's only 3 weeks worth of data and it will give you more detail, but as uncertainty as declined, we've seen an improvement in book Revenue, including a double digit acceleration in business demand.
So to summarize, the macros Supply is adjusting once again, just like it did last year and demand feels to us like it is inflected upward and is returning toward the normal trend line. We expected at the start of the year and bigger picture for United the industry and United industry specific transformation transformation we've been discussing over the last few years continues to play out 1 Revenue diversity and that includes basic economy just as well as premium is the only formula that works in the US to have industry-leading margins 2. The 2 brand loyal Airlines can
Scott Kirby: Continue to just gradually win, share a quarter of a quarter and the advantages that we have are structural permanent irreversible and they're growing and it's simply not practical to copy them 3 cost convergence specifically at the high cost airport is making the economics of flying at those airports for low-cost carriers very challenging for what it's worth. The only remaining successful LCC around the globe in my view is Ryan are and guess what? That's because they're the only LCC that stayed true to their founding principles and don't fly to high-cost airports like London Heathrow or Charles de golf.
Scott Kirby: 4.
And all of that is gradually leading Airlines to focus on their comparative advantages. It's often 2 steps forward and 1 step back, but the content Trend continues to be towards each Airline. Flying more and more in places where they have relative strength and shrinking in places, where they're at a disadvantage that, of course, is just basic economics, but it's happening. And because it's just basic economics, that trend is going to continue for years to come. So, to conclude I'm proud of the team for overcoming the macro and Newark environment. The first half of the year, we had high confidence that the supply changes were coming, but it's good to actually see them, but I'm also encouraged that the demand environment appears to have inflicted back towards the trend line. We were expecting to start the year, typically, I would now leave it to Brett to speak next, but he's not able to join us for the call today. He recently had a pre-planned surgery and is on the road to recovery. We're looking forward to having him back soon. So for today's call, I'll hand it off to Chief.
Operations officer, Toby and Chris.
Scott Kirby: That's why cementing the progress. We have made over the last couple of months to improve the resilience of our New York operations. It's a huge priority for the United.
Scott Kirby: And the start of the second quarter, our New York team of thrust into the middle of a perfect storm, a string of FAA, technology outages combined with New York's ongoing Runway construction, and the FAA Staffing. Shortages, drill cancellations and delays, impacting customers perception of the reliability of the airport.
Scott Kirby: Those perception that and the extensive negative news coverage of the situation at Newark Airport drove meaningful book away and low Factor struck 15 points following the event.
As a result of the book away and capacitor reduction Q2 margins were impacted by approximately 1.2 points.
We expect that the impact will linger into Q3 with an approximately 1 Point, margin impact. But here's the key takeaway and it's really good news. We have already seen a dramatic turnaround in Newark, bookings, have larger recovered and we don't expect any impact in Q4 because New York isn't just back to normal, it's running better than ever. In fact, United's operation at New York. Have a few cancellations and most on-time flights of any airport in the New York area. In the month of June. The airport now is actually operating within its capability and our team is back to running an operation, that delivers a great experience for our customers.
Scott Kirby: These photos changes that made it possible.
Thanks for the great work of the poor Authority in New York surrounding construction was completed 2 weeks, early and the runway reopened on June 2nd.
Scott Kirby: The FAA was able to upgrade their feet, fiber optic technology. And perhaps the most importantly, the FAA implemented badly needed hourly flood caps to prevent the airport schedule from exceeding its capacity.
Speaker Change: New York has had a schedule and capacity problem that we have been urging the FAA to fix for more than a decade and thanks for the leadership shown by secretary. Duffy we now have the line of sight to a longer term solution to this problem.
Scott Kirby: It's likely, we will look back and find that this long-term capacity fix is the most important and positive outcome for the traveling public.
Scott Kirby: What happened in New York in April and May is also evidence of the broader need to improve our nation's atpc infrastructure. United was deeply engaged with secretary Duffy and the FAA who successfully advocated for the 20, the 12.5 billion in funding that Congress. Just passed earlier this month, to begin the long overdue process of rebuilding, our outdated ACC infrastructure.
Much of this funding will go towards upgrading copper wire to Modern fiber optic cables, to help reduce the hundreds of outages, the FAA experience across the ATC system.
Scott Kirby: We look forward to working with secretary Daffy and leaders in Congress for the additional funding needed to fully update. Our ATC technology,
I actually ran Newark Airport for United from 2011 to 2014. So I know the airport really well, and I'm more optimistic about the United Future there that I've ever been, because Newark never been better positioned to operate, reliable and profitable than there is right now.
Speaker Change: From the FAA to secretary, Duffy to Governor Murphy, to the New Jersey Congressional Delegation to the poor author of New York, New Jersey, lots of people deserve credit for this turnaround.
Speaker Change: But our team on the ground at New York to serve the most, they're a professional resilient focused and committed despite challenges that were out of their control. They showed up day after day and delivered for our customers and 1. Another
All across the system, the United operation and continues to fire on all cylinders and continues to be a big reason. Why our Airline is thriving ranked number 2 in the on-time departure among the top 8 US carriers even though we operate in the toughest markets in the world all while managing record, high customer volumes including the busiest travel day in United history with over 611,000 passengers on June 22nd.
We also had 1 of the lowest second quarter seat cancellation rates in our history. This operational strength played a key role in supporting our strong MPS performance in the quarter, our highest Q2 MPS since the pandemic
Thank you today. And how United Team for delivering a fantastic second for a result. I will now hand it over to Andrew to talk about the revenue environment.
Andrew: Thanks Toby.
Speaker Change: United's Topline Revenue, increased 1.7% to a record 15.2 billion in the quarter Consolidated, Tran for the quarter was down, 4% on a 5.9% increase in capacity, adjusted for events. At Newark, We Believe United traven would have been 2 Down, 2 to 3%. And our EPS would have been at the high end of our guide. This outcome for Q2 comes during the highest level of geopolitical and macroeconomic uncertainty we have seen in years.
Speaker Change: International flying outperformed domestic yet again, but aerosim, decrease of 1% compared to a domestic decrease of 7.
the United specific operations, continued, their impressive results to a positive aerosim growth in Q2 across most destinations,
we look forward to new service to Thailand Vietnam and the Philippines starting a later this year subject to government approval.
Speaker Change: Year-over-year. Unlike an off-the quarters pushing Atlantic ryzen Tire in Peak period has proved more difficult in part. Due to the spread of leisure demand to usually lower demand periods. Margins in these historically off peak periods are up while margins in Peak months which are still high are down.
Premium cabin revenues were again, strong in Q2 increasing 5.6% year-over-year while The Economist was negative.
Speaker Change: Overall premium raisins were 6 points better than non-premium. It's nice to see once again that the premium capacity remains resilient given the consistency of these results. We plan to further lean into premium products and capacity in the coming years.
Speaker Change: Cargo performance is strong what Revenue up 4% year-over-year on record volumes and loyalty revenues had another strong quarter with revenues up 9%.
Speaker Change: Now, turn into our outlook for Q3 and the rest of the year.
New York's negative impact on booking in Q2 for Future. Travel are expected to have a temporary impact on Revenue results in Q3 of about a point.
Speaker Change: The good news is Newark share of New York City sales has now largely recovered in July along with the reliability of our flight operations. Passengers can now book with confidence New York sales
Speaker Change: Returning to normal for United are critical to our Revenue performance. However, in addition to normal New York sales volume, we are seeing a step down in published industry capacity. Later this Summer that we believe will be a positive for United published industry day, domestic capacity for August and September indicates slightly less capacity year-over-year. When just a few months ago, it was published at up almost 4%
Low margin Airlines without string, strong brand loyalty and diversified revenue streams are cutting unprofitable flying. We believe this is always an inevitable outcome and outcome that we expect will be beneficial to brand loyal Airlines with much higher margins and will diversify networks and products.
Speaker Change: A great reset. We see from the low margin Airlines today makes sense for them. But in no way, do we expect them to match? What we offer consumers today, plus what we have planned in the future, we have a large lead and we intend to maintain that with further innovation.
Combined and normalize New York sales along with less overall industry capacity sets up an improved Revenue backdrop.
Speaker Change: However, the most important develop development for revenues is that the overall demand environment recent United and Industry sales data confirms a demand environment that has inflected positively in recent weeks due to this less macroeconomic uncertainty just as quickly as demand stepped down in early February due to this uncertainty, it appears that demand is now stepping up this Step Up is a 6-point POS.
Speaker Change: Positive swing in sales to date in July versus the second quarter. But even more importantly a double digit swing in higher yield in business revenues in the same period domestic ticket sales are now also shown positive year-over-year yields reflecting this improved demand environment for the first time since February.
Speaker Change: For us, we believe these 4 factors of New York performance industry capacity, demand, improvements and positive. Domestic yields makes the setup for posts summer 2025 very similar to the period in 2024.
Speaker Change: As you recall the second half of 2024 setup created, a very good outcome for Q4 and a nice run up in our stock price.
This significant positive momentum in sales in recent weeks is nice to see, but it is really important to draw a distinction between bookings and flown Revenue as we look at Q3 recent book and strength does not change the fact that 50% of third quarter sales were sold. As of July 1st, prior to the changes in sentiment, along with the unique impact of temporary lower demand for New York on United Sales.
The setup for Global client. Also looks much better as we head into Q4 for United. Q3 your lives, the most on the segments of the business that have been the weakest in 2025 offshore sales and main cabin sales.
As we head into Q4 we historically rely more on onshore business and premium demand which makes Q4 have a better Outlook in the current environment.
Our early look at Q4 Global yields and booking supports our view, but we still have a long way to go in. Q3 rasim will likely be negative year-over-year in summary book and strength is now translates into stronger, flown revenues and raisins later in Q3 and Q4 this recent sales momentum along with about a point of negative impact on New York and Q3 Horizon gives us confidence that the implied rasim step up from Q3 to Q4. We have in our internal Outlook is quite achievable and maybe even conservative
To Tel Aviv soon.
Speaker Change: We plan to resume Tel Aviv service. Initially, just from New York on July 21st and hope to include other gateways later this year.
Building domestic community at our hubs continues to be 1 of our largest focuses for 2025 and 2026. As we recreate, when in schedules and ultimately larger pzm rasim premiums versus others in the process. We believe this connectivity effort combined with larger gauge nearby jets. With more premium seats will narrow significantly. The margin gap between our domestic and international clients
United has grown its relative Tran by 7 points, more than the industry since 2019 and faster than any other carrier. Since of the next pandemic as evidence that our plan is working. And not all capacity is created equally
Speaker Change: Brand loyalty for United is increasing with documented share gains in q1. In each of our hubs United's revenues are more diverse than ever. And in the process our product Choice range gives customers more choices for the experience that they desire. United plans to introduce the Polaris Studios sweet later, this year another step in increasing our premium capacity and revenue diversity. We also look forward to building our Blue Sky, collaboration with Jeff blue later this year to help create a more competitive alternative for United customers and Mileage Plus members in New York City along with Boston. We also look forward to returning to JFK in 2027 after a long absence with a competitive schedule.
Speaker Change: Had a built-in free complier base.
Speaker Change: In summary. We remain bullish about the future. Given less macroeconomic uncertainty. We are seeing plus scheduled capacity changes, by the low margin Airlines later, this summer, The inflection of bookings and yields, we've recently seen gives us great confidence with that. I want to say, thanks to the entire United Team for running a great airline in Q2 at. I will hand it off to Mike to discuss our financial results.
Mike: Thanks Andrew. I'm very proud of United Team. This quarter, we Face several geopolitical challenges that impacted both fuel prices and customer customer demand, while also managing through the Newark difficulties Toby discussed earlier
Mike: And despite all of this, we delivered earnings per share of $3.87. Well, within our guidance range and a head of Wall Street, expectations of $3.81,
Mike: I'm very pleased with these results and want to highlight that if we excluded the financial impact of the New York disruption, we would have been the high-end of our range.
This is another proof point that our United next plan is working.
Mike: In fact, I'd go as far to say that our plan has worked.
Mike: The industry has transformed into a healthier industry where customers are brand loyal and increasingly. Choose to fly, not just based on the schedule, but also based on their preferences for reliability, for clubs, for technology, and for loyalty programs.
Mike: The industry now has 2 brand loyal, structurally, profitable and revenue, diverse Airlines, which has driven much of the rest of the industry, to cut money, losing capacity to return to profitability.
This is irreversible. And will lead a stable double-digit margins for United Airlines?
Mike: Turning to costs.
Mike: We continue to run better than plan and I'm pleased with the 2.2% chasm. X growth. We delivered in the second quarter.
Mike: You've heard me say that the best way to manage costs is to run a reliable airline in this team continues to deliver.
Mike: I expect similar cost performance for remain for the remainder of the year.
Mike: As we look to the third quarter, we expect continued stabilization in the geopolitical environment.
Mike: This is already driving stronger. Bookings, and is Andrew discussed. We're optimistic. Those Trends will continue.
Mike: Taking that into account along with the continued strong cost performance, we expect third quarter EPS to be between $2.25 and $2.75.
Mike: Consistent with what happened last year. We also expect the industry to continue to reduce money losing capacity in domestic, markets, Beyond, September,
Mike: This adds to our confidence in the fourth quarter and may even lead to upside as we continue to believe in our past double-digit pre-tax margins longer term.
Mike: For now, we expect full year EPS to be between $9 and $11.
turning to the balance sheet, we ended the second quarter with 18.6 billion in liquidity, including our 3 billion undrawn revolver
We generated over 1.1 billion of free cash flow and importantly on July 7th. We paid down the remaining 1.5 billion balance of our Mileage Plus bonds 2 years early.
Mike: This was our most expensive remaining fixed rate, debt.
This prepayment along with the prepayment of the Mileage Plus Term Loan. A year ago, fully unencumbered is the Mileage Plus business, a crown jewel, asset of United.
Billion dollars.
Mike: Strengthening the balance sheet, remains a top priority and we target net, leverage below 2 times and continue to work towards investment grade.
With this prepayment, we've now reduced our gross debt by almost 11 billion dollars. Since the peak debt level of Co
Mike: our average cost of debt is now 4.7%
Mike: On the buyback, we were purchased 235 Million worth of shares at an average price of 66 during the quarter.
Leaving 80029 million in authorization.
Mike: We will continue to take a balanced approach to our Capital, allocation strategy, our shares, continue to trade below our view of intrinsic value. Therefore we are balancing the level of buyback. While also pursuing our leverage Target
We ended the second quarter at 2 times net Leverage.
Free cash flow generation also remains a priority and we now expect to generate over 2 billion in free cash flow for the year.
Mike: In conclusion, our remain excited about the future of the United Airlines and we will continue to work to deliver on our financial commitments.
Mike: Despite the headwinds we face in the first half of the year, we delivered significant growth in EPs and we feel very good about the core fundamentals of our airline in the second half of 2025 and Beyond.
Christina Edwards: Now, back to Christina to start the Q&A. Thanks Mike. I I feel that excitement. We will now take questions from the analyst Community. Please limit yourself to 1 question and if needed 1, follow-up question Krista, please describe the procedure to ask a question.
Speaker Change: Thank you. The question and answer session will be conducted electronically, if you would like to ask a question, please press star 1 on your telephone keypad and if you'd like to withdraw your question, again, press star 1
Please hold for a moment while we assemble. Our queue.
Speaker Change: In your first question comes from Todd, witz with UBS. Please go ahead.
Speaker Change: Uh, yeah, good morning. It's Tom wits, uh, from UBS. So, um, wanted to, uh, ask you a bit on the call side performance mug, I think your comments were pretty favorable, obviously the 2.2%, uh, Chasm Max and 2q was very good. Um, how do we think about that going forward? And then I think there was, there was 1 particular expense item that seemed a bit lower than than kind of normal. The, the distribution expense was, uh, down quite a bit year-over-year in sequential, which seems, uh, different than normal. So, I don't know if there's some, you know, something that's kind of a 1-off helping you there or just more on the cost side and how you keep the, uh, strong performance going on that. Thank you.
Speaker Change: Hey, Tom. I appreciate the question and I'm I am really proud of the cost performance. Um better than I certainly expected back in January. Uh, I want to be clear, we expect similar cost performance to Q2 in both Q3 and Q4, uh, for 26 and Beyond what you, you'll have to wait as we continue to work on budgets. Uh, distribution expense, does continue to come down as more customers are choosing to go through the direct channel. So I do expect that long-term Trend. Uh, we did get some benefits this quarter, uh, that that has some puts and takes that brought that down even more in the second quarter. But longer term distribution costs are headed lower. And we're really proud of that result as well.
Speaker Change: Okay yeah that's great. And then for the follow-up just on demand, you had some really helpful commentary. Um are we back to January levels on demand or we're kind of on the way back there? Or how how do we kind of reset to say okay in July with Newark recovery and a little bit of stabilization kind of, you know, just where where we at
Speaker Change: Hi, it's Andrew, uh, look, you know what we said is there's been a 6-point inflection versus Q2. Um, it's and, and, and even stronger inflection for business traffic during that time, period. Um, you know, there's there's a lot of machinations with the numbers prior to that. But I, I just think from where we are standing today, uh, we're really pleased by that change in direction of bookends combined with, uh, less capacity, uh, starting in August and September, uh, and then some more favorable key for environment. So,
We do think it's a it's a nice step up uh and hopefully conservative based on where the bookings are recently been, but uh it's it's a good change in Direction.
Great. Thank you.
Speaker Change: Your next question comes from the line of David Vernon with Bernstein. Please go ahead.
Speaker Change: Thanks Dave, really appreciate the question. Um, look, we've had a philosophy here at United. The guide conservatively, uh, to build in 1 act of God. Um, because this industry you know, things happen, fuel prices Spike. There's uh, there's an ebb and flow in tariffs. There's lots of, uh, lots of things that change. And so it is important to us, we deliver on our commitments. And so, as you look at that 9 to 11 for the full year and what's implied by the second half, uh, we, we are consistent with our philosophy of, uh, of building in that act of God, if you go back to the end of the first quarter and the call, uh, we talked about the 2 ranges, the world was highly uncertain at that time, and I was very clear at that time that the higher range, the 1150 to 1350 that there was no contingency left. That, that, that piece of the guide was not consistent with the with any more acts of God, that would would impact us. But I'm very excited, the bookings over the last 3 weeks have been very strong. And if uh, if everything continues on that trajectory, I think the 9/11 will prove conservative
Speaker Change: All right, thank you for that. That's helpful. Um and then Andrew you mentioned um sort of looking at the the implied rasim stuff up you're getting for the 32 to 4 q. Um, maybe maybe also being a little bit on the conservative side. Can you kind of frame kind of what the what the the levers are in there that you're thinking might actually do better than what we're seeing right now? Is it is it in Maine cabin? Is it an acceleration of business? Kind of help us think through like what what that what are the drivers of that step up from 32 to 4 q and and
Speaker Change: Where are the things you're, you're you're more versus less certain on. Thank you.
Speaker Change: Well, the the most certain thing is what uh, you know, the other airlines have published or schedules in August, and September which now, you know, just a few weeks ago, we're showing plus 4. And now show negative for domestic. And so I I, I think the, you know, demand environment. I just talked about the ability for business traffic to rebound, which kind of changes the yield profile. I said, you know, we were booking negative yields for a majority of the year and those have now flipped positive for domestic. So when you take lower demand positive yields and this, you know, pretty strong inflection in business demand for United. Uh, that that's the reason I feel really great about the setup for Q4, you know, as, as you said earlier, it's very deja vu in some of these circumstances to what we saw last year, uh, which was a pretty significant step up. So we, we anticipate the same based on what we see in public schedules based on demand based on yields and based on business traffic.
Speaker Change: All right. Thank you, guys. Thanks for the time.
Your next question comes from the line of Jamie Baker with JP Morgan. Please go ahead.
Jamie Baker: Oh hey, good morning everybody. Um, this 1's, probably for Scott. Um, your primary us competitor has a significant non-union, labor construct. It's got 1 of the most efficient hubs in the country.
Jamie Baker: It's got a sizeable mro, it's got perhaps the most evolved relationship with its loyalty partner and you know, to to your credit Scott. I mean you've spoken publicly about, you know, holding Delta and high regard. So my question is, what are the catalysts
Jamie Baker: That potentially allow United to overtake. Delta margins in coming years. Is it structural is it simply brand preference or or perhaps you reject the premise that you can have the industry's highest margins? But I doubt that that's going to be your answer.
Jamie Baker: you know me well Jamie
Um, it's been a good run. Uh, I I I appreciate the question. Um, I'll but
Jamie Baker: What I'd say is, I do respect Delta, uh, in fact, you know, on a conceptual level, much of what we have been trying to do for the last 15 years at the airlines have been at um is when brand loyal customers and I think they were the first airlines. Maybe the first in the US to really prove that that Winnie brand loyal Airlines was the winning formula. Uh William Brown little customers was the winning formula for Airlines um but my focus is entirely on returning United Airlines to solid double-digit margins and higher absolute margins. Um as opposed to what we do relative to Delta, I think we are the only 2 airlines that have a shot. It was only 2 brand loyal Revenue, diverse Airlines. Um, I think that is structural. It is permanent. We can talk in more detail about why it is not
Cities, we have better, International gateways in San Fran Newark and Dallas in particular. Um, so I think those are going to largely balanced out. We're going to wind up with similar margins, um, but I'd much rather us have 13% margins in Delta have 13 and a half. Then us have 10 and Delta have 9 and a half and everything we're doing. Um is 100% focused on winning brand, oil customers. Um, and creating a great airline that customers are going to choose to fly because that is going to maximize our absolute margins. And this quarter is another like this first half of the year. It's remarkable to me. Everything that's happened this year that we've grown earnings and margins for the first half of the year. And our guidance is for Earnest to be down a little bit this year. Um, given everything that has happened. But, you know, we have a shot at actually growing earnings this year, which would be a truly, incredible result and proof Point. Um, that when a brand loyal customers was the right strategy. We started at a
Jamie Baker: long time ago, you can't flip it overnight. Um, the 2 of us have the right strategy and we are going to generate the bulk of the industry profits.
Excellent, thank you. And then quickly from Mike, you know on the Loyalty pay down.
Jamie Baker: You know, Streeter and I, you know, certainly get that it was your, you know, highest cost prep, payable debt, makes total sense from a, you know, Financial perspective but we keep circling back and asking ourselves. If should we you know, if we should be thinking about that recent transaction through more of a strategic lens,
Can you afford any perspective on that? Thanks in advance.
Jamie Baker: Miles plus is a crown jewel asset for us. Um, and we're absolutely thinking about the the, the value of that business the multiple business with the resiliency of earnings that are a little too business has is significantly higher than the historical average for the airline industry and that's not lost on me.
Uh, my focus at this time is to provide segment disclosure. So there's more transparency on the earnings, the resiliency, the earnings growth of that business. And we're working very hard to get that segment disclosure to the market, uh, some at some point next year, uh, that's my focus. Uh, if our if the value is not recognized, we we are certainly will take more uh, more drastic steps but the Focus right now is only segment reporting. Um, the unencumbered of the business does give us optionality.
Jamie Baker: Excellent. Thanks so much, Mike.
Your next question comes from the line of Conor Cunningham with Malia's research. Please go ahead.
Speaker Change: Hi everyone uh maybe to piggyback on Jamie a little bit here, Scott last third quarter or last year's third quarter. You talked a lot about the industry being on the path of the the 2012 to 2014 cycle, you know, with the margins doubling, you know, clearly the the the environment kind of started off more challenging this year and some of the, you know, some investors kind of have an advantage that narrative but I was just curious on how you view your thesis now. And what may have may have changed uh since the start of the year or really what you've learned uh and how that's been applied to to that thesis in general, thank you.
Speaker Change: Sure, I think the thesis is intact, what's different is, is what changed with demand this year? Um, the thesis is really a supply thesis, that's what you can control, and that's what happened in 2012 and 2014. But 2012 to 2014 was in a backdrop to of a, a stronger, uh, demand environment. And this year, uh, demand has changed demand and collected, downward shortly for the first 6 months of the year, uh, given everything that's happened, you know, all the uncertainty in the world.
Speaker Change: At least that's my theory of what happened. Um and it started to inflect back positive. Now it's not all the way back to what it was. Um, you know, the business manager covered, it's not all the way back, um, but it is certainly, uh, inflected in a positive direction and, you know, sort of my read of the economy and talking to other CEOs and just watching the data is that the economy, hit a turning point, did hit an inflection point, um, at the end of June, and I expect it to continue, uh, that to continue. I think the supply portion of that 2012, um, is firmly intact. Um, I think demand is on the road, you know, demand has ups and downs, that always happens. Um, it is on the road to recovery. I think, 1 thing that's becoming even more clear though is is also the strength. The the dispersion of results in the industry and the strength of the 2 brand, oil Airlines, um really winning um and everyone else losing. And if I dig deeper into it and I look at every Airline that's not named United.
Speaker Change: and the only way for them to get margins that are anywhere close to their
Speaker Change: whack uh is to stop Flying places that lose money and that is going to ultimately happen. I don't think it's going to happen tomorrow. I don't think it's going to happen in the near term um but I can look at how much money is being lost route by Route. Um and know that economic gravity is ultimately going to win. So I I think actually
The results are going to in total. The industry is going to go on the same place for Supply, but the results for the 2 winning Airline Airlines um are going to be outside in that environment.
Speaker Change: Awesome. Appreciate that. And then
Speaker Change: Um, maybe Andrew last quarter, you talked a little bit about taking the Reigns on on industry, uh, still traffic, you know, obviously, you know, just giving the changes and opened up basic economy a little bit sooner, but you're, you're, you're being pretty clear about what you're seeing in July, so I'm just trying to understand how you're managing, uh, basic economy versus, you know, other products out there, just print them out from a couple months ago. Thank you.
Speaker Change: Sure. Uh, you know, I I, I think the demand environment is what we said it was over the last 90 days. That's infected, uh, much positive, much more positive today, but that did create a setup for Q3, uh, which means, uh, you know, more open RM systems. I don't think that's going to be unique to United, uh, particularly in the domestic environment, uh, and that, you know, has created some more, uh, lower yields and has created, I think, ultimately, uh, when we report more penetration basic economy passengers in our number,
Speaker Change: Uh, for for the next 90 days, this quarter. So expect expect a higher percentage of basic, uh, is my take, uh, as we go through the next 90 days.
Speaker Change: okay, thank
Speaker Change: your next question comes from the line of Andrew dedora with Bank of America. Please go ahead.
Hi, good morning everyone. Um, it's my first question probably for Andrew. Um,
Speaker Change: I never think of summer as being the the time for corporate demand to meaningfully accelerate. So any any kind of color you can provide on what you're seeing there, any specific geographies or industry verticals driving this
Um and our are you seeing like the level of corporate bookings returned to the levels? Seeing that you know end of 2024 early 2025? Uh right now, thanks.
Speaker Change: Well, first of all, you know, we're comparing year-over-year. So we're comparing summer over summer and and we're seeing that strength in the numbers, which is nice to see. So I think it is consistent um, with a summer environment which is again. I see second point, which I think is particularly important is the strength we're seeing is uh, across all of our hubs and uh different verticals. So we're we're seeing a rebound across the board which I think reflects the commentary earlier about less macroeconomic uncertainty. Uh so we have a obviously a very strong recovery in New York. Uh we're not fully recovered yet from a business point of view. Uh but that's moving along but the fact that the non New York business for United,
Speaker Change: Over the last few weeks has been almost as strong as in New York, is 1 of the reasons, I'm particularly excited. I I do think, uh, this reflects customer Choice, corporation's choice, and our relationship with travel agencies. Uh, that we are being chosen, more and more often. But the fact is is and the most important part of this Quest, our answer is the fact that the growth we're seeing and, and business traffic is the board. It's not in any singular hub.
Speaker Change: Great. That's that's helpful. And then my second question for either you and your or Scott if you want to chime in just on this whole industry capacity. Dynamic, you know, what do you think we've been in this position a lot over the last few years, basically sitting here in the peak summer and seeing the, the need for capacity Cuts coming in in sort of the off peak? Once we hit, you know, post, you know, post August into labor day. Why do we not see more of this capacity? You know, call it discipline more in the first half of the year or in other off peak periods just curious your thoughts on that. Thank you.
Speaker Change: Sure, I'll give it a try. Like the, you know, there there's as as we've said a lot. Now there's really distinct carriers out there with distinct demand uh situations. Um, and so for the Leisure oriented carriers that are also spill oriented carriers, which is a lot of them, I think it's become really obvious, uh, very, very quickly that in the lower demand off peak periods. It's, it doesn't make a lot of sense to push the aircraft very hard. Um, and a lot of airlines uh, across the industry, I think just simply have lower utilization. Um, you know, give
Speaker Change: 10 p.m. flights. Um and and you know it's it's pretty obvious that you know, you you you know we we at United do not do that. You know I talked about the golden hour uh flying which is 700 mm to 8 PM. I think our goal now our percentage is the highest of any us carrier over a 12-month period there changes from month to month. Um and I urge you to, you know, pull that number and you'll see that each airline has a different strategy when it comes to this and we'll see where the industry is a year from now.
Speaker Change: Great, thanks for your thoughts.
Speaker Change: Your next question comes from the line of Scott, group with wolf research, please go ahead.
Scott Kirby: Hey thanks. Good morning. Um, so I'm just wondering, is there any way to quantify? Maybe how, how much of the 6-point Improvement you're talking about is tied to Newark and how much is Just broadly and then the the implied Improvement in in fourth quarter, uh rather than is that more of a domestic or International just any color there?
Scott Kirby: Uh, definitely, uh, I think a domestic Improvement as we move forward, given the capacity environment, um, 6 is broad-based. So, uh, New York is better, uh, uh, obviously than that number. And then the rest of the the network is below 6.
Okay. And then maybe Scott I didn't hear anything today about JetBlue and blue sky. Uh, maybe just how you view that sort of driving, your longer term views around where margins and everything can can go.
well, Andrew had it in his script um but uh you know I I think
Scott Kirby: It's important for us. Um, we we've become the premier flag, carrier of the United States, um, and being able to be in JFK, um, it's hard to really complete that. Um, unless we're there a lot of customers, you know, them by some of your neighbors that, uh, fly out of, you know, I'm flying on both sides of the Hudson. Um, and it's important for us to be on both sides and and this is a great way to do it. Our partnership with JetBlue, is there a customer focused Airline? They have the same DNA. They may not be as big as us but they have the same kind of DNA for how to take care of customers and caring about customers. Uh, and this is a great way to, um, have a built-in frequent flyer base on both sides of the Hudson, um, and get our metal uh, back into JFK, which is um, important to our brand.
Scott Kirby: Thank you.
Your next question comes from the line of Tom Fitzgerald with TD Cowen. Please go ahead
Tom Fitzgerald: Hi. Thanks so much for the time. Would you mind? Providing us an update on connective media? It's, you know, a little over a year since the launch and, um, you know, Richard's comments publicly have seen pretty positive. So I'd love to hear how you're thinking about that. Maybe being a contributor for 2026.
Tom Fitzgerald: Sure, um, you know, I think things are moving along. Uh, we are spending a lot of time building, our technology stack, uh, and building our client a roster as as we Market our services, we seek to double our revenues in 2025 versus 2024 in the media Revenue Channel. Um, we'll see how we come out to to Big Challenge, but we're moving along. Uh, and, you know, 1 of the big enablers for all of this is the feedback screens that we installed years ago, um, and the introduction of of starlink, um, and obviously, uh, the feedback screen. So, we're making great progress on. We're well, over half the aircraft that have the, the new technology on board. Starlink we just started, uh, but when you combine starlink and the feedback screens, that's when the real magic happens. So, uh, that's going to unlock a lot more value, it connected media, uh, in the 2026 late 26th 2027 time period. Uh, as we bring all the ingredients including the internal technology stack online. So, uh, we still have a great Outlook. We're looking forward to, uh, rapid growth in the business.
Speaker Change: Okay, I think that that's really helpful context and then, um, just on the fleet and the supply chain, it'll be here, just how, um, what what you're seeing on your end with deliveries. Um and then just how you're thinking about the timing of the gauge benefit um over the next couple years, thanks again for the time.
Speaker Change: Um and uh minimal delays, but some still delays uh with uh with 321s. Um overall the supply chain is healing itself, um but I think probably uh engine component engine remains constrained for for some time to come.
Um, I'm sorry the second part of your question.
Speaker Change: Oh, just how we should think about the Cadence for the gauge benefit that you guys are going to see over the next kind of in 26 and 27.
Speaker Change: We move into 2026. Um current plan has gauge up 2% and I think gauge growth will Accelerate from there in 27. Uh so that's where we are.
Speaker Change: You are next question. Comes from the line of Katherine O'Brien with Goldman Sachs. Please go ahead.
Katherine O'Brien: Hey, good morning everyone. Thanks for the time, uh, maybe the first 1 for Mike. Um, you know, you know, the cost of continuing to go by the plan. Um, he's digging a little on what what better and 2 q and and then what are the cost tail ends you have in the back half to offset the flight attendant ratification headwind, you know, that you end up with similar performance and back half versus 2q. Um, that I don't believe, had the flight attendant contract or or maybe that 2 half comment. Doesn't include the impact of a new flight attendant contract. Any of their any help there, be helpful. Thanks.
Katherine O'Brien: Hey, Katie, I I did say in my script and I'll reiterate it that, you know, running the running a strong and reliable operation, uh, versus what we were thinking. And we had aggressive goals. But um, Toby and team have done even better. That's number 1. Um, number 2,
Katherine O'Brien: we have uh We've made some big changes in our procurement department and uh we're seeing some real savings out of the supply chain. Uh we're also doing a better job of managing inventory of Parts um and so that's been very helpful as well. Uh I think that that all continues and will be uh will be will we will also benefit from from gauges as it as it starts to accelerate. So feel very good about that and when I gave the comments around chasm in Q3 and Q4 that is inclusive of the AFA deal,
Speaker Change: Okay, that's great. Thanks for that color, Mike. Um, maybe 1 for Andrew, you know, you noted this year, I was giving you more confidence in premium products and and and you'll love to increase premium more going forward. I'm assuming that means increasing the percentage of of Premium seats per departure. But correct me if I'm wrong, I guess just any thoughts on on where that percentage could go over the next 5 to 10 years and within that. Is there any segment in the premium cabins, you know, between economy plus, um, International Premium Plus or Polaris, that would be, you know, that would be the bulk of that upsizing or or it's really equal across the various premium cabins. Thanks so much for that time guys.
Andrew DeDora: Yeah, thanks for the question. It's, it's a really good question. Um, you know, I'll give every detail we'll save that for a more detailed type, uh, structured meeting. But we, we announced our United Elevate interior on board, the 787-9, uh, in Brooklyn just a few weeks ago and that particular aircraft will now have 99 premium seats on it, which is Polaris Plus premium plus not not every aircraft United flies. By the way, that we take deliver in the future, we'll have that same 99 seats but that's a good reflection of an aircraft that we already said will be flying to Singapore. We think that's the right aircraft for Singapore. And many other markets that United where we have this really high level of Premium demand. Probably. The biggest expansion though that I think is an opportunity is. We we undersized the premium plus cabin, the cabin between main cabin and Polaris on our wide-body Jet and that's the cabin. I think that's generating very good returns, uh, and the 1 that we'll probably lean more into, uh, going forward, but we'll leave all the details for for a later date. But, uh,
Premium Plus is, I think a really very exciting opportunity as a mid-range product uh, between the front of the aircraft and the back. And then last but not least, you know, the gauge benefit that Mike talked about as we bring on these Max lines and a321 Mia. We do, we definitely bring on many more premium seats than the aircraft. We ultimately replace the 8319 or the 8320 and so our premium mix just ships as we update the fleet and retire older ones, and bring in these new ones that are just performing really well.
Speaker Change: Great thanks. Bye Andrew.
Speaker Change: You are. Next question. Comes from the line of Dwayne pfennigwerth with evercore isi. Please go ahead.
Hey, good morning. Um, as you think about, um, your aspirational, uh, longer term, uh, margin targets, maybe, uh, pre-tax margins in the low teens,
Uh, from 7 or 8 today. I I wonder which geography you expect to be the biggest contributor to that expansion.
Speaker Change: Well look, I I think I've said this.
Speaker Change: Margins are are doing really well, and I think they're going to do better in the future. For example, the elevated 787 uh aircraft is going to push our margins even higher, but our International margins are pretty strong. Uh, this the domestic margins which are positive to be clear and not only the positive, they're positive in each and every 1 of our hubs, by the way, in the last 12 months, but the opportunity there is to is to lower the gap between the domestic margins. And our International ones is there. I don't expect our domestic margins to Really Ever completely closed that Gap. Uh, but I do think there's a lot of upside is we build connectivity? Our hubs are in big cities and they're undersized. We have the wrong gauge still. Uh, we we simply do not have nearly as many 321s as we hope to have at this point in time. And of course, bone is yet to deliver a Max 10, uh, as we talked about, uh, by frequently and so, we're well behind on the premium seed and the connectivity and the gauge, uh, that we intended to employ in our domestic system. Um, and then the other thing,
Speaker Change: You know, as Scott said over and over again, there there is a factor that there's a lot of uneconomic capacity offered by other airlines. Uh, we've already seen that to start to leave the system, um, and I expect, we'll see more of that in the future, uh, which will definitely help, but we have a core plan with premium seats gauge connectivity. Um, and uh, we've had that same plan, by the way for a long time period. Now we continue to execute against it and when we get to the bigger aircraft, I I think you're going to see the the margin Gap close.
Speaker Change: Thanks Andrew. And then and maybe 1, um,
just on pilot hiring, you know, just given the pickup and deliveries
Speaker Change: Is it fair to say, you were overstaffed on pilots? And and now that you've seen a pickup and deliveries is that more imbalance or is that, you know, unfair maybe there wasn't a mismatch but just wondering how as these deliveries uh, pick back up is there better alignment between your Staffing levels and the ability to actually deploy it?
Speaker Change: The way I I think you're you're you're thinking a little bit when it was coming out of Co like we we've been pretty balanced. We we have a really good relationship with Bowen. There's not really any surprises like but Mike was saying is that you know we we built in like a couple of, you know,
Speaker Change: Shells each year that, you know, we may or may not move for a fact that they were getting. So it's so small. I mean, we're, we're hiring 3,000 Pilots a year. So we've been balanced for for quite some time now. So, uh, so so I, I, I, I, I, I, I, I think the answer to your question is no. We're, we're, we're, we're not always that. And we're not under staff, we're just pretty much perfect when it comes to the pilot Dwayne. I think what you're seeing partially in Kazakh. When I talk about running a great operation is that we are at the right Staffing levels.
Okay, very clear. Thank you.
Speaker Change: Your next question comes from.
Speaker Change: Please go ahead.
oh yeah, this is um just a question for Scott about Newark and the fact that you know, your caps I guess it's 68 at the airport runs through the end of October and I think what we've seen is the caps at Newark have clearly helped New York airspace and I guess by extension
It's really helped the national airspace. What what are the considerations that you know are out there right now? That are I guess being debated with respect to returning New York to a level 3 Airport?
Speaker Change: Um, so uh, I am incredibly appreciative happy with the secretary Duffy Mr. Bedford do the FAA, um, for finally, putting New York on a Level Playing Field with LaGuardia and JFK. We I'm not literally been begging them to do that from the time. I've been here. Uh, you know, it was just a simple math. Um, when you schedule more flights in the airport can handle in perfect conditions, it's not going to be good. Um, and
I called I think we're going to have um New York uh effectively capacity controlled I think they realized they understand math. Um the current team understands math um and we're going to have it capacity control. I think it will go up from what it is today. Uh actually I'm pretty sure it's going to go uh up but it's going to
Speaker Change: Okay.
Speaker Change: Great. Thanks Scott. Just a quick 1 to Mike um in your Fleet plan you, you're showing the 321 XLR. So how many are you getting this year and then how soon do they find their way into international service? Thanks for taking my questions.
Uh, Mike none this year.
It'll be the summer of 2026.
Speaker Change: Great.
Speaker Change: Great. Thank you.
Your next question comes from the line of Steven Trent with City. Please go ahead.
Speaker Change: Uh yes, good morning everybody. And thanks for taking my question. Um, the first I was just curious, appreciate the comments about Europe. Um and the sort of the summer travel season extending, you know there's been stuff in the news about um anti-tourism uh incidents uh and some cities. And are you guys seeing anything at all there? Uh, you know, in terms of uh, what what the flow looks like? Or if not really an issue at this point. This juncture. Thank you.
I I would just add, you know, United, um, disproportionately boards, uh, US citizens out of the United States. And so, any changes demand from outside and States into the United States, is the brunt of that change is more felt by Foreign Flags. So I, you should ask them that question. But our, our demand to Europe, we're having a very strong summer, um, you know, I'm really happy with the results, you know? I it could always be better. Uh, but uh it's another strong summer to Europe.
Speaker Change: Particularly to southern Europe. So, um,
Speaker Change: Get out there and have a great vacation.
Thank you. We will now switch to the media portion of the call again. If you would like to ask a question, please press star 1 on your telephone keypad. Please hold for a moment while we assemble. Our queue.
Your first question comes from Brandon. Olensky with Barkley. Please go ahead.
Speaker Change: Hey.
Speaker Change: I'm not sure our media but, uh,
Speaker Change: You're lucky Daye, Brandon. I mean thank you guys for the question here and Michael, I'll just keep it to 1 but you know the commentary and outlook for 2 billion of free cash flow. This year, it's pretty uh, impressive just giving all the challenges you guys have had
Speaker Change: But your capex is a little bit low. I mean, you talked about the 787 delivery delays. So assuming Boeing gets back on, you know, plan for next year, or into the out years, you're back into that 7 to 9 billion of capex range.
Speaker Change: Should we be thinking FCF at these levels? Is still a sustainable Outlook.
Speaker Change: Brandon, thank you very much for the question. Let me point out that that 6.5 billion this year. There's some downside to that based on uh, continued delays on the widebody side. So I think we're going to come in inside of that this year. Um, and as we roll to 26 and 27, I fully expect free cash flow to expand. Uh, I think operating cash flow is going to expand faster than capex. We'll see. There may be some puts and takes and then individual year. Um, but I expect free cash flow to expand and and free cash flow conversion to expand both
Speaker Change: Well, maybe that's a bullish way to leave it off, uh, for my media counterparts.
Speaker Change: Thanks. Thanks Brandon.
Mary Slagen: Your next question comes from Mary slagen with Bloomberg, please go ahead.
Mary Slagen: Hi, good morning. I wanted to see if you could provide an update on the status of the static interference and starlink issues um, on the United States planes and whether the the service and the regional jets are up and running now if not you know what's the issue and how long will it take to get it resolved?
Mary Slagen: Hey, mayor. This is a good question. This is Toby. Um, I, I think it's pretty much been resolved and it was also very specific to the 1. First, the first aircraft, we tried it on, which is the e175. Obviously, it's a smaller airplane on the biggest problem with the interference. I'm obviously not an engineer. I just play 1 during the day. Um, but anyway, it was, it was too close. That the 2, antennas was too close together. Uh, so they worked on
Mary Slagen: Around that we got 60 airplanes flying around right now. Uh, and we we think that the, the the issues behind us and again for the other Fleet types because the airplanes are that we're going to put them on our much larger, and we want to have that issue.
Speaker Change: Okay. And and was that 6600 airplanes are already up with it. Yes sir. Yeah.
Great, thank you so much.
Speaker Change: Your next question comes from the line of Lesley Joseph's with CNBC, please go ahead.
Capacity and uh, Scott I know you were talking about Delta and United kind of in their own category and then everybody else. Um, how do you feel about Delta uh, starting LAX to Hong Kong and to O'Hare thanks.
Speaker Change: Leslie regarding the max 10. Um,
we're we're still hopeful that we can have some deliveries in 2027.
Um but we we right now have a contingency plan to be able to take Max 9 and continue our up gauging straight strategy with Max 9. So uh either way, it won't be disruptive to our longer term strategy. I would like to take the 10s and
Speaker Change: 2027 is my best guess right now.
Thanks.
Speaker Change: um,
Speaker Change: you know, we fly 6,000 flights a day, uh, so a couple of new routes, um, aren't that big of an issue, uh, for us. Um, but I guess I feel complimented when other airlines feel like, um,
Speaker Change: they're worried about us getting ahead and have to fly around, so you're going to lose money for them.
Your next question comes from the line of dawn Gilbertson with Wall Street Journal. Please go ahead.
Dawn Gilbertson: Hi, good morning. Uh, my question is for Andrew. Um, I'm wondering you guys talked a lot recently about, you know, uh, making Polaris even more premium, are you weighing, you know, like your new favorite brand loyal competitor are. You also weighing Bare Bones business, class tickets. And if so can you walk us through that and talk about any timeline? If not, why not?
Speaker Change: Thank you.
Speaker Change: Don. Uh,
Uh, look what I would say is, you know, over time over the last, you know, 7 or 8 years we've leaned heavily into segmentation of our revenues, which is a really, uh, in our articulate way of saying, uh, providing more and more choices to our customers. So they can pick the experience. They would like, uh, from premium to basic economy, uh, and we have learned through that time period, uh, that our customers really appreciate this. Not everybody wants The Full Experience. Some people want other experiences, uh, and so the the value to United uh, as an airline and to that of our customers has been proven by the segmentation uh uh revenues of revenues that we've done. Um and we look forward to continuing to diversify our Revenue base and segment it in the appropriate way and I'll leave it at that.
Speaker Change: Thank you.
I will now turn the call back over to Christina Edwards for closing remarks.
Christina Edwards: Thanks for joining the call today, please. Contact investor, or media relations, if you have any further questions and we look forward to talking to you next quarter as the industry transformation continues.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect