The Transcripts

United Airlines Holdings (UAL) Q1 2023 Earnings Call Transcript

Operator Good morning and welcome to the United Airlines Holdings Earnings Conference Call for the First Quarter 2023. My name is Silas and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. [Operator Instructions] This call is being recorded and is copyrighted. Please note that no portion of the call maybe recorded, transcribed or rebroadcast without the company’s permission. Your participation implies your consent to the 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, Kristina Munoz, Director of Investor Relations. Please go ahead.Kristina Munoz Thank you, Silas. Good morning, everyone and welcome to United’s first quarter 2023 earnings conference call. Yesterday, we issued our earnings release and investor update, which is available on our website, Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to 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 a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release.Joining us on the call today to discuss our results and outlook are Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. 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.Scott Kirby Thanks, Kristina and good morning, everyone. I want to start by thanking the entire United team for delivering exceptional operation this quarter. Given our hub geography United almost all has the most flights impacted by weather, air traffic control delays of any U.S. airline. But despite this in Q1, we had the lowest mainline flight and seat cancellation rates of any airline in the country. That’s important, not just for the obvious customer and brand impact, but it’s also the key to hitting our planned capacity and CASM-ex target. I am going to leave the detailed quarterly results and guidance to Gerry and Andrew.But today, I will take a few minutes to talk about four emerging themes that have come to the foreground that I think are important to the United investment case. One, there appears to be a clear change in seasonality that is causing peak leisure demand months, March through October to be even stronger, while months that were historically reliant on business demand are weaker, that particularly impacts January, February, and the first half of November and December. We believe demand is just structurally different than it was pre-pandemic and we are still figuring out that new normal.Second, as we have expected all along, long-haul international is moving into the lead over domestic. Andrew will give more details, but this is a multi-year structural change based on aircraft retirements and pilot downgrades as essentially all long-haul U.S. airlines around the world except United. But my third theme is an appropriately cautionary point. Our guidance and everything we are discussing today is our base case scenario based on what we are seeing right now. And what we are seeing right now is still strong demand. At airlines, the macroeconomic weakness is being offset with a counter trend of consumer spending continuing to rebalance back to services. And by the way, we still remain below our historical GDP relationship arguably indicating more room to run in the revenue recovery. However, it seems clear that the macro risks are higher to-date than they were even a few months ago as demonstrated by the banking scare of Silicon Valley Bank. We saw an immediate drop in [closing] (ph) business demand that lasted for about 2 weeks, but now appears to have recovered.Our base case therefore remains a mild recession or soft landing which is consistent with what we are currently seeing in our bookings. But we agree that the tail risk is higher than normal. While we feel good about our 10 to 12 full year EPS, if the economy softens further we have prepared for it by a) having a lot of flexibility in the business line capacity if needed, b) improving our balance sheet to withstand the near-term issue with approximately $19 billion in liquidity and having reduced our total debt including pension by $4.6 billion over the past 12 months, and c) is actually my fourth theme which is controlling what we can and hitting our CASM-ex target in this new, different and more challenging operating environment. We can’t control what happens with the macro economy, but we can and are doing a great job of controlling our cost. We can’t run your airline like it’s 2019, it’s different and harder now.Cancellation rates are the leading indicator of forward capacity and therefore CASM-ex and United is leading the way on this front. Gerry will discuss some of the year-over-year tailwinds that will drive lower CASM-ex in the back half of this year, but we only need CASM-ex to be approximately 1 point better in the second half of the year to hit our full year target. We remain solidly on track.To wrap up, over the last 3 years, our industry has confronted a rapidly changing environment. United hasn’t been perfect, but we have got a lot more right than normal. In the big picture, we have got it right and took the steps in the last 3 years to thrive in exactly this environment. International is stronger, the operating environment is more challenging, which means reliability is harder, but also had a premium for producing bottom line results and we had confidence that our gauge growth and execution are keeping United uniquely on track for our near and long-term CASM-ex trajectory, that not to say that there aren’t real near-term risk, because we all know there are, but we feel really good about the strategic setup and tactical execution here at United.I want to again thank the entire United team for their hard work this quarter. We had a busy summer season ahead and I look forward to achieving even more operational and financial records.With that, I will turn it over to Brett.Brett Hart Thank you, Scott, and thank you to our United team for their hard work this quarter. As Scott mentioned, we continue to see the benefits of running a strong operation. In the first quarter, United led the industry with the lowest seat cancellation rate despite around 20% of our flights being impacted by weather, the most out of any of our competitors. This was the first time since 2012 that we led on this metric.Additionally, United was first or second in the quarter for on-time departures at nearly all of our hub locations, including those heavily impacted by winter weather like O’Hare and Denver. Our airline is built to run well and recover fast and we expect our operation to reflect that in the peak summer season. We continue to navigate the challenges in the current operating environment. Specifically, constrained industry infrastructure, United is working with the U.S. Department of Transportation and FAA regarding operational disruptions and air traffic staffing challenges. The FAA’s decision to consider commercial air traffic with managing the growing number of space launches combined with the FAA’s recent move to give carriers more flexibility in how we all fly in and out of New York area airports shows that the FAA is listening to feedback and finding ways we can all work together.In March, we took steps to reduce our schedule in the New York region and DCA by around 30 daily departures over the summer period to provide the air space relief requested by the FAA. The scheduled reductions are largely regional jet focused and will be redeployed at our other hubs minimizing the capacity impact to the system. It is our hope that this will drive improved customer experience, while flying United in the New York area and throughout our network.We are excited to announce that we reached a tentative agreement with our nearly 30,000 employees represented by the International Association of Machinists. With volume on the agreement expected to be completed by May 1, we are very proud of the work that our team does daily to support our operation and create a positive travel experience for our customers.Regarding other labor agreements, a new contract with our technicians represented by the IBT was ratified in January and we are still in active negotiations with our flight attendants represented by the AFA and our pilots represented by ALPA. As a reminder, we reached an agreement with our Dispatchers represented by PAFCA last year. We look forward to sharing further updates in the future. I once again want to thank our team for being the best in the industry. We remain confident in our outlook as we leverage our industry leading operational performance and network advantages.And with that, I will hand it over to Andrew to discuss the revenue graph.Andrew Nocella Thanks, Brett. First quarter top line revenues of $11.4 billion finished consistent with our updated guidance of up 51% versus 2022. TRASM was up 22.5% year-over-year. While we were below our initial guidance, we expect that our TRASM performance in the first quarter will be top tier. As expected, other revenues in the quarter while strong are growing at a slower rate than passenger revenues, the opposite trend we saw last year and over the course of the pandemic. While cargo revenue declined 37% year-over-year, it remains 39% above the same period in 2019.MileagePlus other revenue had yet another strong quarter and was up 25% year-over-year, driven by our strategic partnership with Chase. United’s credit card continue to set records in Q1, including the highest first quarter ever per card spends, new accounts up over 30% year-over-year and account attrition near historic lows. We also welcome Richard Nunn to the United team as the new CEO of MileagePlus.As Scott indicated, we believe we are seeing different revenue seasonality for the United network post-pandemic and that change should impact our relative margin in Q1. New seasonality positively impacted March through October 2022, where new remote work schedule simulated business, particularly premium leisure. Ultimately, if these trends continue, we expect to be able to operate a more consistent level of capacity between March and October in future years.However, we believe the new seasonality negatively impacted Q1 in January or February, along with the first halves of November and December. With United’s relatively small presence in the Caribbean and Florida, where demand is usually strong in Q1 and over the winter months, the United network is more reliant on business traffic that is not fully recovered to pre-pandemic volumes in these periods. United’s global network and East West trends were simply better align to March through October post-pandemic where leisure and premium leisure business compensates for less traditional business traffic.As we head into Q2 2023, we are tracking ahead of 2022 in all the ways that we measure business traffic, a really good sign for revenue momentum. While it’s still early on, we do see corporate business for May and June tracking well ahead of their previous months at this time. The business traffic rebound we are seeing is strongest in global long-haul markets, where videoconference is not a substitute for an in-person meeting.The recent banking scare did initiate a slowdown in demand across multiple customer types in the quarter. Impacts on business demand for domestic flying was the most significant, impact on domestic leisure was smaller and impact over on overall international demand was actually minimal. In the weeks after the scare, we saw business demand relative to the same period of 2019 decline by 8 points after steady progress experience to the quarter to that point. This trend has since reversed back to pre-banking scare levels.In Q2, we expect total revenue to be up 14% to 16% versus the second quarter of 2022, with capacity, up approximately 18.5%. Our expectations for revenue in the second quarter continue to show strength with approximately 8% to 10% growth in domestic revenues and almost 30% for international. Second quarter bookings and revenues do look good versus the same point in 2022, with book deals up 13% and 31% above 2019 respectively. For 2023, we expect to expand international flying by approximately twice the rate of domestic leaning into the favorable supply demand balance that we expect. We will be focused on extending United’s leading position across the Atlantic and to Asia and the South Pacific. We believe this capacity deployment plan will set us up to meet our financial objectives given the stronger revenue outlook we are seeing for international flying and the rebound in Polaris cabin.We will also pass two critical milestones by this summer, with all United international wide-body jets having the latest generation Polaris seat and a premium plus cabin. While further return to corporate business will help profitability in all quarters, we are not assuming that will occur in our 2023 revenue outlook. United scheduled capacity this summer is up 39% in the Atlantic, but industry capacity, excluding United, is estimated to be down about 1%. United will operate an average of 207 daily flights across the Atlantic this summer. Across the Pacific, United plans to be up 14%, excluding China, with industry capacity down about 7% both versus 2019. Overall, international ASMs will be 46% of United’s capacity this summer versus 43% in 2019.Yesterday, we announced another set of capacity increases to the South Pacific ideally timed for the Southern summer later this year. These include the first-ever nonstop service from San Francisco to Christchurch, a new service from Los Angeles to Auckland in partnership with Air New Zealand and to Los Angeles to Brisbane, where we will connect to our new partner, Virgin Australia. Rebuilding connectivity back to our original 2019 standards in our Mid-Con hubs and Dallas will also be a long-term focus for our domestic volume. The loss of regional jets turned the pandemic without mainline jets to backfill them cause connectivity to suffer. Peak bank sizes at our high flow hubs are down 10% to 20% versus 2019.We were able to build connectivity and margins in 2018 and 2019 when we increase bank size connectivity and we expect to execute a similar strategy in 2023 and 2024. However, this time around, we will do it with the appropriately sized 737 jets instead of single-class regional jets. As requested by the FAA, we have reduced our planned flights from Newark City this summer, including to and from Newark. We believe this will be the first time in years that Newark will operate within the airport’s capacity abilities in most hours and consistent with the slot allocations. We are optimistic that between the new terminals and capacity consistent with the runway’s capabilities, the customer experience will improve dramatically and we appreciate the partnership with the FAA to make this happen.EMEA will gain up to 17 new mainline gates in Terminal A and Newark this summer versus 2022 which will improve Newark’s reliability and customer experience. Along with the new Newark gates, we will open a new United Club in Terminal A and in Terminal C later this year, adding 38,000 square feet and will be up 161% in club space relative to 2019.As impressive as that club space measurement is in Newark, our club members in Denver will experience an opening of 3 United clubs over the next year that include a total of 97,000 square feet, a 149% increase versus 2019. Construction of our new gates in Denver is also almost complete and will have 90 gates, up from 66 we had in 2019, which we expect will allow us to dramatically increase bank sizes and connectivity in 2024 and 2025.At United, we remain focused on our high ground, structural strengths focused on global long-haul, correcting connectivity issues in our Mid-Con hubs that surface during the pandemic and of course, gauge, increases that are consistent with our large hub markets. Our capacity plan for this year remains in place without adjustment as we operate with strong operational results.With that, I wanted to say thanks to the entire United team. And I will turn it over to Gerry.Gerry Laderman Thanks, Andrew and good morning to everyone. Let’s start with our first quarter results. Our pre-tax loss of $256 million was in line with expectations and at the better end of our updated guidance issued last month. We saw losses in January and February due to seasonal weakness, but March turned solidly profitable. Our first quarter fuel price of $3.33 came in at the lower end of our revised guidance range. This was still about $0.14 higher than our expectation at the start of the quarter due to a spike in jet fuel prices in late January and early February.Turning to non-fuel costs, our first quarter CASM-ex came in slightly better than our revised guidance range at down 0.1% versus the first quarter last year. Our operational performance in the first quarter was truly exceptional and our CASM-ex fee is largely due to the cost benefit of a reliable operation. On the balance sheet, we ended the quarter with approximately $19 billion in liquidity. We continue to leverage the flexibility provided by our cash with financing opportunities and paying down debt. We generated over $3 billion in operating cash flow in the first quarter, the highest for any quarter in United’s history and we produced free cash flow of over $1 billion. Over the last 12 months, our total debt, including pension liability, has declined by approximately $4.6 billion and we remain on track to meet our 2023 target of adjusted net debt to adjusted EBITDAR of less than 3x.Looking ahead, we expect second quarter CASM-ex to be flat to up 2%, with capacity up approximately 18.5% both versus the second quarter of last year. Strong cost performance underpins our confidence in the earnings trajectory of the business in the second quarter we expect adjusted diluted earnings per share of $3.50 to $4, with a fuel price of $2.80 to $3. As noted in our investor update, this fuel price is based on prices as of April 12.As others mentioned, our strong operational performance in the first quarter sets the tone for the remainder of the year and is key to our conviction in achieving our CASM-ex targets. For the full year, we continue to be on track to keep CASM-ex approximately flat versus 2022 with non-fuel unit costs in the second half of this year declining versus the second half of last year. To give context as to why we expect CASM-ex in the second half of this year to improve on a year-over-year basis versus the first half of this year, it’s helpful to consider the 2022 cost baseline.With COVID still significantly impacting the business in the first half of last year, we have certain unique headwinds in the first half of this year when comparing costs on a year-over-year basis. Here are two notable examples. Revenue in the first half of 2022 was much lower than the second half of 2022, which meant that distribution costs were also much lower in the first half of last year versus the second half. This drives the year-over-year comparisons for the first half of this year to be commensurately higher than the second half of this year. A similar phenomenon exists with maintenance expense. As Omicron abated and the recovery took hold, we ramped up our maintenance activity in the back half of ‘22 to more normalized levels. Again, the difference in year-over-year costs are much more muted in the second half of this year versus the first half.So simply put, the two items represent a 1 to 2 point CASM-ex headwind in the first half of this year, which won’t exist in the second half. These drivers, along with strategic cost management, gauge growth and running a reliable operation support our expectation that we will hit our flat CASM-ex target for the year. When combined with our revenue outlook, we remain confident in our trajectory towards $10 to $12 in adjusted diluted EPS for the full year whether we face a mild recession or soft landing.As we have left the starting gate for our United Next plan, I am encouraged by the progress we’ve made not only financially but in our operation and across the entire organization. While we continue to live in uncertain times, I know that we will successfully manage everything under our control as we continue on a path to reach our full year financial objectives.And with that, I will turn it over to Kristina for the Q&A.Kristina Munoz Thank you, Gerry. We will now take questions from the analyst community. Please limit yourself to one question and if needed, one follow-up question.Silas, please describe the procedure to ask a question.Question-and-Answer Session Operator Thank you. [Operator Instructions] The first question comes from Catherine O’Brien from Goldman Sachs. Your line is unmuted. Please go ahead.Catherine O’Brien Good morning, everyone. Thanks for the time. So there has been a lot of investor concern recently around the domestic slowdown. So I think I’ll just get right to that. I know United is built to win in the international strength. But can you just help us think about what’s driving the domestic unit revenue performance to underperform international, at least based on first quarter versus ‘19. Is there a shift in leisure demand to international from domestic that might be exaggerated right now post pandemic? That international business is stronger, as you know prepared remarks, something else? And then I saw you had another record first quarter build in the air traffic liability. Would also be helpful just to talk through how much you have on the books, domestic versus international first quarter. Thanks so much.Scott Kirby Sure, Catherine. We’re getting this question about domestic strength a lot and we should really address it. The way when we go back thinking about it, how to describe the conditions of this Q2, we have to recall Q2 of last year, Q2 of 2022 was the best domestic TRASM quarter ever for United with TRASM up 25% versus Q2 of 2019, which, by the way, was a prior record holder. We simply sent a really hard comp for Q2 2023 and also last year at this time, international markets were not widely open to travelers, in my view, selected domestic trips out of caution, just creating unprecedented demand relative to the number of seats available to sell. This year’s conditions are different. International travel is more or less completely open, and we see customers clearly excited about taking a long-haul trip. Domestic capacity is also now comparable to 2019 levels.So here are the facts, domestic ASMs at United will be up about 10% in Q2 2023 year-over-year. And our TRASM outlook for domestic will be negative low single digits from what I’ve said today. Total domestic revenue should finish well above 2022, given our TRASM outlook on capacity growth of about 10%. We’re currently booked about 10% ahead in gross revenue at this point compared to last year, and we’re about 54% into the booking curve for the quarter. I just don’t see these facts as weak when revenue is on target to again break the record and TRASM is likely to be just a bit behind an amazingly strong 2022. In summary, when Q2 2023 is in the books, we will likely be our second biggest best domestic TRASM quarter ever with record total domestic revenues. The only thing negative, I think I can say is that as good as domestic looks, it’s just not matching global long-haul revenue outlook, which is very strong and where United has focused a majority of capacity.Catherine O’Brien On the ATL…Scott Kirby On the ATL, I think it’s seasonally moving in a normal way. I don’t know, Gerry wants to add anything else on the ATL question.Gerry Laderman Okay. Your question about international versus domestic, you’re actually the first person to ask us that question. So we will follow-up with you.Catherine O’Brien Okay, thank you.Operator The next question comes from Jamie Baker from JPMorgan. Your line is unmuted. Please go ahead.Jamie Baker Hey. Good morning, everybody. Just chuckling it Gerry’s response to Katie there, on the ATL, Gerry, the build obviously helped with free cash flow generation in the quarter, presumably, the ATL will incrementally moderate in the second half as it often does. Do you still think you can cover this year’s $9 billion in CapEx and generate positive free cash flow?Gerry Laderman Yes, Jamie, I think we can.Jamie Baker Okay. Fair enough. Second to Andrew, relative to the international component, you have got a lot of new route activity. Could you speak to sort of like same-store sales or same-store RASM or revenue, I guess, relative to those new routes? And how does the ramp to profitability in all of these new markets compare to that in the past? I mean, are new markets maturing much faster? Or does it take about the same amount of time as it ever did? I’m just trying to think about the read-through as some of these trends normalize next year.Andrew Nocella There is – for global long haul, there is virtually no [spool] (ph) up right now, Jamie. It gives us – the supply-demand equation is just not what it’s ever been in the past. While United supply across the Atlantic and Pacific is dramatically up and we’re happy it is dramatically up, obviously, industry supply is down. So what I would tell you is that the new routes come in very quickly with very strong profitability, which is why we keep adding them. That being said, in terms of same-store sales, I will say that London Heathrow is probably our weakest at this point because there is just – that there is a large amount of capacity in London Heathrow relative to the rest of the world, and we’ve grown there. And our connections within Europe in our key hubs are – have not fully recovered, just like they haven’t domestically. And so we actually do see some relative weakness in certain parts of the global network off of a strong base. But the new routes to your question are just coming in with home runs on day 1.Jamie Baker Thank you, gentlemen. Speedy answers. Take care. Operator The next question comes from Conor Cunningham from Melius Research. Your line is unmuted. Please go ahead.Conor Cunningham Hi, everyone. Thank you. Just the 2023 CASM-ex rate seems pretty encouraging. I know you mentioned maintenance and distribution as being a main driver from the first half to second half, but it still seems to me that you’re holding incremental cost. I mean, that may be the cost of doing business right now. But just curious if you could talk about what potentially rolls off next year as we start to think about CASM-ex there? Thank you.Gerry Laderman So I’m not sure I would call it rolling off. But keep in mind, next year, one of the benefits we’re really going to start seeing is that growth in mainline gauge, as the aircraft continue to come in. That process is really just starting this year. So next year, we get the full run rate of the larger gauge aircraft and take even more next year. So when you’re looking sort of where the tailwinds are next year, gauge is one. And the comps year-over-year are going to be better. Think of this year is really finally getting to the run rate of the post-COVID sort of full operation. So I think as an industry, we’re done with a lot of the surprises we all kind of saw coming out of COVID with some of the cost pressures. So I think from the cost side, the business has become more stable and a little more predictable.Conor Cunningham Okay. Okay. That’s helpful. And then just on the evolving booking curve and seasonality that you’ve been talking about. Just curious how going to combat those challenges going forward? I mean Delta has mentioned they are talking about looking at like overbooking and like tinkering with the inventory. Just curious what the strategy is at United, if there is one to combat those changes in the booking curve. Thank you.Scott Kirby Sure. Well, we think we clearly have the best RM system in the world, by the way. That’s what I’ll start off with. While there has been a small change in the number of tickets not flown in the quarter, due to the increased flexibility created when United eliminated change fees it’s our view that it’s not really material and it’s fully accounted for by our RM systems. And I’ll add on to that, our no-show rate is lower as well, and we will not be changing our overbooking levels at this point.Conor Cunningham Okay, thank you.Operator The next question comes from Savi Syth from Raymond James. Your line is unmuted. Please go ahead.Savi Syth Hey, thank you. Good morning, everyone. Just a question on the MAX deliveries. It looks like you had three more deliveries than the prior plan in 1Q, but for the full year, kind of slipped a little bit. Just curious how you’re feeling about confidence on kind of the MAX deliveries, especially given the recent news?Gerry Laderman Okay. Savi, from what we know on the recent news, we don’t think that’s going to have much of an impact on us, certainly won’t have an impact on second quarter and what – and I think you may have seen this yourself, is Boeing has gotten back on track on delivering aircraft. The issues that they had over the prior few years, they have really managed well. And the impact from what we know today for the full year just will be minor.Savi Syth Okay. That’s helpful, Gerry. And maybe along those lines, a follow-up on the fuel efficiency, there is a little kind of surprised by kind of what we saw here in the first quarter, maybe a little bit less than what we’ve seen last year. What’s your expectation around how that trends kind of going forward, especially kind of given that, that’s another part of the kind of the cost benefit in the United Next Plan?Gerry Laderman Well, as we start seeing more and more of the MAXs, we will start seeing that improvement that we’ve sort of talked about on United Next. Remember, we’ve just started taking delivery of those incremental aircraft. And there’ll be a nice pop in that as well once the MAX 10 delivers at some point.Savi Syth So just from a critical mass standpoint, when does that – when do you think roughly that is based on like what you know today, I guess?Gerry Laderman Yes. It starts to kick in next year, critical mass, maybe the year after.Savi Syth Okay, that’s very helpful. Thank you.Gerry Laderman I’m just going to see the trend. Quarter-by-quarter.Operator The next question comes from Mike Linenberg from Deutsche Bank. Your line is unmuted. Please go ahead.Mike Linenberg Hey, good morning. When I look at your sort of loads from fourth quarter to March quarter, I mean, you can see that seasonal hit. And Andrew, when I saw that I sort of thought maybe it had to do with a higher no-show rate, but you sort of just addressed that, that is not an issue. As you add more service to places like New Zealand, Australia, South Africa, Brazil, etcetera, does that – we should see improvement in that, right? Maybe you never actually are able to get to the level of, say, American or Delta from a seasonal perspective. But to some extent, you should be able to mitigate that as we think about the seasonality. Is that – is that kind of where we’re headed? Do we see that really start to narrow versus the industry?Andrew Nocella It’s a good question. And our intent is to get it to narrow. But we do – we’re simply smaller in Florida due to a lot of reasons that – that can’t be addressed in a matter of a few quarters, we have to be addressed over years. And so while our goal is to narrow that gap in Q1, I don’t think to be blunt, we’re going to be able to eliminate it. Clearly, the introduction of counter-seasonal fly into the South Pacific definitely helps put it in the right direction, and we will be looking for more opportunities and we will be looking to grow Florida, I think, faster than probably most of our competitors because we’re just so going to continue to be our weakest quarter and a recovery of business traffic in Q1 will do the most to help our relative Q1 results.Mike Linenberg Okay. Thanks. And then just sort of as a follow-on and tied to that, when you look at the announcement that you did make yesterday, I mean it’s – it seems like it’s going to need a decent amount of additional capacity. And when I look at your fleet this year, I think you took two 778s in the March quarter, it does not look like we’re going to see any more wide-bodies coming in. How are you funding a lot of that new service later this year, should we assume that maybe it’s going to – China is not going to come back as much? Are you going to pull from other parts of the operation? I’m just trying to figure out where you’re going to get the aircraft because some of these routes require more than one airplane just to do daily round trip service?Scott Kirby Definitely was quite a few aircraft heading towards the South Pacific. What I would tell you is that we just seasonally reduced Europe and we would otherwise, but many of those wide-bodies into our domestic system and this year, our maintenance. And this year, those aircraft will be flying to the South Pacific, which we think is their best use. In regards to China, we continue to be stuck at four flights per week. We are preparing to supply more than that, but have been unable to get that done so far. But hopefully, later this year, we will be flying more to China, and we have the aircraft to do so if the conditions are – allow us to do so.Mike Linenberg Great. Thank you.Operator The next question comes from Duane Pfennigwerth from Evercore ISI. Your line is unmuted. Please go ahead.Duane Pfennigwerth Hey, good morning. I wanted to ask about one of the themes Scott started the call with on flexibility. And maybe a follow-up to Mike’s question just there, but first on seasonal shaping – capacity. Given the new normal, is there a greater emphasis recently on seasonally shaping capacity? And how does maybe lack of regional lift or lack of ability to kind of flex up on regionals limit your ability to do that, if at all?Andrew Nocella It’s a really good question. And I am hopeful that after further evidence that we will be able to operate a more stable schedule all the way from March through the end of October, which I think will definitely benefit our cost structure having less of the peak. However, we are not there just yet. I think we need to make it through this year. We need to see how the remote work schedules continue to play out. We need to, in particular, see how this September and this October do – we were fantastic, obviously, last year. And I think that will help us validate for next year whether we actually change the seasonal shape in, as I just described. And hopefully, we can but we’re not ready to really jump into the deep end of that pool today. So we will continue to peak the airline in July as we normally do, and we will see where we go from there.In terms of regional jets, the lack of regional jets has definitely hurt our connectivity. This is an issue. I talked about it, and we’re very focused on rebuilding that connectivity with the right jets going forward. And in fact, we don’t intend to ever go back to the fleet of approximately 600 regional jets we had in 2019. We think the economics have changed. We think the business has changed and we need to change with it. That being said, on the good news front, the regional jet pilot situation has recently – in our mind, stabilized. We’re no longer losing pilots at the same rate we were earlier – very early this year or last year. And the production of block hours in our regional jet division at the end of this year will be consistent with the production of block hours that we started the year with. And I can tell you that our original budget for that was not that. We thought we would continue to see deterioration. So the good news there is the regional jets are going to be able to at least temporarily help us boost our connectivity as we wait for all of our mainline jets from Boeing to deliver over the next 2 or so years.Duane Pfennigwerth Thanks, Andrew for that detail. And then just sticking with the flexibility theme on capacity and the idea that you could kind of take capacity lower if the environment warranted, how much lower could you take it, I guess, relative to the high teens, 20% in the back half? And just conceptually, are we solving for margins this year? Or are we solving for CASM? Thank you for taking the questions. Andrew Nocella I don’t think we’re ever solving for CASM. We’re solving for margin and, of course, the 10% to 12%. So that will always be our focus. And we’re going to maintain the flexibility. Like I said, I’m pretty bullish about the international environment, and that’s going to generate the large lion’s share of our ASM growth this year. And I expect International to be strong all the way through the end of October and so far, chose that. It’s still early, obviously, when we look at that far, but we’re very optimistic. And domestically, Gerry set us up at a really good fleet plan where we have a significant number of older A320 and A319 aircraft that we could easily fly less or we could put on the ground if we thought that was necessary as we solve to reach the right margin and right EPS targets that we have for the year.Duane Pfennigwerth Thanks for the thoughts.Operator The next question comes from Helane Becker from Cowen. Your line is unmuted. Please go ahead.Helane Becker Thanks very much operator. Hi, everybody. Thank you for the time. Two questions. One, did you say what pension contribution would be this year? And if not, could you? And then the other question I had was just on United Next and where you are in ‘23 versus the plan? And what progress is on maybe some of the bigger items. I think you just addressed Andrew, the regional jet and the narrow-body shift connecting smaller cities or connecting bank changes or something like that? Thanks.Gerry Laderman Hey, Helane, yes, we did not say anything about pension. Nothing’s changed from our recent disclosures. There is – we expect no pension contributions this year. Our pensions are in good shape and both with the pension calculations that can be made and interest rates having nicely reduced the liabilities. We wouldn’t expect any pension contributions actually for a couple of years.Helane Becker That’s great to know.Andrew Nocella On the United Next comment, as I indicated a bit earlier, my number one focus domestically is this connectivity issue. We can clearly see it when we look at our RASM by flight by market that we are just – we’re missing a lot of connectivity relative to where we were. And so as we go forward, we’re going to be very focused on rebuilding that connectivity and getting the bank sizes back to where they were, hopefully, in 2019, but it is going to take some time. But we’re optimistic just like we did it in 2017 and 2018. And that we’re going to do it again, and it’s going to be very accretive to margin profitability and, of course, to RASM as we build back the connectivity. So it is a really important focus of our domestic flying, and we’re ready to get that implemented as soon as possible.Helane Becker That’s very helpful. Thank you.Operator The next question comes from Ravi Shanker from Morgan Stanley. Your line is unmuted. Please go ahead.Ravi Shanker Thanks. Good morning, everyone. I think despite the kind of tough macro outlook, pretty clear what you guys are expecting that things are fine for now, but there is high probability of a tail risk event. Can you help us with kind of what data points you’re looking at to determine if these tail risks are either receding or materializing? Are these kind of airline specific data points or these broader macro data points into the latter kind of – where are some of those data points you are referring?Scott Kirby Well, maybe I will start and talk about it from a business traffic recovery and what we are seeing in there, because I do think one of the most common questions I get is business traffic recovering and what is it going to look like. And first of all, I wonder whether the old methods of measuring business travel will be the same in the future. But for now, it’s all we really have to really benchmark against 2019. I will say that as we look at business traffic three different ways, the first is from larger corporations that have a contract with United. The second from a set of demands from agencies that specialized in business traffic. And the third is based on ticket attributes. The third is clearly the most encompassing view as it includes small and medium-sized businesses that don’t have an agency or don’t have a contract for United. So, in Q4, the revenue recovery rate was between 70% and 85% for these three categories. In Q1, the revenue recovery rate for these three measurements range from 85% to 97%. And for the first two weeks of April, the recovery ranged from 95% to 101%. I think this data in the last two weeks of April was a surprise to us as we have seen more conservative measurements, start to approach 100%. The fact that large corporations are getting close to 100%, is a nice tailwind to United. As many of you know, this is critically important – critically important component to our revenues. I will also say that the recovery in global long-haul business is a few points of head of domestic. And all these measurements are just a good sign that our planned international revenue increases, our capacity increases are moving in the right direction. We obviously need more time to see if this trend will hold. But what I can tell you in the last week or so after reviewing this data become a lot more positive even as many of the headlines continue to predict a recession. As I have said in my opening statement, the trends for May look ahead of March. I can also confirm in absolute dollars the last 14 days have been the best booking days for business traffic revenue that we have seen since the pandemic. I will also add, since this step-up in business demand is very recent, we have not incorporated it into our revenue outlook for the quarter.Ravi Shanker That’s incredibly helpful. Thank you for the color there. And since my follow-up question was going to be about SMB versus enterprise corporate. I will switch it up and ask you about the cargo business. Obviously, a small portion of the business, but probably very volatile given that there was one of the bigger kind of pandemic era winners, how are you seeing that evolve through ‘23 and ‘24? And what’s the normalized level there?Scott Kirby Yes. So, I mean cargo stepped down in Q1 and stepped down exactly with our plan, still well ahead of 2019, which is nice to see. But we are seeing very low prices, low yields across the system, particularly outside of United. We have been – I think we have done a great job of holding yields where they are at through our – really the best cargo team in the world, in my opinion. But not only is air freight challenges now, but also sea freight where rates are incredibly low. So, we are holding our own. I think again, we are executing consistent with our plan, and we have got this baked in for the rest of the year. We do expect to see more and more pressure on cargo yields going forward. But the United team is executing in an amazing way. Our relative size to our primary competitors, you can see it in the numbers. And so I am still actually bullish about the business relative to 2019. But look, it’s last Q1 in particular, we reached an unbelievable high based on where we were with the pandemic and COVID. We didn’t expect we would be able to re-achieve that number, and we didn’t. But again, we are on plan.Ravi Shanker Okay. Thank you.Operator The next question comes from Sheila Kahyaoglu from Jefferies. Your line is un-muted. Please go ahead.Sheila Kahyaoglu Good morning everyone and thank you. Scott, I wanted to ask you maybe a cost question. You have been fairly up, spoken about airlines needing more employees for the same level of operations. And your ASMs per employee are now just 3% below 2019 versus 6% to 7% in the second half of ‘22. And presumably, there is some advanced hiring as you are preparing for new aircraft. Is there room to further close the gap versus 2019 on this basis as we think about ASM mix and new aircraft deliveries?Scott Kirby Well, I guess we will see. But I feel really good about what we have done with running with higher resources than we did pre-pandemic, it’s leading to the best operation that one of the countries run the best operation, frankly, that we have ever run. That’s great for our customers. That’s great for our brand. I also think it’s turning out at least right now in this environment to be the lowest CASM outcome, that by being able to run a reliable operation, most sensitivity [ph] and being able to run a reliable operation is what is giving us the best CASM results in the industry and given us confidence about CASM results going forward. So, I think we are at the right place at the moment. It’s obviously very – if the operating environment gets easier down the road, it’s obviously easy to adjust that, especially as we are growing just slip down the hiring for a month or two months and you are right back to where you were, so, easy to adjust, but I feel – I am really proud of how the team has done operationally. And I think it has been the lowest CASM outcome we could have had by running reliable operations.Sheila Kahyaoglu And if I could just ask a question about your premium performance, which was pretty good, premium relative to 2019, up 25% compared to total domestic up 5%. Can you break that out in any sort of way, whether it’s RASM or yield performance? How we should think about the continued growth there?Andrew Nocella Sure. I mean I have been really happy actually with our progress on the premium side in all of our cabins, particularly for Polaris. We have been just making a ton of progress in the Polaris cabin given the rebound in business traffic, but we still have more to come. In March, for example, our load factor was up 10 points year-over-year and 5 points versus 2019. We sold a lot of seats, but we sold business travel seats accounted for 7 points down year-over-year and premium leisure comp traffic compensated for that by being up 7 points. So, it just to offset it, but that came at a lower yield. So, we are carefully also trying to keep increased premium leisure demand and revenue created since the pandemic while accommodating more and more of traditional business traffic. There are lots of puts and takes with this given our load factors, but we do think that there is potential to get this done, particularly as we continue to integrate the new 737s, which come into our fleet with a large amount of premium seating. Most of our growth is tilted towards premium seating at this point, particularly as we retire the single class regional jets from the network. And so I will say that I think we are just hitting on all cylinders on this front and the progress we are seeing in Polaris in particular, with higher load factors, backfilling temporarily lease or premium leisure. And ultimately, as long-haul business traffic, as I said earlier, some of it back, faster, we were optimistic that we are going to get Polaris completely back to where it was in terms of relative profitability margin later this year.Sheila Kahyaoglu Great. Thank you.Operator The next question comes from Scott Group from Wolfe Research. Your line is un-muted. Please go ahead.Scott Group Hey. Thanks. Good morning. So, when I look at domestic capacity for the second quarter, it’s back below 2019 levels. It’s only up marginally from Q1, which is a lot less than normal. I guess is this that – when you go back to the plan from the beginning of the year, is this a change in how you are thinking about domestic capacity? Is this a sort of a one-off quarter, or is this more of a multi-quarter, more prolonged view of domestic capacity?Scott Kirby I do think it is a little bit lower than Q1. I think you are absolutely correct on that. It’s where the numbers shook out. We clearly leaned as hard as we could, as quickly as we could into global long haul, which really turns on in March and April, and that’s what shook out for domestic because we thought that was the best place to put the capacity. But you should see a little bit more domestic ASM growth in the second half than what we are seeing in the second quarter.Scott Group Okay. And then I know it’s early. You talked about next year, another focus on mainline gates. Any early preliminary thoughts on how you are thinking about overall capacity growth in ‘24?Scott Kirby I don’t think we are prepared to give our guidance for ‘24. We are excited to continue implementing the United Next. And most importantly, for domestic or excited to make sure that we rebuild the connectivity as quickly as we can back to where we were pre-pandemic. And I think that’s our biggest driver of domestic RASM next year and that’s really all I can say at this point.Scott Group Thank you.Operator The next question comes from David Vernon from Bernstein. Your line is un-muted. Please go ahead.David Vernon Hey. Thanks guys and thanks for fitting me in here. Two questions for you guys on the new seasonality. Andrew, can you maybe talk a little bit more about some of the short-term challenges and opportunities you are dealing with from the revenue management perspective, things like overbooking and how you are sort of managing yields with this, this sort of shift in customer behavior, which seems relatively new? And then, Scott, I would love to get your long-term perspective on what do you think United might need to do a little bit differently if we are going to be relying more on the leisure market, things like do you still get the same bang for the buck out of like a Polaris launch, for example, if this shift continues longer term? Thank you.Andrew Nocella Sure. What I would say is the booking curves have adjusted. They are both international and domestic are booking further out, the international more extreme than domestic. And so we are – RM systems have adjusted for this very, very quickly, and we are booked ahead in our global long-haul system based on the change in the booking curve. Domestic has also moved out. There is I think 4 points greater outside of 21 days and there is inside of 21 days right now. And again, RM systems have adjusted for that. That being said, we are managing to keep yield domestically as close as possible to where we were last year. And as we look at this, we expect we are going to run lower load factors in our domestic entity in Q2 as a result. That’s part of our plan. We think it’s the right strategy. And we do think we will be able to fill up some of these seats were closer in higher yield in business. And the back that business has had significant recent recovery in the last two weeks makes me even more bullish that we have executed the right strategy there and that we do have capacity available to accommodate closer in business demand to the extent it materializes in Q2.Scott Kirby And on the longer term, it’s an interesting question. First, I wouldn’t conclude that business – we will see what happens with business demand. In the near-term, though the most obvious things we can do are the things that are happening in revenue management. Andrew talked about we have the best revenue management system and team in the industry, that is true. We made huge investments coming into the pandemic included it during the pandemic. And our team is just really like none of these things, they are generally not that surprising. We didn’t really appreciate fully seasonality shift, but the revenue management system is working well. And that’s one of the obvious places Andrew talked also about pivoting the network. It’s another one that straightforward things to do, fly more to Florida, more leisure destinations. In terms of things like Polaris Class, Andrew also talked about the fact that while we have less business traffic flying internationally, we have a lot more premium leisure. So, I wouldn’t anticipate, at least in the near term, any radical shifts in the strategy and mostly probably come in terms of capacity deployment, more than anything which one could have fungible assets, that’s relatively easy for us to do.Operator We will now switch to the media portion of the call. [Operator Instructions] The first question comes from Claire Buchi [ph]. Your line is un-muted. Please go ahead.Unidentified Analyst Hi. I wanted to ask about summer operations. You mentioned cutting flights in New York earlier in the call. I wanted to ask about what other operational changes United is making this summer to avoid a repeat of the disruptions of last summer?Torbjorn Enqvist Hey Claire, this is Toby. Well, we have done a lot. Let’s talk about Newark and New York first. So, we work with the FAA. FAA gave us a waiver for the summer. So, we are down about 30 flights per day in Newark and at peak times that’s going to make a big difference. Also, like Andrew said, we are not the only one. So, for the first time in a long while in New York, we actually will be scheduled to on a blue sky day, at least what the capacity of the airport can actually hold. So, we are really bullish on that. And on top of that, and Andrew mentioned this in his remarks as well, we are actually going to have 17 new normal mainline gates in the brand-new terminal in New York. And if you guys haven’t been there, it’s a fantastic terminal. I mean it’s a world-class terminal replacing a 1969 [indiscernible] terminal that we were in last year. So, just right up the bat right there, that’s going to be a huge improvement. The other thing – again, United actually did, if you guys remember, we actually did pretty well last year, last summer. I think the biggest issues we had was actually the infrastructure, especially in the Transatlantic. And now actually, we are just in Europe two weeks ago and talked to our biggest Air Force there Heathrow, Frankfurt and Munich. And they are 1 year ahead of all the hiring and all the other things there. So, again, it’s summer, it’s peaked up. It’s not going to be perfect, but we are in a much, much, much better place than we were last year and we visited, I mean all the terminals in Europe is actually open this year. We had large traffic terminals in Europe last year, both in Amsterdam and Heathrow and others that were even open, and they are wide open and open for business this year. So, we are – again, we are – we call it summer readiness. We are not taking it lightly. Summer is our Super Bowl, is the toughest time to operate. It’s going to have some tough base really with weather and things, but we are going to be in a much, much better place than we were last year.Unidentified Analyst I just – Delta said that they were flying less than they had expected. They were trying to reduce the turnaround time for maintenance on aircraft. Is there just any of that detail that you can share with us?Torbjorn Enqvist Well, I would just – I will take that, too. We have already done that. So, when we talk about we are not building our own like it’s 2019, we built those buffers in prospectively and in advance. And that’s why we ran the best operation in the country because we were ahead of the curve. And perhaps others are catching up to that, but we were ahead of that curve, and that’s what led to the best operation in the country in the first quarter.Unidentified Analyst Thank you.Operator Our next question comes from Leslie Josephs. Your line is un-muted. Please go ahead.Leslie Josephs Hi. Thanks for taking my questions. Just curious on the retrofits, how many of those do you expect to get this year and how many were you expecting before? And what was the outlook for 2024? And then it’s been almost 7 years since you have launched Polaris and just curious if you are and how are you thinking about kind of the successor to that?Scott Kirby Okay. That’s a good question, and I will not answer the latter question other than the teams are always working on innovations at United across all of our business functions. And I am sure somebody somewhere is working on something great when it comes to seats and we will leave it at that. In regards to retrofits, and I don’t have the numbers here. We will have somebody call you back. But the reality is the supply challenges across the board whether it would be IFE systems, chips, seats and many other things are just more challenging than they have ever been in our business. And while we converted our first A319 a few weeks, it should be flying hopefully, any day now in the new interior, and we have multiple lines that we will be doing this summer. So, you will see a rapid increase in the number of aircraft with the signature interior through retrofits and through new aircraft. The total time to convert all the aircraft is just going to be longer than we expected, unfortunately, probably by a year or 2 years, to be frank. So, we will get there. It will just take a little bit longer than we had originally intended. But you will see material progress. We will get some of the numbers out to you separately by the end of this year.Leslie Josephs And do you expect that to hurt your revenue premium at all for people that are booking up or choosing United because it has those features?Scott Kirby No, what I would tell you is that the increasing of getting on an aircraft, the United signature interior is going to go up rapidly. It’s just the tail of this is going to take a little longer to get done. So, our investment in our brand and our products and our services, and how we are differentiating ourselves from our competitors, I think our customers already see it. And they are going to see it a lot more in the coming quarters. It’s going to be a little bit slower than we had hoped, but I know people are noticing it already. We can see the NPS scores on these converted aircraft are definitely the new aircraft and we are excited to get it done as quickly as we possibly can.Leslie Josephs Thank you.Operator The next question comes from Alison Sider. Your line is un-muted. Please go ahead.Alison Sider Thanks. Yes. I was wondering if you could talk a little bit about anything that United might be doing kind of in the wake of the handful of mirror collisions that the industry has been seeing. Are you – are there any particular steps that you are taking to respond to that, or like do you have any theories about what’s been going on?Scott Kirby So, I am proud of the whole aviation industry for the level of safety that we have, which is at least an order of magnitude higher than any others appropriately so. And when aviation professionals talk about safety is our number one priority, that is something that’s deeply embedded in the DNA and everyone, not just at United, but across the industry. United Airlines, in particular, is at the tip top of that pyramid in terms of safety. Our team, I think is doing a really good job of saying in today’s environment, where you are coming back out of COVID, and there is new people working in airports or new air traffic controllers or whatever it is, and increasing the amount of training, the time in training, quality of training. We are spending more money and a lot more time and resources there. And in fact, we put a Vice President, a guy named Mark Champion [ph], who has been a champion for safety for his entire career into a new role where he is exclusively responsible for safety and quality of training for our aviators. And I think we are leading on that and continuing to push to make the system what is already the safest system in the world even stronger, and I feel good about the have there on and Mark being charged with that responsibility and having really as many resources as he need to the one person that doesn’t have to live to his budget because he can do whatever he needs to do to make sure that we keep this the interest steep as we have always been.Alison Sider So, when you look in some of your own data, like do you see any kind of trend or any sort of connection between sort of the newness of people and incidents or potential incidents or anything like that?Scott Kirby Well, one of the great things about aviation is we use and we share data. We have great safety systems where our own employees can report without repercussion to them that encourages reporting because it’s been, I guess well over a decade since there has been accidents [ph] in the United States. What that means is we have to look for, say, that are close to the out of tolerance, throughout a tolerance to find it and sharing that data across the industry is a strength that I think is unique to aviation and what leads to our higher safety standards. So, we have teams of people and our competitors have teams of people. And on this one, we don’t compete. We share the data with each other on doing that. And they are always, always, always looking for no matter how good we get, what’s the next place that we can get even better. That process as well, it’s continuing to work well. I think they have an even elevated sense of responsibility right now as we are coming out of COVID and feel great about where we are headed.Alison Sider Okay.Operator I will now turn the call back over to Kristina Munoz for closing remarks.Kristina Munoz 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.Operator Thank you all. This concludes today’s conference. You may now disconnect.