The operator welcomes listeners to the United Airlines Holdings Earnings Conference Call for the Third Quarter 2023 and introduces the host, Kristina Edwards. The call is being recorded and participants are reminded that no portion of the call may be recorded without permission. Kristina Edwards discusses the Company's earnings release and cautions that forward-looking statements may differ from actual results. Non-GAAP financial metrics will be discussed and reconciliations can be found in the earnings release.

The CEO of United Airlines, Scott Kirby, is joined by other executives on a call to discuss the company's results and outlook. He expresses concern for the escalating conflict in Israel and announces the company's efforts to assist customers affected by the situation. Kirby also welcomes new CFO, Mike Leskinen, and congratulates Kristina, a member of the executive team, for being recognized as one of the top 40 Under 40 by Crain's Chicago.

In the third quarter, United Next showed positive results and profitable growth, despite a spike in fuel costs. The company's diverse revenue streams and strong operations have allowed them to handle variations in demand and achieve record-high revenue of $14.5 billion. United's loyalty program and global network contribute significantly to their success, and the company plans to share more details about this at an investor day in 2024. Their geographic diversity also brings some short-term risks, but the company is seeing momentum in both business and leisure travel.

United Airlines has become more flexible in shifting capacity to meet demand in both business and leisure markets. They have also improved their segmentation efforts, offering customers a range of options from Basic Economy to Polaris. This has allowed United to win market share and improve their results, even in a challenging industry environment. They expect to see a shakeout in the domestic market by 2024, leading to improved margins. Additionally, United is closely monitoring the airline industry's revenue to GDP ratio, which has declined in recent years. They hope to make up some of this decline, which would positively impact their bottom line.

The speaker concludes by expressing pride in the team at United and their ability to produce strong results despite a tough industry environment. They also believe that United has a lot of potential for growth in the future, thanks to United Next and their diverse revenue streams. The speaker then hands over the floor to Brett Hart, who addresses the current conflict in Israel and the company's efforts to prioritize safety for their customers and employees. They also mention changes made to their operation at Newark to improve reliability and reduce delays.

The FAA has granted extensions to New York airspace waivers, allowing for a reduced flight schedule at Newark and improving the travel experience for customers. United has carried a record number of passengers in the quarter and is slowly increasing China capacity. The pilots have ratified their agreement and negotiations are ongoing with flight attendants.

In the third quarter, United Airlines saw a 12.5% increase in total revenue, with TRASM down 2.8% and PRASM down 1%. Capacity increased by 15.7%, slightly lower than expected due to changes in Hawaii flying levels. The company's United Next commercial strategies have been successful in differentiating United from its competitors. Demand for Atlantic and Pacific flights was strong, and this trend is expected to continue in the fourth quarter. Domestic PRASM remained consistent with the second quarter, while international PRASM was up 1.3%. For the fourth quarter, United expects a 10.5% increase in total revenue and a 4.5% decrease in TRASM.

United Airlines is planning to resume limited service to Tel Aviv in November, which accounts for 2% of their consolidated capacity. The company is seeing a resurgence in demand for Pacific flights, resulting in an increase in long-haul international scheduling. They have taken advantage of this demand by adding capacity to key markets and plan on continuing this growth in the future. United has also wisely invested in gauge rather than scope or depth in domestic markets. For 2024, they plan on little to no growth in domestic flying and expect to fly at a similar level of capacity as in 2023. The company has no material changes planned for their premier status program in 2025.

United Airlines has carefully managed their premier population to maintain valuable benefits for each member. They offer premier members access to more premium seats than their competitors and have worked on perfecting revenue segmentation, offering a variety of products to appeal to different customers. They have seen success with their Premium Plus cabin and plan on increasing first class seats by 80% by 2027. On the other end of the spectrum is United's Basic Economy product.

Basic Economy has made United more competitive and given customers more choices. It now accounts for 12% of domestic passengers and is expected to become even more competitive with the arrival of new jets in 2024 and 2025. This has changed the competitive dynamics of the industry and United's diversified revenue streams and network provide resiliency. The company's focus on RASM-accretive gauge growth and cost convergence with low-cost providers sets it up for future success. The speaker, Mike Leskinen, is excited to join the United executive team during this transformative time.

The speaker is excited to lead the finance team at United and discusses the company's third quarter results. They delivered higher earnings than expected and attribute this success to the hard work of the commercial team. However, fuel prices and the recent events in Tel Aviv have impacted their outlook for the quarter. They expect capacity and CASM-ex to increase in the fourth quarter, but this is subject to change depending on the situation in Tel Aviv. Overall, they are proud of their results despite the challenges faced in the industry.

In the fourth quarter, the company expects earnings per share of $1.80 with an average fuel price of $3.28. However, if Tel Aviv flying is not included, earnings per share would decrease by $0.30. The company is facing challenges with labor and maintenance expenses, but they are managing expenses through capacity growth and utilization improvements. They are currently working on their 2024 budget and will provide guidance in January. The company received 18 Boeing 737 MAX aircraft and one Airbus A321neo in the third quarter, and will receive 20 more 737 MAX aircraft in the fourth quarter. Due to aircraft shifting into 2024, adjusted capital expenditures for 2023 are expected to be $8 billion. The company recently announced an order for 60 A321neos and exercised options for 50 787s for delivery in 2028 and beyond. They are focused on managing the delivery skyline for the future and retiring older aircraft. The company ended the quarter with almost $19 billion in liquidity.

The speaker concludes their prepared remarks by acknowledging the challenges faced by the industry, but remains confident in their strong financial results. They plan to continue delivering industry-leading cost performance and are focused on growth at their hubs. The Q&A session begins with a question about the large difference in CASM between United and other airlines, and the speaker attempts to rank the drivers of this difference, including consumer weakness, Basic Economy, loyalty, and advanced booking.

The question of why certain airlines are more profitable than others is important because the business models in the industry have changed significantly. In the past, it was assumed that lower cost carriers would have an advantage, but now the cost gap between legacy carriers and low-cost carriers is shrinking. This is due to higher inflationary costs and the inability to run airlines at high utilization levels. Additionally, large labor cost differentials are no longer possible. Despite this, United's domestic network remains profitable, not just their global network.

Low-cost carriers have a difficult time driving costs lower with larger planes, and United plans to increase domestic gauge even further. Market saturation and the mismatch of gauge and connectivity are causing low marginal RASMs for some competitors. Expansion opportunities for this business model are limited, but some competitors plan to continue growing in 2024. However, the percentage of ASMs in new markets is a factor to consider.

United Airlines' fast growth rates have resulted in a high percentage of new capacity, which can be challenging to manage. However, the company's focus on maintaining a diverse range of revenue streams and offering premium seating options has helped to stabilize its earnings. United's business model can support higher gauge planes, which will lead to cost conversions and ultimately benefit the company. Additionally, United's focus on global markets and domestic gauge has proven successful in the third quarter.

United Airlines CEO Scott Kirby discusses the company's focus on basic fares, which will allow them to be more competitive and reduce the amount of revenue they spill to other carriers. He also mentions the company's plans for moderate domestic growth and their focus on building their Asia Pacific line. Kirby expresses confidence in the industry's ability to rebalance and believes that United, along with a few others, will come out on top due to their diversified revenue streams. Kirby's response is followed by a question from Jamie Baker about the optimal amount of domestic capacity, to which Kirby responds by highlighting the industry's overall revenue growth and profitability being concentrated in just two airlines, and United's goal of providing a better product and service experience for customers.

The speaker discusses the need for their airline to cater to all customers, not just one specific market. They believe that air travel is not a commodity and their results prove this. They also mention a recent top-up order for 787s, which is one of the largest widebody orders for a US carrier. They believe there may be a widebody shortage in the future and their recent order is for 2028 and beyond.

United Airlines is confident in its plan to pivot towards global growth in the latter part of the decade. They have secured positions for their fleet of 777s and 767s that need to retire. With delays in the supply chain becoming persistent, they are controlling Skyline for a longer period of time. They will make adjustments to the order book and delivery times to maximize returns for shareholders. There is also proposed legislation that may cap merchant fees for credit card transactions, but it is still in the early stages.

The speaker, Scott Kirby, believes that implementing a bill to regulate credit card fees would be bad for consumers, as it would eliminate rewards programs and potentially harm small businesses. He also argues that the issue lies with middlemen rather than credit card companies themselves, and praises the strong cybersecurity of the credit card process. He believes that further examination and regular order is necessary before making any decisions on the matter.

The speaker believes that examining legislation through regular order is the correct way to pass important laws. They also address a question about cost performance and how supply chain issues may affect it. They mention a 4Q CASM headwind that was caused by a captain upgrade issue and violence in Tel Aviv. They expect to mitigate these issues in 2024 and beyond.

The paragraph discusses the issue of maintenance costs being higher than expected for United Airlines. The company is facing cost pressures and inflationary cost pressures, as well as labor and maintenance cost pressures. The company is committed to managing costs and maintaining industry-leading CASM. The increase in maintenance costs is partially due to increased need for spare parts and larger work scope for engine repairs. The company is not giving 2024 guidance at this time, but will provide guidance on the January conference call. The company is working to make incremental flights profitable.

United Airlines is facing constraints in their growth due to the need to hire staff before adding capacity. However, they are working to optimize this and are seeing an increase in Basic Economy passengers due to better management of close-in bookings and the implementation of their United Next plan. This provides customers with more choice and is a contributing factor to their strong performance in the quarter.

The speaker discusses the diversity of aircraft in their fleet and how it allows them to compete effectively with other airlines. They mention potential delivery delays and how they plan to manage them by properly sizing their workforce and using older aircraft. They are excited about the lower costs and benefits of the MAX 10 and A321, but do not expect them to significantly impact CASM until 2025.

The speaker clarifies that the company is not trying to cater to every market in the US, but rather offer a diverse range of products to appeal to all types of customers. This includes both business and leisure travelers, who can choose from Basic Economy to Polaris class.

United Airlines' diverse set of revenue streams, including its MileagePlus program, allows them to cater to different types of customers and offer a range of product choices. While some may see this as complicated, it is what the market and customers want. United is not trying to be all things to all people, but rather serve the 200 million passengers they fly annually with products that suit their needs. The executives also address speculation about peak international demand, stating that they continue to see strength in the transatlantic market.

The speaker mentions that the airline industry has seen positive changes in Southern Europe and expects this trend to continue. However, they also mention that they will be reducing capacity growth in the Atlantic region and focusing on Asia, which is still strong. They emphasize their strong international presence and plan to take advantage of it in the future. The speaker also mentions the constraints on industry capacity, particularly for widebody aircraft, and highlights their leading international gateways. This gives them an advantage over other carriers and they plan to capitalize on it.

Scott Kirby, CEO of United Airlines, believes that there will be adjustments in the airline industry in the second half of 2024. He attributes this to a structural change in the industry, stating that air travel is not a commodity and that product, service, and experience matter. United has implemented changes such as using larger aircrafts with lower costs, offering Basic Economy fares, and focusing on leisure markets in order to create a more competitive product that customers will choose. Kirby does not specify what these adjustments will be, but is confident that United's approach will help them stay ahead in the industry.

The speaker discusses the success of United Airlines and their Basic Economy product, which has improved due to changes in strategy and competition. They also mention their satisfaction with the current plan and their skepticism regarding the stock market's response. The speaker also congratulates someone on their promotion.

The speaker congratulates Kristina and Mike on their achievements and asks about the impact of infrastructure issues in the New York area on capacity and ticket prices. The company's focus is on providing a good experience for customers, and they believe New York and New Jersey have not been a good experience for a long time.

The main reason for flight delays is due to airports being unable to handle the number of flights scheduled. The company is grateful to the FAA for addressing this issue and is focusing on serving customers by upgauging flights, which results in lower costs per seat and a better experience for customers. This is a win-win situation for everyone, as it will lead to lower costs, fewer disruptions, and happier customers. The company is also taking steps to minimize irregular operations, which can be costly.

During the conference call, Andrew Nocella from Delta Airlines discussed the company's plans for capacity and air traffic control. He mentioned that they are still finalizing their plan for 2024, but they expect slow growth domestically due to constraints such as OEM issues. He also mentioned that their focus is on expanding overseas, particularly in the Pacific region. When asked about status matches and the company's push to premium, Nocella did not provide specific numbers but stated that they are seeing requests for status matches since Delta made changes last month. He also mentioned that the company is behind on upgrading cabins due to supply chain issues, but expects things to catch up soon.

The speaker gives a little commentary on the status and constraints of their signature interiors program, which is about a year behind schedule. However, they are still taking in new deliveries and are targeting 2026 for completion. The speaker also mentions that United Airlines planned ahead for the recovery in premium demand by building more club space and doubling the number of premium seats. This preparation allows them to not have to change their programs in response to the current situation.

The speaker discusses the shift towards Basic Economy and how it is likely due to the availability of larger aircraft. They also mention the situation in Israel and how it is not affecting flight cancellations in other areas. The speaker then elaborates on the changing landscape of the industry and how investing in quality product and service is important for success.

Mike Leskinen and Justin Bachman discuss the changing competitive landscape in the airline industry, specifically the trend of cost convergence and the ability for airlines to offer competitive prices while maintaining a better product. They note that this could potentially impact the competitive landscape in the future, but it is ultimately up to other airlines to adapt and compete. The call concludes with a reminder to contact Investor and Media Relations for any further questions.

This summary was generated with AI and may contain some inaccuracies.