The operator, Brianna, welcomes everyone to the United Airlines Holdings Earnings Conference Call for the Second Quarter 2024. Kristina Edwards, Managing Director of Investor Relations, will be hosting the call and discusses the company's forward-looking statements and financial metrics. The call is being recorded and participants' consent is assumed. Relevant documents and reconciliations are available on the company's website.

The CEO of United Airlines, Scott Kirby, discusses the company's recent results and outlook, highlighting their focus on improving safety and thanking employees for their operational performance. He also mentions the industry's development and how other US airlines are experiencing pressure due to unprofitable flying, which is now being cancelled. This is expected to result in a moderation of domestic industry capacity growth in the fourth quarter, providing a positive setup for the rest of the year and into 2025.

United has been ahead of the curve in responding to the challenges posed by COVID-19 and has consistently outperformed the industry in terms of domestic PRASM growth. This is due to the excellent execution of their United Next strategy and the dedication of their employees. However, they are also taking proactive steps to ensure they meet their targets, including cost management and reducing domestic capacity. The industry is starting to rationalize and United's United Next plan remains the winning strategy.

In the fourth paragraph, Brett Hart discusses the company's record operational performance in the second quarter, with the best on-time performance, completion factor, and seat cancellation rate since the pandemic. He also mentions that Newark, the company's largest hub, broke its own records and credits the FAA waiver for enabling these results. Six out of seven hubs departed more on-time flights than competitors, and improvements made in the past year have led to a better customer experience and efficiency benefits. Hart thanks frontline employees for their commitment to operational excellence. He also mentions that customer satisfaction, measured by NPS scores, is at its highest since the pandemic, and the company is investing in product improvements, such as introducing Tillamook ice cream on board.

In the fifth paragraph, the speaker discusses the success of the United app, which has new features such as seat preferences and live radar maps. They also mention that pilot and flight attendant hiring classes have resumed after a brief pause due to Boeing delivery delays. The speaker then hands it over to Andrew, who reports that United's total revenues in Q2 were $15 billion, up 5.7% year-over-year. TRASM was down 2.4% and United's unit revenues are expected to be the best among its peers. Domestic PRASM fell by 1.9%, international PRASM fell by 3.6%, and cargo yields have stabilized at higher levels. MileagePlus revenues were up 13%.

United's three key revenue segments, including frequent business travelers, premium revenues, and contracted business revenues, all saw increases in the quarter. Demand for premium capacity, including Polaris and Premium Plus, was strong and outperformed non-premium seats. Basic Economy revenues also remained strong. United plans to continue increasing the number of basic seats offered while expanding higher margin premium capacity. Despite trailing expectations, demand for United and the industry was strong but could not keep up with the added domestic capacity, which affected yields.

The article discusses the expected growth and changes in domestic industry capacity for the airline industry in the third quarter of 2024. It predicts a decrease in capacity in the second half of the quarter, as well as a stabilization of unit revenue trends in Latin America. The Pacific region is expected to continue to have negative PRASM, but this is expected to improve in the fourth quarter. Premium cabin RASM is expected to outperform coach, and United is seeing growth in road warrior customers. The article also mentions a decrease in competitive capacity overlap on United's nonstop routes, which is expected to improve unit revenues in the second half of the year.

In the second quarter, United Airlines saw an improvement in advanced PRASM and yield, but the pivot to the United Next plan will only impact half of Q3. The company plans to cut 300 basis points of domestic capacity in Q4 to accelerate RASMs. The team is thanked for their hard work and the company delivered pretax income of $1.8 billion and earnings per share of $4.14, exceeding expectations. Their approach to managing the business has consistently delivered on earnings guidance, despite industry capacity challenges.

United Airlines is confident that their United Next strategy is working and has successfully differentiated their business, leading to higher profitability. In the second quarter, unit costs (excluding fuel) were up 2.1% due to 8.3% capacity growth. This was driven by investments in technology and improved processes by the operations team, resulting in faster recovery from irregular operations and lower crew-related disruption expenses. Additionally, the company doubled down on expense management to meet their EPS guidance, leading to further cost improvements. Some maintenance events were also delayed, affecting CASM-ex by 0.5 points. Looking ahead, United expects industry capacity rationalization to take effect in mid-August, supporting their confidence in their third quarter and full year trajectory. Their third quarter system capacity plan will moderate by approximately 3 points compared to the second quarter.

In the third quarter, United Airlines will see a reduction in capacity due to Hurricane Beryl and other factors, leading to higher CASM-ex. However, they expect their earnings per share to be in the range of $2.75 to $3.25 for the quarter and fall within their original range of $9 to $11 for the full year. This is due to a better balance between supply and demand in the fourth quarter, leading to higher yields and profitability. United also expects to outperform the industry in terms of revenue growth and be one of the top two airlines in terms of industry profits in 2024. They received several new aircraft in the second quarter and expect to receive 66 more in 2024, with adjusted capital expenditures less than $6.5 billion. In the quarter, they generated $1.9 billion in free cash flow and invested almost $1 billion in the business.

United Airlines recently took advantage of their strong financial position to prepay a high interest loan, reducing their interest burden. The company had a strong performance in the second quarter and is confident in their United Next plan. During the Q&A session, the company was asked about the impact of American Airlines' distribution and corporate contract revisions, to which they responded that they have maintained long-term partnerships with their agencies and corporate partners.

During the time period discussed, the company focused on gaining long-term market share and making their partnerships stronger. They do not expect any sudden benefits from the changes made. The recovery of the airline revenue to GDP ratio has stalled, but the company believes it will eventually increase as demand for air travel is inelastic and the ratio declines when airlines have too much capacity.

The speaker discusses the recent decrease in the supply-demand ratio and the rapid response from airlines to adjust their capacity. They also mention the success of United's premium business model and how other airlines are attempting to copy it. The speaker believes it will be difficult for other airlines to replicate United's segmentation strategy and customer service without operating from business center hubs.

The ULCC business model is based on simplicity rather than complexity, and the company believes that their lead in the premium market is long-term. The company's cost execution in the quarter was strong, and there are opportunities for cost efficiency in the near term. However, there are also headwinds such as labor deals and regional flying, and the company continues to invest in their premium product. On the other hand, the company has an idiosyncratic tailwind in terms of gauge and has level loaded their skyline for aircraft.

Conor Cunningham asks about United's plan if capacity reductions are only temporary and someone starts to cheat again in the future. He notes that United's margins have slipped and asks about their strategy moving forward.

The speaker discusses the current state of the airline industry and the impact of unprofitable capacity on competitors. They note that the network health of competitors is worse than ever before, with margins for the worst quartile of airlines being negative. This, coupled with the lack of new opportunities for growth, suggests that permanent change is on the way and the capacity may not return quickly. However, the exact timing is uncertain.

During a conference call, Conor Cunningham asks United Airlines' Andrew Nocella about the company's plans for the fourth quarter and the implications for 2025. Nocella responds by saying they will continue with the fundamentals of their United Next plan, which includes improving connectivity and increasing the use of larger narrow-body aircraft. He also mentions that they are currently 110 aircraft short of their desired fleet mix, but are confident that they can push margins in the right direction. When asked about the 3 point reduction in domestic capacity in the fourth quarter, Nocella declines to give specific guidance at this time.

Michael Linenberg and Andrew Nocella discuss the international market and how United Airlines is not affected by the recent capacity issues faced by other carriers. They mention a pivot in the Pacific and Latin America regions, and the success of their plan in the Atlantic. They also mention their positive outlook for international operations in the future. Scott Group from Wolfe Research asks the next question.

Mike Leskinen and Andrew Nocella of the Scott Group discussed the company's fourth quarter guidance and their expectations for the second half of the year. They anticipate a positive inflection in the industry, but the exact timing and magnitude is difficult to predict. The company has a wide range for their earnings per share and is committed to hitting something within that range. They also expect September PRASM for domestic flights to turn positive.

The speaker discusses the expected performance of the company in the upcoming months, stating that July will likely be the worst month of the year. They also mention that there will likely be little change in CapEx for next year. In response to a question about corporate recovery, the speaker says that there has been slow but steady improvement, but it will take time to fully recover. They also mention that they have paid down high coupon debt and may continue to do so in the future.

United Airlines' Mike Leskinen discussed the company's current debt-to-EBITDAR ratio, which has returned to pre-pandemic levels due to their strong balance sheet and investments in growth and people. This has allowed for flexibility in considering investor returns and further deleveraging. Sheila Kahyaoglu asked about the spread of unit revenue performance between premium and economy cabins, to which Andrew Nocella clarified that while premium cabin RASM was up, the contribution was down due to the inclusion of Economy Plus, which was affected by the yield weakness of the main cabin.

In paragraph 22, the speaker discusses the impact of Polaris and Premium Plus on PRASM and domestic first class, stating that they saw a low single digit increase year-over-year. They also address the issue of oversupply in the Atlantic and regional capacity, noting that they have made careful capacity allocation choices and are performing better than their competitors. The speaker also mentions that capacity to Southern Europe has pushed demand to its limits, but overall they are pleased with their performance. In response to a question about future CapEx, the speaker clarifies that it should be in the $7 billion to $9 billion range beyond 2024.

The speaker is addressing concerns about the company's low multiple and below-target margins. They acknowledge the frustration of investors and their focus on creating shareholder value and free cash flow. They believe that their United Next strategy is working and that the divergence between high and low margins is evidence of this. They are confident in the future and believe that the current challenges are temporary.

The speaker discusses the current state of the company and its strong competitive position with a premium product that cannot be replicated by competitors. They mention that margins are increasing and this will result in higher free cash flow and returns to shareholders. They ask for patience as they continue to implement their strategy. The speaker also mentions that demand for China is down and it is difficult to fly there due to lack of Russian overflight ability. They state that this is the new normal and they have reallocated capacity in a more profitable way. The speaker also mentions that last year there was overcapacity in the domestic market, but United did not experience it.

During a recent earnings call, Andrew Nocella, United's Chief Commercial Officer, was asked about the differences between the second half of 2023 and the current situation. Nocella explained that there are a variety of factors at play, including capacity, passenger behavior, and pricing behavior. He also mentioned that United has worked to protect themselves from industry changes, but the significant increase in capacity in the current quarter has put pressure on yields. However, Nocella is optimistic about the fourth quarter, as United has implemented successful strategies in the past and the industry is changing in their favor.

The speaker is asked about the industry capacity needed to balance demand and supply in the fourth quarter, as well as the timing of the upcoming Investor Day. The speaker also mentions a new business initiative called connected media and the company's focus on innovation to drive earnings.

The speaker discusses the expected increase in United Airlines' revenue next year and the potential impact of resuming flights to Tel Aviv. They also address concerns about low-cost carriers and their evolving business models in the industry.

The speaker outlines a series of steps that airlines typically take when facing financial problems, including attempting to grow, changing their network, adjusting their business model, and shrinking. They note that these solutions are often simplistic and difficult to implement without incurring additional costs. The question is then turned over to Scott, who is asked about the impact of aircraft delivery delays on the industry's efforts to reduce emissions.

Scott Kirby, CEO of United Airlines, believes that sustainable aviation fuel is the key to decarbonizing the aviation industry. While more efficient airplanes can help, they only provide small improvements. United is investing in sustainable aviation fuel through their United aviation fund, as this is an industry that is still in its early stages and requires research and development to be commercialized. Kirby stresses the importance of focusing on this goal in order to successfully decarbonize the industry.

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