United Airlines Holdings, Inc.

Good morning, and welcome to United Airlines Holdings earnings conference call for the fourth quarter and full year 2019. My name is Brandon, and I'll be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. At that time, if you have a question, please press star followed by one on your touchtone phones. This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed, or rebroadcast without the company's permission. 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, Mike Leskinen, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Thank you, Brandon. Good morning, everyone, and welcome to United's fourth quarter and full year 2019 earnings conference call. Yesterday, we issued our earnings release and separate investor update. Additionally, this morning, we issued a presentation to accompany this call. All three of these documents are available on our website at ir.united.com. Information in yesterday's release and investor update, the company presentation, 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 other reports filed with the SEC by United Airlines Holdings and United Airlines for more thorough description of these factors. Also, during the course of our call, we will discuss several non-GAAP financial measures. For 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, investor update, and presentation, copies of which are available on our website. And now I'd like to turn the call over to Oscar.

Thank you, Mike. It's a pleasure to join you all this morning. 2019 was a banner year for us at United, highlighted by a four-quarter streak of growing profit margins. This winning streak allowed us to reach our 2020 adjusted EPS target of $11 to $13 per share, one full year ahead of schedule. This incredible performance would not have been possible without the dedication of the finest collection of airline professionals in the world. So I want to thank the 96,000 members of the United Family who worked so hard to serve our customers. I'm also pleased that they will share in our success with a profit-sharing payment that's on average 45% higher than last year. With all that we've had to overcome in 2019, there is no group of airline employees in the world that is more deserving. You'll hear more details about our financial performance from Scott and Jerry, but I also want to quickly touch on our fourth quarter results. Our adjusted earnings per share of $2.67 was 11% higher than the fourth quarter of last year. This reflects 50 basis points of adjusted pre-tax margin expansion in this last fourth quarter, which, as I mentioned, is the fourth consecutive quarter that our pre-tax margin has grown in the fifth consecutive quarter on an adjusted basis. As you'll hear today, we're all quite proud of what we accomplished last year, but I'm most excited about what it means for our ability to plan and deliver for our customers, employees, and over the long term. And that also includes the announcement that we made at the end of 2019 about the leadership of this company with keeping this bright future in mind. Thinking back to where United was when I took over as CEO in September of 2015 and where we are today, this company's success is a testament to the power of long-term commitment to our proof, not promise, philosophy. By every metric and benchmark by which the health and strength of a company is measured and judged, the United of today finds itself in a much stronger position than the United of four years ago. I made it a personal priority to guarantee our future by assembling a deep badge of talent in order to give our customers, employee base, and investors confidence in our direction and leadership. Today, I am 100% confident that we have the absolute best leadership team of any airline, hands down. Taking advantage of that talent and cumulative experience by initiating a deliberate, well-planned, and transparent transition is what healthy companies do. And that's exactly what we're doing between now and the end of May when I'll assume my new role as executive chairman. It was important for us that preserving this continuity and my partnership with Scott means we'll continue to work to capitalize on the bright future that lays ahead, not just in 2020, but through the new decade. That's why we're eagerly anticipating the chance to get together for Investor Day in March to share more about that long-term strategy. So with that, Scott, over to you.

Thanks. And I'd like to start by thanking you, Oscar, for all that you've done for United and for me personally in the last five years. United is a totally different airline today than it was when Oscar became the CEO. Oscar made it his mission to change the culture of United by bringing the people of United together as a team. He put the customer at the center of our decision-making and created an innovative, fast-paced environment where we seek to make the airline better every day and in every way. For me personally, Oscar has been a mentor and a friend. From day one, Oscar was direct, reminding me that there was more to our business than numbers. Many corporate executives talk about the importance of employees and customers. Oscar doesn't just talk about it. He lived it 24-7. I will be a much better CEO and person because Oscar reinforced the importance of focusing not only the numbers, but also on our employees and customers. Leading by example, as Oscar has, is the only way to truly change a culture and make a difference. I'm fortunate to have the opportunity to step into Oscar's big shoes as part of a planned and thoughtful transition, and even after he's executive chairman, Oscar won't be far away as we continue on the path toward building the best airline in the world. That great path is delivering results, and I couldn't be prouder of what the team accomplished in 2019. We once again achieved our guidance metrics and reached our 2020 adjusted EPS goal a year early. We've done that by creating a culture of teamwork across the entire company and by focusing on doing the right thing for our customers. You'll hear more today from Greg Hart, our Chief Operating Officer, who's pinch-hitting for Toby, who is ill today, and then Andrew Nisela, our Chief Commercial Officer, on some of the things we're doing to improve the customer experience. 2019 demonstrates the resilience and potential of United Airlines. We faced a number of significant headwinds last year. It started out with a longer than expected government shutdown, the grounding of the MAC, and geopolitical issues in places like China, Iran, and Pakistan, among others. Rather than use those headwinds as excuses, however, the United team simply buckled down and persevered. It wasn't easy and we weren't perfect, but we didn't use the bad stuff as an excuse. That's one reason I view 2019 as a really good proof point of where we're headed in 2020. To be able to grow full-year adjusted EPS by 32% and adjusted pre-tax margins by 170 basis points, despite all those headwinds, is pretty remarkable. We know 2020 will come with its own unique set of challenges. In fact, a couple have cropped up in just the last 48 hours. We won't make excuses for those either. We also can't sit here and tell you that we know exactly how long the max will be grounded or what the economic impact of the Asian coronavirus will be. The safety impact of the coronavirus is, of course, our foremost concern. We've been coordinating closely with the CDC to ensure that we're taking all the necessary steps to ensure that our customers and employees can travel safely. At this point, public health agencies are not recommending any travel restrictions, but we'll follow their advice closely because they and we have some experience with situations like this. By working closely together, we have in the past effectively managed situations like this one to keep our people safe. And in doing so, we've seen demand bounce back. Managing through uncertainty is something that every airline in the world has to do. And here at United, our formula isn't complicated. Put safety first and focus on delivering for our customers. Our team executed that strategy beautifully last year. It's an important part of why we're so confident about what lies ahead in 2020 and beyond. In closing, I'm truly honored to be given the chance to lead this great team. All of us at United are committed to making this the best airline in the world. You'll hear more on the call today and at our investor day in March about some of what's ahead in the long term, but we're all excited and committed to getting better every day for our customers, employees, and shareholders. And with that, I'll turn it over to Greg.

Thanks, Scott. At United, our focus is to ensure our customers have a great experience with United across their entire travel journey. Consistency is key as we deliver caring service to every customer on every flight every day. With that in mind, I'd like to thank our over 160 million customers from around the world. Whether you're taking an important business trip or a well-deserved personal vacation, we know you have multiple airlines to choose from, and we truly appreciate your business. Improving our customer experience works hand-in-hand with our growth strategy, strengthening customer loyalty and increasing our appeal with new travelers. We're investing in the areas that customers tell us matter most, and we're seeing positive returns on our customer satisfaction scores. More importantly, customers are increasingly willing to recommend United to their family and friends, and that is good for the bottom line. In 2019, we saw United's largest ever year-over-year improvement in net promoter scores. Where did this progress come from? As we've shared with you over the past year, we've made several foundational investments. Perhaps more important than any investments in our hard products, we continued our commitment to core four and caring customer service through various employee engagement investments, such as our Backstage 2019 event series, where we brought all of our 25,000 flight attendants to Chicago. We elevated the flight experience for all travelers by expanding our economy snack selection and offering free direct TV. We launched Connection Saver, a new system that identifies flights to hold for customers making tight connections. We began operating the CRJ550, offering first-class and economy-plus seating, as well as plenty of carry-on storage space, all on a 50-seat aircraft. Customer feedback has been fantastic, and since its launch, the 550 has delivered our highest customer satisfaction scores on our short-haul routes. We introduced new benefits for our Mileage Plus members, with no expiration dates on our miles, and offering free or discounted clear memberships to provide an easier, more predictable security experience at all of our hubs. Looking forward, we are even more excited about our portfolio of planned customer-focused investments this year, as announced at our meeting day. We'll begin to upgrade our aircraft interiors, featuring new overhead bins that offer a one-to-one bag-to-customer storage ratio. We're updating our single-class 50-seat regional aircraft with new seats and adding personal device entertainment. We're enhancing our food offering, which includes pre-order capabilities. We'll also be upgrading airport facilities at our hubs and some of our large line stations. Finally, We'll continue our commitment to improving customer service. Starting this week, we'll bring all of our airport and contact center customer service representatives to Backstage 2020, an immersive two-day experience focused on caring for our customers. The investments we have planned in 2020 are broad, improving the customer experience across many touch points. We'll try a number of new ideas focused on key markets, quickly learn what is impactful to our customers, and then plan to roll out the best ideas more broadly. With that, I'll pass it off to Andrew to talk more about our commercial initiatives.

Thanks, Greg. 2020 will be a year where many of our commercial and customer initiatives mature and gain critical consistency. In fact, the year is already off to a nice start. Ticketed revenue for business is strong for the first two full weeks of this year and encourage an indicator for the rest of the year. Before going into a few details about early expectations for 2020, let's review our performance in the last quarter. For the fourth quarter, PRASM grew at 0.8%. Performance at the end of the year was really strong globally and met our PRASM plan with one exception, parts of Asia, which I'll speak about in a moment. In fact, the Sunday after Thanksgiving was one for the record books where system PRASM increased 15% year over year, our best day ever. PRAZM performance in our domestic network was up 0.6% on a 2.6% increase in capacity in the quarter. This PRAZM increase was realized despite the 737 MAX grounding, which limited our mid-continent connectivity plans. International performance was even better than domestic in the quarter with a 1.5% increase in PRAZM on a 3.8% increase in capacity. We're really pleased with the international momentum we're seeing relative to industry results over the last few months. Latin America was our best performing international region in the fourth quarter. Latin Prasim increased 6.3% on a 4.4% increase in capacity. Performance across the Pacific sequentially improved in the quarter relative to the third, but was still negative. Prasim decreased 1.2% on a 0.7% decrease in capacity. Almost all the weakness occurred in Hong Kong, Beijing, and Shanghai. All three of these were a 2.6 point drag on Pacific performance and a 0.3 point drag on system performance. Atlantic Prasm was down 0.2% in the quarter on a 7.6% increase in capacity. Due to weakness in the manufacturing sector, Germany point of sale demand continued to be soft, particularly for premium business. All of that was partially offset by strong U.S. point of sale demand. Looking ahead for the first quarter of 2020, we expect our consolidated passenger unit revenue to be flat to up 2%. Demand to Hong Kong remains difficult to predict. However, I will say that booked PRASM for Hong Kong is not expected to be a drag on PRASM results in the first quarter. We've also started to see demand trends for Germany stabilize in recent weeks, with stronger demand from industrials, which has been sluggish for most of 2019. On each conference call, I like to point out a few initiatives we have rolling out and their impact on the business and our customers. While we're improving the experience of flying United for all of our customers, many of our commercial initiatives are focused on capturing high premium demand in our hub markets in 2020 and beyond. The Business Travel News Survey, BTN, is a key assessment of how airlines are perceived by corporate buyers and global travelers. The primary source of premium business for United. United finished in second place in late 2019 in this important survey and proven more than ever before in a single year, really distinguishing ourselves from many of our competitors. This survey is a great example of listening and responding effectively to corporate buyers' needs. Congratulations to both our sales team and our frontline staff who've empowered to make this happen. Premium Plus, our new mid-tier wide-body jet product, is ideally suited for our hub markets and created a 0.6-point tailwind for System Prasm in Q4, a slight acceleration versus Q3, and a trend that we expect to continue for most of 2020. We're also now selling Premium Plus seats on select flights between Newark and LA and San Francisco and are seeing great results. Our analysis suggests that Premium Plus is having minimal impact on demand for our business class seats. For the first half of 2020, we expect to grow business class capacity across the Atlantic by almost 20%. We had, in the past, undersized business class cabins in key business markets like London, Heathrow, and Switzerland, while offering too many economy cabin seats. We're now right-sizing the size of our premium cabins. More business class capacity is yet another initiative proven to help us achieve our full network potential. 2020 will be a big year as we expect to finish most of our planned Polaris seating installations and Polaris Clubs. Our Washington Dulles Polaris Club is scheduled to open this spring, and by the end of the year, 90% of our wide-body jets are anticipated to have the new Polaris seats, including all of our 777s and 767-300s. In fact, this past weekend we loaded our schedule for May and beyond where all 55 of our 777-200ERs have new Polaris and new Premium Plus seats selling as of May 8th of this year. We also launched our new cabin upgrade system called Plus Points in late 2019. The goal is simple, to automate upgrades. We also created a skip the waitlist feature for Polaris upgrades that's available from time to time in different geographies. Currently it's available in South America. We look forward to resuming our mid-continent growth plan designed to maximize connectivity once the MAX is flying again. Even without the MAX, we're making progress in smaller communities with the addition of the CRJ550. We also recently modified our Denver bank structure, and it'll be, in fact, this February, and we're already seeing positive response in our bookings for that change. I also wanted to make a moment and talk about growth over ancillary revenues. For the year, we grew ancillary revenues by over 12% on a 3.5% more capacity. As we look deeper into 2020, we expect this momentum to continue as we focus on better ways to distribute Economy+. Getting this product on more shelves is one of our highest priorities, and a better display on united.com, which is already in beta testing, is a first step. And then another important milestone is that the record performance of united.com and other direct channels, which now account for 50% of tickets for United in 2019. I also wanted to note that Wi-Fi usage has grown by 45% in 2019 as we fixed many of the bandwidth problems. While the technology and bandwidth doesn't yet exist, we're getting ready for the day when domestic Wi-Fi will be free for our customers. Thanks to the entire United team for a great 2019. With that, I'll turn it over to Jerry to discuss our financial results.

Thanks, Andrew. Good morning, everyone. And for those of you in Dublin for Aviation Week, good afternoon. Good afternoon. Yesterday afternoon, we issued our fourth quarter and full year 2019 earnings release and our first quarter and full year 2020 investor update. You can refer to those documents for additional detail. For the highlights, slide 14 is a summary of our GAAP financials, and slide 15 shows our non-GAAP adjusted results. We are pleased to report adjusted earnings per share of $12.05 for the full year, of 32 percent versus 2018. For the year, adjusted pre-tax income was $4.1 billion, and adjusted pre-tax margin was 9.4 percent, up 1.7 points year over year. Our fourth quarter adjusted pre-tax margin was of 8.2 percent, was up half a percent, marking the fifth consecutive quarter of adjusted pre-tax margin expansion. As Oscar and Scott mentioned earlier, Our resilience throughout the year helped us to offset challenges across the system and drive margin improvement. Slide 16 shows our total unit cost growth for the fourth quarter and full year of 2019 and our forecast for the first quarter of 2020. Turning to slide 17, non-fuel unit costs in the fourth quarter increased 2.7 percent on a year-over-year basis. This came in better than our original expectations of around 3.5 percent as our team worked relentlessly to offset various cost pressures. This brought our full-year 2019 CASMX to up 1 percent. As I've said before, the grounding of the max impacted CASMX by at least 1 percent. So, excluding this impact, unit costs in 2019 would have been flat or better year over year. Looking ahead, we expect first quarter 2020 CASMX to be up 1 to 2 percent year over year. As you can see on slide 18, during the quarter, we took delivery of four new and two used mainline aircraft, as well as nine new regional aircraft. We also announced an order to purchase 50 new Airbus A321 XLR aircraft, which we plan to take delivery of beginning in 2024. The XLR will not only allow us to finish retiring our last remaining Boeing 757-200s, by replacing them with aircraft that are approximately 30% more fuel efficient. But in addition, the XLR's range capabilities will also open potential new destinations to further develop our route network and provide customers with more options to travel the globe. Also in the fourth quarter, we repurchased $216 million worth of shares of our common stock at an average price of $88.95 per share bringing our share repurchases for the full year to $1.6 billion. As of year end 2019, we had $3.1 billion left in authorization and will continue to be opportunistic in our share repurchase strategy. Our adjusted capital expenditures for 2019 ended at $5 billion. This came in slightly above our guidance of $4.9 billion as our Airbus order that we announced in December. drove some incremental pre-delivery payments. We currently anticipate spending approximately $7 billion in adjusted CapEx for 2020. We continue to expect this to be a peak CapEx year, driven largely by the acquisition of 17 wide-body aircraft this year. In addition, as Greg and Andrew mentioned before, We are making a lot of high return customer centric investments that we will expect will not only improve customer experience, but will help us be a more profitable airline. As we think about both CapEx and our share repurchase program, we are very cognizant of their impact on our fortress balance sheet that we have established and plan to maintain. The discipline we have shown as we continue to maintain strong liquidity A large and growing pool of unencumbered assets and a very manageable schedule of debt repayments has been rewarded with tremendous access to attractive debt financing throughout our capital structure. In addition, our success in managing the balance sheet and reducing financial risk continues to be recognized. Just last week, Moody's joined S&P in upgrading our credit ratings to positive output. Lastly, slide 19 has a summary of our current guidance for the first quarter and full year 2020. As you can see, we will no longer be providing capacity guidance for the quarter or full year or CASMX guidance for the full year. Our focus is our long-term earnings targets, and as we move forward, we will plan for capacity at levels that allow us to achieve those targets. We currently expect full year 2020 adjusted earnings per share to be between $11 and $13. While some may view this guidance to be a little conservative, we are only three weeks into the new year and are still facing uncertainty in both the timing of the reintroduction of the MACs and speed at which our associated capacity will ramp up. As always, we plan to update this target throughout the year as we continue to execute on all of our initiatives and we absolutely aspire to end the year in a higher range, regardless of known and unknown headwinds that we as an industry routinely face. The most recent examples are Boeing's announcement yesterday on the MAX and the uncertainty around the coronavirus in Asia. We will gain more clarity on these items in the weeks to come, and at our Investor Day in March, we will provide an update to our outlook. In addition, at our Investor Day, we plan to once again provide multi-year EPS guidance. With that, Mike will now begin the Q&A.

Thank you, Jerry. First, we will take questions from the analyst community, then we will take questions from the media. Please limit yourself to one question and, if needed, one follow-up question. Operator, please describe the procedure to ask a question.

Thank you, and the question and answer session will be conducted electronically. If you'd like to ask a question, please press star followed by one on your touch-tone phone. If you'd like to be removed from the queue, please press the pound sign or the hash key. If you're on a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, if you'd like to ask a question, please press star 1 on your touchtone phone. Please hold for a moment while we assemble our queue. And first up from Barclays, we have Brandon Ogwinski. Please go ahead.

Hey, good morning, everyone, and congrats on what was a, you know, in hindsight, challenging year in 2019. So I guess, you know, incrementally on the CapEx, because this is a pretty big year at $7 billion, and I think if we go back to your slides in 2018, you know, it was like maybe $5 to $6 billion was more of the expected range. So can you talk to some of the opportunities that you see there that you're willing to put capital behind this year, and maybe even go a little bit deeper on the non-aircraft side as well?

As I said, the spike in CapEx is really attributable to those wide-body aircraft. The 17 aircraft, it's just a peak year for that. Really, when you're looking at our fleet plan, you kind of have to look at it over a several-year time horizon to take more of the run rate number. So it's really nothing more than that for this year. I would also point out that in that number, we are assuming the delivery of some MAX aircraft. And so if we end up with no MAX aircraft, I would expect that number to come down a little bit. On the non-aircraft side, I would say from what I'm seeing right now, the number is a little bit higher this year than last year. But that is all attributable to really finishing the various reconfiguration projects that we have to get the Polaris modifications done and some of the other customer-centric modifications finished.

I appreciate that, Jerry. And I guess as a quick follow-up, Scott, as you take over here, what do you think is the right metric for investors to focus on? Is it something like free cash flow, or should we be thinking that United is still in this transformation mode? There's a lot of opportunities out there to focus more on earnings, revenue. What should we focus on?

Well, all of the metrics are highly correlated with earnings. And so I think the principal metric is probably earnings. Higher earnings drive higher free cash flow. Higher earnings drive higher margins. Higher earnings drive higher return on invested capital. And so I think we're kind of dancing on the head of a pen when we try to distinguish between those because they're all so highly correlated. And because they're all highly correlated, I think we'll focus more as we are in our guidance on earnings. Thank you.

From Wolf Research, we have Hunter K. Please go ahead.

Hey, good morning, everybody. Hey, Scott, sort of a philosophical question on pricing, certainly not a tactical one. You've been very clear over the years about the need to match the lowest fares in your market to win the long game. I'm just wondering if that's becoming outdated. I know you never get anchored in your opinions, but I'm wondering if there's a point where you feel good enough about the quality of your service that you're providing to where sort of blanket price matching becomes not only unnecessary but actually harmful to the brand even in the long run.

So we are increasingly focused on improving the brand at United Airlines and the perception amongst customers We're making significant investments in that. We talked about backstage, and Greg talked about a number of those investments. And it's increasingly clear that there is a large segment of customers who choose based on the quality of the product and the quality of the customer experience. There are also customers out there who still choose their product based on price. And really what I would say is what we've done is try to create a segmentation where we can offer both sets of customers... what they are looking for. And our basic economy product tends to be more focused on price, and the rest of our products can be less focused on being price competitive.

Okay, thanks. And then what percentage of your credit card holders or premier status holders, either one, has zip codes outside of your hub city catchment areas? Where was it before this recent growth spurt, and where do you want it to be?

Hunter, it's Andrew. You know, I say I don't have the number off the top of my head. I think it's in the neighborhood of 50% from my memory. 50, 5-0. 5-0, okay. Yeah, and I think we'd like to continue to diversify outside of our hubs. We're doing, but we'll have Christina contact you to get you a few more details.

All right, guys. Thank you. From Vertical Research, we have Daryl Genovese. Please go ahead.

Hi, good morning, everyone. Thanks for the time. Jerry, I realize that you don't want to provide an explicit 2020 CASMX guide, but can you please help us understand some of what's changed since your October call when you guided 2020 CASMX flat? For instance, what percentage of your 2020 capacity did the max represent back then? And then relative to that, what's the CASMX hit associated with not having it for any, you know, period of time, however you want to define it?

Sure. Let me put it this way. We have not changed our commitment over the next several years that our goal remains flat CASA max. And as I said in 2019, but to the max, we would have been at least flat. And actually in 2020, the same is generally true. And let me give you a little bit of color on the max. Looking at it today, we currently anticipate the max creates about one to two points of CASMX pressure. So even if the max remains out for the full year, taking the worst case, we expect that to be less than two points of CASMX pressure. But let me remind you that none of this deviates from our commitment to deliver on our EPS target.

Okay. Okay. Thanks for that. And then just a quick follow-up on the non-op. What's driving the year-over-year decline in the first quarter? I assume pension is probably down a little bit, but if there's anything else, and then also do you see that carrying through the year?

So that's generally actually some changes we made in some of our post-employment benefits, some of our post-retirement medical plans where we were able to save some money without changing the benefits at all. That's really the principal driver there.

Okay. Thank you very much.

From J.P. Morgan, we have Jamie Baker. Please go ahead.

Hey, good morning. Everybody, first one probably for Jerry. You know, as it relates to the $11 to $13 guide for this year, you know, I'm hoping you could talk a bit more about how that might have evolved. You know, there was a time when it was suggested that it could move higher. Clearly conditions, you know, evolved in a way that prevented that from happening. And I don't think this came as a surprise. I'm not being sarcastic. critical of this fact. I'm just curious as to how your model for 2020 evolved over, say, the last four to five months, what the various puts and takes were, whether 12 to 14 was ever pondered.

So, Jamie, let me tell you, from my perspective, it could have been 10 to 14. Just looking at the first two weeks of January, And I look at the spot price for jet fuel every day and the impact it has on the forward curve for the rest of the year. And if you look at it too, you would have seen a lot of volatility. So given that, given some of the other unknowns out there and some of the knowns that we just don't know yet how they're going to impact us, as I mentioned earlier, and my general nature of being a little conservative, that's where we came out. And as I mentioned, we absolutely aspire to raise the range over the course of the year, but we'll have to see what happens over the course of the next few months.

Okay, that's helpful. I appreciate it. And second, just related to the Macs, I believe you have one SIM card in Denver. Could you tell us what the SIM order book looks like? Something I've never asked before. And more importantly, as Boeing inevitably has to shift around the skyline, what would your interest be in rescheduling deliveries given the, you know, presumed desperation of other global operators and whether there's an opportunity to monetize simulator access?

Hey, Jamie, this is Greg. Hi, Greg. How are you? Hey, we've got currently one fixed training device, max fixed training device up and running. We'll have a full motion sim up and running in the next, I want to say, six to eight weeks. And over the coming months, we'll take delivery of two more sims. So we actually feel really comfortable in terms of where we are. relative to simulator capability. Obviously, we assumed a quicker delivery stream from Boeing than what we've seen, and we're more than amply prepared for whatever might come in terms of delivery stream.

Opportunity to monetize that access? Or that capacity?

Yeah, Jamie, it's something we've done here at United in the past. We actually haven't thought about it too much. We've been focused on our plans, internal plans, to make sure that we could meet whatever delivery stream we have on the aircraft. It's obviously something that we'll think about, but I would expect to have us have too much third-party activity in our siblings.

Excellent. I appreciate it. And on a personal note, welcome back from Guam.

Thanks, Jamie.

From Bank of America, we have Andrew DeDora. Please go ahead.

Hi. Good morning, everyone. Thanks for taking the question. Jerry just had kind of a follow-up on the unit cost, and I know you're not giving a full-year outlook, but the 1Q guide of 1 to 2 was better than what we were thinking, better than the back half of 2019 at up 2.5%. Just trying to get a sense for is this 1 to 2 a good quarterly run rate while the max is out? Was there some timing we should consider here? I guess basically any color you can provide about the cost cadence throughout the year would be helpful. Thanks.

Sure. As you identified, there's always timing when you're looking at quarterly CASM numbers. Last year, you may remember there were some maintenance events weighted more heavily towards the back end of the year. So the first half of the year, CASM-X was better than the back half. But we always take that into account. when we look at the full year and look at our commitment to deliver, but for the max, flatter, better chasm X. Is that the way we should think about kind of the out years once the max is back is sort of flat to down chasm?

Is that what the plan is right now without stealing any thunder from March?

It's been our commitment. We've been public for several years on that, that that's our commitment. Keep in mind, one of the tailwinds we're going to have, which has now been delayed a little bit, is on gauge. If you look at what would have been our max delivery schedule, you would have seen the MAX-10 coming in and those aircraft, in addition to growth, replacing smaller gauge aircraft. So that's still a terrific tailwind that we have over the next few years. Great. Thanks, Jerry. Appreciate it.

From Goldman Sachs, we have Catherine O'Brien. Please go ahead.

Good morning, everyone. Thanks for the time. So a question. I think this year your performance is commendable despite the headwinds of the MAX and I really appreciate your no excuses mentality. But can you help us think about the negative impact of the MAX thus far, just trying to get a handle on what the core business could have produced without that headwind? You know, should we think about any impact above and beyond that headwind you alluded to earlier?

Well, keep in mind, had we had the MAX, we would have benefited both on the CASM side and on the revenue side as well. We, as the other carriers who did not have the MAX, lost income as a result.

Right. So I guess there's maybe like any color on maybe like a margin detrimental or EPS you're willing to share?

Look, I'd say we've been careful to not use any of the events that have happened as excuses. We delivered on getting a year early to our $11 to $13 DPS goals, and we're not going to start now using them as excuses. So we'll keep our conversations private with Boeing on what we think the impact was and just leave it at that.

Okay, fair enough. And then maybe just ask one quick follow-up. So you've always had a really strong international network, and, of course, you've been focused on strengthening parts of your domestic over the last couple of years. But United still has the highest percentage of passenger revenue booked on its international network. Do you think that's the right mix, or do you think we're going to see that change as you continue to strengthen your domestic network? Thanks.

It's a really good question, and obviously these things cycle over time. There's definitely a long period of time where international margins were greater than domestic. Clearly over the last few years, domestic margins have been greater, and we've been pivoting here at United to fix our mid-continent gaps that we talk about regularly. And we still think that is a priority. Unfortunately, the max delay has delayed our ability to properly fix the connectivity in our mid-continent hubs. And so we're going to be focused on that as we go forward for the next few years. But underlying all that is really, I think, the best global network of any airline to and from the United States, and we're really proud of that, and we think it has a lot of opportunities. We do think these things cycle, and we'll be ready when the international environment is even better. We did see strong momentum late last year where that environment is better and international profit margins, in fact, are higher. And I think that's going to come someday in the future. But right now, focused on domestic, but we have a lot of strength and we have a lot of optionality in our international network.

Great. Thank you.

From Evercore, we have Dwayne Fenigworth. Please go ahead.

Hey, thanks. On co-brand expansion potential, certainly not going to ask you about timing, but At points in time, United talked about kind of a gap to where market rates were, and those were kind of agreements you were close to. Some of that commentary was before Delta's expansion with Amex. And so my question is, in your opinion, did Delta reset the bar for the market or just catch up to where the market already was?

Obviously, Delta has advertised their new deal with Amex a lot, and we see it. We're in close contact with our partner at Chase, and we continue to work with them on making sure that our co-brand card is the biggest and best it can be. It's been growing a lot over the last few years. In fact, we're about to launch a new business card, which we're really proud of. So there's a lot more to come in this space, I think, is what I would tell you today. exactly where the market is, where we are and where others are. I think it's really a little bit difficult to tell sometimes based on what is reported and what's not reported. But we'll continue to make sure that the United co-brand is the best it can be.

Thanks. And then just for a follow-up, the premium seeding expansion clearly came across in the presentation. You're talking about making it easier to upsell premium economy. I wonder if you could quantify how many points of RASM that potentially represents when you're ramped. Thanks for taking the questions.

Sure. Well, actually, I think we'll talk about that more at Investor Day coming up, but we have definitely tilted our capacity as we enter 2020. We expect premium products to be a bigger proportion of our revenue pie for the year, and we expect that to have a really meaningful impact on Rasmus, but we'll save all those details for a few weeks from now.

Thank you. From UBS, we have Miles Walton. Please go ahead.

Thanks. Good morning. Andrew, you talked about the ancillary growth about 12%, and I think you tied it to the greater point of sale at united.com and direct channels reaching 50%. I'm curious, can you give some maybe meat around the argument of what the conversion rate looks like for the ancillary when they're on the direct channels, and also how high you think that direct channel can get to over the next couple of years?

It's a hard number to move. So getting from 50 to 60 is not something that's going to happen overnight. But we would like to see United.com and our direct channels move towards the mid-50s over the next few years. It's a big goal. We'll see if we can get there. That being said, there's no doubt we're motivated to move in that direction because the conversion rates on united.com for ancillary revenues are simply dramatically higher. We won't give the exact numbers, but they are higher. So we are continuing to work to make that number higher on united.com by changing how we display and show things in the products we offer. We're also working with our partners that are third-party distributors to see how we can make those numbers get better as well. So I think there's a lot more upside. What I talked about earlier was the fact that Economy Plus was being put on the shelf on united.com. In the past, I didn't think we properly displayed that. And with this new beta test we have going on and properly displaying the economy plus seat, we think that could, you know, have a meaningful impact on economy plus seat sales going forward. We'd have to get our products on the shelf for them to sell properly.

And just one clarification, I think, in response to a previous question, you talked about the Dash 10 getting pushed out further, the upgaging or seat growth per departure. I think you had given a previous metric about 3% growth in seat per departure. Is that still valid for 2020?

We'll have to get that number. It's definitely not valid in Q1. That number is a negative number on gauge in Q1, which we're disappointed by. But somebody can get you the annual number. I think it's no longer valid, unfortunately.

Okay. Thank you. From Cohen & Company, we have Helene Becker. Please go ahead.

Thank you very much, Operator. Hi, team, and thank you very much for taking my question. You know, Scott, when you look at the – or actually, anybody can answer this who knows the answer. When you look at what you had talked about, you know, a couple years ago about replacing smaller aircraft with larger aircraft in key markets, can you just update us on – where that stands now? Like, is that program completely done, and so all the capacity growth that you're doing in 2020 is going to be in new markets and in connecting the dots?

Well, I'll let Andrew add to it, but it's nowhere close to done, and it was a big setback. The max has been a big setback. You know, there were a number of markets that would have been upgaged, last year that would be being upgaged this year, being upgaged the following year, that are behind because of the max delay.

Yeah, I think that's absolutely correct. Yeah, we're not where we hoped we'd be at this point. We have a lot more... gauge to come going forward, as Jerry also hinted at. But maybe the other way to look at it is our schedule depth. We're just not where we need to be on competitive schedule depth, and we're trying to correct that. And we're also trying to move gauge in the right direction. And the max delay has kind of forwarded our progress on that front, at least for 2019, and it looks like for a big chunk of 2020 at this point.

Okay, thank you. I appreciate the time.

From Raymond James, we have Savi Scythe. Please go ahead.

Hey, good morning. Andrew, if I might just ask a little bit of a follow-up on the kind of regional entity trends that you were talking about. Could you give a little bit more color on generally what you're seeing today on that front? I know you mentioned Hong Kong will stop being a pressure, and Germany is maybe kind of bottoming or rebounding. So is it fair to assume that those entities, we should see a sequential improvement? Just any additional color would be helpful.

All right. I think for the quarter, at a macro level, the entities I expect to come in in basically the same ranked order. So I expect that the Latin American division will be our best competitor. I think domestic second and then Europe third and Asia last again. In terms of a little bit more color, we're just watching the situation in China, Beijing and Shanghai and also Hong Kong. very carefully. We do think that Hong Kong, based on current trends, is no longer a drag on PRASM, which was nice to see. I do expect that Beijing and Shanghai will still be a slight drag on PRASM. But what I can tell you is that demand over the last eight weeks to Beijing and Shanghai has actually increased. So from a revenue perspective, for the last 12 months, Our ticketed revenues to Beijing and Shanghai have been down 4%, but over the last eight weeks they've been up 3%. So I do think we've turned the corner there, absent any other significant situations that arise in China, particularly Beijing and Shanghai. So good progress there. We're watching Australia very carefully. The wildfires have clearly had some impact on demand, so we'll keep a close eye on that. But all the rest of Asia, Japan looks very good, and Taiwan as well. South America, I think, is kind of leading the charge, as well as Mexico and Central America, so that all looks good. I think very good. And in Europe, we've been deploying our new 767 HiJ to London Heathrow. I think that's having a nice tailwind on the system that has offset some of the Germany weakness. But in the case of Germany, we did see demand from our key corporate clients and travel agency sales go positive over the last few weeks. which is really nice to see after pretty much 12 months of negative numbers. So we're optimistic that Germany is on the mend and moving in the right direction, at least at this point, which has a lot to do with industrial. So overall, across the globe, there are definitely a few spots, but we generally see encouraging trends.

And from Stiefel, we have Joseph DiNardi. Please go ahead.

Yeah, thanks. Good morning. Jerry, can you just provide a little bit more color around the step down in CapEx you're expecting in 2021? If you look at the last 10Q from October, it shows about a $2.5 billion decline in aircraft purchase commitments year over year, but that was, I guess, before the Airbus order you referenced. So can you just maybe update us on what that looks like now in 2021 versus 2020? Thank you.

It's a little early to be able to give you a good number, largely because until Boeing tells us what the max delivery schedule is going to look like, it's just tough. Next year would have been a year of significant max deliveries. We don't know what's going to happen yet on those, so it's a little premature. We also don't know how many of the MAXs that we assumed for this year might get pushed. I mean, all we know today is that there were 16 aircraft built. They're sitting up in Boeing facilities. We'd like to get those, you know, when the aircraft start delivering. But particularly with Boeing having shut down the line, they need to tell us and their other customers how they're going to allocate slots to everybody. and that will drive a lot of the 2021 CapEx numbers. So it's just too soon to tell.

Okay. Jerry, is the step down a function of is it hundreds of millions or is it billions?

Again, it's just too soon to tell on that. Okay. I don't expect it to be billions, plural, but it's really too soon to tell.

Okay. Maybe just a question for Scott or Andrew. I'm going to try and stump Scott. What percent of the tickets sold in 2019 were on fares which were in the market in order to match a competitor's fares versus what percent of tickets sold were because that's what Jim and I said was the right fare? Thank you.

I'm sure I understand the question.

Trying to understand, Scott, how much of your revenue is subject to kind of the worst competitor in the market? How often do you have to just match fares versus, you know, how often can you go with what you think is the best fare at that point?

Well, typically all of our fares are matching something. There will be multiple fares in the market. I guess your question is how often are we selling the lowest fare in the market is really the right way to ask the question. And I don't know the percentage of the time. I would guess it's a single-digit percent of our seats are sold at the lowest fare available in the market.

Yeah, I would agree with that. I mean, Gemini gives us the guidance in terms of what the demand forecast is to open up or close down. And that's set by market, by day, by everything. So I'm not sure how it's bad.

But I think what you're really getting at is the lowest fare in the market is probably selling – We're probably selling a single-digit percent of our seats at the absolute lowest.

And from Bernstein, we have David Vernon. Please go ahead.

Hey, guys. Thanks for the time. Andrew, just to start out on the premium product or the premium plus rollout, the tailwind you guys cited kind of grew from 50 to 60 bps from 3 to 4Q. Just trying to get a sense for what the tailwind should be in 2020 as you ladder in, I think, a broader rollout of that product. Should that benefit sort of increase as we get through the year, assuming stable conditions? Not looking really for guidance, just trying to make sure I understand how that rollout is going to affect the base business.

Yes, what I would say is the rollout will continue and we're gaining critical mass and therefore I'm optimistic we'll see that number inch up even a little bit more as we head into Q1 and Q2 and maybe even Q3, particularly when all the 777s have the product. Then we start to lapse as we really get into the later parts of Q3 and Q4 and there it's a little bit different in that I think our expertise and how we manage the product will be a big driver in whether it can expand or not beyond that number. And so I hesitate to say that, you know, as we enter fourth quarter of 2020, that we can keep it at that same pace. But we're optimistic that there's still a lot out there as we learn how to better manage it from day to day and flight to flight.

And that should expand even a little bit more into 2021, because I think you said you're going to get to 8% of ASMs by 2021, right?

Yeah, the maturity of the product really by early 21, we have it on. All the airplanes are going to have it on. In fact, I think at this point we plan to have it on every one of our intercontinental wide bodies with the exception of 14 767-300s, but every other aircraft is going to have it, and it's going to be very, very consistent. So we're excited to get out there, and we do think it provides a continued tailwind, whether it's a half a point or so or 60 base points. That seems aggressive as you get that far out, but it is a continuing tailwind, along with the other actions that were taken on this front, whether it's more first-class seats on our 319s, the high J767s that were flying to London Heathrow and Switzerland. So there's a lot of initiatives on this front that continue to roll out that we expect provide a tailwind that's unique to United for the next year or two, at least.

And from Buckingham Research, we have Dan McKenzie. Please go ahead. Dan McKenzie, your line is open.

Oh, yeah. Hey, thanks. Good morning, guys. Andrew, given the news this weekend, I'm wondering if you can help us think about the revenue shock absorbers. So first, you know, does the preliminary revenue outlook embed some volatility in the demand data? And then setting aside the news from this weekend, I'm wondering what corporate clients are telling you about their international travel needs in a post-trade deal world. Is the thought that there could be some acceleration in international demand to come that we just can't see today?

I think that's the case. We actually, just in the last few weeks, have seen Beijing and Shanghai demand increase relative to where we were for most of last year. So I don't have an official readout from corporate clients on that part. But I will say, as we looked at corporate demand for last year, I think it was really healthy. But when you look at it divided by the different divisions around the globe, what you find is our Asia Pacific corporate demand was, in fact, negative, where the rest of the world was positive. So it just provides an easier comp. So I'm optimistic. that absent the issue that we had this last few days, that we're going to see stronger results, particularly in the Asia-Pacific region as it relates to that. In regards to really, I think, forecasting, as we look at each quarter and we assess where we think things will turn out, we clearly have a tendency to put a little bit of, I like to say, wiggle room in the numbers for unknown things that will happen. pretty predictable that there'll be something unknown that will happen in any part of the globe. And so we do leave room for that. And I think that you can see that over our track record of the last two years plus on the RASM guide. Whether we left exactly enough room, only time will tell. But we do feel comfortable with current trends and the room we've left in. But we'll have to wait and see how things unfold over the next week or so to really be able to firmly answer at least how that relates to what's happening in China today at this point.

That's perfect. Thanks so much for the time, you guys.

And from Deutsche Bank, we have Michael Linenberg. Please go ahead.

Oh, hey, thanks, everyone. Hey, two quick ones here. Jerry, on just the $7 billion of CapEx, what's the rough split aircraft versus non-aircraft?

It is roughly, call it $5 billion aircraft, roughly $2 billion non-aircraft.

Okay, great. And then just a question to Andrew. Andrew, you know, I had heard somewhere that you were considering adding more seats to your 787-8s and 9s. Is that true, and what happens to your premium seating on those airplanes if that does go through? Is it coming down, or is it just a different configuration? Thanks.

Sure. So the 789 is the heart of our 787 fleet. We have the most of those aircraft. And the seating configuration on that aircraft as it relates to business class seats I think remains identical. If that's not the case, somebody will get back to you. But we didn't change the number of business class seats on the 789 as it goes through its reconfiguration process. Over the next 12 months or so. So we're fine there. We did find a little bit of room in the coach cabin. So the density, the number of seats on the aircraft did go up a little bit. So the aircraft has more seats in total. But we didn't lose any J-seats on that. That being said, on the 788, we did reduce the size of the J-class cabin. I don't know the number off the top of my head. I think it's 28 to 30 seats relative to where we are today, which I think is 36 seats. We did that because the missions that we're going to be using the 788 on are likely to be more leisure-oriented that have lower business class demand. We have literally 150-plus widebodies with very large J-class cabins. In fact, some cabins are getting bigger on all the other aircraft types. On this particular aircraft type, in which we only have 12 units, we did reduce the size of the cabin to reflect how we will use the aircraft in the future, which has a more leisure-oriented tilt than business tilt, and we thought that was the right segmentation of seats on board that aircraft, given how it will be used. But again, it's 12 aircraft out of a fleet of almost 200 wide-body aircraft. It doesn't move the numbers.

Thank you, and we'll now take questions from the media. Once again, if you have a question at this time, please dial star 1 on your telephone keypad. Please hold for a moment while we assemble our queue. And from Bloomberg, we have Justin Bachman. Please go ahead.

Hi, thanks for the time today. This question I think is for Oscar or Scott. I wanted to... ask about your decision to get rid of the capacity guidance and what sort of growth United will see over the next year or two or three in terms of both the mid-continent and if that's just a function of the max uncertainty or if you're now at a period where you're slowing things down because you feel that you've regained that share that United did not have in the past. Thanks.

So we have decided Well, we want to focus our efforts and our guidance on earnings. That's the key metric that we're trying to focus on. And if that means we should grow 5% to hit our earnings growth targets, then that's what we'll do. If it means we should grow 1% to hit our earnings growth targets, then that's what we'll do. We're really focused on earnings. And so we always actually intended, as we've built increasing credibility with hitting our numbers, to stop giving full-year capacity guidance beginning next year. But given we have one competitor already do it, and given the uncertainty that we have with the MACs, we did it a year early. But really the only thing that our changing guidance had to do with the MACs is we did it a year early because we have a lot of uncertainty this year. But we always intended to do it, and it's really a focus on driving towards our earnings targets and having all of us focused on earnings metrics as the right metric.

Great. Thanks. But as far as your comfort with the mid-continent strategy, where does that resume? Andrew had talked about sort of a halt given the max. Is that coming back when you get the max?

I wouldn't say it's a halt. This is Andrew. What I'd say is we're just not where we otherwise would like to be because of the lag of the Mac. So we have built connectivity. We focused, in fact, in Denver. So the Denver growth actually does continue. We're not where we'd like to be in Houston or Chicago. So only time will tell. And the other thing I'll add is the CRJ is $5.50. which has been, I think, a smash in success so far. It's doing really well, and that does also help our mid-continent activity. But the MAX aircraft were a key ingredient to what we were trying to accomplish, and they're not available to fly. And therefore, we're behind schedule on where we'd otherwise like to be, and we're likely to be behind schedule for the foreseeable future, given the latest announcement from Boeing.

Great. Thank you.

And from Wall Street Journal, we have Alison Sider. Please go ahead.

Hi, thanks. I was wondering if you could talk a little bit about how likely simulator training requirements could affect sort of the pace and the cadence of, you know, return to service eventually. You know, what kind of, you know, complications might that introduce and how long do you think it'll take? Any color you have would be great.

Thanks. Thanks for the question. This is Greg. We don't anticipate any issues if simulator training is required by the FAA. As we talked about earlier, we have ample simulator capacity and we're working on plans to allow us to abide by whatever guides the FAA issues.

Got it. Thanks. And if I could just follow up. I guess I'm just wondering if there is any kind of thinking of, like, a worst-case scenario, you know, if the MAX doesn't fly again. You know, is there sort of a contingency plan for that, like in a back room somewhere, or is that even something you consider a possibility, you know, if you would just have to give up on the MAX, or how might that play out?

We continue to assume there will be a safe return of the MAX. We're actually encouraged at what we hope is a more realistic timeline and target. We will be announcing soon our own pushback of service that gives us time from what Boeing is now saying about the max return to service to give us time to get the airplane back up and running, including time for classroom training and simulator training for our pilots before they fly.

At this point, we're assessing the impact to the schedule, but we do not anticipate flying the MAX this summer.

Thank you. This concludes our question and answer portion. We'll now turn it back to Michael Leskinen for closing remarks.

Thanks, Brandon, and thanks to all of you for joining the call today. Please contact me, your relations, if you have any further questions, and we look forward to talking to you next quarter.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.