United Airlines Holdings, Inc.

Good morning and welcome to United Airlines Holdings Earnings Conference call for the third quarter 2021. 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 1 on your touch-tone phone. 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. Your participation implies your consent to our 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, Christina Munoz, Director of Investor Relations. Please go ahead.

Thank you, Brandon. Good morning, everyone, and welcome to United's third quarter 2021 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Also during the course of the call, we will discuss several non-GAAP financial measures. For reconciliation of these non-GAAP measures, to the most directly comparable GATT measures, please refer to the tables at the end of our vernacularly. Joining us in Chicago today to discuss our results and outlook are Chief Executive Officer Scott Kurwitz, President Brett Hart, Executive Vice President and Chief Commercial Officer Andrew Stella, and Executive Vice President and Chief Financial Officer Jerry Letterman. In addition, we have other members of the executive team on the line available to assist with Q&A. And now, I'd like to turn the call over to Scott

Good morning, everyone, and thanks for joining us today. I want to start by expressing my thanks to the team at United for taking care of our customers and each other during an eventful summer. And what we've done in the last 19 months stands out even more than in normal times, as we've also been a part of the humanitarian relief efforts around the world, flying over 160 million doses of vaccines, returning thousands of refugees from Afghanistan and delivering thousands of tons of oxygen canisters and medical equipment to India, among many other things. Despite the personal stress and strain from the pandemic, our people have continued to run a reliable operation and deliver phenomenal customer service, avoiding the significant issues that have plagued far too many in the aviation industry. The United team is emerging from COVID as the leader in global aviation, most prominently leading on safety by effectively and efficiently implementing our early vaccine requirements. We kicked off the third quarter with strong momentum as pent-up leisure demand soared and business bookings began moving in the right direction, though we obviously knew that the Delta variant was a risk. Andrew will give you more details about the ups and downs of the second half of this year, but from my perspective, The long-term recovery remains on track with the opening of Europe, Australia, and Singapore and an expected inflection point in business demand now anticipated in January. Before we move to the traditional discussion about the near-term environment, I want to take a few minutes to at least lay out our view of four big-picture trends that we believe make United Airlines the airline investment choice for longer-term shareholders. Number one, we will lead on costs. Inflation is high, but within our expectations, and we remain on track for TASMX down in 2022, down approximately 4% in 2023, and down approximately 8% in 2026 versus 2019. I know there are some skeptics on this one, but it really is just the math of 30% planned gauge growth. But there are also real industry-leading, unique structural technology and efficiency changes that were implemented at United. I can see it as I just walked through airports or read press comments about hiring struggles at other airlines, something that's not happening at United because we really have become much more efficient during COVID. Number two, geography becomes a competitive advantage. During the pandemic, United's geography has been a greater headwind than any other U.S. airline, given our largest business, coastal hub, and international exposure. Domestic and Latin revenues, where United is the smallest in percentage terms, have been running in the 70 to 90% range versus 2019, while the Atlantic and Pacific, where United is the largest, have been down 20% or more. However, despite those significant geographical headwinds, we've managed to produce results in line with or better than the industry in terms of minimizing losses. But most importantly for investors, we expect those headwinds to become long-term tailwinds as the supply of international wide-body aircraft is significantly different than the domestic narrow-body supply post-pandemic. We expect the Atlantic and the Pacific to significantly outperform the domestic market for many years to come, which will turn a current geographic disadvantage during COVID into a sustainable long-term advantage for United's global network. Number three, unlocking the power of United Next and growing our revenue premiums. Higher connectivity, a noticeably improving product, and the extraordinary service of the United professionals I mentioned at the top are already driving rapidly improving NPS scores and customer choice. We expect that improvement will accelerate as we take delivery of hundreds of new customer-friendly narrow-body aircraft and retrofit all of our remaining narrow-bodies in the next several years. This will make United the airline customers choose to fly and help us drive premium revenue. Number four, ESG. United Today is the leader in global aviation with our unique and real, not greenwashing, commitment to climate change action and the work we're doing on diversity as exemplified by the United Aviation Academy. And this already matters to customers, employees, and regulators. And I think you'll see it reflected in customer choice and perhaps even valuation in the years to come. And all of that leads to our United Next financial outlook. We will absolutely hit our ChasmX target, and we remain on track. And on the revenue front, our United Next target assumes that it takes all the way until 2026 to return to 2019 RASM levels. While we're hopeful, and I actually expect that the RASM trajectory will be stronger than that, that hopefully conservative assumption still leads to an adjusted free tax margin of around 14% and adjusted EPS of around 20 at our current share count. In closing, COVID appears to be playing out remarkably close to what we expected in May of last year. Our expectation back then was that demand would probably remain depressed until Christmas of 2021, and that business demand wouldn't start in earnest until January of 2022. But we always believed that total demand, including international, would ultimately fully recover. That forecast now looks remarkably precious, and we found new and successful international markets in India and Africa. We anticipate a robust European recovery, and we're just now beginning to see the openings across the Pacific, starting with Australia and Singapore. United's perspective was singularly unique, both on the depth of the crisis, but also on the ultimate strength of the recovery. That put us in a position to make long-term decisions on fleet and permanent changes to our cost structure, and we're now uniquely set up to reap the rewards of those decisions. And with that, I'll hand it over to Brett. thanks scott i'd also like to thank our employees for their hard work in the quarter july was our busiest month since the start of the pandemic despite regularly changing mandates restrictions and new protocols that have been part of commercial air travel in 2021 our team did a fantastic job helping our customers get to their destination as seamlessly as possible as evidenced by our record high nps scores year to date We are now past what we believe is the worst of the booking impact from this wave of the Delta variant. And looking ahead, there are some recently announced regulatory changes that are driving momentum in bookings. We were pleased by the announcement that the U.S. entry restrictions on travelers from Europe, the U.K., India and other international locations the so-called 212F restrictions, will be lifted by November 8 and replaced by a global proof of vaccination requirement for all international visitors entering the U.S. We look forward to more specific details, including the effective date of the changes, to avoid any confusion about the new requirements for our customers and employees. Since the announcement, we have seen a 35-point increase in year-over-two-year system bookings from international point-of-sale agencies for travel in November and December. This gives us even more confidence in our expectation that summer 2022, particularly over the Atlantic, will be robust. Additionally, we have repeatedly innovated and upgraded our United app, our industry-leading tool, which outlines for our customers the travel recommendations and requirements as it relates to quarantines, vaccinations, or COVID-19 tests. This tool gives United customers an advantage as they navigate the evolving path work of rules and regulations and reduces as much stress as possible at the airport. We are ready for the returning international travelers. Lastly, as Scott mentioned, with the exception of a small number of employees who sought a religious or medical accommodation, more than 99.7% of our U.S. employees chose to get vaccinated. We're committed to providing the safest environment possible. It also means that our customers can book with confidence knowing that United's operations and their travel experience will not be hampered by changes to government vaccine regulations. Speaking of the reliability of our operations, we have been proactive on the hiring front. During the first three quarters of 2021, we have hired nearly 1,000 pilots, which is more than we hired in all of 2019, and welcomed three new classes of flight attendants. On ESG, in the third quarter, we partnered with Honeywell to make yet another investment that contributes to our journey to become 100% green by 2050. Last month, we announced the industry's largest sustainable aviation fuel agreement, in which we commit to purchase 1.5 billion gallons of SAF over 20 years, making our total commitment more than double the combined total of the rest of the world's airlines' public SAF commitments. Last week, we also became the first airline to fly a flight on 100% sustainable aviation fuel. These are both important steps in our goal of reducing our emissions by 50% on a carbon intensity basis by 2035 and to net zero by 2050. The third quarter was also punctuated by the crisis in Afghanistan. We were called upon to assist the U.S. military in bringing 15,000 Afghans to the U.S. and troops back home. We've operated approximately 40 civil reserve air fleet or craft flights to date. We also converted our maintenance hangar at Dulles Airport to a temporary shelter where travel-weary evacuees could rest, get a warm meal, and take a breath after enduring such a remarkable journey. More than 8,000 employees raised their hands to participate in these missions, working as crew members, translators, medics, and more. Many volunteers have personal ties to Afghanistan or are military veterans. I want to take this opportunity to extend my heartfelt thanks for their service. We are also helping Afghans begin their new lives in the U.S. through our partnership with Miles for Migrants. where we have donated 15 million miles and continue to support and incentivize donations from our Mileage Plus members. As you can see, the spirit of innovation at United has not been dimmed by the pandemic. In fact, we've relied on it to adapt to the changing economic and regulatory environment and put our expertise to work to help those in need. That makes me incredibly proud of this company and it gives all of us more confidence in our ability to meet the financial targets we've laid out. I'll now hand it off to Andrew to describe in more detail how we plan to do that.