United Airlines Holdings, Inc.

Good morning and welcome to United Airlines Holdings earnings conference call for the fourth quarter and full year 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 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 redirected 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 Mudos, Director of Investor Relations. And, Christina, you may begin.

Thank you, Brandon. Good morning, everyone, and welcome to United's fourth quarter and full year 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. This represents the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based on 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 PEN2 and other reports filed with the SEC by United Airlines Solutions and United Airlines for a more thorough description of these factors. Also, during the course of our call, we will discuss several non-GAAP change 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 release. Joining us on the call today to discuss our results and outlook are Chief Executive Officer Scott Kirby, President Brett Hart, Executive Vice President and Chief Commercial Officer, Andrew D'Souza, 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.

Thank you, Christina, and good morning, everyone. Thanks for joining us today. Before I get into the details of our fourth quarter and how we're thinking about the year ahead, I wanted to share some brief observations about the recent developments regarding the rollout of 5G. Mostly, I want to thank the White House, Secretary Buttigieg, and the CEOs of AT&T and Verizon for finding and agreeing to an approach that mostly avoided what would have been severe disruption to pasture and cargo operations in this country. This wasn't an issue created by the airline. Every carrier follows the rules dictated by the FAA. Since we first heard from the FAA about this issue in November, United has been 100% engaged to underscore the severe risk with the 5G rollout posed to aviation, but more importantly, to bring people together and drive consensus around common-sense solutions. And while we don't have a final resolution quite yet, I'm confident we'll get there. This problem has been resolved collaboratively, allowing a fulsome rollout of 5G without significant impact to aviation in 40 countries around the world, and we can do the same thing here in the United States. While I wish it had happened earlier, the good news is we now have everyone engaged, the FAA and DOT at the highest levels, the equipment aircraft manufacturers, airlines, and the telecoms, and I'm confident we'll soon have a clear set of objective criteria that allow a full rollout of 5G without significant impact to aviation. I'll close this part of my comment by once again thanking the administration and Secretary Buttigieg, but also a particular thank you to the CEOs, of AT&T and Verizon for voluntarily agreeing to these near-term restrictions near major airports. With that, I'll turn to discussing our results at Outlook. Over the last year, the United team persevered through the impact of COVID, but also made incredible progress laying the foundation for the future. Omicron is once again impacting the near-term, but as we've done since March 2020, we're taking action on capacity and we remain confident in the long-term projections in spite of the near-term headwinds from mobile crime. But before we discuss our results and outlook, I want to take a minute to thank and brag about all that the people of United accomplished in 2021. In spite of the historic challenges, United came together as a team to get through the worst crisis in the history of aviation and set ourselves up to be the world's leading airline on the other side. We saw our NPS improve by 30 points versus 2019 and introduced United Next to grow the airline and improve the product for customers

but we also made unique, real, and structural changes to our process and technology, which we believe is going to lead to best-in-class CASMX performance unless we have the full fleet return to service.

I think perhaps one of the least understood industry changes is that United is expecting to exit 2022 at a CASMX run rate below 2019, an expectation that sounds very different than most others in the industry. It is a transformational competitive change. So while we can't control the exact timing or course of COVID, we can improve the customer experience and control our costs, and that puts us in a completely different competitive position to outperform in the future. In the short term, however, we're remaining responsive to the risk posed by the Omicron variant. Omicron is impacting demand in the near term, but the biggest impact of Omicron-fueled surge in COVID cases we've seen so far was on our people, and it led to a significant disruption in our operational performance over the holidays. As tough as this period has been, I'm particularly grateful that because of our vaccine requirements, we are no longer losing vaccinated employees to COVID, and we still don't have any vaccinated employees hospitalized. Our vaccine requirement has truly saved lives. As we look to the remainder of 2022, Omicron is impacting near-term demand, and we're reducing our capacity as a result. But bookings continue to be strong for March and beyond, and our base case remains a continued recovery in demand, including international and business. Jerry and Andrew will give you more specifics on what we're changing this year on capacity, but the important point is we remain confident on the long-term Casimax targets and future of United. We believe and certainly hope that as a company and society, we are moving into the endemic stage of COVID, but we'll continue to manage as we have throughout the crisis, and once again this quarter. and be responsive to what actually happens instead of what we hope will happen. I'll close by once again thanking the United team. They've done amazing things since the crisis began, and they've laid the foundation for United to be the world's leading airline going forward. And now I'll hand it over to Brett. Thanks, Scott. I'd like to start by thanking our employees for their hard work in the quarter. In the busiest travel season since the start of the pandemic, our team dealt with disruptions from weather events, changing international travel requirements, and most recently, the impact from the Omicron variant. With Omicron impacting both our employees and the rest of the country over the holidays, our team pulled together to serve our customers, and we are grateful to them. As Scott mentioned, this latest variant has caused a delay in the expected recovery and is having an impact on bookings in the first quarter. However, we remain confident that travel will rebound quickly. as cases subside. We expect a strong summer in the second half of 2022, consistent with our expectations pre-Omicron. While Andrew will outline the changes we've made in the near term on capacity in just a moment, we are confident and committed to our 2023 and 2026 financial targets. With our United Next Network plans in mind, we look forward to hiring the next generation of United pilots. Next week, we'll host the grand opening of our United 88 Academy in Goodyear, Arizona. We're excited about the role our world-class pilot training facility will play in recruiting and preparing the next generation of United pilots. In fact, we welcomed the inaugural class in December, which consists of 30 students, 80% of whom are women or people of color. In the near term, we are making sure we are fully recovery takes hold. As difficult as the holidays were, we are returning to a normalized operation. We have taken additional steps to ensure that disruptions are minimized for our customers through capacity management and incentives. Regarding the current labor environment, while we have small pockets of hiring challenges, those do not currently impact our ability to operate the main line and are not impacting We feel confident in our ability to achieve the level of hiring at United that supports the growth we were planning in the second half of 2022 and beyond. Despite Omicron's recent impact, we've achieved the highest ever net promoter score in our history, which is undoubtedly due to the team's service improvements and technological advancements that make flying with us easier than ever. A couple of examples. This year, more than 760,000 customers have benefited from ConnectionSafe. and the percentage of customers that have misconnected in 2021 is the lowest since the merger. Our clubs in the U.S. are back, and we're ready for international travel to return as well, as this includes six Polaris lounges. We've made it easier than ever to order on board with our PayPal QR code. Also, our expanded beer, wine, and snack offering is now available on nearly all flights over two hours. Jerry will provide greater detail on our 2022 costs, but our 2022 budget incorporates the elevated inflationary pressures seen by the rest of the country and fully reflects the labor expense we expect to incur in the year. Importantly, the changes in our fleet and mix of flying always give us the confidence that we will reach 1,000x below 2019 by the fourth quarter of this year, putting us on track to achieve our long-term cost goals in the United Next Plans. While the macro environment delayed the recovery, we continued to act on additional initiatives towards our goal to become 100% green by eliminating greenhouse gas emissions by 2050. United is now the largest airline to invest in zero-emission hydrogen electric engines for regional aircraft through a new equity stake in Zero Obvious, a leading company focused on hydrogen electric aviation solutions. We also announced this Among others, Berger solidifies United's position as the industry leader in sustainability. With 2021 behind us, we're responding to the near-term volatility with areas of the business we can control, while continuing to invest in our people and products as we plan for our United Next plan that will transform the airline in the coming years. And with that, I will now turn it over to Andrew to discuss the government environment. Thanks, Brett. Total revenue for the fourth quarter finished at the high end of our range and down 25% on 23% less capacity versus fourth quarter of 19. Trialism in the quarter finished down 2.5% versus the same period. We were pleased to reach the high end of our Q4 revenue guidance, but the Omicron variant did have around a two-point negative impact on trialism results and has delayed the anticipated demand and revenue recovery by a few months. Prior to Omicron, we were on track to deliver close to flat unit revenues in the fourth quarter versus 2019. Just as in recent quarters, our cargo operation again delivered a record quarter for United. Total cargo revenue for the quarter was up 130% from the fourth quarter of 2019 and finished the full year at $2.3 billion. Fourth quarter loyalty revenue and other revenue was up 3% versus the fourth quarter of 2019 to $518 million. Now turning to our first quarter outlook. Leisure bookings and demand for late February and March are largely on track with our expectations. However, Omicron disrupted close-in leisure demand in January across most regions and cancellations did increase. Bookings and cancellations are now starting to return to normal. Business demand fell sharply in January versus early December. Given business demand tends to look closer to the travel, we remain optimistic that we'll see a strong rebound as we progress through the quarter, although that's certainly linked to the virus. Our revenue projections assume business demand rebounds by the end of February to where we were in early December are down approximately 40% versus the same period in 2019. Leisure demand trends that we've observed for travel later in the first quarter of 2022 have allowed us to manage our yield quality successfully versus our experience with the Delta variant surge. As a result, we remain optimistic that Amazon's impact, while significant, will be focused on January and February at this point. While we can't say if there will be additional widespread variants in the future, what we can say is that our expectation is that Amazon and each possible future variant will have a smaller and smaller impact on our revenue over time as compared to the impact in the Delta variant. We now expect total revenue in the first quarter of 2022 to be down 20% to 25% versus 1Q19, with capacity down between 16% and 18%. We have moderated our capacity plans in Q1, reflecting the anticipated lower demand in the near term as a result of Omicron. Lower capacity in Q1, along with a more conservative outlook, results in our latest full-year 2022 plan having lower capacity than 2019. This is down from the 5% growth versus 19 we expected back in October. We've moderated our 2022 capacity by lowering aircraft utilization and delaying the return to service of certain planes. Our ground-based Pratt & Whitney 7 jets are now expected to fly against and then gradually reenter service fully by November. We've also delayed the return of service of certain nearby jets into the second half of 2022 and lowered the planned utilization levels of our regional jets for the remainder of the year addressing pilot shortages. Due to these changes, typical mainline aircraft utilization is expected to be well below normal until Q4 of 2022. The phase-in-in of this idle capacity, particularly from larger jets and with lower utilization of RJs, will have a measurable impact in our gauge, hazmat, and overall ASMs for each quarter of 2022, which Jerry will detail shortly. We also continue to expect that our international long-haul flying will enter a strong period of margin improvement versus the last cycle as we enter the second half of 2022. We expect that new capacity to Africa, India, and the Middle East will mostly offset lower capacity to Asia for the foreseeable future. We continue to launch international demand carefully, but expect a recovery in close-in demand post-Amazon. The booking curve for the Atlantic proved shorter than usual in 2021, and we expect to have a same repeat performance for 2022. As of now, bookings for the Atlantic for the peak travel season are on track, and we've seen some relaxation in border control to Israel and England. We are working closely with our global partners as we bolt back our international network, and late last year, they announced a great new partnership with Virgin Australia. United is the leading Australia to Australia, and we believe this partnership will allow us to quickly and more profitably resume our flight schedule to Australia. We're on track to create the best onboard product by introducing the United Signature Interior. We've now taken delivery of We're also making progress on our plan to modify the remainder of our narrow-budget jets so that by early 2025, the entire mainline fleet will have this consistent exterior look and feel. Our future fleet will have an increased premium index with premium seats for departure in North America up to 75% by 2026. It is worth noting that in the fourth quarter of 2019, we've already started to produce new records an ancillary of revenue generated by cheap upgrades by our leisure customers, this trend to sell on more premium products to leisure customers represents a meaningful amount of potential upside to our United Next revenue plans and can also help push the new impact of business traffic in the event it does fully return. As several of our largest competitors have reduced the size of their business class, Kevin, by about 10% on global long-haul flights, we expect that to continue And as a result, there is a structural change that we see in the long haul international service. Late in 2021, we were pleased to be recognized in the latest GCN survey completed by industry procurement leaders. These leaders clearly saw and rewarded our efforts to win their business, separating United from the bulk of the industry. We improved in every category, and we believe these results signify the hard work we're putting into winning and ever increasing share of their corporate business, which again is a core component of our United Next plan. Thanks to the entire United team, and with that, I'll hand it off to Jerry to discuss our financial results and outlook. Thanks, Andrew. Good morning, everyone, and welcome to our first call to the new year. While we all would have preferred to be further along in the recovery, you will see from our results for 2021 and forecast for this year that we continue to make great progress and are well-positioned to achieve the long-term goals we have discussed with you since last June. Turning to the numbers. For the full year of 2021, we recorded a pre-tax loss of $2.6 billion and an adjusted pre-tax loss of $5.8 billion. For the fourth quarter of 2021, we reported a pre-tax loss of $845 million and an adjusted pre-tax loss of $679 million. Our CASMX increased 13% on capacity down 23%, both versus the fourth quarter of 2019. While CASMX was within our guidance range for the quarter, it was slightly higher than the midpoint as a result of Omicron-related expenses. Looking to the first quarter of 2022, there are two major factors impacting our CASMX. First, because of Omicron, as Andrew mentioned, we are adjusting capacity downwards to align with demand, consistent with the agile pivoting we've done throughout the crisis. Secondly, we currently expect that our 52 crack-powered 777s will mostly remain grounded through the first quarter. This reduction in flying keeps our aircraft utilization down about 16% in the first quarter versus 2019, and does drive additional cost inefficiencies. First quarter 2022 capacity is expected to be down between 16% and 18%, with CASMX expected to be up between 14% and 15% versus the first quarter of 2019. The math associated with flying fewer ASMs than originally expected, together with the added Omicron-related expense, is driving around three points of expected CASMX pressure in the quarter. By the fourth quarter of 2022, however, Our base case assumption is that we are past Omicron and flying a schedule with capacity up around 5% versus fourth quarter 2019. In this scenario, our utilization would reach near 2019 levels and gauge up about 16% versus the fourth quarter of 2019 and up 11 points versus the first quarter of this year, driven by the return of chasm-friendly 777s and the addition of 787 and larger 737 MAX aircraft. These factors, together with the full run rate benefit of our identified $2.2 billion in structural cost reductions, which we expect to achieve by this summer, would drive a material change in our CASMX performance over the course of the year, from up 14% to 15% in the first quarter to down around 2% in the fourth quarter of this year in each case compared to 2019. As I mentioned, these figures represent our current base case assumption for our 2022 flying, but as Andrew outlined, we are committed to aligning our plans, and we will continue to be flexible given the uncertainty around the pace of recovery. As a result of this uncertainty, we expect our CASMX results for the full year 2022 to fall anywhere in a range of scenarios. You may recall in October, we said our planned capacity for 2022 would be up around 5% versus 2019, with CASMX lower than 2019. Our outlook on CASMX remains consistent with this prior outlook, though since we now expect our capacity for the year to be below 2019 levels, we must adjust our CASMX to take into account the impact of fixed cost spread over fewer ASMs. To provide some further bookends, if capacities for the year were about flat for 2019, we expect our CAS and X would be up 2% to 3% versus 2019. If full-year 2022 capacity is 5% below 2019, we expect our CAS and X would be up about 5% versus 2019. We believe our results will land between those figures on a full-year basis. Most importantly, We expect CASMX to improve throughout the year as our gauge and aircraft utilization materially improve in the second half and expect to end the year with CASMX below 2019 levels, as I noted earlier. Most importantly, the fourth quarter expected run rate for CASMX will put us well on track for our United Next cost plan for 2023 and beyond. Turning to sleep. We currently expect to take delivery of 53 737 MAX aircraft and eight 787 aircraft during the year. As we noted on our previous earnings calls, the 787 aircraft were originally expected to deliver in the first half of 2021. We now no longer expect to take the 787 aircraft until after the summer of 2022, contributing to about 1.5 points rest capacity versus our original plans. Given this timing, we now expect our adjusted CapEx in 2022 to be around $4.2 billion, plus that $1.7 billion of adjusted CapEx that moved out of 2021 into 2022, for a total of about $3.9 billion for the full year. To be clear, our total adjusted CapEx plans for the years 2021 and 2022 together have not changed since June of last year. There has simply been a timing shift driven by aircraft delivery delays. We continue to expect to use a mix of debt financing, leases, and cash to fund the acquisition of new aircraft depending on market conditions while tracking towards our United Next leverage target. Importantly, we have over $20 billion in liquidity, including our under-run revolvers. a strong cash position to continue to navigate the remainder of the crisis. In closing, I'd like to thank my finance team as they have worked countless hours over the last two years to create and manage a flexible financial plan in response to a quickly evolving environment. We will continue to focus on appropriately managing our capacity and rebuilding our business back efficiently. We've observed that the impact of each variant on our business has decreased with each iteration, and we continue to expect COVID-19 to become endemic in the future. We remain confident in our 2023 and 2026 United Next financial targets and our trajectory to maximize earnings power for the long term in the coming years. And with that, I'll pass it back to Christina to start the Q&A.

Thank you, Jerry. We will now take questions from the analyst community. please connect yourself to one question and, if needed, one follow-up question. Brandon, please describe the procedure to ask a question.

Thanks, Christina. And the question and answer session will be conducted electronically. If you'd like to ask a question, please dial star followed by 1 on your touch-tone phone. If you'd like to be removed from the queue, please press the prompt sign or the hashtag. If you're on a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Once again, if you do have a question, please dial star one on your phone keypad. Please hold for a moment while we reassemble our speaker. And from MTA and partners, we have Connor Cunningham. Please go ahead.

Hey, everyone. Thanks for the time. When we think about United and the opportunity set, that's ahead of you. You know, the international landscape is clearly what people talk about the most as the pandemic looks to start her out. Just curious on your expectations that have changed in terms of kinds of demand for international. Clearly, you know, Asia is going to take some time, but the European countries right now are starting to quickly ease restrictions as cases decline, which is super bullish for just the spring and summer demand timeframe. So just curious on how things have changed from a high level from your thought process.

Thanks, Andrew. It's a really good question, and it's something we strongly believe in based on everything we've seen. We've definitely pointed a lot of incremental capacity across the Atlantic for this spring and summer in anticipation of this recovery. I can tell you, in fact, we're booked ahead from a passenger and revenue perspective on those flights this spring and summer already, and so we're ready to get flying. We do need to get past this latest But we feel really good about the future. And more importantly, you know, we kept all of our wide-body jets in our fleet. We continue to modify them with the new business class cabins so we have a consistent product across the range of our aircraft. And we operate from the best gateways in the United States, bar none. So we do believe very strongly that there is tremendous international growth opportunity in front of us. We also believe that there's been significant structural changes. Smaller business class cabins are coming soon from the United States and, in fact, fewer flights. Many of those larger A380s and 747s have been retired by our competitors, and this sets us up incredibly well for the future year. I have to admit we can't be – we're very bullish about the Atlantic in particular. And as you stated, Asia is going to be slower to come back. We look forward to that. coming back in full force, but we have redeployed our planes for the foreseeable future to other regions of the world in anticipation of a slower recovery in Asia. So we think we have that from a revenue point of view under control as well. So really bullish about the future when it comes to international growth and United's potential in that we think it's superior to all of our competition.

Okay, great. And then when you embarked on the mid-con strategy and laid out United Max, loyalty was a huge component of that. And right or wrong, I think a lot of investors view airline loyalty as this one big pie. I'm just curious if you could talk about how new sign-ups or maybe unique sign-ups have been through the loyalty program or credit card, or if you have any conversion figures from other airlines that United has seen as the operations improved over the years. Thanks for the time.

We signed up 5.6 million new Mileage Plus members this year, which is a record for the airline. We are really pleased by that, and it shows the growth and the prosperity in the program, and people want to be part of that program and be part of United. So we don't think it could be any better. In terms of credit card acquisitions, new accounts, we are up in the second half of this year versus where we were in 2019, so that's going incredibly well as well. So we're really optimistic about those particular numbers, and particularly with the new numbers. Just a few years ago, we were doing 2.5 to 3 million new numbers per year, and now we're up to 5.6. I think it's a great tribute to United, where we fly, our brand, our customers are more and more interested in joining the My Life Plus program. from J.P. Morgan and J.P. Baker. Please go ahead.

Hey, good morning, everybody. So the strength in premium leisure is obviously an important topic, but there's some debate as to sustainability, you know, are consumers permanently craving a better flight experience and therefore they'll refuse to ever return to the back of a cabin or if it's just a temporary phenomenon driven by pent-up demand. So to the extent that it is the former, Are you seeing this elsewhere across the travel ribbon? I mean, for example, are club memberships showing commensurate strength? Are new card acquisitions, you know, skewing to the Infinity card? I'm just wondering how broad the evidence is supporting the thesis that a large segment of your consumers are truly pursuing a better overall experience.

Well, Jimmy, what I think I would say is we're going to need some time to prove that out. I think it is, you know, somewhat debatable. We feel really good about it, and the numbers have been incredibly strong. Our seat product upgrades in this last quarter have never been higher, and, you know, that's even before we begin to transform into the United Next Fleet, which has more premium in Tucson board aircraft. And we feel really strongly about segmenting our business and giving people a choice. about where they want to sit on the airplane and what experience they want throughout the entire travel journey. Everybody deserves that choice. And we're going to do it. We're going to do it great. In terms of club memberships, you know, what I would tell you is the bulk of our club memberships come through our premium card to the co-brand portfolio. So it will be hard to measure that because we introduced two new lower tier cards. So the numbers are skewed by our new gateway card, for example. So it's a little bit more difficult to answer that question right now. But, you know, we've now seen this for two quarters in a row, really strong premium leisure demand. Everything you see in the first quarter would say the same is true. And we also see that in the business class cabin going to and from Europe, where the performance there has been good. And the other thing I'll tell you is that while clearly Krazen has been down throughout this crisis, phrasm domestically in our premium cabins is almost flat, whereas, you know, the number in total in terms of phrasm. So, again, that's a remarkable number as we go through this crisis in terms of premium demand, in my opinion.

Well, thank you, Andrew. As a follow-up to that, so a question on pricing, it feels like the booking curve for consumers – is increasingly similar to what corporate used to look like. You know, so consumers are booking closer in, but it feels like business travelers are now booking further out. First, is that a fair characterization? And two, do you think you can still, you know, achieve pre-COVID corporate yields? You know, are sufficient fare fences in place? or does a further booking corporate buyer imply lower yields? I guess that's the question.

Some of that's TBD, to be honest. What I would say is that business traffic is down substantially. It had improved quite a bit when you were in the quarter last year. And so the booking curves are, I think, a little bit unreliable from, you know, where will they be, you know, two, three, or four months from now. So I think we just have to wait a little bit longer than that. And until, you know, demand and really demand comes back to some level of normalcy across all those channels, you know, the old calculations are just going to be a little bit differently. What I would say is that particularly with business traffic and total business, you know, our total traffic, we've seen a remarkable, you know, comeback already in week three of the year versus where we were in week one of the year for total bookings and for business bookings. So we're well on our way, and I think, you know, we're going to see things return to normal from a booking perspective. I would hope sometime in mid-February. And cancellation rates early this week are actually already back to the more or less 2019 standards. So things have moved dramatically just in the last two and a half, three weeks. Excellent. Thank you for the clarity, Andrew. Take care. From William and James, we have about the site. Please go ahead.

Hey, good morning. Just curious on the cargo revenue side, you know, that's held in well and getting better than what you would have expected earlier in 2021. And there seems to be a lot of dedicated freighter capacity coming on, so I'm not sure, you know, it seems to be making up for lost belly space. I was curious if you, you know, what you expect in terms of cargo revenue trends for this year and maybe if there's any kind of structurally something changed longer term.

Sure, I'll probably take that. You know, I think what we're seeing is there's been a disruption in supply chains around the globe. And so the use of air products rate has increased, or the need for it has increased relative to the amount of capacity available, and that's caused yields to go up. As we look into Q1, I think those trends are pretty similar, and in fact, we expect our Q1 performance this year to be in excess of our Q1 performance last year, but it's still early in the quarter, obviously, driven by these strong yields. And if you talk to our cargo team, they can tell you that the supply chain disruptions, the backups at the ports, these things look likely to continue to some degree for the foreseeable future as we head into 2022. So we're optimistic that cargo is going to have another great year, and kudos to our entire cargo team, because the numbers we are putting up relative to our competition are just staggering.

Right. Along the lines of something changing your term, but The cut to service and kind of some of the small markets, you know, small markets was a big push for United not long ago. Do you see this kind of issue resolving itself, you know, you get into 2023 or something, or is there kind of a need to change strategy here, at least when it comes to the regional operation and small market operation?

Sure. I'll try to take that. I'm taking all the questions here. I need to hand out a few questions to my colleagues. But, you know, we... First of all, what I would say is that as we take away service from small communities, we're disappointed to do that. We know the impact on these communities, and we alert them ahead of time, and we know it's a big deal. And we've already cut service to 20 communities in the United States in the last few months. Again, we know that's a really big deal. However, we are facing a pilot shortage on our regional aircraft, not on our mainline aircraft. And we expect that pilot shortage to continue for a while, including for the rest of 2022. So we do expect, unfortunately, there will be a few more communities that we will have to remove from the network. We're still working out those details. And we have a lot of aircraft that we will underutilize for the foreseeable future. But that's kind of where we are. In terms of, you know, our business plan, when we talked about the United Next business plan, just about seven months ago, we had already kind of recognized these trends. We had already planned to reduce the number of RJs in our fleet, and what's happening is an acceleration of this plan. But from a revenue perspective, this has all been accounted for. And unfortunately, from an internal planning perspective, what we're seeing on the RJ pilot shortage is an acceleration, and what happens to the communities served is an acceleration. But it is really going to deal with them in the next year or two.

That sounds super helpful. Thank you.

From Bernstein, we have David Ferdinand. Please go ahead.

Hey, good morning, guys. Thanks for taking our time. Jerry, I was wondering if you could help us think about kind of the exit rate of CASM. It sounds like it's going to be much better than the start of the year because of some gauge increases. Can you talk about sequentially how gauge is increasing and and kind of that, you know, what's a good foundation on which to start building out a casamala for 2023? Because I know there's the growth we're getting sequentially in the volume recovery. Just trying to separate out how much of that is not sort of volume, depending on how much of that is coming out of gauge.

So, good question. We've been clear since last June that one of the benefits that's really in some ways unique to United with our United Next plan is the increase in gage. We've been under-gaged on the main line, and the max order, particularly when the max 10 start next year, will help solve that problem. So we will provide, going into next year, additional color on gage. This year, just in the first quarter, Quarter to fourth quarter, we expect about 11% improvement engaged, and then more going into next year. But we'll continue to give you those numbers. But as we've been saying for the last six months, you know, one of the great advantages we have and one of the reasons why we're so comfortable with our TASM guidance for next year is that, as we said, it's just math.

Yeah, so sequentially as we go through the quarters, is there an inflection point when that gauge really kind of pops up prior to deliveries or schedule changes?

Yeah, so, well, two things. One, you know, the 777s, you know, won't start impacting us until the second quarter. And then the 8787s, which are still hanging out there, you know, that will be a second half, as well as the 50s quarterbacks. 53 maxes effectively all in the second half of the year. The vast majority in the second half of the year. So there is a huge difference between the first half and second half on gauge.

That's super helpful. Thank you. And then one last one for me. The other OPEX line kind of bumped up sequentially $220,000,000 a quarter for the last few quarters. Are we at a budget level of around $1.4 per quarter for that other OPEX line or how should we be thinking about that number? We're getting to 80, 85% of 2019 levels of cost on that line, and I'm just wondering if there's structural takeout. I would assume some of it's in there. Like, what absolute number for that other APEX line should we be looking at for 2022 per quarter?

Yeah, I think we've hit about the right runway. running rate within a couple hundred million dollars.

Okay. Thanks a lot for your time, guys.

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

Thanks very much, operator. Hi, everybody, and thank you very much for the time. So, oil prices have gone up over $85, and I know there's going to be a lot of fuel efficiency with the newer aircraft that are coming in. But how should we think about the way you're thinking about fuel vis-a-vis pricing and the lag between the two?

Sure, Elaine. Of course, you know, traditionally, I think we had gotten to the point where we had a high degree of confidence that fuel was a pass-through. And, you know, I've said that many times in the past, and I continue to believe that. You know, during the crisis with the supply-demand equation quite out of balance, I think that has got out of balance. But as we look into Q2 and beyond, based on what we think can happen to demand and where we see supply, hopefully those relationships come back into place, and we'll continue to make agile decisions on utilization of the fleet, given what the price of fuel is, like we always have done in the past. So I feel like... We need a little bit more time to prove back that the equation is still valid, but we're well on our way.

Okay. And then my other question is I don't know how to think about this, but, you know, I know Asia traffic is not coming back anytime soon, but there's a lot of cargo that you can do in that market. So it makes sense to have capacity there. But when you think about what the Chinese are doing, I mean, I feel like they're in violation of the bilateral agreement that they signed. And I'm kind of wondering if part of what they're doing in not allowing you your full complement of flight has to do with the Olympics versus, you know, them being difficult with quarantine rules and so on so that, As you think about rebuilding Asia, China's not on the list of countries beyond maybe one or two cities, and you think about, like, the rest of Southeast Asia. So I'm not sure who should answer that.

Well, I'll start, Helene, and then let Andrew talk about our specific plan. But what I'd say is on the Asia restrictions, governments around the world, are all doing their best to manage COVID, and the restrictions are constantly changing. They've had a different set of standards in China, a different approach than some of the Western. But I don't think there's anything bigger to read into it other than different countries, you know, are all feeling their way in an uncertain environment. So I wouldn't read any kind of macro geopolitical questions into it. And then I'll turn it back to Andrew to talk about sort of where our plans for aircraft and timing are.

Thank you.

The only thing I would add is that, you know, we recognize that Aegis seems to be – will have a slower recovery, and we have moved those aircraft elsewhere in the world, and we believe they're going to be really productive where we've moved them to. And we look forward to resuming our full schedule to Japan and China at some point in the future when we can.

Okay. Okay. Well, thank you very much.

From Evercore ISI, we have Dwight Fenigworth. Please go ahead. Hey, thanks so much. Good morning. I wanted to ask you a couple questions. One just on changeability, which is probably where, you know, the industry was headed anyway, and you can refresh our recollection there. But obviously we're in a weird time still. It's improving, but it's a weird time. But there is an impact on, you know, operations and perhaps, you know, call center resources and things of that sort with respect to changeability. So are you guys thinking at all about that kind of over the intermediate term, again, in a more normal demand environment? You know, is some of the pure kind of frictionless changeability maybe too much of a strain to support? I think the way I would describe that is, you know, we've made a number of changes as we've dealt with this crisis, including the elimination of change fees themselves. And that, we think, was the right thing to do. We should have done it years ago, quite frankly. We wish we had done it years ago. And so we don't think that's going to change, or at least United, you know, we are where we are. And we've adjusted our resources to make sure we can deal with that. Our customers now have the ability to, you know, make more changes than they did in the past and are doing so, and we're kind of pleased to let that happen. And we think it's a great feature for us, and it can help us with our relative competitive stance versus other carriers in the country, which, again, we needed to do long ago. It's about time, and we're fully committed to it. Appreciate those thoughts. I wondered if there wasn't maybe a – you know, a fair category or something like that. Not that you tell me now in advance, but maybe a fair category where it didn't make sense. And then just to follow up to Sabi's question on the regional constraints, you know, do you have any anecdotes? I mean, some markets are going to be, you know, no longer addressable, but do you have any anecdotes of markets that you've maintained where you've sort of swapped it out? Does it Does it, by default, imply lower frequency, or, you know, does it push you into some new markets? If you could just talk about that more broadly, maybe from a network perspective. I don't think it pushes us into new markets, but as we've classified this, there are places that have fewer flights, and there are, unfortunately, places that have no flights. And we continue to adjust the formula. Again, for the most part, we anticipated it. The big difference here is it's occurring at a faster pace than maybe we anticipated six to nine months ago. So it's just accelerating our United Next plan and where we're going to go to. But there will be communities that unfortunately don't have United service in the future, and there will be communities that have fewer flights, and there will be communities that have fewer flights with bigger aircraft. And that's kind of the outlook. We don't, again, you know, I said it a few minutes ago, we don't expect this to really materially improve in 2022, and we'll see where we go in 2023. Thanks so much. From Jefferies, we have Sheila. Please go ahead.

Good morning, everyone. Thanks for the time. Maybe if we could think about your United Next targets. I know they're far out. But, you know, how do we think about the inflationary expectations you're baking into those targets and how they've changed over the past six months?

Well, sure. It's fair to say that over the last six months we've seen more inflationary pressure than we might have expected a year ago. That's incorporated in our numbers and our guidance for this year and our comfort for next year. So we've taken that into account And in terms of where we're seeing those inflationary pressures, we're no different, I think, than anyone else. Clearly, on the vendor side, airport vendors, we're seeing that. Other suppliers, like everybody else, when you go to the supermarket, you're seeing higher food prices. We're seeing higher food prices. But we're managing through all that. And I can tell you that on our flight, it's If it becomes too expensive, we always have chicken.

Okay. Thank you.

From Golden Specs, we have Beth Rinkle-Dryan. Please go ahead.

Hey, everyone. Good morning. Thanks for the time. So I know there are a range of outcomes on your capacity for this year that's going to be based on demand, but should we still be thinking about international being the bigger drivers as you get back to growth mode later this year, so like If we end up with flight capacity, which is one of your bookends, should we expect domestic to be down underlying that? Thanks.

You know, I will say the plans are still agile. We are going to fly less international than we expected to just a few months ago. We're also going to fly less domestic. You know, whether in 100% proportion to each other, I think it's just too early to tell. So I'm going to refrain from, you know, giving an exact answer to that question.

Okay, got it. Fair enough. And then just on the forward demand outlook, I don't want to read too much into your word choices. I think in the release you said you're optimistic about spring and excited about summer. You know, should we read this as you're seeing bookings come in stronger than what you're seeing for spring? I think consumers are just more optimistic about, you know, COVID by the time we get to the summer or I just would love to hear kind of like how the bookings are looking right now, maybe it's over the next, you know, four or five months based on what you've got in the books today. Thanks so much.

Sure, I'll give it a try. You know, the first thing I'll say is that when the Omicron spike happened, that what really happened was cancellations peaked, particularly for close-in travel. And net bookends declined as a result of that, but total bookends also declined as a result of that. But all of that impact was really felt close in and not far out. And so we were continuing to book March, for example, normally throughout the entire Omicron process, including from the perspective of our yields to be blinded. And that continues all the way beyond March, all the way through the summer, where, for example, we look at the Atlantic, and we're booked ahead from a passenger count, and we're booked ahead from a revenue perspective, which means our pricing is obviously positive in the future quarters for the Atlantic. But all that is really good. What Omicron did is cause a spike in year-term cancellations and reduction in year-term bookings, particularly for business travel. And what I can tell you, over the last few weeks, we've already seen that start to come back in the lines For example, in week one, we were down 48% versus 2019 for total bookings. In week two of this year, we were down 40%. And now in week three, week to date, we're down 25%. And so we are seeing this really come back very quickly. And the second point, as I said earlier, our cancellations are also now coming back into normalcy. So this really, you know, again, there's a hole in January that we can't fill. because it's just too close in, and there's a bit of a hole in February as well. But March looks normal at this point, and definitely beyond that, based on these trends. And again, bookings are coming back really, really quickly. Hopefully, we will be back to somewhat of a normal stance, or at least where we were, you know, in the middle of the Q4 quarter, sometime by the middle of February.

Okay, great.

From Deutsche Bank, we have Mike Lindenberg. Please go ahead.

Oh, yeah. Hey, thanks, everyone. Two here. One, can you just refresh us on your hiring plans for 2022? More specifically, number of pilots and mechanics. And how is the ramp? Is it, you know, spread throughout the year? Is it front end loaded? Thank you.

Hi, Mike. Hey, Mike. Hey. So first off, in the back half of this year, we were really successful in meeting a lot of our hiring goals. And obviously, people have no issues, in particular on the main line, next year meeting those goals. In terms of pilots, for instance, in the back half of this year, we hired approximately 1,200 pilots. Overall numbers for next year, we expect to be in line with our needs, but we haven't put out specific numbers at this point in time.

Okay, great. Thanks, Brian. And then just quickly, Andrew, you know, when I saw the guidance, the release, the March quarter revenue, sort of what you were guiding to relative to others, It was good. It looked more favorable. And, you know, given that the March quarter historically has been seasonally much more challenging for you than your competitors, does that reflect, you know, maybe network changes over the last year? Is it cargo driving a bigger piece, ancillary, all of the above? You know, really curious what's allowing you to kind of catch up and at least narrow the gap with your competition. Thank you.

Thanks, Mike. I will say that, you know, improving our relative results in Q1 has been one of our long-term goals for many, many years. Obviously, there's a lot going on, a lot of moving pieces in Q1 of this year. But all of the factors you just said and all of us here at United kind of working together to move these things around has made an impact or really You know, I wish the Q1 guidance could be dramatically higher, but we are where we are. But I think we're on the right path for long term, and particularly we're on the right path for making our Q1 results less of a gap to our competitors. And that, of course, will overall help us close margin gaps in the future, because we do pretty well in Q2 and Q3, given our global long-haul nature and our east-west nature here domestically. Great, thank you. From Bank of America, we have Andrew DeDora. Please go ahead.

Hey, good morning, everyone. I just kind of wanted to go back to the regional pilot issue and ask a little bit of a different question.

If the regionals are experiencing pilot shortages, do you expect this to eventually, could this potentially creep into your mainline hiring plans, particularly given the growth that you guys have ahead of you? And if it did creep its way in, would that be a risk to some of your longer-term TASM targets?

I'll give it a try. At this point, we've had absolutely no trouble hiring for United mainline pilot jobs. And the second point is we are working very hard to make sure that the supply of pilots coming into this great business increases. And given where salaries are, the career potential, we're confident that's going to happen. And, of course, one of the things we've done, which is highlighted a lot, is our Aviate Academy, where we're bringing new students, many of them diverse, into the United Airlines world very, very early in the process. We're all working to make sure that there's plenty of pilots for the long-term supply, which we think is the case. But we do have, you know, a year or more where this needs time to get back into proper balance. And at this point, we haven't seen any impact to our mainline hiring abilities. I guess as a follow-up to that, why do you think it's easier to hire into mainline than into the regionals? basically pay scales. I'm just curious what that disconnect is. I would... I'll take a shot at it, Andrew. You've done a great job today at the call, by the way. I appreciate it. I want you to take a shot at it. Look, I think this is an important point, and the big difference for us at the mainline is that at United, we create careers. They're not just jobs. You know, our average... flight attendant, ramp worker, gate agent. It's just back in, you know, in a normal year, the one thing at the top of the seniority scale, you know, with good union contracts, makes a six-digit income and makes a six-digit income with great benefit. You know, it's one of the few jobs, the few places that there are jobs left, you know, where you can support a family and send your kids to college and have great benefits and have securities. And I think at the end of the day, that's the reason that we can hire at the main line is because we create careers where people can spend their whole career here instead of just, you know, what's the hourly rate today? Thanks, Pat. From UBS, we have Miles Walton. Please go ahead. Thanks. I think there's a comment in I know Scott on TMBC said second quarter you're targeting profitable or hopes to be profitable. I'm just curious, do you think for the full year you have line of sight for pre-tax profitability? And then maybe, Scott, while you're answering that, if you're answering that, one of the first things that Russia did ahead of time in previous instances with response to sanctions is shut down their airspace. Obviously, you've got some limited capacity going to Asia at this point, so maybe it's not that big a deal, but Relative to your plan for 22, how disruptive would that be? Thanks. So on the first question, you know, I tried at least on CNBC to say we're trying to get out of the business of short-terming the short-term ups and downs of COVID because we haven't been very good at it. We've been really good at the trajectory, but, you know, it's impossible to predict what's going to happen in the very short term. But If we continue on the trajectory that Andrew described where bookings went from down 48% the first week to down 25% this week, we are back on track to be profitable in both in the second, third, and fourth quarter. It's probably getting to too fine a point to try to add up, which I guess is what you're asking. If I add up the second, third, and fourth quarter, are those a number that's greater than the loss in point two? That's probably too fine a point for me to have confidence in forecasting at this point. On the Russia point, I'm not going to speculate on that yet. United, as the flag bearer for the United States, winds up being exposed in a good way, exposed in a bad way to geopolitics around the world. And so we follow them closely and pay attention to them and have a good history of responding when something happens. But we're like everyone keeping a close eye on the situation in Ukraine and how it develops. Okay. Thank you. From Wolf Research, we have Hunter K. Please go ahead. Hey, good morning. Just to be completely clear, are you still reiterating a 9% pre-tax margin, the KMX down for 2023, and also the 4% to 5% capacity jigger for next year? Um, Hey, I'm great, Jerry. Yeah, we're confirming all that. Okay, got it. Thank you. And then, you know, think about the premium seats you're adding. I think you said it was going to be like 60% or something like that. But I think most of your top corporates were tech customers flying to Asia. You could argue that both tech and Asia are going to be the most likely sort of challenge segments to come back geographically and, you know, line of business, whatever you want to call it. How do you square that? Does this mean maybe fewer wild bodies at a SFO forever or is it just more like a timing issue in your mind? Hunter, forever is a long time, so I don't think I'm going to agree to forever. Clearly, for the foreseeable future, we anticipate having a smaller footprint across the Pacific. And there's airplanes being redeployed elsewhere where they can be more productive for the business. So that's going to continue for a while. And when things change in Asia, we'll be ready to bounce back there. We have some great partners in Asia, particularly with ANA in Japan and Air China in China. So we're ready to go when demand returns, but it's difficult to predict. There's no doubt we did well in the business class cabin to Asia. But I can tell you, we did just as well across the Atlantic and to South America. It's one of our strong suits. And so we feel bullish that Asia is definitely going to be paying for the next few years from the United Airlines capacity perspective. But we're going to redeploy that capacity where it can be fruitful for the business and fruitful in particular in the business class cabin. And again, as I said earlier, we're seeing in smaller wide-body jets being used by our primary competitors across the globe. And so that brings in not only less capacity in total, but, you know, significantly less capacity in the business class cabin. So, you know, as you try to square a circle that has many different movements to it, what I would tell you is that capacity and demand is all moving, and there are plenty of scenarios out there where business traffic Across the Atlantic, it could be less than 100%, but if supply is dramatically less than 100%, it should all work out. Okay, thank you. Thank you. This concludes the investor report of our Q&A. At this time, we will now take questions from the media. Once again, as a reminder, if you have a question, please dial star 1 on your phone keypad. Thank you. From Wall Street Journal, we have Alice Snyder. Please go ahead.

Hi. Thanks so much. I'm just curious. You were talking about the issues with the regionals and the pilot shortage there. How are you thinking about kind of the financial health of all your regional carriers? You know, is this something they can all survive, or do you anticipate any consolidation or any kind of financial turmoil there?

Yeah. Allison, it's Andrew. I'll let our regional carriers speak for themselves on their financial situation. I can't respond to that.

And, I mean, I guess you mentioned from not having any trouble hiring pilots at the mainline level, but, you know, how about training? Are you seeing any kind of logjams or delays in the training process? And are you seeing any issues, you know, in your pipeline for mechanics?

From a training perspective, you know, we have our flight training center in Denver, Colorado, and I'll let Fred speak to it, but I think things are really well under control. Yeah, we're not seeing any issues with respect to the training process. And just to emphasize again, we're certainly not seeing any issues on the hiring side. So we don't anticipate any issues with respect to team hiring across the board that we need to make in order to stay on par with our mainline operations. From CNBC, we have Leslie Joseph. Please go ahead.

Hi. Good morning, everyone. I'm curious if there are any incentives that you're having to offer around the country in various workgroups to attract workers, and if there are any markets that are getting higher wages or signing bonuses, where are those, and where do you see that trend going throughout the year?

Yeah, hi. This is Brett Hart. I'm a big aid. We are taking it market by market, and certainly we are seeing some parts of the country where there is some more difficulty in small pockets for hiring, and we're making necessary adjustments in those markets. But our approach is to take it in just that way. We determine what needs to be done in a specific market. We try to maintain consistency. And we're adjusting to those. At this time, we call out specific markets. I mean, I think we're being impacted in the same way that other employers are, both in our industry and, quite frankly, across other industries. And that information is pretty readily available.

Okay, thanks.

And from Bluebird, we have Justin Stockman. Please go ahead.

Yeah, hi, thanks for the time. This might be a question for Jerry, I'm not sure, but as far as the full year capacity plan, I'm wondering if you could discuss a little bit about where the various buckets of that are coming from in terms of the regional pilot issues, the variant demand issues, Boeing 787 delays and those sort of things being pushed back. Could you sort of discuss which areas are contributing to that and in what ways? Thanks.

So, Justin and Andrew, I'll try. I'm not sure if I completely understand the question. There are a number of, you know, categories that cause us to be off from the original 5% guidance for 2022. The first one of those is demand and the fact that the Omicron variant has kind of hit the industry, as you know. And so we need to take that together, plan to reflect that, and we've done that. So when you look at the different categories of what's happening, and I don't have a slide in front of me that has the numbers, but I have a slide somewhere that does, is the triple sevens, 52 drowning aircraft, those triple sevens that are grounded normally represent about 10% of our business in total. And so they're going to be flying in full force in Q4 this year versus flying in full force for the first three quarters. That's a big deal. The second one is we've delayed the return to service of a bunch of narrowbodies that we have in storage. I don't have the exact number, but I think in Q4 it was in the neighborhood of 50 or so aircraft, and in Q1 it's slightly lower than that number, but still a really significant number. So that's also a big category in terms of ASM service. Third, the regional jets, because they are smaller aircraft that fly short distances, when we measure those in terms of ASMs, their impact on the capacity plan is actually quite small. And then beyond that, we just have lower utilization, again, to reflect the demand environment. So those are three, I think, you know, of the larger buckets. Unless somebody else has a category I'm missing, I think that's how I would describe that. Does that answer your question?

Yeah, I know that's kind of what I was hoping to hear about. Thanks a lot, Andrew.

From USA Today, we have Dawn Gilbert. Please go ahead.

Hi, good morning. Andrew, I know you'd rather talk about Polaris, but, you know, a broad swath of travelers out there are on a budget and fly basic economy. I wondered if you could give an update on the trends you're seeing in basic economy. It's been a while since you released any kind of figures on, like, what percentage of bookings are in basic economy, and I'm wondering whether that's changed at all. since the pandemic waiver is listed and, you know, they're no longer changeable. And related to that, I wonder if you guys have any plans like Delta did to extend travel credits beyond the current deadline. Thank you.

You can hear your voice, Dawn. You know, I think what I would say is throughout the crisis, the basic percentage of tickets sold has varied significantly at United's. And today, it's somewhere in the high single digits domestically. During the crisis, it got as low as 4%. And before the crisis, you know, it was well over 20%. And so this number is moving around based on all kinds of different things. As a result, it is a, as we speak today, it is a much smaller percentage of our ticket sales in our domestic system than it has historically been pre-crisis. And I think that's really all I can say. In terms of the tickets, we are evaluating that now and have more to say about that in the future. But our tickets are currently valid through the end of this year. So people still have a ton of time out there to find their credits and burn them on United Airlines.

Thank you very much.

And from TPT, we have David Slotnick. Please go ahead.

Good morning. Thanks for the question. I have a question about the international routes that you announced, the five-day routes, I think it was, earlier in the fall. What kind of bookings are you seeing so far, and are they tracking with international bookings overall, or are they a little bit off from the main?

I'll take that. So international bookings across the Atlantic are, you know, for travel April and beyond, are ahead of 2019 levels. And all of our new markets are exactly at their expectations. You know, I will say that each new market has a different booking curve, depending on where we're going. And each of those new markets is running on the booking curve we expected. We really have not seen the virus or Omicron in particular impact along all demand across the Atlantic at this point for future travel.

Okay, thanks. And then just a follow-up question to the 5G questions from earlier. There have been a handful of regional drafts that have been affected. We've seen it even today. There was a couple of, I believe, United Express drafts that went from, had to divert from San Francisco to Reno. Do you anticipate a continued impact on the network just from the RJ issues?

I think there's a lot yet to be determined. There are Modest impact still from the rollout of 5G. They're not nearly as significant as they were scheduled to be without the agreement that was reached. But more to come. You know, it's still very real-time. We will work, hopefully, with the telecoms and the FAA through the whole process to further reduce the impact. But don't know the full answer yet. Thank you, ladies and gentlemen. We will now turn it back to Christina Munoz for her closing remarks.

Thanks, everyone, for joining the call today. Please contact Investor Media Relations if you have any further questions, and we look forward to talking to you next.