United Airlines Holdings, Inc.

Good morning and welcome to United Airlines Holdings earnings conference call for the second quarter 2022. My name is Hilda and I will 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 01 on your touchstone 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. 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, Cristina Muñoz, Director of Investor Relations. Please go ahead.

Thank you, Hilda. Good morning, everyone, and welcome to United's second quarter 2022 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 SBC by United Airlines Holdings and United Airlines for a 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. Joining us on the call today to discuss our results in Outlook are Chief Executive Officer Scott Kirby, President Brett Hart, Executive Vice President and Chief Operating Officer Toby Inquist, Executive Vice President and Chief Commercial Officer Andrew Nacella, 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 with that, I'll hand it over to Scott.

Thanks, Christina, and good morning, everyone, and thanks for joining our call today. I'd like to start by thanking our employees for navigating an unprecedented return of customers this quarter. as well as managing through challenges seen around the world in the infrastructure that supports global aviation. It's great to return to profitability for the first time since we started the pandemic, and despite the legitimate worries about rising fuel prices and the growing risk of a slowdown or recession, we expect continuing improvement in revenue, earnings, and margin going forward. We're still short of our pre-pandemic margins, and we remain focused on first getting back to 2019 levels of profitability, and then on achieving our 2023 and 2026 United Next adjusted pre-tax margin targets. During 2Q, three storm clouds emerged that will drive the narrative around United and our industry for the next six to 18 months. And here at United, we're prepared for the risks they pose. First, we've seen industry-wide constraints that have created significant operational disruptions and imposed constraints on the industry's ability to grow. Second, sharply elevated fuel prices. And third, the growing likelihood of an economic slowdown or recession. First, to address the challenges posed by a commercial aviation ecosystem that is straining to handle the number of planes operating today, we've elected to keep United Airlines smaller and overstaffed in order to give us more buffer against these external constraints that we just can't control. We'll also continue to prioritize reliability by overstaffing until the entire aviation infrastructure returns to normal. but it means that there will be cost pressures until that catches up and we can return to traditional utilization and staffing. The second macro trend is, of course, fuel prices. At current fuel prices, United's fuel bill would be $9 billion higher than 2019. For what it's worth, we're building our long-term plans, assuming that this is the new normal for fuel prices. The good news is that rising fuel costs are something that affects all airlines, and at least for United, we've seen this largely become a pass-through expense to date. And finally, there's the question about what's going to happen with demand. We continue to see strong demand, and one thing that is unique for United particularly, and aviation in general, is that we're still probably in the sixth or seventh inning of the COVID recovery. So there are two macro demand trends, recession versus continuing COVID recovery, working across purposes. And for now, at least, the COVID recovery trend is at least canceling out, arguably exceeding the economic headwinds. So where does that leave us as we look to the future? Clearly, all three looming risks, industry infrastructure constraints, significantly higher fuel prices, and an economic slowdown, bias toward reducing capacity over the next six to 18 months. But the truth is, 8% is about as much as we think it's physically possible for us to fly, given the shortfall in regionals, reduction in long-haul Asia flying, and aircraft delivery delays and other infrastructure constraints that are impacting all of aviation. Perhaps what's most amazing about all this is despite the three known storm clouds, however, we remain optimistic about the near and short term. You can see that our three key results are expected to continue to accelerate back towards 2019 margins. Lower stage length does lead to slower ASM growth and pressures chasm X, and Jerry will detail what that means shortly. However, these same factors also lead to higher RASM. In order to hit our adjusted pre-tax margin of 9% next year, TRASM could decelerate by eight points from current levels, and we'd still hit the target. That translates to about $11 per share in adjusted EPFs. And that, perhaps, is the most important point. At United, we will do whatever it takes to hit our margin targets. We made a huge step up in 2Q, and we continue to get closer to 2019 levels here in 3Q. We believe utilization will return to normal, and Boeing deliveries will get back on track, which are the keys to TRASM at But we're going to get to our pre-tax margin next year regardless. Thank you again to our employees for all they've done to help our customers during this busy summer travel season. It's been tough, but I'm encouraged to see the improvement in operating results in customer MPS so far in July. And with that, I'll turn it over to Brett.