United Airlines Holdings, Inc.

Good morning and welcome to the United Airlines Holdings Earnings Conference Call for the first quarter 2023. My name is Silas and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. At that time, please press pound two to enter the question queue. 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 the 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, Silas. Good morning, everyone, and welcome to United's first quarter 2023 earnings conference call. Yesterday, we issued our earnings release and investor update, which is available on our website, 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. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. For reconciliation of these non-GAAP measures to the most directly comfortable GAAP measures, please refer to the tables at the end of our earnings 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 Nacella, and Executive Vice President and Chief Financial Officer Jerry Laderman. 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.

Thanks, Christina, and good morning, everyone. I want to start by thanking the entire United team for delivering exceptional operation this quarter. Given our hub geography, United almost always has the most flights impacted by weather air traffic control delays of any U.S. airline. But despite this in Q1, we had the lowest mainline flight and seat cancellation rates of any airline in the country. That's important not just for the obvious customer and brand impact, but it's also the key to hitting our planned capacity and CASMX target. I'm going to leave the detailed quarterly results and guidance to Jerry and Andrew, but today I'll take a few minutes to talk about four emerging themes that have come to the foreground and I think are important to the United Investment case. One, there appears to be a clear change in seasonality that is causing peak leisure demand months, March through October, to be even stronger, while months that were historically reliant on business demand are weaker. That particularly impacts January, February, and the first half of November and December. We believe demand is just structurally different than it was pre-pandemic, and we're still figuring out that new normal. Second, as we've expected all along, long-haul international is moving into the lead over domestic. Andrew will give more details, but this is a multi-year structural change based on aircraft retirements and pilot downgrades at essentially all long-haul U.S. airlines around the world except United. But my third theme is an appropriately cautionary point. Our guidance and everything we're discussing today is our base case scenario based on what we're seeing right now. And what we're seeing right now is still strong demand. At airlines, the macroeconomic weakness is being offset with a counter trend of consumer spending continuing to rebalance back to services. And by the way, we still remain below our historical GDP relationship, arguably indicating more room to run in the revenue recovery. However, it seems clear that the macro risks are higher today than they were even a few months ago, as demonstrated by the banking scare with Silicon Valley Bank. We saw an immediate drop in close-in business demand that lasted for about two weeks, but now appears to have recovered. Our base case, therefore, remains a mild recession or soft landing, which is consistent with what we're currently seeing in our bookings. But we agree that the tail risk is higher than normal. While we feel good about our 10 to 12 full-year EPS, If the economy softens further, we've prepared for it by, A, having a lot of flexibility in the business on capacity if needed, B, improving our balance sheet to withstand a near-term issue with approximately $19 billion in liquidity and having reduced our total debt, including pension, by $4.6 billion over the past 12 months. And C is actually my fourth theme, which is controlling what we can and hitting our CASMX targets in this new, different, and more challenging operating environment. We can't control what happens with the macro economy, but we can and are doing a great job of controlling our costs. You can't run your airline like it's 2019. It's different and harder now. Cancellation rates are the leading indicator of forward capacity and, therefore, CASMX, and United is leading the way on this front. Jerry will discuss some of the year-over-year tailwinds that will drive lower CASMX in the back half of this year, but we only need CASMX to be approximately one point better in the second half of the year to hit our full-year target. We remain solidly on track. To wrap up, over the last three years, our industry has confronted a rapidly changing environment. United hasn't been perfect, but we've gotten a lot more right than wrong. And on the big picture, we've gotten it right and took the steps in the last three years to thrive in exactly this environment. International is stronger. The operating environment is more challenging, which means reliability is harder, but also at a premium for producing bottom-line results. And we have confidence that our gauge growth and execution are keeping United uniquely on track for our near and long-term CASMX trajectory. That's not to say that there aren't real near-term risks, because we all know there are. But we feel really good about the strategic setup and tactical execution here at United. I want to again thank the entire United team for their hard work this quarter. We have a busy summer season ahead, and I look forward to achieving even more operational and financial records. With that, I'll turn it over to Brett. Thank you, Scott, and thank you to our United team for their hard work this quarter. As Scott mentioned, we continue to see the benefits of running a strong operation. In the first quarter, United led the industry with the lowest seat cancellation rate despite around 20 percent of our flights being impacted by weather, the most out of any of our competitors. This was the first time since 2012 that we led on this metric. Additionally, United was first or second in the quarter for on-time departures at nearly all of our hub locations, including those heavily impacted by winter weather like O'Hare and Denver. Our airline is built to run well and recover fast, and we expect our operation to reflect that in the peak summer season. We continue to navigate the challenges in the current operating environment, specifically constrained industry infrastructure. United is working with the U.S. Department of Transportation and FAA regarding operational disruptions and air traffic staffing challenges. The FAA's decision to consider commercial air traffic when managing the growing number of space launches, combined with the FAA's recent move to give carriers more flexibility in how we all fly in and out of New York area airports, shows that the FAA is listening to feedback and finding ways we can all work together. In March, we took steps to reduce our