United Airlines Holdings, Inc. (UAL) Earnings Call Transcript & Summary

Hello, and welcome to the JPMorgan 2020 Industrials Conference. My name is Brandon, and I'll be your operator for today. [Operator Instructions] I will now turn the call over to Jamie Baker. You may begin, sir.

Hey, good afternoon, everybody, and thanks for joining us for today's keynote presentation. Hopefully, everybody is situated in their offices or in their homes with something, a little bit better than the box lunches JPMorgan usually provides. In the past, we have reserved the keynote spot really for whomever is the most newly appointed CEO or CFO in the business, sort of a familiarization opportunity with investors. I remember well when we first had Oscar Munoz on our stage. Our decision to host Scott Kirby this year was actually made before. We knew of the upcoming ascent to the CEO position later this year, though as a somewhat superstitious person, perhaps it was actually a moment of clairvoyance on our part. As a reminder, Mark and I will be the ones that are facilitating the Q&A session today, after Scott delivers some prepared remarks. We'll try our best to keep an eye on our inboxes, if there's anything pressing that investors would like us to try and ask, we'll certainly do so. Let me turn it over to the United team to take care of some of the logistics, safe harbor statements, that sort of thing, and then we'll be turning the microphone over to Scott Kirby. United, take it away.

Thanks, Jamie. Before we begin, the remarks made in this audio webcast 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 Form 8-K dated March 10, 2020, our Form 10-K filed February 25, 2020, and other reports filed with the SEC by United Airlines Holdings and United Airlines for more thorough description of these factors. And now I'd like to turn the call over to our President, Scott Kirby, to begin his prepared remarks.

Good morning. Thank you, Kristina, and thank you, Jamie, for hosting. Though I can't help but say, I sure wish we were able to be doing this event in-person. I'll spend the majority of my time this morning talking about the coronavirus and its impact on United. Before I do, however, I want to sincerely thank the United team for the incredible job they're doing taking care of each other and our customers in the midst of this adversity. January and February were the #1 and #2 winter operational months in the history of United. We also set an all-time record for both year-over-year and absolute customer satisfaction scores and MPS in January, only to break those records again in February. In the last few weeks, we've asked a lot of our front-line team. We've stepped up our cleaning procedures. We've added a new change fee waiver for our customers. We've imposed a hiring freeze on nonessential personnel and offered an unpaid leave of absence to thousands of employees. That's a lot of changes and a lot of potential distractions, but our team hasn't lost a step. In fact, we're on track to set monthly customer satisfaction score records again for the third month in a row. At the start of the year, we saw a very strong demand environment and had signed a new win-win credit card deal with Chase, and the combination of those 2 things had us expecting to raise our full year EPS range by $2 per share to $13 to $15. Thanks to the great work of our people all around the world, United was firing on all cylinders. But then the coronavirus hit. And as always, the safety of our customers and employees has been our first priority. Our teams have been in daily contact with federal agencies and global health organizations to share information. We've stepped up our aircraft cleaning procedures to maintain a safe and healthy environment. We're using a high-grade disinfectant to wipe down hard surfaces on our aircraft. At the airport, we're disinfecting common surfaces inside all our terminals. If someone is exhibiting symptoms on board, that aircraft is taken out of service and sent through a full decontamination procedure. And soon, we'll start using an electrostatic fogger to disinfect the air and surfaces within the cabin after all international flights. Once we're in the air, our aircraft are equipped with state-of-the-art air circulation systems, similar to those found in hospitals, and we're adjusting our in-flight service to limit person-to-person contamination. I'm proud of the work our frontline is doing to keep safety first and to explore new ways to do more to enhance our customers and employee safety. Of course, COVID-19 has had an impact on demand, too. And while all of us continue to feel great about the long term, this is a crisis that's going to have a large near-term impact on revenue. While we expect the duration to be relatively short, we're planning for it to be deep. That means that my focus has shifted firmly to managing the near-term risk. Oscar, myself and a small group of us on the leadership team are now squarely focused on the near-term crisis. We're fortunate to have such a strong team who continue to do an exceptional job managing the day-to-day operation and continuing to set operational records. A turning point for us was when we began reading about the news of the virus spreading to Italy. About 2 weeks ago, we began reading the news of the virus in the Lombardy region of Italy. At that point, United hadn't really seen any meaningful decline in bookings or load factor outside of Asia. But we decided that while we hoped the virus wouldn't spread, we should plan and prepare for a more severe decline in worldwide demand. While we aren't epidemiologists or psychologists, we elected to get ahead of the curve by making 2 critical planning assumptions: one, assume that the virus was already out and going to be widespread everywhere in the world; and two, assume that it was going to cause large near-term declines in demand, akin to what we'd already experienced in Asia. While we didn't yet have bookings data to prove that, we elected not to wait and we began holding daily 7-day per week conference calls, which include the senior team, started planning for a worldwide near-term capacity reduction, began reducing CapEx and OpEx immediately and began accelerating planned and some new financing initiatives. As we face this crisis, our #1 objective is to get through it, and I'm confident that we will because we're acting decisively, quickly, aggressively and early to manage it. I've seen airlines in the past that weren't in a financial position to make confident decisions and when faced with the drop in demand, crossed their fingers and hoped that the crisis would end. But let me be blunt. Speaking for United, hope is not a strategy. Our strategy is to act quickly, raise liquidity, cut OpEx, cut CapEx and reduce capacity to position ourselves to bounce back when the crisis ends and demand returns. On to concrete facts. Last week, we announced a 10% domestic and 20% in international capacity cut effective in April. We're working on May schedules and beyond. We currently expect May to be an overall cut of at least 20% and expect each month after that to be at least as large or larger until we see concrete signs of returning demand. We also cut our CapEx forecast for 2020 by $2.5 billion down to $4.5 billion for the full year. CapEx was front-loaded in 2020, and we've already spent $2 billion. So this represents a 50% cut in CapEx for the balance of the year. We've always told you that we have flexibility on CapEx and would be aggressive and decisive at the exogenous environment required. Additionally, and to be clear, we will not be taking delivery of even a single aircraft in that CapEx forecast unless it is fully financed until the crisis is over. I never thought we'd be tested this quickly or severely, but I'm proud of the team for accomplishing all of this in just the last 2 weeks. We also announced today that we've raised an incremental $2 billion in new liquidity from a group of banks. Including our undrawn revolver, that means we currently have $8 billion of liquidity. We appreciate the long-term relationships we have with these banks and others who have been quickly engaged with us to raise this money. We also believe we have good options to raise additional liquidity in the weeks to come, if needed. Similar to CapEx, we eliminated discretionary operating expenses. Finally, we turned off the share repurchase program on Monday, February the 24, after we saw that virus breakout in Italy over that weekend. We've been taking early and aggressive actions because we've seen the impact to demand when the virus spreads. Before I give you detail on our bookings, we've looked at the industry data, and our revenue share remains constant. The data I'm going to share is close to real time, however, meaning what we've seen in the last 3 to 4 days. Our net bookings to Asia and Europe are now down 100%. Net bookings include new bookings minus cancellations. In this situation, however, gross bookings, which are just new bookings before netting out cancellations, are probably the best measure of true demand. Our gross bookings in the Pacific are down about 70%, so there are still some bookings occurring even in the Pacific region. In Europe, our gross bookings are now down about 50%. Domestically, we're currently seeing net bookings down about 70% and gross bookings down about 25%. While those numbers are encouraging compared to international, we're planning for the public concern about the virus to get worse before it gets better. Additionally, based in part on what our experts have told us, as testing expands in the U.S., many more cases are likely to turn up in many more communities around the country. As such, we're planning for domestic bookings to deteriorate further in the weeks to come. While nobody knows for sure how long the virus will last, what the real fatality rate will be once there's more testing and we have a more accurate denominator or what the impact to demand in the economy will be, the planning assumptions that I'm about to describe and that we at United are using are much more severe than anything we've seen anyone else published. To be clear, the following is not a forecast. I'll repeat that. The demand scenario I'm about to describe is not our forecast, but it is what we are planning for under a dire stress test scenario to make sure that we take all the steps required to make it through the crisis, even if the situation gets worse than it already is. We'll hope for the actual impact to be a lot closer to what others think, but United is going to plan for a severe scenario and make sure that we can weather even that storm. It's far better to be too aggressive than not aggressive enough. Our current dire scenario planning assumption is for revenue to be down 70% in April; 70% in May; 60% in June; 40% in July; 40% in August; 30% in September; 30% in October; 20% in November; and 20% in December. I suspect that sounds shocking to some of you, and for what it's worth, we don't think it will actually be that bad. But again, we're biased to be too aggressive in taking action as opposed to running the risk of looking back at some point and wishing we've been more aggressive sooner. For some context, demand was down about 40% after 9/11 for 2 months before beginning a gradual recovery. So the financial impact of our dire scenario is worse than the post-9/11 decline in demand. We, of course, hope that it will be better, but we're not willing to count on that. Even using these, what hopefully will turn out to be conservative assumptions, with the actions we've already taken to reduce CapEx and OpEx, together with financing we've raised and planned over the next few weeks and the additional schedule actions we're planning, our liquidity stayed above the minimum liquidity of $3 billion we need to run the airline successfully. The point of all this is that even under this level of industry stress, we'll survive this crisis without impairing our long-term financial prospects. And we have additional levers to pull to go even deeper and more dramatic, if it gets worse or lasts longer. While we're planning for this to be a deep hit to demand, we do expect demand to fully recover. SARS took about 14 months to fully recover. So we're planning for this to take 18 months for full recovery. From a planning perspective, however, we're going to wait until we actually start seeing demand recover before we put any capacity back into the system or before we loosen the reins on any discretionary OpEx and CapEx. That means that we'll be proactively canceling flying on a rolling 90-day basis, and we'll keep that capacity out until we actually see demand recover. We aren't going to forecast and hope for recovery. On CapEx, we expect the deferred CapEx to not come back for 2 to 4 years, and will not be restarted -- we won't be restarting deferred CapEx projects until after demand has recovered and we've strengthened the balance sheet once again. In closing, I'd like to leave you with the sense that we're being open and transparent. We're obviously planning for scenarios that are probably worse than any of you have in your model, we think it will actually be better than that, but it's better to plan aggressively. For the last 3 years, you've heard me, Oscar, Gerry, Andrew and Mike and others, talking about our optimism about United's future. We're talking about -- we talk about having the best airline professionals in the world who are thriving by putting our customers at the center of everything we do. We talk about having the best mid-continent hubs. We talk about the strength of our international gateways on both coasts. We talk about a culture throughout the company that prizes acting quickly to innovate and take risk, things that are uniquely United. As much as COVID-19 is disrupting the airline industry and the global economy, none of these uniquely [ advised ] advantages is vulnerable to CIVID-19. That means when demand returns, we'll be ready to bounce back with the momentum powered by these advantages, and we'll be accelerating towards a future where we fulfill the incredible potential of the airline. I want to close as I began by thanking that 100,000 people of United for the incredible job you're doing taking care of each other and our customers in the face of this adversity. Thanks to you all. And Jamie, we're ready for a few questions, and I've also got Gerry and Andrew in here with me as well for questions.

That's great. Scott, thank you for a very forthright and disclosive presentation so far. Just -- and some of these questions, you may have heard us ask of competitors this morning. But coming back to this question of gross bookings. One of the things we're debating, there was a real difference in demand trends between what the large airlines and the small discounters lived through in 2009. And one of the things we are hearing this morning, to my personal surprise, is that low fares do seem to be stimulating some consumers to overcome their, I don't know, a version to commercial air travel. Should we assume that the goalposts are as far apart as they were in 2009? Or do we think we're going to see more similar, if not identical, corporate and consumer trends once we sort of get through this period of heightened sensitivity right now?

So I'll try to take that. First, I think, lower fares are not going to cause people that are afraid to fly to fly. It's possible that they'll cause share-shift. If you get your fair low enough, it's possible that it will cause temporary share-shift. But the normal response to that is everyone gets their effective selling fair down to the same rate, there's no more share-shift. I find -- look, I'm looking at the industry data as well as our data. I don't think people are going -- are traveling or are going to travel if they are afraid to fly because of health risk. They're not going to go because the price is cheaper. One guy's opinion, others, I didn't know that others had different opinions. I'm surprised anyone has a different opinion, but perhaps they do. To start this, we saw a -- the first place that we saw this was in -- corporate has been worse, I mean, the fact that you're doing this conference call from home is indicative of what we saw. And the fact that there's essentially no more meeting and conventions, conference, business, I think, anywhere in the country going on anymore was indicative. I think people, like for March that had already made spring break bookings to go to Disney or go wherever, are mostly doing that. There are a lot of them are doing, at least, a lot of them are canceling, also. But there's not much new corporate happening, bookings happening. And leisure is just a couple of weeks behind, I think, on the booking curve. Hopefully that answered your question, I'm not sure.

Yes. No, no, no, it does. It does. One of the things I'm trying to better understand, when I think back to 2008, oil peaking in July, but copious capacity, not withdrawn until October and November. I was under the impression that these networks were harder to steer than that, okay, than what you're implying now where you can make decisions in early March as to what April's schedule is going to look like. Have there been best practices that you've figured out along the way? Were there lessons learned during the MAX grounding? I'm just personally surprised that industry capacity, and it varies from airline to airline, is really turning more on a dime than anything I've witnessed since the closure of the aerospace, obviously, post-9/11. How are you able to change so quickly?

I'm not sure I'll give you a good answer to the question, although, unfortunately, we have experience. That's probably the best answer. We've done it before. We know more. I will say, here at United, we also have a culture that makes a difference. We have been on the lead. I'm proud of the team, some of them sitting in this room with me today. A lot probably listening on the phone. I'm incredibly proud of the team for how quickly we have responded and been ahead of the curve compared to others on taking action, not forming committees to debate what we're going to do, deciding what we're going to do, and doing it. And that helps immensely. For what it's worth, though, we look at it at April, I think we will wind up -- a lot of our costs are fixed. Our employees that we're going to be flying those airplanes are still going to be paid to fly, even though they're not flying aircraft, airport rent, things like that are fixed. And I think our best guess right now is that in April, we'll only save about 15% of the nonfuel cost. We expect by getting ahead of it, and staying 90 days out, that we'll be able to -- we're confident that we can get to 40% of that cost, and we are working hard to get to 50%, and I think we'll get there on getting to 50% cost savings. So it's a combination of having experience, it's a combination -- and having a great team and having a culture of people that are willing to move quickly and take decisive action that gets us through it. Somebody sent a quote yesterday, which I like is from Teddy Roosevelt, that said, "When faced to the big decision, the best thing you can do is make the right decision, the second best thing you can do is to make the wrong decision, the worst thing you can do is make no decision." I didn't see it until yesterday, but that's a quote that I now like. And it's a philosophy we're using here at United.

I appreciate that. And you beat me to my follow-up about fixed versus variable, obviously, that's been a theme for investors today. Some of your competitors, in fact, we've suggested as much in our research that in a more protracted downturn, you may actually emerge with higher margins, a stronger airline than what you were experiencing on your way in. For some airlines, they think that's idiosyncratic. What's the United view? Is it potentially predicated on how you think the world plays out with some of your weaker competitors? And are there any internal projects that don't consume capital that you can use the downtime with your aircraft to possibly get an advanced start on?

So first, at least for the near term, we are 100% focused on making sure we make it through. And that is our -- really -- at least for me and a handful of us, it's our only objective. And most of the 100,000 people at United are 100% focused on taking care of the customer, and they're doing a phenomenal job. And I always tell them, when they're worried about this crisis, that's the best thing they can do, is take care of our customers, make sure those people that are flying, are choosing to fly United because they know they're going to get the best experience. But for us, we're 100% focused on the near term. I do think that by getting ahead of this, by being aggressive, there are certainly possibilities that if it is as deeper, as dire as we think it could be, the fact that we've been aggressive and gotten ahead of the curve might mean there are some opportunities for us to emerge even stronger. I'm not going to verbalize what we think some of those might be, but to emerge even stronger on the other side. But we're really -- I suppose, right before I go to bed at night, I admit that I think about those things for 15 to 20 minutes. But other than that, 100% focused on making sure we get through the near-term crisis.

Understood. Should investors spend much time thinking about any of your current alliance and/or JV partners without naming names?

They can think about it if they really want to. I'm focused on United.

But only for 15 or 20 minutes before they go to sleep. Let me pass the baton to Mark. I think he has some balance sheet questions. And then he'll bounce it back to me. Mark, got anything?

Yes. Great. Thanks, Jamie and Scott, and I know Gerry is here as well. Maybe you can talk a little bit about the $2 billion that's on the tape in terms of incremental liquidity. Can you maybe just give us some color on what type of collateral secures that facility? What's the advance rate? Where does that leave the unencumbered assets after this deal?

Sure, Mark, it's Gerry. So that $2 billion is a secured loan facility. We'll have more details on that when we, I think, file an 8-K on that in a few days. But I can tell you, it is secured by vintage aircraft. As you know, we have a large pool of unencumbered assets, including those vintage aircraft. In fact, after that $2 billion, when you look at everything else we have, the other [ hard ] assets we have, slots, gates, the MileagePlus assets that we have, we still have over $20 billion of unencumbered assets even with what we used for the $2 billion.

And how does that break down, Gerry, that $20 billion, between routes, slots and gates and other aircraft? Or what are the main buckets for that $20 billion? Because that's a bigger number than I think a lot of people are thinking.

I -- probably versus a number you may be thinking about, we include our MileagePlus assets in it as well, which is as valuable, if not more than routes, gates and slots. But we don't have the precise breakdown for you right now. But if you look at the aggregate, that's all assets we believe we can use for additional liquidity if we so choose.

Okay. And you mentioned MileagePlus, and that was actually a question I had for Scott as well, which is, with the new Chase agreement that you just cut, I know you went through the annual savings when you disclosed that agreement. But is there still the ability to sell miles forward to Chase? How much flexibility if things get really bad, and you need to tap that for liquidity? Should we think about the ability to sell miles forward? Is that part of that $20 billion, Gerry, that you were talking about? Or Scott, I don't know if you have any comments you want to make just about the flexibility in that relationship.

Well, I'm really glad that we got the new deal done. It was timely, not only from a financial perspective, but also a relationship. We really appreciate our partnership with JPMorgan Chase. And they're a good partner. We're not -- we obviously didn't announce on miles deal today, but those are the kinds of things that have happened in the past. And I think what's even different today, it's probably more clear as some of -- as you guys and some of your competitors point out the value of the loyalty programs is even more clear. And I think I'll just use that to emphasize that this is -- again, this is a short-term crisis that we're going through. And I used the word crisis, it is a crisis. It's short-term. But we're going to come out on the other side, and all the structural greatness that existed at United will still be here including a really valuable loyalty program. So I'm sure that one way or another, if we decided we needed to tap that as security for whether it's MileagePlus sales or just using the program of security, I would expect that we could do that. But that's not, at least what we've announced today or done so far. Yes, there are other better alternatives so far.

Okay. Great. And then it's sort of not lost in the irony after years of trying to get a leverage target out of you. We finally got one, not that long ago, and now we're faced with this crisis. So the 3.5x leverage target, we've got a couple of questions from investors here. Given this very conservative downside revenue case that you sort of laid out here and so forth, you mentioned, still be able to maintain the minimum liquidity. But would you still be under on your numbers sort of at leverage target? Or is that sort of suspended for now until we get through the crisis?

That's suspended for now. It -- usually those numbers and EBITDA are not very high.

And keep in mind -- hey, Mark, if you go back to the comments Scott made that before we talk about any kind of growth in CapEx, we're going to restore the balance sheet. We understand that what we did was we used this strong balance sheet to raise liquidity and making sure we kind of put the money back in the bank, so to speak, first.

Yes. That's actually a really good point. I've said it, but it was sort of half of a sentence in my script. There are 2 things that we're going to do before we start putting CapEx back. One, we have to see demand recover. And once that happens, we are going to at least restore and probably go further on strengthening the balance sheet before we let CapEx go up again. Those are 2 precedent conditions that will be required.

Okay. Great. And then just 1 final one for me, I'll turn it back over to Jamie. Scott, you had mentioned we got a couple of people trying to clarify this as well on the inbound from investors that you're not going to take any aircraft that you don't have financed because I think people heard you say you're not taking any aircraft, but I want to make sure we clarify that, that you're not taking aircraft that you don't have financed, right? So we should assume basically for that delivery stream, you have backup financing in place or some sort of primary financing already arranged for that pipeline for this year?

We either have it or we'll get it. Or we won't take the airplane.

Yes. I may not be as blunt as Scott, but Mark, we are very comfortable with our ability to raise financing. We have somewhat -- we just closed on a 787 financing this past Friday at really attractive rates. The aircraft financing market, Mark, as you know, is still pretty robust.

Yes. It sure is. All right. I'll turn it back over to Jamie. Thanks, guys.

Thanks, Mark. Hey, Scott, it's on the tape that the administration may be thinking of some sort of assistance to the travel complex, airlines would be part of that. I think a lot of your current owners haven't been around long enough to remember the ATSB loan program in the aftermath of 9/11. In fact, I'm feeling rather old now just bringing it up. You were employed, if memory serves, by one of only 2 airlines for whom that program generated a return, in fact, most of the loan recipients subsequently went out of business. I've realized this is an entirely different industry construct these days. But have your views on government aid evolved at all during that time? How should investors -- and I know we don't have any clarity on what they may have in mind, but just sort of philosophically, where is your head at on this topic?

Well, first and most importantly, we are not going to count on any kind of government intervention. We are going to manage United Airlines, to make sure we make it through the crisis without counting on that. I'm not going to comment extensively on government intervention other than to say, I'm encouraged, not specifically even for United Airlines before the U.S. economy to hear that the conversation is starting because, again, I do think that this is a short-term impact for the economy and an appropriate place for the government to be having those kinds of conversations.

Okay. Helpful. Another question, just getting back to what we were saying about discounting before and I don't want to ask a pricing question that would make you uncomfortable. But investors are asking, there seemed with the advent of basic economy to have been somewhat of a detente between competing business models here in the United States. And the question that I'm getting is whether in the absence of any corporate demand, will those airlines most effective be looking under every possible rock for any sort of yield, no matter how low? How should I respond to that investor line of inquiry because I'm taking it quite a bit?

All right. I'm going to do my best to dodge the question, I think.

Okay.

But what I would say is what happens in a situation like this is, you have a lot more seats -- just the yield management effect. I mean, going up and proactively lowering fares is not -- I don't think going to stimulate demand. But effectively, the selling price to consumers is much lower because there's just a lot of empty seats. And you can conclude -- I'll let you reach to the conclusions on what happens to various business models in that scenario. But there's going to be a lot more cheap seats available -- if demand is down, like we're planning for 70%, and capacity is down across the industry, if I add it all up 10% or 15%, there's going to be a lot of cheap seats available.

Right. Okay. Helpful. E-mail just in from a client. Could you give us an update on the state of the 80% slot utilization standard at affected airports?

We are working -- a regular team is -- regulatory team is working hard on that. But in a world where you see Lufthansa cutting capacity by 50% or Cathay cutting by 75%, my guess is the regulatory apparatus will catch up to the reality of coronavirus at some point. Not done yet, I think it will. And look, it's also crazy. There's -- in Europe, people flying 777s with nobody on board to protect slots. And if you're worried about climate change, good grief, flying empty airplanes to protect slot, how ridiculous is that.

Good point. Unfortunately, we had to cancel our ESG panel tomorrow. Another one from an investor, actually, this came in a few minutes ago. So cross-border consolidation, is it possible? And I realize the goal right now is to maximize liquidity and keep your powder dry. But as regulators around the world grapple with how to potentially bail out their far less liquid, far less profitable home airlines, is that barrier to consolidation, something that you can envision being lifted? I mean, could this finally push us to a point where cross-border M&A is possible? Or should we not even be thinking that far ahead? I paraphrased the question a little bit.

Yes. I guess, the short answer is, I don't know. We're squarely focused on getting United through this crisis. And I'm really not even spending 1 minute of the 15 to 20 minutes thinking about cross-border consolidations when we're thinking about other opportunities.

Okay. Yes. Fair enough. Let's say, I'm just kind of going through a bevy of inquiring -- or e-mail inquiries here.

Jamie, I can jump in while you're -- we can go to the next one.

Okay. Thanks, Mark.

So obviously, we're getting a lot of questions on the $20 billion number. So I guess, it's more a comment and that's because I don't think you're ready to answer it right now. But people are looking for a little bit more disclosure on exactly how that breaks down. So I'll just sort of throw that out there, maybe for the next 8-K or maybe when you talk about the $2 billion loan facility, you can give us a little bit more of a breakdown for that. Just also wondering, getting a lot of questions on, any sort of MAC clauses and any bank loans, Gerry, this is for you, anything that we should be worried about in terms of covenants under this scenario where you've whacked revenue as much as you put forth in this sort of downside case here? Do you run into any covenant difficulty?

No. And really, the only agreement that you ought to think about is our revolving credit facility, which is $2 billion undrawn. And there really is only 1 test for that, 1 financial covenant, so to speak, which is a liquidity covenant, which is set at $2 billion, including the undrawn revolver. So it's not something we're worried about. So we'll have access to that revolver if we would need it.

Here is an interesting one. Scott. After a decade-long hiatus, domestic start-ups are in the wings or at least a few were a few weeks ago. Is one possible outcome of this downturn going to be slower capital deployment, which, in turn, would represent somewhat of a barrier to entry?

Not a bad question. I don't know. I hope they start next week, so they can be done quicker.

Ouch. Okay. Another question that was asked, CDC warning people to stay off cruise ships, does your worst case, down 70% scenario envisioning something similar happening vis-à-vis the airlines? Or would that be even worse than your worst-case scenario, CDC coming out and telling people not to fly?

Oh, God I hate to -- I don't think that will happen. It would be inconsistent. I certainly hope it doesn't happen, it would be inconsistent with what we heard at the White House last week. But we have contemplated scenarios like that.

Okay.

They're worse than is in our dire scenario, but I also said that we have other levers and other things that we could pull. So we have contemplated that and have a plan on the shelf.

Got it.

I'll use that point to make, Jamie, to say, I mean, I hate talking about that on a call like this. But we are planning -- we're not planning for hope, we're planning for extreme scenarios. And we have -- we literally have a contingency plan in the place for that happening and what we do. I hate that we had to create that, I hate that we did. But I'm proud of the team for being able to do that in 2 weeks and make sure we know how we're going to get through the crisis even if that happens.

Another one. The other operating expense line on the income statement tends to be somewhat mysterious. It's a large number. Could you help us better understand how that cost category, which is an aggregate of myriad categories, can be managed when pulling down capacity?

Jamie, that's something the team can walk through offline with you. That's just a lot of detail.

Okay. Fair enough. I think Mark just pinged me, he's got another one.

Well, Gerry, just one more for you while we have you here. Just sort of wondering, we're getting questions. Outside of the Boeing and Airbus order book, and we understand your relationships with them and you'll manage those. But how about just with lessors or anything you were looking to do in the used market sales, et cetera. Just sort of wondering how much of maybe that CapEx flexibility. Were there any sort of operating leases you were looking to take on this year that you might be able to get out of? Is there any sort of flexibility with some cash flow items relating to some relationships outside of Boeing and Airbus, maybe with the lessors with other counterparties?

So on reducing the CapEx, I guess the one relating to leasing is actually the activity we do buying aircraft off lease, where in a couple of cases, the economics under the circumstances were a little marginal. So we've chosen to actually not buy those aircraft off lease. We'll lease them for a little while longer, which gives us greater flexibility as well to dispose of those aircraft if we want. So that was certainly a trigger that we pulled to reduce what had been expected CapEx.

Okay. Great. Thank you.

All right. We are coming to the end of the session. Last one for me, Scott, and we've asked this of others today, and we don't have the answers, we're debating it ourselves. But how does the tapestry of the industry emerge from this? I mean, we can study prior downturns all we want, but the demand destruction seems to be worse. The balance sheets are materially better. The margin starting points are better. Consolidation has been spurred by crisis in the past. Is that a wasted conversation -- is that part of your 10- to 15-minute sleep regimen? Are we all going to be having to fly with doctors' notes? I mean, how do you think the industry looks in 2 to 3 years, when we pull out of this? And hopefully, before that, but...

I think the base case scenario -- the most likely scenario is 2 to 3 years from now, it looks essentially exactly like it would have looked had this not happened. And maybe a little more debt that's still needing to be paid down but essentially, exactly the same. There are possibilities that if this stays long enough, deep enough or if there's an airline that doesn't take it serious enough that there's one of those tapestry changes. But I think the most likely outcome is we come into this so much stronger than we did before. I mean, anytime in my career before the last few years, this would have been a restructuring moment across most of the industry and I don't think you heard anybody talk about that today, for something that we're planning for materially worse than the demand destruction that happened after 9/11, and we're not talking restructuring is a remarkable testament to where we, at United, and the whole industry are today. So I think the result of that is -- the most likely outcome in the United States is we're kind of where we would have otherwise been. I think there'll be some failures internationally. But I think we're most likely where we otherwise would have been. But if people don't take it serious, there could be casualties.

Yes. Any geographies that you are more or less worried about internationally since you brought it up?

I wouldn't speculate because so much of it depends on what governments do.

Sure.

Inherently unforecastable to me, at least.

And 1 last question that just popped up on my screen. Thus far, labor relations at United have been excellent. This is a credit to what management has accomplished since Oscar rose to his post. Are there any contractual impediments such as those that existed at 9/11 that in a worst-case scenario would Impede United's flexibility and/or ability to downsize?

Yes. It is hard to downsize kind of much beyond where we're going to be in May, unless we get our labor groups on board with doing that. We have great relations with them. We are staying in constant touch with them. I tell them, and I'll say it on this call because it's true. My personal #1 objective and all of our #1 objectives as we're going through this, is to make sure we take whatever steps are required for United to survive. And my second objective is to do so without voluntarily furloughing anyone. But that is the second objective. And if it takes hard stuff with the employees to get to objective #1 of making sure we survive, we won't hesitate to do it. We'll -- I'll be sick to stomach, we'll feel awful. But our #1 objective will be to make sure we get through to the other side. I thank all of our unions. We do have good relationships with them. They have been working with us and talking to us, we are keeping them apprised. We haven't asked them for anything. But we're keeping them apprised of the seriousness of the situation so that if it gets worse, I suspect they would want to and be willing to work with us to make sure that we collectively get through to the other side.

Understood. Scott and the rest of the team, thank you for a very disclosive, albeit sobering Q&A today. We really appreciate you continuing to be part of the JPMorgan Industrials Conference. I know you guys have other one-on-ones to be getting back to, so we'll free you up at this point. But on Mark's and my behalf, just wanted to personally thank you again, and wish you and all your constituents the best of luck.

Thank you. And next year, you have to do 2 conferences to make up for the revenue hit.

Hey, I'm going to be doing -- I'm going to have to double up on business trips. Well, no, look, Scott, I think that's a point that a lot of people miss, a lot of consumers aren't going to take a second summer holiday. But I know when the All Clear was sounded in 2009, we went out on the road and made up for trips that we missed, as business travelers.

I think you're probably right. It's just a matter of when people will feel good to start returning to travel.

Yes, understood. All right. Thanks, everybody. Take care. Bye.

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