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

Hi. This is David Vernon with Bernstein. Welcome back to day 2 of the Strategic Decisions Conference this year. We are thrilled to have Scott Kirby, newly appointed CEO of United Airlines, join us for an hour-long Q&A. Before we begin, just a couple of things. First, for participants on the call, please note that on the left of your screen, you will see a link to something called pigeonhole. That is our online process for accepting questions from the audience. So the team is standing by to go through those questions, prioritize, you can promote or demote some of the questions that we have on our Q&A list. And we'll try to make this as interactive as we can. There is also a link to a procensus poll, that after the conversation, if you could go to quickly, a couple of short questions. It will allow us to test in real-time how you're thinking about the company relative to how perhaps your peers are thinking about the company kind of coming out of the conversation. So with that, I'm going to hand the mic over to Kristina Munoz. We also have Mike Leskinen on the line here from United Airlines. Kristina is going to do the safe harbor stuff. And then we'll kick it off with Scott's couple of prepared remarks, and then we'll get right into the Q&A. So thanks again for making the time to attend the conference of United Airlines, and Kristina, I'll hand it to you.

Thanks, Dave. I want to remind everyone that the remarks made during this 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 certain actual results to differ materially from our current expectations. Please refer to our Form 10-K and 10-Q for a more thorough description of these factors. And with that, I would like to turn it over to our CEO, Scott Kirby.

Well, thank you, Kristina, and thanks for hosting us for the webcast today, David. And thanks to all of you for making some time to listen. I'll be brief to avoid repeating a lot of our recent commentary and leave more time for questions. But since March, United has been taking aggressive action ahead of our competitors to raise liquidity, cut costs and dramatically reduce capacity to survive the sharpest and deepest decline of demand the airline industry has ever seen. As some of you likely saw on the 8-K we filed last week, we, like other airlines, have seen some improvement in demand, and bookings continued to trend upward but it has long ways to go. In other words, while we can't see the light at the end of the tunnel yet, it's not quite as black in here anymore. During our earnings call on May 1, we said we expected to be able to reduce average daily cash burn to between $40 million and $45 million per day for the second quarter and down to $20 million by the fourth quarter. And thanks to the extraordinary work of our team to reduce cost in every aspect of our business, including the tens of thousands of United employees who have step forward to take unpaid leave of absence, we have increasing confidence in those forecasts. But more importantly perhaps, we now have a plan in place to get cash -- to get to cash burn breakeven in an environment where demand is down around 50%. To be direct about it, no one, including us, knows exactly when demand will bounce back to about 50%. But when it does, because of the sacrifices we've made, we believe it will mark a critical turning point for United Airlines. To not only survive this crisis, but to position the airline for success over the long term, we have to do something that's really hard for big businesses like ours. We have to be flexible. That includes tough decisions and big sacrifices. But as CEO, no one has a bigger responsibility to take action, to mitigate our long-term risk and protect the jobs of the greatest collection of airline professionals in the world at United Airlines. Let me assure you, I take that responsibility very seriously. It's the first thing I think about when I sit down to work in the morning and it's the last thing I think about when I switch off the lights in my office at night. To live up to that responsibility, I'm determined to do what I can to position United to bounce back quickly when demand does start to return and are strengthening United for the long term so that this airline and the jobs it supports are here when demand fully returns as we know it ultimately will. We believe that's what's in the best interest of our employees and our shareholders. Thanks again. And with that, David, I think we're ready for -- what we are going to talk about?

All right. So I think we're going to spend a little bit of the time -- I did some polling of the investors kind of before this -- before the event. And I do think we need to spend a little bit of time on liquidity and survivability issues, but then I do also want to talk a little bit about kind of the day after as we all come out of our respective shelter-in-place holes and decide we want to travel again, kind of how you're thinking about the world. And so starting out with the liquidity and survivability stuff. You mentioned getting the cash burn rate down to $20 million or so by the end of the year, cash breakeven at 50% of capacity. How much of a revenue recovery are you thinking about in the context of those expectations? Like is this -- are we expecting -- are you expecting a significant recovery by the end of the year? Like how are you thinking about that in the context of your cash verticals?

So first, we built cash burn, assuming no recovery. So when -- at United, when we say we're going to plan for the worst and hope for the best, that's not just a tagline. I mean I've heard a lot of people say that statement or maybe similar -- and I'm not even talking about airlines, but companies in general, but we've actually been taking the hard decisions to make that a reality. And so when we talked about $20 million per day cash burn and -- by the time we get to the fourth quarter, that's predicated on no improvement in demand from what we were seeing in April. And clearly, we're already seeing improvement in demand, so you would expect that those numbers are going to get better. We're trying really, really hard to not pretend that we know when demand is going to bounce back and to not say, we think in the fourth quarter, demand is x, and in the first quarter, it's y and z because you may really -- you run the risk of making big mistakes for trying to forecast something that's unknowable. No one knows when demand will recover or how much it will recover or how fast it's going to recover. So the key is flexibility. And what we've been working on is building an unprecedented level of flexibility into our cost structure so that if demand is down 70%, we can get our cost base down close to 70 -- certainly our variable cost down 70%. If it's down 50%, then we can get our cost down 50%. If it's down 30%, down 30%. And so we're focused much more on building that flexibility in. Really, we got 3 pillars that we've said. Raise capital to give us as much runway as possible to get through the crisis, and we started that early and I think you'll see more to come. Obviously, we have the government loan, that's still a possibility, and we'll see more to come on that front. Second is get the cash burn down at the lowest level possible. And again, we think we can get that to $20 million even without a recovery in demand. And then third is then to variablize the cost structure, this point about don't try to pretend we know what demand is going to be, let the actual data tell us what it's going to be and adjust the size of the airline to what the demand really is.

And as you think about that third point in terms of variablizing the cost structure, are there changes that you need to make in terms of the contractual commitments you already have in place with labor and vendors and regional partners? Or are these tweaks within the existing framework of relationships that you have with your other stakeholders? Because obviously, United is a big enterprise connected to a lot of other partners, you shifting your cost structure as consequences for the price. Are you constrained in any way? Do you need change to happen? Are you operating within the construct of the existing agreements?

To certainly to optimize, we're going to need change in some of them, not all of them. Some of our labor contracts give us enough flexibility that we can adjust. Certainly, some of our regional contracts give us the kind of flexibility that we could adjust. But to optimize, we'll need agreements with others. And where we do need agreements, those are going well. And look, the reason is because these are not the kind of negotiations that -- particularly labor negotiations where additional -- let's divide up the pie, this is -- we have very much interests that are aligned. This isn't a land grab on either side's part. This is, let's get through the crisis. Let's do what it takes to get through the crisis and bounce back. Because the reality is our contracts were not -- none of our contracts were designed for a world where demand might be down 50% or 70%. They were designed for a recession where demand is down 5% and you furlough 5% of the people. But furloughing 50% or 70% is a bad outcome for the company, and it's a really bad outcome for our employees. So there's much better solutions that are more temporary in nature that are the things that we're working on, particularly with labor. And that's the big area, is to work on our labor deals. And we started that a while ago because we could see where this was headed, and we've been making good progress. And nothing final to announce yet, but I feel confident that together, we're going to get there and be able to variablize the cost structure and importantly, be able to bounce back quickly when the recovery happens because it's likely to happen quickly.

Since we're on the topic of this notion of relationships with labor, I'm going to kind of jump forward in the Q&A a little bit. Could you talk about kind of where you are from the status of labor relations, how the health of those relationships are holding up? I mean United, I think, when Oscar had come in, originally kind of before you came into United, there was that little tension between the old Continental and the old United, and I think those bridges had started to heal a little bit. What's the status of the labor relations on the labor relations front today? How do you feel about the willingness of those partners to help you get through this crisis?

So thank goodness, I'm following in Oscar's really big shoes and all the great work he did to improve labor relations at United because at least now, we can sit down and have real discussions, open and honest discussions, and that's what's happening. They're difficult. So more difficult in some cases than others. And because it's -- at times, it would be in an environment where we started off the year all looking forward to the growth that was ahead at United and everything was -- we were hitting on all cylinders and everything was great with management and the labor unions were just looking forward, we were talking to some of them about doing deals early even before the amendable date and getting things done, and everything was positive, it's a lot harder to be in an environment where revenues are down over 90% and you're trying to figure out how to manage through a crisis. But we're at various states with the different ones. And while it creates a backdrop that's more challenging, I think we've also been upfront and realistic with our people. And that transparency goes a long way. People may not like the message. They may not like thinking about how bad it can be and what we'll have to do. But by and large, they appreciate the openness, honesty and transparency. And that sets the groundwork. We're actually getting deals done. If you're saying everything is rainbows and sunshine and then you come in one day and say, "Oh, but now we need to furlough 30% of the people," that's a really, really hard conversation. But if you're being open and acknowledge where things are, it makes it easier to get to that ultimate answer. So I think we will. Not going to be fun, not going to be easy. But thank goodness, we've got much improved relations that Oscar left us with as the backdrop and the foundation for doing that work with the labor unions.

And we were coming into a period where the final contract was going to be amendable. Obviously, you're focused on survivability, not necessarily longevity, in some ways, in the context of some of these major changes for this temporary demand crisis. Should we be thinking that the date for the next sort of formal contract is going to be pushed off a little bit during this crisis? Or do you think you can actually kind of work within this to get the next set of agreements done?

So first, the contract is amendable with pilots. And I would like to -- and this is not just focused about survivability or getting through the crisis. Far from it. This is focused on -- what we are focused on is bouncing back from the crisis. That's what makes this hard. I mean if all you focused on was getting through the crisis, you just -- I don't want to be flip about it, but the labor contract will just say furlough tens of thousands of people and move forward. But the problem with that is you can't bounce back. If you furlough tens of thousands of people, the bounce back is almost impossible. You lose the experience, you lose the people, all the training that has to occur. And so finding a solution where we don't furlough is really about the bounce back. It's not as much about getting through the crisis as it is about bouncing back when demand recovers, being able to jump on the recovery in demand and not only defend the existing markets we have, but to take advantage of the fact that not everyone is going to be able to bounce back quickly. So our focus with the labor union is really not about the survivability. The survivability, we know what we can do under the existing contracts to survive. The constant negotiations with the unions are not about the survival, they are absolutely about the bounce back.

Okay. And then if we kind of turn back to the balance sheet for a second. Earlier in the quarter, you guys had made the decision, obviously, to go out and access the capital markets as much as you could, also issuing equity. Can you talk about why the decision to raise equity was the right strategy, financial strategy for United at the time?

Well, look, in my job, always, risk management is important. And in a crisis like this, in the biggest financial crisis in the history of aviation, risk management moves to the top of the priority for me. And risk is now asymmetric. If you raise almost as much capital as you need, but not quite enough, the results for an airline could be catastrophic in terms of jobs, shareholders, creditors, communities, customers. And so there's really asymmetric risk. The risk of not raising enough capital is really, really bad. The risk of raising too much capital is you have dilution or you have a little extra interest payments every year. And so it's far better to be too aggressive than to be not aggressive enough. And in a world where we were raising already several billion dollars of debt and knew that we were going to raise more, balancing our capital structure with a little bit of additional equity, $1 billion of additional equity, it seemed like the best answer.

Okay. And as you think about potential additional liquidity, obviously, we're waiting on news from government on the CARE loan approvals. If you can give us kind of any update you have if you have one on the status of that application process, that would be great. And then as you think about the decision to pull the secured debt offering recently, how does that speak to your ability to kind of further lever up the enterprise right now?

Yes. So I guess, broadly, what I would -- I would start by saying, as we said several times, we've got the loyalty program, which is the largest asset that we have, and we think we can raise capital against that. We could raise debt against that if we chose to. We've also got over $10 billion of other available collateral, which we could use for the government loan or for other things or for other capital raise if we wanted to. We are talking to the government. At a minimum, I'm confident we'll go through the process to get to approval and get the documentation done for a government loan. We can probably wait. We may wait at least to decide whether we take it or not, depending on what the outlook is. But we'll certainly go through the process to be ready to take the additional $4.5 billion. So we feel like we've got lots of opportunity with all that to raise more capital should we think it's the prudent and the right risk decision. With regard to the bond deal, look, we just have bad timing. We're going to term that out. We were already pretty confident that things were going to be better. We could look into the -- it's still foggy. We can look into the crystal glass and see that things were going to be better. And our timing was unfortunate that it started to be marketed on literally the same day that Warren Buffett came out and said he sold all the airlines. And while that wasn't really new news to us, it was new news to the market and to sentiment around airlines. And so we said bad timing. And we had a deal on the table to do, but we were pretty confident that we could come back to the market at a later date and do a better deal. So we decided, wait for a better deal later.

All right. So when we talk to other airline CEOs and other management teams, and I'm not asking for commentary on any one company, but we hear that the airlines are in a good spot, that we are going to be able to get enough liquidity to be able to get through the crisis and get to whatever demand is going to hold out for us next year. Now obviously, it's going to be different companies, different paths. But regardless of the amount of liquidity that the industry sort of offers forward, there is sort of this persistent speculation out there about the industry's ability to survive the crisis. There's a lot of talk about bankruptcy. How do you, as the CEO now of an airline, think about bankruptcy as a tool or as an option in the present crisis? And how do you think the industry is going to look at that maybe differently now than it has in the past?

Well, I'll just comment for United Airlines instead of for everyone else. And first, what I would say is with regard to liquidity and cash burn and all, the one thing that I hope everyone can be confident about is we are making the most aggressive plans. We're planning for the worst-case scenarios of any airline that's out there. That doesn't mean we think that's what's going to happen. But we're getting ourselves prepared. We are not counting on a recovery to get through the crisis. And we're preparing for it to be deep and for it to be long. And it doesn't mean it will be and hope it won't, but we are being more aggressive, I think, than anyone out there on taking this point about plan for the worst and hope for the best. On the plan for the worst part, we are actually doing it. The question -- I've gotten the question from someone else about bankruptcy, and I'll try to be calm since I'm on video. Like, to me, it's like the dumbest question possible. Like, we are not going to go like file bankruptcy, like it would be the absolute last thing we would do. I can't imagine why people think that's a good business strategy. I mean I have a hard time answering the question because I've had people ask me, like, isn't that the right way to like restructure the business. Like, I don't think that at all, 0%, no chance. It's worse for shareholders. It's worse for creditors. It's worse for employees. It's worse for every constituent that we have. And that is not even remotely in the plans at United Airlines.

And for the avoidance of that, we agree with you. I'm just trying to raise it up there because it is a persistent thing...

Look, I have a hard time answering the question because I have a hard time following the logic of why people say you should want to file bankruptcy. I get lost in the question because I can't understand the logic.

Well, I appreciate your commentary on it anyway. So you've obviously been having these conversations with investors in sitdowns and one-on-ones and other conferences, not as good as ours, of course, but as you think about your conversations with investors over the last 2 to 3 months, as you step back from those conversations, what are the 2 or 3 things that investors are missing when they're so worried about survivability and bankruptcy risk and things like that? Like as you think about United and what's unique to United, what is the market missing about your ability to not only survive but also rebound kind of out of this crisis?

So I guess, I would say, if people are missing something, it's -- this will sound pejorative, and I don't mean it to be, but it can sometimes get lost in the spreadsheet and not put things in the spreadsheet that they don't know, unless they know exactly what's going to happen. And really, that's about the culture. And I don't think anyone would have modeled that United could get down to $20 million per day in cash burn with net revenue at essentially $0, net passenger revenue at $0, in the fourth quarter, and we can. I think what they're missing about United is our aggressive approach. And a lot of times when you talk to investors, they will actually give you credit for all the things you've already done, but somehow think that everything that you've done is all you're going to do. And the last questions are like, well, I see this problem coming up or this potential problem and I just assume you can't solve it, even given all the other things that we've solved. And so I think they're underestimating our willingness to do whatever it takes to not only make sure United survives the crisis, we are going to survive the crisis, but then emerge strong on the other side and is really -- is ready to bounce back quickly. I mean at the very beginning of this, I was spending a lot of my time making sure we get through survival. I actually now have the plan that I know in my head that gets us through even a really, really ugly environment, far worse than anyone is forecasting and far worse than I'm forecasting, but that knows how we get through. And we're spending our days and hours now on how do we prepare for the bounce back. We don't know when it's going to happen. We don't know how quickly it's going to happen. And how do we set the company up to be flexible so that we can recover when the bounce back happens. And I think the cultural point, if people are missing anything about United, it's that the culture of being aggressive, fast-paced, willing to be innovative, willing to take the risk, willing to do things that no one else has done before, is a huge attribute that is going to not only help us get through the crisis, but is going to give us the chance to leapfrog on the other side.

All right. I wanted to have one last question on the financing component before I switch to maybe the day-after part of the conversation. As you think about the MileagePlus program and potentially leveraging that as either collateral or as a direct source of capital raise, how are you thinking about that? Are you thinking about that purely in the context of presales miles? Or would you also consider a partnership or a debt raise just against that particular sort of business as a standalone entity?

So more to come, but anything is on the table for us. And the reality is our loyalty program is not only incredibly valuable, it's one of the best pieces of collateral that we have at United Airlines because no matter what you think about the airline, we are going to have -- United Airlines is going to have a loyalty program and a loyalty program that's really valuable, a loyalty program that spins off a steady stream of cash. And one way or another, I think that there's large -- there's significant capacity to raise capital against that. And the form and structure, to be announced later, if any, but because it's such a high-quality asset, I'm confident that we can find ways to do it.

All right. So if we turn now to like the future sort of recovery, right, how do you think about the persistence of safe travel protocols and how long they may be with us in the years ahead? Is it realistic to think about social distancing at 30,000 feet? Are we going to get an "enter your temperature" into the MileagePlus app kind of thing before you book your ticket? Like how are you thinking about the evolution of safe travel protocols and how persistent those will be through this crisis?

I'm kind of laughing because I can see on the screen that my 6-year-old son is joining us today. This is what happens when we're doing these things at home. But look, I think one of the things that will be a permanent change is safety, cleanliness, hygiene when onboard an aircraft. Even -- let's even say we've gotten to a vaccine and nobody is worried about COVID-19 anymore, this is going to live with all of us for the rest of our lives. And people are going to -- and everywhere, an increased focus on safety and hygiene and cleanliness. And so those things will be true on airplanes as well. But if you look at an airplane, airplanes don't have social distancing. 6 feet, we're not going to be 6 feet apart. But an airplane environment is incredibly safe. On the airplane, we're recirculating the air through HEPA filter every 2 to 3 minutes. I mean I don't know of anywhere else that you're going to be with people around where that's happening. Right now, where people are shown -- right now, we are wearing masks to prevent the spread of germs. It's not one of these super-spreader environments where people are talking loud. We're doing now electrostatic spraying on every one of the airplanes every day, and we're working on things like antimicrobial coatings that could be applied to all the surfaces that would kill microbes and viruses when they land on them. So I'm confident that we have created and will continue to create a really safe space to onboard the aircraft. But that's going to all be important, not just in the short term. I think that's going to -- those kinds of things are going to last even past the COVID-19 crisis.

And -- but as you think about like the economics of keeping the middle seat open, that doesn't seem like something that will persist, at least not to me, but...

Well, I'll try to be careful here. Look, as I said, you can't be 6 feet apart on an airplane, middle seat or not. And over half the airplanes flying in the United States, I think, don't even have middle seats. They have window and aisle, where people are sitting right next to each other. What makes an airplane safe is not this. What makes an airplane safe is HEPA air filters recirculating the air every 2 to 3 minutes, wearing a mask to onboard the airplane, cleaning the airplanes. Those are the things that make an airplane safe. What we've done on the middle seat is we will actually allow customers to sit in the middle seat if they want because the flip side of this equation is there are people that need to travel. The people that are traveling right now need to travel. They're not, by and large, people that are just off on a weekend getaway. They are medical professionals, they are people going to fight COVID on the front lines, or people going to visit critically ill loved ones. And so the flip side of telling them you can't get on this airplane is also a bad experience for the customer. And so what we've done at United is we're telling customers in advance that they're on an airplane that might be over 70%. It always isn't, but that they might be and giving them complete flexibility to switch flights, change, turn it into a travel credit and not travel at all if they want to and giving them complete flexibility. And so far, only about 1% of the people are taking this for that. But safety onboard airplanes is critical to us, but our focus on safety is the air filtration, the virus -- killing the viruses, cleaning, wearing masks, that's how we make an airplane safe.

And I guess as you think about moving the company beyond the pandemic, how, if at all, do you think your priorities are going to shift in relation to either cost management or levels of investment? Are you learning things through this crisis that are going to maybe change the way you approach running the airline in a post-COVID world?

So yes. Everything is going to be different. So first, safety, cleanliness, hygiene, all the stuff I talked about will be even more critical and more important. And I think that -- and permanent, those changes. I think that we will -- there are all kinds of things we're doing right now that are structural -- that are getting rid of structural inefficiencies that have always existed, the way training worked, there's all kinds of stuff that we are going to do that will be different on the other side. So we'll have some higher costs from the safety initiatives, but I don't think those are material in the scheme of our cost structure. And I suspect that the efficiencies that we're going to create are going to outweigh those. There are some other things that are going to be different too though. If you look, like, at capital, when we get through the crisis, #1 priority at United is no longer going to be grow per share repurchases. It's going to be paying down debt. It's going to be long gone before we get back into the multiple billions of dollars a year in CapEx because when we get through this, I'm hoping demand gets back to 50% sooner than later and we can get the cash flow breakeven and then everywhere that it starts to go up, we'll start to generate positive cash flow. That cash flow is going to be devoted to improving the balance sheet first and foremost before we start spending capital. So I think our CapEx profile will be significantly reduced. And look, another thing that I think may seem nonintuitive that's going to be different on the other side of this, and I will admit I'm personally passionate about, is sustainability. I think it's kind of taken a back seat right now as we're going through the crisis and because we're going through the crisis. But it's been amazing to me. I'm on Space.com. I'm sure there's other places. On our website, you can see it. But these satellite pictures of no pollution in places, I mean, it's just shocking to look at. And so I think sustainability is going to be important. And United is already a leader here before the crisis. We're over 50% of the world's total commitment to sustainable aviation fuels. We've been a seed investor in a couple of startups, which is where we're getting that. We had a couple more of investments that we were working on term sheets that we had hoped to announce in March, that got sidelined because of COVID-19. But I think we'll get back to those kinds of initiatives. We'll probably have less capital to put into them, but we'll want to be an active participant with some of the other people that we were working on to do that. So I think that's another change that's going to be important on the backside of this crisis.

And as you think about that, that notion of the CapEx, more focusing the capital on the balance sheet repair, do you get worried at all that if you sort of discontinue the fleet renewal, you might just be pushing the pig in the python further out as far as kind of fleet renewal? Or do you feel like you've got the right hardware and metal in the sky to be able to kind of manage through that? Because we think about -- I had always thought about that fleet planning strategy being a long-term thing to keep the fleet age at the right point. If you defer CapEx, do you create a problem down the road? Or do you feel like you're in a good spot with respect to the -- how this would look?

The world has changed. So think about the replacement CapEx decision. In February, we could buy an airplane as a replacement aircraft and finance it at 3.5% and retire a 15-year-old airplane and part it out to make the economics of that. That was fine in that world. But in today's world, one would -- or in tomorrow's world, on the backside of this crisis, we would have taken on more debt before we paid down all that debt. You're not -- the cost of capital to buy that new airplane is going to be different. Your alternative of saying, instead of -- we literally were parting some airplanes out as young as 15 years. We'll fly through another cycle or 2. So we'll part it out at 20 or 25. That's going to now be the correct financial decision on the backside of this crisis compared to where we were coming in. And given the situation we were in before, I think buying airplanes and turning the fleet over quicker was the more responsible decision. But now it's not going to be. And the other point on that is, the less risky decision is to keep the older airplane as opposed to invest a bucket of tens of millions of capital in a new airplane, the less risky decision, even if it's slightly suboptimal in terms of what you would have thought the optimal fleet replacement was, one, the optimal was moved because the cost of capital has moved. But secondly, the risk is higher on spending much more CapEx. And I said earlier in my opening comments, I view my job as Chief Risk Manager as one of the things, particularly as we go through a crisis. And so that just changes your perspective on new aircraft because there's no way to avoid that putting more capital on the business increases the level of risk. And so you're willing to make some trade-offs on keeping -- investing and keeping the plane around for longer.

And do you think that your approach to making that own versus lease decision is also going to change? Or should we be expecting you to be thinking about leasing engines versus buying engines, leasing aircraft versus owning equipment? I mean one of the things that's helped the industry today has been that the fact that you do have all these unencumbered assets, the ownership position that you've built up has been a source. And do you think that, that lease versus buy decision will also be a little bit different because of the same factors?

Well, to some degree, it's an academic question because beyond the airplanes that we're already kind of locked in on, I think it's going to be a while before we're taking new deliveries. So we're not going to have the own versus lease decision. But even once we are making the own versus lease decision, I think the -- it will be the same economic analysis. And by the time we're taking new deliveries again at some point in the future, we'll look forward to that, particularly for growth, if you're taking them for growth. Well, it's true if you're taking them for replacement as well. But it will be the same economic analysis. And so my -- I think it's unlikely that we would be leasing the plane out of a lessor's order book. Might we go do deals with lessors where they take an airplane out of our order book at our price, it's just another form of financing. Might we do those, yes. But I don't think we're going to be back in the, what I would call, traditional lease market. That's not a change I would expect on the other side of the crisis.

And then one thing that we have not seen kind of out of the item, but we have heard from some of the other larger airlines around fleet restructuring initiatives to retire certain fleet types, things like that, I know, and having known you a little bit now, that you have a plan. Is there a point where -- is there anything you can tell us about how the fleet is going to look kind of in the -- coming out of this thing? Or is it -- there's just still too many variables to know exactly to make firm decisions on retirements, things like that?

Well, look, we have spent time thinking about the fleet and the plan on the fleet. And the answer is it depends. The short answer is we don't have to make a decision today because there's no [ upside ] decision today. You take any fleet type that you thought we were going to retire, we can just as easily park it right now to say we're going to retire it. And the costs are sunk, they're fixed. And so we don't have to make those decisions yet. We've done a lot of kind of a game theory to say if demand does this, if x, y, z happens, what are we likely to do. So we know that on this trajectory of demand or this trajectory of competitive environment, here's what we think we will do with the fleet. But because we don't know what those various paths or there's multiple paths through this crisis, we haven't decided anything yet. I mean I have some guesses in my head about what are going to happen, but I'm like keeping them on what we think are going to happen just because we don't need to do anything. Yes, there's no upside to doing it today versus collecting some more information and collecting more data, and we can make a better decision a month from now or 2 months from now or 4 months from now. And so that's a decision that we've thought a lot about but aren't going to announce until there's some reason to make the decision now.

Okay. So is it fair to say that you're keeping your options open to see kind of how demand plays out, and then you want to optimize the decision then versus you see an opportunity in any particular fleet type as you shut it down? Because I would think some cost comes out...

Yes, I think that's fair to say. But we know -- we kind of know which fleets are the likely ones to get shut down if we're going to shut them down. So it's not like we're just hoping. We just want to wait and see kind of what's happening with demand, and we'll just -- we'll have better information at that point.

So as you think about -- so forget about recovering demand, let's assume whatever the revenue number is going to be when it's going to be. What level of CapEx do you think investors should be penciling in over the next couple of years? Is there a range that you can give us or any way to think about the order of magnitude spend? Look, I know that it's a massively unknowable situation. But obviously, if we're not spending on aircraft, the nonaircraft number is going to be some knowable amount or guessable amount.

Yes. Look, I think the minimum is $500 million of nonaircraft CapEx is sort of the minimum. And at the last conference, Gerry and Andrew -- not yours, but at your competitor's conference, we put out an 8-K of what we expect our CapEx to be for the next couple of years. And those numbers are still good. $500 million, if, God forbid, we didn't have a vaccine and this was still going on in 2022 and 2023, it would probably be $500 million. I certainly don't think any of us think that's a realistic outcome. So it will probably be something north of that. My guess is that we would be spending some more on nonaircraft CapEx, but still likely essentially $0 on aircraft CapEx out in those years. So call it, $500 million to $1 billion in each of those 2 years.

Okay. So as you think about United coming out of this and growing into what is now a jump -- maybe it's not a jump ball, but at least, it's a loose ball market, right, like the demand hasn't been there and demand starts to come back. As you -- you were in the process of reworking the network domestically, focusing on the Mid-Continent hubs, building out that strategy. You are now given essentially a blank canvas. How should we think about the way in which you're going to bring United back into the market? Should we maybe think you're going to grow back into your old strengths? Are there going to be shifts in the way you think about bringing the network back up, focus on domestic versus internationally? How should we think about that from an investment standpoint?

Well, I guess I'm saying this a lot. I guess a lot of it is it will depend. And look, we're trying to build immense flexibility, unprecedented levels of flexibility, into what we're doing. And it depends on where demand recovers. If demand is focused domestically, then probably bigger domestically. Although one of the points, I think, that people miss on the international exposure is one of the hedges against international demand is international cargo demand. When there's no international passenger, we're flying -- I think, yesterday, we flew 48 international wide-body, long-haul international cargo operations overseas. And when we're -- when -- because over half the airfreight market is always the passenger airplanes, and so when there's no passenger demand, there's much higher cargo demand. And my guess is, right now, if we ran a P&L for our international versus domestic, international is a better P&L than domestic, which is counterintuitive to what everyone thinks, but it's because of cargo. But the good news about that is that's going to stay in place until passenger demand starts to recover. So there's an international hedge that cargo is going to stay strong until passenger demand recovers and then passenger demand will take over for it. So there are things like that, that I think people don't recognize, but where we are is going to depend on what works and what doesn't work. I said on an earnings call, I think there are no sacred cows. We're completely agnostic about it. It's also going to be dependent on what happens in the competitive environment. If this is a V-shaped recovery and by August, everything is back to normal, then sort of we're back to status quo, likely the same 7 hubs, likely getting back to its former size, and it is what it is. If it's a U-shaped recovery that takes longer, maybe there's going to be some bigger changes.

Well, I guess, as you think about the mix of the business coming in, it was a little more international than peers, a lot more Asia-focused than peers. Do you think that that's the right mix for the United footprint? Or do you think you should be a little more domestic in the future? Like is there any thought...

Yes. United is going to always be larger internationally than our peers, just by the nature of where our hubs are, particularly San Francisco, Newark and Dallas. Those are international gateways. No matter what -- even if international is up more or down more, we're going to always be larger internationally. The good news in the short term is, as I said, that cargo is outweighing a lot of the change in passenger demand. That has happened. And I think it's too early to say what's going to happen with international demand. It's really going to depend on what the trajectory of the recovery is and when we get to a vaccine. It's my -- best guess is that once we get to a vaccine that's widespread and you get kind of -- you then snap back to 100% immediately, but get, let's call it, a year past the vaccine, we'll kind of return to the way things were before. As great as conferences like this are, they're not the same as being there in person. This is not the same as walking the halls afterwards and running into people at the bar and talking. Like, it is not the same. And as great as Teams meetings and Zoom and all those things are, Cisco WebEx, people are going to get back to traveling. We're social creatures, and getting back to connecting people in United and the world is going to happen. And so I think we're going to return to something that looks similar at least to what it did before. Not immediately, but we will.

So we're starting to come up towards the end here. There's 1 or 2 questions that have been voted on quite a bit in the -- on the digital side here. Investors are looking for a little bit of commentary around deferred revenue trends. And we kind of hit the trough on bookings versus cancellations. Do you have any added color on sort of the trajectory of the near-term demand environment?

So first, I absolutely think we've hit the trough on cancellations versus new bookings. I mean it's just mathematical. More time goes by, there's fewer bookings to be canceled. And so that has absolutely troughed almost certainly. Almost certainly also, demand has troughed. We made almost 50,000 passengers yesterday, and in the middle of April, we had 2 days in a row where we had fewer than 10,000 passengers. So that's a 400% increase almost in demand. We have a long way to go. It should be over 0.5 million. So we have a long way to go. But it's certainly headed in the right direction and increasingly appears that U.S. at least is open and going to be open. And so people are starting to get back out and get back to living and traveling.

All right. Well, we are coming up to our 50 minutes here. So I wanted to thank you again for making the time to do this conference. Maybe open the mic back up to you again, if there's anything you want to close with as far as kind of why shareholders should be looking to entrust their capital to United Airlines over the next couple of years, closing thoughts, anything of that nature?

Sure. Well, thanks, David, once again, for hosting. Sorry to be doing this virtually. I will very much look forward to doing these in person. Once again, just from a business perspective, but as I said earlier, I miss being out and seeing people. Well, I've seen my family, but I miss being out and seeing everyone else as well. So we'll look forward to getting back and doing that. And I guess I would just leave you with the people of United Airlines are doing a pretty amazing job going through this. And I guess I'm biased perhaps. But if I look at what is happening at United compared to other airlines around the world, even other companies, we are doing more to transform, to leap ahead, adopt creative, innovative approaches to not -- to say everything is possible and to not allow the view that this has never been done before, to, in any way, hinder us from trying to do something. And that is a cultural strength that I think is -- has been serving United well, will serve United well. And again, well, I'm biased, if I was an investor thinking about making an investment in the airline, I think that cultural point would make a big difference to me because it's hard to fund a spreadsheet, but that's the secret sauce of what it's going to look like on the back side, and I think United has a secret sauce.

All right. Well, thank you again, and thank you -- thank your son for joining us. He's great. And thanks to your family for allowing us into your home today. Good luck in managing through this whole thing, and we'll see you next time.

Awesome. Thanks, David.

Bye.