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

All right. Good afternoon, everyone. Thanks for joining us for this afternoon session. My name is David Vernon. I cover transports and airlines for Bernstein. And we are pleased to have Scott Kirby from United as well as Mike and Emily from the United team here in the audience. We're going to go through largely a set of fireside chat questions you should know by now, I've heard by now, the pigeonhole technology, if you just want to QR your code, you can type in a question. We'll obviously filter out all the nasty stuff and then try to work it into the conversation as much as we can. Scott does like to take questions from the audience, so feel free to go ahead and put them in there be too restrictive on the editing. With that, I would like to thank you very much for spending your time with us once again this year. And Scott is going to kick us off with a quick prepared slides, and then we'll get into Q&A.

Well, thank you, David. And glad to be back in person talking to people at conferences again. So it's great to be here. I do -- I have a single slide, which is all, which really this is a -- to say anything about aviation, don't say anything about airlines at all on the slide because I think that there's a macro story that applies to a lot of businesses, certainly applies to Aviation, certainly applies to United Airlines that seems to be being missed. You can see it being missed today and what's happening in the market. And the story is that what I think is really going on in the economy is the economy is just returning to the prepandemic normal. This slide is from the St. Louis Fed. And it shows how services as a percentage of the economy were approximately 41% consistently every single quarter. Not surprisingly, when COVID happened, that dropped to 29%. And you can see it's gradually coming back, but it's only back to 36%. That means services, just as a percentage of the economy, has another 15% left to go to get back to its prepandemic normal. Why does that matter? Why is that relevant? To me, it explains a lot of the headlines that we're seeing in reading today. If you follow industries, you look at all kinds of service businesses are reporting what feel like really good results. In some cases, almost too good to be true results. What I hear from airline investors is almost too good to be true results. It's not just airlines, it's hotels, it's restaurants, it's the Disney Parks. It's Six Flags. It's all the services industries that are coming back. If you flip it to the other side, those businesses that went to 71% of the economy back when COVID first started are reporting what feel like recessionary numbers feel really bad. The people that sell hard goods. We -- most of us are only going to redo our deck one time. Most of us don't need to buy another dishwasher if we already bought one during the pandemic. We switched our spending during the pandemic to those hard goods away from services. And now if you're those businesses, your numbers are starting to come down. There are exceptions to that rule. By the way, those exceptions, I think, set a lot right alongside the services industries, Macy's, Nordstrom stand out as to retailers that did well. Why? They're selling clothes to people going back to the office. They're in the same business as us in this kind of environment. And so what's happening is the economy is returning to normal. And so the aberration was the 2 years of the pandemic. That meant a lot of businesses that were selling hard goods overperformed. They're now coming back, but they're just coming back to the normal trend. Service has dramatically underperformed, and now we're coming back to the normal trend. I think this is really relevant as we look to the future and we get a lot of the questions for airlines. Within the services industry, airlines were probably the first in and the last out. We were now coming out. You can see it in our data, I'm sure we'll talk about it today during the numbers. You can see that we're coming out. But we still got a ways to go. We still got this sort of service is 15% recovery, and we're amongst the last to be recovering. Business demand still has a long way to go. It's recovering rapidly, but still has a long way to go. Long-haul international, even to Europe with testing requirements still in place, is not back to where it's ultimately going to be. Asia is not bad. And the question I often get or we often get is some variant of -- let's just -- you look at our RASM numbers and revenue environment. This is just has to be too good to be true. So the questions get phrased differently. Is it pent-up demand? Is this a peak? -- are fares going up so much that they're going to destroy demand? Really, the point of this chart to me is none of those things are true. I don't think because the macro point is we're just returning to the prepandemic trend of where we were before. When you look at the data, our aviation revenue as a percent of GDP still has 15% to 20% to go and to get to back to the prepandemic trends. If you look at fares, while they're up a lot from prepandemic lows, in real terms, our fares in the second quarter are going to be back to about where they were in 2014. So we're back to kind of a normal pricing environment. We're just returning to normal. All of that means, as you kind of look forward, is partly why I and others in the services industry say we feel better than we ever have in our careers is because we still -- we're on the accelerating upslope of our percentage of the economy. And even if you're worried about a recession, think about it this way. Mathematically, if we're 36% of 100 right now and a recession happened and the economy shrink by 2%, being 41% of 98 is mathematically better than being 36% of 100. And so just from a big picture macro perspective, I think this is a story that is missed for services in general -- certainly for airlines. And within airlines, there are a bunch of idiosyncratic reasons why United has, I think, not even talking about operational performance or any specific things, that we have the most tailwinds coming from this. We're the largest business carrier that has most room left to run, largest long-haul international carrier, biggest exposure to Asia. The things that still aren't quite back yet, are still tailwinds left for us to come. And you've also got this idiosyncratic 777 grounding, which thankfully is back at beginning to flag. And so all of that means we feel really, really good about where the environment is. I would acknowledge that the tail risks are higher than normal. There are tail risks. This is all talking about the base case. But the base case scenario is -- feels like a really good macro setup. You look at the micro data, it's all supportive of it. And everything I read in the newspaper fits the story that the economy is just returning to normal. Everything I see in United data fits the story that the economy is just returning to prepandemic normal.

All right. So as we're returning to prepandemic normal, can you talk a little bit about the return to profitability at United kind of coming further than expected, at least on the street. What is the Street in missing about that return back to positive margins much more quickly than I think we would have been expected at the beginning of the year?

Well, there are several things. First, there is this macro story that fuels what's happening at all airlines that's driving really high demand. Then at United, specifically, what I think people probably underappreciate is the amount of change that happened at United during the pandemic was obscured by the pandemic relative to everyone else. If you kind of go through the pandemic in the last 9 quarters, United had the #1 trials in 8 of the last 9 quarters. And that is in spite the pandemic hit us harder than anyone else, because we're the biggest business carrier, because we're the biggest long-haul international carrier because we have the big coastal hubs. Those are headwinds that are still net headwinds today. but their headwinds are lessening and abating. And so we've been #1 every quarter going through the pandemic. And we've just got the structural improvements yet to come. That's representative of what changed at United, more so than what happened at other airlines. And then the other one is if you look at our CASM-ex, our CASM has kind of been in line with the other big carriers. The low-cost carriers have been much worse. Our CASM-ex has been in line and the Street, I don't think yet appreciate how significant having 10% of our fleet -- our biggest airplanes, 52 777s, our largest airplanes with our lowest CASM grounded through the duration of the pandemic. The fact that we've been competitive on CASM-ex, #1 on RASM, when we had more headwinds, and those headwinds are starting to abate for us. I mean I just think we're going to outperform. Even if you look at the data on our operating margin in the second quarter, and we're in the early innings of this recovery. If you look at our operating margin compared to others compared to -- certainly, if you take out hedging or if you take hedging out of it, including refinery, which is good for that one airline that they own a refinery right now. But if you take those things out, we're performing, I think, a wide margin. To use a bad pun, the best.

All right. So I want to talk a lot about commercial, but I want to start here with the cost side of the house. As you kind of look at the airline today relative to what the airline looked like prepandemic what are the changes on the cost side that you've actually made not just the variable and changing up and down the schedule. But as far as kind of overhead reductions, changes in operating culture philosophy, like how is the business exiting the pandemic relative to that?

We made more fundamental change to the business, I think, than anyone. You can see it if you walk through airports with technology as an example. Our agent on demand here and in New York, crowded aerospace, lots of challenges across the New York airports. If you go to Newark and there's weather, which there may be weather later today, you can use what's called Agent on-demand, it's a QR code but it's essentially FaceTime. And instead of waiting a long customer service line, which you used to have to do at the airport to get taken care of, if the airport is closed for whether you can talk to somebody at any of our airports anywhere around the world. That is way better for the customers. It's also a way more efficient for us instead of having people over work here at Newark and overwhelmed and taking hours to deal with customers, we can have people around the world do it. That's just one simple example of the kind of change that we made. The much bigger and more impactful for our CASM, however, is growth in our gauge. Other airlines have already done it. United was behind on doing this. And we're going to grow our gauge between the start of the pandemic through 2026. We said by 30%, it will be north of 30% now as we're going to retire more -- even more regional jets. Just grow and gauge. When you grow gauge, a huge -- it doesn't cost that much more to fly a bigger airplane. And a huge portion of that falls through to the bottom line. That's why our CASM-ex is almost certainly going to be the best in the industry over that time period. You can already start to see the fact that we're flat with the industry while we've had our biggest airplanes grounded. By the time be sort of -- my guess is by the time we get to the fourth quarter, you're going to really be able to tell a difference in the numbers and the headline numbers because we'll be back to flying a lot of those planes and you'll be able to see it. But look, there's just been more real change that happened, and we have a structural advantage of changing the gauge.

Okay. And then on the commercial side of the house, leisure has really been driving the recovery. Is -- where were you in terms of the activity in corporate travel and business travel kind of coming back? And then when you think about the leisure travelers that are out there kind of paying the price to bring your revenue back to sort of 2014 levels, how do you think about the sustainability of the leisure traveler in that mix?

Okay. You didn't listen to my opening presentation.

Sure did.

I'm going to go back to it again because this is a question we get, I'll start with the second one. Is the pricing so high that it's going to destroy demand? We're at the point in the last [indiscernible]. Let's [indiscernible].

It's a much more, much more...

And the short answer is no. We're back to 2014 pricing. By the way, 2013, '12, '11, '10, were higher everywhere you go back. We're just back to normal pricing. It feels like high pricing today because we're comparing to an artificial low coming off of the pandemic. The pandemic was the aberration, -- like just -- this is back to the headline. We're returning to normal. The pandemic was the aberration. If you go look at this compared to a pandemic out of it and look at the pricing today, we're back to 2014 levels. We're back to normal levels. I can also tell you, that's sort of the macro view. The micro view, like I almost used the chart today, I decided not to do it because it was such a negative day in the market and figure out why waste it. But the chart would have shown you more about what June -- it would have been actual data for June, July, August, September. Like -- we don't have great data further out you get, but I can tell you for sure, there is not a hint of evidence of weakness or any pricing resistance in our data. That doesn't mean it won't show up, something could change and happen. But there's not even a hint of that in the micro data. Second -- the first part of the question was about corporate. And what we see is a real recovery. I think in the first week of the year, business travel was down 85%, but we're now approximately flat on business RASM contribution to 2019. Now are we guided to RASM up 23% to 25% in the quarter? That means leisure is obviously outperforming because business is flat, but it's on an up slope. And if you dig into the data more, it's really interesting. What you find is see this sort of chart that has an exponential increase in travel, companies sort of gradually come back and they're putting along. And then the is an inflection point where it really goes north. As they start -- I think, starting to realize, like I personally have, how important it is to travel to reconnect and get out and do things. The other thing that I think is interesting, all this discussion about will business travel ever come back. Certainly when the pandemic first started, we were in a minority -- not just a minority of one and believing business travel will come back. I think a lot more people believe that today. But as people evolve, they said, we'll get back to visiting customers and clients when we can because we need to do that. We need to be out front of our clients, we need to sell. But we're never going to do the internal company meetings that we did before. What we find is in a post-pandemic world, particularly in a world where you're allowing people to be hybrid workplace and not in the office all the time. Companies do more of that travel and intend to continue doing more of it because the only way to maintain, if you're not all in the office all the time together, those getting off site where you're just with the people you work with for immersed in the culture for a longer period of time is even more important. And we already see that in our data. So business travel is still -- to me, it's part of the investment story for airlines. By the way, the other way I think about it is on all this, like we're 300 basis points away in the second quarter, about 300 basis points away from our 2019 operating margin. That is in spite of the fact that fuel is at the current price is a $10 billion incremental expense. That is in spite of the fact that the 777s have been grounded this quarter. That is despite of the fact that business travel is still ramping. That is despite the fact that long-haul international to Europe, is not going to reach 100% until the testing requirement is removed. And in spite of the fact that Asia is still mostly shut down. We just got -- that just means 5 things that are more than likely to get better, and we're almost back to 2019 levels. That's why we're so bullish.

Okay. But if you think about this notion of consumers eventually maybe not being able to take a fair increase and business travel kind of filling into that. The other dynamic that I'd love to dig into is the impact of premium and how you guys are approaching the premiumization I've heard?

Well, first, I can't help. I think your premise is wrong. I've been looking -- I started in my aviation career and economists at American Airlines. And I've looked at the economic analysis, 200 different times about price elasticity and demand, it's about minus 0.5. Let's deal with the old CEB business and leisure were minus 0.7, minus 0.3, so it averages up to minus 0.5. All that -- which means when prices go up, revenue goes up, when prices go down, revenue goes down. Demand is inelastic for aviation. So anyway, that was the premise. So I had to start with that. I mean, it's just -- I think it's a point that people miss for airlines. And by the way, while aviation revenues as a percentage of GDP are about 0.9% in the last few years before the pandemic, they used to be more like 1.4% back in the day. So if you're worried about pricing as destroying demand, you're betting against history as being the reason. There's plenty of other things that can go wrong. I'm not saying there aren't, but that's like that's not the one that's going to cause this to be a problem. In terms of premium, it is interesting. A premium demand -- premium leisure demand, in particular, is really -- has been strong throughout the pandemic. I think it's going to be sustainably strong. Once you start traveling in business class to Europe, it's hard to go back to flying in coach. And I'm sure that's -- and if you look across -- I look at a lot of other industries too, you see that that's not unique to airlines. The Grand Wailea is almost impossible to get into unless you know someone, I know that because I'm trying to go and fortunately, I know Chris, that helped. But it's almost impossible to get into places like that and the prices are through the roof. I think that is a step function increase -- we got -- people got used to it. We're not going back.

Okay. But if you think about the introduction of premium products into the cabin, right, united is sort of seems to be going down that path of similar to maybe Delta or some of the other airlines that are out here that are looking at ways to kind of extract fare increases that aren't necessarily compulsory because there is no other choice. It's a fair that you can get out of the travelers pocket because they want to pay it an upgrade to a premium seat, that kind of stuff. Where are you guys at in terms of implementing the physical changes in the fleet to maximize the potential of the premium [indiscernible]?

We've been ahead of the curve on this. We -- United actually started this well before the pandemic. And we have more -- I think we have more lie-flat seats than American and Delta combined. So I'd say maybe they're following us. I think we have more than the 2 of them combined, lie-flat seats. We've got unique products like our flights from New York to London Heathrow with 46 business class, half the airplane is business class flying from here to Heathrow. We have more Premium Economy Plus, whatever you look at across the board. We were already going down -- we already believed this before the pandemic. We could see it somewhat. This is partly because of where United's hubs are. New York is the largest premium market in the world, and we've got the largest hub over at Newark. San Francisco is one of the largest premium markets in the world, Washington, D.C., especially for international travel, one of the largest premium. Like our hubs, we've got a chart that we show our Board, and we show the top 10 markets in the United States for international premium demand. All 7 of our hubs are on the list. Denver, I think, is #10, makes the end of the list. But L.A., Chicago -- I think the top 5 actually, New York, L.A., San Francisco, Chicago and Washington, D.C., like we're just -- we're in the market for premium.

Okay. And as you think about the potential to build on that leadership position then, what are the things you guys are doing to expand the availability of premium products within the fleet to increase your upsell rates? Like do you think about attacking that opportunity in the next 3 years?

We were already on this path. So if you look at the wide-body fleet, it's getting Polaris on all -- Polaris on all the aircraft and completing that process, which we did during the pandemic as well.

Is that done now or?

It's not done, but it's close to that. And on the domestic fleet, the biggest thing we're doing is getting rid of -- it's going to be about 300 regional jets in exchange for 500 mainline aircraft. The aircraft order is -- this is part of the -- what United Next and the aircraft order is about is getting rid of those small aircraft, which not only are not premium. They're a product that customers don't like, and they're high CASM and exchanging them for 500 much nicer, much more premium narrow-body aircraft.

I do want to talk about the United Next strategy in a second, but if we could kind of focus on international for a second. Where are you more or less optimistic about the reopening? Obviously, Europe and transatlantic seems to be...

Yes. So. If you look sort of short-haul, Latin America is like domestic, it's 100% recovered domestic short haul. Latin America, even deep south. It comes and goes with the economy down there. But from a COVID perspective, I would say Latin America entirely is essentially recovered at this point. Europe is recovering quickly. We're going to be 20-something percent larger across the Atlantic. There's been a structural change, too, across the Atlantic from a supply perspective. I think we're the only airline plant across the Atlantic that's going to be larger than we were in 2019. One of the things that every airline, but United did essentially every airline, was permanently retire a bunch of wide-body aircraft. And so there's going to be a much more rational pricing environment. The other thing happened across the Atlantic is it just accelerated the ultimate demise of the ultra low-cost carriers. That business model, that Norwegian Airlines business model was always due to be liquidated. It just happened faster. And so there's no longer $49 prices across the Atlantic, which didn't even cover the cost of fuel to take off the land. That's why the business model is doomed to fail. So the pricing environment is much, much better in the Atlantic. But there's less demand than there would be. We have a lot of corporate accounts, I know individuals because of the testing requirements that just won't go to Europe. And then the part of the world that still is not even -- and the game hasn't even started a recovery yet really is Asia. And we're the largest U.S. airline flying to Asia, it is amazing how good our results are considering. But what's encouraging in Asia is Korea is now largely opened up and its demand is through the roof. Singapore opening up. We look at it, Australia, really, really strong. Japan, I think, is on its way to opening up. And so the open question will be when and if China opens, but the rest of Asia feels like it's getting -- it's a few -- probably 6 months behind the U.S., but getting ready to open. So we're optimistic about that as the next tailwind that's going to open up.

So as you think about the flying 120% of the schedule to Europe, I'm assuming you're utilizing some of the assets that you would have otherwise been using in the Asia Pacific trade. How do I think about the leverage as Asia restarts to reopen? Is that going to be a reallocation of capacity? Or do you still have idle capacity within the network that you can step into that demand? But like how do we think about that?

So we took about 25 wide-bodies from the start of the pandemic through now. So we're actually -- we have more airplanes than we had at the start. And at the moment, we've had those 777s grounded. So I think we've got enough airplanes to restore the Asia network, if we want to and largely keep Europe intact is where it is.

Yes. I was just wondering if there would be like an offset.

A lot of those planes are flying domestically, too. And so we can always -- if international is good, we can point them.

Okay. And one of the things that often comes up in conversations around crises in the airline industry is that the crisis creates opportunity for low-cost entrants. You mentioned Norwegian, there's another set of guys in the same part of the world that are trying to do the same thing. We hear about Avelo, we hear about Breeze, like how do you think about what's different about the industry today that maybe this crisis is not going to create opportunity for new entrants like it maybe has in the past?

I'm going to try to be contained.

I'm throwing it out there is.

I think the ultra low-cost carrier business model filled a niche, which was leisure travel. It was great to Florida, it was great to Vegas. And ever since they've been there, go look at the earnings of those companies as they've doubled tripled in the size, absolute earnings. Like they make money to Florida Vegas basically, and that's it. And the -- I think the current environment is exposing who's been swimming naked and the combination of fuel prices, inability to hire pilots. That's business model -- that is a business model that is in trouble. It's a lot of trouble.

What about domestic?

Domestic?

Domestic.

I was talking about domestic.

You were.

International is even worse. You're flying -- you can't get a cost advantage. You find a wide-body airplane on long haul distances,, that's a business model that has never worked and never will work. The physics of flying the airplane and the time like the math doesn't work.

Okay. Let's talk a little bit about the loyalty program. You guys had renegotiated the Chase agreement a couple of years ago. How is the contribution from loyalty kind of improving along with the overall sort of fare environment? And can you talk a little bit about the runway.

Well, we've got a great partnership with Chase, and it's grown during the program. It's -- March was a record for all-time spend on the card. It was broken in April. It's been broken again in May. I'm sure it's going to be broken again in June, double-digit increase in account acquisitions. I think, if anything, to pandemic proved the resiliency and the strength of that loyalty of that customer base and the resilience of that program. And if anything, indicates that it is probably underutilized in terms of the real potential that it can create for customers and for shareholders.

Any sort of updates around the numbers from that or as far as kind of how much you're going to be earning off that program in the next couple of years?

No. I have said before that we have a goal to double the EBITDA and I feel more confident ever that we will do that.

All right. And then as far as kind of the spend within the spend, I'm sure you guys spend a lot of time at the micro in there. How is the T&E spend within the overall spend? And is that starting to accelerate to kind of reinforce your views in the [indiscernible]?

It's accelerating. It's not bad. It is not up as much as the rest of the spend. It's consistent with that chart though. That chart is -- would have said services went from 41% to 36%. So it's down still 15%. I don't know if the number is exactly down 15%, but -- or it's 15% worse than the other hard goods. But it is below where the hard goods are still.

Okay. And turning to United Next. Part of that's switched away from the regional flights to more narrow-body flying, improving the connectivity in those domestic hubs. There is a lot of conversation around that driving above-market capacity growth. Why isn't it right for investors to fear that excess supply having some impact on overall demand, independent of right now where we're in a period of pent-up demand or covering demand or whatever.

We -- we're returning to normal.

Okay. We'll go look [indiscernible].

And You just look at the numbers, look at the results for United. It's been working well. It's so straightforward for us. Now if you own our competitor stocks, perhaps it's not quite as good for them, not good for them. But for United, it's -- you can already start to see it in our numbers. What's happening both with our CASM-ex. We're leading in RASM as we grow. We're #1 in RASM, 8 to 9 quarters. We're about to be leading in CASM-ex as we bring the 777s back and that's going to accelerate as we grow. And I think the bigger picture, what really investors are doing is trying to figure out how much total capacity there is as opposed to one individual airline. And the total capacity, like we don't have to debate it, like anybody that thinks that the airlines are all going to be able to grow at the rate they've said, it's just get wrong, including those airlines. I mean just look at the cadence every week, every day, pick up the newspaper this weekend and watch airlines canceling flights because of whatever their excuse is. The reality is there's not enough pilots for everyone to staff. We could talk about why, if you want to. It's real, it's true. We've dug into the data. We were the first, by the way, to have to go through it because it affected the regionals first. And we had to go through the 7 stages of grief. I think I'm uniquely good at getting to acceptance quicker than most people. We accepted it and figured out what to do about it. A lot of other people are still in the denial phase, but it's here, it's coming, capacity in the industry. Like I don't think you have to believe this to invest in airlines because of all the other stuff we've talked about but just if you're -- with sort of the street capacity forecast, it's going to be really good because of the macro, it's going to be phenomenal if I'm right about pilot supply. And I'm almost certain I'm right about pilot supply.

Can we dig into a little bit of that? What gives you the conviction that the [indiscernible]?

Sure. So first, here's what happened. There were several thousand pilots that retired early during the pandemic. You had 2 years of no airlines hiring new pilots. So you dug the hole even deeper. Third, you need more pilots to operate the same amount of flights today because sick calls are higher. I think that's permanent from 4% to 6% more pilots to operate than you needed before just because COVID is going to -- in all business, it leads to a higher level of sick calls. And you take that in a -- so you do a really deep hole. And the fourth point is on the demand on this side is airlines are trying to grow faster than they ever have in history. So they need more net new pilots. At the start of this year, airlines were going to try to hire 13,000 pilots. Over the last decade, there's been somewhere between 5,000 and 7,000 produced per year. The most is less than 7,000 of net new pilots to the industry. It's less than 7,000. Most years, it's closer to 5. A lot of schools closed, a lot of things changed during the pandemic. And so there's -- and it takes a long time to address and fix this. And pilot supply, it's not just about hiring a pilot. It's really complex to get pilots through the training process and pipeline. So one of the things I hear other airlines saying is we don't have hard time hiring pilots. We have hard-time training pilots. It's the same thing. I'll just give you an example. Airlines never had churn. Big airlines, like we never hired pilots from other airlines. We're now have a bunch of pilots from other airlines because they're applied to United because they get a better career path, why work at a low-cost carrier, when you can go to not just United. You can go to somewhere ultimately fly wide-bodies Is it a party this weekend with one -- with the new hire at United, he happened to be there, and he's been there 8 months, and he's about to be flying on a 767. Switching from another airline to be able to do that is a great career. But here is an example. We hired -- I won't say which airline, but from one airline, we hired a lot -- what's called a line check airman. A line check airman, it's a highly trained pilot. Once the pilot finishes training, they've got to get operational experience. They have to go sit in a plane with a line tech airman and who flies with them for 25 hours to do all the checks and the final step of training. We hired a line check airman from another pilot. What that means at that other airline, they now have to take a captain off the line. It's several months of training. They got to take trainers that used to be training new hires, out of training new hires to train the line check airman and certify the line check airman for several months to fly. Both of those things get them behind already on training before they can get started. They have to now train a new first officer to become a captain that they didn't expect to have to train because they already had a captain in that spot. And they have to go hire a new hire to replace the first officer. That means they go for a couple of months, several months where they're digging the hole deeper and you're just getting further and further behind. And even if you want to address that and fix it, if you want to bite the bullet then it takes 6 months to get ahead on all this kind of supply challenges, that I have, the next thing you see is, "Well, I need to call the simulator manufacturer, I need more simulators." And they say, "Great, we can deliver to you in 2026." That's what it is. Like this problem is real, it's very complicated and not amenable to short-term fixes.

So if we accept that as a premise, why isn't it a problem for United?

Because we're at the top of the food chain, if you're a pilot. If you're a pilot, United Airlines is always at the top tier for pay. United Airlines has the most wide bodies of any airline in the country, then you get paid more to fly wide-body plus you get to fly to cool places. Captain on my flight today, was commuting from [indiscernible] to Newark and heading over to Dubrovnik and has a 2-day overnight. Like Dubrovnik, super excited. Back [indiscernible], I mean, so it's not just the pay, you get to go to cool places. The culture is something that pilots like at United. You can go out -- you don't have to take my word for it, go to an airport, ask pilots what they feel about their airline. Ask any employees, but you can ask pilots what they feel about their airlines, you're going to get a much better answer from United pilots than anyone else. I can almost guarantee you. And you now -- what used to be attractive from low-cost carriers is you could upgrade to Captain faster because the mainline carriers weren't growing. We can get a captain, we can give people the opportunity to upgrade the captain as fast as it before they go to any of the low-cost carriers now because of what we're doing at United. So like United hits every single box. I mean there's no reason -- maybe you want to live in a certain city. But other than -- and most pilots are willing to commute, they bounce around their whole career. Other than that, there's no reason to go really anywhere but United. And there's certainly not a reason -- that's why we're getting low-cost carrier pilots applying. It's actually all the airlines. We have -- from all the low-cost guys, we have in the hundreds of applications on file. And I asked [ the team ] to keep track of it, but they're like said, "We staff a handful, maybe, but now we have hundreds." And the opportunity is like on every front, the opportunities to be a pilot at United or so much better. So why wouldn't you go to United?

So this lack of ability of pilots to drive growth, do you think that's having an impact on some of the consolidation amongst the low-cost carriers?

Yes. Look, I think they deserve credit for it. I don't give my credit very often, but I think that's why JetBlue, I don't know for sure. But reading between the lines, I think JetBlue is -- it's a lot of money. The proposal to acquire Spirit is about their attempt to solve -- I think they've realized -- they've gotten to acceptance, and this is their way to deal with it.

Interesting. So let's talk a little bit about the United Next targets you laid out. You brought us into one of the first conferences I think we were coming back out of the first round of COVID. Since then, obviously, there's a lot's changed. Omicron, shooting more in Europe, $120 oil. How do we feel about the targets you laid out in the United Next presentation to where you are today?

I guess the more things change, the more they stay the same. Stuff happens. And that's a sort of snarky way of saying, we aren't going to update guidance today. But what I would say is we would be -- we're ahead of target -- like I look at, again, the second quarter, we're 300 basis points away from where we were in 2019. And we've got those 5 big headwinds. We've got fuel that's a $10 billion incremental annual expense. We got 777 grounded. We've got business demand that's still in the middle innings of the recovery. We've got Europe that's in the middle innings of a recovery. We've got Asia that the game hasn't even started yet. And so like, look, there's tail risk, something bad could happen like Omicron happened that could change the timing. But if you just look at the base case, like it's hard to do a base -- like instead of everything needing to go right to get to that margin, like everything has to go wrong to not get to those numbers for 2023. And then you look further out to 2026. Looking out to 2026, it's -- we know what's going to happen on CASM because the gauge is going to grow. So we can look at that. And the forward curve on fuel is not the greatest place to look. But if you look at that, like our RASM comes down significantly and we get to 14% margins even if our RASM comes down significantly. And like I definitely, if I was a betting man would I am, I would bet the over on that RASM forecast. But they're just at a big picture level, they feel really conservative given where we are right here today. Something -- again, something -- some tail risk could manifest and make that different. But the base case like we've had all these headwinds and now they're flipping to tailwinds. And we're this close when the headwinds are turning to tailwinds.

Okay. And I wasn't specifically looking for guidance. I know you're trying to get for kind of seeing how the business is performing.

Mostly saying that, so I didn't accidentally say what we actually have in the models for the number, which are higher than that.

So I was just trying to get a sense for kind of seeing the business and how it's performed out of the pandemic. Are you surprised positively kind of where we are today? Would you -- I know you were early in terms of predicting where we're going to be and kind of thinking about what the dynamics are going to be I.f you could go back to your 18-month ago south, would you -- and told yourself the number, what would your reaction to that?

I wouldn't have believed it would be this strong, and this quickly that the strength would come back. But what I would have really missed, I would have believed the demand would be this strong. What I didn't -- my 18-month told a year ago set didn't realize was how constrained supply across the industry would be. And that's what I didn't really appreciate 18 months ago. I thought everyone saying they were going to grow 35%, they're going to go from 5% growth that magically overnight growing by 35% out of taking them at their word. They're not going to do that now. and I'm confident of that. And that's what -- and they are not right now. That's the biggest thing that is different than what I would have thought 18 or 24 months ago.

And if the lack of the ability of the industry to kind of be adding capacity will you have uniquely United way to do that with the order book you have, what derails that part of the thesis? Is it some change in training requirements? How do you feel about like that as a potential avenue or?

I mean you can always come up with something, I suppose. But the various ideas seem unlikely. Like I don't think we're in a position to I think it would be an appropriate nor are we in a position to lobby for lowering the safety requirements. I think one of the great things about this industry is our incredibly high levels of safety. This is an order of -- this industry is an order of magnitude safer than the second place industry. And I certainly will not be an advocate for changing that. I don't think our unions will, I don't think people on Capitol Hill will. Essentially all the programs are all the ideas around increasing pilot supply or something about compromising safety.

Okay. What else keeps you up at night as far as kind of delivering against this plan?

I'm not tied it be kept up at night. I sleep 8.5, 9 hours a night. Look, there's the exogenous risks in the world exist. But I don't worry about those like I don't understand worrying about things that you can't change. Things you can change, figure out what you're going to do, then change it and then stop worrying. But I don't worry about -- but those risks are out there. But other than that, it is for us, our risk is execution. We've got to be executing. It is hard right now. The environment is -- there's a lot to like this weekend, the controllers here in New York do a phenomenal job, by the way. The FA controllers that run Newark, for example, it's a place of mass because the FA is letting JetBlue and Spirit violate the rules. But the controllers do a phenomenal job. But like this weekend, they had sick calls, and they were at 50% staffing. Those kind of things are tough. They did a great job but those kind of things are tough, and there's all kinds of issues around like that. But those are sort of tactical and you work through them, and you figure them out. We have to execute.

Okay. And one last question for you. I think one of the things that I was -- that I noticed kind of before the pandemic at one of your Investor Day was this idea that you're going to be bringing in the flight attendants and the crews trying to work on this cultural transformation where you'd inherited you'd come into United, which had some legacy from the Continental-United thing that never really got put together. Where are you in your satisfaction level as far as kind of the cultural transformation and really driving down that focus?

Thanks for that question. I have concluded that the job of being CEO is the easiest job probably at any company of anyone at the company because your job is really culture -- 99% of the job is culture. That really is the job of the CEO. And our culture going through the pandemic changed for the better. Our people are proud. When I get asked what my job is, I tell -- I told our Board, like my job is simple. I need to make our employees proud. If our employees are proud of the company that proud of the airline they work for, then they're going to go above and beyond for the customers. They want the customers to feel about the company, what they feel about the company when they're proud. If something goes wrong, they want you to know that's the exception. They want to try to help so that you don't walk away with a sour taste in your mouth. When you get on an airplane, they're smiling. And we can see it in our data and our NPS data, it is different. It has changed. Go get a -- go to an airport. And now I told you to ask pilots, ask flight attendants, ask gates agents and go ask. You got to an airport and ask, you guys can do this that survey on your own. I think you're going to find that United has moved up to the top of the ranks, and that's going to continue. And our people have done an amazing job like there was more time so much it was different than they did. It was different our flight attendants didn't have all the in-flight incidents that you had about another airlines, it's because they did an amazing job handling it and being professional. Our people just did an amazing job, and they're proud of what they did during the pandemic and what the future looks like for United.

Fantastic. We are out of time, but if you want to make one last pitch on why investors should be looking to put money to work in the airline space and why United?

Look, I think I would go back to the simple. We are just returning to the prepandemic normal, like -- and if you just stop and like look at every data point, that is what is happening. We're turning to the prepandemic normal. And in that world, given where United is, and given those kind of 5 headwinds that we have had that have been unique and where we already are, like -- it seems like a really good risk reward. You guys will make decision, surely seems like a good risk reward to me.

All right. Fantastic. Well, thank you very much. We're spending the time with us today. Very much appreciate it coming out here.

Thanks you.