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

Welcome, everyone, to Bernstein's 41st Annual Strategic Decisions Conference. I appreciate you joining us today. My name is David Vernon. I cover U.S. Airlines, Airfreight and Service Transportation and a bunch of other sort of things involved with moving people and goods around the world. We are absolutely thrilled to have Scott Kirby, CEO of United Airlines with us today as well as Kristina Munoz and [indiscernible] from the IR team. We're largely going to do Q&A. We do have a quick public service message from Kristina around required disclosures and those kinds of things, and then we will kick it off. So Kristina, over to you.

Thanks, Dave. Today's discussion may contain forward-looking statements, which represent United's current expectations based on the information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our latest earnings release, Form 10-K and 10-Q and other reports filed with the SEC. We may also discuss United's financial metrics on a non-GAAP basis during this discussion. Please refer to the related definitions and reconciliations to the most directly comparable GAAP measures in our latest earnings release and investor update, which are available on the IR section of our website. Thanks, and back to you guys.

All right. Thank you, guys, very much. Again, Scott, I appreciate you coming out and supporting the conference here. Big news today around the JetBlue partnership. Why don't you kick us off with some thoughts, expectations around...

I'll kick off on 2 things that are in the news recently, JetBlue and Newark. JetBlue, we are excited to have a partnership now with JetBlue. It's great for our customers. I've long been on record of wanting to have United back at JFK and having a real presence on both sides of the Hudson. We will have done that with this deal. One we'll have our own metal in the market. By the way, it doesn't come until 2027 because that's when we have aircraft delivery delays, and we have a premium aircraft. We haven't rolled it out yet, but we will, a premium aircraft that's designed for transcon markets out of Newark and JFK. So we need the airplane to roll it out. That's why it's 2027. But it's going to be great for customers. I think it will be great for JetBlue customers. It's places that we have 2 complementary networks, between the 2 of us will now be #1 in Boston. JetBlue has a great presence at JFK. They're big in Florida. They're big in the Caribbean. That will be really good for our frequent flyers. Their frequent flyers, of course, will get access to the world's largest global network at United. And so I think it's going to be a real win for customers. So we're excited about the JetBlue deal. And on Newark, well, I think mostly people have realized that safety was never an issue and is not an issue. I'll at least go through it to make sure that everyone understands that. At the FAA, there are 3 different facilities that control access to the airspace. There's the tower -- there's the TRACON and then there's the center. And the way those 3 works, if any one of them has any issues or goes down at all, the other 2 can back them up and do back them up. And the things that have happened recently in Newark has been new -- they're not unique to Newark. Those are things that are unusual, but they're routine -- dealing with them is routine because we're trained for it. And they have 3 levels of essentially control facilities -- independent control facilities that can take control of airplanes. We also have a fourth system called TCAS on the airplanes that's completely independent of the FAA radars, where all the pilots have the equivalent of radar and can see all the other airplanes where they are in the sky relative to them. So there's essentially 4 levels of backup for those systems. The question becomes, is it reliable? And I think most of the people have moved on to a question of, oh, but it can't, but it's not reliable. And the reality is for the first 3.5 months of the year before runway construction started at Newark, the most on time of the 3 New York airports was Newark. And we just had the best Memorial Day weekend that we've had in our reported history. And that's because the FAA is now managing the number of flights at the airport to equal the capacity of the airport. I spent my whole career at United Airlines banging my head against the wall at the FAA, trying to get them to treat FAA -- to treat Newark like they treat JFK and LaGuardia and like all the international airports around the world are treated and use -- and manage the number of flights to be equal to the capacity of the airport. When the number of flights goes over the capacity of the airport, it creates operational problems and reliability and issues for customers. And we have finally got a Secretary of Transportation, who not only understands it, but is willing to do it, has done it at Newark. And so what I think this means is Newark is -- it's still going to have a lot of flights. It's going to have slightly fewer than it had before. Actually, it's probably going to have the same number. It will be spread out over the course of the day, but it's going to be reliable. My guess is for the balance of the year, Newark will be the most reliable of the New York airports. It's also less crowded than it will have been. And unfortunately, at least for this summer, the prices are going to be cheaper because we took a hit the bookings. And so we have more seats open to sell out of Newark. So now is the time for a customer to buy at Newark and come back and try it. Financially, it did have an impact on us. Demand outside of Newark has remained -- we're going to move on to long-term stuff. But demand outside of Newark has remained stable to maybe even a little better than stable. We would have almost certainly come in at the high end of our previous guidance range for 2Q had the New York reception issues not happened, but they did, probably puts us back squarely in the middle of the guidance range, still in the range, of course, but in the middle of the guidance range.

All right. So while we're on the topic of FAA, obviously, there's more capital being allocated, maybe more attention from the administration. How do you feel about what's been announced and its ability to actually solve the problem?

I feel optimistic -- gave me the right word. I think we're finally going to get the FAA fixed, something I spent my career trying to get done, and it's, I think, going to happen now. And it's going to be really good for customers, which is going to be good for investors ultimately as well. We're going to be able to fly much more reliably, much more efficiently. And the Secretary Duffy, the President, like everyone is -- and both, the bipartisan of the House and Senate as well. Everyone is committed to this. And we have leadership that's going to do it. I also think we have an FAA administrator and Bryan Bedford coming in, who's a doer. He was the CEO of Republic. He knows how to build, how to manage projects. And so I think we're going to get it done. Also coming back to Newark, I'm more optimistic about what is going to happen for our customers and therefore, our own profitability in Newark looking forward than I've ever been because -- the only way -- there was only one thing that we needed at Newark, which was to balance the number of operations to equal the capacity of the airport, and that is now going to happen, I believe, that will be -- I think will be permanent, and that's going to lead to a much better outcome for -- by next summer, we'll have a much better outcome for customers, which will be a much better outcome for our revenue, which will be a much better outcome for our earnings.

So is it your expectation that we go back to slot controls on a permanent basis?

I don't think they call it slot controls or something else. But I think the FAA is -- they're not calling it slot controls right now, but effectively is. They're managing the operations at the moment to 68 operations per hour. I think we'll get it back up to 77 operations per hour, but stick it there. In the past, when it was -- the FAA says in perfect conditions, full staffing, good weather, it cannot run at 77 operations per hour, and the FAA let it be scheduled at 80 plus for 6 or 7 hours in a row. It was just delays every day. So I think we've finally got Newark fixed. And it's a crown jewel, like it's the largest gateway. The United hub there is more international flights gateway to Europe than any other hub in the United States. It's great. It's great for customers. It's great for the country. And I think it's going to fulfill a live up to its potential now.

Okay. So if we think about some of the communications you had with the market in the last couple of months, quarters, one of the themes that's come out of that is brand loyalty. Can you maybe elaborate a little bit on what that means to you for an airline to be pursuing the goal of brand loyalty and how it sort of changes the earnings profile, revenue volatility, whatever you want -- however you want to think about it?

Well, I have had -- spent my career wanting to decommoditize airlines and that means winning brand loyal customers. And when I say commodity, I mean, not just price, but schedule. Most -- the #1 reason customers choose an airline is schedule, take a nonstop flight over a connection. And so getting customers -- but for many customers in much of the country, the schedules between airlines are equal or approximately equal. And so at that point, how do you make decisions? And so getting those customers who are choosing between multiple -- you have a choice between more than one airline, how do you win those customers and get those customers to fly you? And if you win those customers, when I say they're brand loyal, they join your frequent flyer program. They get your credit card. They're trying to earn 1K status or global services status. They're trying to concentrate their flying on your airline. They want to be able to get enough miles to take the family to Cape Town for vacation. And so they tend to be very sticky. They tend to be lifelong, hard for someone else to win them away. easy to lose them if you do things bad for them. But as long as you run a good airline, have good service, continue to invest in the product, those tend to be lifelong, sticky customers. And that's why United has -- coming out of the pandemic has outperformed. We want like all kinds of stats I can give you on we're sort of hub by hub how we have won those brand loyal customers. But winning those brand loyal customers is the key to success for us. It doesn't mean that we ignore the rest of them, like I think I said it this morning at the Wall Street Journal, the price-sensitive customers are important. They're a high percentage of our revenue, those kind of infrequent customers who aren't really brand loyal, who shop on price and schedule. They're really important to us. But we're not trying to win there. We need to hold serve there. We don't hold serve, we're not going to win the match. We've got to hold serve, but we're going to win with the brand loyal customers.

And in your mind, in that high-value component of the brand loyal customer, what is United doing now that's maybe different than it was doing before you took over as an airline? And as you think about the changes that you've made to bring you to where you are, right, what's been the.

Well, I don't want to make it about me, but I'll say the things that we're doing that are different than the past is, number one is the most important thing is how our employees treat you, how they make you feel when you fly. That's easy to say, maybe harder to do. I say that I have the easiest job of anyone at United because I only have one responsibility, which is to create an airline our employees are proud of. And the reason I say that is because if our employees are proud of the airline, they want you to feel the same way. The captains will come out of the cockpit and talk to you because they are proud to be at United Airlines. I tell the flight attendants they're the face of United Airlines. There's nothing we can do that is as important. As you walk on to that airplane, there's 2 flight attendants standing in the galley who are smiling, who are happy, who are genuine, who care, and you can tell whether it's genuine and if they care. There really is nothing more that we can do. And so the only way to get to do that, like you can't tell them to do that. You have to make them feel good about where they work, about their airline, about their company and feel proud of it. And if they do, then they're going to deliver for customers. Part of making them feel proud, however, is all the other stuff we do, like getting on one of the airplanes that we've -- and we're over half of our airplanes now with the new in-flight entertainment systems, the bigger bins, the lighting, everything on it. But they're proud of that product. You walk through that airplane, like our NPS scores on one of those flights are like 10 or 12 points better. But guess what? The TSA Security NPS score is higher if you fly on an airplane with seatback entertainment, it's like 10 points higher. Like everything feels better when you're doing stuff like that. And the employees are proud of that product. The technology, having the best app in the business, and we have -- I think you may debate it. We have the best app by a wide margin for customers. Like those kinds of things matter to customers. They also matter to employees probably on the app, by the way, while we -- I told somebody at the Wall Street Journal today, while we have the best app, I think there's so much more we can do. And so that's how we're going to stay ahead. Like others eventually copy. It surprises me how long it has taken some of our -- even our large competitors to copy things that we do. But we've got a bunch of ideas and things that we're going to do. We call it change the unchangeable at United, things that people think are impossible in airlines to do and no one even tries that we're going to do to make the customer experience better. And those are hard to copy. The more and more we do with changing the unchangeable and those kinds of things get harder and harder for customers to copy, and we're just going to win more and more brand loyal customers and take care of our existing brand loyal customers.

So thank you for that. It's really interesting to hear you kind of talk about the genesis around how you kind of make customers more brand loyal, right? Sometimes I think it's, well, it's geography, right? Where do you live? If Geography matters [indiscernible] an airport for New York or if you're in.

Geography matters for sure. And there are some pieces like -- I take it different. If you live in Charlotte, North Carolina, you're going to be airline brand loyal customer for American. But because they give you the best schedule, it's not anything bad, like they give you something for that. But most people live in places where they have more scheduled options. They either don't live in a hub or they live in a hub that has less of service. They live in New York City, they can go to Newark or they can go JK. Some people maybe live closer to Newark and it's more convenient. But there's -- people have options. Customers have options and they exercise that. And it's -- I look at the data at every single one of our hubs. I can see literally every single one how we've won brand loyal customers in the last few years.

And does this become then like the future of competition between the legacy airlines? Like trying to -- brand loyalty...

I don't think legacy airlines is the right -- I don't think is the right description anymore. There are brand loyal airlines. There's a continuum of brand loyal to not brand loyal. I think there's 2 airlines at the top on brand loyal. The ULCCs are at the bottom, they're going to go out of business because of that. And everyone else sort of fits somewhere in between.

But I guess as you think about folks trying to recreate that same strategy, as you mentioned, like getting to that level of...

I think it's not possible. If I was another airline, I wouldn't really -- I'd be trying to find a new strategy because here's the problem. Like a brand loyal customer, let's just take -- pick up one of our competitors’ hubs, Denver or Chicago is 2 different airlines. So I'm not picking on any airline. But in either one of those places, like the only reason for a brand loyal customer to switch to another airline is that airline is demonstrably better, not equal to, not 60%, 70%. So like if you're in Denver, we have first class, we have clubs, we have international network. We have all these other things. Well, you put one more of those things in and your customer, you look at the equation like, well, is which of those 2 airlines is better? Well, still United. You'd have to catch us and you would have to pass us to get customers to switch. So it's hard to get -- you can't just incrementally do 1, 2, 3, 4, 5 more things. you got to do all of it to get customers to switch all of it plus. And I can promise you, we're not going to slow down. We're going to be doing more incremental stuff, I think, than anyone is doing trying to catch up with this. And that's why Andrew Nocella says it's generational to make these changes. Like, we're going to be the best choice for those customers, and we're not going to ever give that up.

Okay.

By the way, I do think for those other airlines, doing things like putting first class line stuff will help them take their existing -- they'll get more revenue from their existing customers. They'll be able to sell up, but it's not going to be a market share shift. They will be able to sell up within their own airplane, but they're not going to get a market share shift from United.

But I guess one of the things I wanted to ask you about in the context of some of those other airlines either adding like a bigger front seat or a better snack package or assigned seating baggage fees, things like that. In the low end of your sort of product offer, isn't that like a big price increase?

It is for them.

I'm assuming there's a direct impact for you.

Yes. I mean I guess I think of it when they're doing that is we're pretty good at being what has traditionally been called a legacy airline. We're pretty good at being a network, full-service airline is a better way to say it. They're not. Southwest had the best business model in the history of aviation, and they're awesome at the point-to-point Southwest. But they're the fourth best large legacy airline. And the more they look like us, the better it is for us.

So excellent segue around maybe helping investors understand what's changed in the industry. If we go back, call it, 10, 15 years, we're out of the financial crisis, we're before the whatever the great leap ahead or whatever and the overcapacity in the later part of the last decade. Times are pretty good. But in that context, you had the discounters, Southwest growing faster, better margins. The full-service network airlines, which is a better term, we're not in that position. Fast forward, it's flipped. How do we flip the script?

So I guess I'll say 3 things. Cost convergence is not really the issue, but cost convergence has mattered because it's made it harder for low-cost airlines to undercut us on price. But the bigger thing is 2. One I already said, we had to figure out how to hold serve on the cost-conscious customers. We had -- it's probably 40% of our revenue that are that sort of price-sensitive customer. You couldn't ignore it. We had to hold serve. And basic economy and upgauging the airline have allowed us to hold serve. But then the bigger thing that we've done is we have created a customer choice moat around the business for everyone else, for brand loyal customers. We've created a better airline that customers choose. And that's a moat that's really hard for others to penetrate because you've got to do it, like you can't just breach the moat at one place. As I said earlier, you've got to do everything that United does at least as well as United does to get that customer in a competitive market to switch to your airline, to switch their loyalty to your airline. You got to do everything. You can't do one thing, you can't do 2. You can't do 90% of it, you got to do probably 110% to get them to switch. And so that becomes having a better airline for customers for that other 60% of revenue becomes a moat. We had to do both of those things. We had to -- you couldn't just focus on the 60%. I think it's one of the mistakes some of the network carriers historically made, like, "Oh, I want to be premium" I want to do that and sort of disdainful of the price sensitive. But when it's 40% of your revenue, you have to do both. You have to hold serve with price sensitive and win with the brand loyal.

And do you think that that shift, that flipping of the script between the network full-service airlines and the discounters, and the low-cost guys is permanent.

It's permanent. It's permanent, it's structural, it's irreversible. -- like, and it's put into logic. Like if you live -- if you're a customer, why would you switch to the airline? We can compete on price. when we need to, and we're going to always have the better product and service. As long as we keep the better product and service, why would a customer switch? It's all about customers and why a customer chooses an airline. And we've given them a structurally better product and service and reason to pick United. And that's why I think it's structural, permanent and irreversible. It doesn't mean that those other airlines can't find places to be really profitable, like they can, like the things that Southwest is doing, bag fees, change fees, like I think it's going to make Southwest more profitable. It's not going to be market share shift. It's going to be generating more revenue from their customer base, which I think will be great for them. But they're not going to get market share shift away from United because United is still better for our customer set.

Let's talk a little bit about how you maintain that leadership position, right? You're obviously investing a lot in premium. You guys were kind enough to advice out to see the new 787 Polaris Studio suites, which are fantastic if you're ever flying from San Francisco to Singapore someday. How much runway is there to continue to add premium amenities within the landscape? Because right, we're -- we've added some extra seats. We've added some of the international sort of [indiscernible] or the recliner type of seats. Like as you think about the innovation sort of runway that you have to continue to kind of extract more revenue from the premium customer.

So I'll never say extract more revenue from the premium customer. That's your words. But it's -- we are going to try to make it better and better for customers. And I think it's a really long runway. It's not just about the product. How people feel -- the product is great, but how people feel -- it's about how people feel when they fly, and how people feel when they fly is the product, the hard product in the airplane. It is how the employees interact with you when you fly. It's the technology. I mean, I think some of the coolest things we're going to do are on the technology front. We've started doing this today. We're doing only on some flights, but we -- I want us to get to the world where if there's any delay on your flight, I've -- the goal is pretend that I personally am on that flight. And I have called the network operating center and said, what's going on with my flight? I want to tell every single one of our customers on a delayed flight exactly what the operating center would tell me. Full explanation for that. I think it's going to be huge for how customers feel about flying. Sat on other airlines and like the Board says, flight leaves at noon, it's 11:15, there's no plane at the gate, like you can think they're lying to you. They're not lying to you, but they just don't have the systems and processes set up. And we're better at it, I think, than any other airline in the world by a lot. But I don't think we're in the first [indiscernible]. We've even really started. We're in the pre-game warm up to think about what this game going to look like. But it's things like that, I think, that can really set the airline. I have another goal, which is that we -- when I read a lot of customer e-mails and while I don't respond to them generally, I read them. And I put half of my e-mail inbox is -- I'm going to tell you something we don't do well right now that we're going to fix is, we've lost someone's bag and the process of getting the bag back to you. We're terrible at doing that. And by the way, every airline in the world is terrible. We do our best to not lose bags, but we're not good at getting them back to you when we do lose them. We lose less than 1%. So we don't lose many, but when we do, we're bad at it. And we're going to fix that. And our goal is to get 80% of the bags back to the customer within 6 hours. We're nowhere close to that today, but that's the goal. And the other goal is that we will get to 100% of customers -- if we don't have your bag on the airplane, we will text you before and send a message to your seatback screen because everyone's going to have seatback screen, telling you, we're sorry, here's where your bag is. Here are the 3 options for you to pick to get it back to you. My goal is that while I don't want to lose bags, but when we do, we have a higher NPS score for our customers when we lose your bags than when we don't because they're so wowed and surprised by how good we are at trying to fix the problem after it happens. So things like that are what we're going to do to keep raising the bar. And the more that we do that, those are harder and harder for our competitors to copy. And none of them are even thinking about it, and we're actively doing it.

Okay. So you mentioned earlier the importance of how people feel when they're on the plane. And a lot of that is the onboard experience and the flight attendants. So you just recently, I think, announced a [indiscernible] with your flight attendant’s union. Is there anything you can share around the agreement you've reached? And then as you think about the investments you've been making; I think you were bringing the flight attendants through headquarters and sort of getting that culture sort of built up. I'd love to hear your perspective on kind of where you feel that change management practices. Are you there where you want to be in terms of employee engagement and commitment into the good leads the way sort of market...

We're never going to be there -- never be complacent.

Never get there.

By the way, the other answer to your -- the way you started that last question is never be complacent. Like I'm not a [indiscernible], but if I worry about anything, it's complacency. The better you get, the easier it is to be complacent. We are never going to be complacent. We're going to always work to get better and the same thing applies to our employees. I'm glad that we got a deal done with our flight attendant. They're awesome. They are the face of the United Airlines, like people feel the way they do about United because of how our flight attendants make them feel, they spend more time with customers than anyone. And so they got an industry-leading deal, which they deserved, and I'm happy for them. Financially, it's been in our guidance. So it's still in our guidance. I guess we'll update the full year when we come out the next time. But financially in the guidance, but I am happy for them. I'm really proud of them also for -- sometimes at airlines, when they're going through negotiations, it always takes longer than any of us would like, and it can lead to impacts on customers. They never did that. They were great with customers all the way through, and I'm really happy that they've got this deal. And I think it's -- like I said earlier that my job is the easiest anyone at United because it's created an airline that they're proud of. And that is like any time you're getting bad service, if you're getting bad service from employees on any airline, it's the CEO's fault. And it's the CEO's responsibility to fix it and the team's responsibility to make them feel good about it. And I'm committed to doing that with them and always give them an airline that they're proud of. I get on airplanes all the time. Even when negotiations are going on, employees tell me how proud they are of United, just like makes me burst with pride. That's what I'm trying to do. I'm glad to hear you say it.

All right. So one of the things that differentiates you, I think, from any of the U.S. airlines is the reach and scope of the international network. Can you talk what it is about the domestic network that supports that? Or what -- like where is the history there? Like why is it that you have that advantage? And then we can talk a little bit about data center.

Well, we were born on third base for international. I mean we've got the hubs in San Francisco, by far the best global gateway for the Pacific. Newark best -- by far, the best European gateway. Dulles is probably the second best international European gateway. We were just -- we were born on third base for international. And then we have a great team led by Patrick Quayle who's taken advantage of it and found even more places instead of being traditional and saying, oh, like all these other European destinations are too small. If you looked at the data, they were too small. We said, let's -- he looked at more data because people don't fly to those places. They stop, they go to Paris and then they go on to Sicily or whatever. He looked at that data and said, I bet if we put a nonstop flight in that we'd win a lot of customers, and he was right. And expanding to places like Nuuk, Greenland is just cool, literally and figuratively. And Ulaanbaatar and so we got a really creative team. But it starts with we were born on third base. We got those 3 hubs. And then our other hubs are also -- all 7 of our hubs are top 10 international originating markets and destination markets. And so we're fortunate to have good hubs.

And then you guys are also, I think, doing some [indiscernible] flying. Is that right?

We are.

So can you talk a little bit about that because usually [indiscernible] we talk about U.S. airlines. Usually we're complacent about Middle Eastern airlines.

Yes. We -- so we've done it in both Hong Kong and in Tokyo. In Tokyo, we have a great partnership with ANA. They're aircraft constrained. We're flying places that they don't fly. And one, we fly from all of our hubs into Tokyo, we can connect from all of our hubs to somewhere like Ulaanbaatar. But we also are getting a lot of feed from ANA. The ANA and JAL sort of have the good thing, but also creates a problem that their operations were sort of -- their fleets were built for Narita and then Haneda opened up and so they sort of split it. And anyway, so that's been really good for us. In Hong Kong, we're going to fly to Vietnam and to Bangkok. It's an efficient way to use the airplane. It takes one airplane for us to fly each of those 2 routes. It connects to our U.S. network. But it's really also sort of a way to -- we don't have -- we're aircraft constrained today on the right kind of airplane to fly to those markets nonstop. It lets us kind of test the market. If it works, we'll fly nonstop from San Francisco to each of those 2 destinations. And if it doesn't, we'll learn and it's a cheap way to learn.

Okay. And as you think about the economics on that type of flying, like I agree with you, Nuuk is cool. I'm not sure if I'm going to go there. Marrakesh, you might have me for next winter break. But as you're thinking about the economics on that kind of flying, how does that compare to the traditional sort of long-haul flying to the...

Mostly, those have done even better. Southern Europe is the best example. Like we sort of opened up -- our competitors have not come into it as well, but we sort of opened up a bunch of secondary destinations in Southern Europe, and they were some of our most profitable flying that we did. They're still going to be some of our most profitable even with more capacity into it. Not all of them work. We tried Bergen, that didn't work. Not all of them work. But that's the great thing about -- one of the great things about an airline, it also comes with the downside. But unlike building a hotel, you build a hotel in Nuuk, like kind of stuck. You fly a flight to Nuuk and it doesn't work, you don't fly it next season, like not that big a deal. So we can experiment more. But most of the experiments have worked out.

Okay. So if you think about the relationship with Boeing and the aircraft OEMs, obviously, that's been one of the supply constraints that's been affecting the rollout of United next strategy. Like what's your perspective on where the OEMs are right now? And how is that?

So I think Boeing, in particular, has turned the corner and on their way to improving. So I think the whole supply chain is broken. And it's just going to expose -- it just exposes the next set of places that were broken. Engines are, I think, a bigger issue than aircraft. Fire furnace equipment, there's a whole bunch of airplanes that are parked in Europe waiting for seats. There's airplanes parked at Charleston waiting for seats to be finished and certified. And so I think the rest of the supply chain, like whatever anyone has in their models for number of airplanes they're going to deliver around the world, I'll bet the under. I don't even know what it is. I'll bet the under for the rest of this decade. There's going to be supply constraints on aircraft because the whole supply chain is very specialized. A lot of people that have spent 30 years working as machinists and things in that area, and they all -- many of them left during COVID. It's going to take at least a decade to get that fully repaired. From United's perspective, like we've got lots of airplanes coming. We overordered airplanes intentionally expecting supply chain challenges. They've been even bigger than we thought. But net-net, it's probably a positive for us on a P&L because of the supply changes around the world. And by the way, I think on the supply point, if you look out over a decade or long term -- if you look at long term, I would put a lot of chips on the long-haul international. I think the long-haul international fleet, I think we'll get back to building the same number of airplanes, but we got to -- because of COVID, there's a about a 15-point drop in supply compared to normal trend lines that I think it's going to be really hard to recover from. And we're not building new runways at big airports around the world. We talked about slots earlier here at Newark, every big airport in the world is slot constrained. Us flying to Manila, like you can't imagine the amount of work that it had to be for us to get slots to fly into Manila, including getting the State Department to help us get slots in Manila. And so there's going to be -- I think there are very real supply constraints flying around the globe because of the lack of slots.

That's good for, I guess, near-term revenue from an investor standpoint. But does that worry you long term about the ability to renew the fleet because more time, right? These things either need to get fixed.

Well, it's about growth. The question is how much the limit growth? Renew the fleet will be straightforward. And typically, I think we are able to get into a place like Manila, we're 1 or 2 flights. So I think we'll be able to continue to grow international, not at super high rates, but at reasonable rates internationally. We're also adding -- because we're born on third base with our hubs in Newark, Dulles and San Francisco, in particular, we can fly to places that other airlines just can't, not unknown. They just don't have the hubs for flying to those places.

Okay. So if we were to look out, obviously, the industry has changed a lot from that mid-2010s to where we are today. If we fast forward in 10 years and you were looking back, how is the industry -- how does the industry shake out from here from your perspective?

I think that there are probably a couple of global full service airlines that are both premium and holding serve that are the most -- 2 most profitable have the highest margins. I think there's a couple of those. And I think there's the ULCC kind of budget business model, it may still exist, but it will be -- it should be a niche. It's a niche. It's flying small cities to Vegas and Orlando basically maybe other beaches, but it's a niche. In one way, shape or form, it will have been shrunk down to that niche. And then between, hard to know for sure how that -- where that shakes out. But I think there's 2 airlines that got -- that gave themselves a huge head start, and it's going to be really hard to catch.

And as you think about the rest of the country because one of the things that's happened out of COVID is we've sort of reduced the number of cities getting sort of scheduled service right? Is there room for something in that part of the market?

You mean the -- like what?

Like secondary market, Cedar Rapids.

Well, I think Cedar Rapids is mostly going to get served to the hubs. There's not big enough to fly. Now that's the niche that I think worked for the ULCC model. Cedar Rapids to Orlando or Cedar Rapids to Vegas, small city to big city. Andrew Nocella is fond of saying you can fly it from nowhere to somewhere or from somewhere to somewhere, but you can't fly from nowhere to nowhere. It's a little critical, but you can't fly 2 small cities. There's just not enough demand. You can fly from a small city to a big demand destination like Orlando or Vegas, but you can't -- it doesn't work to fly to another -- there's just not enough people that want to go.

Okay. So one of the questions from the audience today here is about how maybe you're using AI technology, things like that to enhance the customer experience, either from the time they arrive at the airport or even before to the time they get the destination.

So my guess is we're probably doing more with AI than anyone. A lot of it is still experimental. Some of the best use cases that we have right now, one, in call centers, like it's great in call centers for every business, and we're doing that. What I talked about earlier, we call it every flight to story, where I want to tell customers what's going on in their flight as if I call. AI is really good at that. And we're going to need AI to do that. And so that's what we're going to be using. I think that's going to be one of our best use cases that we currently have envisioned. One of the interesting things that we've used, like this is sort of seems small, but like we have these labor contracts that have been in existence for decades, and they have provisions that were written at a time, different era, wouldn't apply today. But all these contract provisions and they cross, they're confuse each other, the hundreds of pages long. And so we have specialists that are like for interpreting the contracts and like into this situation, what does the contract mean and what happens with your schedule and things. And it turns out that AI is better than the people, more accurate and obviously faster at getting it done. But it's those kinds of things that work. We're using it. We're trying to use it as one of the use cases that everyone thinks ought to be good is predictive maintenance on airplanes. And we have some isolated cases where that's worked, but the truth is it hasn't worked out. We're still experimenting with it. We're still investing and trying to do it, but it hasn't worked as well as we thought. But I'm excited for what we can use it for to do some of the kinds of things I talked about before about telling you what's going on with the delays, baggage recovery, those are places that AI, I think, can really play.

Okay. And then if we think about capital allocation, buybacks, dividends, those kinds of things, is there -- is a reinstatement of dividend kind of on the runway? Or like how are you thinking about -- returns to shareholders?

Well, so first, returns to shareholders. I think of it as -- we have 3 things financially that I think are important for us. I said this to our team back when we were in COVID that we were going to do coming out, carrying more cash on the balance sheet. When COVID started, we had $6 billion in the bank, and we had $6 billion -- actually, we had $8 billion because we went and raised $2 billion 2 days before the NBA walked up the court. But at the end of February of 2020, right before it started, we had $6 billion. We also had $6 billion of air traffic liability, which is revenue that we have in our bank account because customers get prepaid for tickets and haven't flown yet, meaning if they all wanted to refund and they did, we had 0 effectively in the bank. And we can never be in that position again. So we're going to carry more cash on the balance sheet than we did before. We need to have the industry-leading margins. In my career, every time something bad has happened in the industry, whoever started with the lowest margins, of course, was the first to start losing money, bleeding cash and had to make adjustments. And when they make those adjustments, it makes it better for everyone else. So we need to have industry-leading margins. We've done that. And we need to have a stronger balance sheet. Our balance sheet, our leverage is back to better than it was. Our net debt is less than it was COVID. Our leverage is back a little bit better than it was when COVID started. Our target is to continue to get that down to about a leverage ratio of 2x. And so right now, we're using some of our free cash flow. We're allocating it partially to share repurchases and partially to continue to pay down debt. When we get below 2x, we can allocate more towards -- to shareholders. The question about dividends to me is more a multiple question than anything else. And when we're trading at our current multiples, we're going to do share buybacks instead of dividends. It's just crazy. I think we're going to have a higher multiple. I think if you look at this year, it's going to wind up being remarkable. We've been in a at least shallow airline industry recession, maybe not the whole economy, but we have been in airlines. And we're going to have Newark happen this year. And like I'll put that aside, like we're -- literally, we got on our last earnings call and if demand stays stable, we were going to grow earnings in a recessionary environment at United, and we're trading at, what, even now, 6 or 7x earnings. I mean, it's crazy. And I don't think that's going to lag. I think especially going through a challenging year like this and demonstrating that we have earnings resilience in a challenging year and earnings growth in years to come is also going to change the multiple. But as long as the multiple is anywhere close to what it is now, I at least am going to be pushing for share repurchases, and I'm pretty sure the Board supports that. So dividends don't come until we have a meaningfully higher multiple, I don't think.

And in your discussions with the Board, is there -- you mentioned having more cash. But if you think about the level of leverage, right, one of your peers is working towards getting to like 1x debt to EBITDA. Like how do you think about target leverage in a post-COVID kind of world? There's a way to think about it.

Yes. I focus actually, to be honest with you, more on net debt because leverage ratios can swing so much on the denominator -- the denominator. And so I focus a little bit more on the net debt. When we get to 2x, that seems like a pretty good target. I think most investment-grade-related companies are in that area. It seems like a good area. But when we get there, we can also reevaluate and see if we should get lower. But again, in a world where we're trading at 7x less earnings, like if we get there if we're 15x and we get to 2, a lot easier to rationalize going to 1 than if you're at 7.

Okay. And in response to your commentary before about the supply chain being kind of broken, right? Boeing CEO, was here and I did a fireside chat earlier today, I was talking about actually things...

Where's the fire by the way.

What's that?

Where is the fire?

I don't know. I think I tried to get them to put 2 like holding shares and sit in the basic or the upfront. But -- so one of the things he talked about was things are getting a little bit better, right? And you're telling us that everything is kind of bad. Like what are you seeing like...

Those are totally consistent. Things are getting better at Boeing. It's just exposing the other rocks.

The other rocks, whatever. All right. Very good. So as we think about kind of what your goals are, right, you had a tremendous first couple of years in the seat at United, and I'm sure you've got many more ahead of you. How are you thinking about setting the goals for yourself around what you want this company to be and where do you want it to be in that 3- to 5-year period? If you can kind of paint us a vision for what you want this company to look like.

I want us to be the best airline in the history of aviation, unequivocal best airline in the history of aviation. And that means doing things that no one -- like almost not being an airline. In fact, that's the way I'll say it. Like I want us to be a loyalty machine that runs an airline. The customers love us, that our employees love it and that our customers love us, and we have a great loyalty machine. We're a great brand with loyal customers who happens to fly an airline.

And what do you need to do that you're not doing today in terms of running an airline around that loyalty proposition? Like where do you want to invest outside of going to Nuuk, or going to Marrakesh?

It's doing all those things plus. I mean a lot of the things I've talked about today, like having the technology, using technology, changing our processes, changing our mentality, our culture to be open, transparent with customers, to focus on the places where instead of like just saying, "Oh, we're really good at not having a low mishandled baggage rate, okay, that's true. But if we lose less -- even if we lose less than 1%, how do we make those customers feel good, finding all the places that we can be better and constantly trying and constantly pushing to be better. We have a once a quarter where we go now off-site on this change, [indiscernible] and the whole team actually, they come to my house. But -- so we're like not in the office.

I heard it's like a resort, but...

They come to the house, and we spend a day with the whole team like not looking at what's going on a day-to-day basis, like where we -- here are these change unchangeable products. Some of them are 1 year, some are 3 years, some of them are 5 years, like where are we on each one of these things. And like I'm not the one making decisions, but because I care about it and because they come tell me everything that's going on, it makes a difference. And we're going to get stuff done that no other airline in the world has even contemplated doing that we're working on right now.

And does that include sort of working on adjacencies like around the travel sort of...

It might. I think as we get more -- I think creating the brand loyal program that people love is the platform to do other things. And then it can become the snowball that gets bigger and bigger and includes more than. I think it does include more than airlines. Our vision is more expensive. That doesn't mean buying anything, but like having partnerships that make it the loyalty program that is a must-have like the must-have loyalty program that people aspire and want to be in.

And does that -- when you think about that loyalty program, is it the United program? Is it Star Alliance? Is it one a component the other? Like how do you...

I don't know how -- it certainly starts as United. It starts as United and where it goes from there.

All right. Well, we're coming up here to the end of the hour. So I want to maybe give you an opportunity to think about your vision for the company being the best airline. What is that going to mean from an investor standpoint? Investors have traditionally looked at this sector and said [indiscernible] late cycle.

I think it's going to be good for investors. Of course, I think that. But what I think it's going to do, and I think we're proving that this year is we're going to always -- we're in a cyclical industry. We are cyclical. But the downside part of the cycle used to always be we lost money and like the world was coming to an end. And I think we're going through a mild down period now, we're going to maybe even be able to grow earnings this year, even with that and even with what happened at Newark, like we're in a much different place. We're going to have -- we're going to have earnings resiliency in a down cycle. And this winning customer has been working, is working, like it's remarkable to see how United is performing in absolute or relative to others. And we're going to keep doing that. And so I think our margins are going to grow. I think we're going to settle somewhere in the mid-teens margins, I guess, 13% or 14%. That's going to kind of be our normal pretax earnings margin. That's what I think proof of that. But I think the things that we're going to do are going to lead us to that point, and we're going to be able to be resilient even in a down cycle. I think that is going to -- not only have higher earnings for us, which would obviously lead to the share price going up, but it's going to reward us with a much better multiple than we have today. And so I think you're going to get both of those things as an investor. The strategy that we have, it's not a new strategy. Like we're not asking -- if you're buying United stock, we're not asking you to buy based on some new strategy or some new spreadsheet of here's all the initiatives that we have. We're going to keep doing what we've been doing. It's working, and we're going to stick to it. We're going to keep doing it. It's been working. It's going to keep working.

All right. Well, I want to thank you again for coming out. I learn more in these sessions than I probably...

It's nice thing to say. However, true or not, but nice things to say.

A wonderful time to have you, and we're very pleased you came out to support the conference. Thank you, everyone, for joining us for the fireside.