Transcription
I always say Scott's actually the number one economist in the world. You had the actual real-time to look at what the consumer is doing. You saw the first half of the year is almost recession. The second half looks vastly different. How much of a reacceleration are you seeing?
You know, we are a very good, real-time indicator of demand. When things are uncertain or weak, the first thing that businesses and consumers cut back on is travel. It's also the tip of the spear. One of the first things that they bring back when they start to feel better. At the end of June, it was like a light switch got flipped, and the tax bill certainly passed. The tariff situation, while not finalized yet, got narrowed down to a level of certainty. In the geopolitical situation, particularly in Israel, at least got narrowed down. And that certainty, I think, led to an improvement in demand. And so we saw that starting in July and August, coming out of September, when people are starting to book for Thanksgiving and the holidays, we've seen an even further acceleration, particularly in consumer demand. So we are a real good, real-time indicator of the economy. And most of the economic statistics that you guys are looking at are backward-looking and they're reflective of sort of the mood and the sentiment of the country in April, May, June time period. Our data is more real-time. I think the economy is therefore stronger than most people are prognosticating.
Where is it coming from? Is it coming from business? You said? Is it coming from consumer? Is it coming from the front of the bus or the back of the cabin? How are you sort of describing this demand?
So, really, you know, our business is mostly medium to high-end consumers, and that really is strong, really. I think across the board, demand has improved. Corporate was the first to begin recovery, particularly as we've come out of Labor Day, and that's a more leisure booking period for the holidays. That demand has really picked up coming out of Labor Day. So I think the consumers and certainly the business is feeling good. I think the consumer is feeling good as well. It is more skewed to the premium, but a lot of that is because there's more supply. It's really a more, I think, a more supply issue in an economy that there are a lot of economy-focused airlines, you know, with more seats and they're able to sell. And so it feels like premium is better. But I think it's really more a supply issue in economy. I think they're both pretty strong.
How much have you had to adjust in terms of the mix of what you're offering between the business class, first class, and of course, what's going on in economy?
You know, we made a decision. These are long-term decisions. You can't adjust them in the short term. You know, the supply chain for new seats is three to four years. And so we made a decision coming out of COVID to really lean more heavily into premium and to give customers more choice. It's really about giving customers choice and more options. And so that tended to turn out to be the right decision. We really haven't changed that this year at all. Those are long-term decisions. We like the path that we're on. We're going to continue on that same path. But really, you know, we're going to try to offer customers choice all the way from basically economy all the way up to, you know, lie-flat premium, you know, across the oceans.
With regard to consumer travelers, are you seeing more frequency with regards to the people who are traveling?
You know, I don't really know. I mean, I just look at the overall demand is rising. I suspect that that's a combination of more people flying, but also some of the people that are already flying, flying more often.
So this isn't personal. But when I was looking for, when I was getting flights earlier this year for the family, they were actually pretty good deals. Yeah. And now what I'm looking for flights during your Christmas time, etc., I don't know. The prices are going up pretty significantly. How much pricing, how much pricing power have you had?
Well, air travel is a great value. It's down about 50% in real terms, you know, in the last 30 years or so. It is a great value. Peak periods are going to be higher. And the pricing environment, you know, when things are weak, the pricing goes down. When the economy is weak, pricing goes down even more than the economy, and when it starts to recover, it therefore correspondingly bounces back more. So you do probably, you probably will see that in the fourth quarter.
So you think that pricing can keep on going up to a certain degree, albeit with the real-time pricing being lower value, etc.?
I think pricing is going to go up sort of consistent with inflation. I don't think it's going to continue to devalue relative to the economy, but I also don't think it's going to outpace inflation in the broader economy.
How are you actually improving the experience of flying? I mean, you talk about obviously the investment in premium, but it's more than just offering a wider seat in, you know, peanuts or things.
Mostly what we're doing is investing for the whole aircraft. And the most important thing we do is our employees and how are people treated? Treat the customers. You know, I tell our flight attendants, I love our flight attendants, they're the face of United Airlines. There's nothing that matters as much as our customers feel as walking on an airplane. There's two flights into the galley. They're smiling, they're positive, they're happy, they care about you. And you can tell that they care. But our employees and how they treat you, the technology, you know, we have by far the best out of any airline. Helps you when you have taken all kinds of things that matter. Putting, you know, seatback entertainment on on this. We put them on every single airplane, and it's pretty remarkable. An airplane with seatback entertainment, you know, has double-digit higher amps than another airplane. But guess what? The TSA scores are higher. The food tastes better. Everything is better when you have that. So investing in the whole experience and the whole product, everything that you feel makes a difference. That's how you win brand loyal customers.
And obviously you can control what goes on in the cabin, but there's also a lot that you don't control as an airline, particularly when it comes to time, weather, and other sort of faults in the system. Obviously, you have some responsibility in that, but I am curious as to how you improve what you can control to ensure that on-time is better. The experience outside of the cabin in the airport is better.
Well, we're great at the things that we control. We're not perfect, but we're pretty good at running, really good at running a reliable operation. The biggest thing that we can do to improve for customers is the air traffic control system. You know, about 90% of the delays in the country are air traffic control. That includes weather, but it's not just weather. And so getting the air traffic control system up to the levels that America deserves is mission number one to improve for customers. And I'm really happy that this administration, starting with the president, is fully bought into doing that. Secretary Duffy has been great at driving this agenda, and Administrator Bradford, Brian Bedford, used to be the CEO of an airline, you know, knows how to build it. I think I can already see the things that we're doing. We're on a path to finally getting. You know, I've fought this battle for 20 years. We're on a path to finally getting the FAA fixed in a way that all Americans deserve.
Romain was trying to be nice and not asking, Is Newark fixed or are we actually dealing with incredible best that we had been dealing with? I mean, how much have you seen an improvement to the degree where you are proud to have that be your hub in the air?
Yeah, yeah, yeah. You know, I think Newark is a crown jewel for United Airlines and frankly, for the country. It's the biggest gateway for a US airline flying to Europe. And it historically operated on a level playing field with LaGuardia and JFK. And the FAA has now put it on a level playing field, essentially slot controls, managing the number of flights at the airport to equal the capacity of the airport. And when when they did that, we have this summer. Newark was the most, it was the most reliable summer that we've had in Newark. It's still the Newark airspace. It's, you know, still the most challenging airspace in the world, but it was the most reliable we've had. In fact, the most on-time arrival airline into the New York metro area this year, this summer, was United Airlines into Newark because of the changes the FAA has made.
One thing that you've noted is that you've been gaining share, and that's one reason why some of your earnings have been outpacing some of your rivals. I wonder what you're targeting in terms of share gain. Next is our region as it's a tri-state area with the JFK and the JetBlue partnership. Is it another region that you're really kind of trying to go after?
We're really focused on our hubs, really across the country, but in our hubs, growing our hubs and investing for the customer so that more and more customers choose us. That also means that when you're anywhere that's not a hub, if you live in Nashville or if you live in Columbus, Ohio, and you're going to have to connect a lot, and a lot of the travel anyway, United becomes a better and better option. So it really is across the board. But the biggest share gains we see are in our seven hubs.
On Newark, though, I mean, there was a drop off overall in in passenger traffic in there because of those issues. As that returned to normal, it's pretty much returned to normal and there was a huge drop and it still takes a little time for perception to catch up to reality. But the numbers, you know, show that that Newark has gotten on par. I've gotten to a level playing field. And so the results are on par with LaGuardia and JFK. And the FAA has now done a really important step, which is move the air traffic control out of the facilities for 50% understaffed on Long Island and into Philadelphia. And the first permanent employees finished training starting next month. And so every month the staffing is getting better and better. But that's been the biggest issue here in the New York airspace is air traffic control staffing. And as it gets better and better every month, we already had a good summer. It's going to just get better.
And you are actually adding staffing at United at Newark.
We are. Well, right. I mean, you have a lot of 14,000 people there already. We have 14,000. We're growing about 2,000 a year at the moment.
Okay. So you've talked about how confident you are about the trajectory ahead. Why then do you have triple the cash that you had during before the pandemic? Why are you paying down debt? Why are you operating in such a conservative cash flow manner?
Because we know that something always happens in this industry. When we were in COVID, I made it clear the first time myself, which I made it clear to all of our employees, to set this airline up so that we never again have a furlough, that none of those people experience a furlough, which is different than United has always been in the past. You know, anytime there was any kind of whiff in the economy, you know, they shrink and furlough. To set it up, well, we never did that, which is also good for our investors in the long term that we can ride through a downturn. Is what that means. And more cash on the balance sheet and paying down debt gives us the financial firepower to deal with whatever the next crisis. And there's going to be one at some point to deal with the next crisis. Stay focused on the long term, keep investing for the long term, and keep our eyes on the horizon instead of being whipped around by short-term trends we've seen.
Wall Street really rewards companies that have invested in CapEx and it's sort of a departure from the past. But this has been something that we've seen on an increasing basis. Some might say, well, you have a cash pile, you could make some of that capital expenditure investment. What would you be looking at?
Yeah, well, we have. We do go down. You know, the last each of the last four years, I think is more CapEx than almost any airline in history has ever done. We did the biggest aircraft orders in the history of aviation, which is where our most of our CapEx goes to airplanes during the pandemic. And at the time we did, four and a half years ago, I did an event here at Newark to announce that. The pandemic was still raging, and we did the biggest aircraft orders in history. We got a lot of blowback, a lot of criticism, a lot of skepticism from Wall Street. But it was the right long-term decision, and it's clearly worked. And our investors have been rewarded, and they recognize that it's worked. So I think doing that, you take the heat at the beginning when you first do it, but then you've got to demonstrate that it was the right plan. You've got to put the numbers up, you've got to deliver. But if you deliver, I think investors give you a lot more trust rope and let you focus on the long term.
Well, speaking of delivering, how confident are you in getting those deliveries on time?
You know, Boeing, particularly for the 737, Boeing is back on track. In fact, this year, they're ahead of pace for the first time in a long time. I think they've really turned the corner on the 737. The 787 is still behind. Airbus is a little behind, not as much as Boeing was, but the 777, I think they'll turn the corner. I think Kelly's doing a really good job there. It's going to lead to other issues. It's going to expose the next problems of the supply chain. I think engines, there's something like 700 aircraft around the globe that are grounded right now because of engine shortages. So I think engine shortages is going to become the next industry-wide challenge once Boeing and Airbus get back to full.
Is that an effect of tariff policy or just supply chain game ups? What's causing it?
It's a hangover still, perhaps from COVID. You know, it's a very, it's a very specialized, high-skilled machinist and others. And they got a lot of them retired during COVID. They've had a real challenge at all of the engine manufacturers to get back to full speed.
You've been spending a lot of time in Washington, D.C. Have you bought a place there?
Bought a place there for a long time. Expect to have a lot more time there as you talk to policymakers. You know, I've still spent a lot of time there in the last administration. I spent a lot of time there. This, you know, we're a big, high-profile company. And that comes with opportunities, obligations, responsibilities. And Washington, D.C. is part of it. I thought it was the part of the job I would dislike the most when I became CEO. I thought it was the only thing I disliked. It turns out I like it, which is surprising. It's maddening. It's frustrating at times, but it's also a place where you can have an amplified voice to make a difference for your company, for your industry, for the world.