United Airlines at Bernstein Conference: Strategic Partnership and Future Vision

On Thursday, 29 May 2025, United Airlines (NASDAQ:UAL) presented at the Bernstein 41st Annual Strategic Decisions Conference. CEO Scott Kirby outlined the airline’s strategic initiatives, including a promising partnership with JetBlue and improvements at Newark Airport. While the company faces challenges such as supply chain issues, it remains optimistic about its brand loyalty strategy and future growth.

Key Takeaways

• United Airlines is set to expand its network through a partnership with JetBlue, expected to be implemented by 2027.
• Improvements at Newark Airport are anticipated to enhance reliability and potentially reduce prices for customers.
• The airline is investing in brand loyalty and customer experience, focusing on employee engagement and technological advancements.
• Despite supply chain challenges, United Airlines is optimistic about its future, emphasizing a strong loyalty program and customer-centric approach.
• Financial strategies include share repurchases and debt reduction, with dividends considered upon achieving a higher stock multiple.

JetBlue Partnership and Newark Airport Operations

• JetBlue Partnership:

- United Airlines is enthusiastic about its partnership with JetBlue, which aims to expand its presence at JFK and enhance its network in Boston, Florida, and the Caribbean.

- The partnership is expected to offer increased access to both United and JetBlue customers, with implementation planned for 2027 due to aircraft delivery delays.

• Newark Airport Operations:

- CEO Scott Kirby emphasized the safety and reliability improvements at Newark Airport, supported by multiple FAA-managed backup systems.

- The FAA’s management of flights to match airport capacity has improved on-time performance, making Newark a more reliable option.

- Reduced bookings at Newark are likely to result in lower prices for customers in the short term, despite initial perception issues.

Brand Loyalty and Customer Experience

• Brand Loyalty Strategy:

- United Airlines is focused on building brand loyalty by enhancing its frequent flyer program and concentrating efforts on customer satisfaction.

- Employee engagement is a key component, with investments aimed at making employees proud of the airline.

• Investments in Customer Experience:

- The airline is upgrading in-flight entertainment systems, baggage handling, and customer service technology, including the use of AI to improve communication during delays.

- United Airlines aims to differentiate itself by offering a superior product and service that competitors find difficult to replicate.

Industry Trends and Future Outlook

• Industry Shift:

- The traditional advantage of low-cost carriers has shifted, with full-service airlines like United now in a stronger position due to their ability to compete on price while offering better service.

• Supply Chain Challenges:

- United Airlines is navigating supply chain issues affecting aircraft deliveries and component availability, but remains optimistic about future growth.

• Long-Term Vision:

- Scott Kirby envisions United Airlines as the best airline in history, driven by a strong loyalty program and a focus on customer and employee satisfaction.

Capital Allocation and Financial Strategy

• Financial Priorities:

- United Airlines is focused on maintaining a strong balance sheet, with strategies including share repurchases and debt reduction.

- The company aims for a leverage ratio of two times EBITDA and considers dividends once a higher stock multiple is achieved.

• Share Repurchases:

- Currently, share repurchases are preferred over dividends due to the company’s low stock multiple.

In conclusion, United Airlines is positioning itself for future success through strategic partnerships, operational improvements, and a focus on brand loyalty. For more detailed insights, refer to the full conference transcript.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

David Vernon, Analyst, Bernstein: Okay. We’re on. Okay. Welcome, everyone, to Bernstein’s forty first Annual Strategic Decisions Conference.

I appreciate you, joining us today. My name is David Vernon. I cover US airlines, air freight 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 Christina Motos and Caitlin Murphy from the, IR team. We’re largely gonna do q and a.

We do have a quick public service message from Christina around, required disclosures and those kinds of things, and then we will, kick it off. So, Christina, over to you.

Christina Motos, IR Team, United Airlines: 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.

David Vernon, Analyst, Bernstein: Alright. Thank you guys very much. Again, Scott, appreciate you coming out and and, supporting the conference here. Big news today Yeah. Around the JetBlue partnership.

Why don’t you kick us off with some, thoughts? Okay. Expectations around

Scott Kirby, CEO, United Airlines: these I’ll kick off on two 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, you know, having a real presence on both sides of the Hudson. We we will have done that with this deal.

One will have our own metal By the way, it doesn’t come until 2027 because that’s when we we have aircraft delivery delays, we have a premium aircraft. We haven’t rolled it out yet, but we will. A premium aircraft that 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 gonna be great for customers. I think it’ll be great for JetBlue customers. You know, it’s places that we have two complementary networks. Between the two of us, we’ll, you know, now be number one in Boston. JetBlue has a great presence at JFK.

They’re big in Florida. They’re big in The Caribbean. That’ll 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 gonna be a real win for customers. So we’re excited about JetBlue deal.

And on Newark, I 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 three 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 three work, if any one of them has any issues or goes down at all, the other two can back them up and do back them up.

And, you know, the things that have happened recently Newark has been in the news. They’re not unique to Newark. Those are the things that are unusual, but they’re routine dealing with them is routine because we’re trained for it. And they have three 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 it’s just, like, four levels of backup for those systems. Question becomes, is it reliable? And I think mostly that people have moved on to a question of, oh, but it can’t it but it’s not reliable. And the reality is for the first three and a half months of the year before runway construction started at Newark, the most on time of the three New York airports was Newark. And, you know, we just had the best Memorial Day weekend that we’ve had in our recorded 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’ve 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 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 who not only understands it, but is willing to do it, has done it at Newark. And and so what I think this means is Newark is is still gonna have a lot of flights.

It’s gonna have slightly fewer than it had before. Actually, it’s probably gonna have the same number that’s 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, New York 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 gonna be cheaper because we took a hit to bookings, and so we have more seats open to sell out of Newark.

So now is the time if you’re 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 I hope that we’re gonna 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 two q had had the Newark perception 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.

David Vernon, Analyst, Bernstein: Alright. So while we’re on the topic of FAA, obviously, there’s more capital being allocated Yep. Maybe more attention from the administration. How do you feel about what’s been announced and its ability to actually solve the problem?

Scott Kirby, CEO, United Airlines: You know, I I feel optimistic to be in the right way. I think we’re finally gonna get the FAA fixed. You know, something I’ve spent a career trying to get done, and it’s, I think, gonna happen now. And and it’s gonna be really good for customers, which is gonna be good for investors ultimately as well. We’re gonna be able to fly more reliably, much more efficiently.

And the secretary Duffy, the president, like everyone is and both bipartisan at the house, the senate as well. Everyone is committed to to this, and we have leadership that’s gonna do it. I also think we have an FAA administrator in Brian Bedford coming in who’s a doer. He, you know, he was the CEO of Republic. He knows how to build, how to how to manage projects.

And so I think we’re gonna get it done. I’ll yeah. I’ll also coming back to Newark, you know, I’m more optimistic about what is gonna 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 gonna happen, I believe. That will be I think will be permanent, and that’s going to lead to, you know, a much better outcome for by next summer, we’ll, you know, 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.

David Vernon, Analyst, Bernstein: So is it your expectation that we go back to slot controls on a permit?

Scott Kirby, CEO, United Airlines: You know, don’t know they call it slot controls Yeah. But I think that the FAA is they’re not calling it slot controls right now, but effectively is. Okay. 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. Mhmm. But stick it there. You know? In the past, when it was you know, the FAA says in perfect conditions, full staffing, good weather, it cannot run 77 operations per hour, and yet they let it be scheduled at 80 plus for six or seven hours in a row.

It’s 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 gonna fulfill live up to its potential now. Okay.

David Vernon, Analyst, Bernstein: 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 on on on what that means to you for an airline to to to to be pursuing the goal of brand loyalty and how it sort of changes the earnings profile, revenue volatility, whatever you wanna however you wanna think about it.

Scott Kirby, CEO, United Airlines: Well, I have had, spent my career wanting to decommoditize airlines, and when and that means winning brands loyal customers. And when I say commodity, I mean, not not just price, but schedule. Most the the number one reason customers choose an airline is is schedule. You know, you take a nonstop flight over a connection and, you know, and so getting customers but for many customers in much of the country, you know, 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, they’re when I say they’re brand loyal, they join your frequent flyer program. They get your credit card. They’re trying to earn one k status or global services status.

They’re trying to concentrate their flying on your airline. They wanna be able to get enough miles to take the family to Cape Town for for vacation. And so they tend to be very sticky. They tend to be lifelong, hard to, you know, hard for someone else to win them away. Easy to lose them if you do things bad to 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, I have all kinds of stats I can give you on where sort of hub by hub, how we have won those brand loyal customers. But winning those brand loyal customers is is the key to, you know, 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.

You know, the price sensitive customers are important. They’re a high percentage of our revenue, those kinda 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. If we don’t hold serve, we’re not gonna win the match.

We gotta hold serve, but we’re gonna win with the brand loyal customers.

David Vernon, Analyst, Bernstein: And in your mind, when that in that high value component of the of the the brand loyal customer, what is what is United doing now that’s maybe different than it was doing before you Yeah. Took over as an airline? And and as you think about the the the changes that you’ve made to to bring you to where you are, right, what’s been the

Scott Kirby, CEO, United Airlines: Well, I don’t wanna make it about me, but I’ll say the things that we’re doing that are different than the past is, number one is 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 our 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 are 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’s as important. As you walk onto that airplane, there’s two 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 or not. There really is nothing more that we can do. And so the only way to get them 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 gonna deliver for customers. Part of making them feel proud, however, is all the other stuff we do, like getting on the you know, like, getting on one of the airplanes that we’ve and we’re over half of our airplanes now with the, you know, 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 seat back 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, you know, having the best app in in the business, and we have by I think I’ve I don’t 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 for how they feel. On the app, by the way, while we I told somebody at The Wall Street Journal this today.

While we have the best app, I think there’s so much more we can do. And so that’s how we’re gonna 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 gonna do.

We call it change the unchangeable at United, things that people think are impossible in airlines to do, no one even tries that we’re gonna do to make the customer experience better. And those are hard to copy. The more and more we do with with changing the unchangeable and those kinds of things get harder and harder for customers to copy, and we’re just gonna win more and more brand loyal customers and take care of our existing brand loyal customers. So, and thank you

David Vernon, Analyst, Bernstein: for that. It’s a it’s it’s really interesting to hear you kinda talk about the the the the genesis around how you kinda make customers more brand loyal. Right? Because sometimes I don’t always think it’s like, well, it’s geography. Right?

Where do you live? If you’re South geography matters. South Of Houston? Yeah. New New York is an airport for New Yorker if you’re in

Scott Kirby, CEO, United Airlines: Geography matters for sure. And there are some pieces, you know, pick a different if you live in Charlotte, North Carolina, you’re gonna be a brand loyal airline brand loyal customer for American. But mow 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, you know, they have more scheduled options. Yeah. You know, they either don’t live in a hub or they live in a hub that has lots of service. They live in New York City, they can go to Newark, or they can go to JFK. Like, some people maybe live closer to Newark, and it’s more convenient.

But there’s there people have options. Customers have options, and they exercise that. You and it’s I look at the data at every single one of our hubs. I can see it at literally every single one how we’ve won brand loyal customers in the last few years.

David Vernon, Analyst, Bernstein: And does this become then, like, the the the the future of competition between the the the the legacy airlines? Like, trying to trying to work I don’t brand loyalty into the think I

Scott Kirby, CEO, United Airlines: don’t think legacy airlines is the right. I don’t think it’s even the right description anymore. Yeah. There are brand loyal airlines. There’s a there’s a continuum of brand loyal to not brand loyal.

You know? I think there’s two airlines at the top on brand loyal. The ULCCs are at the bottom. I they’re gonna go out of because of that, and everyone else sort of fits somewhere in between.

David Vernon, Analyst, Bernstein: But I guess as you think about folks kind of trying to recreate that same strategy as you mentioned, like like, getting to that level

Scott Kirby, CEO, United Airlines: 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 competitive ops. Either Denver or Chicago, it’s two 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. Mhmm. Not equal to not 70%. So, like, you know, if you’re in Denver, you know, 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 two airlines is better? Well, it’s still United. You’d have to catch us, and you would have to pass us to get customers to switch. It’s hard to get you can’t just incrementally do one, two, three, four, five more things. You gotta do all of it to get customers to switch, all of it plus.

And I can promise you, we’re not gonna slow down. We’re gonna be doing more incremental stuff, I think, than anyone is doing trying to catch up with us. And that’s why Andrew Nisela says it’s generational to make these changes. Like, Brandlow, we’re gonna be the best choice for those customers, and we’re not gonna 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 cut they’ll get more revenue from their existing customer. They’ll be able to sell up, but it’s not gonna be a market share shift. They will be able to sell up within their own Yeah. Airplane, but they’re not gonna get a market share shift from United. But I guess one of the things I wanted to ask you

David Vernon, Analyst, Bernstein: about in in in in the context of of some of those other airlines either adding, like, a 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. But it’s good. I’m assuming there’s a direct impact for you.

Scott Kirby, CEO, United Airlines: I I mean, I guess, I 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. Better way to say it. They’re not. You know, there’s 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.

David Vernon, Analyst, Bernstein: So excellent segue around, maybe helping investors understand what’s changed in the industry. If we go back, call it ten, fifteen years, we’re out of the financial crisis. We’re before the, whatever, the great leap ahead or whatever and the the 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, were not in that position.

Scott Kirby, CEO, United Airlines: Mhmm. Fast forward, it’s flipped. Yeah. How do we flip the script? So I I guess I’ll say three things.

Cost convergence, not really the issue, but cost convergence has mattered because it’s made it harder for, for low cost airlines to undercut us on price. But the bigger thing is is is to one already said, we had to figure out how to hold serve on the cost conscious customers. We had to we we could you know, it’s probably 40% of our revenue that are that sort of price sensitive customer. You know, 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 break breach the moat at one place. You’ve as I said earlier, you’ve gotta 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 gotta do everything. You can’t do one thing. You can’t do two. You can’t do 90% of it. You gotta do probably a 10% to get them to switch.

And so that becomes having a better airline for customers for that other 60% of revenue becomes the most. But we had to do both 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 wanna be premium. Da da da.

I wanna 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

David Vernon, Analyst, Bernstein: think that the the the that shift, that flipping of the script between the network full service airlines and the the discounters and the low cost guys is is permanent? It’s permanent. It’s permanent. It’s structural. It’s irreversible.

Like, it’s and it’s put into logic. Like, you know, if you live you

Scott Kirby, CEO, United Airlines: know, if you’re a customer, why would you switch to the other airline? We can compete on price when we need to, and we’re gonna always have the better product and service. As long as we 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 are doing, bag fees and change fees. Like, I think it’s going to make Southwest more profitable. But it’s not gonna be market share shift.

It’s gonna be generating more revenue from their customer base, which I think will be great for them.

David Vernon, Analyst, Bernstein: But they’re not gonna get market share shift away from United because United’s still better for our customer setup. Let let’s talk a little bit about how how you maintain that leadership position. Right? You’re obviously investing a lot in in premium. You guys were kind enough to invite us out to see the new seven eight seven Polaris Studio Suites, 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 within the the the landscape? Because, right, we’re we’ve we’ve added some extra seats. We’ve added some some some of the international sort of, like, the not the life lap, but the recliner type of seats. Like, as you think about the innovation sort of runway that you have to continue to kinda extract more revenue from the premium customer.

Scott Kirby, CEO, United Airlines: So I’ll never say extract more revenue from the premium customer. That’s your words. But Sorry. It’s well, we are gonna try to make it better and better for customers, and I think there’s a really long runway. It’s not just but 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 part 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 gonna do are on the technology front.

We we’ve started doing this today. We do it 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 asked the the goal is pretend that I personally am on that flight, and I have called the network operating 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, the full explanation. For the I think that’s gonna be huge for how customers feel about flying. You know, I’ve sat on other airlines and, you know, like, the board says flight leaves at noon.

It’s 11:50, there’s no plane at the gate. Like, you feel like 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 inning.

We’ve been really started. We’re in the pregame warm up to think about what’s this game gonna look like. But it’s things like that, I think, that can really set the airline. But I have another goal, which is that we when I I read get a lot of customer emails, and while I don’t respond to them generally, I read them. And I put half of my email inbox is I’m a tell you something we don’t do well right now that we’re gonna 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 at it. 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 gonna fix that.

And our goal is to get 80% to get 80% of the bags back to the customer within six hours. We’re nowhere close to that today, but that’s the goal. And the other goal is that we will get to a % of customers if we don’t have your bag on the airplane, they will text you before you and send a message to your seat back screen, because everyone’s gonna have seat back screen, telling you, we’re sorry. Here’s where your bag is. Here are the three options for you to pick to get it back to you.

My goal is that while I don’t wanna lose bags, when we do, we have a higher NPS score for our customers when we lose your bag 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 gonna do to keep raising the bar. And the more 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.

David Vernon, Analyst, Bernstein: Okay. So you mentioned earlier, you know, the the importance of of the 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 the TA with your flight attendants union. Is there anything you can share around the the the agreement you’ve reached? And then as you think about, you know, 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 on kind of where you feel that change management practices. Are you are you are you there where you wanna be in terms of employee engagement and commitment into the, you know, good leads the way sort of Yeah.

Scott Kirby, CEO, United Airlines: The marketing process. We’re never gonna be there. Never be complacent. Never get there. By by the way, the other answer to your the the way you started that last question is never be complacent.

Like, I’m not a worrier, but if I worry about anything, it’s complacency. The better you get, the easier it is to be complacent. We are never gonna be complacent. We’re gonna always work to get better, same thing applies to our employees. Glad that we got a deal done with our flight attendants.

They’re awesome. They are the face of the United Airlines. Like, people feel the way they do about United because of what how our flight attendants make them feel. They’re they’re 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, it’s in the guidance, but I am happy for them. I’m really proud of them also for you know, 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 like I said earlier, that my job is the easiest for anyone at United because it’s created an airline that they’re proud of. And that is, like, anytime 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, and always give them an airline that they’re proud of. I get on airplanes all the time.

Even when negotiations were going on, employees tell me how proud they are of United. It’s just, like, makes me burst with pride. Because I that’s what I’m trying

David Vernon, Analyst, Bernstein: to do. I’m glad to hear you say it. Alright. So, one of the things that differentiates you, I think, from, any of The US airlines is the reach and and and scope of the international network. Mhmm.

Can you talk of what it is about the domestic network that supports that or what it talk like like, where’s the history there? Like, how why

Scott Kirby, CEO, United Airlines: is it that you have that

David Vernon, Analyst, Bernstein: advantage? And then we can talk a little bit about the economics.

Scott Kirby, CEO, United Airlines: Well, we were born on third base for international. I mean, you know, 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 Quell who’s taken advantage of it and found even more places instead of being traditional and saying, oh, you know, like, all these other European destinations are too small. If you look 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. You know, they go to, you know, Paris, and then they and then they go on to Sicily, or whatever.

He looked a lot about that data and said, I bet if we put a nonstop flight in that we’d find a lot of customers, and he was right. And, you know, expanding to places like Newk, Greenland is just just cool, literally and figuratively. And Ulaanbaatar and, you know, so we got a really creative team. But it starts with we were born on third base. You know, we got those three hubs.

And then our other hubs are also all seven of our hubs are top 10 international originating markets, and destination markets. And so, you know, we we’re fortunate to have good hubs.

David Vernon, Analyst, Bernstein: And then you guys are also, I think, doing some fifth freedom flying. Is that is that right?

Scott Kirby, CEO, United Airlines: We are. So Yeah. So can you talk a little

David Vernon, Analyst, Bernstein: bit about that? Because it’s usually not something we talk about US airlines. Yeah. Usually, we’re complaining about Middle Eastern airlines.

Scott Kirby, CEO, United Airlines: Yeah. We so we’ve 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, you know, one, you know, 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 your the the ANA and JAL sort of have the pro good thing, but 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 it’s been that’s been really good for us. In Hong Kong, you know, we’re we’re gonna fly to Vietnam and to Bangkok.

It’s an efficient way to use airplane. It takes one airplane for us to fly each of those two routes. It connects to our US 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 kinda test the market.

If it works, we’ll fly nonstop from San Francisco to each of those two destinations. And if it doesn’t, we’ll learn, and it’s a cheap way to learn. Okay.

David Vernon, Analyst, Bernstein: And and as you think about the the the economics on that type of flying, like, agree with you. Nuke is cool. I’m not sure if I’m gonna there. Marrakesh, you might have me next spring break. But, as you’re thinking about the economics on that kind of flying, how does that compare to to the traditional sort of long haul flying to the to the more fast

Scott Kirby, CEO, United Airlines: rate market? You know, mostly, those have done even better. Southern Europe is the best example. Like, we sort of opened up so our competitors have now 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 gonna be our some of our most profitable even with more capacity into not all of them work.

You know, we we tried Bergen. That didn’t work. Not all of them work. But that’s the great thing about, you know, an air one the great things about an airline, it also comes with a downside. But it’s unlike building a hotel, you build a hotel in Nuke, like, kinda stuck.

You fly a flight to Nuke 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.

David Vernon, Analyst, Bernstein: Okay. So if you think about the the relationship with Boeing and the air and the air the aircraft OEMs, obviously, you know, that’s been one of the supply constraints that’s been been affecting the wall of the United Next strategy. Like, what’s your perspective on where the OEMs are right now, and and and how is that? So I I I think, Boeing, in particular, has turned the corner,

Scott Kirby, CEO, United Airlines: and and on their their way to improving. But I think the whole supply chain is broken, and it’s just gonna expose it just exposes the next set of places that were broken. You know, engines are, I think, a bigger issue than than aircraft. Mhmm. Fire furnished 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 I think the rest of the supply chain, you know, like, whatever anyone has in their models for a number of airplanes they’re gonna deliver around the world, I’ll bet they’re under. I don’t even know what it is. I’ll bet they’re under for the rest of this decade.

There’s gonna be supply constraints on aircraft because the whole the whole supply chain, you know, it’s very specialized. A lot of people that have spent thirty years, you know, working and, you know, as machinists and things in that area, and they all many of them left during COVID. It’s gonna take at least a decade to get that fully repaired. From United’s perspective, like, you know, we got lots of airplanes coming. We over ordered airplanes intentionally Mhmm.

Expecting supply chain challenges. They’ve been even bigger than we thought. But, you know, net net, it’s probably a positive for us on a p and l because of the supply changes around the world. And by the way, I think on the supply point, you know, if you look out over a decade or long you know, long term if you look at long term, I would put a lot of chips on the long haul international. I think the the long haul international we yeah.

I think we’ll get back to building the same number of airplanes, but we gotta you know, because of COVID, there’s a about a 15 drop in supply, compared to normal trend lines that I think should be really hard to recover from. And, you know, they’re not we’re not building new runways at big airports around the world. You know, we talked about slots earlier here at Newark. Every big airport in the world is slot constrained. You know, 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 in Manila. And so there’s gonna be I think there are very real supply constraints on flying around the globe because of lack of slots.

David Vernon, Analyst, Bernstein: I mean, that that that’s good for, I guess, near term revenue from a from an investor standpoint, though. But does that worry you long term about the ability to renew the fleet? Because over time, right, these things either need to get fixed or

Scott Kirby, CEO, United Airlines: Well, it’s about growth. Yeah. Yeah. The question is how much is limit growth? Renewing the fleet is will be straightforward.

And, typically, I think, you know, we are able to, you to get into a place like Manila, you know, where one or two flights. So I I I think we’ll be able to continue to grow, you know, international, not at super high rates, but at reasonable rates internationally. We’re also adding, you know we because we’re born on third base with our hubs in Newark, Dallas, and San Francisco in particular, you know, we can fly to places that other airlines just can’t. Not knock on them. They just don’t have the right hubs for flying to those places.

David Vernon, Analyst, Bernstein: Okay. So, you know, if I were to if we were to look out, obviously, the industry has changed a lot from that that that mid twenty tens to where we are today. If we fast forward in ten years and you were looking back, how’s the industry how does the industry shake out from here from your perspective?

Scott Kirby, CEO, United Airlines: I I think that there are probably a couple of global full service airlines that are both premium and holding serve Mhmm. On the that are the most two 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’ll 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 it’s a niche. In one way, shape, or form, it will have been shrunk down to that niche. And in between, you know, hard to know for sure how that where that shakes out, but I I think there’s two airlines that got them that gave themselves a huge head start, and it’s gonna be really hard to catch.

David Vernon, Analyst, Bernstein: And as you think about the the the rest of the country, because one of the things that’s happened out of COVID is we’ve sort of, you know, reduced the number of cities getting sort of scheduled service. Right? Is there room for for for for something in that part

Scott Kirby, CEO, United Airlines: of the market? You mean the, like what?

David Vernon, Analyst, Bernstein: Like, secondary market, Cedar Rapids.

Scott Kirby, CEO, United Airlines: Well, I I think Cedar Rapids is mostly gonna get served to the hubs. To the hubs. There’s not big enough, you know, to Yeah. To fly. Now that that’s 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. Mhmm. You know, Andrew D’Sela is 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 from two small cities. There’s not enough there’s just not enough demand.

You could fly from a small city to a big demand destination like Orlando or Vegas Yeah. But you can’t. It doesn’t work to fly to another well, there’s not enough people that wanna go.

David Vernon, Analyst, Bernstein: Okay. So, one of the questions for the audience today, in here is about how maybe you’re using, AI technology, things like that to enhance the customer experience either, you know, from the time they arrive to the airport or even before to the time they get to destination.

Scott Kirby, CEO, United Airlines: So my guess is we’re probably doing more with AI than anyone. A lot of it’s 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. The what I talked about earlier, we call it every flight’s a story, where I want to tell customers what’s going on in their flight as if I called. AI is really good at that, and we’re gonna need AI to do that.

So that’s what we’re gonna be using. I think that’s gonna 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, our you know, we have these labor contracts that have been in existence for decades, and they have provisions that were written, you know, at a time, you know, different era, you know, wouldn’t even apply today. But all these contract provisions, you know, and they cross they confuse they’re confused with each other. They’re hundreds of pages long.

And 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 than the 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, you know, like 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, you know, the truth is it hasn’t worked out. It’s 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, you know, 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 can really play.

David Vernon, Analyst, Bernstein: 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 how are you

Scott Kirby, CEO, United Airlines: thinking about returns to shareholders? So first, returns to shareholders. You know, I think of it as we have three things financially that I think are important for us. I said this to our team back when we were in COVID that we were gonna do coming out, carry more cash on the balance sheet. You know, when COVID started, we had $6,000,000,000 in the bank, and we had $6,000,000,000.

Well, actually, we had 8 because we went and raised $2,000,000,000 2 days before the NBA walked off the court. But at the February, right before it started, we had 6,000,000,000. We also had $6,000,000,000 of air traffic liability, which is revenue that we have in our bank account because customers, have prepaid for tickets and haven’t flown yet. Meaning, if they all wanted a refund, and they did, we had zero effectively in the bank, and we can never be in that position again. We’re gonna 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 did 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, you know, better than it 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 to leverage ratio of two times. And and so right now, we’re, you know, spend using some of our free cash flow.

We’re we’re allocating it partially to share repurchases and partially to continue to pay down debt. When we get below two times, you know, we can allocate more towards to shareholders. The question about dividends to me is more a multiple question than anything else. And we’re trading at our current multiples. We’re gonna do share buybacks instead of dividends.

It’s just crazy. I think we’re gonna have them a higher multiple. You know, I think I I think you look at this year, it’s gonna wind up being remarkable. We’ve we’ve been in a at least shallow airline industry recession. Maybe not the whole economy, but we have been in airlines.

And and we’re gonna have Newark, happen this year. And, like, I’ll put that aside. Like, we’re like, literally, we got on our last earnings call, and if demand stayed stable, we were gonna grow earnings in a recessionary environment at United, and we’re trading at, what, even now? Six or seven times earnings? I mean, it’s crazy.

And I don’t think that’s gonna let 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 gonna be pushing for share repurchases. I’m pretty sure the board supports that. So dividends don’t come to where I have a meaningful higher multiple, I don’t think.

David Vernon, Analyst, Bernstein: And and in your discussions with the board, is there you know, you mentioned having more cash. But if you think about the level of leverage, right, one of your one of your peers is working towards, you know, getting to, like, one time set to EBITDA. Like, how do you think about target leverage in a post COVID kind of role? If there’s a way to

Scott Kirby, CEO, United Airlines: think about it. Yeah. I I focus actually, to be honest with you, more on net debt because leverage ratios can swing so much on the CareCredit. Denominator or or yeah. The denominator.

And and so I I I focus a little bit more on the net debt. We get it two times. That seems like a pretty good target. I think most, you know, investment grade related companies are are in that area. Seems like a good area.

But when we get there, we can also reevaluate if we should get to get lower. But, again, in a world where we’re trading at, you know, seven times less, you know, earnings, like, if we get there for 15 times and we get to two, a lot easier to rationalize going to one than if you’re seven.

David Vernon, Analyst, Bernstein: Okay. And, you know, in response to the your commentary before about the supply chain being kinda broken. Right? Boeing, the CEO, was here in a did a fireside chat earlier today. I was talking about actually things getting fire,

Scott Kirby, CEO, United Airlines: by the way. What’s that? Where’s the fire?

David Vernon, Analyst, Bernstein: I don’t know. I tried to I tried to get them to put two, like Yeah. Folding chairs, and we can sit in the basic or the Yeah. The upfront. But so one of the things you talked about was things are getting a little bit better.

Right? And you’re telling us that everything’s kinda bad. Like, what are you seeing? Like Those are totally consistent.

Scott Kirby, CEO, United Airlines: Things are getting better at Boeing. It’s just exposing the other rocks. The other rocks in the river. Alright. Very good.

David Vernon, Analyst, Bernstein: So as we think about kinda what your goals are, right, you’ve had a tremendous first couple of years in the seat at 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 three to five year period? If you can kinda paint us a vision for what you want this thing

Scott Kirby, CEO, United Airlines: to look like for now. I want us to be the best airline in the history of aviation. The 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. That 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

David Vernon, Analyst, Bernstein: you need to do that you’re not doing today in terms of running an airline around that loyalty proposition? Like, where do you wanna invest outside of going to Newkirk, going to Marrakesh?

Scott Kirby, CEO, United Airlines: It’s it’s the it’s doing all those things plus. I mean, I I think a lot of things I talked about today, like having the technology, using technology, changing our processes, changing our mentality, our culture to be open, transparent with customers, to, you know, focus on the places where instead of, like, just saying, oh, we’re really good at not at 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 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 these change the unchangeable, and the whole team, actually, they come to my house. But so we’re, like, not in the office. It’s like a resort. But Yeah.

It’s nice. But we they come to the house, and and we spend a day, you know, the whole team, like, not looking at what’s going on on a day to day basis. Like, where are we you know, here are these change, unchangeable projects. Some of them are one year, some of are three years, some of them are five 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, you know, it makes a difference. And we’re gonna get stuff done that no other airline in the world has even contemplated doing that we’re working on right now.

David Vernon, Analyst, Bernstein: And does that include sort of working on adjacencies, like, around the travel travel sort

Scott Kirby, CEO, United Airlines: of experience? Or I I think as we get more I I think the I think creating the brand loyal program that people love is the platform to do other things. 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 is more expensive. That doesn’t mean buying anything.

But, like, having the partnership making a investment. Partnerships that make it the loyalty program that is a must have, you know, like, the must have loyalty program that people aspire and want to be in.

David Vernon, Analyst, Bernstein: And does that and does that when you think about that loyalty program, is it the united program? Is it Star Alliance? Is it or one a component of the other? Like, how do

Scott Kirby, CEO, United Airlines: you I don’t know how you know, it it certainly starts as United. It starts as United, and see where it goes from there.

David Vernon, Analyst, Bernstein: Alright. Well, we’re coming up here to the end of the the hour. So I wanna maybe give you an opportunity to think about your vision for the company being the best airline. What is what is is that gonna mean from an investor standpoint? Investors have traditionally looked at this sector and said, early cycle to pay and late cycle to pay.

Scott Kirby, CEO, United Airlines: I think it’s gonna be good for investors. Of course. I think that. But but I think it’s gonna do and I think we’re proving that this year is, you know, we’re gonna always we’re in a cyclical industry. We are cyclical.

But the downside 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. You know, we’re gonna maybe even be able to grow earnings this year, even with that and even with what happened at Newark. Like, you know, we’re in a much different place. We’re gonna have we’re gonna have earnings resiliency in a down cycle.

And this winning customers has been working is working. Like, it’s remarkable to see how United is performing in absolute or relative to to others. And we’re gonna keep doing that. And so I think our margins are gonna grow. I think we’re gonna settle somewhere in the mid teens margins, I guess, 13 or 14%.

That’s gonna kinda be our normal pretax earnings margin. That’s what I think. Have proof of that. But I think the the things that we’re gonna do are gonna lead us to that point, and we’re gonna be able to be resilient even in a down cycle. I think that is gonna 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.

So I think you’re gonna get both of those things as an investor. The strategy that we have it’s not a new strategy. Like, we’re not not we’re not asking if you’re 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 gonna keep doing what we’ve been doing.

It’s working, and we’re gonna stick to it. We’re gonna keep doing it. It’s been working. It’s gonna keep working.

David Vernon, Analyst, Bernstein: Alright. Well, I, wanna thank you again for coming out. I learned more in these sessions than I probably learned.

Scott Kirby, CEO, United Airlines: Well, I It’s nice about it. I don’t if it’s true or not, but nice to you

David Vernon, Analyst, Bernstein: to say. It’s a wonderful time to have you here, and, we’re very, pleased you came out to support the conference.

Scott Kirby, CEO, United Airlines: You.

David Vernon, Analyst, Bernstein: Thank you everyone for joining us for the fireside, and enjoy the rest of your time.

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