Great. Let's kick off the airlines content for today. Next up is United Airlines, and we have with us Mike Leskinen, who is the President of United Ventures. Mike, thanks so much for joining us. Yeah, Ravi, thanks for, thanks for having me. This is my favorite conference of the year. I love the... I, I love coming out here. I think this is the tenth time I've been out, maybe fourth time as a corporate, not an investor. Nice to see you. I love it, appreciate the endorsement. Maybe a good place to start would just be kind of what you're seeing out there. Obviously, a lot of focus on demand trends. We got some updates from some of the ULCC peers this morning, which were interesting. Would love to see what you're seeing out there, both domestic and international demand. Yeah, let me come to answer that, but I'm gonna say a couple of opening remarks because my frustration, having been an investor in this space and now an executive in the on the corporate side, is we get too short-termist in the sector. And I know it's easy to say as a corporate and a lot harder to effectuate as an investor because you all get measured by your P&L mark to market each day. Mm-hmm. But if you go back to 2019, and you look at the margin of each of the players in this industry- Mm-hmm. - and the ULCCs and the LCCs with margins that were 2x and 3x the margin of the legacy carriers. Yep. United really in the back of the pack among the legacy carriers. And then you fast-forward to today, and you see the margins of the legacy carriers, United, kind of the top of the pack with Delta, and the margins of the ULCCs, and you look at the updates we saw today, which makes today... This is why I want to open with this, so consequential, and you look at the margin guidance for the third quarter from the ULCC and LCC models, you've seen a complete inversion- Yep ... of the industry structure. And I think we need to step back and say, "Why is that?" And I would argue that a lot of that has to do with what United Next is all about, and that is us focusing on the high ground where we have competitive advantage, whether that's segmenting the cabin, driving business through our direct channels, driving our costs down by adding connectivity in our hubs and upgauging aircraft rather than adding frequency- Mm-hmm ... et cetera. But really have gone from... And And United also within legacies, you know, really getting to the top. Yep. This is just a fundamental change. Back then, the ULCCs would trade at 2x the multiple of the legacy carriers, and frankly, if one believed that margin profile was sustainable, that was right. Not only should they trade at a premium multiple, but they should have the right to grow. Yep. So what has changed? I think what has changed is we're not spilling traffic. We're not trying to add new points to the map. We're flying where we have customers today, where we know demand exists, where we can provide a superior product. Mm-hmm ... because of the way we run our business. Air traffic control is gonna be a constraint, the OEMs is gonna—are gonna be a constraint, pilots are gonna be a constraint. There are all of these constraints that the whole industry faces. Those have all contributed to this flipping of the industry dynamic around margin. But I think that, and then, and I will talk about international- Yep ... and domestic. But I think when you set up, when you think about being an investor in the space, you need to think about that dynamic and what that means for the sustainability of these returns, and, and then think about if this multiple is attractive or not. Now, international versus domestic. Look, we just updated our guidance last week. Yep. Fuel has moved, and we were very clear we're not raising revenue guidance, so the correlation lag, we're not arguing for that right now. You need to adjust your numbers for higher fuel- Mm-hmm ... bring EPS down. But we reiterated our guidance for revenue because we aren't seeing a deterioration in the aggregate. Maybe that was overoptimism from others- Mm-hmm ... or maybe there is some divergence, not just international versus domestic. I will say domestic is a little tougher than international. Mm-hmm. But we knew that going into the quarter. There's no new news. And so the question is, Is there some divergence within domestic that is causing the different outcomes? And I would say that, you know, if you are growing into new markets, putting new dots on the map domestically, the revenue degradation you get from that versus the type of growth that United is leading is very different. And so, I'm here to say that macroeconomy is gonna ebb and flow. There is more concern about recession today than there was three months ago, so this is not me head in the sand saying everything is roses, but we are gonna deliver on the third quarter as we thought we were gonna deliver, and it will ebb and flow. We aren't passing through higher prices from fuel immediately. We normally don't get an immediate reaction. Yep. But it is clear that for those carriers that are growing dots on the map, that something is happening that is much worse for them. Got it. So, just to emphasize that point, you don't think it is a, they are the canary in the coal mine, they're seeing it before everybody else. You think it is something specific to their business model? Or obviously, I'm not asking you to answer for them, but- Mm-hmm You think it is not something that's spilling over to you? I'm not gonna answer for them. Yep. I will say that the neighborhood we live in matters. Yep. We have a lot of exposure to the domestic market, so there ends up being excess supply in the domestic market that will impact yields for everyone. Yep. ... but just look at the updates for the third quarter. Look at the results for the second quarter. Don't take my word for it, and say, "How much has each carrier changed, their revenue expectation? Mm-hmm. I think that that tells you, and we can debate what it is, but I think that tells you that there is a very different magnitude of impact on those carriers that are running point-to-point networks and that are trying to grow the map. Got it. What are you looking for, kind of some of the data points, some of the internal data you have, to kind of tell you whether there is incremental deterioration in domestic demand or not? We follow bookings every day. We have a worm chart. We We have worm chart by market that we examine in detail every day, and as a leadership team, we look at once a week. You know, they're broadly tracking- Mm. Broadly tracking what we expected. We do try to be very disciplined when we set guidance, to set it in a way that, you know, we're not always gonna have blue sky days, and so we wanna make sure we give ourselves a little bit of room, put some contingency in there, and that practice hasn't changed. Mm-hmm. I like to be able to announce towards the end of the quarter that we're doing a little bit better. Sure. We aren't announcing that. We didn't announce that last week. Mm. Results are very solid. Yep. And we've got nice double-digit margins, and I think we're on our way to higher margins as we execute the United Next strategy through 2026. And it's... And the key here is the strategy is working, and the resounding evidence of that is the relative margin profile of the industry. Got it. So as you look ahead to the holiday season and kind of, you know, how far your booking curve reliably goes right now, is it consistent with seasonality? Is it better? Is it worse? Kind of what is that booking curve telling you? And also, there's been some speculation about whether the pendulum, which probably swung a little far towards international over the summer, may start to swing back towards domestic. Is there any sign of that? Seasonal booking curve is following the pattern one would expect. Yep. There's no evidence of some acceleration in strength, though I don't wanna give any messaging of that. Mm-hmm. Down the fairway. Yep. We aren't seeing fuel being passed through as quickly- Mm-hmm ... as we have in prior quarters. Mm-hmm. I would be a little cautious about how much. If I have a model that, you know, I've preached to many of you, that when you see fuel move up, you gotta move revenue up- Yep ... I'd be a little cautious about that, but I'm not seeing any deterioration in demand. I'm sorry, what was the second question? Whether the pendulum between domestic and international is kind of swinging back towards domestic. I don't think so. The constraints in structure of the international lanes just feels a bit healthier. Mm-hmm. And the domestic market. Listen, the domestic market doesn't seem like a demand problem. It seems like, if there's anything, there's a supply problem for certain lanes. Yep. So international feels really good. Latin America's maybe a little bit tougher than Atlantic. Atlantic was really robust this summer. We took advantage of that. I think that we'll see continued strength into next year. I wouldn't expect another step up, but I think we'll see continued strength. The Pacific is really, really robust. We're starting to see volume into China grow a little bit. I think it's gonna grow in a very measured way, and that should accrue to our benefit, as we have some disproportionate exposure there. But international feels strong and has stability. Domestic does feel a little bit softer. Mm-hmm. But that's not new news. Right. When you think of the fuel pass-through, again, does that happen on a more of a lag than you thought, or do you think it just doesn't get that level, or both? Look, the fuel pass-through. We talk about the correlation between fuel and yield, and it's not causal. Mm. It's correlated, and it's correlated because, as fuel prices rise, there are certain routes that might not make sense- Yep ... and that capacity is then reduced, and then, you know, Econ 101, yields start to rise, and that usually lags, you know, one month-three months or something like that. Mm-hmm. Right now, there have been, lots of other constraints to capacity- Mm ... whether that be pilots or aircraft or air traffic control, et cetera, et cetera. So, right now we aren't seeing as speedy a fuel pass-through. Got it. Just last question on this topic. Kind of everything you're seeing right now, like, did a switch get thrown after Labor Day, or is this something that has consistently trended through the summer? We have not seen any dramatic change in the bookings. Okay. Got it. So it is. We're scratching our heads. We have seen all the reports that came out today, understand the consequences of coming on stage with what's going on in the industry. And I, you know, woke up at 4:00 A.M., reading all the 8-Ks. The magnitude of what we have seen from peers was as shocking to us as it was to all of you. Sounds good. Maybe kind of switch to United Next. Obviously, when you gave us United Next going out through 2026 in 2021, everybody was like, "Revise your view. That's kind of shocking." But you guys- Isn't that, isn't that how you'd like to see us run our business? Well, I do. I don't know if everybody else out there does, but I think it's the right approach. But you guys have done phenomenally well for the first half, until you get to your 2023 waypoint so far. Mm-hmm. Now you enter maybe phase two of United Next, if you will, maybe carried some of the capacity growth risks that maybe some people had. I wanted to expand on your opening comments a little bit more about the differences between United Next and what you guys are doing with upgauging in your new aircraft relative to what some of your kind of low-cost peers might be doing with putting new points on the map in terms of capacity growth. You're right, that it was a return to 2019 levels, and now it is growth above 2019 levels. I'd say the economy is 20% larger. Mm-hmm. So there's a lot of room, number one. But number two, and I think this is lost, and I actually don't think this is gonna be a big phenomenon in 2024, but in 2025 and 2026, it's a tremendous phenomena, is the, is the upgauging. Yep. The gauge growth really kicks in for us in 2025 and 2026, and the MAX 10 being an important component of that, the 321s being another important component of that. That is going to be very powerful- Mm-hmm ... for United's margin, and so we have that goodness to come. Mm-hmm. I guess I've been talking in a bunch of one-on-ones, so, but the domestic growth that we have is not about adding new points on the map. It's about adding connectivity to cities we already have, to customers we already have, and so we have much more visibility and confidence that as we grow in that way, it's accretive to our margin, not dilutive to our margin. Mm-hmm. It is one of the great strengths of a hub-and-spoke model versus a point-to-point model. But are you concerned that with the others adding more... It's not just the guys who are adding more points, right? There are also other low, lower-cost carriers who are adding—who are also doing their own upgauging growth, who are adding new aircraft on existing routes. Do you feel there's a risk to the 2026 United Next targets if there's too much capacity on the domestic side? The neighborhood we live in matters, so I'm not gonna sit here and put my head in the sand and say the neighborhood doesn't matter. Yep. But you have to, again, I'm gonna go back to the opening remarks, look at the relative margin in the industry. Yep. This is not an industry where it's everybody's on the same level and saying, "Wow, this is disruptive. We're all destroying economic value." This is an area where our margins are double digits expanding to mid-teens. Mm-hmm. Right now, other carriers have margins that are quite negative. Mm-hmm. and that is because we have cabins that we can segment. We have distribution that is increasingly direct. We have recoverability. We all have weather. Newark, in particular, has a very tough air traffic control, but we've built a system that's robust, and so when those events happen, we can recover faster. Mm-hmm. We have customers that are super engaged in our loyalty program. Mm-hmm. Increasingly, increasing revenue stream that is not cyclical, like the underlying airline, and we have a cost profile that, geez, it took decades for this to occur, but we have a cost profile that now has converged as an industry. Right. It used to be that, if the LCCs were growing so much faster, there's a seniority effect. But if we grow as well, we can match that, seniority effect, number one, but number two, and maybe even more critically, pilots are now gonna have broad wage convergence. The same for flight attendants, and most of our labor groups, for that matter, and nobody can buy an aircraft more cost-effectively than United. And so our cost of, aircraft is gonna be, very effective. Fuel prices are what they are. And so if you add all that up, that incremental capacity, we can grow as cheaply as anyone else- Mm-hmm ... and we can drive more revenue and more premium revenue out of that same tube. That's a very strong setup. It is a nice competitive moat, and it is a setup that I think we'll see increasingly sustainable margins and returns out of United Airlines. And I think our other legacy carriers, peers, will benefit from some of those same trends. But it's a, it's a very nice setup, and our stock certainly isn't valued that way today, and I don't expect that to change overnight. I think you need to see us put up results, and we have been for some time now. The pandemic interrupted it- Mm-hmm ... but we need to tell you what our plan is, and we need to deliver quarter after quarter after quarter. As we do that, the investment world will start to recognize it, and we'll create more value. Got it. I'm gonna turn to cost in a second. Before that, I want to spend some time on international because I think you were the first airline to come out of the pandemic saying that you were more bullish international, international margins than domestic, which was, again, pretty radical at the time, but kind of turned out to be pretty prescient. In... at the end of summer last year, you kind of told us that you thought summer 2023 would be 10% higher than summer 2022, and I think it was even bigger than that. Do you have a sense of what summer 2024 looks like transatlantic versus summer 2023, i.e., do you expect the momentum to continue? Hmm. Second, any thoughts on Asia? I think historically, you've been the only airline that's been slightly profitable going to China. Any sign of that reopening next year? It's a nice way to ask for 2024 guidance before we're ready to give it. Me? No, no. No. Look, I'll engage it a little bit. As you've seen the world reopen post-pandemic, you've seen these spurts of growth to get back to a level of demand commensurate with the GDP between those regions, right? And so we've seen it, you know, domestic open first and LatAm, near LatAm open second, then Atlantic open, Pacific open, now China's opening, right? And so if you got that right, you timed that right, you had these moments in time, opportunity where you could make some disproportionate gains- Yep ... as an airline. I think United has done that. Our network team has been exceptional- Mm ... in making those calls and making them. It's not about. It's just like trading a stock. I mean, it's not about if you're early, you're wrong, Right. Getting that timing right, and we've got that timing right. I think that the step function increase in Atlantic demand has happened.... mm-hmm, and I think you revert now to trend line growth. Mm-hmm. Which is some skinny multiplier over GDP growth between the regions. Sure. So I think you revert to that level. I think the Pacific has a little bit more opportunity, but by and large, the Pacific also has had that step function improvement, with the exception of China, and I think the China bilateral agreement will open in a, at a moderate pace, and I think that's what is the right pace for both of our economies. Do you think it can be profitable when you guys... I mean, I know you've already ramped up your flights, but- We have, we have an incredible franchise business in China, and we are excited about a gradual reopening. I'll take that as a maybe. Moving to the cost side, obviously, we had the pilot agreements, and, and kind of like you said, there seems to be gradual convergence there. Do you feel like you have a real handle or real visibility on, on CASM-ex, as you look forward in 2024? We are in budget processes now, early stage. There are a lot of inflationary headwinds that we face, labor being a big one. We have a good handle, I think, on the magnitude of the labor headwind. Mm-hmm. We are, quantifying some of the other headwinds. We certainly are gonna work very, very hard to get our CASM, flat. Mm-hmm. The key is our relative CASM to the rest of the industry. Mm-hmm. But I won't share that with you today. I will share that with you when we traditionally would, most likely on our first quarter call. Got it. So if macro doesn't materially change from here, right? I think you're saying you're targeting CASM ex flat for next year. Let's say macro doesn't materially change, so demand doesn't materially change. Ultimately, it comes down to what RASM, TRASM does next year, which again, like you said, is a function of the neighborhood you live in, right? So is that ultimately what you're looking at to see if your peers kind of are more rational on capacity to determine what EPS looks like for 2024? You keep trying to back me into a corner on 2024 guidance. I'm not asking for numbers. I'm asking for trend line. Look, the RASM or TRASM result we put out is not simply a function of industry capacity. Yep. We have proven that. We have outperformed on our TRASM for, I don't know, eight or 10 quarters in a row now. We're doing that because we are growing from areas of strength. We're growing in a segmented way. We're growing our premium offering. We are increasingly an airline that people choose to fly. If a carrier is charging $200 but has $100 in ancillaries, people or consumers are starting to understand that. Yep. And so I think there's a clear preference, and we didn't realize that when we were spilling traffic- Mm ... to some of those other, competitors. So I think that, to say that the industry doesn't matter at all would be wrong. The industry does matter, the neighborhood matters, and we have a domestic exposure, and if that market is tough, it will impact us. I think we will continue to outperform. Mm-hmm. I think we'll outperform the industry on both revenue, unit revenue, and I think we will outperform the industry on unit costs, and you continue to see our, margins that are at the industry-leading level. And I think that that is the strongest evidence that our strategy is working, and, and you should spend some time looking at our, our shares at, at the 4x earnings. I hear you. I will buy on the stock. Any questions from the audience? It's a big crowd, but it's quiet. Maybe kind of moving on a little bit to other topics. You're not just IR, you're also President of United Ventures. I know it's probably... Is it hard to focus on some of the kind of longer-term initiatives, whether it's eVTOL or SAF in this environment? Or again, it's easier than it was during the pandemic, but can you give us an update on kind of what United's doing on some of those other initiatives, even as other things happen in the market? Yeah, it's not hard at all. It's exciting. This industry, since deregulation, has not innovated, and what Ventures is about is driving innovation into this industry. That gets our employees excited, it gets our consumers, our customers excited. It gets, I hope many of you excited. The eVTOL industry is gonna revolutionize where we live, how we commute, how we get to and from the airport. It's a question of when, not if. We are betting on two players right now, Archer and Eve, but I do expect this is like the early auto industry, and there's gonna be multiple winners. And so we wanna make sure that United is at the leading edge of that, and making sure our customers have the option, as we can make that a reality. We expect that to be later this decade. On electrification of flight. Electrification of flight doesn't work for long haul, it doesn't work for large gauge, but it does work for short haul, small gauge, regional aircraft, and we have a number of investments pursuing electrification. Electrification has a double benefit. Mm-hmm. When we get it right, it's gonna lower the maintenance cost of these aircraft, and therefore, hopefully make it profitable to fly to some more small catchment area flying around our hubs. And so we're excited about that. Heart Aerospace is a pretty incredible company out of Sweden. It's building a 30-seat ES-30 aircraft, and there's a couple other very interesting plays in that area. Our biggest recent initiative, though, is our sustainable flight fund, and I wanna talk about this. This is not about a competitive tool to try to beat up on our other airlines. This is about an industry dilemma, and that is decarbonizing what is probably the hardest industry to decarbonize in our economy. And it's the hardest industry to decarbonize because you need a fuel that is incredibly energy-dense- Yep. to fly long-haul aircraft, and kerosene is. Batteries are not. Mm. Hydrogen is not. Hydrogen is interesting, but even liquid hydrogen takes up three times the volumetric space of kerosene per unit of energy. What's more interesting about hydrogen is to compress it and liquefy it is gonna cause a lot of issues on airframes. Right. We believe Sustainable Aviation Fuel is the future. Mm-hmm. It's expensive right now. It's expensive because virtually all of the fuel out there, all the sustainable aviation fuel out there is produced in a HEFA-based process from fats, oils and greases- Yep and the french fry grease that we collect from all the McDonald's. And air travel is not correlated with french fry consumption. So there's a lot more demand for air travel than french fries, and if we collected all the feedstock, we might be able to satiate 5% of demand for sustainable aviation fuel. And so we've launched a fund, and now it's $200 million. We have other airlines that have joined us. Mm-hmm. JetBlue is an investor in the fund. Hawaiian is an investor in the fund. I think you're gonna see Air Canada is a proud investor in the fund. Boeing is a partner of ours because it's an industry problem, and we're going out and finding startups that are trying to expand the feedstock to produce sustainable aviation fuel. Think algae, think microbes that can munch on CO2 out of a company out of Houston called Cemvita Factory. Think about green hydrogen as a feedstock- Mm-hmm ... to produce sustainable aviation fuel. The goal here is not that we're gonna turn volumes on instantly, and all of a sudden, 50% of our fuel is gonna be produced in this way. But the goal is to improve the technology so that in 2040, 2045, and 2050, we do have that. So how can you create hydrogen in a way that allows you to use intermittent power? How do you create electrolyzers that are cheap enough, that don't use so much precious metals, that you can utilize them when the wind is blowing, and you can turn them off when the wind isn't blowing? Because if I'm using baseload power to produce hydrogen and then transforming that hydrogen to sustainable aviation fuel, it's gonna cost me $10 a gallon. Mm-hmm. But if I can use power when it costs me $0.02 per kWh, I can get it to $4 a gallon. And then with minor government policy support, which fossil fuel has had for 100 years- Yep ... you can get competitive with Jet A, and then you—we can travel the way we do. And it's so critical to this world that we continue to have travel the way we do, and we do it while reducing our carbon footprint, which is really important. So I think we'll have more and more airlines around the world that join us on this mission, and I think we're going about it the right way. All right. We do have a question from the audience. Yeah, we have for what, Mike? Please elaborate. Can you wait for Mike? If you could just elaborate a bit on the upgauging opportunity you touched on in 2025 and 2026. I'm curious of the relative unit economics you're seeing today between, say, the 321s or the 320s or the -10 versus -8, and how that mix shift of those fleets, what is it today, and the 2026, what will it look like? Yeah. So, that's about a 10-minute answer. But I'd be happy offline to take you through some of the fleet. But I will give you an anecdote, and that is, if you think about the incremental seats on a MAX 10 versus a 737-800, two pilots, it's gonna have about the same fuel burn, a little bit more efficient fuel burn. And all those incremental seats come at a very low, very low CASM. And so as we move from adding an incremental flight to incremental seats on the same flight, your marginal CASM is gonna be 50% or less on an upgauge approach like that. When you're growing the frequency, your incremental CASM is a lot closer to one, or you know, maybe it's 80% because you have some synergy effect. So that impact, as you move into 2025 and 2026, is gonna be a major relative CASM tailwind for United Airlines. With that, we are out of time. Mike, never a dull moment in the space. Thanks for sharing as well. Exciting sector. Yep, yep. Nice to see you, Mike. Appreciate it. Thank you.