All right. Good morning and welcome to day two, session four, Barclays Industrial Select Conference. I'm Brandon Oglenski, Airline and Transport Analyst, and very excited to be hosting United Airlines next. Right off the President of United. Before we get started, do the ARS questions really quick. Question number one. Pick up the keypad here. Do you currently own United? Mike, sorry. We'll get you a keypad next time. Press overweight two, marketplace three, underweight four, no. My answer is. I think we know the answer. Oh. All right. Some potential owners in the room. Question number two. What's the general bias towards United right now? Positive, negative, or neutral? Okay. Neutral. Then, question number three. In your opinion, through cycle EPS. I thought that was positive. We should go back to that. Through cycle EPS growth for United will be above peers, in line with peers, or below peers? Thank you all for participating. We do distribute this data after the. All right. Well, Mike, thank you so much for joining us. How is that consistent? There was 62% above peers, but 60% of the audience doesn't own our stock. Does EPS growth not matter anymore? Well, Mike, thank you again for coming down. Obviously airlines do have pretty low valuations here if you believe the guidance of United and others. I think not that investors don't like the sector, but just skeptical that cyclical earnings power, you know, won't go back down very quickly. You guys have laid out a pretty aggressive plan, very attractive guidance this year, $10-$12 in EPS, you know, versus a roughly $50 stock price. How can you help us, you know, what's different about this industry? Your CEO, Scott Kirby, has talked a lot about real constraints on pilot availability and infrastructure. Can you just talk to the outlook here? Yeah. Thanks Brandon. You know, I have spent 18 years as an investor before joining United, covering the airline sector, and I spent another five now at United. 23 years following in some way, shape, or form the airline sector. We have never had a better setup. The setup we have over the next three to five years is better than anything I've ever seen in my career. There are a number of reasons for that. If you think about the airline industry post, you know, deregulation, what we were always doing is we're just chasing each other to commoditize the business, to add more seats to the same aircraft, and to lower prices. That's all we did to compete. Because of the way pattern bargaining works, because of the way that seniority in the labor force works, the established players had higher costs than the new entrants. The new entrants always said, "Geez, it's our job to grow, grow because we're cheaper and this is a commodity industry, and we're low on the cost curve." Frankly, that's what commodity businesses are supposed to do, but we're not a commodity business anymore. We're decommoditizing the business." You layer on top of that flattening of the cost curve, and maybe we'll get into that with some questions. Big flattening of the cost curve, where now the incremental capacity coming from legacy carriers is gonna be similar cost or lower cost than incremental capacity coming from the ultra-low-cost carriers. Almost need to change their name because it's a new paradigm. You layer on top of that significant supply constraints that nobody controls. Whether that be pilot shortage. For those of you in the room that aren't familiar with how pilot training works, you get 250 hours training at a pilot academy, but before you can fly commercially, you have to have 1,500 hours of experience. There are not a lot of productive activities in the world to go from 250 hours to 1,500 hours. If you're wealthy and you can buy your own Cessna, you can fly around and get those hours. A lot of people can't, and there's no quick fix for that. means the industry is gonna be chronically undersupplied pilots for three to five years, which means there's no carrier out there, whether it's a regional carrier, a LCC, or a ULCC, that can attract pilots unless you wanna pay the going rate for pilots. What used to be a pretty steep AB pay scale is now gonna be very flat. And you can't get enough of them. OEMs, you know, there's supply chain issues across the economy, but nowhere is it worse than in aerospace. The production in narrow-body aircraft, the availability of spare parts, is completely constrained. The skyline for Boeing and Airbus for their narrow-bodies has never been stretched further to the right, for those of you aerospace analysts in the room. You know, you've got to wait till very late this decade if you want to get an additional narrow-body. The narrow-bodies you have on order, oh, by the way, they're coming late. You've got a real constraint there. Then you have a real constraint also with air traffic control. We've under invested in this country in the systems to manage this airspace has never been more congested. When you see a weather event happen somewhere on the East Coast, it kind of screws the whole system up for not just that, for that not that just that day, but sometimes multiple days. We've seen it in Denver a number of times this year. You put all that together, and there are aspirations for the industry to grow quite a bit, because there's tremendous demand for air travel. We won't be able to grow as much as everyone thinks. That, that constraint is gonna be, I think, a relatively, you know, it'll be a relatively healthy setup for the industry, number one. Number two, on the demand front, demand for air travel has never been stronger, particularly from the white-collar workers in the big cities that United disproportionately is exposed to. 'Cause those customers now, and I think permanently, and it'd be interesting to have that as a poll question, have remote work. Very few folks are going back to the office Monday through Friday. Maybe it's Tuesday through Thursday, but not Monday through Friday. Which means there's a much greater propensity to say, "Hey, I'm going to, you know, I'm going to Breckenridge for a two or three-day weekend," in the past, now you're going to stay there for four or five days. You are going to work, but you're going to be working remotely. I know I do it. I know many of my friends do it in the finance industry. I don't think that is, you know, if you're a player in the industry, people are saying, "Well, no, well, that's just pent-up travel demand because we didn't get to travel for a while," or, "It's revenge travel." It's not. It's the new normal unless there's a backlash, we all decide we need to get back in the office. I know from my teams that I manage at United, we're pretty damn productive, remotely. You know, we've gotta figure out how to train younger folks coming up through the organization, and so that is something we all need to solve for, but the net gain in productivity we get from being able to work remote is too big to give up. You've got tremendous demand that is gonna exceed 2019 levels, and I think as a ratio of GDP is gonna be higher than that 2019 ratio permanently. You've got constrained supply, and you've got a cost curve that used to be pretty steep between the low-cost carriers and legacy carriers that has flattened out. You put those three things together, it is a great time to own an airline, a legacy carrier in particular. United has invested uniquely more than anyone else for this combination. It's a great setup for the sector. I'm staring at my team, half of them go to Breckenridge every other week, so. Yeah. Breck's your favorite mountain? Can you talk about some of these capacity constraints, obviously for the industry, but what United has done specifically to address them? Pilot shortage, number one. Three years ago, we invested in Aviate Academy in Phoenix so that we have our own training academy that we're going to continue to grow. I I think eventually we'll be able to get that to 1,000 pilots a year of throughput. A serious investment there. We've got a couple of other airlines that have had pilot academies in a small way, but I think that is going to be a leading training academy. We've set up partnerships with an ecosystem of players that will help train those pilots to get them to the regional carriers that we utilize and eventually to the mainline. We saw this pilot shortage coming, and we prepared for it. Now that it's upon us, maybe we could have even done more, but we are definitely a couple steps ahead of the competition on pilots. We shut down the airline just as fast as anyone. In fact, when the pandemic started to hit in China and in Italy, we kind of pulled an all-hands team together and said, "Geez, this is gonna be really bad for an extended period of time." We shut down very rapidly. Three months after that, we huddled up and said, "Well, what's travel gonna look like on the other side?" The consensus was that it was gonna be really robust. This wasn't gonna be a permanent change to people's desire to travel. I think that was pretty unique among the airlines. Because of that view, we did not permanently retire aircraft, whereas every major carrier around the world did. We have those aircraft. We maintained those aircraft. It cost some money to maintain them through the crisis, but now we have them to fly today. We supercharged it by placing a large narrow-body order and a large wide-body order so that we could spring load that growth on the other side. We've been preparing pilots, we've been maintaining aircraft, we've been, you know, ordering new aircraft because we saw this very strong setup coming. What about on the infrastructure side, things like ATP? That's more of an industry challenge. How do you navigate that? You have to create some extra buffers. We talk about extra buffers. These extra buffers cost a couple of% of CASM, not a huge expense. You have to create extra buffers so that your crews have extra reserve time to fly if there's irregular operations. You need to make sure you have a few extra pilots versus what you could do if you wanted to run absolute maximum utilization. You need to make sure you have some spare aircraft. You need to fly aircraft in a hub-and-spoke system where you do point, where you do back and forth, so that you don't disrupt the entire network by daisy-chaining the aircraft around the country. You build, you need to build, technology systems that allow you to reposition the crews where you need them in real time and make that very dynamic. United has uniquely invested in preparation for that. I think that, you know, there are some carriers out there talking about how we're gonna get back to 2019 utilization, and we're gonna remove all these buffers because our job is to be the lowest cost carrier out there. If the world turns out to be that way, we'll follow them pretty quickly. It'll take three months to make some adjustments, and we'll get some extra capacity out of our system. I don't think that's true. I think you need to calibrate the airline the way that we have. We came to that realization pretty quickly. I think that some of our competitors are getting there, but it's gonna take them another quarter or two and another big weather event or two for them to say, "Wait a second. This is the right approach." I wanna come back to service. You know, touching on pilots, I'm not sure if you have a tentative agreement yet with your union. Where's that process stand? Maybe more broadly, labor inflation this year, I know it's, I believe, in your full year CASM outlook. Is that correct? It is. I think there was various guidance practices among the among the legacy carriers at least. The approach we took is we just put our full expectation in the full year number. It's not in our Q1 guidance, but we expect to get it true up in Q2. That would make it, that gives you the full year run rate in our 2023 guide. This is pattern bargaining. We love our pilots. We wanna make sure our pilots and all of our employees, frankly, are the best paid in the industry. And they'll end up being the best paid in the industry. It's a pattern bargain. Once, you know, Delta's deal gets done, I think that increases the likelihood that ours gets done relatively quickly. It's for the pilots to decide. We've got a good leadership team there. The key is that because of the scarcity, the wages for pilots are gonna be flatter than it used to be. That's a healthy dynamic. We should have very well, highly compensated pilots, and that compensation should be similar whether you're at United, American, Delta, or one of the smaller carriers. You know, you hit on something about this is not a commodity product anymore. How important is employee culture at the company to driving that outcome? It's tremendous. I mean, just attracting talent. You wanna be proud of the company you're working for, so you think about, frankly, what some of the things that my team has done, doing around United Airlines Ventures. You need to be an innovative leading company doing the right thing for the environment, the right thing societal, to get potential employees excited to come work at your airline. United has done a heck of a lot in that respect. Oscar, our previous CEO, did a ton to repair the culture and the morale among employees, and Scott has taken that baton. You know, I don't know how many times I get on a flight, and the flight attendants are talking about how amazing, you know, what we did with some sustainable aviation fuel project or, you know, tell me about what's happening with eVTOL. The pilots come out and talk about it. It is just, it is exciting to be working for a company that is leading the way, that is innovating, and that culture has done a 180-degree shift at United over the last five years. Yeah. Well, I definitely wanna talk about United Ventures. Maybe before that, you know, you hit on service reliability. We've seen some of your competitors facing challenges day in, day out here with weather that is pretty much usual in the wintertime. What's United doing differently? 'Cause we are seeing definitely differentiation. Well, this goes back to the buffers I was talking about. You don't have to have big buffers that are super expensive, but you need to be prepared or making excuse that, oh, there was a storm that hit, and then three days later you're still recovering. That's not acceptable. You need to build a system that has some resiliency. It's really critical. I mean, also it talks to the frequency. If you're a big carrier, you have multiple frequencies day and week, and so if there is a cancellation, you can reaccommodate your customers and not two weeks later. I think that's really important. When you talk about a decommoditized product, you know, yeah, first having a first-class cabin. Absolutely. The clubs that we have. Absolutely. The app that we have. Absolutely. The customer service you receive. Absolutely. Also, how about the ability to recover when bad weather hits? Yeah, maybe the airport is shut down on Tuesday, but we can get you out Wednesday, not next Tuesday. Doesn't cancel your whole trip. I think that all of those elements are important. I'm a, I'm a math geek, so I will say that as you, and I would encourage everyone in the audience to go out because I think operations is gonna be a leading indicator of how our stocks perform, for precisely the point you make, Brandon. You should go out and look at cancellation rates. Don't just look at cancellation rates for the mainline. Sometimes we send out some stats and we're like, "Oh, Frontier, Southwest, they canceled all these flights versus United," but we are pulling down our regional carrier to make room for the mainline aircraft to fly. What you need to do is you need to adjust it on a per seat basis 'cause it's your average customer. Look at a weather event in Denver and look at what United does for the average customer. How many seats were canceled versus how many seats are canceled as a proportion of what Southwest flies or Frontier flies. That is gonna show a, I think a growing competitive gap that says if you're a customer in Denver, you should be flying on United. If you care about, if you care about being able to get where you wanna go, even when the weather's not perfect. All right, I wanna talk about capital too, and the order book. If I can, you know, how are booking trends right now in the first quarter? You guys give pretty robust revenue guidance this year too. What's driving the confidence there? The bookings have never been stronger. The travel pattern is changing because of these four-day weekends. January and February were a little bit soft. We expected them to be a little bit soft, just like December, because around the holidays, this is our thesis. Around the holidays, Thanksgiving and Christmas and the New Year's holiday, customers are saying, "Well, geez, I already took a trip or two. Maybe I don't need that four-day weekend." You don't see that extra travel demand that exists the rest of the year. October was gangbusters for the airline industry. You saw that slow down November, December, January. I think that the Street, and that's why our stocks are where they are. I think the Street said, "Oh, geez, okay, revenge travel is over. Man, this softens." I've gotta tell you, March bookings are back to October level and exceeding. In fact, if you look at the tail end of 2022, you were looking at business demand that was about 80% recovered to 2019 levels. We're now at 97% recovery over the last three weeks. 97% recovery for business. That extra gap that we were like, "Well, maybe it's." You know, bears would say, "Well, like, maybe Zoom travel. Maybe Zoom and Teams means that 80% is what you can get." Oh, look what's happening to the tech industry. Despite all of that, we're now at 97%. Even more critical than that is the leisure travel. You know, s ome of this leisure travel, it's hard to say is what. This, you know, we can see through distribution channels. For leisure, that I think includes some of that business, we're at 130%+. March has some of the best-looking trends we've seen. You know, as you get beyond March, we have some data, and that data looks very consistent with what you see for March. For anybody that was looking at the ARC data and said, "Geez, look at this slowdown in December, January. Maybe this is time to lighten up." Maybe that's why in the survey we had a few people not owning our stock. Look at the data. The data is really robust. Okay. You know, any differentiation here on the international? We'll get into that with the fleet strategy. You guys kinda staying alone there with not parking planes. Well, it's I think it's special when it goes to trying to look to where the puck is going and to skate there ahead of the crowd. During the pandemic, in the North Atlantic in particular, there were a lot of aircraft that were parked that can't come back. We didn't do that. We kind of spring-loaded to the number one carrier in the North Atlantic, and we're not looking back. Profitability in the North Atlantic has never been stronger. The demand is insatiable right now. North Atlantic feels really, really good. In fact, Pacific is recovering quite nicely with the exception of China. We've got some healthy skepticism about the pace of recovery for China. If it recovers, we'll be there and we'll be ready. United is positioned better than any other U.S. flag carrier. Travel to Japan, travel to Australia, travel to New Zealand, is now recovering in a similar fashion to what we've seen in the North Atlantic. Appreciate that. Can we queue up audience question number four? In your opinion, what should United do with excess cash, both on M&A, larger M&A, share repurchase dividends, debt pay down, or internal investment? Participating. Debt pay down. This is gonna be an interesting conversation. Can we go to question number five, please? In your opinion, on what multiple of 2023 earnings should United trade? Those are good multiples, by the way. I like those. All right. Question six. What do you see as the most significant share price headwind facing United? Core growth, margin performance, capital deployment, or execution and strategy? Margin. Okay. Question seven. Does ESG play an active role in your investment decision related to United? One, yes, positive. Two, yes, negative, or Three or Four, no. Michael, get the responses here. Can you talk about. You know, you guys do have a pretty significant order book. I think gross CapEx around $20 billion. Wow, great. We'll talk about United Ventures too in SAS. How do you justify, I guess, all the investment that this company is gonna make in the next two years? What's the priority for managing the balance sheet? I'll try to come back to that, Brandon. I wanna address the questions here because I thought they were great. We are on a path right now. We've talked about delivering $10-$12 in earnings this calendar year. We have not missed our guidance since I joined the company five years ago. There's some problems during the pandemic. We've been pretty good at making promises to the investor base and then delivering. We've now promised $10-$12 for earnings this year. Nobody seems to believe us. As we deliver on that $10-$12, if we got a multiple, it would seem like there was a plurality around 10 times. Well, 10 times the low end- Yeah. is a number that is twice where our stock is trading right now. Yeah. You don't need to be much of a mathematician to understand the opportunity here, and that is that we just continue to do what we say we can do. If we can deliver that 9% margin in 2023, and we're anywhere on that path to 14% margin in 2026, the incremental return on our aircraft greatly exceeds our cost of capital. It greatly exceeds our cost of capital. You want us to put every nickel to work, buying aircraft. To tie it into our order book, our order book is full of tremendous optionality. If we are hitting these numbers, you want us to take every aircraft that we have. If we're not hitting these numbers, we have tremendous optionality to slow that roll. We have aircraft that are getting pretty old, we can retire some aircraft. That'll be the number one lever. Yes. If we're not hitting our targets. The number two lever would be to then, after retiring some aircraft, is we can defer aircraft. We've got a great relationship with Boeing. I think there's great optionality there. On the path we're on, you're gonna want us to take every aircraft we can. Now, the balance sheet, there's lots of talk about the balance sheet, and for good reason. We've got more leverage than we did going into the pandemic. We did a pretty solid job, though, of minimizing our cash burn through the pandemic. If you look at us versus our legacy peers, we've built, you know, in one case, $3 billion less incremental debt since the pandemic than they put on their balance sheet. Number one, there's been a flipping of where United was kind of in the middle of the industry as far as their balance sheet. Now our balance sheet among legacy carriers is the best. However, we were lagging on a margin basis and a return basis going into the pandemic. You're now coming out of the pandemic. I think in the fourth quarter we were, and I think going forward, we're going to be the leading margin producer of the legacy carriers and frankly leading for the industry. Alaska beat us by a smidge. They run a great airline. You combine that balance sheet that is been relatively protected. Yes. The margins that we think we're gonna deliver we're gonna grow into our debt. The balance sheet is gonna, I think if you deliver a 9% margin and a 14% margin in 2026, that the debt that we have is quite manageable. We'll pay it down over time, but it is, but it's, but our leverage metrics will look quite attractive. Sorry, I should have said if there's any questions in the audience, raise your hand. There's one right here. We've got an amazing treasury team, run by Pam Hendry, who's been in that market for decades. When we think about EETC, we think, look at sale leasebacks, we look at other private transactions with any loans. We're out there looking for the cheapest cost of capital, quite frankly. There are times in the majority of the history. By the way, Gerry Laderman, our CFO, he invented EETC, so we're very familiar with that market. Many times the EETC is the cheapest form of finance in aircraft. There are times when aircraft lessors offer us a better, a better rate, and there are times when banks offer us a better rate. There are times when Japanese operating leases offer a better rate. We're gonna go out there. We have the order book. There are aircraft. They're priced well. We'll go out in there and constantly say, "Okay, well, for this transaction, where can we shave 10 basis points off of our cost of capital?" Am I confident? Boeing has been really slow to deliver planes. Has Airbus, by the way. It's not unique to Boeing. There's a lot of supply constraints. They're getting better. Over time, they're getting better. I don't think it's gonna get fixed overnight. As we look at the contracted deliveries we have for 23, we don't expect to get all of the deliveries that we have contracted. Some of those will lag into 24, and that daisy chain will probably continue with some lags. They are getting better. The worst of the constraints are past us, we believe, and they're starting to catch up. It's gonna be a multi-year process to get all the way caught up. Mike. Thank you. We're almost done here, United Ventures, what's most exciting right now? sustainable aviation fuel. You guys are making investments with, battery technology, eVTOLs. Tell me what's most exciting? Thanks. For those of you on Instagram that don't know, about two years ago, we launched a corporate venture capital team at United Airlines. It's about driving innovation into this sector. It's about getting, making sure that United is the first to bring eVTOL. Our customers in Chicago, New York, San Francisco, L.A., with battery technology, we're gonna be able to get customers to and from the inner city to our airports later this decade, really quickly, efficiently, carbon-free. It's super exciting. Many of the small cities we don't fly to today, it's because of cost. Electric fixed-wing aircraft like Heart Aerospace's ES-30 will make it a lot cheaper to fly some of these small cities around our hubs, build a better catchment area around our hubs. What we announced this week, Brandon, is really an imperative we have for the entire airline industry, and that is it is very hard to decarbonize aviation. It is energy-intensive, and jet fuel is energy-dense in a way that most fuels aren't. Yeah. We've embarked on, and we launched a venture capital fund where we're taking money from big partners, Honeywell, GE, Boeing, JPMorgan Chase, have all anchored the fund. We're gonna go out and invest in startups, $5 million-$25 million checks that are pursuing sustainable aviation fuel from various feedstocks, from Power-to-Liquids, algae-based sources. We have a municipal waste to sustainable aviation fuel. All of this is the way we decarbonize the business. United's in the lead. We're not competing on sustainability, we're hoping that many, many airlines around the world will join us. You'll see more headlines around this in the weeks and months to come. We're just getting started. Mike, unfortunately, we're out of time, but thank you so much for coming. This was a great chat. Thanks, Brandon. Good to see you. Thanks, guys.