WEBVTT - United Airlines CEO Scott Kirby Talks Airline Demand

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news head of a big

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<v Speaker 1>FED decision and on the heels of economic data. That's

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<v Speaker 1>painting a mixed picture of conditions. But one of the

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<v Speaker 1>best real time indicators of economic health can be had

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<v Speaker 1>in the health of airline demand. I'm pleased to say

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<v Speaker 1>that Lisa Abramowitz, the co host of Bloomberg Surveillance, joins

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<v Speaker 1>me now and she's brought with her Scott Kirby, the

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<v Speaker 1>CEO of United Airlines, the largest US carrier by destinations,

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<v Speaker 1>fleet size, and available seat mile.

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<v Speaker 2>I always say Scott's actually the number one economists in

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<v Speaker 2>the world. You have the actual real time look at

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<v Speaker 2>what the consumer is doing. You saw the first half

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<v Speaker 2>of the year is almost a recession. Second half looks

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<v Speaker 2>vastly different. How much of a reacceleration are you seeing?

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<v Speaker 3>You know, we are a very good real time indicator

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<v Speaker 3>of demand when these are uncertain or weak. First thing

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<v Speaker 3>that businesses and consumers cut back on travel. It's also

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<v Speaker 3>the tip of sphere, one of the first things that

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<v Speaker 3>they bring back when they start to feel better. And

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<v Speaker 3>at the end of June it was like a light

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<v Speaker 3>switch gout flipped and that the tax bill certainty, you know,

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<v Speaker 3>past the tariff situation, while not finalized yet, got narrowed

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<v Speaker 3>down to the level of certainty, and the geopolitical situation,

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<v Speaker 3>particularly in Israel at least got narrowed down, and that certainty,

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<v Speaker 3>I think led to an improvement in demand. And so

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<v Speaker 3>we saw that starting in July and August. Coming out

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<v Speaker 3>of September when people are starting to book for Thanksgiving

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<v Speaker 3>and the holidays, we've seen it even further accelration, particularly

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<v Speaker 3>in consumer demand. So we are a real good, in

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<v Speaker 3>real time indicator of the economy. And most of the

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<v Speaker 3>economic statistics that you guys are looking at are backwards

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<v Speaker 3>looking and they're reflective of sort of the mood and

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<v Speaker 3>the sentiment of the country in April May June time period.

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<v Speaker 4>Our data is more real time.

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<v Speaker 3>I think the economy is therefore stronger than most people

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<v Speaker 3>are progrognosticating where.

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<v Speaker 2>Is it coming from? Is it coming from business, you said,

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<v Speaker 2>Is it coming from consumer? Is it coming from the

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<v Speaker 2>front of the bus or the back of the cabin.

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<v Speaker 2>How are you sort of describing this demand?

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<v Speaker 3>So really it's you know, our business skew is mostly

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<v Speaker 3>medium to high end consumers, and that really is strong really,

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<v Speaker 3>I think across the board demand has improved. Corporate was

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<v Speaker 3>the first to begin recovering, particularly as we've come out

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<v Speaker 3>of Labor Day and that's a more leisure booking period

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<v Speaker 3>for the holidays. That demand has really picked up coming

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<v Speaker 3>out of labor Day. So I think the consumers, certainly

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<v Speaker 3>the business is feeling good. I think the consumer is

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<v Speaker 3>feeling good as well. It is more skewed to the premium,

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<v Speaker 3>but a lot of that is because there's more supply.

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<v Speaker 3>It's really more I think a more supply issue in economy.

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<v Speaker 3>That there's a lot of economy focused airlines, you know,

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<v Speaker 3>with more seats than they're able to sell, and so

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<v Speaker 3>it feels like premium is better, but I think it's

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<v Speaker 3>really more a supply issue in economy.

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<v Speaker 4>I think they're both pretty strong.

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<v Speaker 1>How much have you had to adjust in terms of

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<v Speaker 1>the mix of what you're offering between the business class,

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<v Speaker 1>first class, and of course what's going on in economy.

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<v Speaker 4>You know, we made it.

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<v Speaker 3>These are long term decisions. You can't adjust them in

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<v Speaker 3>the short term. You know, the supply chain for new

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<v Speaker 3>seats is three to four years, and so we made

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<v Speaker 3>a decision coming out of COVID to really lean more

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<v Speaker 3>heavily into premium and to give customers more choice, really

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<v Speaker 3>giving customers choice and more options, and so that's tend

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<v Speaker 3>to turned out to be the right decision. We really

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<v Speaker 3>haven't changed that this year at all. Those are long

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<v Speaker 3>term decisions. We like the path that we're on. We're

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<v Speaker 3>going to continue on that same path. But really, you know,

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<v Speaker 3>we're going to try to offer customers choice all the

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<v Speaker 3>way from basic economy all the way up to you know,

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<v Speaker 3>life lap player seats. You know, across the oceans.

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<v Speaker 1>With regards to consumer travelers, are you seeing more frequency

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<v Speaker 1>with regards to the people who are traveling?

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<v Speaker 3>You know, I don't really know. I mean, I just

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<v Speaker 3>look at the overall demand is risey. I suspect that

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<v Speaker 3>that's a combination of more people flying, but also some

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<v Speaker 3>of the people that were already flying flying more often.

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<v Speaker 2>So this isn't personal. But when I was question when

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<v Speaker 2>I was getting flights earlier this year for the family,

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<v Speaker 2>they were actually pretty good deals. Yeah, and now when

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<v Speaker 2>I'm looking for flights during the Christmas time, etc. I

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<v Speaker 2>don't know, the prices are going up pretty significantly. How

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<v Speaker 2>much pricing how much pricing power have you had.

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<v Speaker 4>Well, eric, travel is a great value.

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<v Speaker 3>It's it's down about fifty percent in real terms, you know,

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<v Speaker 3>in the last thirty years or so.

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<v Speaker 4>It is great value. Peak periods are going.

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<v Speaker 3>To be higher, and the pricing environment, you know, when

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<v Speaker 3>things are weak, the pricing goes down. When the economy

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<v Speaker 3>is weak, pricing goes down even more than the economy,

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<v Speaker 3>and when it starts to recover, it therefore correspondingly bounces

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<v Speaker 3>back more so you do probably you probably will see

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<v Speaker 3>that in the fourth quarter.

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<v Speaker 2>So you think that pricing can keep on going up

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<v Speaker 2>to a certain degree, albeit with the real time pricing

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<v Speaker 2>being lower value, et cetera.

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<v Speaker 3>I think pricing is going to go up sort of

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<v Speaker 3>consistent with inflation. I don't think it's going to continue

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<v Speaker 3>to devalue relative to you know, the economy, but I

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<v Speaker 3>also don't think it's going to outpace you know, inflation

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<v Speaker 3>in the broader economy.

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<v Speaker 1>How are you actually improving this experience of flying? I mean,

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<v Speaker 1>you talk about obviously the investment in premium, but it's

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<v Speaker 1>more than just offering a wider seat and you know,

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<v Speaker 1>peanuts or.

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<v Speaker 4>Yeah, thanks.

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<v Speaker 3>Mostly what we're doing is investing for the whole aircraft.

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<v Speaker 3>The most important thing we do is how are employees

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<v Speaker 3>and how are people treat treat the customers. You know,

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<v Speaker 3>I tell our flight attendants, I love our flight attends.

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<v Speaker 3>They're the face of the United Airlines. There's nothing that

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<v Speaker 3>matters as much to how customers feel as walking on an

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<v Speaker 3>airplane and there's two flight attempts in the galley that

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<v Speaker 3>are smiling, that are positive or happy, that care about you,

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<v Speaker 3>and you can tell that they care. But our you know,

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<v Speaker 3>employees and how they treat you. The technology you know,

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<v Speaker 3>we have by far the best app of any airline

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<v Speaker 3>helps you when you have tight all kinds of things

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<v Speaker 3>that matters. Putting you know, seatback entertainment on this is

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<v Speaker 3>we're putting them on every single airplane and it's pretty remarkable.

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<v Speaker 3>An airplane with seedback entertainment, you know, has double digit

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<v Speaker 3>higher MPs than another airplane. But guess what, the TSA

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<v Speaker 3>scores are higher, the food tastes better, everything is better

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<v Speaker 3>when you have that. So investing in the whole experience

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<v Speaker 3>and the whole product, everything that you feel makes a difference.

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<v Speaker 3>That's how you win brand loyal customer shore.

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<v Speaker 1>And obviously you can control control what goes on in

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<v Speaker 1>the cabin but there's also a lot that you don't

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<v Speaker 1>control as an airline, particularly when it comes to time,

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<v Speaker 1>weather and other sort of faults in the system. Obviously

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<v Speaker 1>you have shared some responsibility in that, but I am

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<v Speaker 1>curious as to how you improve what you can control

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<v Speaker 1>to ensure that on time is better, the experience outside

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<v Speaker 1>of the cabin in the airport is better.

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<v Speaker 4>Well, we're great at the things that we control.

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<v Speaker 3>We're not perfect, but we're pretty good at running, really

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<v Speaker 3>good at running a reliable operation. The biggest thing that

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<v Speaker 3>we can do to improve for customers is air traffic

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<v Speaker 3>control system. You know, about ninety percent of the delays

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<v Speaker 3>in the country are air traffic control. That includes weather,

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<v Speaker 3>but it's not just weather, and so getting the air

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<v Speaker 3>traffic control system up to the levels that American deserves

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<v Speaker 3>is mission number one to improve for customers. And I'm

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<v Speaker 3>really happy that this administration, starting with the President, is

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<v Speaker 3>fully bought into doing that. Secretary Duffy has been great

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<v Speaker 3>at driving this agenda, and then Administrator Bedford. Brian Bedford

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<v Speaker 3>used to be the CEO of an airline, knows how

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<v Speaker 3>to build it. I think we're I can already see

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<v Speaker 3>the things that we're doing we're on a path to

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<v Speaker 3>finally getting you know, I've fought this battle for twenty years.

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<v Speaker 3>We're on a fat path to finally getting the FAA

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<v Speaker 3>fixed in a way that all the Americans deserve.

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<v Speaker 2>Romaine was trying to be nice and not asking is

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<v Speaker 2>remain fixed or are we actually dealing with the incredible

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<v Speaker 2>best that we had been dealing with. I mean, how

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<v Speaker 2>much have you seen an improvement to the degree where

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<v Speaker 2>you are proud to have that be your hub in

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<v Speaker 2>the Twisty area?

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<v Speaker 4>Yeah?

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<v Speaker 3>Yeah, you know, I think Newark is a crown jewel

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<v Speaker 3>for United Airlines and frankly for the country. It's the

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<v Speaker 3>biggest gateway for a US airline flying to Europe, but

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<v Speaker 3>it historically operated an unlevel playing field with LaGuardia and JFK,

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<v Speaker 3>and the FAA has now put it on a level

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<v Speaker 3>playing field.

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<v Speaker 4>Essentially slot controls managing the number of.

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<v Speaker 3>Flights at the airport to equal the capacity of the airport.

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<v Speaker 3>And when they did that, we have this summer Newark

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<v Speaker 3>was the most it was the most reliable summer that

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<v Speaker 3>we've had. It's still the New York airspace, it's, you know,

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<v Speaker 3>still the most challenge airspace in the world, But it

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<v Speaker 3>was the most reliable we've had. In fact, the most

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<v Speaker 3>on time arrival airline into the New York metro area

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<v Speaker 3>this year this summer was United Airlines into New Ork

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<v Speaker 3>because of the changes that.

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<v Speaker 4>The FA has made.

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<v Speaker 2>One thing that you've noted is that you've been gating

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<v Speaker 2>share and that's one reason why some of your earnings

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<v Speaker 2>have been outpacing some of your rivals. I wonder what

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<v Speaker 2>you're targeting in terms of share gain. Next is our

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<v Speaker 2>region is the Try State area with the JFK and

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<v Speaker 2>the Jet Blue partnership, Is it another region that you're

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<v Speaker 2>really kind of trying to go after.

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<v Speaker 3>We're really focused on our hubs really across the country,

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<v Speaker 3>but in our hubs, grow in our hubs and investing

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<v Speaker 3>for the customers so that more and more customers chooses.

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<v Speaker 3>That also means that when you're anywhere that's not a hub,

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<v Speaker 3>if you live in Nashville, or if you live in Columbus, Ohio,

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<v Speaker 3>like and you're going to have to connect a lot

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<v Speaker 3>on a lot of the travel anyway, United becomes a

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<v Speaker 3>better and better option. So it really is across the board,

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<v Speaker 3>but the biggest share gains we see are in our seven.

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<v Speaker 1>Hubs on the on Newark, though, I mean there was

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<v Speaker 1>a drop off overall in passenger traffic in there because

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<v Speaker 1>of those issues. Has that returned to normal.

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<v Speaker 3>It's pretty much returned to normal, and there was a

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<v Speaker 3>huge drop and it still takes a little time for

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<v Speaker 3>perception to catch up to reality. But the numbers, you know,

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<v Speaker 3>show that that Newark has gotten on part so gotten

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<v Speaker 3>onto a level playing field, and so the results are

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<v Speaker 3>on par with the Guardian JFK and the FA has

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<v Speaker 3>now done a really important step which has moved the

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<v Speaker 3>air traffic.

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<v Speaker 4>Control out of this facility that's for fifty.

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<v Speaker 3>Percent understaffed on Long Island and into Philadelphia and the

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<v Speaker 3>first permanent employees finished training the starting next month. And

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<v Speaker 3>so every month the staffing is getting better and better.

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<v Speaker 3>But that's been the biggest issue here in the New

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<v Speaker 3>York airspace is air traffic control staffing. And as it

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<v Speaker 3>gets better and better every month, like we already had

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<v Speaker 3>a good summer, it's going.

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<v Speaker 4>To just get better.

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<v Speaker 1>And you're actually adding staffing at United at Newark we

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<v Speaker 1>are well right, I mean you have a one in

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<v Speaker 1>fourteen thousand people there already.

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<v Speaker 4>We have fourteen thousand. We're growing about two thousand a

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<v Speaker 4>year at the moment.

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<v Speaker 2>Okay, so you've talked about how confident you are about

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<v Speaker 2>the trajectory ahead. Why then do you have triple the

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<v Speaker 2>cash that you had during before the pandemic. Why are

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<v Speaker 2>you paying down debt? Why are you operating in such

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<v Speaker 2>a conservative cash flow manner?

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<v Speaker 3>Because we know that something always happens in this industry,

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<v Speaker 3>and when we were in COVID, I made a commitment

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<v Speaker 3>first to myself, which I since made to all of

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<v Speaker 3>our employees to set this airline up so that we

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<v Speaker 3>never again have a furdle, that none of those people

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<v Speaker 3>experience a fertile which is different than United has always

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<v Speaker 3>been in the past. You know, anytime there was any

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<v Speaker 3>kind of whiff in the economy, you know the shrink

0:10:03.120 --> 0:10:05.440
<v Speaker 3>and furlough to set it up, when we never did that,

0:10:06.000 --> 0:10:08.160
<v Speaker 3>which is also good for our investors in the long term.

0:10:08.480 --> 0:10:11.199
<v Speaker 3>That we can ride through a downturn is what that means.

0:10:11.240 --> 0:10:14.400
<v Speaker 3>And more cash on the balance sheet and paying down

0:10:14.440 --> 0:10:18.080
<v Speaker 3>debt gives us the financial firepower to deal with whatever

0:10:18.120 --> 0:10:19.679
<v Speaker 3>the next crisis, and there's going to be one at

0:10:19.679 --> 0:10:22.199
<v Speaker 3>some point. To deal with the next crisis, stay focused

0:10:22.240 --> 0:10:24.920
<v Speaker 3>on the long term keep investing for the long term

0:10:24.960 --> 0:10:26.960
<v Speaker 3>and keep our eyes on the horizon instead of being

0:10:27.080 --> 0:10:28.640
<v Speaker 3>whipped around by short term trends.

0:10:28.679 --> 0:10:32.280
<v Speaker 2>We've seen Wall Street really reward companies that have invested

0:10:32.280 --> 0:10:34.400
<v Speaker 2>in capecks and it's sort of departure from the past,

0:10:34.400 --> 0:10:35.840
<v Speaker 2>but this has been something that we've seen on an

0:10:35.840 --> 0:10:39.000
<v Speaker 2>increasing basis. Some might say, well, you have in a

0:10:39.040 --> 0:10:42.360
<v Speaker 2>cash pile, you could make some of that capital expenditure investment.

0:10:42.840 --> 0:10:44.960
<v Speaker 4>What would you be looking at, Yeah, well we have.

0:10:45.120 --> 0:10:47.160
<v Speaker 3>We've done you know, the last each of the last

0:10:47.200 --> 0:10:49.360
<v Speaker 3>four years, I think is more CAPEX than almost in

0:10:49.400 --> 0:10:51.560
<v Speaker 3>the airline history has ever done. We did the biggest

0:10:51.559 --> 0:10:54.080
<v Speaker 3>aircraft orders in the history of aviation, which is where

0:10:54.080 --> 0:10:57.400
<v Speaker 3>our most of our capecks goes to airplanes during the

0:10:57.440 --> 0:11:00.319
<v Speaker 3>pandemic and at the time before and a half years ago,

0:11:00.360 --> 0:11:01.880
<v Speaker 3>I did an event here at Nework to announce it.

0:11:02.360 --> 0:11:05.000
<v Speaker 3>Pandemic was still raging and we did the biggest aircraft

0:11:05.080 --> 0:11:07.199
<v Speaker 3>orders in history. We got a lot of blowback, a

0:11:07.240 --> 0:11:09.720
<v Speaker 3>lot of criticism, a lot of skepticism from Wall Street,

0:11:09.920 --> 0:11:11.880
<v Speaker 3>but it was the right long term decision and it's

0:11:11.880 --> 0:11:16.120
<v Speaker 3>clearly worked and our investors have been rewarded and they

0:11:16.160 --> 0:11:19.040
<v Speaker 3>recognize that it's work. So I think doing that you

0:11:19.120 --> 0:11:21.280
<v Speaker 3>take a heat at the beginning when you first do it,

0:11:21.679 --> 0:11:23.480
<v Speaker 3>but then you've got to demonstrate that it was the

0:11:23.520 --> 0:11:25.520
<v Speaker 3>right plan. You got to put the numbers up, you

0:11:25.600 --> 0:11:28.480
<v Speaker 3>got to deliver. But if you deliver, I think investors

0:11:28.520 --> 0:11:32.079
<v Speaker 3>give you a lot more trust rope and let you

0:11:32.200 --> 0:11:33.200
<v Speaker 3>focus on the long term.

0:11:33.280 --> 0:11:35.760
<v Speaker 1>Well, speaking of delivering, how confident are you in getting

0:11:35.800 --> 0:11:36.920
<v Speaker 1>those deliveries on time?

0:11:37.640 --> 0:11:37.880
<v Speaker 4>You know?

0:11:38.120 --> 0:11:41.319
<v Speaker 3>Boeing, particularly for the seven thirty sevens Boeing is back

0:11:41.360 --> 0:11:42.960
<v Speaker 3>on track. In fact, this year they're ahead of pace

0:11:43.320 --> 0:11:45.520
<v Speaker 3>for the first time in a long time. I think

0:11:45.520 --> 0:11:47.680
<v Speaker 3>they've really turned the corner on the seven thirty sevens.

0:11:47.920 --> 0:11:50.800
<v Speaker 3>The seven eighty seven is still behind. Airbus is a

0:11:50.800 --> 0:11:53.160
<v Speaker 3>little behind, not as much as Bowing was, but seven

0:11:53.200 --> 0:11:54.840
<v Speaker 3>eighty seven I think they'll turn the corner. I think

0:11:54.880 --> 0:11:58.080
<v Speaker 3>Kelly's doing a really good job there. It's good lead

0:11:58.120 --> 0:12:00.800
<v Speaker 3>other issues. It's just going to expose the next problems

0:12:00.800 --> 0:12:02.800
<v Speaker 3>in the supply chain. I think engines. There's something like

0:12:02.840 --> 0:12:05.560
<v Speaker 3>seven hundred aircraft around the globe that are grounded that

0:12:05.679 --> 0:12:07.360
<v Speaker 3>right now because of engine shortages.

0:12:07.400 --> 0:12:09.319
<v Speaker 4>So I think engine shortages.

0:12:09.240 --> 0:12:12.640
<v Speaker 3>Is going to become the next industry wide challenge once

0:12:12.679 --> 0:12:13.960
<v Speaker 3>bowing Airbus to get back to full.

0:12:14.120 --> 0:12:16.440
<v Speaker 1>Is that an effect of terror policy or just supply

0:12:16.520 --> 0:12:17.720
<v Speaker 1>chain gum ups? What's caused?

0:12:17.880 --> 0:12:22.560
<v Speaker 4>You know, it's it's a hangover still perhaps from COVID.

0:12:22.880 --> 0:12:25.880
<v Speaker 4>You know, it's a very very specialized, high.

0:12:25.800 --> 0:12:32.000
<v Speaker 3>Skilled machinists and others, and they've read a lot of them,

0:12:32.040 --> 0:12:35.520
<v Speaker 3>you know, retired during COVID. They've had a real challenge

0:12:36.160 --> 0:12:38.600
<v Speaker 3>at all of the engine manufacturers to get back to

0:12:38.600 --> 0:12:39.120
<v Speaker 3>full speed.

0:12:39.200 --> 0:12:41.000
<v Speaker 2>You've been spending a lot of time in Washington, d C.

0:12:41.240 --> 0:12:42.160
<v Speaker 2>Have you bought a place there.

0:12:42.480 --> 0:12:45.520
<v Speaker 4>I have not bought a place there. Spent a lot

0:12:45.520 --> 0:12:45.760
<v Speaker 4>of time.

0:12:46.280 --> 0:12:48.920
<v Speaker 2>Expect to have a lot more there as you talk

0:12:48.960 --> 0:12:49.679
<v Speaker 2>to policymakers.

0:12:49.760 --> 0:12:51.640
<v Speaker 4>You know, I've spent a lot. I spent a lot

0:12:51.640 --> 0:12:53.160
<v Speaker 4>of time there in the last administration. I spent a

0:12:53.160 --> 0:12:53.640
<v Speaker 4>lot of time there.

0:12:53.760 --> 0:12:56.160
<v Speaker 3>This you know, we're a big, high profile company and

0:12:57.160 --> 0:13:02.160
<v Speaker 3>that comes with opportunities, obligations, responsibilities, and wathington DC as

0:13:02.200 --> 0:13:04.120
<v Speaker 3>part of it. I thought it was the part of

0:13:04.120 --> 0:13:05.960
<v Speaker 3>the job I would dislike the most. When I became

0:13:05.960 --> 0:13:07.360
<v Speaker 3>the I thought it was the only thing i'd disliked.

0:13:07.360 --> 0:13:10.400
<v Speaker 3>It turns out I like it, which is surprising, it's maddening,

0:13:10.400 --> 0:13:13.000
<v Speaker 3>it's frustrating at times, but it's also a place where

0:13:13.200 --> 0:13:17.160
<v Speaker 3>you can have an amplified voice to make a difference

0:13:17.200 --> 0:13:19.240
<v Speaker 3>for your company, for your industry, for the world.

0:13:19.520 --> 0:13:20.800
<v Speaker 1>Scott really appreciate it.

0:13:20.800 --> 0:13:21.679
<v Speaker 4>Thank you enjoyed it.

0:13:21.760 --> 0:13:24.560
<v Speaker 1>Scott Kirby, the CEO of United Airlines, and our thanks

0:13:24.600 --> 0:13:27.240
<v Speaker 1>to Lisa A. Bromwoods, the co hosts of Bloomberg Surveillance