Speaker 1: Bloomberg Audio Studios, podcasts, radio news head of a big
Speaker 1: FED decision and on the heels of economic data. That's
Speaker 1: painting a mixed picture of conditions. But one of the
Speaker 1: best real time indicators of economic health can be had
Speaker 1: in the health of airline demand. I'm pleased to say
Speaker 1: that Lisa Abramowitz, the co host of Bloomberg Surveillance, joins
Speaker 1: me now and she's brought with her Scott Kirby, the
Speaker 1: CEO of United Airlines, the largest US carrier by destinations,
Speaker 1: fleet size, and available seat mile.
Speaker 2: I always say Scott's actually the number one economists in
Speaker 2: the world. You have the actual real time look at
Speaker 2: what the consumer is doing. You saw the first half
Speaker 2: of the year is almost a recession. Second half looks
Speaker 2: vastly different. How much of a reacceleration are you seeing?
Speaker 3: You know, we are a very good real time indicator
Speaker 3: of demand when these are uncertain or weak. First thing
Speaker 3: that businesses and consumers cut back on travel. It's also
Speaker 3: the tip of sphere, one of the first things that
Speaker 3: they bring back when they start to feel better. And
Speaker 3: at the end of June it was like a light
Speaker 3: switch gout flipped and that the tax bill certainty, you know,
Speaker 3: past the tariff situation, while not finalized yet, got narrowed
Speaker 3: down to the level of certainty, and the geopolitical situation,
Speaker 3: particularly in Israel at least got narrowed down, and that certainty,
Speaker 3: I think led to an improvement in demand. And so
Speaker 3: we saw that starting in July and August. Coming out
Speaker 3: of September when people are starting to book for Thanksgiving
Speaker 3: and the holidays, we've seen it even further accelration, particularly
Speaker 3: in consumer demand. So we are a real good, in
Speaker 3: real time indicator of the economy. And most of the
Speaker 3: economic statistics that you guys are looking at are backwards
Speaker 3: looking and they're reflective of sort of the mood and
Speaker 3: the sentiment of the country in April May June time period.
Speaker 4: Our data is more real time.
Speaker 3: I think the economy is therefore stronger than most people
Speaker 3: are progrognosticating where.
Speaker 2: Is it coming from? Is it coming from business, you said,
Speaker 2: Is it coming from consumer? Is it coming from the
Speaker 2: front of the bus or the back of the cabin.
Speaker 2: How are you sort of describing this demand?
Speaker 3: So really it's you know, our business skew is mostly
Speaker 3: medium to high end consumers, and that really is strong really,
Speaker 3: I think across the board demand has improved. Corporate was
Speaker 3: the first to begin recovering, particularly as we've come out
Speaker 3: of Labor Day and that's a more leisure booking period
Speaker 3: for the holidays. That demand has really picked up coming
Speaker 3: out of labor Day. So I think the consumers, certainly
Speaker 3: the business is feeling good. I think the consumer is
Speaker 3: feeling good as well. It is more skewed to the premium,
Speaker 3: but a lot of that is because there's more supply.
Speaker 3: It's really more I think a more supply issue in economy.
Speaker 3: That there's a lot of economy focused airlines, you know,
Speaker 3: with more seats than they're able to sell, and so
Speaker 3: it feels like premium is better, but I think it's
Speaker 3: really more a supply issue in economy.
Speaker 4: I think they're both pretty strong.
Speaker 1: How much have you had to adjust in terms of
Speaker 1: the mix of what you're offering between the business class,
Speaker 1: first class, and of course what's going on in economy.
Speaker 4: You know, we made it.
Speaker 3: These are long term decisions. You can't adjust them in
Speaker 3: the short term. You know, the supply chain for new
Speaker 3: seats is three to four years, and so we made
Speaker 3: a decision coming out of COVID to really lean more
Speaker 3: heavily into premium and to give customers more choice, really
Speaker 3: giving customers choice and more options, and so that's tend
Speaker 3: to turned out to be the right decision. We really
Speaker 3: haven't changed that this year at all. Those are long
Speaker 3: term decisions. We like the path that we're on. We're
Speaker 3: going to continue on that same path. But really, you know,
Speaker 3: we're going to try to offer customers choice all the
Speaker 3: way from basic economy all the way up to you know,
Speaker 3: life lap player seats. You know, across the oceans.
Speaker 1: With regards to consumer travelers, are you seeing more frequency
Speaker 1: with regards to the people who are traveling?
Speaker 3: You know, I don't really know. I mean, I just
Speaker 3: look at the overall demand is risey. I suspect that
Speaker 3: that's a combination of more people flying, but also some
Speaker 3: of the people that were already flying flying more often.
Speaker 2: So this isn't personal. But when I was question when
Speaker 2: I was getting flights earlier this year for the family,
Speaker 2: they were actually pretty good deals. Yeah, and now when
Speaker 2: I'm looking for flights during the Christmas time, etc. I
Speaker 2: don't know, the prices are going up pretty significantly. How
Speaker 2: much pricing how much pricing power have you had.
Speaker 4: Well, eric, travel is a great value.
Speaker 3: It's it's down about fifty percent in real terms, you know,
Speaker 3: in the last thirty years or so.
Speaker 4: It is great value. Peak periods are going.
Speaker 3: To be higher, and the pricing environment, you know, when
Speaker 3: things are weak, the pricing goes down. When the economy
Speaker 3: is weak, pricing goes down even more than the economy,
Speaker 3: and when it starts to recover, it therefore correspondingly bounces
Speaker 3: back more so you do probably you probably will see
Speaker 3: that in the fourth quarter.
Speaker 2: So you think that pricing can keep on going up
Speaker 2: to a certain degree, albeit with the real time pricing
Speaker 2: being lower value, et cetera.
Speaker 3: I think pricing is going to go up sort of
Speaker 3: consistent with inflation. I don't think it's going to continue
Speaker 3: to devalue relative to you know, the economy, but I
Speaker 3: also don't think it's going to outpace you know, inflation
Speaker 3: in the broader economy.
Speaker 1: How are you actually improving this experience of flying? I mean,
Speaker 1: you talk about obviously the investment in premium, but it's
Speaker 1: more than just offering a wider seat and you know,
Speaker 1: peanuts or.
Speaker 4: Yeah, thanks.
Speaker 3: Mostly what we're doing is investing for the whole aircraft.
Speaker 3: The most important thing we do is how are employees
Speaker 3: and how are people treat treat the customers. You know,
Speaker 3: I tell our flight attendants, I love our flight attends.
Speaker 3: They're the face of the United Airlines. There's nothing that
Speaker 3: matters as much to how customers feel as walking on an
Speaker 3: airplane and there's two flight attempts in the galley that
Speaker 3: are smiling, that are positive or happy, that care about you,
Speaker 3: and you can tell that they care. But our you know,
Speaker 3: employees and how they treat you. The technology you know,
Speaker 3: we have by far the best app of any airline
Speaker 3: helps you when you have tight all kinds of things
Speaker 3: that matters. Putting you know, seatback entertainment on this is
Speaker 3: we're putting them on every single airplane and it's pretty remarkable.
Speaker 3: An airplane with seedback entertainment, you know, has double digit
Speaker 3: higher MPs than another airplane. But guess what, the TSA
Speaker 3: scores are higher, the food tastes better, everything is better
Speaker 3: when you have that. So investing in the whole experience
Speaker 3: and the whole product, everything that you feel makes a difference.
Speaker 3: That's how you win brand loyal customer shore.
Speaker 1: And obviously you can control control what goes on in
Speaker 1: the cabin but there's also a lot that you don't
Speaker 1: control as an airline, particularly when it comes to time,
Speaker 1: weather and other sort of faults in the system. Obviously
Speaker 1: you have shared some responsibility in that, but I am
Speaker 1: curious as to how you improve what you can control
Speaker 1: to ensure that on time is better, the experience outside
Speaker 1: of the cabin in the airport is better.
Speaker 4: Well, we're great at the things that we control.
Speaker 3: We're not perfect, but we're pretty good at running, really
Speaker 3: good at running a reliable operation. The biggest thing that
Speaker 3: we can do to improve for customers is air traffic
Speaker 3: control system. You know, about ninety percent of the delays
Speaker 3: in the country are air traffic control. That includes weather,
Speaker 3: but it's not just weather, and so getting the air
Speaker 3: traffic control system up to the levels that American deserves
Speaker 3: is mission number one to improve for customers. And I'm
Speaker 3: really happy that this administration, starting with the President, is
Speaker 3: fully bought into doing that. Secretary Duffy has been great
Speaker 3: at driving this agenda, and then Administrator Bedford. Brian Bedford
Speaker 3: used to be the CEO of an airline, knows how
Speaker 3: to build it. I think we're I can already see
Speaker 3: the things that we're doing we're on a path to
Speaker 3: finally getting you know, I've fought this battle for twenty years.
Speaker 3: We're on a fat path to finally getting the FAA
Speaker 3: fixed in a way that all the Americans deserve.
Speaker 2: Romaine was trying to be nice and not asking is
Speaker 2: remain fixed or are we actually dealing with the incredible
Speaker 2: best that we had been dealing with. I mean, how
Speaker 2: much have you seen an improvement to the degree where
Speaker 2: you are proud to have that be your hub in
Speaker 2: the Twisty area?
Speaker 4: Yeah?
Speaker 3: Yeah, you know, I think Newark is a crown jewel
Speaker 3: for United Airlines and frankly for the country. It's the
Speaker 3: biggest gateway for a US airline flying to Europe, but
Speaker 3: it historically operated an unlevel playing field with LaGuardia and JFK,
Speaker 3: and the FAA has now put it on a level
Speaker 3: playing field.
Speaker 4: Essentially slot controls managing the number of.
Speaker 3: Flights at the airport to equal the capacity of the airport.
Speaker 3: And when they did that, we have this summer Newark
Speaker 3: was the most it was the most reliable summer that
Speaker 3: we've had. It's still the New York airspace, it's, you know,
Speaker 3: still the most challenge airspace in the world, But it
Speaker 3: was the most reliable we've had. In fact, the most
Speaker 3: on time arrival airline into the New York metro area
Speaker 3: this year this summer was United Airlines into New Ork
Speaker 3: because of the changes that.
Speaker 4: The FA has made.
Speaker 2: One thing that you've noted is that you've been gating
Speaker 2: share and that's one reason why some of your earnings
Speaker 2: have been outpacing some of your rivals. I wonder what
Speaker 2: you're targeting in terms of share gain. Next is our
Speaker 2: region is the Try State area with the JFK and
Speaker 2: the Jet Blue partnership, Is it another region that you're
Speaker 2: really kind of trying to go after.
Speaker 3: We're really focused on our hubs really across the country,
Speaker 3: but in our hubs, grow in our hubs and investing
Speaker 3: for the customers so that more and more customers chooses.
Speaker 3: That also means that when you're anywhere that's not a hub,
Speaker 3: if you live in Nashville, or if you live in Columbus, Ohio,
Speaker 3: like and you're going to have to connect a lot
Speaker 3: on a lot of the travel anyway, United becomes a
Speaker 3: better and better option. So it really is across the board,
Speaker 3: but the biggest share gains we see are in our seven.
Speaker 1: Hubs on the on Newark, though, I mean there was
Speaker 1: a drop off overall in passenger traffic in there because
Speaker 1: of those issues. Has that returned to normal.
Speaker 3: It's pretty much returned to normal, and there was a
Speaker 3: huge drop and it still takes a little time for
Speaker 3: perception to catch up to reality. But the numbers, you know,
Speaker 3: show that that Newark has gotten on part so gotten
Speaker 3: onto a level playing field, and so the results are
Speaker 3: on par with the Guardian JFK and the FA has
Speaker 3: now done a really important step which has moved the
Speaker 3: air traffic.
Speaker 4: Control out of this facility that's for fifty.
Speaker 3: Percent understaffed on Long Island and into Philadelphia and the
Speaker 3: first permanent employees finished training the starting next month. And
Speaker 3: so every month the staffing is getting better and better.
Speaker 3: But that's been the biggest issue here in the New
Speaker 3: York airspace is air traffic control staffing. And as it
Speaker 3: gets better and better every month, like we already had
Speaker 3: a good summer, it's going.
Speaker 4: To just get better.
Speaker 1: And you're actually adding staffing at United at Newark we
Speaker 1: are well right, I mean you have a one in
Speaker 1: fourteen thousand people there already.
Speaker 4: We have fourteen thousand. We're growing about two thousand a
Speaker 4: year at the moment.
Speaker 2: Okay, so you've talked about how confident you are about
Speaker 2: the trajectory ahead. Why then do you have triple the
Speaker 2: cash that you had during before the pandemic. Why are
Speaker 2: you paying down debt? Why are you operating in such
Speaker 2: a conservative cash flow manner?
Speaker 3: Because we know that something always happens in this industry,
Speaker 3: and when we were in COVID, I made a commitment
Speaker 3: first to myself, which I since made to all of
Speaker 3: our employees to set this airline up so that we
Speaker 3: never again have a furdle, that none of those people
Speaker 3: experience a fertile which is different than United has always
Speaker 3: been in the past. You know, anytime there was any
Speaker 3: kind of whiff in the economy, you know the shrink
Speaker 3: and furlough to set it up, when we never did that,
Speaker 3: which is also good for our investors in the long term.
Speaker 3: That we can ride through a downturn is what that means.
Speaker 3: And more cash on the balance sheet and paying down
Speaker 3: debt gives us the financial firepower to deal with whatever
Speaker 3: the next crisis, and there's going to be one at
Speaker 3: some point. To deal with the next crisis, stay focused
Speaker 3: on the long term keep investing for the long term
Speaker 3: and keep our eyes on the horizon instead of being
Speaker 3: whipped around by short term trends.
Speaker 2: We've seen Wall Street really reward companies that have invested
Speaker 2: in capecks and it's sort of departure from the past,
Speaker 2: but this has been something that we've seen on an
Speaker 2: increasing basis. Some might say, well, you have in a
Speaker 2: cash pile, you could make some of that capital expenditure investment.
Speaker 4: What would you be looking at, Yeah, well we have.
Speaker 3: We've done you know, the last each of the last
Speaker 3: four years, I think is more CAPEX than almost in
Speaker 3: the airline history has ever done. We did the biggest
Speaker 3: aircraft orders in the history of aviation, which is where
Speaker 3: our most of our capecks goes to airplanes during the
Speaker 3: pandemic and at the time before and a half years ago,
Speaker 3: I did an event here at Nework to announce it.
Speaker 3: Pandemic was still raging and we did the biggest aircraft
Speaker 3: orders in history. We got a lot of blowback, a
Speaker 3: lot of criticism, a lot of skepticism from Wall Street,
Speaker 3: but it was the right long term decision and it's
Speaker 3: clearly worked and our investors have been rewarded and they
Speaker 3: recognize that it's work. So I think doing that you
Speaker 3: take a heat at the beginning when you first do it,
Speaker 3: but then you've got to demonstrate that it was the
Speaker 3: right plan. You got to put the numbers up, you
Speaker 3: got to deliver. But if you deliver, I think investors
Speaker 3: give you a lot more trust rope and let you
Speaker 3: focus on the long term.
Speaker 1: Well, speaking of delivering, how confident are you in getting
Speaker 1: those deliveries on time?
Speaker 4: You know?
Speaker 3: Boeing, particularly for the seven thirty sevens Boeing is back
Speaker 3: on track. In fact, this year they're ahead of pace
Speaker 3: for the first time in a long time. I think
Speaker 3: they've really turned the corner on the seven thirty sevens.
Speaker 3: The seven eighty seven is still behind. Airbus is a
Speaker 3: little behind, not as much as Bowing was, but seven
Speaker 3: eighty seven I think they'll turn the corner. I think
Speaker 3: Kelly's doing a really good job there. It's good lead
Speaker 3: other issues. It's just going to expose the next problems
Speaker 3: in the supply chain. I think engines. There's something like
Speaker 3: seven hundred aircraft around the globe that are grounded that
Speaker 3: right now because of engine shortages.
Speaker 4: So I think engine shortages.
Speaker 3: Is going to become the next industry wide challenge once
Speaker 3: bowing Airbus to get back to full.
Speaker 1: Is that an effect of terror policy or just supply
Speaker 1: chain gum ups? What's caused?
Speaker 4: You know, it's it's a hangover still perhaps from COVID.
Speaker 4: You know, it's a very very specialized, high.
Speaker 3: Skilled machinists and others, and they've read a lot of them,
Speaker 3: you know, retired during COVID. They've had a real challenge
Speaker 3: at all of the engine manufacturers to get back to
Speaker 3: full speed.
Speaker 2: You've been spending a lot of time in Washington, d C.
Speaker 2: Have you bought a place there.
Speaker 4: I have not bought a place there. Spent a lot
Speaker 4: of time.
Speaker 2: Expect to have a lot more there as you talk
Speaker 2: to policymakers.
Speaker 4: You know, I've spent a lot. I spent a lot
Speaker 4: of time there in the last administration. I spent a
Speaker 4: lot of time there.
Speaker 3: This you know, we're a big, high profile company and
Speaker 3: that comes with opportunities, obligations, responsibilities, and wathington DC as
Speaker 3: part of it. I thought it was the part of
Speaker 3: the job I would dislike the most. When I became
Speaker 3: the I thought it was the only thing i'd disliked.
Speaker 3: It turns out I like it, which is surprising, it's maddening,
Speaker 3: it's frustrating at times, but it's also a place where
Speaker 3: you can have an amplified voice to make a difference
Speaker 3: for your company, for your industry, for the world.
Speaker 1: Scott really appreciate it.
Speaker 4: Thank you enjoyed it.
Speaker 1: Scott Kirby, the CEO of United Airlines, and our thanks
Speaker 1: to Lisa A. Bromwoods, the co hosts of Bloomberg Surveillance