WEBVTT - United Airlines CEO Talks Travel Demand

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news cheer.

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<v Speaker 2>I would love to welcome in Scott Kirby, the CEO

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<v Speaker 2>of United Airlines, And Scott, it's really tremendous to see

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<v Speaker 2>not only what you did, but also the fact that

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<v Speaker 2>you see significant upside to the fourth quarter, and I

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<v Speaker 2>want to just start there. Where do you see the

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<v Speaker 2>acceleration in demand?

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<v Speaker 1>You know, actually you look across the full year.

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<v Speaker 3>The first three quarters were really good for United in

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<v Speaker 3>a lot of macro volatility that happened for the aviation industry.

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<v Speaker 3>That demonstrates the resilience of our revenue, diverse, brand loyal

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<v Speaker 3>business model.

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<v Speaker 1>But you look to the fourth quarter, it's even.

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<v Speaker 3>More exciting because as the economy started to get back

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<v Speaker 3>to a solid footing, at least for aviation, demonstrates a

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<v Speaker 3>lot of upside.

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<v Speaker 1>We think we're going to be able to grow earnings

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<v Speaker 1>for the full year even in this environment.

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<v Speaker 3>So it really is creating value for all of our

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<v Speaker 3>customers all the way from basic economy to winning much

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<v Speaker 3>higher market share in the brand loyal customers really is

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<v Speaker 3>a great resilient strategy when times are difficult, but a

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<v Speaker 3>lot of upside as the economy recovers here in four Q.

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<v Speaker 2>I guess I want to drill into the economy because

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<v Speaker 2>Scott earlier in the year had been the economy section

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<v Speaker 2>that had struggled the most. I'm just wondering how much

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<v Speaker 2>it's picking up, whether you've had to discount tickets to

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<v Speaker 2>bring people in to compete, or whether consumers are willing

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<v Speaker 2>to absorb higher prices and take their trips.

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<v Speaker 1>Yeah.

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<v Speaker 3>Well, as we've talked about before, ALESA, the airline industries

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<v Speaker 3>are a pretty good real time indicator of the economy,

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<v Speaker 3>and you know, we saw for much of the first

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<v Speaker 3>half of the year economic stress and ticket prices were

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<v Speaker 3>lower as a result of that. But as we got

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<v Speaker 3>into the third quarter, bookings at least for future travel,

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<v Speaker 3>the economy started to pick up. Bookings started to pick up,

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<v Speaker 3>and as we finished the quarter, you know, we've set

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<v Speaker 3>records each of the last several weeks on most corporate

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<v Speaker 3>revenue that we've ever booked in a single week, and

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<v Speaker 3>a number of records, particularly in business travel. Really kind

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<v Speaker 3>of strong across the board, though internationals come back stronger.

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<v Speaker 1>At the period has extended.

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<v Speaker 3>Premium is obviously stronger than main cabin but really we've

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<v Speaker 3>seen improvement.

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<v Speaker 1>You know, as we've moved through the third.

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<v Speaker 3>Quarter, kind of across the board on revenue streams, with

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<v Speaker 3>the biggest strength in the corporate segment.

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<v Speaker 2>And that's actually something that we see across the board,

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<v Speaker 2>particularly because they're all these deals, so people have to

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<v Speaker 2>actually get on a plane and go see some of

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<v Speaker 2>their clients. I am wondering, are you seeing international travelers

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<v Speaker 2>tourists come back to the United States. I thought that

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<v Speaker 2>was kind of a soft spot and a sort of

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<v Speaker 2>a tell in terms of the international reputation of the country.

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<v Speaker 3>Well, our business is about eighty percent US point of sale.

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<v Speaker 3>But we have and we saw a drop at international

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<v Speaker 3>traffic earlier in the year. It's not quite back to

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<v Speaker 3>last year's levels, but it has recovered and it's close

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<v Speaker 3>to last year's level. So we did see a dep

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<v Speaker 3>but even that has come back, and we think that's

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<v Speaker 3>on the trend to getting back to normal pretty soon.

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<v Speaker 2>Are you planning to keep capacity pretty much the same?

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<v Speaker 2>Are you expanding to Are you planning to expand or

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<v Speaker 2>cut back? I know that it was trained earlier this

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<v Speaker 2>year just because of demand, but as demand picks up,

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<v Speaker 2>are you going to bring more planes on deck?

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<v Speaker 1>Well?

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<v Speaker 3>We've been growing, you know, in absolute growth, actually faster

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<v Speaker 3>I think than in the airline in the world has

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<v Speaker 3>ever grown for several years in a row. And that's

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<v Speaker 3>worked really well for you nine and that's been successful.

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<v Speaker 3>So we really haven't much changed our capacity. We tweak

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<v Speaker 3>it here and there. The biggest change we're going to

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<v Speaker 3>make for next year, I think is actually to reshape

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<v Speaker 3>the seasonality of the year.

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<v Speaker 1>You know, one of the things that's happened that's good.

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<v Speaker 3>For our business is this third quarter peak has extended

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<v Speaker 3>into the fourth quarter, and it's made the fourth quarter

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<v Speaker 3>actually a better quarter from a margin perspective than the

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<v Speaker 3>third quarter. And what we think is as that particularly

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<v Speaker 3>international demand has extended into the fourth quarter, there's an

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<v Speaker 3>opportunity for us to actually fly less in the peak

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<v Speaker 3>in the third quarter, which would be good for our RASM.

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<v Speaker 3>But it turns out it's going to actually be good

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<v Speaker 3>for our cost structure too, because we've we have to

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<v Speaker 3>build staffing and infrastructure everything up to that peak for

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<v Speaker 3>six weeks of the peak summer. And so next year

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<v Speaker 3>we're going to actually try to reshape our schedule some

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<v Speaker 3>to lower the peak and let the demand spread across

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<v Speaker 3>more of the year.

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<v Speaker 2>I know, earlier this year when we were talking, you

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<v Speaker 2>said that you do expect to raise prices by you know,

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<v Speaker 2>single digits, just to compensate for higher costs. You see

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<v Speaker 2>that on track the same type of price increases and

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<v Speaker 2>our consumers okay with it? Are they absorbing it?

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<v Speaker 1>You know?

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<v Speaker 3>This year prices have come down, as we talked about,

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<v Speaker 3>just you know, as there was echo macro volatility, at

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<v Speaker 3>least for aviation. I do expect them to normalize next year,

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<v Speaker 3>and I think just over time that you should expect

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<v Speaker 3>to see airfares grow consistent with inflation is likely what's

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<v Speaker 3>going to happen over time.

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<v Speaker 2>How much do you see staff wage increases? Also playing

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<v Speaker 2>into this the idea that a lot of the people

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<v Speaker 2>work for United are also saying, okay, well things are

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<v Speaker 2>going up, we want.

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<v Speaker 1>To pay increase. Yeah.

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<v Speaker 3>A lot of people are the best in the world,

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<v Speaker 3>and they deserve industry leading contracts. Every time we sign

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<v Speaker 3>a new contract with one of our union groups, they

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<v Speaker 3>expect and deserve and will be paid at the top

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<v Speaker 3>of the industry. So that's built into our forecast, that's

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<v Speaker 3>built into everything that we're doing.

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<v Speaker 1>One of the great things that we're doing though.

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<v Speaker 3>At United Is, I think we're the best in the

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<v Speaker 3>world at managing our real core costs and being more

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<v Speaker 3>efficient at the airline. We've invested heavily in technology. It

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<v Speaker 3>helps us run the airline better. But like you look

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<v Speaker 3>at the third quarter. You know the number of airlines

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<v Speaker 3>that have talked about missing their cost guidance because of storms,

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<v Speaker 3>and there were storms in the quarter. But we've invested

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<v Speaker 3>so heavily in our recovery tools that we had best

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<v Speaker 3>in the industry cost performance, and we're driving our costs lower,

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<v Speaker 3>not by taking things away from the customer, but by

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<v Speaker 3>actually investing in technology that lets us run a better

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<v Speaker 3>operation for customers and is lower costs at the same time,

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<v Speaker 3>and that also helps fund investments for the customer. We're

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<v Speaker 3>spending over a billion dollars a year and incremental investments

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<v Speaker 3>for the customer, but also importantly investments in our people

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<v Speaker 3>and having them have the best pay and the best

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<v Speaker 3>contracts in the world.

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<v Speaker 2>Scott, I love saying that you're my favorite economists to

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<v Speaker 2>speak to.

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<v Speaker 1>You. You have this real time.

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<v Speaker 2>View of the economy, and right now what you're saying

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<v Speaker 2>is kind of flying in the face of the weakness

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<v Speaker 2>and some of the worries that we're hearing, whether it's

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<v Speaker 2>from the government shutdown is going to cause disruptions, or

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<v Speaker 2>whether it's the unemployment picture that people are increasingly worried about.

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<v Speaker 2>How do you square those two things, This reacceleration that

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<v Speaker 2>you're talking about with the weakness that policymakers seem to

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<v Speaker 2>be so worried about.

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<v Speaker 3>Well, uncertainty really is I think what drives the economy

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<v Speaker 3>in one direction or another. And there was a lot

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<v Speaker 3>of uncertainty to start the year. As we kind of

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<v Speaker 3>got into the third quarter and some of the macro issues,

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<v Speaker 3>the Reconciliation Bill passed, and geopolitical situation improved, Tariffs settled

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<v Speaker 3>into having some confidence what they're going to be. We

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<v Speaker 3>saw that improved. Now we do now have new issues

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<v Speaker 3>that things pop up all the time. What's happening with

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<v Speaker 3>the shutdown could become an issue. So far it hasn't been.

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<v Speaker 3>You know, first, the FA is doing I think a

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<v Speaker 3>great job of running the system. We have our lowest

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<v Speaker 3>cancelation rate in the last decade, our second best on

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<v Speaker 3>time performance.

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<v Speaker 1>The controllers are professionals.

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<v Speaker 3>There's not news about it, but the controllers are professionals

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<v Speaker 3>view their job as safety view their job is taking

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<v Speaker 3>care of the public, and kudos to them. They're almost

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<v Speaker 3>all of them are showing up to work and doing

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<v Speaker 3>their job. And has it the first couple of weeks

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<v Speaker 3>of October. Has it really affected bookings? I think if

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<v Speaker 3>this goes on for too long, certainly the risks escalate

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<v Speaker 3>in the economies that goes on. I think the economy

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<v Speaker 3>is better than most people think, but it's still tenuous.

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<v Speaker 3>It's still a little balanced on a knife edge, and

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<v Speaker 3>we shouldn't have unforecedare So let's get the shutdown settled.

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<v Speaker 2>Scott Kirby, thank you so much for your time. I

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<v Speaker 2>really appreciate it. That with Scott Kirby, the CEO of

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<v Speaker 2>United Airlines,