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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: I would like to welcome everyone on Bloomberg Television and

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Speaker 2: Bloomberg Radio. I am here in Los Angeles with the

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Speaker 2: CEO of United Airlines, Scott Kirby. There is an incredible

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Speaker 2: airline behind us. There are incredible exhibits here. We would

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Speaker 2: be talking about all these new planes that United just bought,

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Speaker 2: but instead the world has sent some other things. I

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Speaker 2: really want to start with this question of how you

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Speaker 2: plan for the future with a backdrop that is probably

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Speaker 2: the most uncertain for airlines in particular since COVID.

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Speaker 3: Well pleas for.

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Speaker 1: Having me, Lisa and I love the United Blue, but

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Speaker 1: carry on. You know, really, the way we plan is

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Speaker 1: being prepared in advance. And when we came out of COVID,

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Speaker 1: I made a commitment to our employees as to do

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Speaker 1: everything possible to put United in a position where we

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Speaker 1: never again furlough employees, which has happened over decades multiple

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Speaker 1: times that United. And to do that, we knew there

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Speaker 1: was some industry crisis to come. I didn't know what

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Speaker 1: it was that would eventually come, but we're carrying triple

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Speaker 1: the cash on the balance sheet that we had pre COVID.

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Speaker 3: We've moved to the.

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Speaker 1: Top of the industry in terms of margins, and we

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Speaker 1: have the best credit rating that we've had in.

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Speaker 3: Over thirty years.

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Speaker 1: And what that does is give us the financial resources

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Speaker 1: to look to the other side of the crisis, to

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Speaker 1: continue investing in airplanes like this, to continue a full

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Speaker 1: speed investing in the future, while we make tactical adjustments

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Speaker 1: in the short term, but have the financial resources that

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Speaker 1: we can look through the crisis to the recovery on

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Speaker 1: the other side.

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Speaker 4: You keep calling it a crisis.

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Speaker 2: Last week we heard from American, we heard from Delta.

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Speaker 2: They were talking about even upgrading their forecasts for the year,

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Speaker 2: saying that consumer demand was so strong it could overcome

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Speaker 2: whatever short term shot this is.

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Speaker 4: You have a very different forecast. Why do you think

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Speaker 4: it's not going to be that short term and not

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Speaker 4: that moderate?

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Speaker 1: So first I said exactly the same thing about demand.

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Speaker 1: Demand is the strongness it's been ever. The top ten

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Speaker 1: booking weeks of the year have all been in twenty.

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Speaker 3: And twenty six so far. So demand is incredibly strong

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Speaker 3: right now. But I do think that oil prices are

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Speaker 3: I think they're higher for longer.

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Speaker 1: It's reasonable for us to plan for that regardless, because

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Speaker 1: the downside is pretty limited, Like we leave a little

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Speaker 1: bit of demand on the table by not flying quite

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Speaker 1: as much as this summer, So what that's not a

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Speaker 1: big deal, but it gives us more optionality on the

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Speaker 1: other side for the recovery.

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Speaker 3: So we're really focused on what the recovery is going

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Speaker 3: to look like. And I think our forecast of oil.

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Speaker 1: Going to one hundred and seventy five and staying through

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Speaker 1: up to one hundred to the end of next year

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Speaker 1: is reasonable. I hope it's better, and there's a good

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Speaker 1: chance it's better, but I think it's also reasonable, and

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Speaker 1: planning and preparing for that really lets us come out

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Speaker 1: stronger as we go through it.

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Speaker 2: And on the other side, you've talked about how you're

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Speaker 2: cutting about five percent of capacity in particular in the

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Speaker 2: Middle East to some of the roots there in order

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Speaker 2: to reduce capacity preserve margins. Do you think that's it

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Speaker 2: or if prices go even higher, do you expect that

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Speaker 2: to actually be an even bigger count to capacity.

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Speaker 1: Watch and see what happens, particularly with demand. If our

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Speaker 1: forecast of fuel prices is correct, then my guess is

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Speaker 1: there's going to be an impact to the economy as well,

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Speaker 1: and I hope not, but we'll watch that as it

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Speaker 1: goes along.

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Speaker 3: But what we're doing right now really is.

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Speaker 1: Taking out flying that. You know, it's pretty marginal even

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Speaker 1: in good times, and when oil price is double, it

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Speaker 1: would lose money. And so there's just no point in

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Speaker 1: flying flights that are going to lose money that can't

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Speaker 1: cover the cost of fuel.

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Speaker 3: So it just seems reasonable to do it. We'll be

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Speaker 3: nimble and see what happens with prices and demand.

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Speaker 2: The Middle East has been an area of expansion for

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Speaker 2: a while. I know that a number of the airlines

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Speaker 2: have really been moving heavily into the region.

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Speaker 4: Are you adjusting and.

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Speaker 2: If you're thinking longer term as a result of the

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Speaker 2: conflict and potentially how long it could go on, Well.

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Speaker 1: We'll see, but I would guess that when this is

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Speaker 1: over that places like Dubai come back one hundred percent.

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Speaker 3: I don't know, we'll.

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Speaker 1: Watch it see, but I would bet on Dubai for the.

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Speaker 4: Long term going forward.

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Speaker 2: You've talked about how you want to take advantage of

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Speaker 2: this time, how you see this as a crisis not

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Speaker 2: unlike what we saw during the pandemic, and that you'd

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Speaker 2: be even interested in potentially picking.

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Speaker 4: Up some assets. What does that mean airplanes? Roots?

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Speaker 1: Yeah, so first, I don't think it's a crisis like COVID.

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Speaker 3: It's going to be a stress event. That's the word

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Speaker 3: I use.

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Speaker 1: More is stress event for the industry. If our fuel

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Speaker 1: forecast is right, but it's nowhere near the magnitude of

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Speaker 1: what happened in COVID. And in a stress event like that,

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Speaker 1: I want us to be we start in the strongest position.

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Speaker 1: I want us to be consistently ahead of the curve,

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Speaker 1: like every time there's something happening, I want us to

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Speaker 1: be first to let everyone else follow.

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Speaker 3: And when we're doing that, you.

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Speaker 1: Know, and others take longer to adjust, it is going

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Speaker 1: to amp up the stress on them. That many of

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Speaker 1: them start with weak income statements, weak balance sheets, and

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Speaker 1: we'll be there to pick up some of those assets.

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Speaker 1: And it might be a win win for them, but

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Speaker 1: we'll be there to.

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Speaker 3: Pick up some of those assets as we go through

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Speaker 3: the crisis.

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Speaker 4: We'll sale acquisition of a company or just well.

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Speaker 1: See, there's lots of rumors about that going forward.

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Speaker 4: I'm curious.

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Speaker 2: Also, there's been questions about hedging against oil prices. You know,

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Speaker 2: a lot of the airlines have really moved away from

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Speaker 2: that because hasn't the profitable Delta has a refinery investment

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Speaker 2: that has helped.

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Speaker 4: Somewhat to offset.

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Speaker 2: Some of these costs. Do you have any plans around

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Speaker 2: that in any capacity?

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Speaker 1: So it's we're so bad, it's hard to effectively hedge.

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Speaker 3: We're just so big we move the market.

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Speaker 1: If we try to hedge, it's really hard to hedge

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Speaker 1: the crackspread, you know, you know, oil prices have gone up,

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Speaker 1: the crackspread has gone up even more. It's really hard

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Speaker 1: to hedge there, and so probably not. I actually tried

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Speaker 1: to do a deal with AD years ago when I

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Speaker 1: was at American and they foundered over a force majure

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Speaker 1: clause where they wanted for it had just been a

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Speaker 1: swap founded over a force majure or they said, well

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Speaker 1: we need a force majure and I said, well that's

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Speaker 1: the whole point, like what if the straits and before

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Speaker 1: moves closed it, I said ten years ago, like that's

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Speaker 1: when I want your hedge, and you can't get out

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Speaker 1: of it.

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Speaker 3: So it's just really hard for us to edge.

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Speaker 2: Meanwhile, if this were the only crisis you'd be dealing

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Speaker 2: with probably you'd be watching this clifully, but you'd be grateful.

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Speaker 4: There is also this question around all of.

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Speaker 2: The scenes that we see in social media, et cetera

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Speaker 2: of TSA lines getting longer and longer. Have you noticed

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Speaker 2: people missing their flights? I mean, how big of a

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Speaker 2: problem has this been?

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Speaker 3: You know? Thank you to the TSA.

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Speaker 1: It's the vast majority of them are showing up to work.

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Speaker 1: And I understood, like it's unconscionable that our politicians are.

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Speaker 3: Put our TSA age. It's safety professionals.

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Speaker 1: In a situation like this, But they're showing up to work.

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Speaker 1: I love saying thank you to them every time.

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Speaker 3: I go through. Uh.

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Speaker 1: They're doing a great job. Yes, there are places where

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Speaker 1: we've had long lines.

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Speaker 3: It's really the last week that it's started to increase

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Speaker 3: a little bit. I am hopeful that we're near the

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Speaker 3: finish line. You know, I'm on my.

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Speaker 1: Way back to d C after here, but I've been

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Speaker 1: talking to folks in the Senate on both sides of

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Speaker 1: the aisle. It does feel to me like we're close.

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Speaker 3: This feels like.

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Speaker 1: Kind of like the FAA felt, you know, where We're

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Speaker 1: forty eight hours away. We've got the FA reopen feels

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Speaker 1: very similar to me that we're close.

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Speaker 3: I hope having it resolved, just having ICE.

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Speaker 4: Agents there help things or things.

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Speaker 3: You know, I don't know.

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Speaker 1: That we were all trying to provide resources to TSA.

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Speaker 1: You know, we're we and other airlines are doing things

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Speaker 1: like providing meals and offering to use our staff to

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Speaker 1: help with lines or to help with the exit, you know,

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Speaker 1: monitoring the exits. Those are the kinds of things that

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Speaker 1: the other government officials are doing. So the key though

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Speaker 1: is like get TSA funded and.

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Speaker 3: Pay the people.

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Speaker 2: You've run companies for a long time. Have you ever

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Speaker 2: spent more time in Washington, DC as a CEO?

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Speaker 3: Boy, I spend a lot of time there. I've spent

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Speaker 3: more there probably this year than any other year.

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Speaker 2: Though, you feel like the system is fraying in terms

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Speaker 2: of also like safety issues. I mean, there's been a

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Speaker 2: lot of concern about what happened with Labordi at airport.

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Speaker 3: Yeah, you know, the system is safe. It really is safe.

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Speaker 1: It's by far the safest way to travel of any

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Speaker 1: mode of transportation.

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Speaker 3: And I do think that we need to invest more

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Speaker 3: in the.

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Speaker 1: FAA, both in staffing and then the technology. And I

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Speaker 1: am like this is the first time in my career

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Speaker 1: we've had an administration Secretary Duffy, Administrator Bedford that are

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Speaker 1: fully committed.

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Speaker 3: To doing that and they are doing it.

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Speaker 1: And like staffing in Newark for example, it's the best

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Speaker 1: it's been, you know, in my career. And we think

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Speaker 1: we're going to be one hundred percent soy'll be the

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Speaker 1: first time ever. I think that will be one hundred

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Speaker 1: percent staff later this year. So on that road, the

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Speaker 1: Secretary is about to ask, I think for another sixty

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Speaker 1: seven billion for technology. I will encourage everyone on both

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Speaker 1: sides of out let's do a bipartisan deal to get.

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Speaker 3: That done, as that we need to invest in our

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Speaker 3: In the meantime.

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Speaker 2: We have consumers that have been incredibly resilient for all

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Speaker 2: of this.

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Speaker 4: They still want to travel.

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Speaker 2: I mean, at what point do you start to see cannibalization.

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Speaker 2: Are you're starting to see any pushback?

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Speaker 3: You know, I'm sure there will be some.

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Speaker 1: There is always a price elasticity, but we're starting from

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Speaker 1: this perspective where airfares in twenty twenty five or two

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Speaker 1: percent lower than they were in twenty nineteen, even though

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Speaker 1: inflation was up twenty five percent, So airfares are up fifteen.

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Speaker 3: To twenty percent in the last few weeks, but that's.

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Speaker 1: Sort of covering half to sixty percent of the inflationary increase.

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Speaker 1: So I think we have some room to go. But

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Speaker 1: I also think, like you know, there will be less demand.

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Speaker 1: There'll be fewer people traveling as prices go up. That's

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Speaker 1: part of our cut capacity five percent. Like you know,

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Speaker 1: when airfares have to go up because of oil prices,

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Speaker 1: there are going to be some people that choose not

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Speaker 1: to fly and to be naive not to realize that,

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Speaker 1: and so pointing back to some of that capacity is

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Speaker 1: a rational response.

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Speaker 2: How much do you expect prices to have to go

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Speaker 2: up just to adjust to the oil prices?

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Speaker 1: Well, you know, if oil prices where they are today,

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Speaker 1: that's eleven billion of expense for US, and that would

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Speaker 1: require prices to be.

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Speaker 3: Up twenty percent to break even to cover that cost.

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Speaker 2: Meanwhile, you are announcing all of these new planes. A

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Speaker 2: lot of them have put a real emphasis on the

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Speaker 2: premium customer of Polaris on the both states, the by

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Speaker 2: coastal kind of transit. You've talked a lot about how

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Speaker 2: premium is the future.

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Speaker 4: Can you talk about how much.

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Speaker 2: It really is the growth sector and whether demand there continues.

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Speaker 1: To be or us well, the truth that we're investing

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Speaker 1: nose to tail for all customers. I mean, everybody gets

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Speaker 1: the best technology, best out technology in the world, Starling

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Speaker 1: feedback entertainment. So it's not just premium. Premium gets a

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Speaker 1: lot of the press, but we're investing those to tail

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Speaker 1: to win customers, brand loyal customers everywhere. But clearly the

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Speaker 1: premium demand has been much stronger than anyone ever realized.

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Speaker 1: What I really think it is not that premium demand

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Speaker 1: is higher today than it was. It was always there.

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Speaker 1: We didn't have the product to serve it. And once

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Speaker 1: we create the product, we realize that they're demand that

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Speaker 1: was in excess of what we knew. Also at United,

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Speaker 1: like we just we were born on third base when

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Speaker 1: it comes to premium with hubs in Newark, Dallas, Chicago,

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Speaker 1: San Francisco.

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Speaker 3: Like you know, like sometimes it's going to be lucky.

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Speaker 1: We were born on third base where there's far more

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Speaker 1: premium demand for our product, and so lets us be

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Speaker 1: the leader.

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Speaker 2: Scott Kirby, wonderful for you to take the time, Thank

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Speaker 2: you so much for being here. Wonderful to speak with

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Speaker 2: you that was Scott Kirby, the chief executive officer of

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Speaker 2: United Airlines.