WEBVTT - United Airlines CEO Scott Kirby Talks Demand, Oil Prices and TSA Lines 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.760 --> 0:00:10.360 I would like to welcome everyone on Bloomberg Television and 0:00:10.520 --> 0:00:14.200 Bloomberg Radio. I am here in Los Angeles with the 0:00:14.240 --> 0:00:17.880 CEO of United Airlines, Scott Kirby. There is an incredible 0:00:17.880 --> 0:00:20.439 airline behind us. There are incredible exhibits here. We would 0:00:20.440 --> 0:00:23.280 be talking about all these new planes that United just bought, 0:00:23.480 --> 0:00:26.920 but instead the world has sent some other things. I 0:00:26.960 --> 0:00:28.600 really want to start with this question of how you 0:00:28.680 --> 0:00:32.320 plan for the future with a backdrop that is probably 0:00:32.320 --> 0:00:35.519 the most uncertain for airlines in particular since COVID. 0:00:35.640 --> 0:00:36.239 Well pleas for. 0:00:36.159 --> 0:00:39.600 Having me, Lisa and I love the United Blue, but 0:00:39.640 --> 0:00:43.879 carry on. You know, really, the way we plan is 0:00:43.920 --> 0:00:46.479 being prepared in advance. And when we came out of COVID, 0:00:46.680 --> 0:00:48.479 I made a commitment to our employees as to do 0:00:48.520 --> 0:00:51.120 everything possible to put United in a position where we 0:00:51.200 --> 0:00:54.280 never again furlough employees, which has happened over decades multiple 0:00:54.360 --> 0:00:56.760 times that United. And to do that, we knew there 0:00:56.840 --> 0:00:58.960 was some industry crisis to come. I didn't know what 0:00:58.960 --> 0:01:01.280 it was that would eventually come, but we're carrying triple 0:01:01.320 --> 0:01:03.240 the cash on the balance sheet that we had pre COVID. 0:01:03.440 --> 0:01:04.200 We've moved to the. 0:01:04.120 --> 0:01:06.080 Top of the industry in terms of margins, and we 0:01:06.120 --> 0:01:07.920 have the best credit rating that we've had in. 0:01:07.840 --> 0:01:08.560 Over thirty years. 0:01:08.600 --> 0:01:11.520 And what that does is give us the financial resources 0:01:11.720 --> 0:01:14.399 to look to the other side of the crisis, to 0:01:14.480 --> 0:01:17.080 continue investing in airplanes like this, to continue a full 0:01:17.080 --> 0:01:20.679 speed investing in the future, while we make tactical adjustments 0:01:20.680 --> 0:01:23.399 in the short term, but have the financial resources that 0:01:23.480 --> 0:01:25.480 we can look through the crisis to the recovery on 0:01:25.480 --> 0:01:26.000 the other side. 0:01:26.160 --> 0:01:27.520 You keep calling it a crisis. 0:01:27.680 --> 0:01:30.080 Last week we heard from American, we heard from Delta. 0:01:30.160 --> 0:01:32.840 They were talking about even upgrading their forecasts for the year, 0:01:32.959 --> 0:01:35.520 saying that consumer demand was so strong it could overcome 0:01:35.680 --> 0:01:37.200 whatever short term shot this is. 0:01:37.520 --> 0:01:39.520 You have a very different forecast. Why do you think 0:01:39.520 --> 0:01:41.880 it's not going to be that short term and not 0:01:42.000 --> 0:01:42.640 that moderate? 0:01:42.840 --> 0:01:46.200 So first I said exactly the same thing about demand. 0:01:46.200 --> 0:01:50.200 Demand is the strongness it's been ever. The top ten 0:01:50.240 --> 0:01:52.920 booking weeks of the year have all been in twenty. 0:01:52.640 --> 0:01:55.480 And twenty six so far. So demand is incredibly strong 0:01:56.080 --> 0:01:59.520 right now. But I do think that oil prices are 0:02:00.280 --> 0:02:01.400 I think they're higher for longer. 0:02:01.640 --> 0:02:04.800 It's reasonable for us to plan for that regardless, because 0:02:05.200 --> 0:02:07.840 the downside is pretty limited, Like we leave a little 0:02:07.840 --> 0:02:09.720 bit of demand on the table by not flying quite 0:02:09.760 --> 0:02:11.640 as much as this summer, So what that's not a 0:02:11.639 --> 0:02:15.240 big deal, but it gives us more optionality on the 0:02:15.280 --> 0:02:16.960 other side for the recovery. 0:02:17.080 --> 0:02:19.040 So we're really focused on what the recovery is going 0:02:19.120 --> 0:02:21.240 to look like. And I think our forecast of oil. 0:02:21.080 --> 0:02:23.080 Going to one hundred and seventy five and staying through 0:02:23.320 --> 0:02:25.200 up to one hundred to the end of next year 0:02:25.240 --> 0:02:27.359 is reasonable. I hope it's better, and there's a good 0:02:27.440 --> 0:02:30.080 chance it's better, but I think it's also reasonable, and 0:02:30.280 --> 0:02:33.000 planning and preparing for that really lets us come out 0:02:33.040 --> 0:02:34.760 stronger as we go through it. 0:02:34.800 --> 0:02:36.800 And on the other side, you've talked about how you're 0:02:36.840 --> 0:02:39.760 cutting about five percent of capacity in particular in the 0:02:39.760 --> 0:02:42.000 Middle East to some of the roots there in order 0:02:42.040 --> 0:02:46.040 to reduce capacity preserve margins. Do you think that's it 0:02:46.240 --> 0:02:49.160 or if prices go even higher, do you expect that 0:02:49.400 --> 0:02:51.480 to actually be an even bigger count to capacity. 0:02:51.600 --> 0:02:53.680 Watch and see what happens, particularly with demand. If our 0:02:53.680 --> 0:02:56.480 forecast of fuel prices is correct, then my guess is 0:02:56.480 --> 0:02:59.000 there's going to be an impact to the economy as well, 0:02:59.000 --> 0:03:01.560 and I hope not, but we'll watch that as it 0:03:01.560 --> 0:03:02.000 goes along. 0:03:02.000 --> 0:03:03.880 But what we're doing right now really is. 0:03:03.840 --> 0:03:06.920 Taking out flying that. You know, it's pretty marginal even 0:03:06.919 --> 0:03:08.840 in good times, and when oil price is double, it 0:03:08.840 --> 0:03:11.880 would lose money. And so there's just no point in 0:03:11.919 --> 0:03:13.919 flying flights that are going to lose money that can't 0:03:13.960 --> 0:03:14.919 cover the cost of fuel. 0:03:15.480 --> 0:03:17.160 So it just seems reasonable to do it. We'll be 0:03:17.240 --> 0:03:19.920 nimble and see what happens with prices and demand. 0:03:20.040 --> 0:03:22.160 The Middle East has been an area of expansion for 0:03:22.200 --> 0:03:23.800 a while. I know that a number of the airlines 0:03:23.840 --> 0:03:27.040 have really been moving heavily into the region. 0:03:27.360 --> 0:03:28.480 Are you adjusting and. 0:03:28.440 --> 0:03:30.480 If you're thinking longer term as a result of the 0:03:30.520 --> 0:03:33.480 conflict and potentially how long it could go on, Well. 0:03:33.240 --> 0:03:35.840 We'll see, but I would guess that when this is 0:03:35.920 --> 0:03:39.720 over that places like Dubai come back one hundred percent. 0:03:40.400 --> 0:03:41.240 I don't know, we'll. 0:03:41.040 --> 0:03:43.280 Watch it see, but I would bet on Dubai for the. 0:03:43.240 --> 0:03:44.520 Long term going forward. 0:03:44.520 --> 0:03:46.240 You've talked about how you want to take advantage of 0:03:46.240 --> 0:03:49.360 this time, how you see this as a crisis not 0:03:49.480 --> 0:03:51.520 unlike what we saw during the pandemic, and that you'd 0:03:51.520 --> 0:03:53.320 be even interested in potentially picking. 0:03:53.120 --> 0:03:56.960 Up some assets. What does that mean airplanes? Roots? 0:03:57.080 --> 0:03:59.360 Yeah, so first, I don't think it's a crisis like COVID. 0:04:00.040 --> 0:04:01.840 It's going to be a stress event. That's the word 0:04:01.840 --> 0:04:02.120 I use. 0:04:02.200 --> 0:04:04.960 More is stress event for the industry. If our fuel 0:04:05.040 --> 0:04:07.760 forecast is right, but it's nowhere near the magnitude of 0:04:07.760 --> 0:04:10.480 what happened in COVID. And in a stress event like that, 0:04:10.760 --> 0:04:13.560 I want us to be we start in the strongest position. 0:04:13.960 --> 0:04:15.880 I want us to be consistently ahead of the curve, 0:04:15.960 --> 0:04:18.200 like every time there's something happening, I want us to 0:04:18.200 --> 0:04:19.680 be first to let everyone else follow. 0:04:20.400 --> 0:04:22.480 And when we're doing that, you. 0:04:22.440 --> 0:04:25.640 Know, and others take longer to adjust, it is going 0:04:25.720 --> 0:04:28.400 to amp up the stress on them. That many of 0:04:28.440 --> 0:04:31.919 them start with weak income statements, weak balance sheets, and 0:04:31.960 --> 0:04:33.640 we'll be there to pick up some of those assets. 0:04:33.680 --> 0:04:36.159 And it might be a win win for them, but 0:04:36.760 --> 0:04:37.279 we'll be there to. 0:04:37.279 --> 0:04:38.880 Pick up some of those assets as we go through 0:04:38.880 --> 0:04:39.520 the crisis. 0:04:39.560 --> 0:04:42.600 We'll sale acquisition of a company or just well. 0:04:42.480 --> 0:04:45.680 See, there's lots of rumors about that going forward. 0:04:45.720 --> 0:04:46.159 I'm curious. 0:04:46.160 --> 0:04:49.080 Also, there's been questions about hedging against oil prices. You know, 0:04:49.120 --> 0:04:50.720 a lot of the airlines have really moved away from 0:04:50.760 --> 0:04:53.920 that because hasn't the profitable Delta has a refinery investment 0:04:53.960 --> 0:04:54.800 that has helped. 0:04:54.520 --> 0:04:56.000 Somewhat to offset. 0:04:55.680 --> 0:04:57.719 Some of these costs. Do you have any plans around 0:04:57.720 --> 0:04:58.520 that in any capacity? 0:04:58.640 --> 0:05:02.200 So it's we're so bad, it's hard to effectively hedge. 0:05:03.400 --> 0:05:04.960 We're just so big we move the market. 0:05:05.240 --> 0:05:07.640 If we try to hedge, it's really hard to hedge 0:05:07.680 --> 0:05:10.760 the crackspread, you know, you know, oil prices have gone up, 0:05:10.760 --> 0:05:12.880 the crackspread has gone up even more. It's really hard 0:05:12.880 --> 0:05:17.080 to hedge there, and so probably not. I actually tried 0:05:17.120 --> 0:05:18.960 to do a deal with AD years ago when I 0:05:19.000 --> 0:05:22.240 was at American and they foundered over a force majure 0:05:22.240 --> 0:05:23.880 clause where they wanted for it had just been a 0:05:23.880 --> 0:05:26.560 swap founded over a force majure or they said, well 0:05:26.600 --> 0:05:28.000 we need a force majure and I said, well that's 0:05:28.040 --> 0:05:29.480 the whole point, like what if the straits and before 0:05:29.560 --> 0:05:31.800 moves closed it, I said ten years ago, like that's 0:05:31.800 --> 0:05:33.840 when I want your hedge, and you can't get out 0:05:33.880 --> 0:05:34.039 of it. 0:05:34.360 --> 0:05:35.760 So it's just really hard for us to edge. 0:05:35.839 --> 0:05:38.120 Meanwhile, if this were the only crisis you'd be dealing 0:05:38.160 --> 0:05:41.160 with probably you'd be watching this clifully, but you'd be grateful. 0:05:41.360 --> 0:05:43.400 There is also this question around all of. 0:05:43.360 --> 0:05:45.360 The scenes that we see in social media, et cetera 0:05:45.400 --> 0:05:48.400 of TSA lines getting longer and longer. Have you noticed 0:05:48.400 --> 0:05:50.520 people missing their flights? I mean, how big of a 0:05:50.520 --> 0:05:51.360 problem has this been? 0:05:51.520 --> 0:05:53.240 You know? Thank you to the TSA. 0:05:53.440 --> 0:05:55.440 It's the vast majority of them are showing up to work. 0:05:55.480 --> 0:06:00.080 And I understood, like it's unconscionable that our politicians are. 0:06:00.080 --> 0:06:02.719 Put our TSA age. It's safety professionals. 0:06:02.160 --> 0:06:05.200 In a situation like this, But they're showing up to work. 0:06:05.600 --> 0:06:07.320 I love saying thank you to them every time. 0:06:07.160 --> 0:06:08.320 I go through. Uh. 0:06:08.360 --> 0:06:10.880 They're doing a great job. Yes, there are places where 0:06:10.880 --> 0:06:11.640 we've had long lines. 0:06:11.680 --> 0:06:14.799 It's really the last week that it's started to increase 0:06:14.839 --> 0:06:18.080 a little bit. I am hopeful that we're near the 0:06:18.080 --> 0:06:20.120 finish line. You know, I'm on my. 0:06:20.080 --> 0:06:22.520 Way back to d C after here, but I've been 0:06:22.560 --> 0:06:24.680 talking to folks in the Senate on both sides of 0:06:24.680 --> 0:06:27.359 the aisle. It does feel to me like we're close. 0:06:27.520 --> 0:06:28.240 This feels like. 0:06:28.240 --> 0:06:30.520 Kind of like the FAA felt, you know, where We're 0:06:30.560 --> 0:06:33.320 forty eight hours away. We've got the FA reopen feels 0:06:33.400 --> 0:06:35.080 very similar to me that we're close. 0:06:35.200 --> 0:06:37.560 I hope having it resolved, just having ICE. 0:06:37.440 --> 0:06:39.640 Agents there help things or things. 0:06:39.680 --> 0:06:40.599 You know, I don't know. 0:06:42.040 --> 0:06:46.440 That we were all trying to provide resources to TSA. 0:06:46.520 --> 0:06:48.760 You know, we're we and other airlines are doing things 0:06:48.760 --> 0:06:51.520 like providing meals and offering to use our staff to 0:06:51.560 --> 0:06:53.520 help with lines or to help with the exit, you know, 0:06:53.720 --> 0:06:55.960 monitoring the exits. Those are the kinds of things that 0:06:56.920 --> 0:06:59.920 the other government officials are doing. So the key though 0:06:59.920 --> 0:07:01.880 is like get TSA funded and. 0:07:01.839 --> 0:07:02.479 Pay the people. 0:07:02.680 --> 0:07:04.280 You've run companies for a long time. Have you ever 0:07:04.320 --> 0:07:06.520 spent more time in Washington, DC as a CEO? 0:07:06.720 --> 0:07:09.360 Boy, I spend a lot of time there. I've spent 0:07:09.440 --> 0:07:11.600 more there probably this year than any other year. 0:07:11.600 --> 0:07:13.280 Though, you feel like the system is fraying in terms 0:07:13.320 --> 0:07:15.080 of also like safety issues. I mean, there's been a 0:07:15.080 --> 0:07:17.360 lot of concern about what happened with Labordi at airport. 0:07:17.440 --> 0:07:20.720 Yeah, you know, the system is safe. It really is safe. 0:07:20.720 --> 0:07:24.160 It's by far the safest way to travel of any 0:07:24.200 --> 0:07:25.080 mode of transportation. 0:07:25.200 --> 0:07:28.120 And I do think that we need to invest more 0:07:28.120 --> 0:07:28.400 in the. 0:07:28.360 --> 0:07:31.280 FAA, both in staffing and then the technology. And I 0:07:31.320 --> 0:07:33.640 am like this is the first time in my career 0:07:33.760 --> 0:07:37.880 we've had an administration Secretary Duffy, Administrator Bedford that are 0:07:37.920 --> 0:07:39.080 fully committed. 0:07:38.720 --> 0:07:40.080 To doing that and they are doing it. 0:07:40.120 --> 0:07:43.360 And like staffing in Newark for example, it's the best 0:07:43.360 --> 0:07:46.240 it's been, you know, in my career. And we think 0:07:46.280 --> 0:07:47.640 we're going to be one hundred percent soy'll be the 0:07:47.640 --> 0:07:49.440 first time ever. I think that will be one hundred 0:07:49.440 --> 0:07:52.200 percent staff later this year. So on that road, the 0:07:52.240 --> 0:07:54.160 Secretary is about to ask, I think for another sixty 0:07:54.200 --> 0:07:57.040 seven billion for technology. I will encourage everyone on both 0:07:57.080 --> 0:07:59.880 sides of out let's do a bipartisan deal to get. 0:07:59.680 --> 0:08:01.840 That done, as that we need to invest in our 0:08:02.240 --> 0:08:03.400 In the meantime. 0:08:03.080 --> 0:08:05.640 We have consumers that have been incredibly resilient for all 0:08:05.640 --> 0:08:05.800 of this. 0:08:05.880 --> 0:08:06.760 They still want to travel. 0:08:06.880 --> 0:08:08.680 I mean, at what point do you start to see cannibalization. 0:08:08.720 --> 0:08:10.040 Are you're starting to see any pushback? 0:08:10.200 --> 0:08:13.160 You know, I'm sure there will be some. 0:08:13.560 --> 0:08:16.680 There is always a price elasticity, but we're starting from 0:08:16.840 --> 0:08:19.760 this perspective where airfares in twenty twenty five or two 0:08:19.800 --> 0:08:22.520 percent lower than they were in twenty nineteen, even though 0:08:22.560 --> 0:08:25.880 inflation was up twenty five percent, So airfares are up fifteen. 0:08:25.520 --> 0:08:28.360 To twenty percent in the last few weeks, but that's. 0:08:28.200 --> 0:08:32.720 Sort of covering half to sixty percent of the inflationary increase. 0:08:32.760 --> 0:08:34.560 So I think we have some room to go. But 0:08:34.600 --> 0:08:37.000 I also think, like you know, there will be less demand. 0:08:37.080 --> 0:08:39.400 There'll be fewer people traveling as prices go up. That's 0:08:39.440 --> 0:08:41.880 part of our cut capacity five percent. Like you know, 0:08:42.360 --> 0:08:44.600 when airfares have to go up because of oil prices, 0:08:44.720 --> 0:08:46.440 there are going to be some people that choose not 0:08:46.480 --> 0:08:48.720 to fly and to be naive not to realize that, 0:08:49.600 --> 0:08:51.839 and so pointing back to some of that capacity is 0:08:51.880 --> 0:08:52.800 a rational response. 0:08:52.840 --> 0:08:55.640 How much do you expect prices to have to go 0:08:55.720 --> 0:08:57.880 up just to adjust to the oil prices? 0:08:57.960 --> 0:09:02.000 Well, you know, if oil prices where they are today, 0:09:02.800 --> 0:09:06.600 that's eleven billion of expense for US, and that would 0:09:06.679 --> 0:09:07.839 require prices to be. 0:09:07.840 --> 0:09:11.760 Up twenty percent to break even to cover that cost. 0:09:12.320 --> 0:09:15.240 Meanwhile, you are announcing all of these new planes. A 0:09:15.240 --> 0:09:17.160 lot of them have put a real emphasis on the 0:09:17.200 --> 0:09:21.120 premium customer of Polaris on the both states, the by 0:09:21.200 --> 0:09:24.160 coastal kind of transit. You've talked a lot about how 0:09:24.160 --> 0:09:25.520 premium is the future. 0:09:25.559 --> 0:09:27.400 Can you talk about how much. 0:09:27.200 --> 0:09:30.240 It really is the growth sector and whether demand there continues. 0:09:29.920 --> 0:09:31.800 To be or us well, the truth that we're investing 0:09:31.840 --> 0:09:34.400 nose to tail for all customers. I mean, everybody gets 0:09:34.440 --> 0:09:37.320 the best technology, best out technology in the world, Starling 0:09:37.679 --> 0:09:40.959 feedback entertainment. So it's not just premium. Premium gets a 0:09:40.960 --> 0:09:42.920 lot of the press, but we're investing those to tail 0:09:43.000 --> 0:09:46.200 to win customers, brand loyal customers everywhere. But clearly the 0:09:46.280 --> 0:09:50.320 premium demand has been much stronger than anyone ever realized. 0:09:50.400 --> 0:09:52.080 What I really think it is not that premium demand 0:09:52.679 --> 0:09:55.360 is higher today than it was. It was always there. 0:09:55.559 --> 0:09:57.880 We didn't have the product to serve it. And once 0:09:57.880 --> 0:10:01.280 we create the product, we realize that they're demand that 0:10:01.400 --> 0:10:04.240 was in excess of what we knew. Also at United, 0:10:04.480 --> 0:10:06.319 like we just we were born on third base when 0:10:06.360 --> 0:10:09.360 it comes to premium with hubs in Newark, Dallas, Chicago, 0:10:09.440 --> 0:10:10.880 San Francisco. 0:10:10.280 --> 0:10:12.080 Like you know, like sometimes it's going to be lucky. 0:10:12.440 --> 0:10:15.040 We were born on third base where there's far more 0:10:15.080 --> 0:10:18.120 premium demand for our product, and so lets us be 0:10:18.160 --> 0:10:18.559 the leader. 0:10:18.679 --> 0:10:21.280 Scott Kirby, wonderful for you to take the time, Thank 0:10:21.280 --> 0:10:22.920 you so much for being here. Wonderful to speak with 0:10:22.960 --> 0:10:26.080 you that was Scott Kirby, the chief executive officer of 0:10:26.360 --> 0:10:27.319 United Airlines.