Speaker 1: Bloomberg Audio Studios, podcasts, radio news from.
Speaker 2: Morgan Stanley, reiterating its overweight on United Airlines, expecting forward
Speaker 2: guidance to reinforce US airline optimism. Let stock is up
Speaker 2: by six percent in early trading. Let's stick with United,
Speaker 2: the Airline reporting its best first quarter performance in five
Speaker 2: years and offering investors dual forecasts in the face of
Speaker 2: economic uncertainty, writing in a statement, the company's outlook is
Speaker 2: dependent on the macro environment, which the company believes is
Speaker 2: impossible to predict this year with any degree of confidence.
Speaker 2: Joining us now the main map the United Airline CEO
Speaker 2: Scott Kirby. Scott, welcome back to the program, Sarah. It's
Speaker 2: good to catch up with you once again. Let me
Speaker 2: just understand maybe your approach to this earnings report, how
Speaker 2: you and the team decided, you know what, this time,
Speaker 2: I think we have to do something different and offer
Speaker 2: a dual forecast. Where did that come from, Scott?
Speaker 3: Yeah, we did. We thought it was appropriate to do
Speaker 3: something different. It starts with, you know, the environment has
Speaker 3: more difficult but first, you know, we did have you know,
Speaker 3: as you said in the intro, the best margins we've
Speaker 3: had in five years. We grew margins over year, were
Speaker 3: only two airlines that are profitable, and as we kind
Speaker 3: of went through it, we still see a viable path
Speaker 3: to getting to our as long as bookings remain stable
Speaker 3: as they are today and getting to our original guidance.
Speaker 3: But we also recognize that there's more macroeconomic uncertainty, that
Speaker 3: people are fearful of a recession hasn't happened yet, but
Speaker 3: that they're fearful of a recession, and so we wanted
Speaker 3: to also give investors some outlook on what we think
Speaker 3: of recession could look like if it happens here at
Speaker 3: United So really the goal was to just give investors
Speaker 3: more information. Is non traditional. We're the first ones that
Speaker 3: I ever know if they have done something like this,
Speaker 3: and so far the feedback has been has been really positive,
Speaker 3: and I think investors and others appreciate that we try
Speaker 3: to give them a more fullsome range as we get
Speaker 3: guidance since time, Scott.
Speaker 1: Can you give us a sense if you were catering
Speaker 1: more to investor nervousness or whether you're responding to actual
Speaker 1: weakness that you see in some of the forward bookings
Speaker 1: by clients.
Speaker 3: So as I'm guessing your refriend to our capacity changes,
Speaker 3: and we're going to pull about four points of capacity
Speaker 3: from the second half of this year. That's really just
Speaker 3: a pure tactical economic decision. We do see weakness, and
Speaker 3: because we see weakness, it means we're starting to cancel
Speaker 3: some of the utilization. Flying that red eye flight that
Speaker 3: was barely profitable and really peak strong times becomes unprofitable.
Speaker 3: When the demand environment weekends a little bit, customers have
Speaker 3: more choice to fly better times a day, and so
Speaker 3: they do, and so we're all we're really doing tactically
Speaker 3: is pulling some of that marginal flying. Marginaling good times
Speaker 3: turns negative and bad times, so we're just pulling that
Speaker 3: out of the system.
Speaker 1: How much do you see going forward, though, any kind
Speaker 1: of retrenchment from consumers whatsoever. A lot of people have
Speaker 1: been talking about how particularly international travel is going to
Speaker 1: come down with people from overseas now coming to the US.
Speaker 1: Are you seeing that forward bookings or has that kind
Speaker 1: of been more of a narrative than a reality.
Speaker 3: It's been more of a narrative than a reality. We
Speaker 3: saw weakness starting at the end of January. We saw
Speaker 3: a step down, but it is stabilized in March and
Speaker 3: even the first two weeks of April it has stabilized.
Speaker 3: And the weakest area we see is actually the low
Speaker 3: end domestic consumer here in the United States. International has
Speaker 3: remained quite strong. International for what it's worth is eighty
Speaker 3: two percent US point of sale, so it's much more
Speaker 3: dependent on the US economy than foreigners coming to the
Speaker 3: United States. It's also less corporate than it used to be.
Speaker 3: And because of that, you know, the leisure traveler is
Speaker 3: still going, the premium leisure is still there. Typically, even
Speaker 3: in times of economic weakness, the high end consumer outperforms,
Speaker 3: and that's what we thought would happen. That's what we've
Speaker 3: seen so far. We'll keep watching it, of course, but
Speaker 3: that's certainly what we've seen so far.
Speaker 1: How much does this really puts you in a position
Speaker 1: to consolidate market share right now? We keep seeing that
Speaker 1: among a lot of the leaders in different industries. This
Speaker 1: is time for them to compete on price, to compete
Speaker 1: on some of the offerings, and frankly squeeze some of
Speaker 1: the other weaker players in the markets that you emerge
Speaker 1: in the other side a lot stronger. Do you see
Speaker 1: that happening with United right now?
Speaker 3: Well, you know, we've had a five year strategy to
Speaker 3: win brand loyal customers and we've done that. So really
Speaker 3: nothing is changing now. We're not doing anything incremental, anything different.
Speaker 3: We're continuing the path that we have been on because
Speaker 3: it's worked. It's led to the best margins in good times.
Speaker 3: I think that lead is going to expand in tough times,
Speaker 3: not because we're doing anything special, but just because we'll
Speaker 3: have more seats to sell available to those customers. And
Speaker 3: when you're the brand loyal airline, when times get tough
Speaker 3: and you have more seats to sell, more customers migrate
Speaker 3: to you, and so we'll wind up selling more seats
Speaker 3: at lower prices because that's the way our your management
Speaker 3: system works. But we'll sell just as many seats. It's
Speaker 3: going to make it much harder at the bottom of
Speaker 3: the customer choice pyramid, Scott.
Speaker 2: As you know, there's a lot of tension right now
Speaker 2: between the United States and China that's been expressed in
Speaker 2: several rounds of tarifs from either side. We hope they
Speaker 2: can come to the table and have some talks, but
Speaker 2: so far not great for the maintenance of your plane, sir,
Speaker 2: and the exposure that you have to China to Hong Kong.
Speaker 2: How are you managing that situation at the moment?
Speaker 3: So united We actually we have more of our heavy
Speaker 3: maintenance work done here in the United States than any
Speaker 3: airline in the country. We've been growing here in the US.
Speaker 3: In fact, over a three year period, we're going to
Speaker 3: hire about five thousand technicians here in the United States,
Speaker 3: building huge new facilities in Houston and in Orlando. And
Speaker 3: most of our work is done in the Free Trade
Speaker 3: Zone outside of Hong Kong the work that is done
Speaker 3: in China. So we're monitoring it day by day. But
Speaker 3: you know, we have a high percentage here in the
Speaker 3: United States, more than anyone else, and feel good about
Speaker 3: our setup.
Speaker 2: Becouse, some CEOs have been quite outspoken about what they'd
Speaker 2: like to see from the administration on policy. Are you
Speaker 2: willing to do that? Is there a reason why maybe
Speaker 2: you'd be a little bit more hesitant away in Well.
Speaker 3: I've spent a lot of time in DC this year,
Speaker 3: as I always do, but I've mostly been focused on
Speaker 3: listening instead of talking, and so I wanted to understand
Speaker 3: where the administration was coming from, what their goals were,
Speaker 3: how they were trying to get there, and I actually
Speaker 3: got by the end of March, felt like I had
Speaker 3: a pretty good understanding of that. And if you have
Speaker 3: that kind of understanding and you can put everything that's
Speaker 3: happening into context, you know, it makes it a lot
Speaker 3: easier to run, manage the business, to not make panicky decisions.
Speaker 3: And you know what I think is happening here is
Speaker 3: you know, we're nowhere near the end of the game.
Speaker 3: Yet you know, these are still the opening moves of
Speaker 3: the chess game. And I think I and most people
Speaker 3: that I talk to, you know, or things have slowed down,
Speaker 3: but we're all in a kind of a take of
Speaker 3: breath mode. And let's wait till we get to whatever
Speaker 3: the new normal is going to be before we start
Speaker 3: making big long term decision.
Speaker 2: We've all got to take a deep breath. Your stock
Speaker 2: is out this morning by about six and a half percent.
Speaker 2: I wanted to talk about something with you that we've
Speaker 2: been talking about for a while on this program, Scott.
Speaker 2: As you know, one of the most disruptive parts of
Speaker 2: FLYINGK right now is the boarding process. And when you
Speaker 2: get on, everyone is wrestling to find space to put
Speaker 2: that bank over their seat. How do we address that
Speaker 2: situation Scott, but so Couldtelli was a traveler. It is
Speaker 2: the most annoying experience. And it's not you, I said,
Speaker 2: it's something we're saying across the board.
Speaker 3: As a father of seven, I understand it trying to
Speaker 3: get out with a bunch of kids, and I'd say,
Speaker 3: we're fixing that. At United. The biggest thing we can
Speaker 3: do we had to put bigger bends on the airplane.
Speaker 3: We're about we're over fifty percent through the fleet at United,
Speaker 3: but we're putting bends on all the airplanes that are
Speaker 3: large enough that on one hundred percent full airplane, every
Speaker 3: single customer can bring a rollerboard on and put it
Speaker 3: in the overhead. And I think that at its core
Speaker 3: is how we're going to solve It's gott.
Speaker 1: How much more can you get people to pay for
Speaker 1: things that they used to know they could get. I
Speaker 1: know that Fred Terry used to do that with cans
Speaker 1: of soda and then they had to backtrack or checking bags.
Speaker 1: Are there other things that you can monetize or doesn't
Speaker 1: really come down to the credit took hard business. The
Speaker 1: loyalty program, counting on the front of the cabin, you know, yeah.
Speaker 3: You know, I actually we're kind of going the opposite direction.
Speaker 3: If we haven't disaggregated the product, give customers what they want.
Speaker 3: If you want the premium product, you can get it.
Speaker 3: You can go the regular economy product all the way
Speaker 3: down to basic economy. But you know, we got Starlink
Speaker 3: coming next year. We're going to have the best, the
Speaker 3: fastest WiFi in the sky and that's going to be
Speaker 3: free for our customer. So WiFi is going to be free,
Speaker 3: and it's going to be by far the best experience,
Speaker 3: the most bandwidth, the fastest speeds for any customers. And
Speaker 3: you know, in a lot of ways, increasingly, instead of
Speaker 3: being an airline that also has a loyalty business, we
Speaker 3: are becoming a loyalty business that runs an airline. I
Speaker 3: mean being able to get customers to Tahiti and Cape down.
Speaker 3: That's the coolest sexy reward that you get in the
Speaker 3: loyalty program. But you know, the large airlines, particularly like United,
Speaker 3: you know, we really have the best, the deepest loyalty program.
Speaker 3: And I talked earlier about brand loyal customers like customers
Speaker 3: that want to fly United Airlines, and that is the strength.
Speaker 3: That's what's given us the resilience to have strong earnings
Speaker 3: even in a tough macro environment. It's what's going to
Speaker 3: let us outperform even if the economy gets weaker from here.
Speaker 3: That loyalty of customers, whether you call it the loyalty
Speaker 3: business or just having brand loyal customers, is the foundation
Speaker 3: that's letting a United out perform.
Speaker 2: A masterclass in communications from the firm in the last
Speaker 2: twenty four hours, Scott, appreciate your time. Thank you. Scott
Speaker 2: Kirby there, the United Airlines CEO.