Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Great to be here in Chicago and thank you so much.
Speaker 2: I am here with Scott Kirby, the CEO of United Airlines,
Speaker 2: after earnings came out. He really echoed what we heard
Speaker 2: from Delta, which was a first reporter, which is stability, solidness,
Speaker 2: a sense of recovery. You said, the world is less
Speaker 2: uncertain today than it was during the first six months
Speaker 2: of twenty twenty five. What was the inflection point where
Speaker 2: you saw that certainty come into play.
Speaker 3: You know, this year a lot of uncertainty in the
Speaker 3: first half of the year at macro uncertainty and that
Speaker 3: led to an impact on bookings and demand at United
Speaker 3: and across the whole industry. But it felt like there
Speaker 3: was a turning point at the end of June where
Speaker 3: the tax bill passed and the situation in the Middle
Speaker 3: East was calmer and tariffs, while not certain, yet narrowing
Speaker 3: the range.
Speaker 1: And it really.
Speaker 3: Felt like people felt enough confidence or enough lower level
Speaker 3: of uncertainty that they kind of came off the sidelines
Speaker 3: and were unfrozen. And particularly for business demand, I mean,
Speaker 3: you can't stay on the sidelines forever.
Speaker 1: And that was enough of a trigger.
Speaker 3: It really was like a light switch flipped at the
Speaker 3: end of June, particularly for business demand. Double digit acceleration
Speaker 3: in business demand as we ended June, and that's continued,
Speaker 3: you know through yesterday.
Speaker 2: We've talked a lot about the K shaped recovery and
Speaker 2: the idea that high end consumers have really been driving
Speaker 2: the economy. Corporations kind of dropped off with business travel,
Speaker 2: as you said, they picked back up. What about the
Speaker 2: rest of the travelers, the main cabin how much have
Speaker 2: they rebounded back to where they would have been had
Speaker 2: there not been some of the headline volatility, So you
Speaker 2: sort of separated.
Speaker 1: Into those three pieces.
Speaker 3: Business demand dropped off at the start of the year,
Speaker 3: that seems like it's bounced back to what we were
Speaker 3: expecting it to be as we moved into July. Premium
Speaker 3: and higher end leisure sort of stayed consistent throughout.
Speaker 1: It never really dropped off.
Speaker 3: And the biggest impact for the consumer was in low
Speaker 3: end leisure. That's come back some in July, but not
Speaker 3: as much. I'd say that's sort of fifty percent recovered
Speaker 3: to what we were expecting at the start of the year.
Speaker 3: So business back to mostly a full recovery, and low
Speaker 3: end leisure kind of fifty percent recover.
Speaker 1: Premium leisure never never fell off.
Speaker 2: We've seen sort of one entrance into the CPI report.
Speaker 2: The idea of inflation has been airline tickets have actually
Speaker 2: prices have been coming down, and there's this question of
Speaker 2: whether discounting is required to bring some of the main
Speaker 2: cabin back and whether that's going to be a persistent
Speaker 2: trend that competing on price is going to be really important.
Speaker 2: How much do you see that as persisting into the
Speaker 2: second half of the.
Speaker 3: Air The airline industry is always good value, It always
Speaker 3: as attractive prices, but I think it's more of a
Speaker 3: supply demand imbalance that there are a number of airlines.
Speaker 3: You know, there are two brand loyal airlines in the
Speaker 3: United States who are now generating the bulk of the
Speaker 3: industry's profits because those customers that care about quality, care
Speaker 3: about service, that care about technology are were just better
Speaker 3: and they're choosing us, And you can see it in
Speaker 3: the data. You can see it in the numbers. For
Speaker 3: the more commoditized part of the business. You know, there's
Speaker 3: simply more seats available. There's been more seats available than
Speaker 3: there is demand, but encouragingly there's a big change coming
Speaker 3: in mid August. Well, we've talked about demand, and I've
Speaker 3: seen an inflection demand. There's also an inflection coming in supply,
Speaker 3: as by the time we get to mid August, there
Speaker 3: are a lot of seats the same thing happened last year,
Speaker 3: a lot of seats coming out of the industry, particularly
Speaker 3: from the low end carriers who've been struggling.
Speaker 1: Those seats are coming out.
Speaker 3: So my guess is that's going to lead to a
Speaker 3: firmer pricing environment as we move into mid August.
Speaker 1: And actually we can already see that in our numbers
Speaker 1: for later in the year.
Speaker 2: Are you expecting to take any capacity out?
Speaker 3: You know, we're we continue to prune, but there's not
Speaker 3: going to be any structural changes to our capacity.
Speaker 1: And you know, we are encouraged by the environment. And
Speaker 1: in fact, just in the.
Speaker 3: Last couple of weeks for US at least, the yields
Speaker 3: have turned positive on domestics. They've been down, you know
Speaker 3: for several months as we started the year, but yields
Speaker 3: have now turned positive for forward.
Speaker 1: Bookings at least.
Speaker 2: So why have you knock on with the more bullish
Speaker 2: potential estimates? Then? For your forecast given that you sound
Speaker 2: incredibly positive and you have seen this ongoing rebound, you.
Speaker 1: Know, it's been a good year.
Speaker 3: I mean, it's actually pretty remarkable that we've grown earnings
Speaker 3: and margins for the first half of the year despite
Speaker 3: everything that's happened.
Speaker 1: But a lot has happened this year, and.
Speaker 3: We like to have a policy of being conservative on
Speaker 3: our guidance because stuff does happen, and we want to
Speaker 3: be able to absorb some unexpected events in our guidance.
Speaker 3: We intentionally build it conservatively. We did that's we do
Speaker 3: that all the time. But so really what happened this
Speaker 3: time is we've been able to build that conservativism back.
Speaker 1: So you know, if nothing else happens.
Speaker 3: This year, which is a big if, and if demand
Speaker 3: stays as strong booking demand stays as strong as it
Speaker 3: is right now.
Speaker 1: There's probably upside.
Speaker 3: But we'd rather be conservative than than get out two
Speaker 3: four out over our skis.
Speaker 2: One reason why I was really excited to speak with
Speaker 2: you is say you have a real time view of
Speaker 2: not only the consumer and the appetite there, but also
Speaker 2: international demand and whether there has been any damage to
Speaker 2: the brand Americana, the idea of foreign travelers coming to
Speaker 2: the United States for tourism, et cetera. You've said that
Speaker 2: there has been a drop off at European travelers. How
Speaker 2: sustained do you expect that to be? Are you seeing
Speaker 2: any permanent shifts in that international inbound landscape?
Speaker 3: You know there has been a drop off in in inbound.
Speaker 3: Your demand of Europe is one but it's a single
Speaker 3: digit decline. So in US point of sale has more
Speaker 3: than made up for it. It's eighty percent of our business.
Speaker 3: I don't think it'll be permanent. You know, the the
Speaker 3: United States is the greatest country on Earth. It's a
Speaker 3: great place for people to come, a great place for
Speaker 3: people to visit. Demand is affected by all kinds of things.
Speaker 3: That we have fewer students coming to the US right now,
Speaker 3: you know, not surprisingly that's.
Speaker 1: A big book.
Speaker 3: Quite a bit fewer, I mean enough. You know, it's
Speaker 3: a small, relatively small percentage of the business. But when
Speaker 3: you're talking about one, two, three percent changes in demand,
Speaker 3: you can see it. When you're talking about small changes,
Speaker 3: but those My guess is that we will get back
Speaker 3: to normal. And you know, people's desire to travel see
Speaker 3: the world, whether you're an American or European or a
Speaker 3: Canadian is strong, and this is a great place to visit.
Speaker 1: And my guess is it'll get back to normal.
Speaker 2: And if you're a senior and you're applying to colleges
Speaker 2: right now in the US, you probably are pretty good shape.
Speaker 1: That's all I can say.
Speaker 2: There's also a question about the further uncertainty, and tariffs
Speaker 2: are almost a certainty at this point. How do you
Speaker 2: expect to absorb them? Are you planning or do you
Speaker 2: have a base case for whether you'll increase prices or
Speaker 2: whether it'll just hit margins more significant.
Speaker 3: Line, know, for United we're fortunate that most of our
Speaker 3: aircraft come from Boeing so here in the US, and
Speaker 3: even in the airbus deliveries we have are mostly produced
Speaker 3: here in the United States, so tariffs don't have as
Speaker 3: big of a direct impact on US as they do
Speaker 3: perhaps on our competitors. The bigger issue for US is
Speaker 3: the impact that has on the macro economy. And you know,
Speaker 3: I feel really good you were right earlier you said
Speaker 3: we have a real time indication of the economy. We're
Speaker 3: a very good real time indicator of what's going on
Speaker 3: with the commany not always advanced, but good real time
Speaker 3: and It really does feel like something changed at the
Speaker 3: end of the jew the level of confidence, at least
Speaker 3: less uncertainty.
Speaker 1: People are moving forward.
Speaker 3: And I think on tariffs there's a narrower range of outcomes,
Speaker 3: like probably not going to be one hundred and forty
Speaker 3: five percent on time. There's a narrower range of outcomes,
Speaker 3: and people have had six months to sort of figure
Speaker 3: out how to deal with it and have some contingency planning.
Speaker 3: Whatever the reasons are, it does feel like there's more
Speaker 3: certainty with Boeing.
Speaker 2: Do you expect the deliveries to be on time or
Speaker 2: do you expect there to be more competition with all
Speaker 2: the other countries that are making deals to buy Boeing plans?
Speaker 3: You know, that will be an interesting point of what
Speaker 3: happens with tariff's. My guess is aviation ultimately will wind
Speaker 3: up excluded. It's the one industry US exports six times
Speaker 3: more aviation products than we import, so the trade big
Speaker 3: trade surplus on that side. So my guess is those
Speaker 3: will wind up excluded. But Boeing, you know, is back
Speaker 3: on track. You know, if narrow bodies are actually ahad
Speaker 3: of schedule for US, wide bodies are still behind. I
Speaker 3: think that's less a Boeing issue, probably more engine issue
Speaker 3: and the supply chain for engines. I think that's a
Speaker 3: longer term, multi year a challenge to get the wide
Speaker 3: body back on track.
Speaker 1: But Boeing seems to have turned the corner on production.
Speaker 2: I just want to finish on Newark and whether Newark's
Speaker 2: turned the corner. I do know that we could go
Speaker 2: for an hour about the delays and some of the
Speaker 2: drama around that airport. You guys have a huge presence there.
Speaker 2: You have made this partnership with Jeff Blue and move
Speaker 2: to JFK. Do you expect to expand more in the
Speaker 2: Tri state area to try to diversify your presence away.
Speaker 1: From you at first?
Speaker 3: I'm really pleased with what Secretary Toffy and the Department
Speaker 3: Transportation FA have done. My entire career at United have
Speaker 3: been trying to get Newark on an equal footing with
Speaker 3: the Gordian JFK. That's essentially putting slot controls have the
Speaker 3: number of flights at the airport equal to the capacity
Speaker 3: of the airport. And we've finally done that, and you
Speaker 3: can already see the results. In June, Newark was the
Speaker 3: most reliable of the three New York Area airports, and
Speaker 3: the future looks really good. So we feel really good
Speaker 3: about Newark, and it's a crown jewel and we're going
Speaker 3: to grow it, and you know, it's always going to
Speaker 3: be a crown jewel for you. But from the first
Speaker 3: day I got here to United I wanted us to
Speaker 3: get back into JFK.
Speaker 1: Our goal is to be the.
Speaker 3: Premier flag carrier of the United States and we need.
Speaker 1: To be in JFK to do that.
Speaker 3: So the Jet Blue Partnership is a great way for
Speaker 3: us to have a partner who cared has the same
Speaker 3: sort of culture on DNA, for customers to get back
Speaker 3: and have a presence on both sides of the river.
Speaker 2: Scott Kirby, thank you so much for taking the time today.