WEBVTT - United CEO Scott Kirby Talks Earnings 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio News. 0:00:08.039 --> 0:00:10.160 Great to be here in Chicago and thank you so much. 0:00:10.200 --> 0:00:14.040 I am here with Scott Kirby, the CEO of United Airlines, 0:00:14.080 --> 0:00:16.639 after earnings came out. He really echoed what we heard 0:00:16.840 --> 0:00:20.800 from Delta, which was a first reporter, which is stability, solidness, 0:00:20.880 --> 0:00:23.040 a sense of recovery. You said, the world is less 0:00:23.079 --> 0:00:26.160 uncertain today than it was during the first six months 0:00:26.200 --> 0:00:30.040 of twenty twenty five. What was the inflection point where 0:00:30.040 --> 0:00:31.480 you saw that certainty come into play. 0:00:31.840 --> 0:00:34.760 You know, this year a lot of uncertainty in the 0:00:34.800 --> 0:00:38.159 first half of the year at macro uncertainty and that 0:00:38.240 --> 0:00:41.280 led to an impact on bookings and demand at United 0:00:41.280 --> 0:00:44.360 and across the whole industry. But it felt like there 0:00:44.360 --> 0:00:47.320 was a turning point at the end of June where 0:00:48.240 --> 0:00:50.840 the tax bill passed and the situation in the Middle 0:00:50.840 --> 0:00:55.040 East was calmer and tariffs, while not certain, yet narrowing 0:00:55.080 --> 0:00:55.800 the range. 0:00:55.920 --> 0:00:56.680 And it really. 0:00:56.560 --> 0:01:00.720 Felt like people felt enough confidence or enough lower level 0:01:00.760 --> 0:01:03.160 of uncertainty that they kind of came off the sidelines 0:01:03.200 --> 0:01:05.440 and were unfrozen. And particularly for business demand, I mean, 0:01:05.600 --> 0:01:07.080 you can't stay on the sidelines forever. 0:01:07.200 --> 0:01:09.040 And that was enough of a trigger. 0:01:09.280 --> 0:01:11.720 It really was like a light switch flipped at the 0:01:11.840 --> 0:01:14.560 end of June, particularly for business demand. Double digit acceleration 0:01:14.640 --> 0:01:18.080 in business demand as we ended June, and that's continued, 0:01:18.160 --> 0:01:19.160 you know through yesterday. 0:01:19.280 --> 0:01:21.480 We've talked a lot about the K shaped recovery and 0:01:21.520 --> 0:01:24.839 the idea that high end consumers have really been driving 0:01:24.880 --> 0:01:27.960 the economy. Corporations kind of dropped off with business travel, 0:01:27.959 --> 0:01:30.520 as you said, they picked back up. What about the 0:01:30.560 --> 0:01:33.039 rest of the travelers, the main cabin how much have 0:01:33.080 --> 0:01:36.040 they rebounded back to where they would have been had 0:01:36.080 --> 0:01:38.200 there not been some of the headline volatility, So you 0:01:38.280 --> 0:01:39.200 sort of separated. 0:01:38.840 --> 0:01:39.880 Into those three pieces. 0:01:40.000 --> 0:01:42.040 Business demand dropped off at the start of the year, 0:01:42.480 --> 0:01:44.640 that seems like it's bounced back to what we were 0:01:44.680 --> 0:01:48.560 expecting it to be as we moved into July. Premium 0:01:48.600 --> 0:01:52.080 and higher end leisure sort of stayed consistent throughout. 0:01:52.120 --> 0:01:53.440 It never really dropped off. 0:01:53.280 --> 0:01:56.480 And the biggest impact for the consumer was in low 0:01:56.520 --> 0:01:59.880 end leisure. That's come back some in July, but not 0:02:00.000 --> 0:02:02.120 as much. I'd say that's sort of fifty percent recovered 0:02:02.160 --> 0:02:03.800 to what we were expecting at the start of the year. 0:02:03.800 --> 0:02:08.440 So business back to mostly a full recovery, and low 0:02:08.520 --> 0:02:10.560 end leisure kind of fifty percent recover. 0:02:10.639 --> 0:02:12.400 Premium leisure never never fell off. 0:02:12.440 --> 0:02:16.400 We've seen sort of one entrance into the CPI report. 0:02:16.440 --> 0:02:19.440 The idea of inflation has been airline tickets have actually 0:02:19.720 --> 0:02:22.360 prices have been coming down, and there's this question of 0:02:22.400 --> 0:02:25.320 whether discounting is required to bring some of the main 0:02:25.360 --> 0:02:27.959 cabin back and whether that's going to be a persistent 0:02:28.040 --> 0:02:30.360 trend that competing on price is going to be really important. 0:02:30.440 --> 0:02:32.760 How much do you see that as persisting into the 0:02:32.760 --> 0:02:33.440 second half of the. 0:02:33.440 --> 0:02:36.679 Air The airline industry is always good value, It always 0:02:36.760 --> 0:02:39.200 as attractive prices, but I think it's more of a 0:02:39.240 --> 0:02:42.520 supply demand imbalance that there are a number of airlines. 0:02:42.560 --> 0:02:44.600 You know, there are two brand loyal airlines in the 0:02:44.680 --> 0:02:46.560 United States who are now generating the bulk of the 0:02:46.560 --> 0:02:51.120 industry's profits because those customers that care about quality, care 0:02:51.160 --> 0:02:54.280 about service, that care about technology are were just better 0:02:54.480 --> 0:02:57.360 and they're choosing us, And you can see it in 0:02:57.360 --> 0:02:59.640 the data. You can see it in the numbers. For 0:02:59.680 --> 0:03:02.760 the more commoditized part of the business. You know, there's 0:03:02.760 --> 0:03:05.639 simply more seats available. There's been more seats available than 0:03:05.680 --> 0:03:09.680 there is demand, but encouragingly there's a big change coming 0:03:09.720 --> 0:03:11.680 in mid August. Well, we've talked about demand, and I've 0:03:11.680 --> 0:03:14.960 seen an inflection demand. There's also an inflection coming in supply, 0:03:15.360 --> 0:03:17.160 as by the time we get to mid August, there 0:03:17.160 --> 0:03:19.079 are a lot of seats the same thing happened last year, 0:03:19.120 --> 0:03:21.480 a lot of seats coming out of the industry, particularly 0:03:21.480 --> 0:03:24.360 from the low end carriers who've been struggling. 0:03:24.600 --> 0:03:25.560 Those seats are coming out. 0:03:25.720 --> 0:03:27.320 So my guess is that's going to lead to a 0:03:27.320 --> 0:03:29.880 firmer pricing environment as we move into mid August. 0:03:29.919 --> 0:03:31.680 And actually we can already see that in our numbers 0:03:31.720 --> 0:03:33.040 for later in the year. 0:03:33.080 --> 0:03:34.760 Are you expecting to take any capacity out? 0:03:35.840 --> 0:03:38.800 You know, we're we continue to prune, but there's not 0:03:38.840 --> 0:03:42.200 going to be any structural changes to our capacity. 0:03:42.640 --> 0:03:44.160 And you know, we are encouraged by the environment. And 0:03:44.200 --> 0:03:44.880 in fact, just in the. 0:03:44.880 --> 0:03:48.560 Last couple of weeks for US at least, the yields 0:03:48.560 --> 0:03:51.280 have turned positive on domestics. They've been down, you know 0:03:51.320 --> 0:03:53.800 for several months as we started the year, but yields 0:03:53.840 --> 0:03:55.560 have now turned positive for forward. 0:03:55.280 --> 0:03:56.120 Bookings at least. 0:03:56.200 --> 0:03:58.040 So why have you knock on with the more bullish 0:03:58.120 --> 0:04:01.360 potential estimates? Then? For your forecast given that you sound 0:04:01.440 --> 0:04:04.440 incredibly positive and you have seen this ongoing rebound, you. 0:04:04.440 --> 0:04:05.880 Know, it's been a good year. 0:04:06.040 --> 0:04:08.520 I mean, it's actually pretty remarkable that we've grown earnings 0:04:08.560 --> 0:04:10.920 and margins for the first half of the year despite 0:04:10.960 --> 0:04:11.800 everything that's happened. 0:04:11.800 --> 0:04:13.520 But a lot has happened this year, and. 0:04:13.480 --> 0:04:16.719 We like to have a policy of being conservative on 0:04:16.960 --> 0:04:19.560 our guidance because stuff does happen, and we want to 0:04:19.560 --> 0:04:24.000 be able to absorb some unexpected events in our guidance. 0:04:24.080 --> 0:04:26.960 We intentionally build it conservatively. We did that's we do 0:04:27.040 --> 0:04:29.839 that all the time. But so really what happened this 0:04:29.880 --> 0:04:32.840 time is we've been able to build that conservativism back. 0:04:32.960 --> 0:04:35.800 So you know, if nothing else happens. 0:04:35.440 --> 0:04:38.000 This year, which is a big if, and if demand 0:04:38.040 --> 0:04:40.400 stays as strong booking demand stays as strong as it 0:04:40.480 --> 0:04:41.240 is right now. 0:04:41.120 --> 0:04:42.320 There's probably upside. 0:04:42.360 --> 0:04:45.800 But we'd rather be conservative than than get out two 0:04:46.000 --> 0:04:46.960 four out over our skis. 0:04:47.080 --> 0:04:49.080 One reason why I was really excited to speak with 0:04:49.160 --> 0:04:51.480 you is say you have a real time view of 0:04:51.600 --> 0:04:54.320 not only the consumer and the appetite there, but also 0:04:54.480 --> 0:04:58.520 international demand and whether there has been any damage to 0:04:58.560 --> 0:05:02.719 the brand Americana, the idea of foreign travelers coming to 0:05:02.800 --> 0:05:05.599 the United States for tourism, et cetera. You've said that 0:05:05.600 --> 0:05:08.839 there has been a drop off at European travelers. How 0:05:08.880 --> 0:05:10.760 sustained do you expect that to be? Are you seeing 0:05:10.800 --> 0:05:14.720 any permanent shifts in that international inbound landscape? 0:05:14.760 --> 0:05:18.200 You know there has been a drop off in in inbound. 0:05:18.240 --> 0:05:21.279 Your demand of Europe is one but it's a single 0:05:21.279 --> 0:05:24.520 digit decline. So in US point of sale has more 0:05:24.520 --> 0:05:27.120 than made up for it. It's eighty percent of our business. 0:05:27.440 --> 0:05:29.960 I don't think it'll be permanent. You know, the the 0:05:30.040 --> 0:05:32.919 United States is the greatest country on Earth. It's a 0:05:32.920 --> 0:05:34.800 great place for people to come, a great place for 0:05:34.800 --> 0:05:38.080 people to visit. Demand is affected by all kinds of things. 0:05:38.120 --> 0:05:40.400 That we have fewer students coming to the US right now, 0:05:41.080 --> 0:05:43.080 you know, not surprisingly that's. 0:05:42.960 --> 0:05:43.400 A big book. 0:05:44.520 --> 0:05:46.280 Quite a bit fewer, I mean enough. You know, it's 0:05:46.320 --> 0:05:48.400 a small, relatively small percentage of the business. But when 0:05:48.440 --> 0:05:50.960 you're talking about one, two, three percent changes in demand, 0:05:51.040 --> 0:05:53.960 you can see it. When you're talking about small changes, 0:05:54.839 --> 0:05:56.960 but those My guess is that we will get back 0:05:57.000 --> 0:06:00.320 to normal. And you know, people's desire to travel see 0:06:00.360 --> 0:06:03.599 the world, whether you're an American or European or a 0:06:03.600 --> 0:06:06.760 Canadian is strong, and this is a great place to visit. 0:06:07.160 --> 0:06:08.719 And my guess is it'll get back to normal. 0:06:08.800 --> 0:06:11.080 And if you're a senior and you're applying to colleges 0:06:11.200 --> 0:06:13.719 right now in the US, you probably are pretty good shape. 0:06:13.720 --> 0:06:14.640 That's all I can say. 0:06:14.839 --> 0:06:17.880 There's also a question about the further uncertainty, and tariffs 0:06:17.920 --> 0:06:20.760 are almost a certainty at this point. How do you 0:06:21.000 --> 0:06:22.960 expect to absorb them? Are you planning or do you 0:06:23.000 --> 0:06:25.880 have a base case for whether you'll increase prices or 0:06:25.920 --> 0:06:28.360 whether it'll just hit margins more significant. 0:06:27.800 --> 0:06:30.720 Line, know, for United we're fortunate that most of our 0:06:30.760 --> 0:06:34.240 aircraft come from Boeing so here in the US, and 0:06:34.279 --> 0:06:37.039 even in the airbus deliveries we have are mostly produced 0:06:37.040 --> 0:06:39.120 here in the United States, so tariffs don't have as 0:06:39.160 --> 0:06:41.479 big of a direct impact on US as they do 0:06:41.560 --> 0:06:44.200 perhaps on our competitors. The bigger issue for US is 0:06:44.720 --> 0:06:47.640 the impact that has on the macro economy. And you know, 0:06:47.839 --> 0:06:50.719 I feel really good you were right earlier you said 0:06:50.720 --> 0:06:52.920 we have a real time indication of the economy. We're 0:06:52.960 --> 0:06:55.520 a very good real time indicator of what's going on 0:06:55.600 --> 0:06:58.039 with the commany not always advanced, but good real time 0:06:58.160 --> 0:07:01.240 and It really does feel like something changed at the 0:07:01.279 --> 0:07:03.880 end of the jew the level of confidence, at least 0:07:03.960 --> 0:07:04.919 less uncertainty. 0:07:05.160 --> 0:07:06.960 People are moving forward. 0:07:07.160 --> 0:07:09.880 And I think on tariffs there's a narrower range of outcomes, 0:07:09.920 --> 0:07:11.600 like probably not going to be one hundred and forty 0:07:11.640 --> 0:07:13.960 five percent on time. There's a narrower range of outcomes, 0:07:14.040 --> 0:07:15.920 and people have had six months to sort of figure 0:07:15.920 --> 0:07:18.160 out how to deal with it and have some contingency planning. 0:07:18.360 --> 0:07:21.640 Whatever the reasons are, it does feel like there's more 0:07:21.640 --> 0:07:22.640 certainty with Boeing. 0:07:22.880 --> 0:07:24.720 Do you expect the deliveries to be on time or 0:07:24.720 --> 0:07:26.200 do you expect there to be more competition with all 0:07:26.240 --> 0:07:28.440 the other countries that are making deals to buy Boeing plans? 0:07:28.720 --> 0:07:30.880 You know, that will be an interesting point of what 0:07:30.920 --> 0:07:34.400 happens with tariff's. My guess is aviation ultimately will wind 0:07:34.520 --> 0:07:38.040 up excluded. It's the one industry US exports six times 0:07:38.040 --> 0:07:41.760 more aviation products than we import, so the trade big 0:07:41.800 --> 0:07:43.720 trade surplus on that side. So my guess is those 0:07:43.720 --> 0:07:47.720 will wind up excluded. But Boeing, you know, is back 0:07:47.760 --> 0:07:49.560 on track. You know, if narrow bodies are actually ahad 0:07:49.560 --> 0:07:52.560 of schedule for US, wide bodies are still behind. I 0:07:52.600 --> 0:07:55.680 think that's less a Boeing issue, probably more engine issue 0:07:55.720 --> 0:07:57.560 and the supply chain for engines. I think that's a 0:07:57.640 --> 0:08:01.760 longer term, multi year a challenge to get the wide 0:08:01.800 --> 0:08:03.120 body back on track. 0:08:03.200 --> 0:08:05.480 But Boeing seems to have turned the corner on production. 0:08:05.800 --> 0:08:07.880 I just want to finish on Newark and whether Newark's 0:08:07.920 --> 0:08:10.640 turned the corner. I do know that we could go 0:08:10.680 --> 0:08:12.720 for an hour about the delays and some of the 0:08:13.360 --> 0:08:17.280 drama around that airport. You guys have a huge presence there. 0:08:17.600 --> 0:08:20.680 You have made this partnership with Jeff Blue and move 0:08:21.520 --> 0:08:24.120 to JFK. Do you expect to expand more in the 0:08:24.160 --> 0:08:26.840 Tri state area to try to diversify your presence away. 0:08:26.600 --> 0:08:27.400 From you at first? 0:08:27.440 --> 0:08:30.640 I'm really pleased with what Secretary Toffy and the Department 0:08:30.640 --> 0:08:34.920 Transportation FA have done. My entire career at United have 0:08:35.000 --> 0:08:37.040 been trying to get Newark on an equal footing with 0:08:37.040 --> 0:08:40.120 the Gordian JFK. That's essentially putting slot controls have the 0:08:40.200 --> 0:08:42.480 number of flights at the airport equal to the capacity 0:08:42.520 --> 0:08:45.040 of the airport. And we've finally done that, and you 0:08:45.040 --> 0:08:48.320 can already see the results. In June, Newark was the 0:08:48.320 --> 0:08:53.000 most reliable of the three New York Area airports, and 0:08:53.080 --> 0:08:54.960 the future looks really good. So we feel really good 0:08:54.960 --> 0:08:57.200 about Newark, and it's a crown jewel and we're going 0:08:57.240 --> 0:08:59.120 to grow it, and you know, it's always going to 0:08:59.120 --> 0:09:01.480 be a crown jewel for you. But from the first 0:09:01.559 --> 0:09:03.560 day I got here to United I wanted us to 0:09:03.600 --> 0:09:04.560 get back into JFK. 0:09:04.960 --> 0:09:07.560 Our goal is to be the. 0:09:07.040 --> 0:09:10.480 Premier flag carrier of the United States and we need. 0:09:10.400 --> 0:09:12.080 To be in JFK to do that. 0:09:12.160 --> 0:09:14.640 So the Jet Blue Partnership is a great way for 0:09:14.720 --> 0:09:16.720 us to have a partner who cared has the same 0:09:16.760 --> 0:09:19.880 sort of culture on DNA, for customers to get back 0:09:20.280 --> 0:09:21.880 and have a presence on both sides of the river. 0:09:22.040 --> 0:09:24.280 Scott Kirby, thank you so much for taking the time today.