WEBVTT - United Airlines CEO Talks Industry Challenges

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news to riadujon Era.

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<v Speaker 2>Now that's where our collegue, Lisa Bromwitz is, of course,

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<v Speaker 2>the co host of Bloomberg Surveillance.

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<v Speaker 3>She's sitting down with the CEO of United Airlines, Scott Kirby.

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<v Speaker 1>Lisa, take it away.

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<v Speaker 3>Thank you so much, David. I am here still in

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<v Speaker 3>Rio with Scott Kirby, the CEO of United Airlines.

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<v Speaker 1>Scott.

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<v Speaker 3>Always wonderful to speak with you.

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<v Speaker 1>Great to be really.

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<v Speaker 3>Thanks for being here. I was actually surprised by the

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<v Speaker 3>tone here, and I shouldn't be surprised because every conversation

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<v Speaker 3>I have with different executives in the airline industry, things

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<v Speaker 3>are better than expected, Demands actually picking up. It's been

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<v Speaker 3>more resilient. This summer's going to be a record summer.

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<v Speaker 3>You're hearing the same thing. Is that kind of your

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<v Speaker 3>tone as well, a.

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<v Speaker 2>Lot of questions for people around the globe, really like

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<v Speaker 2>because we're you know, US airline obviously, like what do

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<v Speaker 2>you think is going to happen to the Gulf? And

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<v Speaker 2>people are worried about oil prices, but demand you know,

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<v Speaker 2>certainly us anything related to the US feel strong. I

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<v Speaker 2>think there are other parts of the globe that you know,

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<v Speaker 2>maybe are a little more concerned about demand, but really

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<v Speaker 2>strong in the US and mostly strong around the globe.

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<v Speaker 2>And people have the view that, you know, the hope

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<v Speaker 2>that this gets from at some point and that we're

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<v Speaker 2>back on track to what was looking to be a

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<v Speaker 2>really good year to start the year.

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<v Speaker 3>Where are you seeing demand kind of fizzle around the

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<v Speaker 3>world or at least fade just to touch in response

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<v Speaker 3>to higher prices.

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<v Speaker 2>You know, we don't really see it at unit because

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<v Speaker 2>you know, eighty percent of our traffic, even international traffic,

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<v Speaker 2>is US point of sale. But you can, I think

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<v Speaker 2>see you know, starting to see that the glimmers.

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<v Speaker 1>And you know, Asia is the first place.

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<v Speaker 2>You know, the impact of oil and refinery issues in

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<v Speaker 2>Asia have been the worst. And you know, and I

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<v Speaker 2>think Africa, you know, certainly the Middle East has had

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<v Speaker 2>an impact. So you can, I think, since some worry,

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<v Speaker 2>not really evidence of we can give demand. But you know,

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<v Speaker 2>you talk to people in one on ones, you get

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<v Speaker 2>sent some concern that if this goes you know, sort

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<v Speaker 2>of been the standard line all along, if.

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<v Speaker 1>This goes till July, it's going to be a problem

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<v Speaker 1>in March. If this goes into April, it's going to

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<v Speaker 1>be a problem. And it keeps getting pushed down the road.

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<v Speaker 1>Fortunately because demand stays strong.

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<v Speaker 3>Well, and so so far you raise prices about twenty percent,

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<v Speaker 3>capacity about five percent. Is that enough? Do you anticipate

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<v Speaker 3>more price increases and more capacity limitations?

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<v Speaker 1>You know, time will tell.

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<v Speaker 2>Depends on what's happening with the economy, what happens with

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<v Speaker 2>oil prices.

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<v Speaker 1>But I feel pretty good about where we are right now.

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<v Speaker 2>You know, we laid out a path to getting to

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<v Speaker 2>one hundred percent fuel recovery.

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<v Speaker 1>It certainly looks like we're still pretty much solidly on

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<v Speaker 1>that path. And you know, even though oil has come

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<v Speaker 1>down a little as I actually would move it a

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<v Speaker 1>little earlier from when we set it.

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<v Speaker 2>But we feel pretty good about where the demand environment is.

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<v Speaker 2>And you know, the consumer has been resilient even with fares,

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<v Speaker 2>you know, but in truth, like fares are up twenty percent,

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<v Speaker 2>but they're still in real terms lower than they were

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<v Speaker 2>in twenty nineteen. So air travel means by far the

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<v Speaker 2>best value is part of the travel chain. And been

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<v Speaker 2>pleasantly surprised that the resilience of.

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<v Speaker 3>The consumer so far is it on driven by the

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<v Speaker 3>premium consumer who seems to be insatiable or is it

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<v Speaker 3>really across the board?

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<v Speaker 2>You know, I always talk about it, at least at United,

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<v Speaker 2>we're investing those to tail for customers, and most of

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<v Speaker 2>the things that we're doing for the product applied to everyone,

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<v Speaker 2>Seeback entertainment and every sing starlink on every aircraft, you know,

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<v Speaker 2>great new interiors place to everyone. And you know, the

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<v Speaker 2>premium is a has been stronger for a couple of years.

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<v Speaker 1>It's still a little.

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<v Speaker 2>Bit stronger, but it's pretty hard to you know, I

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<v Speaker 2>think it's been strong, you know, across the board.

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<v Speaker 1>For us, but you know, we skew to the high end.

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<v Speaker 2>You know, even the economy past years are you know,

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<v Speaker 2>skewing towards the top end of that K curve for

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<v Speaker 2>for air travel and international of course skews even higher.

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<v Speaker 1>But we really haven't.

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<v Speaker 2>We haven't seen any any noticeable cracks and demand sort

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<v Speaker 2>of anywhere in the cabin.

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<v Speaker 3>I mean, you've been upgrading all your planes quite considerably,

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<v Speaker 3>knows to tail, whether it's the full down seats to

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<v Speaker 3>have you sleep across the exactly. Actually you've got kids.

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<v Speaker 3>I wish i'd had that one ask anyway, moving forward,

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<v Speaker 3>moving along, do you find that it's difficult to upgrade

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<v Speaker 3>as quickly as you want because of just some of

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<v Speaker 3>the delays and deliveries that we're seeing in certain of

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<v Speaker 3>the aircraft maks.

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<v Speaker 1>Yeah, you know, we we got ahead of it. We

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<v Speaker 1>started ahead. You know, we ordered a lot of aircraft.

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<v Speaker 2>We got ahead of the supply chain, you know, as

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<v Speaker 2>being the first really back during COVID, we anticipated problems.

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<v Speaker 2>So we actually over ordered because we anticipated problem. The

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<v Speaker 2>problems have been bigger than we thought, but we've mostly

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<v Speaker 2>managed through those. And you know, like seat manufacturing, seats

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<v Speaker 2>are a big issue across the industry, we've mostly stayed

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<v Speaker 2>ahead it. We've been somewhat impacted by it, but we've

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<v Speaker 2>mostly stayed ahead of that. And you know, even you

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<v Speaker 2>startlingk for example, you know we're going to have the

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<v Speaker 2>whole fleet done, we expect next year. It can't be

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<v Speaker 2>done fast enough. But by being the first big airline

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<v Speaker 2>to order, like, we're at the front of the queue,

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<v Speaker 2>and so most of the things we're doing because we're

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<v Speaker 2>at the front of the queue, we're much less impacted

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<v Speaker 2>than other competitors around the globe.

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<v Speaker 3>There were reports that you were talking about Rolls Royce

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<v Speaker 3>a couple of minutes ago talking about how they've been

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<v Speaker 3>a problem in terms of just honoring contracts and what

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<v Speaker 3>exactly is the role in some of the delays that

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<v Speaker 3>we're seeing, particularly with Airbus.

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<v Speaker 2>Well, you know, engines are really the issue. I think

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<v Speaker 2>they're going to constrain supply around the globe for probably

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<v Speaker 2>the next decade.

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<v Speaker 1>There's not enough engine capacity.

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<v Speaker 2>There's something like nine hundred aircraft around the globe that

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<v Speaker 2>are grounded right now that should be flying because they

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<v Speaker 2>don't have engines that can fly. And it's a really

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<v Speaker 2>it's not an easy problem to fix, and it's going

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<v Speaker 2>to take time. And so really kind of we need

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<v Speaker 2>all the engine manufacturers and really the forgings and castings

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<v Speaker 2>that go into the blades and the engines are really

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<v Speaker 2>I think the biggest constraint, and you know that takes

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<v Speaker 2>time to fix.

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<v Speaker 1>But we just start fixing that.

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<v Speaker 2>You know, all the aircraft that's Boeing and Airbus, they're

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<v Speaker 2>going to be able to produce a lot of aircraft.

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<v Speaker 1>I think they're both starting to get things on.

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<v Speaker 2>Track for producing aircraft, but they're going to be producing

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<v Speaker 2>gliders because it's just not enough engines.

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<v Speaker 3>Gliders are not going to fly for the industry. Quite literally,

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<v Speaker 3>I cannot imagine that trying to have long haul flight

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<v Speaker 3>on a glider. Do you think though, that Rolls Royce

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<v Speaker 3>has been a bad actor? Are not as much of

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<v Speaker 3>a good actor relative to say some of the others

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<v Speaker 3>that if been wrapping up Well.

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<v Speaker 2>That's certainly been our personal experience with United at roles

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<v Speaker 2>and that's.

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<v Speaker 1>What I hear from others around the industry too.

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<v Speaker 3>Is that constrained to airbus deliveries more than Boeing?

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<v Speaker 2>You know, they beat each head constraints. You know, Rolls,

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<v Speaker 2>you know, has been constrained. Pratt and Whitney, you know,

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<v Speaker 2>has had a lot of challenge, well publicized challenges. By

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<v Speaker 2>the way, I respect Pratt Whitney is working really really

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<v Speaker 2>hard to fix them. And that's all you can ask really,

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<v Speaker 2>GE's doing, you know, the best of the engine manufacturers,

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<v Speaker 2>but all of them have had.

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<v Speaker 1>Challenges going forward.

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<v Speaker 3>It seems like all of the airlines are trying to

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<v Speaker 3>upgrade as quickly as they can because it is going

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<v Speaker 3>to be about the experience that you're living to the

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<v Speaker 3>customer that's going to determine success. How much have you

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<v Speaker 3>seen the pressures kind of come into play, the sort

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<v Speaker 3>of pressures in the industry that you had been expecting

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<v Speaker 3>as a result of some of the higher prices.

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<v Speaker 1>Well, I think we're the ones creating pressure.

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<v Speaker 2>To be honest with you, we're investing more than anyone,

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<v Speaker 2>and we're doing the kinds of things really that no

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<v Speaker 2>one has ever done, you know, whether you know it's

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<v Speaker 2>the relaxed brow here in the United States putting starlink

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<v Speaker 2>on every airplane, but also the technology like you use

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<v Speaker 2>the United app, it is materially different than I don't

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<v Speaker 2>know who has the second best app.

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<v Speaker 1>In the world, but they're way behind it United, and

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<v Speaker 1>we're just doing more and more of that.

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<v Speaker 2>It just changes how it feels to fly, and it's remarkable.

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<v Speaker 2>That's how you win brand loyal customers. We changed the

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<v Speaker 2>whole experience. It's it's not just about the route network.

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<v Speaker 2>It's about the technology, the service, the reliability.

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<v Speaker 1>And the product. And you've got to focus on all

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<v Speaker 1>four of those.

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<v Speaker 2>You gotta have all four of those things to win customers.

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<v Speaker 2>And you know, it's been working really well at United.

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<v Speaker 2>We're just continue to push to find ways to invest

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<v Speaker 2>more and more and more new creative ideas to make

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<v Speaker 2>people think, hey, it's cool to fly United.

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<v Speaker 3>Are you still thinking about consolidation in any form?

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<v Speaker 2>Well, everyone's asking me about it, trying to take it off.

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<v Speaker 3>Yeah, yeah, we're putting it back on.

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<v Speaker 1>It is.

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<v Speaker 3>It's still on the table for you.

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<v Speaker 1>You know, I you know, I said it at a

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<v Speaker 1>conference last week.

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<v Speaker 2>You know, I kind of came for the last couple

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<v Speaker 2>of years at least thought that a big, kind of

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<v Speaker 2>transformative deal to take create a great US airline that

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<v Speaker 2>compete on the globe was really where the opportunity was.

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<v Speaker 2>And but I've always known that that would have required

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<v Speaker 2>a willing partner, and we don't have one. So I

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<v Speaker 2>think it means that United is a likely city out

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<v Speaker 2>the consolidation game.

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<v Speaker 3>Meanwhile, going forward, we got the best jobs report in

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<v Speaker 3>a long time on Friday, and a lot of it

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<v Speaker 3>was driven by leisure hiring. We heard that across the board.

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<v Speaker 3>How much of this is coming from just the organic

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<v Speaker 3>demand heading into summer, and how much of this is

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<v Speaker 3>really being driven by World Cup traveling?

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<v Speaker 2>You know, world Cup is a tiny, tiny piece of it.

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<v Speaker 2>It really is the fundamentals of demand, and you see

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<v Speaker 2>it everywhere that demand is strong. People are still investing

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<v Speaker 2>in experiences. You know, I've told you before, Like to me,

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<v Speaker 2>the economy, we're a really good real time brometer the economy.

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<v Speaker 2>The economy feels stronger, the jobs report is consistent. Like

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<v Speaker 2>I wasn't that surprised by the job's report because it

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<v Speaker 2>looks to me like the economy is doing pretty well.

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<v Speaker 3>Do you think that oil prices will, say at this

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<v Speaker 3>level and continue to be a challenge at a time

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<v Speaker 3>when every airline executive here expects it to go down,

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<v Speaker 3>almost except for you, but everyone expects the prices to

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<v Speaker 3>go down.

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<v Speaker 2>I've thought, really since mid March that oil is going

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<v Speaker 2>to be higher for longer. I continue to think that

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<v Speaker 2>at some point I'll be wrong, it'll go down. But

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<v Speaker 2>it's just hard for me to see any kind of

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<v Speaker 2>outcome that the straits get reliably and sustainably open. They

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<v Speaker 2>may open for a little bit, you know, but just

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<v Speaker 2>the dynamics make it hard for me to think that

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<v Speaker 2>that's going to happen. So I think this kind of

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<v Speaker 2>ninety to one hundred and ten dollars a barrel, you

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<v Speaker 2>know what, do I know, I'm an airline ceo, but

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<v Speaker 2>like we're planning for that sort of for the indefinite

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<v Speaker 2>future at ninety to one hundred and ten dollars level.

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<v Speaker 3>Coming into this conflict, the baseline assumption was that if

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<v Speaker 3>price has got to that level, then stay at that level,

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<v Speaker 3>there'd be bankruptcies, you'd have a lot of difficulties in

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<v Speaker 3>the airline industry, and certainly there have been pressures. Yeah,

0:09:36.760 --> 0:09:38.719
<v Speaker 3>but the resilience of the consumer and the ability to

0:09:38.800 --> 0:09:41.679
<v Speaker 3>absorb pricing has surprised everybody. Do you think that that

0:09:41.720 --> 0:09:44.760
<v Speaker 3>will be the likely response to a persistently high oil price.

0:09:44.800 --> 0:09:47.439
<v Speaker 3>Not necessarily people going out of business, but airline ticket

0:09:47.440 --> 0:09:48.840
<v Speaker 3>price is going up and staying up.

0:09:48.920 --> 0:09:52.040
<v Speaker 2>Yeah, I think airline prices the consumer has been even

0:09:52.080 --> 0:09:54.280
<v Speaker 2>more resilient. I thought the consumer would be resilient. It's

0:09:54.320 --> 0:09:56.960
<v Speaker 2>been more resilient than I thought it the consumer would be.

0:09:57.160 --> 0:09:59.040
<v Speaker 2>So I think that will happen. But I also think,

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<v Speaker 2>you know, you still look around like United, Delta, and

0:10:01.480 --> 0:10:03.920
<v Speaker 2>Southwest by the way, all three going to be solidly

0:10:03.920 --> 0:10:06.440
<v Speaker 2>profitable this year. My guess is at all ninety to

0:10:06.480 --> 0:10:08.760
<v Speaker 2>one hundred and ten, like everyone else, is losing money,

0:10:08.800 --> 0:10:10.679
<v Speaker 2>some a lot of money. That means there's a big

0:10:10.760 --> 0:10:13.679
<v Speaker 2>chunk of those route networks you know, if you're losing

0:10:13.679 --> 0:10:15.640
<v Speaker 2>money overall, there's a big chunk that's losing a lot

0:10:15.640 --> 0:10:18.880
<v Speaker 2>of money. My guess is the longer this plays out,

0:10:19.040 --> 0:10:21.120
<v Speaker 2>the more and more it you know, sort of pushes

0:10:21.400 --> 0:10:24.240
<v Speaker 2>executives to make hard decisions that they would rather not make,

0:10:24.880 --> 0:10:26.319
<v Speaker 2>to just stop playing places.

0:10:26.000 --> 0:10:27.839
<v Speaker 3>And lose money going forward. Is there any place that

0:10:27.880 --> 0:10:29.240
<v Speaker 3>you want to be expanding in just to sort of

0:10:29.240 --> 0:10:31.160
<v Speaker 3>wrap it up in our lovely beach here that we're

0:10:31.160 --> 0:10:32.040
<v Speaker 3>sitting at in real.

0:10:32.240 --> 0:10:32.800
<v Speaker 1>Yeah, we want.

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<v Speaker 2>We we look forward to spand expanding really around the globe.

0:10:36.440 --> 0:10:40.360
<v Speaker 2>A lot of our growth has been international. It slowed

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<v Speaker 2>down this year partly because you know, Bowe has been

0:10:43.120 --> 0:10:46.200
<v Speaker 2>behind on why by deliveries are starting to catch up.

0:10:46.240 --> 0:10:48.240
<v Speaker 2>But we're looking for you know, international has been great

0:10:48.280 --> 0:10:51.240
<v Speaker 2>for US. United was born on third base for international

0:10:51.280 --> 0:10:53.480
<v Speaker 2>with hubs in Newark, which is the best at you know,

0:10:53.720 --> 0:10:57.439
<v Speaker 2>Pacific Gateway, San Francisco best you know a Pacific Gateway

0:10:57.600 --> 0:11:00.720
<v Speaker 2>Newark Atlantic Dallas is probably the second best Plant Gateway.

0:11:01.240 --> 0:11:04.080
<v Speaker 2>So international has just been gangbusters for US and we're

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<v Speaker 2>opening up you know, it's crazy to me our team

0:11:06.400 --> 0:11:09.240
<v Speaker 2>is opening up cities and I'm pretty informed, like I

0:11:09.360 --> 0:11:10.520
<v Speaker 2>didn't actually know that city.

0:11:10.679 --> 0:11:14.480
<v Speaker 3>Yeah, Scott Kirby. Always wonderful to speak with you. Scott Kirby,

0:11:14.600 --> 0:11:15.480
<v Speaker 3>the CEO of United