Regina: Good morning and welcome to United Airlines Holdings Earnings Conference Call for the second quarter 2026. My name is Regina and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. At that time, if you'd like to ask a question, simply press star and the number one on your telephone keypad. To withdraw your question, press star one again. In order to get to as many questions as possible, we kindly ask that you please limit yourself to one question and one follow-up. Kristina Edwards, Managing Director of Investor Relations
Kristina Edwards: Thank you Regina. Good morning everyone and welcome to United's second quarter 2026 earnings conference call. Yesterday we issued our earnings release which is available on our website at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements which represent the company's current expectations and are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call, and historical operational metrics will exclude pandemic years of 2020 to 2022. Please refer to the related definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures at the end of our earnings release. Joining us today to discuss our results and our outlook are Chief Executive Officer Scott Kirby, President Brett Hart, Executive Vice President and Chief Commercial Officer Andrew Nocella, and Executive Vice President and Chief Financial Officer Mike Leskinen. We also have other members of the executive team on the line available for Q&A. And now, I'd like to turn the call over to Scott.
Scott Kirby: Thank you, Kristina, and good morning, everyone. I want to start by thanking the United team for staying focused on taking care of our customers and running a best-in-class airline and not letting the conflict in Iran distract from the consistent execution we've become accustomed to. 2026 is once again demonstrating the durability and strength of the United Business Model. Our focus on building brand loyalty is evident in our strong top-line performance with second quarter revenues of 16%, recovering about half the increase in fuel price for the period. The significant increase in fuel in just the past week is also proof that our strategy is resilient. At this time last week, I was planning to tell you that we had a good line of sight to growing earnings year over year based on what we expected our guidance to be at the time. But fuel has gone up a lot in the last week, and we've decided to once again be a leader by changing our guidance policy on fuel. We feel we owe it to investors to update our practice and provide guidance to reflect the most current fuel prices. The fuel price spike this month is equal to $1.12 of EPS, so if fuel goes back to where it was earlier this month, we expect to be above the high end of the guidance range. Thank you for joining us. I expect yields to continue returning to reasonable pre-COVID levels that will ultimately allow the industry to earn its cost of capital. The impact of structural changes are just now beginning to be felt. Demand remains robust as we expect both 3Q and 4Q RASM to grow faster than 2Q's 12% and yields for fourth quarter are currently booked about 14 points higher for 4Q than at the same point in time for 3Q. Demand is strong and the overall cost pressures continue forcing fares higher. United has proven that our brand loyal strategy is working and we're using today's environment to accelerate our investments in all aspects of the customer experience from nose to tail. My conviction in building a brand loyal airline is stronger than ever and I'm encouraged by the consistent share gains we've seen across the board and the corresponding financial results. The more brand loyalty we have, the stronger we expect our earnings will be during good times and the more resilient our earnings will be during industry shocks events. And I can already see and hear from customers that getting Starlink on all our aircraft is going to be a step function increase and are attractive to those customers.
Brett Hart: With that, I'll hand it over to Brett. Thank you, Scott, and good morning, everyone. The second quarter is always an important moment for United as we accelerate into the busy summer travel season. And our employees once again rose to the occasion. Across the operation, our teams delivered a safe, reliable experience for our customers with the care, professionalism, and commitment that show how good leads the way every day. In the quarter, United carried 10 of our highest passenger days in company history, with the highest being over 640,000 customers carried on June 18th. We had top-tier on-time departures for the sixth consecutive quarter, ranking second amongst our largest U.S. competitors and representing our best on-time departure rate in the second quarter since the pandemic. We also had our lowest second quarter seat cancellation rate in company history. Notably, we saw meaningful improvements at our Newark hub, our busiest global gateway. For the month of June, Newark ranked number one in on-time arrivals, delivered its best on-time departure rate ever and its lowest seat cancellation rate since 2018. These results reflect the continued strength of our operation and the work our teams are doing across the network to solve problems in real time, adjust as conditions change, and deliver a safe, reliable experience for our customers. And our customers noticed. We had our highest second quarter net promoter score since the pandemic in the second quarter. Starlink is another example of how we are investing in a better customer experience and differentiating United. During the quarter, We accelerated the rollout of free Starlink Wi-Fi and now expect to have close to 1,000 Starlink equipped aircraft by the end of this year. Early customer feedback has been very strong, and Wi-Fi satisfaction scores on Starlink equipment are more than double the scores of other Wi-Fi operating aircraft. On labor, we are pleased that our flight attendants ratified a new agreement in May. This agreement is an important investment that is included in our outlook for the third quarter and full year 2026, and we remain committed to reaching much-deserved agreements across all work groups. United Next continues to be the right plan for the company. We are building a United that is more reliable, more elevated, more global, and more customer-focused, strengthening the experience we deliver today and positioning us well for the future. We believe that our ability to remain nimble and proactively respond to evolving industry headwinds, such as higher fuel, maximizes our earnings potential, improves how we have structurally changed for the better. Thank you again to the entire United team for delivering for our customers and each other. With that, I'll turn it over to Andrew to discuss the revenue environment.
Andrew Nocella: Thanks, Brett. Overall, revenue performance was exceptional in the quarter. and proved once again United's ability to quickly adjust to an ever-changing environment. I think our outlook for the rest of 2026 validates our commercial plans are working well. United's revenue accelerated across the board in Q2, with total operating revenue up 16% to $17.7 billion. TRASM was up 12.1% year-over-year, with load factors up slightly, which indicates strong demand for United's products. We observed minimal to no negative impact on demand from higher price points, a trend we see continuing. Domestic passenger revenue was up 20.3%, with PRASM up 12.2%. International PRASM was also up 12%. Pacific led the way, with PRASM up 14%, Atlantic up 12.1%, and Latin up 10.7%. Cargo revenues were also strong, up 22.6%, and loyalty revenue was up 11.3%. Mileage Plus program changes have been very effective in building momentum in new co-branded accounts, spend, engagement, and membership as expected. New co-branded credit card accounts reached a record level for the second quarter, up 22%, with Q2 card spend increasing 14%. Mileage Plus enrollments were up 9% outpatient capacity by five points. We saw the largest increase in membership in Chicago and in New York. Premium revenues were up 16.4% and premium PRASM up 11.6% in the quarter. RASM specific to the Polaris and premium plus cabins was up even more at 13.6% in the quarter. Main cabin RASMs were up 11.5% in the quarter. This is the second quarter in a row where we've seen main cabin RASMs positive after years of below average performance at an industry level. While main cabin RASMs turned the corner in 2026, our main cabin fares remained far behind inflation, driven by all costs, not just fuel. We're now just seeing a necessary catch-up in pricing. In fact, to put these current fare levels in context, the average main cabin fare today is minimally up versus 2024, well short of inflation, which is up nearly 7%. Close-in business travel was exceptionally strong in Q2, with contracted business revenues flown up an impressive 27% year-over-year and bookings up 30%, led by technology, financial services, and professional services. In Q2, United grew corporate share year-over-year in all of our hubs. These same positive business demand trends continued into early July and we expect to continue for the remainder of the year. We've adjusted our revenue management posture to save more seats for close-in business demand. The load factor contribution of business travel from all channels in the quarter was up about half a point year-over-year. Our outlook for the remainder of 2026 assumes demand strength from Q2 is consistent in Q3 and in Q4. Looking ahead, the pricing environment remains strong across the entire network, with selling yields up mid- to high-teens year-over-year in recent weeks, setting up a strong double-digit increase in year-over-year RASM. Currently, we're booked about 58% through Q3, and given current selling yields and strong demand, we do expect year-over-year RASM in Q3 and Q4 to exceed Q2. Consolidated Q4 yield is currently tracking up a strong 19% year-over-year, while Q3 yield at the same point in the booking curve sat up only 5%. United continues to gain local share in each of our seven hubs. Passenger share in our hubs has increased seven points from 2019, by far the largest increase of any airline from their respective hubs. United's Q3 schedules are largely final. United's Q4 domestic schedules are not final and will be adjusted downward when finalized. While we are not providing capacity guidance anymore, we will make a final determination on Q4 capacity as we get closer to the quarter where we can properly consider the latest fuel and demand trends. United's efforts to decommoditize our revenue streams and create more consumer choice are accelerating as we head into 2027. New fleet and product initiatives position the business for RASM and margin gains in 2027 and beyond. And we're particularly excited to get Relaxro and the CRJ450 out for sale. We also have a very clear path to larger gauge in 2027 as well. which we expect will be accretive to results and a tailwind to CASM-X. We have renewed optimism that we'll take delivery of our first MAX-10 in mid to late 2027. The MAX-10 has more premium seats than the aircraft it replaces, along with the best-in-class CASM. We've absorbed an increase in gauge from 104 to 126 seats since we announced United next, but we're still about 10 seats from our goal of 136 seats in North America. We can also now see on the horizon completion of key aircraft modification programs, including fast and free Starlink Wi-Fi, feedback entertainment, larger overhead bins, and our refreshed onboard branding. Our United Next plan will be largely done in 2027, but we have many new commercial and product initiatives coming. We will begin to rapidly spool up our flying on our new Premium 321s, the XLR, and the Coastliner later this year and into 2027. We anticipate a fleet of 100 premium configured 321s by the end of the year. At United, we're rewriting the definition of what a premium global airline looks like every day. By late 2027, we'll provide a consistent and elevated experience for all customers in all cabins, unmatched by anyone. I wanted to say thanks to the entire United team for delivering these excellent results across the spectrum. And with that, I'll hand it over to Mike.
Mike Leskinen: Thanks, Andrew. The second quarter provided yet another proof point of the strength and resilience of our business and our United Next strategic plan. We've decommoditized United Airlines by earning an ever-growing proportion of brand loyal customers, which in turn then allow us to generate durable financial results, especially during tough environments for the broader industry. Our strategy continues to deliver margins at the top end of the industry, a strengthening balance sheet and an overall financial position that allows us to focus in the long term. Our confidence in our ability to deliver double-digit pre-tax margins in 2027 and mid-teen pre-tax margins beyond that has never been higher. We delivered second quarter earnings per share of $1.99 at the high end of our guidance range of $1 to $2 and pre-tax margin of 4.8% despite a $2.3 billion year-over-year headwind from fuel. Second quarter CASMX was up 6.1% year-over-year which reflected pressure from labor deals and capacity reductions, all consistent with our expectations. We remain focused on driving greater efficiency without compromising the investments in our people, customers, and product that underpin our growing brand loyal customer base. In the quarter, we were able to recapture 50% of the increase in fuel expense and accounting for the sharp rise in fuel recently, we expect to recover 80 to 90% in third quarter and full recovery by the fourth quarter. At today's prices, fuel remains almost $6 billion higher for the year compared to our outlook at the start of the year. Our focus on efficiency has helped offset some of the fuel headwind, but our ability to drive higher yields has been critical in helping cover the heightened cost of our operation. And, as Andrew mentioned, United has not seen a measurable demand impact based on the higher fares. In fact, if you zoom out to consider price inflation for travel over the last 10 and 20 years, airfare stands out as a tremendous value. Our customers increasingly desire a better travel experience, and we believe they will continue to pay reasonable prices for it. That's why we invest billions of dollars into our business. It's why our margins have been near the top of the industry, and it's why we expect to continue to deliver strong top-line revenue growth and mid-teens margins in the years to come. Looking ahead, we expect third-curve earnings per share to be between $2.50 and $3.50, underpinned with an all-in fuel price of approximately $3.69 based on Tuesday's curve. Given the recent run-up in oil, we felt it prudent to adjust our outlook to reflect the current environment. For the full year, we are tightening our guidance range to the high end of our previous guide and expect earnings per share between $9 and $11. Since early July, fuel prices have increased 15% to 20%, and our guidance reflects that pressure. However, if fuel prices return to prior levels, we expect to be above the high end of both ranges. Additionally, given oil volatility, we expect crack spreads to remain elevated for the remainder of the year. In a year where the industry is experiencing a multi-billion dollar shock from oil, this would be a fantastic outcome that demonstrates United's ability to absorb and manage through times of uncertainty and meaningful financial pressure. On cost specifically, our plan, volume adjusted, has remained consistent with our expectation at the start of the year. The pressure on our unit costs in the first half of the year was solely driven by our close-in capacity adjustments and will remain a headwind to unit costs for the remainder of the year. We've consistently demonstrated that we will adjust capacity when necessary rather than operate flying that does not make economic sense. These actions reflect our focus on maximizing long-term profits and cash flow. With this in mind, in 2027, we plan to retire at least 80 aircraft as we continue to renew and up gauge our fleet, a step up from the last few years. Turning to the balance sheet. As the quarter began, the industry faced significant risk and uncertainty driven by the hostilities with Iran and the closure of the Strait of Hormuz. Given that heightened volatility, we proactively secured additional funding to build extra liquidity to manage through a scenario where oil remained higher for longer. We raised capital through a series of private bank transactions that raised $3.7 billion of new debt that is attractively priced at a fixed rate equivalent in the low 5% range, pricing well inside of our most expensive existing debt. Once oil prices stabilize, our intent is to use this newly raised debt to prepay more expensive debt and to purchase aircraft with cash. Our ability to raise this quantum of debt at these terms further demonstrates United's improved financial position and progress towards investment grade. Since the beginning of the second quarter, we have prepaid approximately $1 billion of higher cost legacy aircraft debt and PSP debt. We will continue to closely monitor the situation in the Middle East, but in interim, this capital provides us plenty of flexibility. We ended the quarter with $19.6 billion of available liquidity. We remain focused on achieving investment-grade credit rating metrics and remain optimistic for our prospects later this year. To wrap up, demand for the United product is as strong as ever. Our customers continue to demonstrate a preference for the value our products provide. This supports our relative financial performance and reinforces our confidence in the durability of our strategy and our ability to deliver mid-teens margins in the future. I'll turn it to Kristina to kick off the Q&A.
Kristina Edwards: Thanks, Mike. We will now take questions from the analyst community. Please limit yourself to one question, and if needed, one brief and related follow-up question. Regina, please describe the procedure to ask a question.
Regina: Thank you. The question and answer session will be conducted electronically. If you'd like to ask a question, please press star, then the number one on your telephone keypad. Please hold for a moment while we assemble our queue. Our first question will come from the line of Katherine O'Brien with Goldman Sachs. Please go ahead.
Katherine O'Brien: Hey, good morning, team. Thanks so much for the time. I know we're not going to get an actual RASM guide, but Andrea has had a couple of questions, all related, on the fact that 3Q RASM should accelerate into 3Q versus 2Q. Can you just help us think what that looks like for each of your regions' RASM? System RASM comp, that's fairly comparable to 2Q, but Domestic has a tougher comp, and then the three international regions have easier comps. And I guess just anything we should also be aware of on other revenue or cargo as we make our assumptions on RASM acceleration. Just trying to get a sense of the puts and takes. Thanks.
Andrew Nocella: Sure. Good morning. When we look across the system, as I said in my script, we see strength just about everywhere. In Q2, I think we're particularly proud of our performance across the board, but really in the Atlantic and Pacific. And if you look at those numbers year over two, even more proud, like we've got it really dialed in on those entities. And we see continued strength in both of those entities in Q3. Internationally, Latin America year over year will be the standout in Q3, considering it definitely has an easy comp, but the number for Latin in Q3 for prouds and growth year over year will be off the charts. Cargo had a really strong quarter. Most of the gains in cargo were yield-related, not volume-related, and I expect that to continue into Q3 as well. So I think a really good outlook. The only place I can find that has lower yields than I would otherwise expect is Hawaii. But other than that, I think the system is firing on all cylinders. We've done a really good job, our capacity planning group, I put in capacity where it needs to be, and I think that shows up in our results and the outlook for Q3 and what we've told you about the outlook for Q4.
Regina: Our next question will come from the line of Andrew DeDora with Bank of America. Please go ahead.
Andrew DeDora: Hi, good morning, everyone. First question, Mike, I see 26 capex came down a little bit, I know, on some delivery. As we think about modeling your free cash flow the next few years, what year do you see as sort of peak capex and when do you begin to see it bend down a bit more significantly?
Mike Leskinen: Andrew, thanks very much for the question. You know, we're focused on free cash flow, uniquely focused on free cash flow. We've talked about a 50% conversion rate for the next few years, heading to 75% as we exit the decade. The CapEx is going to vary based on our results. We're determined to get to double-digit margins, as I said in my script, mid-teens margins longer term. As we get there faster, we may allow CapEx to be a little bit higher. As we get there more slowly, we'll manage CapEx appropriately. But what we're committed to is those free cash conversion figures.
Andrew DeDora: Okay, understood. And then just as a quick follow-up here, investment grade, obviously a big goal of yours this year. When you couple that with that path to double digit margins, kind of like the CapEx comments you just had, how do you think about target leverage and future capital return potential as that kind of CapEx maybe decelerates from the peak? Thanks.
Mike Leskinen: We've had significant consultations with the rating agencies. I expect and we plan for net debt to be below two terms. I think if you normalized our earnings this year, For fuel, we would already be there. As we look into 2027, we will absolutely trend below two turns. And in addition to the actual metrics, what we've proven through this fuel crisis is the resiliency of this business. And we think that at least for the airlines that have a brand loyal strategy, We've proven a resilience that would earn us a higher rating for the industry and the business itself. So you put those meaningful factors together, and I think the market is already recognizing us with investment-grade-type terms, and I think the rating is right on the precipice.
Regina: Our next question will come from the line of Sheila Cayalu with Jefferies. Please go ahead.
Sheila Cayalu: Good morning, guys, and thank you so much. Maybe just to start it off, can you talk about Starlink? You've now installed it on 450 aircraft out of your 1,000 aircraft fleet, and that's expected by year-end or nearly most of your fleet. How do you think about monetizing the addition of Starlink and the advantage versus your peers? And I guess, how do you think about new product introductions more broadly? You mentioned MAX-10 finally coming into the fleet at the end of 2027. and the XLRs.
Scott Kirby: Well, thanks, Sheila. We've been doing a lot in the past five, six years to really invest in the customer experience. And, you know, we look at the disaggregated market share data of every single one of our hubs, like just incredible growth from the local customers. And it's been the right strategy. And I think Starlink is probably going to be the biggest of everything that we've done. And like the feedback I get from customers is just Unbelievable good when they get on a flight. We're doing everything we possibly can, including taking aircraft out of service. As fast as Starlink can produce the antennas for us, we're going to get them on the airplane. And I think particularly for many of the premium customers, but all customers are for premium customers that really want to be able to make sure they're connected with high speeds. It is going to lead to big share gains for us. We're excited about it, proud of it, and it's just the next step forward for us at United. But we can already tell it's going to be big.
Sheila Cayalu: Great. And just on the new product introductions with the Max 10 coming in, how do you think about that more broadly?
Andrew Nocella: Well, we've been waiting a really long time for the MAX-10, and hopefully that wait is coming to an end. We have our first implementation going down the line for, I think, a July delivery of next year, so we're anxious to see that. You know, with the MAX-10, you'll see us stop taking delivery of MAX-9 shortly thereafter. The MAX-10 will be superior in every way, a little bit larger and far less cost on the incremental side, so the marginal chasm is very low. Thank you for joining us. Thank you for joining us. Far more than any of our primary competitors, so we're really leaning into the premium narrowbody. We think it's going to be a structural advantage for United, and we're excited about that. And then last, the elevated 789. We have this flying, the studio suite, this is forming unbelievably well, and we are excited to rapidly hit the size of the elevated 789 fleet in 2027. We won't have an infinite number of aircraft with that many premium seats. That's a really We will have enough to fly key routes in Asia and to London Heathrow where that plane makes appropriate sense and our customers and the NPS scores show that they really love the amenities on board the aircraft. So that all adds up to a lot of different product features and there's more to come and we will let you know what those are at the appropriate point in time.
Regina: Our next question will come from the line of Connor Cunningham with Milius Research. Please go ahead.
Connor Cunningham: Everyone, thank you. Mike, it seems like we're going to face peak cost pressures in 3Q this year. I know it's early and you're still investing heavily in the product and in the customer experience, but it just seems like you have the biggest opportunity on costs. come next year. So maybe you could just talk about the puts and takes there and just why shouldn't we already be penciling in United leading on costs in 2027?
Mike Leskinen: Thanks. Thanks, Connor. And to answer the question simply, I think you should. As we roll into 2027, we remain committed and expect the CASAmax in the 2% to 3% range, core CASAmax. That includes some investment, continued investment in the consumer. I also think you are thinking about the pacing of CASMAX in 2026 correctly. I expect Q3 will be peak. And everything is working to plan. We're doing a great job of managing core CASMAX. We're investing in the customer. And the gauge growth that re-accelerates in 2027 is going to get us right back on that 2% to 3% core CASMAX path.
Connor Cunningham: OK, great. You guys have obviously done a very good job of managing the business this year, and your conviction level around double-digit pre-tax margins next year only seems to get a bit stronger. But if I still think about the opportunity set in front of you, you have Starlink unlocking, NPS scores, ad businesses, and so on, gauge, premium, merchandising. You have a ton of stuff, and a lot of that ramps actually past $27 million. If you could just talk a little bit about how you view the long-term margin profile of the business. It just seems like we are at a much different place than we've been ever before.
Scott Kirby: Thanks, Connor. I'm afraid to answer that because you said it all so well. I don't want to screw it up. Here is what I think the margin path is for United. It's consistent with what I said in the past. I think we're on a trajectory of to get low double-digit margins with no structural changes in the industry. Everything that you just talked about, the path that we're on, gets us to low double-digit margins. And by the way, somebody may ask it later, but we're going to exit 2026 at a revenue run rate here in the second half that would just on its own imply double-digit margins for next year, which I also expect. But we'll get to low double-digit margins with no other structural changes in the industry. I do, however, think that and I think getting to mid double mid teens margins requires or is likely to require some more structural changes in the industry. And I do think that's going to happen. I mean, it doesn't happen immediately. It takes time. But economic gravity always wins. And the reality is this year, you know, four of the eight publicly traded commercial airlines are probably going to lose money. They have an awful lot of flying that loses money, you know, on an individual route basis. And one way or another, that gets resolved over time. I'm not going to try to predict when. I'm not going to predict exactly what happens. But I think that probably drives us into the mid-teens margin drain. So on our own, even if none of that happens, we're on a pretty straightforward path, I think, to low double-digit margins. You know, you could add several points onto that as structural changes happen in the industry.
Regina: Our next question will come from the line of Jamie Baker with J.P. Morgan. Please go ahead.
Jamie Baker: Good morning, everybody. Scott, on fuel, you know, one concern we all hear quite often, particularly in light of elevated fourth quarter schedules, is that when fuel prices ultimately recede, capacity will come back on and, you know, hurt RASM. You may recall that back in 2016, I actually criticized you. Well, I mean, not you. That's okay. I knew you could take it. We felt American Under Your Leadership did just that and used fuel cost savings at that time as a way to sort of hammer some of your competitors, particularly discounters. So that's the basis of my question. Do you think the industry has evolved to the point that this is less of a risk or is this something that You know, analysts and investors should still fret about things.
Scott Kirby: So let me start with why prices have gone up. It's not fuel price. Fuel price was, you know, accelerated a little. It's not fuel price and it's not capacity. It is what I said in my script. Probably the biggest structural change that's happened in the industry coming out of COVID is cost inflation and cost harmonization. And the harmonization is really important. What has happened is airport fees have gone up something like 60% since COVID. Labor costs have escalated dramatically. Maintenance is off the charts in terms of escalation. Those are all costs that every single airline pays the same. That is why four of eight airlines are going to lose money this year. It's why one airline went out of business this year. That is the underlying driver of price increases. And even with fares up this year, you know, I said earlier this morning or in my script, airfares are down still 13% in real terms compared to where they were in 2019. And that's just basic economics. Any industry has to pass along the price increases. So if I look at kind of where prices are right now, I would say 10% of the price increase, you know, 10% of price Here in the second quarter was less capacity growth in the second and third quarter. 90% of it is the structural change that happened with cost increases. There was another fair increase this week as fuel started to go back up, and there were no fair decreases when fuel went down. And so if you're an investor, what's different this time in 2016 is the cost harmonization across the industry. It's a dramatic structural difference. And so I think it's fair to be arguing about what the 10% is going to be. By the way, I think capacity for the fourth quarter is likely to come down. That's what happens every quarter, likely to come down. But even if it doesn't, you're really talking about 10% of the fair increase that's sort of at risk. And the 90% is probably not done yet because all those costs haven't yet been recovered. This is about a structural change in the cost side of the business, which is forcing a structural change and the pricing and revenue side of the business.
Jamie Baker: Excellent. Thank you for the color. And then for Mike, you know, on this capital raising the quarter, you know, how does this play into management's overall conservatism, excuse me, you know, marks in my view that you didn't need to be this proactive. You have tight unsecured access. You've got access to WTCs. I guess we're just I'm wondering why you'd pre-fund all those CapEx when other options seem to exist?
Mike Leskinen: Jamie, thanks for the question. And look, we have a track record, and we're going to maintain that of being proactive. We are right on the precipice of investment grade. That's going to unlock a lot of options for us. And this was a very cost-effective and the net cost as we invest the proceeds in money markets is very low. And so this was a very cost effective way of adding some extra insurance in a way that that will bring down the overall cost of carry as we prepay the more expensive debt. So it was it was truly a no regrets move. And I'm really proud of the Treasury team for the execution.
Regina: Our next question will come from the line of Tom Fitzgerald with TD Cowan. Please go ahead.
Tom Fitzgerald: Hi, everyone. Thanks very much for the time. Two for me on loyalty. Just one, would you just update us on your latest thinking about the timeline on that contract renegotiation? I know that's one of the longer-term upside drivers for you guys. And then just my follow-up is... I know you redid the credit card program back in March just to further incentivize and align with the credit card holders. I'm wondering what the early learning from that's been and if that's been having the intended result. Thanks for your time.
Andrew Nocella: Sure. In terms of duration, it'll say I think it's out there on the internet somewhere, but we're in the sunset phase of the current contract and that we have not started to and many more. Thank you. The credit card space is most interesting, complicated, and also full of a lot of upside for United Airlines as we grow and take advantage of these opportunities as we grow our business, the core of our business. It allows us to grow the credit card business even more. So we're super excited about it. I think the numbers are all moving in the right direction. Just to point out, we did have a out of period one-time adjustment in loyalty of the revenue in the quarter. That made our number look a little bit lower than it otherwise would be. It showed just under eight. Without that one-time adjustment, it would have been over 13. So if you're looking at those numbers and thinking that the revenue slowed a bit in the quarter, they did not. We expect strong numbers in Q3 as well. So I think we're really set up well. I couldn't be prouder of the changes. That was a year and a half of research and investigation and technology changes, but they're all implemented. They were implemented flawlessly and are doing really well. I'll also point out we implemented a lot of changes on united.com on how we sell tickets, how we sell nested fares. All those changes were really critical to our evolving and more complex product mix. They were also implemented flawlessly. The technology worked perfectly, and I'm really proud of the team for delivering all that. And I think the nested sell-in is also delivering exactly what I wanted it to deliver in the very early stages here.
Regina: Our next question will come from the line of Robby Shanker with Morgan Stanley. Please go ahead.
Robby Shanker: Great. Thanks. Morning, everyone. Scott, it's interesting that you tied the industry-wide fare increases to overall cost inflation rather than fuel. and you said there was another round of increase this month despite fuel not hitting a new high watermark. I think that's a demonstration of that. So as investors or analysts, what do we think is the new benchmark for when United could raise pricing going forward in the coming years? Is it a certain number of points of chasm inflation? Is it specific cost catalysts like a new labor contract or trying to get a sense of how many kind of What is the opportunity for pricing X fuel benchmark for the industry going forward?
Scott Kirby: Well, I'm not going to answer a forward-looking question on pricing. But I think the way to think about pricing, what's happened this year is sort of cleaning up the core basic pricing environment. That's the 90% that I talked about relative to capacity. There's no more $9 fares from Houston to Central America or $4 tickets from Los Angeles to Cabo and some of the crazy stuff that just doesn't exist anymore. I don't think it's ever going to exist again. And so the core basic bear structure is in a much more reasonable place today and it continues to, you know, go up as it has this week. The capacity side of the equation is really yield management. You know, how often you, you know, Our next question will come from the line of Scott Group with Wolf Research. Please go ahead.
Scott Group: Hey, thanks. Good morning. Just two quick things. The comment book deals 14% higher for Q4. Like, any way to help us think, like, what that actually means for our models? Like, is the implication RASM accelerates further Q3 to Q4? I just don't know, like, how to, like, actually what to do with that comment. And then, Mike, you said retiring 80 aircraft next year. How much capacity is that? Any, like, preliminary early directional thoughts about capacity growth next year? Thank you.
Andrew Nocella: Well, I'll start. Look, we don't give RASM guidance, but I did give a lot of hints and that Q3 and Q4 would be above Q2. So we obviously think we're in a really good year-over-year RASM setup for the remainder of the year. In terms of that particular comment, I think it's a reflection that the incredibly low fares, as Scott pointed out, from LA to Cabo of $4 or $14. I think $14 is the accurate number, Scott, are no longer out there. So leisure yields far out in the booking curve are actually seeing the highest year-over-year change because of their incredibly low base and their reset during this current situation. So that's why that number seems so high. So I think we've given you the appropriate revenue guidance I think it's a really good revenue outlook. And I'll leave it at that and hand it over, Mike, for the second half.
Mike Leskinen: Thanks, Andrew. And Scott, thanks for the question. Look, we've seen an acceleration in production for the OEMs. So we do expect to see more new narrowbodies and maybe a few new additional widebody aircraft delivered next year. The aircraft we're retiring are older, less fuel efficient. They have older cabins. And so this You know, refresh of the fleet is going to be an important driver to help drive a chasm tailwind to get us to that 2% to 3% range that I spoke about. So we're excited about it. Some of the aircraft, frankly, would have been retired sooner if there hadn't been so many OEM delays.
Regina: Our next question will come from the line of John Godden with Citigroup. Please go ahead.
John Godden: Hey, guys. Thanks for taking my question. Scott, you mentioned structural change a few times on the call. I think there's broad recognition that carriers like United are leading the charge in that, but that's obviously not the case for all the carriers. So the pushback We sometimes hear that the industry structure is only as good as the least rational carrier, and the least rational carrier can be pretty irrational. I'm just curious how you address that. Maybe you could just kind of reflect on that and how you see that playing out from here. Obviously, you're making the right moves, but you're not in control of what other irrational moves others make.
Scott Kirby: Okay, I'll try. There's two structural changes. The first one I talked about which is going to be the focus to answer your question is cost harmonization. And the short answer on that is it's not about doing something rational or irrational. Like when your costs go up, like you either make your revenue go up or you get fired and the next person makes your revenue go up or you go out of business. That's not about people making dumb decisions about where they fly and stuff. They just don't have a choice. That's the 90% on cost. They do have a choice on the 10%, and sometimes they make bad decisions there, but again, it's the 10% of pricing I think that that matters for. That's the most important structural change for anyone trying to model the industry looking out for the rest of this year, 27 to 28. There's a second point, which is I think the second most important structural change that's happened is the emergence of Brand Loyal Airlines. And there's two of us. It took us a decade to get there, a decade of investment. We look at our market share. You can take a place, I'm not trying to pick on them, but it's true in every one of our hubs. In a place like Chicago, where in 2016 we had a four-point deficit with local customers to our biggest competitor here, and we now have something like a 16-point premium. It grew again in the latest data, even with all the capacity that's been added. You know, we just, brand loyalty wins. That does give us a level of, not 100%, does give us immunity to what happens from a competitive perspective, but it gives us, you know, a lot of resistance to it, much less exposed to what happens from a competitive perspective, because the competitive capacity stuff impacts the commodity portion of the business has much smaller impact on the brand loyal part of the business. And so those two trends, the cost harmonization is, I think, incredibly important. And then for United specifically, you know, the brand loyalty is a second structural trend that's permanent. It's already said structural and irreversible.
Regina: Our next question will come from the line of Mike Linenberg with Deutsche Bank. Please go ahead.
Mike Linenberg: Good morning, everyone here. We saw that flight caps were extended in Chicago, I think, a week ago through now the fall of 2027. How does it impact profitability? I know on one hand, you could argue there's less consumer choice. On the other, though, it allows you to run maybe just a more reliable hub and helps connectivity. And then as a related follow-up, I saw, you know, recent caps being imposed in San Francisco. What's behind that? And is that a permanent change to the San Fran, you know, operation? And does that have an impact as well? Thanks for taking my question.
Andrew Nocella: Hey, Mike. It's Andrew. I'll start off. But, you know, so in Chicago, the FAA recently put out an order that extends the caps for a year. Quite frankly, I don't know what's going to happen in 12 months where that's going to change because the construction projects at O'Hare extend out almost indefinitely. And so we'll see. But our current plan, given these gaps, is to fly 650 flights per day, which is what we're approved to fly, almost indefinitely. And so that does change the dynamics of the Hub. We will seek to upgauge it in the years to come to facilitate growth. And I don't think these changes are going to in any way hurt our profitability. So it is what it is. I think we're a little bit disappointed, but we now have certainty, I think, as to what it's going to look like for an extended period of time. We will strive to gain as much market share, put as many large aircraft in here. and expand through creative measures. And we will do so. We've done it in the past in New York and we'll do it in Chicago if that's the new reality. And I think I'll pass it over to Toby to briefly describe what's happening in San Francisco. Toby?
Toby: All right. So real quickly, the FAA has changed the approach into San Francisco, which lowered the rates. We have worked hand in hand with them. to try to come up with a new approach which will get the landing rates up again. I'm not 100% sure yet that we can get back to 100% where we were before, but you should see an improvement in landing rates in San Francisco over the next two to three weeks.
Scott Kirby: There's also been a runway construction this summer, so that's a big driver.
Toby: And that will finish in October. Yeah.
Andrew Nocella: And it's also part of that, Mike, the last thing I'll add is that at the same time, the government extended the order in New York. So we are under similar levels of caps in Newark for another year. And again, my expectation is that's likely to continue. We're simply out of runway space in many of these key airports. And it's why our long-term plan is to focus on gauge growth, which our fleet plan sets up really nicely.
Regina: Our next question will come from the line of Brandon Oglenski with Barclays. Please go ahead.
Brandon Oglenski: Hi, good morning, and thanks for taking the question. And Andrew, maybe this is a good follow-up to that conversation there on the fleet plan. and maybe this is one for Mike as well. Just like how do you leverage the newer and the older aircraft in the fleet? And I appreciate the increased disclosure today of 80 retirements. But even then, it looks like you're going to have, you know, a mix of old and new. So are you looking to maybe leverage certain portions of the fleet at peak periods and maybe on non-peak periods? If you could speak to both those, I appreciate it.
Andrew Nocella: Well, you know, I think we're spending a lot of time understanding how much relative increase in capacity we offer in peak times. And we've talked about this on other calls. and I've been disappointed by our relative third quarter, for example, earnings and RASMs. And we worked really hard this third quarter to make that a more durable quarter than it normally has. Obviously, the price of fuel kind of hides some of the progress we've made. But overall, I think we're less excited about pushing the airline super hard in any particular week or quarter that happens to be a period of increased demand because we're worried about the increased cost of a 30-day peak or a 60-day peak as we run those cost structures throughout all 12 months of the year don't make as much sense anymore as they used to. So we're taking a look at that. So overall, hopefully that gives you a little bit of color on the way we're thinking about it. I think we're going to be really careful on how we peak the airline in any given peak period.
Mike Leskinen: But Brandon, I think it's a really insightful question, so thank you for it. I think a barbell approach when it comes to fleet makes a ton of sense. Having a modern, larger gauge, fuel-efficient fleet for trunk routes and for a core of the fleet makes a ton of sense. And we've got great pricing, great financing. It maximizes not only profits, but it maximizes return on invested capital to have a larger amount of these younger, more fuel-efficient aircraft, without a doubt. But as we think about modulating capacity in the short and medium term based on the economics, we talk about we're going to match demand to supply. Having some older aircraft that have a lower capital cost that we can use to peak and or we can sit down cost effectively if the demand environment doesn't justify makes a ton of sense. And so that's exactly how we're managing the fleet. We want to make sure as we think about the aircraft we're ordering and we're taking delivery of that we always have an element of that barbell approach so that we can remain nimble in many environments.
Regina: Our next question will come from the line of Duane Finningworth with Evercore ISI. Please go ahead.
Duane Finningworth: Hey, good morning. Thank you. Good call and good outlook. I wanted to dive a little bit deeper on the corporate travel recovery. I think that 27 or 28% growth number you put out. I don't know if you can get this granular, but I assume when you talk about contracted business travel, that skews more towards larger corporate accounts, larger enterprises. Do you have any insight into the growth in small and medium-sized businesses, which I assume were probably impacted more significantly by tariffs last year? And then just along those lines, staying on the corporate theme, just geographically, any standout hubs or markets where the corporate growth rates were tracking higher?
Andrew Nocella: Sure, Duane, I'll start off. Look, it was a standout quarter. to say the least. And I'll go back in time. Just after the pandemic, we found our large corporates actually trail in the smaller corporates by a pretty significant amount. And I think you're correct. In the last few quarters, the large corporates have accelerated well above the smaller corporates, but not by a lot. They're just above. And I think if you look at it over a long period of time, the large corporates are just kind of catching up with the small and probably even having gotten close to catching up yet. I haven't looked at that particular number. But I do agree the large corporates were a little bit more robust this time around than the smaller ones. But really, I think a standout quarter, it looks to continue into this quarter. It's a higher percentage of our load factor, which is nice to see. Although to give you an idea, it's still five points of our load factor lower than it used to be pre-COVID. So if corporates travel continues to accelerate and closes that gap with basically an 80% yield premium versus leisure. That's a significant amount of upside in the plan. We're not assuming that, but the half a point of load factor growth we saw was great. It's also great, I was looking at across the Atlantic in Polaris to see our load factor up and our load factor up was up in business premium and our load factor was up in leisure premium at the same exact time. That is just The trifecta, I guess I need a third one to make it a trifecta, but it is really great. And so if we can continue to drive premium leisure growth as we drive corporate growth, wow, that's a lot of upside. And it's one of the reasons I think we're bullish for late this year and into 2027. So hopefully that answers the question.
Regina: Our next question comes from the line of David Vernon with Bernstein. Please go ahead.
David Vernon: Hey guys, good morning. Thanks for taking the question. So Andrew, you mentioned earlier that you're sort of, you were very satisfied with the way that the method selling strategy was kind of working out within the premium cabinets. I think that's related maybe to load factor, but can you give us some color around, you know, what exactly that's giving to you in terms of buy-ups or better utilization and where you are sort of in the process of of kind of implementing that fair strategy across the markets that you serve?
Andrew Nocella: Sure. We rolled it out a few months ago. Again, it was a lot of research, consumer testing, and then technology changes to make that happen. Fundamentally, it provides consumers more choice. They get to pick the aspects of the journey they find the most value in. So we think it's a win for consumers. Right now, it is early days. And if I go back to You know, the start of basic economy, I think we learned a lot over a period of years on how to best merchandise things and refine those very effectively over time. And so I would say we're in the very early ends of this. The buy-up rate to the standard premium Polaris ticket is actually, I'm not going to give you the number, but the number is high. In fact, it's higher than I expected by a lot. And so we have a lot of work to do to get things tweaked and optimize things. But again, early innings, really happy with it. And more to come as we offer more products and our technology evolves to best sell these products. So we're really far down this segmentation path, but there's a lot more path ahead of us is what I would tell you.
Regina: Our next question will come from the line of Savi Seidt with Raymond James. Please go ahead. Hey, good morning.
Savi Seidt: I was just wondering if you could just follow up on an earlier question on kind of capacity growth. I wonder if you could provide a little kind of medium term color on how you're thinking about it in terms of domestic versus international, given what you're planning on retiring and what you're seeing coming in.
Andrew Nocella: Sure, I'll start. Others may want to chime in. You know, I think the domestic market is far more mature, in my opinion, and so the growth rates need to reflect that, ultimately, with GDP. The international market is different. I think it's been more lucrative for United. Quite frankly, our hubs are in optimal locations for international growth. and the relationship to GDP for the international blind seems to be different than domestic. So that's a long way of saying that I expect our international growth rate in the coming years to be above our domestic growth rate.
Savi Seidt: That's helpful. And just if I might follow up on that, it looks like premium capacity was up 4% in 2Q. How do you expect that to trend over the next 12 to 18 months as you're kind of adding all these premium products and getting kind of larger gauge aircraft as the higher mix of premium?
Andrew Nocella: Yeah, so the premium capacity will clearly grow faster than the main cabin capacity. I'm not going to give the numbers today, but that's fundamentally what our fleet plan and what the premium A321s that are coming online, that's going to happen. It's by design. We're happy with that and pleased with that. However, that does not mean that we're going to step away from basic economy. It does not mean we're going to step away from the main cabin. You know, there's a lifecycle of the customer. We need to start with the customers that sit in the back of the aircraft and pay lower fares. So ultimately, someday they can sit in the front of the aircraft and pay higher fares. We know the full lifecycle of the customer, and we're not going to forget that everybody matters on the airplane, and we're going to give an elevated experience to everybody on the aircraft. and I think we have a lot of proof points to say we're actually executing on that.
Regina: Our next question will come from the line of Chris Weatherby with Wells Fargo. Please go ahead.
Chris Weatherby: Hey, thanks for the morning. It's late in the call. I'll just keep it at one. So I guess you guys talk about capacity in the fourth quarter. I think in the You're thinking about adjusting it relative to cost inputs, fuel, potentially other things. Is there a way to sensitize that? I mean, what are the sort of levels that you're looking at that give you a view on how you think about capacity in the fourth quarter? Any help that you can give us around benchmarks would be great.
Andrew Nocella: Thank you. I'll start. Look, you know, as we were, I think, at the J.C. Corgan Conference and the price of oil was spiking, you know, we made some aggressive changes to Q3, and you can actually see them in our sell-in file. We think that was the right thing to do, and we would do again if necessary. We wouldn't change anything. As we think about Q4, we think about the same exact framework. I will say, just for a little bit of color, the reason our schedules are loaded the way they are currently in Q4 is we have been waiting on the FAA to issue the orders for Newark and Chicago, which just came out. So they will allow us to adjust our capacity now sometime next week and a few weeks after that as we get everything firmly in place for Q4. So for all of you waiting to see what our Q4 capacity will be, you won't have to wait all that much longer.
Mike Leskinen: Chris, I do want to pile on Andrew's statements just philosophically. We at United are driving towards margins in cash flow generation. and we're going to match supply with demand, whether that's Q4, 2027 or beyond. We've built a good track record of that. You've seen when we've grown rapidly. We've done it in a way that does not dilute TRASM.
Regina: and we will now move on to the media portion of the call. If you'd like to ask a question, please press star then the number one on your telephone keypad. We kindly ask that you please limit yourself to one question. Please hold for a moment while we assemble our queue. Our first question will come from the line of Alice Insider with Wall Street Journal. Please go ahead.
Alice Insider: Hi, thanks so much. I was wondering if you could talk a little bit about LAX, just sort of what the state of competition is there. You know, does it feel like It's becoming more of a battleground, or is this kind of just the way it's always been? Just sort of curious how you see that playing out.
Andrew Nocella: Sure, Allie. You know, LAX is interesting. It's one of our seven hubs. We're firmly committed to it. We're growing it. It has been a battleground, but so has New York, so has Chicago, so has San Francisco. I feel we're in an incredibly competitive industry. The dynamics in LA are clearly at least four large U.S. carriers with similar shares. I expect that to be true a year from now, five years from now, and 10 years from now. It's a very competitive marketplace and we're in it to win it as well, but I expect it'll be competitive for the foreseeable future.
Regina: Our next question will come from the line of Leslie Josephs with CNBC. Please go ahead.
Leslie Josephs: Hi, good morning. I'm wondering if you have any count on how many customers have Defected, I guess, from other airlines, and they're now United Flyers, loyal United Flyers. And then just broadly on your growth, the U.S. is a pretty mature market. I'm just wondering if you had a few thoughts on that.
Andrew Nocella: Thanks. Look, we look at the market shares not every day, but quite, quite often. And I spend more time looking at RASMs than market shares, to be honest. But That being said, we track the market shares. We look at it quarterly from the government data that's issued. We're gaining in all our hubs. In the Bay Area, for example, in Q1, we were up 3.4 points year over year. That was the best performing share gain hub for United. But we gained in all of our hubs. We've done that consistently year after year. And I think it's simply we're offering a product that our customers love and more and more people love it every day. So I think we're really happy with that. And then, you know, I said it a few minutes ago, I think the domestic market is far more mature than the international market. The appetite for American consumers to travel overseas seems really high to me, whether it's southern Europe or Japan or anywhere else around the world. I think the desire to explore is growing. And it's one of the reasons we're excited more about international growth in the coming years than domestic. But that's kind of where I think we are.
Regina: I will now turn the call back over to Kristina Edwards for closing remarks.
Kristina Edwards: Thanks, everyone. We appreciate your time today. Best of luck to everyone navigating the rest of earnings season. Safe travels, and please contact Investor Media Relations if you have any further questions. We'll speak to you next quarter.
Regina: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.
