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- [00:00]
Indiana University Announcer
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Podcast/Radio Announcer
Bloomberg Audio Studios Podcasts Radio.
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Lisa (Interviewer)
News I would love to welcome in Scott Kirby, the CEO of United Airlines. And Scott, it's really tremendous to see not only what you did, but also the fact that you see significant upside to the fourth quarter. And I want to just start there. Where do you see the acceleration in demand?
- [00:40]
Scott Kirby (CEO of United Airlines)
You know, actually you look across the full year, the first three quarters were really good for United in a lot of macro volatility that happened for the aviation industry. That demonstrates the resilience of our revenue diverse, brand loyal business model. But you look to the fourth quarter, it's even more exciting because as the economy started to get back to a solid footing, at least for aviation, demonstrates a lot of upside. We think we're going to be able to grow earnings for the full year even in this environment. So it really is creating value for all of our customers all the way from basic economy to winning much higher market share in the brand loyal customers really is a great resilient strategy when times are difficult. But a lot of upside as the economy recovers here in 4Q.
- [01:21]
Lisa (Interviewer)
I guess I want to drill into the economy because Scott, earlier in the year it had been the economy section that had struggled the most. I'm just wondering how much it's picking up, whether you've had to discount tickets to bring people in to compete or whether consumers are willing to absorb higher prices and just take their trips.
- [01:40]
Scott Kirby (CEO of United Airlines)
Yeah, well, as we've talked about before, Lisa, the airline industries are a pretty good real time indicator of the economy. And you know, we saw for much of the first half of the year economic stress and ticket prices were lower as a result of that. But as we got into the third quarter, bookings, at least for future travel, the economy started to pick up, bookings started to pick up. And as we finished the quarter, you know, we've set records each of the last several weeks on most corporate revenue that we've ever booked in a single week. And a number of records, particularly in business travel, really kind of strong across the board, though International's come back stronger, the period has extended. Premium is obviously stronger than main cabin, but really we've seen improvement, you know, as we've moved through the third quarter kind of across the board on revenue streams with the biggest strength in the corporate segment.
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Lisa (Interviewer)
And that's actually something that we see across the board, particularly because there are all these deals so people have to actually get on a plane and go see some of their clients. I am wondering, are you, are you seeing international travelers, tourists come back to the United States? I know that was kind of a soft spot and sort of a tell in terms of the international reputation of the country.
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Scott Kirby (CEO of United Airlines)
Well, our business is about 80% US point of sale, but we have and we saw a drop in international traffic earlier in the year. It's not quite back to last year's levels, but it has recovered and it's close, close to last year's level. So we did see a dip, but even that has, has come back and we think that's on the trend to getting back to normal pretty soon.
- [03:09]
Lisa (Interviewer)
Are you planning to keep capacity pretty much the same? Are you paying to you planning to expand or cut back? I know that it was constrained earlier this year just because of demand, but as demand picks up, are you going to bring more planes on, on deck?
- [03:23]
Scott Kirby (CEO of United Airlines)
Well, we've been growing, you know, in absolute growth, actually faster, I think, than any airline in the world has ever grown for several years in a row. And that's worked really well for United and that's been successful. We really haven't much changed our capacity. We tweak it here and there. The biggest change we're going to make for next year I think, is actually to reshape the seasonality of the year. You know, one of the things that's happened that's good for our business is this third quarter peak has extended into the fourth quarter and it's made the fourth quarter actually a better quarter from a margin perspective than the third quarter. And what we think is as that particular international demand has extended into the fourth quarter, there's an opportunity for us to actually fly less in the peak in the third quarter, which will be good for a rasm. But it turns out it's going to actually be good for our cost structure too because we've, we have to build staffing and infrastructure, everything up to that peak for six weeks of the peak summer. And so next year we're going to actually try to reshape our schedule some to lower the peak and let the demand spread across more of the year.
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Lisa (Interviewer)
I know earlier this year when we were talking you said that you do expect to raise prices by, you know, single digits just to compensate for higher costs. Do you see that on track? The same type of price increases and our consumers okay with it? Are they absorbing it?
- [04:34]
Scott Kirby (CEO of United Airlines)
You know, this year prices have come down as we talked about just, you know, as it was, there was macro volatility at least for, for aviation. I do expect them to normalize next year and I think just over time that you should expect to see airfares grow consistent with inflation is likely. What's going to happen over time?
- [04:55]
Lisa (Interviewer)
How much do you see staff wage increases also playing into this, the idea that a lot of the people who work for United are also saying, okay, well things are going up, we want a pay increase.
- [05:06]
Scott Kirby (CEO of United Airlines)
Yeah, well, our people are the best in the world and they deserve industry leading contracts. Every time we sign a new contract with one of our union groups, they expect and deserve and will be, you know, paid at the top of the industry. So that's built into our forecast, that's built into everything that we're doing. One of the great things that we're doing though at United is I think we're the best in the world at managing, managing our real core costs and being more efficient at the airline. We've invested heavily in technology to help us run the airline better. But you look at the third quarter, you know, there are a number of airlines that have talked about missing their, their cost guidance because of storms and there were storms in the quarter. But we've invested so heavily in our recovery tools that we had, you know, best in the industry cost performance. And we're driving our costs lower, not by taking things away from the customer, but by actually investing in technology that lets us run a better operation for custom and is lower cost at the same time. And that also helps fund investments for the customer. We're spending over $1 billion a year in incremental investments for the customer, but also importantly investments in our people and having them have the best pay and the best contracts in the world.
- [06:13]
Lisa (Interviewer)
Scott, I love saying that you're my favorite economist to speak to because you do have this real time view of the economy. And right now what you're saying is kind of flying in the face of the weakness and some of the worries that we're hearing, whether it's from the government shutdown is going to cause disruptions or whether it's the employment picture that people are increasing increasingly worried about. How do you square those two things? This reacceleration that you're talking about with the weakness that policymakers seem to be so worried about.
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Scott Kirby (CEO of United Airlines)
Well, uncertainty really is, I think, what drives the economy in one direction or another. And there was a lot of uncertainty to start the year as we kind of got into the third quarter. And some of the macro issues the, you know, the reconciliation bill passed and geopolitical situation improved. Tariffs settled into, you know, having some confidence what they're going to be. We saw that improve now. We do now have, you know, new issues that things pop up all the time. What's happening with the shutdown could become an issue. So far it hasn't been, you know, first, the FAA is doing I think a great job of running the system. We have our lowest cancellation rate in the last decade, our second best on time performance. The controllers are professionals. There's not news about it, but the controllers are professionals, view their job as safety, view their job as taking care of the public and kudos to them. They're almost all of them are showing up to work and doing their job and has it. The first couple of weeks of October hasn't really affected bookings. I think if this goes on for too long, certainly the risks escalate in the economy as it goes on. I think the economy is better than most people think, but it's still tenuous. It's still a little balanced on a knife edge and we shouldn't have, you know, unforced errors. So let's get the shutdown settled.
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Lisa (Interviewer)
Scott Kirby, thank you so much for your time. I really appreciate it. That was Scott Kirby, the CEO of United Airlines.
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Podcast/Radio Announcer
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