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Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the Second Quarter 2020. 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 would like to ask a question, simply press star and the 1 on your telephone keypad. To withdraw your question, press star 1 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. This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed, or rebroadcast without the company's permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line. I will now turn the presentation over to your host for today's call, Kristina Munoz, Managing Director of Investor Relations. Please go ahead.
Thank you, Regina. Good morning, everyone, and welcome to United's second quarter 2020 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 pre-pandemic years of 2020 to 2022. Please see 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 our Chief Executive Officer Scott Kirby; President Brett J. Hart; Executive Vice President and Chief Commercial Officer Andrew Nocella; and Executive Vice President and Chief Financial Officer Michael Leskinen. We also have other members of the executive team on the line available for Q&A. And now I would like to turn the call over to Scott.
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 have 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 up 16%, recovering about half the increase in fuel price for the period. The significant increase in fuel just this 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's gone up a lot in the last week, and we have decided to once again lead 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 you go back to where it was earlier this month, we expect to be above the high end of the guidance range. Our multiples do not yet reflect it. We believe this industry has structurally changed, as demonstrated by the quickness of the fuel recovery for United but also at an industry level. Perhaps the most important structural change in the industry has been the significant inflation and harmonization in nonfuel costs like airport fees, labor, and maintenance. Cost inflation is what is driving fares higher. Fares still remain 13% lower in real terms compared to pre-pandemic. In the quarters ahead, 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 is just now beginning to be felt. Demand remains robust as we expect both Q3 and Q4 RASM to grow faster than 12%, and yields for fourth quarter are currently booked about 14 points higher for 4Q than at the same point in time for Q3. Demand is strong, and the overall cost pressures continue forcing fares higher. United has proven that our brand-loyal strategy is working, and we are using today's environment to accelerate our investment in all of the customer experience from nose to tail. My conviction in building a brand-loyal airline is stronger than ever, and I am encouraged by the consistent share gains we have 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 shock events. I can already see and hear from customers that getting Starlink on all our aircraft is going to be a step-function increase in our attractiveness to those customers. With that, I will hand it over to Brett.
Thank you, Scott, and good morning, everyone. 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 No. 1 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. 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-equipped aircraft are more than double the scores of other Wi-Fi-equipped 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. 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 and 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 will turn it over to Andrew to discuss the revenue environment.
Thanks, Brett. Overall, revenue performance was exceptional in the quarter and improved 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%. MileagePlus program changes have been very effective in building momentum in new cobranded accounts, spend, engagement, and membership as expected. New cobranded credit card accounts reached a record level for the second quarter, up 22% with Q2 card spend increasing 14%. MileagePlus enrollments were up 9%, outpacing capacity by 5 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. PRASM 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 have 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 remain far behind inflation driven by all costs, not just fuel. We are 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%. Closed-in business travel was exceptionally strong in Q2: contracted business revenues flown were 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 them to continue for the remainder of the year. We have 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 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 year over year. Consolidated Q4 yield is currently tracking up a strong 19% year over year, while Q3 yield at the same point in the booking curve was 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. 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 are particularly excited to get Relax Row and the CRJ-450 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-ex. We have renewed optimism that we will take delivery of our first MAX 10 in mid to late 2020. The MAX 10 has more premium seats than the aircraft it replaces, along with the best-in-class CASM. We have absorbed an increase in gauge from 104 to 126 seats since we announced United Next; we are still about 10 seats from our goal of 136 seats in North America. We can also now see the horizon on the completion of key aircraft modification programs including fast and free Starlink Wi-Fi, seatback entertainment, larger overhead bins, and our onboard refresh. 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 A321XLR and the Coastliner later this year and into 2027 and anticipate a fleet of 100 premium-configured A321neo family aircraft by the end of the decade. At United, we are rewriting the definition of what a premium global airline looks like every day. By late 2027, we will provide a consistent and elevated experience for all customers in all cabins unmatched by anyone. I want to say thanks to the entire United team for delivering these excellent results across the spectrum. With that, I will hand it over to Mike.
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 have decommoditized United Airlines by earning an ever-growing proportion of brand-loyal customers, which in turn allows 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 on the long term. Our confidence in our ability to deliver double-digit pretax margins by 2027 and mid-teen pretax 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 a pretax margin of 4.8% despite a $2.3 billion year-over-year headwind from fuel. Second-quarter CASM-ex 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 the 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. As Andrew mentioned, United has not seen a measurable demand impact based on the higher fares. 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 is why we invest billions of dollars into our business. It is why our margins have been near the top of the industry, and it is 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-quarter 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. In 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 multibillion-dollar shock from oil, this outcome would demonstrate United's ability to absorb and manage through times of uncertainty and meaningful financial pressure. On cost specifically, our plan volume-adjusted CASM has remained consistent with our expectations at the start of the year. The pressure on our unit cost in the first half of the year was driven by our closing capacity adjustments and will remain a headwind to unit cost for the remainder of the year. We have 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 toward 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 the 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 will turn it back to Kristina to kick off the Q&A.
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.
分析師問答
Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please press star, then the 1 on your telephone keypad. Please hold for a moment while we assemble our queue. Our first question will come from the line of Catherine O'Brien with Goldman Sachs. Please go ahead.
Hey, good morning, team. Thanks so much for the time. I know we are not going to get an actual RASM guide, but Andrew, I just had a couple of questions, all related, on the fact that Q3 RASM should accelerate into Q3 versus Q2. Can you just help us think what that looks like for each of your regions' RASM? System RASM comp, that is fairly comparable to Q2, but domestic has a tougher comp, and then the three international regions have easier comps. And I guess 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.
Sure. Good morning. When we look across the system, we see strength just about everywhere. In Q2, we are particularly proud of our performance across the board, especially in the Atlantic, and if you look at those numbers year over year, we are even more proud — we have really got it dialed in on those routes. We see continued strength in both Atlantic and Pacific in Q3. Internationally, Latin America will be the standout in Q3 year over year given it has an easy comp; PRASM growth year over year for Latin in Q3 will be substantial. 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. I think it is a really good outlook. The only place I find lower yields than I would otherwise expect is Hawaii. Other than that, the system is firing on all cylinders. We have done a really good job with our capacity-planning group of putting capacity where it needs to be, and I think that shows up in our results and the outlook for Q3 and Q4.
Our next question will come from the line of Andrew Didora with Bank of America. Please go ahead.
First question, Mike: I see 2026 CapEx came down a little bit, I know, on some delivery changes. As we think about modeling your free cash flow the next few years, what year do you see as sort of peak CapEx, when do you begin to see it bend down a bit more significantly?
Hey, Andrew. Thanks very much for the question. We are uniquely focused on free cash flow. We have talked about a 50% conversion rate for the next few years, heading to 75% as we exit the decade. CapEx is going to vary based on our results. We are determined to get to double-digit margins, as I said in my script, and 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 will manage CapEx appropriately. What we are committed to is those free cash conversion figures.
Okay. Understood. And then just as a quick follow-up here, investment grade is obviously a big goal of yours this year. When you couple that with that path to double-digit margins and the CapEx comments you just had, do you think about target leverage and future capital-return potential as CapEx maybe decelerates from the peak? Thanks.
We have had significant consultations with the rating agencies. I expect and plan for net debt to be below two turns. 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. In addition to the actual metrics, what we have proven through this fuel crisis is the resiliency of this business. We think that at least for airlines that have a brand-loyal strategy, we have demonstrated resilience that would earn us a higher rating. Putting those meaningful factors together, I think the market is already recognizing us with investment-grade-type terms, and the rating is on the precipice.
Our next question will come from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.
Maybe just to start it off, can you talk about Starlink? You have now installed it on 450 aircraft out of your roughly 1,000-aircraft fleet and expect most of your fleet to be equipped by year end. How do you think about monetizing the addition of Starlink and the advantage versus your peers? And how do you think about new product more broadly? You mentioned MAX 10 finally coming into the fleet. At the end of 2027 and the A321XLRs.
Well, thanks, Sheila. We have been investing a lot over the past five to six years to really improve the customer experience. We look at disaggregated market-share data of each of our hubs and are seeing incredible growth from local customers. It has been the right strategy, and I think Starlink is probably going to be the biggest of everything we've done. The feedback I get from customers is just unbelievable when they get on a flight. We are doing everything we possibly can, including taking aircraft out of service as fast as Starlink can produce antennas for us to get them on the airplanes. I think particularly for many premium customers, and frankly for all customers who want high-speed connectivity, it is going to lead to big share gains for us. We are excited about it and proud of it — it is the next step forward for United. We can already tell it is going to be big. Brett?
And just on the new product introductions with the MAX 10 coming in, how do you think about that more broadly?
We have 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. With the MAX 10, you'll see us stop taking delivery of the MAX 9 shortly thereafter. The MAX 10 will be superior in every way: a little larger and far less cost on the incremental side, so the marginal CASM is very low. That helps toward our CASM-ex goal. I think it will be a really great aircraft for efficient growth into the future. Across the board, the products look great on these aircraft. The XLR and Coastliner, which are the A321neo platform, are arriving this year; they have a lot of premium seats on those aircraft, and you will see us deploy them rapidly into 2027, which will increase our premium seating faster than our main cabin seating for a stretch. We are really excited about that. These aircraft will have Starlink onboard. They will fly our most premier routes within the United States and to smaller destinations in Europe and Latin America. We think they will be a game changer. We have about 100 of these coming before the end of the decade — far more than any of our primary competitors — so we are really leaning into the premium narrowbody. Then, the elevated 787-9: our premium product there is performing very well, and we will size the elevated 787-9 fleet appropriately in 2027 for key routes to Asia and London Heathrow where that aircraft makes sense. Our customers and NPS scores show they really love the amenities onboard. There is more to come and we will update at the appropriate time.
Our next question will come from the line of Conor Cunningham with Melius Research. Please go ahead.
Mike, it seems like we are going to face peak cost pressures in Q3 this year. I know it is early and you are still investing heavily in the product and experience, but it seems like you have the biggest opportunity on costs come next year. Maybe you could talk about the puts and takes there and why we should already be penciling in United leading on costs in 2027? Thanks.
Thanks, Conor. To answer simply, I think you should pencil United as a cost leader. As we roll into 2027, we remain committed and expect core CASM-ex in the 2% to 3% range. That includes some continued investment in the consumer. You are correct that Q3 will be peak for 2026. Everything is working to plan. We are managing core CASM-ex and investing in the customer. The gauge growth that reaccelerates in 2027 will get us back on that 2% to 3% core CASM-ex path.
Okay. Brett, you have done a very good job of managing the business this year. Your conviction around double-digit pretax margins next year seems to get stronger. You have Starlink unlocking NPS scores, the ad business, gauge, premium, merchandising — a lot of things that ramp past 2027. Could you talk a bit about how you view the long-term margin profile? It seems like we are at a different place than ever before.
I'm almost afraid to answer because you summarized it so well, but here's how I see the margin path for United: consistent with what I've said before, I think we are on a trajectory to get to low double-digit margins with no structural changes in the industry. The path we are on gets us to low double-digit margins. By the way, we are going to exit 2026 at a revenue run rate here in the second half that on its own would imply double-digit margins for next year, which I also expect. I think getting to mid-teens margins likely requires more structural changes in the industry; that can and probably will happen over time. Economic gravity always wins. This year, several publicly traded airlines are likely to lose money because they have a lot of flying that loses money on a route-by-route basis. One way or another, that gets resolved over time. I'm not predicting exactly how, but I think that is what drives the industry into mid-teens margins. So on our own, even if none of that happens, we are on a path to low double-digit margins, and you add several points as structural changes occur in the industry.
Our next question will come from the line of Jamie Baker with JPMorgan. Please go ahead.
Hey, good morning, everybody. Scott, on fuel: one concern we often hear, particularly in light of elevated fourth-quarter schedules, is that when fuel prices ultimately recede, capacity will come back on and hurt RASM. Back in 2016, I criticized actions in that era when some carriers used fuel savings to expand capacity; do you think the industry has evolved so this is less of a risk, or is this something analysts and investors should still worry about?
Let me start with why prices have gone up: it's not just fuel; the largest structural change coming out of COVID is cost inflation and harmonization. Airport fees have gone up significantly since COVID. Labor costs have increased materially. Maintenance costs have escalated. Those are costs that every airline pays similarly, and that drives price increases. That is why some airlines are losing money this year and why one airline went out of business. Even with fares up this year, airfares are still down 13% in real terms compared to 2019. In any industry, cost increases need to be passed along. Roughly speaking, about 10% of the price increase has been driven by capacity, and about 90% by the structural cost increases. There was another fare increase recently as fuel went back up, and fares did not decrease when fuel went down. What's different this time compared to 2016 is the cost harmonization across the industry — it's a dramatic structural difference. So while the capacity side of the equation matters, much of what's happening is structural and not simply cyclical capacity expansion.
Excellent. Thanks for the color. And Mike, on the capital raise in the quarter: how does this fit into your overall conservative posture? Why prefund this amount of CapEx when other options existed?
Jamie, thanks. We have a track record of being proactive, and we intend to maintain that. We are on the precipice of investment grade, which will unlock options. This raise was very cost-effective; the net cost, as we invest proceeds in money markets, is very low. It allows us to add extra insurance and will bring down overall cost of carry as we prepay more expensive debt. It was a no-regrets move, and I'm proud of the treasury team for the execution.
Our next question will come from the line of Thomas Fitzgerald with TD Cowen. Please go ahead.
Hi, everyone. Thanks for the time. On loyalty: would you update us on your latest thinking about the timeline on that contract renegotiation? I know that's one of the longer-term upside drivers. Also, you redid the credit card program back in May to further incentivize and align cardholders — what have learnings been so far and is it having the intended result?
Sure. On duration, the current contract is in the sunset phase and we have not yet reengaged with our bank partner Chase; we will do so soon. In terms of the program changes, I'm pleased: I gave a bunch of stats in my opening remarks and we are really happy with the changes. Some were new and unique in the industry, and they had the desired effect. The credit card space is interesting, complicated, and full of upside for United as we grow and take advantage of these opportunities. The numbers are moving in the right direction. We did have an out-of-period one-time adjustment in loyalty other revenue in the quarter that made our number look a bit lower than it otherwise would be — it showed just under 8% growth when, without that adjustment, it would have been over 13%. So if you look at those numbers and think revenue slowed, it did not. We expect strong numbers in Q3 as well. The program changes were a year and a half of research, technology, and implementation, and they were implemented flawlessly. We also implemented many changes on united.com and how we sell tickets, including nested fares, which were critical to our more complex product mix. Those changes were also implemented flawlessly. Nested selling is delivering exactly what we wanted in the very early stages.
Our next question will come from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Brett, Scott: you tied industry-wide fare increases to overall cost inflation rather than fuel and said there was another round of increases this month despite fuel not hitting a new high. As analysts, what should we think is the new benchmark for when United could raise pricing going forward? Is it a certain number of points of CASM inflation, a specific cost catalyst like a new labor contract, or something else?
I'm not going to provide a pricing formula, but think about pricing this way: the core basic fare structure has been reset. The extreme low fares that were common in the past are largely gone. The core fare structure is in a much more reasonable place today and continues to rise. The capacity side is yield management — how often you sell the lowest fare versus higher fares — and that is a smaller portion of the overall change. For investors, think about the roughly 10% of pricing that's at risk from capacity vs. the large structural cost increases that are outside carriers' control — those cost harmonization effects are about 90% of the driver.
Our next question will come from the line of Scott Group with Wolfe Research. Please go ahead.
Hey, thanks. Good morning. Two quick things: you said booked yields are 14% higher for Q4. Any way to help us think what that actually means for models — does RASM accelerate further from Q3 to Q4? And Mike, you said retiring at least 80 aircraft next year — how much capacity is that? Any early directional thoughts on capacity growth next year?
I will start. We don't give RASM guidance, but we've given hints that Q3 and Q4 will be above Q2. We think we are in a good year-over-year RASM setup for the remainder of the year. The high book for Q4 reflects low fare bases in some leisure markets where fares were reset very low; leisure yields far out the booking curve are seeing the highest year-over-year change because of that low base. So that drives the high-percentage change. In short, we think our revenue outlook for the remainder of the year is strong.
On the fleet and retirements: OEM production is accelerating, so we expect more new narrowbodies and a few additional widebodies delivered next year. The aircraft we are retiring are older and less fuel-efficient with older cabins. Refreshing the fleet is an important driver to help drive CASM tailwinds to reach the 2% to 3% CASM-ex range. These retirements would have happened sooner absent OEM delivery delays.
Our next question will come from the line of John Godyn with Citigroup. Please go ahead.
Scott, you mentioned structural change a few times. There's recognition carriers like United are leading the charge, but the industry structure is only as good as the least rational carrier, and the least rational carrier can be pretty irrational. How do you address that? How do you see that playing out given you can't control all competitors' moves?
Two structural changes matter. First is cost harmonization: when costs go up, airlines must raise revenue, run better, or they will go out of business or be replaced. That isn't about rational versus irrational decision-making — it's about economics. Second is the emergence of brand-loyal airlines. It took us a decade of investment to get here and we've seen significant share gains in our hubs. Brand loyalty provides resistance to competitive capacity moves because the commodity portion of the business is smaller for brand-loyal customers. So while competition matters, these two trends — cost harmonization and brand loyalty — are powerful structural forces in the industry.
Our next question will come from the line of Michael Linenberg with Deutsche Bank. Please go ahead.
Yes, hey, good morning, everyone. We saw flight caps extended in Chicago about a week ago through the fall of 2026. How does that impact profitability? On one hand, you could argue there's less consumer choice; on the other, it allows you to run a more reliable hub and helps connectivity. As a related follow-up, I saw recent caps being imposed in San Francisco — what's behind that, is that permanent, and does it have an impact as well? Thanks.
The FAA recently extended the caps at Chicago for a year. Our current plan, given those caps, is to fly 650 flights per day, which is what we are approved to fly, almost indefinitely. That changes hub dynamics — we'll seek to up-gauge the operation in the years to come to facilitate growth. We are a little disappointed, but we now have certainty and will seek to gain market share and put larger aircraft in market to expand through creative measures, as we've done in other hubs like New York.
I will pass it over to Toby to briefly describe what is happening in San Francisco.
Real quickly: the FAA changed the approach into San Francisco, which lowered landing rates. We have worked hand in hand with them to come up with a new approach to get landing rates up again. I'm not 100% sure we can return to previous levels, but you should see an improvement in landing rates in San Francisco over the next two to three weeks. There is also runway construction this summer, which is a big driver and will not be finished until October. It is also part of the situation in New York — the FAA extended the order there as well, so we are under similar caps in Newark for another year. My expectation is that this likely continues as we are simply out of runway space in many key airports. That is why our long-term plan focuses on gauge growth, which our fleet plan sets up nicely.
Our next question will come from the line of Brandon Oglenski with Barclays. Please go ahead.
Andrew, Mike: how do you leverage newer versus older aircraft in the fleet? With disclosure today of at least 80 retirements, you will still have a mix of old and new. Are you looking to leverage certain aircraft during peak periods and others during nonpeak, and how do you think about that?
We spend a lot of time understanding capacity in peak times. We are cautious about pushing the airline super hard in any particular week or quarter that happens to have increased demand because the cost of a 30-day peak can be high when that cost is amortized over all 12 months. So we are careful in how we deploy capacity in peak periods and thoughtful about the economics.
Brandon, great question. A barbell approach to the fleet makes sense: a modern, larger-gauge, fuel-efficient fleet for trunk routes and a portion of the fleet that is younger and more efficient maximizes profits and return on invested capital. Having some older aircraft with lower capital cost allows us to meet peak demand economically or reduce capacity if the demand environment doesn't justify the higher-cost flying. That barbell approach is how we are managing the fleet and will be reflected in our orders and deliveries.
Our next question will come from the line of Duane Pfennigwerth with Evercore ISI. Please go ahead.
Hey, good morning. Thank you. I wanted to dive deeper on the corporate travel recovery. You mentioned 27% year-over-year on contracted business revenues and bookings up 30%. That's probably skewed toward larger corporate accounts. Do you have insight into growth in small and medium-sized businesses? Also, geographically, any standout hubs or markets where corporate growth is tracking higher?
Duane, it was a standout quarter. Right after the pandemic, large corporate travel trailed small corporate, but in the last few quarters, large corporates have accelerated above smaller corporates but not by a lot. Large corporates were more robust this time around than smaller ones. Across the network, it was a strong quarter and this trend looks to continue. Corporate travel constitutes more premium yield and remains below pre-COVID levels by about five points of load factor, so there is still upside. We saw load-factor increases across Polaris and premium leisure as well — that's a great combination. We're excited about the trend into late this year and 2027.
Our next question will come from the line of David Vernon with Bernstein. Please go ahead.
Hey, guys, good morning. Andrew, you mentioned being satisfied with how the nested selling strategy is working within premium cabins. Can you give color on what it's giving you in terms of buy-ups or better utilization and where you are in implementing that fare strategy across markets?
We rolled out nested selling a few months ago after extensive research and technology changes. Fundamentally, it provides consumers more choice and lets them pick journey aspects they value. It's early innings, but the buy-up rate to standard premium Polaris tickets is higher than I expected by a lot. We have work to do to tweak and optimize, but we are encouraged. We've learned a lot since basic economy, and we'll continue refining how we merchandise and sell these products as our technology evolves.
Our next question will come from the line of Savanthi Syth with Raymond James. Please go ahead.
I was wondering if you could follow up on capacity trends: any medium-term color on domestic versus international, given retirements and new deliveries?
The domestic market is far more mature, so growth rates should reflect that. The international market is different and has been more lucrative for United. Our hubs are optimal for international growth, and I expect our international growth rate over the coming years to be above domestic growth rate.
Seat capacity was up 4% in February. How do you expect that to trend over the next 12 to 18 months as you add premium products and larger-gauge aircraft with higher premium mix?
Premium capacity will grow faster than main cabin capacity by design. I won't provide specific numbers today, but our fleet plan and A321neo deliveries will increase premium seats faster than main cabin seats for a period. That said, we won't step away from main cabin or basic economy — there's a life cycle for customers, and everybody matters on the airplane. We'll continue to elevate the experience for all customers while increasing premium mix.
Our next question will come from the line of Christian Wetherbee with Wells Fargo. Please go ahead.
Hey, thanks, good morning. You mentioned adjusting Q4 capacity relative to cost inputs. Is there any way to sensitize that — what levels do you look at when deciding Q4 capacity adjustments? Any benchmark would help.
We used that same framework when oil spiked earlier and made aggressive changes to Q3 that you can see in our sell files; we would do that again if necessary. For Q4, our schedules were loaded the way they are because we were waiting on FAA orders for New York and Chicago, which recently came out. We will now be able to adjust capacity over the next few weeks and you won't have to wait much longer to see our finalized Q4 plans.
Philosophically, United is driving toward margins and cash-flow generation, and we will match supply with demand — in Q4, 2027, or beyond. We have a track record of that discipline and will continue to manage capacity to protect TRASM.
We will now move on to the media portion of the call. If you would like to ask a question, please press star, then the 1 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 Allison Sider with The Wall Street Journal. Please go ahead.
Hi, thanks so much. I was wondering if you could talk a little bit about LAX — what the state of competition is there. Does it feel like it's becoming more of a battleground, or is this just the way it's always been? Just curious how you see that playing out.
LAX is interesting. Of our seven hubs, we are firmly committed to it and are growing it. It has been a battleground, as have New York, Chicago, and San Francisco. I expect four large U.S. carriers with similar shares to remain in LA for the foreseeable future. It's a competitive marketplace and we are in it to win.
Our next question will come from the line of Leslie Josephs with CNBC. Please go ahead.
Hi, good morning. Do you have any count on how many customers have defected from other airlines and are now loyal United flyers? And broadly on growth, the U.S. is a pretty mature market — any thoughts on that? Thanks.
We track market share data quarterly from government sources. We are gaining in all our hubs — for example, in the Bay Area in Q1 we were up 3.4 points year over year, which was our best performing share gain. We gained in all our hubs consistently year after year. We are offering a product customers love and more people are choosing it. Regarding growth, the domestic market is more mature; international travel demand to overseas destinations seems very strong, and we are more excited about international growth in the coming years than domestic.
I will now turn the call back over to Christian Edwards for closing remarks.
Thanks, everyone. We appreciate your time today. Best of luck navigating the rest of earnings season. Safe travels, and please contact Investor and Media Relations if you have any further questions. We will speak to you next quarter. Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.