Good morning and welcome to United Continental Holdings Earnings Conference Call for the Second Quarter 2018. My name is Brandon and I’ll be your conference for today. Following the initial remarks from management, we will open the lines for questions. [Operator Instructions]. 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, Mike Leskinen, Managing Director of Investor Relations. You may go ahead, sir.

Thank you, Brandon. Good morning everyone and welcome to United’s second quarter 2018 earnings conference call. Yesterday, we issued our earnings release and separate investor update. Additionally, this morning, we issued a presentation to accompany this call. All three documents are available on our Web site at ir.united.com. Information in yesterday’s release and investor update, the accompanied presentation and the remarks made during this conference call may contain forward-looking statements, which represent the company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements 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 other reports filed with the SEC by United Continental Holdings and United Airlines for a more thorough description of these factors. Also during the course of our call, we will discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release, investor update and presentation, copies of which are available on our Web site. Joining us here in Chicago to discuss our results and outlook are Chief Executive Officer, Oscar Munoz; President, Scott Kirby; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Senior Vice President Finance and Acting Chief Financial Officer, Gerry Laderman. And now, I’d like to turn over the call to Oscar.

Thank you, Mike. Good morning everybody and thank you for being on the call today. While we go over a great second quarter even in the face of some external headwinds that had an impact on our entire industry, our growth plan and our commitment to a high standard of operational performance has put us in a position and leaves us feeling very optimistic about the second half of the year. As you all know, three of the critical areas that we are focusing on in order to deliver on our strategic growth plan are; one, financial discipline, our operational reliability and of course customer service. In the second quarter, we continued to perform strongly and made strides forward on all those three fronts. Let me first start with the customer. We have a steady cadence of initiatives that we are rolling out that will elevate the United customer experience to a new level making us the airline that customers want to fly and return to time and again. We finished another quarter with industry leading on-time departures. Also we achieved the top end of our guidance range despite higher fuel prices due to both strong revenue and discipline cost management. I want to thank our more than 90,000 employees and tens of thousands of others who support us for their outstanding work and dedication to keep our airline running safe and on time. I’d like to turn to the financials on Slide 4. Yesterday, we reported adjusted pre-tax earnings of $1.1 billion with an adjusted pre-tax margin of 10.4%. Our adjusted earnings per share of $3.23 were 17% higher than our second quarter adjusted earnings per share last year. This performance reflects both the strong results we are already seeing from our revenue initiatives which are delivering ahead of…

Thank you, Oscar, and thanks everyone for joining us today. I’d like to start by thanking the entire United team for delivering another quarter of top tier operational performance. Our growth plan and our commitment to customers is all built on the foundation of running a great operation. We were number one among our primary competitors for D0 [ph] for the quarter. We’re continuing to build momentum in operational performance and I’m proud to be a member of the United team that’s delivering these excellent results. Moving on to the revenue environment, we continue to see broad-based strength across all regions with the exception of Latin America. Andrew will provide a more detail. We’re very happy that early returns from our commercial, operational and growth plan initiatives are already showing up in our results. I’d also like to recommend our cargo team for an excellent start to the year. They continue to run several years of improving results with first half revenue up 19% year-over-year. They’ve also done a terrific job in providing specialized product and services to our customers and their efforts are reflected in our results and strong operational performance. Reliability is particularly important to cargo customers, so our operational improvement gives the cargo team a fantastic product to sell to customers. I’m sure that you’ve all seen that we also lowered our full year capacity outlook to the lower end of the range. While the growth plan in our commercial and operational initiatives are exceeding our expectations at this admittedly early stage, this capacity reduction is just the expected result of higher fuel prices. As Oscar said, we’re currently recovering about 75% of the fuel price increase but that’s not 100% yet. And as a result, our scheduling team simply trims back some flights at the margin.…

Thanks, Scott. Taking a look at the revenue environment on Slide 15, we reported a 3% increase in system PRASM year-over-year for the second quarter at the high end of our expectations. Domestic PRASM improved 1.7% year-over-year in the quarter. We saw growing strength as we moved through the quarter with overall demand and increased market share well ahead of our expectations. Strong performance from our revenue management team and Gemini, our new yield revenue management system, combined with an improving pricing environment allowed us to drive higher domestic PRASM even in tough industry conditions. Additionally, our pure domestic revenues actually outperformed the domestic portion of international journey or DPIJ in the year-over-year growth as our rebanking and other initiatives really began to take hold. Corporate revenues were up double digit year-over-year, well outpaced in our top line growth. We continue to look for sales opportunities to better position ourselves across all channels and products. Once again the Atlantic region had the strongest year-over-year PRASM of any region in the quarter, increasing 7.9%. We saw revenue trends each month in the quarter and now have seen improvements for six consecutive quarters. This positive year-over-year PRASM momentum is driven by strong load factor performance in both cabins, up over 5 percentage points on a year-over-year as well as 2 points PRASM benefit from foreign exchange. Our Transatlantic joint venture with Lufthansa and Air Canada is working better than ever and all our new planes are ahead of our financial projections. While the Atlantic had our strongest PRASM performance, it actually made the most progress in the Pacific. PRASM was up 3.4 points year-over-year, the first positive quarter in the region since the third quarter of 2014. Guam has rebounded nicely and our outlook shows improved results for the remainder of the…

Thanks, Andrew. Before getting the numbers, I just want to say how happy I am to be back for a return engagement. I can honestly say that it’s a lot more fun this time around. As you’ve heard, there’s terrific momentum at United. In addition, I have the pleasure of working with the great group of colleagues on the executive team and the best financial organization in the business. And for those of you wondering, you can be assured that we continue to execute on our cost initiatives and our disciplined capital allocation strategy. Yesterday afternoon, we released our second quarter 2018 earnings and our third quarter investor update. You can refer to those documents for the details. But for the highlights, Slide 19 is a summary of our GAAP financials and Slide 20 shows our adjusted results. We reported adjusted earnings per share of $3.23. That’s 17% higher than the second quarter of 2017. Adjusted pre-tax income was $1.1 billion and adjusted pre-tax margin was 10.4%. Slide 21 shows our total unit costs for the second quarter 2018 and our estimates for the third quarter and full year. Turning now to Slide 22. Non-fuel unit cost for the second quarter decreased 0.4% on a year-over-year basis versus our original expectation of flat to up 1%. This dip on cost performance was due to several factors, including the timing of certain maintenance and IT expenses moving into the second half of the year, early results on our initiatives to drive increased cost savings through efficiencies and our supply chain and optimizing our maintenance program checks. I want to thank everyone at United for continuing our efforts to manage cost effectively. This is particularly important in a higher fuel price environment. We expect third quarter non-fuel unit cost to be flat…

Thanks, Gerry. First, we will take questions from the analyst community. Then we will take questions from the media. Please limit yourself to one question and if needed one follow-up question. Brandon, please describe the procedure to ask a question.

Thank you. [Operator Instructions]. From UBS we have Darryl Genovesi, please go ahead.

Hi, guys. Thanks for the time. Good quarter. I guess Scott can you – I know you’re not ready to explicitly guide Q4 yet, but the last couple of years fourth quarter RASM has meaningfully exceeded expectations and it’s not entirely clear to me why. Could you just comment qualitatively on what factors you think drove Q4 sequential RASM improvement in 2016 and '17 and whether you think those factors are in place again this year?

I’ll try and I’ll look to Andrew to add to it if he wants to. Last year we obviously had a lot of one-time issues in the third quarter that would have made the third quarter to fourth quarter sequentials look better, things like Guam and the hurricane that would have made them look better. And I’m not sure if there was anything specific into '16 but we’re hoping particularly if you strip out the one-time stuff that happened last year to actually see strong sequential performance again in the fourth quarter. And as we just look at the overall demand environment, it continues to strengthen if anything as we’ve gone through the first half of the year. Every month seems to just get better and better. So we’re cautiously optimistic that we can wind up doing better in the fourth quarter even though we currently expect.

Thank you. Just another question that I had on the fuel recovery. You’re saying you’re recovering 70% of the fuel move. How do you – I guess how do you measure that? How do you separate the fuel impact on revenue from what may have originally been a forecasting error? And I guess the reason I ask is because you say you’re recovering 70% of the fuel move but your EPS guidance has moved up which could be characterized as more than 100% fuel recovery.

Hi, Darryl. It’s Gerry. My mother was a math professor and the one thing she taught me was arithmetic and this is simply arithmetic. So if you take our fuel guidance and the forward curve, we’re looking at about let’s say a $2 billion increase in fuel expense. So the question is, how much of that 2 billion do we see – we recover? If you take the midpoint of the EPS guidance and kind of use that to calculate pre-tax, basically that’s the math that gets you up to 75% of that 2 billion being recovered.

Okay. And what’s the difference that takes you to from your guidance point to beginning of the year to where it is today, because it would seem that should be an additional increment? If you’re following me, I mean fuel went up, right, revenue went up and EPS went up.

Darryl, we can take that offline and I’ll follow up with you. But you can see what we’ve done with PRASM and revenue improving as fuels improved. But that’s a separate question than our calculation.

Okay. Thank you.

And from JPMorgan we have Jamie Baker, please go ahead.

Hi. Good morning, everybody. First question I suppose for Scott or Andrew and it’s a question on pricing but I’ll try to ask it in a way that you can answer it. So we’re seeing considerably more time channel pricing in many of your markets while at the same time we’re not really seeing any substantive broad-based change in domestic fares. So what I’m trying to sort out is if the former is material and to what extent it may be contributing to your RASM momentum, largely because I doubt it was something that was originally in your plan at the start of the year?

I think the industry continues to get wiser on how to price and sell. We at United work it really hard. We obviously have a new revenue management system that has allowed us to perform even better. So I would say that there is more use of time verified fares in the marketplace today and I think – I don’t want to go into a lot of details around it but that’s just an evolution of pricing and that’s kind of where we are and I think we’re happy with our progress in our quarter.

Would you characterize it as sort of fully rolled out at the industry level at this point or potentially more to come in that regard?

I have no idea.

Okay, all right. That’s fair. And second and probably for Oscar and look, I hate sounding like a broken record this earning season but the industry is clearly working. United is clearly working and showing momentum. But the message is just not getting through to the market. Earnings multiples are a joke and it’s probably kind of the kindest four letter word that I can think of to describe them. So the question is, what else is needed at the industry level? Is there something structural that still needs to be addressed? Is there something that you, Oscar, personally could draw on given your experience outside the airline industry? What’s it going to take to get the derisking message through to investors so that multiples that better reflect the current industry output?

Yes, Jamie, I think it’s – I’d use the term [Technical Difficulty] and the railroad industry was one of very high, very high capacity, very low demand, no possibility of yield. It’s all about stripping out costs and the rebating aspect took time. It took a couple cycles, downward cycles where we lived through it; cash return, dividends, everything came back in. So I think from my perspective and I’m sure Scott and I’d ask him to add in, but proof not promise is my broader umbrella terminology. And Scott, you probably want to add to that a little bit.

Sure. Jamie, as somebody who has followed not just airlines I’ve worked at but all of my competitors over the year pretty intensely, I think one being that as an industry we’ve done a poor job of is meeting our long-term targets. And there have been a number of airlines over the years who have given whether it was EPS targets, margin targets, CASM-ex targets, absolute earnings ranges and as I just think of it off the top of my head I only think of one airline that I remember that actually met those targets and that was Southwest made a heroic target back in 2012, 2014 and they met their number and they followed through on that commitment. They happen to have a premium multiple compared to the rest. That’s not obviously the only reason. But I think if we as an industry have had a history of putting out targets that we don’t meet, how can we expect investors to take those at face value and to trust them. So United, that’s all we can control of course, but we have adopted a no-excuses-sir mentality. We’ve made commitments to everyone on this call that we are going to hit $11.00, $13.00 in earnings per share by 2020 and that we’re going to have a CASM that’s down over that time period. And in the short term we will have time as we mis-forecast because things happen that you just can’t adjust quickly enough. When we look out over the longer-term horizon whether it’s a full year, even a full year can be where things can happen. But certainly when we look out to three years, there are going to be unexpected bad things happen. Instead of using those as excuses and coming back to you and saying, well, fuel went up or we decided to make a fleet order or whatever it is, we’re going to meet our numbers. We’re going to move heaven and earth and sometimes that means making hard decisions, but we take those as real commitments. And we’re going to do everything in our power to hit those numbers, including making changes and making hard decisions when we have to because we view those as commitments that we’ve got to hit. And that I think is a different philosophy. It’s been what I’m used to in the industry. It’s the same as Oscar’s proof not promise, a lot more words. And I think that at United Airlines if we do that and we intend to do that, our multiple will change.

Yes, and I would just punctuate all of that with the fact that it isn’t easy, right. If we have to balance this with our customers, with our employees and obviously with our investors and I think that’s what causes the difficulty. But as we’ve proven at least for a short period of time we’ve been able to do that and that’s going to be our continued focus.

Gentlemen, that’s great feedback. Thanks for taking the time today. Take care.

From Buckingham Research we have Dan McKenzie, please go ahead.

Hi. Good morning, guys. Corporate revenue up double digits. That seems to be a share shift that maybe you can clarify. And the question here really is, how is corporate revenue tracking relative to your initial expectation this year? And what kind of share shift is factored in to the EPS targets? And I really appreciate the prior commentary and I think that investors are going to find that very helpful.

We had a really good quarter on corporate revenue, up double digits and we’re really proud again of the sales team for doing that. I looked back last week and there was another airline that reported pretty strong corporate results as well and revenue. So I’m not sure that our numbers imply any significant share shift. Our teams are there every day promoting a great product on United Airlines. It’s getting better every day. And hopefully more customers will choose United and I think they already are. It shows up in our numbers. But there’s no specified share shift number in our EPS target and we’re really proud of the team and we’re really proud of our performance in the quarter. And energy in particular was strong that uniquely I think benefits United Airlines given where our hubs are. And so that of course isn’t a share shift story; that is an energy story. And technology was also strong and again that uniquely benefits I think United Airlines.

Okay. And I guess a greater expansion of Basic Economy internationally, I’m just wondering if you can talk about sort of what kind of revenue impact you’re seeing at the system level from not having that and how that might be an incremental benefit as we look ahead?

The rollout continues. I’m very happy with it and there is more to come both here in the United States and globally. We added some of our Latin beach destinations in the quarter and we also put a basic-like fare across the Atlantic to many of our destinations in Europe. Those things are going well. It is about segmentation. It is about customer choice. And they’re all adding up to exactly what we hoped to do. It’s a great competitive tool and we’re going to use it even more and more. And I think that’s my answer.

Okay. Thanks. I appreciate it, guys.

From Bank of America we have Andrew Didora, please go ahead.

Hi. Good morning everyone and great results here. Maybe first one for Oscar or Scott. One of your large peers spoke about returning to margin growth at some point in 4Q. On my math the way you get good [ph] margins for all of 4Q is at the high end of your EPS guide. I know EPS is kind of your guiding post right now but maybe can you talk a little bit about, one, how important are margins to you? And two, what are you focused on to get margins back on an upward trajectory?

Thanks. Margins are incredibly important to us. The only way we’re going to hit our EPS target is to grow our margins. As we look out at the balance of the year if you just do the math, our full year EPS guidance as you’ve done at the midpoint implies margins are still down a little bit in the fourth quarter. But we are certainly within shouting distance having margins grow. And we are hopeful that we will actually have margins growing by the fourth quarter of this year. At the midpoint of our guidance it would imply that they’re going to be down a little bit but it is close enough that we are hopeful that we will have margins growing by the end of the year.

Okay. And then just second, Scott or maybe Gerry here. I know your unit cost growth has been – it’s been coming in every quarter since I think early 2017 which really coincided with a more significant improvement in your on-time performance. I guess how much of this cost improvement do you think is attributable to the better operation? And then maybe to use a baseball analogy, what inning do you think you’re in, in terms of this improving in on-time? Thanks a lot.

I’ll try. I wish Greg Hart was here. He’s our Chief Operating Officer. He’s not with us today. He could brag on the operating team. I’ll look at Gerry to talk about the numbers specifically. But running a great operation is incredibly important for customer service and it also has the side benefit of helping on cost. There’s nothing more expensive than running a bad operation.

If you remember a few years ago when there were some buffers in the business, we’ve been able to reduce those buffers and that goes right to cost. And being able to run that operation, I spoke to people and giving them the tools to be able to really turn an aircraft faster and just run that great operation. At the same time, we are able to look beyond that to other parts of the business where we can really drive those costs, particularly let’s say on the tech op side where we’re able to create more efficient maintenance cycles, more efficient engine maintenance, things like that that continue to bring savings. That’s why we’re comfortable with our full year cost guidance.

Andrew, this is Oscar and I just would jump right in on something that again very similar industry in my history. One thing I’ve learned there as CFO and as an operating guy, running better is running cheaper and that is a huge fundamental benefit to the overall P&L when you do what you’re supposed to do in a good and efficient way. And so I think it’s all contributing to our success.

That’s great. Thanks everyone.

From Wolfe Research we have Hunter Keay, please go ahead.

Hi. Good morning. Thank you. Gerry, you said it’s a lot more fun this time around in your second iteration as acting CFO. I’d like to talk about that for a second. As I’ve seen United – we’ve all seen United have some runs where the market gets really excited about extrapolating some momentum into long-term success and that under earning arguments starts to gain momentum, and then something happens. Not some PR fiasco but like a real financial earnings setback. So in your view, someone who’s been here, what are some of the things that you’re seeing that feel stickier this time around that you can maybe quantify or a little more tangible nature than maybe last time where it didn’t really take?

Hunter, it’s those things you talked about. I’ll start with the plan. We saw where we were missing opportunities. We now have a plan where we are capturing those opportunities. The whole domestic network strategy that Andrew’s team is implementing, that’s new, that’s different, that’s going to stick. The cost initiatives, we’ve been good at that over the years but with that long-term focus on EPS, it means it’s becoming embedded in the way we think. The entire leadership team is on board, understands that to meet Scott’s target you got to look at the cost side. So there’s terrific cost discipline and that’s a culture shift in the company that I think is here to stay. And that’s if we get to where I think the biggest change which is just the way people feel about coming to work. I saw this before at a company I used to work for 20 years ago that you start listening to your employees. Look what Oscar has done over the last two years with all that. We’ve seen that before and we’ve seen that fit. So you take all that together that’s terrific. What worries me are those things [indiscernible] fuel’s a little more volatile than it’s been but we’re managing that I think just fine. And then you always have those geopolitical events that affect everybody and I keep my fingers crossed that those will be avoided for a while.

It’s Oscar. Let me just add just a quick – at least from a long-term perspective having been a Board member and you’ve seen me in both roles. I think one of the fundamental differences is indeed and I’ve said this before especially in January the plan that we have build is as solid, is as detailed, is as thoughtful and structured and with the support of our operational reliability and our people behind it, I think that’s what’s making the difference. They’re a very committed group and it’s nice to see and it’s well deserved recognition here for these two quarters. But we’ll continue on.

Great. Thanks. And then a question for Scott. What are some of the advantages and disadvantages of operating large gauge RJs in-house with your own pilots as opposed to third-party agreements?

Well, it’s simple. It’s economics. The issue is all about economics. And one of the things that all of us here at United and I personally am proud of over the last five or six years is what we’ve been able to do with pay for our employees. And they went through an awful lot in the decade or so following 9/11 and it’s been great to have contracts with the kind of pay raises at least and then that [indiscernible] no one would have thought was possible. And I’m really proud of that and happy for people and they deserve it. What that means, however, is we have a cost structure that simply doesn’t work on small airplanes. We need to spread those costs out over a larger number of seats. I’ve been trying to spread them out over 70 or 80 seats. It simply doesn’t work. And flying a regional jet at the mainline is north of $1 million per year per airplane and these are airplanes that generate $9 million, $10 million in revenue and make 8%, 9% margins. And so you can do the math. You take an airplane that’s nicely profitable and you turn it unprofitable with that kind of cost structure. And so it’s purely about economics. The great news is, is that we’re growing the mainline. What our employees really care about is opportunity for them to fly big airplanes, fly widebody and fly large narrowbody. And our growth plan is designed to do just that. I think that United Airlines – I get asked – as an ex-Air Force guy, I occasionally get asked by people in the Air Force a recommendation on what airline to go fly at and I can honestly tell them and have been that the best and fastest carrier growth opportunities for pilots is at United Airlines because we are growing the mainline and we have opportunity to continue the grow plan and growing out our Mid-Continent hubs. And that’s what’s important to our pilots and that’s what we’re focused on delivering for them.

Thank you very much.

From Cowen and Company we have Helane Becker, please go ahead.

Thanks very much operator and thank you everybody for the time. I really appreciate it. I just wanted to follow up one question on I think something that Scott might have said. When you talked about your – maybe it was Scott or Andrew. When you talked about the hub performance and as you think about growth especially in markets where there’s a lot of capacity already like Newark where the only way to grow is really up-gauging, I guess my question is can you replace the E75s in some of those markets that your flying with A319s and maintain the profitability of the hub?

This is Andrew. Absolutely. We over years passed and we constantly refer to Newark, Atlanta as the prime example used to be able to successfully operate the large aircraft in Newark, Atlanta. We moved to a period where we were flying small aircraft and we’re now moving back to a period where we’re flying larger aircraft. Newark is a fantastic hub. It’s a gigantic market in New York City. And we have under gauged it and we are in the process of fixing it. It doesn’t happen overnight but we are steadily moving down that road and believe we can grow margins by flying the right aircraft on the right route and we’re well down the path.

Okay. And then my follow-up question – thank you, Andrew. I really appreciate that on a lot of different levels. Oscar and Scott, as you think about your business plan going forward and you’re hitting it, right, all year long. You’ve matched these numbers that you talked about on January 23 or maybe exceeded them. What could go wrong for you or for the business plan that would derail things? And I know Scott you talked about fuel and adjusting capacity and blah, blah, blah, but I’m just kind of wondering from a bigger picture item what could go wrong that this derails the plan?

He does a lot of blah, blah, blah by the way.

Sorry about that.

I’ll speak from my perspective and where I sit and I’m sure Scott will add into it. I think the biggest risk that you have is a, you grow complacent. You spike the ball too quickly. And this is a business that we’ve all learned has lots of impulse waiting around the corner and so we are just so continuing to have our head on the swivel whether it’s exogenous items, how we nimbly react to them, folks in customer service, building competitive advantages. You’ll hear more from us on some of the digital tools that we’re providing in all those things. But again, its constant vigilance would be a thing that I would concern myself and do concern myself with. Scott probably has an additional.

Yes. Look, the biggest risks are in the kinds of things that have always been the biggest risks, especially the short term; fuel price, macroeconomic environment, geopolitical events. And to my earlier point those things are sometimes going to happen and there will be points in time that we will miss quarterly guide. I don’t think this will be one of them and I hope it’s not, but we can wake up tomorrow and something happens that causes us to have a problem in the short term. What we have more control over, however, is our long-term performance because we can adjust to those things. And most of those things that happen we can make adjustments. Sometimes they’re hard decisions to make those adjustments to make sure we hit our $11.00 to $13.00 EPS by 2020. But in the short term just the normal spike in fuel or macroeconomic hit or some kind of adverse geopolitical event, those are the kind of things that we generally can’t overcome when we’re already in a quarter. But in the long term those are the kind of things that we hope to be able to deal with anyway. We will certainly move heaven and earth and do everything possible to hit our numbers.

From Deutsche Bank we have Michael Linenberg, please go ahead.

Hi. Scott to go back to Hunter’s question about flying regionals at mainline, you ran through some math. Presumably that was for the 76 seaters. And my question I guess is now that you’ve done a lot of work on the network and I know various people at United have said that either you’re looking at 100 seaters or you’re not looking at 100 seaters. And now with this A220 seemingly gaining legitimacy in the marketplace and I do – I think your predecessors at United did do a lot of work on C-series. Like how do you think about the possibility of a 100-seater or maybe it’s 110 or 120-seater and does that airplane then have a role within mainline? And I’m not talking about an A319 or 737-700. I’m really talking about like an E195 or what would be the A220.

Mike, it’s Gerry. I’ll take that question. My team coordinates the analysis of all the options we have on the fleet going forward working with Andrew’s team and Greg Hart’s team. So it’s a complicated question on how we manage the fleet. We’ve never actually stopped looking at that small narrowbody question. We’ve looked at it a few years ago, decided it’s not the time. We continue to look at it. I want to be cautious in my comments so I don’t have a line of manufacturers waiting for me outside this room when we’re done with the call, so I’m not going to tell you too much about what we’re looking at when but I would say that it’s always true that everything’s on the table. One caveat to think about though and this goes for that category or really any category of fleet which is complexity. And we’re getting much better at really understanding the cost of complexity of operating multiple fleet types. But there may be a case where there’s a particular aircraft that’s just perfect for a route but if that means bringing in a new fleet type, you’ve got to burden that with all the cost associated with that. So we’re pretty conscious about that as well. So as we make decisions on fleet, we’ll let you know. But from small narrowbody to large widebody we continue to look at every part of the fleet.

Okay, great. Thanks, Gerry. And then just my second follow up to Andrew. I guess international premium economy I think it’s actually on some of your airplanes now. When do you actually start selling that? And then have you publicly sort of carved that out and said, hey, this is worth x, I don’t know, 100 million plus per annum in revenue. Can you just color on that? Thank you.

Sure. We haven’t released a number on what we think that particular part of our segmentation strategy is worth. We do have at least one, maybe two 777s out there flying with this mid-tier seat onboard, the cabin onboard. It is not being actively sold as a premium economy seat today because we just don’t have critical mass. We expect to have critical mass late this year, early next year and we’re working on all the IT work that goes with it and everything else to support this product onboard the aircraft. So we expect our first sale late this year, possibly early next year and first flight definitely next year where we have the full product onboard. That’s when we’ll have the IT ready, we’ll have the product ready and we’ll have critical mass.

Great. Thanks, Andrew.

From Evercore ISI we have Duane Pfennigwerth, please go ahead.

Hi. Thanks so much for the question. Not sure if this is for Scott or Oscar and appreciate the comments about the importance of targets and hitting them. But I wonder if you could just bridge that commentary with the targets that you put out in the fall of 2016 less than two years ago? If we dreamed the dream then, we were looking at 3.2 billion in incremental earnings off of a base of about 4.5 billion pre-tax. We’d be looking at 8 billion this year. Instead we’re happy to be at 2.8. Of course we have a lower tax rate and you’re aggressively buying back stock, lowering the share count and you’ve managed expectations really well. But if I just step back and look at it, margins have been down every single quarter since that plan was rolled out. So I’m listening, I’m hearing about the conviction about these longer-term targets. Can you just bridge the old versus the new and when did this sort of increased commitment really happen?

So I’ll try. The old was relative targets as opposed to absolute targets and I think that’s the biggest difference, saying relative targets versus absolute. One of the things that became clear to us is that using the relative targets which we could have proved which you couldn’t hold us accountable for and that was feedback we got from you and others was appropriate. And it was impossible to hold anyone accountable for a relative target. And so because of that we switched to absolute targets that there’s no hiding from. We either hit 11 to 13 or we don’t. And that’s the no-excuses-sir mentality that we’ve adopted.

From Macquarie Capital we have Susan Donofrio, please go ahead.

Yes. Good morning. Just two questions. One is a follow up from some of the previous questions and that is as far as giving the market more hurdles to watch, I’m really gaining confidence as you execute your plan. Just thinking ahead to '19, would you expect that to be an earnings improvement story which steps up to your 2020 target or are there things that we should be thinking about on a fuel-neutral basis, like reinvest in the product that will produce some headwinds next year to at least well for 2020? I’m just trying to think this through.

Well, we’ve never actually given a 2019 target and so I’m not going to start today. But obviously getting to 2020 we are assuming that we are making progress between – that we are having improvement in earnings along the way. There is not some step function that happens in 2020. We are assuming continued progress towards the 11 to 13 per share for 2020.

And Susan, keep in mind on the cost side we’ve been pretty clear that next year or the year after we’re holding ourselves to flat or better CASM. So at least on that side we’re going to manage that.

Okay, terrific. And then --

This is Oscar. I’ll just pipe in again. Again, you mentioned something of product investment. All of that is incumbent upon making the right balanced investments for our customers and our employees along the way but continuing to manage our cost as the situation adjusted.

Good. That’s good to hear. And I just want to switch to domestic PRASM. I was wondering if you can give us a little more color just what you’re seeing in your rebanked hubs versus your others, just some type of relative performance I think would be helpful?

Sure. One of the ways we measure is we divide up our cities into big, medium and small. And as we went into this project on changing the network, we wanted to increase our share medium and small city traffic and that’s exactly what we’ve seen. So in Houston our [indiscernible] markets are generating 10% RASM increases year-over-year and the same in true in Chicago by the way. And that’s exactly what we’re hoping to see, it’s exactly what we’re seeing and it’s because of the incremental connectivity that were added to each of those hubs. So that’s how we wanted to measure it, that’s what we’re looking for and that’s exactly what we got. And now we’re trying to figure out how to make it even better in those two hubs and we are preparing to launch that in our Denver hub as of February 2019. So it is on plan and we’re really happy with the performance and we’re measuring it very carefully.

Thank you. Ladies and gentlemen, this concludes the analyst and investor portion of our call today. We will now take questions from the media. [Operator Instructions]. From Bloomberg we have Justin Bachman, please go ahead.

Hi. Thanks for the time today. I wanted to raise the issue of the Chinese government’s demands regarding how you referenced Taiwan with that deadline coming up next week and I just wondered what your thinking on that is and what are the possible consequences in terms of not complying with that? Is it possible that United may not be able to serve China down the road?

Well, the latest deadline is still a week away so there’s hope. This is a clearly a policy disagreement between a couple of governments and from our perspective we’re always striving to cooperate with all the governments where we operate which is a lot of places. And at this point are supportive of the efforts by the two countries to sort of resolve this disagreement soon. With regard to potential future aspects I think at this point in time I really don’t have anything to mention until we get passed this next period.

Thank you.

From Wall Street Journal we have Alison Sider, please go ahead.

Thank you. I was hoping you could talk a little bit more about what you’re seeing in the Pacific and sort of what’s changed there and how sustainable you think that is?

We think it’s very sustainable. We’ve had a good performance across the region including China and Japan, definitely being strong but both positive. So it was great news. And our Guam and Micronesia operation is also recovering after a difficult nine months in the region. So we think that’s sustainable. It’s also important to note that while our China performance is better year-over-year, it’s still negative year-over-two years. So that’s another indication that we still have more upside left in those markets in our opinion and believe that there is further growth to come.

Thanks. And if I could just ask a quick follow up. You touched on this in the call. Just curious if you’ve done any analysis of how sensitive that could be to any kind of trade headwinds going forward?

All we can do is look at our bookings and I’ve watched them every day across the globe. And I can tell you at this point we don’t see any impact and bookings in both cabins, in particular premium cabin looked quite normal if not strong. So at this point there’s nothing to report and I don’t see any headwinds.

Thanks.

From CNBC we have Leslie Josephs, please go ahead.

Hi. Good morning. I have been seeing a little bit about these credit card promotions that flight attendants are doing onboard. I just want to confirm. They get $100 every time someone signs up. And how long do you expect that promotion to go on? Thanks.

So it’s part of our Explore card promotion. We and many offer an opportunity for our flight attendants to let our passengers know about the program and all the benefits that it has when you’re flying on United Airlines. So our flight attendants participate in that program. It does include a bonus for our flight attendants. I don’t know the exact duration is $100. I think it will eventually move to $50 at a later point in time. But we’re excited to launch our new card. We thought it was appropriate to launch it with $100 and that’s where we are and we will be monitoring our progress. And it’s a great opportunity for the airline and our flight attendants.

Okay. And it will continue indefinitely?

The promotion --

Yes, onboard promotion.

Indefinitely but the amount of compensation will vary over time.

Got it. Thank you.

Thank you, ladies and gentlemen, for joining the call today. This concludes today’s conference. You may now disconnect.