United Airlines Holdings, Inc. (UAL) Q1 2019 Earnings Report, Transcript and Summary

Good morning, and welcome to United Continental Holdings Earnings Conference Call for the First Quarter 2019. My name is Vanessa, and I will be your conference facilitator today. Following the initial remarks from management, we will open-up the lines for questions. [Operator Instructions] This call is being recorded and is copyrighted. Please note that no portion of the call maybe 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, Vice President of Corporate Development and Investor Relations.

Thank you, Vanessa. Good morning, everyone and welcome to United's first quarter 2019 earnings conference call. Yesterday, we issued our earnings release and separate investor update. Additionally, this morning we issued a presentation accompanying this call. All three of these documents are available on our website at ir.united.com. Information in yesterday's release and investor update, the accompanying presentation and our remarks made during the 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 website. 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 Operations Officer, Greg Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the team in the room available to assist with Q&A. And now, I'd like to turn the call over to Oscar.

Thank you, Mike and my thanks to all of you for joining us today. With the tailwind of an outstanding 2018 at our back United came right out of the gate in the first quarter of 2019 with strong unit revenue growth, effective cost management, and a second consecutive quarter of adjusted pre-tax margin expansion, an emerging trend we expect to continue. Now running an efficient airline is precisely what has allowed us to make a series of industry-leading investments this quarter that are increasingly making United the airline people choose to fly. But first, let's turn to slide 4. As the financial results this quarter affirm, clearly our strategy is working. First quarter adjusted pre-tax earnings were $389 million with an adjusted pre-tax margin of 4.1%, an increase of more than 200 basis points year-over-year, and the best first quarter we've had in three years. We more than doubled our first quarter earnings per share year-over-year. So this puts us well on track to achieve our 2019 adjusted EPS targets of $10 to $12 and gives us confidence that we will meet, or exceed our 2020 adjusted EPS goals. From an operational perspective, this was not an easy quarter especially when we consider the harsh winter weather, the MAX grounding, and several other events that Greg will cover later. So I want to thank our employees for their hard work and demonstrating once again the proof not promises mentality you've heard us talk so much about. By combining this impressive operational performance and making smart investments in customer service, we've been able to elevate our customers experience in tangible ways, while strategically managing our costs. Here are just a few examples of the customer benefits we unveiled in the last few months. First, we made the United app even better. We debut a new version of the most downloaded airline app in the world by making it more intuitive and a more personalized resource for our customers. Second, more than 100 channels of live television are now free for every customer in every class of service on more than 200 United aircraft. Third, on the fleet, we announced the two-cabin 50-seat Bombardier CRJ-550 aircraft. When it is launched later this year, it will be a game changer for regional flying for our offering of first-class cabin, Economy Plus seating, WiFi and more amenities that any other 50-seat regional aircraft offering today. This regional aircraft innovation will benefit in particular our customers in spoke cities, who can enjoy more consistent product when connecting through our hubs to travel internationally. In addition, we announced a significant expansion of our premium offering by adding an additional 1,600 United Polaris business class and United first seats, which means more than 100 United aircraft will see a premium capacity increase by 50% or more. Fourth, we continue to grow our network to better serve our customers. We announced earlier this week that United is returning to Africa applying to wide service between Newark/New York and Cape Town, South Africa. And last month, we unveiled our plan to ramp-up our service to Asia and launched six daily non-stop flights to Tokyo Haneda Airport. Our success this quarter demonstrates our strategy to grow our airline, invest in our customer service and effectively manage our costs is working. And it's inspiring our workforce, it's winning over our customers, and it's delivering for our investors. Our momentum is fully starting to build and our future is really as bright as ever. So, now let me hand it over to Scott for his take on the quarter and to discuss several uniquely United opportunities that we'll be rolling immediately, but over the long-term will have a significant and positive impact on our airline and our customers. These opportunities have bigger upside potential for us than any of our competitors and we're determined to make the most of it. Scott?

Thanks, Oscar. It's great to have everyone on the call today. We started 2019 with fantastic momentum here at United. While we faced some external headwinds this quarter, our team did an exceptional job covering the operation and minimizing the impact on our customers, while still achieving earnings above midpoint of our adjusted pre-tax margin guidance. Given the extraordinary efforts of the United team to care for customers this quarter, Greg is going to take some time to talk more about what the team accomplished operationally. Last year, we were executing well. And because we faced few external headwinds other than high fuel prices, we were able to raise our adjusted EPS guidance every quarter. We continued executing well this quarter. And even as we faced an unusual number of exogenous events, we remained on track to deliver for both our customers and our shareholders. We believe successfully managing through a more trying quarter like the one we just had is an even better proof point of the strong path United is on. We have a responsibility to overcome adversity without making excuses and we did just that this year – we did just that last year with higher fuel prices and we're doing the same in 2019. In the first quarter, we were pleased with our revenue performance and cost management, and expect to lead our peers in year-over-year pre-tax margin expansion. By continuing to run the airline more efficiently, we're able to invest in the business and still effectively manage cost, and we've done just that. Meeting or exceeding our adjusted earnings per share target is the foundation upon which our strategic plan is built. It's precisely what allows us to invest in our product and improve the customer experience. We're striving to up our game and consistently deliver customer service based on our core four principle safe, caring, dependable and efficient. We continue our commitment to building a culture based on customer centricity. There are backstage events, where over the course of this year, we're gathering all 25,000 of our flight attendants near our headquarters in downtown Chicago. That's 34 separate two-day events with about 800 flight attendants at each one. In a series of interactive sessions and workshops, our in-flight crews are focusing on the central ethos of caring service, to elevate the way our customers feel about their United experience. A second opportunity, vividly illustrates how we're leveraging technology to deliver on the promise of caring for customers. We're pioneering the implementation of new technology called dynamic departure, which empowers frontline employees; real-time data they need to make an informed decision on whether to hold a flight for customers rushing to a connecting flight. This technology identifies flights for connecting customers, who will be arriving a little late, where we have the opportunity to make up time in flight, still arrive on time and wait for the connecting customer instead of closing the door and miss connecting them. We've been testing this in Denver and we expect to save hundreds of connecting customers per day when fully rolled out. Dynamic departure is great at caring for our customers, but it's also another example of how our team is innovating and testing new technology to constantly make United better. Finally, with respect to our MileagePlus program, we know some of us from prior personal experience that this is one of our single biggest margin growth opportunity, and therefore, one of the company's and my personal top priorities. There are many aspects of the program, we're very proud of. However, it remains true that the co-brand component of our program underperforms relative to our peers, and this disparity only widened after recent announcements. Fortunately, United has hubs in the largest and highest income cities, which gives United and Chase the most opportunity for a co-brand card anywhere in the world. We're negotiating with Chase on the opportunities for improved economics for our card partnership, to ensure that our deal delivers industry competitive value to all of our stakeholders. We look forward to moving ahead with these discussions privately, which means we cannot answer questions about the status of our deal with Chase or any related negotiations today. However, it's worth noting that our full year 2019 and 2020 adjusted EPS guidance does not include any assumptions regarding benefits from a new co-brand agreement, so the current negotiations are only upside to our existing guidance. Our success in the first quarter gives us confidence that we'll continue the momentum of 2018 into 2019, as we move into the second half -- the second year of our strategic plan. While it is nice to be able to raise adjusted EPS guidance the past several quarters in light of the MAX grounding and uncertainty around the duration, we feel it's best to simply affirm our full year 2019 adjusted EPS guidance at this time. With this – that, I'll turn it over to Greg to talk about incredible things the United team did to take care of our customers this quarter.

Thanks Scott. As Oscar and Scott already mentioned, we faced a number of unexpected events in the quarter. We are particularly proud of the dedication of over 93,000 employees who worked through these challenges and went through extraordinary lengths to care for our customers. In addition to hub-closing weather events like the polar vortex in Chicago or the winter storm in Denver, we overcame a unique operational event in each month of the quarter. First, we started the quarter off in January with the government shutdown. Then in February, our flights to India, which represent 1.2% of our capacity were impacted by the closure of the Pakistani airspace. The closure required us to stage crews and refuel in Germany in order to continue operating the flights. The team has worked hard to find a solution for our Mumbai flight. But unfortunately, we have had to suspend the service to Delhi through July 2 in order to minimize the disservice to our customers. On March 13, the FAA announced a decision to ground the MAX aircraft. We have 14 of this aircraft in our fleet. This represents about 1.4% of our capacity, which means that the grounding has only had a modest operational impact on the airline thus far, but that impact grows the longer the grounding lasts. But we have been focused on caring for those customers whose travel plans were impacted. We adjusted schedules and even upgauged some routes with 777s or 787s like San Francisco to Maui and Houston to Los Angeles. These solutions costs us money in the short-term, but was clearly the right thing to do for our customers and the right thing to do for the airline over the long-term. Making these kinds of adjustments gets much harder during the busy summer travel season, when among other things, aircraft utilization and load factors are higher. So yesterday, we announced that we hold the MAX aircraft out of our schedule through early July. Since no one knows when regulators will complete their review of the MAX, we'll be focused on two priorities. First, we'll continue to take extraordinary steps to care for our customers and mitigate the impact of this change on their travel plans. Second, we'll cooperate fully with the regulators as they conduct their own independent assessment of the aircraft's safety. For more than 90 years, the safety of our customers and employees at United has come first. That's why we don't -- won't put our customers and employees on that plane until that independent assessment is complete. We take a lot of pride at United in running a great operation. Despite all of the headwinds in the quarter, we ran an operation we can all be proud of. In fact, in our largest hubs with major hub competitors Chicago, Denver and San Francisco we once again ran the best operation of all the hub operators. These outstanding results are a testament to the hard work of our employees and the airline's ability to be nimble and adjust to an environment that is always changing. The success of our operation enabled the strong revenue results that Andrew will now go into in more detail.

Thanks Greg. The quarter got off to a great start with strong business and leisure demand with PRASM up 1.1% for the period and top line passenger revenue growth of 7.1%. Overall, we're very pleased with our revenue performance given the uncertainties we faced earlier this year. The continued success of our commercial initiatives helped us achieve this strong passenger revenue performance and our ancillary revenues were up 13% or up high teens. Our best-performing entity for the first quarter was the Pacific. First quarter PRASM increased 4.5%, which was above our early expectations and represents our fourth consecutive quarter of robust PRASM growth. Demand for our flights was strong across the region and we expect continued strong performance for the second quarter albeit at more moderate levels. Latin America is strong shown in the quarter as well with 2.6% increase in RASM. We expect even stronger performance in the second quarter across most of the region, in part due to the shift of Easter creating a very strong April. Brazil PRASM is also expected to turn positive for the first time since the second quarter of 2018, while Argentina continues to look negative. We anticipated a challenging first quarter for the Atlantic. PRASM decreased by 2.8% entirely driven by weak main cabin pricing. The front cabin however continued to do well. In the second quarter, we expect a significant inflection in economy cabin yields in May with healthy demand for both cabins. Europe for the quarter looks strong, but due to the Easter shift comps will be difficult in April. Our domestic PRASM in the quarter increased by 0.6% on a 7.4% increase in capacity. The first quarter will be our highest capacity growth quarter of the year and we're very pleased with the results. Looking ahead to the second quarter, we expect our consolidated passenger unit revenue to be up 0.5% to 2.5% year-over-year. The unit revenue is in line with our expectations when we set our full year 2019 adjusted EPS guidance. Turning to slide 12. We continue to focus on commercial initiatives capitalize on all the opportunities of our network. As Scott mentioned before, we're encouraged by the long-term potential of our co-brand agreement. Close to end, we just posted the strongest first quarter of new card account acquisitions we have seen in the past five years continuing our trend of double-digit quarter-on-quarter growth. But as Scott has already outlined, we remain focused on the future and we're recently reminded of the significant upside that will be available to United as we look forward. We efficiently flew our first flight on a Premium Plus aircraft to Tokyo in early April. We expect Premium Plus will have a negligible impact on revenues for 2019, but is expected to be far more impactful in 2020 and thereafter when fully filled up. We remain optimistic on the impact as we continue to see average yields for Premium Plus at more than two times of coach yields and paid load factors are expected to be above 70%. The structural gap we have long been challenged to fill has been our premium seating in smaller communities across the United States. As Oscar mentioned earlier, in the quarter, we announced the introduction of CRJ-550 that is scheduled to join the fleet between this fall and June of 2020 when we focus on short-haul business markets. Polaris seat installations continue to be on pace to be finished in late 2020 and our sixth planned Polaris lounge at Washington Dulles will open in 2020 as well. We continue to focus on using our RM system Gemini. Yet again, in the first quarter, we held more seats to be billed later in the booking curve. Saving seats to sell closer to departure date is possible due to the efforts of our sales force. In the quarter, corporate revenues which booked much closer to departure increased 13% well above our top line revenue growth. As planned our Denver schedule is re-banked this mid-February. The recent capacity we have added leading up to the re-bank in Denver has been absorbed well by the market and successful at the outset. We're optimistic about the changes, which increase connections as well as improve flight timings for our customers. With Denver re-banks we have completed all of our mid-continent hub restructures. And in the first quarter all three hubs posted positive unit revenues and had year-over-year margin expansion. MileagePlus won the best frequent flyer program award from FlyerTalk. We consider this one to be pretty significant as this award is given to us directly from all flyers. We're committed to winning again next year. We recently announced that we'll be weighting for the same award booking fees, together with removing the award chart, so we can more accurately match award supply with member demand through dynamic pricing for award redemptions. As part of our commitment to continuously upgrading our MileagePlus member experience, we now instantly post miles to accounts as soon as a flight pull into the gate. We continue to expand basic economy as well through more flights and more booking classes. We are also experimenting when increasing the buy-up amount from Basic to standard economy. As of now, buy-up rates continue to be stable, even on higher buy-up costs. Earlier this week, we announced the introduction of service to Cape Town, South Africa for late 2019 and now we're just weeks away from launching Prague, Czech Republic and Naples, Italy. We're thrilled to announce the addition of Africa to our global route offering. While, we are focused on building our mid-continent activity in the coming years, we remain excited about the international potential of the United network for the long term. The work we're doing to strengthen our domestic network enables the new international routes like the ones I just mentioned. In closing, we continue to feel really good about the plan we announced in January 2018 is working well. We're on track to achieve the adjusted earnings per share targets we outlined as well as the pre-tax margin expansion in 2019. Thanks to the entire United team for a strong first quarter. With that, I will turn it over to Gerry to discuss our financial results.

Thanks, Andrew. Good morning, everyone. Yesterday afternoon, we released our first quarter 2019 earnings and our second quarter investor update. You can refer to those documents for additional detail. For the highlights, slide 14 is a summary of our GAAP financials and slide 15 shows our non-GAAP adjusted results. We are pleased to report adjusted earnings per share of $1.15 for the first quarter, up 135% versus a year ago. Adjusted pre-tax income was $389 million and adjusted pre-tax margin was 4.1%, up more than 200 basis points year-over-year and marking the second consecutive quarter of adjusted pre-tax margin expansion. We are all very proud of these results. Slide 16 shows our total unit cost for the first quarter and our forecast for the second quarter and full year 2019. Turning to slide 17. Non-fuel unit cost in the first quarter decreased 1.8% on a year-over-year basis. This was a great result, driven by a combination of continued cost discipline, better completion and timing of expenses over the course of the year. For the second quarter 2019, we expect non-fuel unit cost to be flat to up 1%. As we look ahead to the rest of the year, a CASM headwind we face is driven by the reduced flying, caused by the grounding of the MAX aircraft and temporary suspension of our flights to Delhi, which currently combined represents about 2% of our capacity. With respect to the MAX, we currently have 17 of the -- we currently have 14 of these aircraft in our fleet, with five more scheduled for delivery in the second quarter and 11 more scheduled for delivery in the third quarter. While the financial impact of the MAX grounding and temporary suspension of service to Delhi has been modest, the longer these events last the greater the impact on ASMs and CASM. Based on our current assumption that the MAX aircraft will remain out of our schedule until at least early July and our flight to Delhi will remain suspended through July 2, we have reduced our full year capacity guidance to up 4% to 5%. Due to the changing capacity we've also revised our full year CASM-ex guidance to be around flat year-over-year. Our ability to achieve better-than-flat CASM-ex this year will be negatively impacted if the MAX aircraft remain out of service or flights to Delhi remain suspended longer than our current assumption, but we remain confident in our full year EPS guidance. As you can see on slide 18, we spent $527 million to repurchase shares of our common stock in the first quarter at an average price of $83.68 per share. As of the end of the first quarter we have approximately $1.2 billion left in our repurchase authority and plan to continue to be opportunistic with our share repurchases. During the quarter, we took delivery of eight new aircraft. We also purchased five mainline aircraft and 16 regional aircraft off-lease. These aircraft purchases, in conjunction with continued investments in the business, drive our 2019 adjusted CapEx outlook of $4.7 billion. Lastly, slide 19 has a summary of our current guidance, including the second quarter's projected fuel price range using the April 11 curve. The range provided for capacity, revenue and costs implies the second quarter 2019 adjusted pre-tax margin between 11% and 13%. We continue to expect full year 2019 adjusted earnings per share to be between $10 and $12. We are pleased with our results in the first quarter of 2019 and remain confident in our ability to continue to execute on our growth plan. We are managing the business to maximize earnings and continue to be focused on creating long-term value for our shareholders. With that, Mike will now begin the Q&A.

Thanks, Gerry. First, we'll 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. Vanessa, please describe the procedure to ask a question.

Thank you. [Operator Instructions] And first we have from Stifel, Joe DeNardi. Please go ahead.

Yes, yes. Good morning. Scott, you mentioned on earnings call in 2017 that you thought the margin headwind from United's card economics were about 1 point to 1.5 point. Based on Delta's recent deal, it seems like the economics they got may be improved by 10% or so, so that would imply maybe your margin deficit is closer to 2 points now. Would you disagree with that math?

So as we said, we think this is a significant opportunity. We're not going to proactively affirm what the number is and the size of the opportunity, but we certainly would disagree with your analysis on the potential opportunity.

Okay. And then, just kind of higher level, Scott, as you think about the earnings potential from the card, United is a little bit -- quite a bit smaller for now at least, in terms of passengers versus Delta and American. So how do we reconcile that with what your card economics could be eventually? Do you have better card penetration? Is your spend per card higher? Like, why do you guys get market rate economics as a smaller airline? And then, just, Scott, you mentioned that you're in negotiations with Chase now. Is that a change like you're formally in negotiations? Or have you been in negotiations for a little while now? Thank you.

Well, firstly, we're not going to talk about the negotiations. We certainly have a lot of tough conversations about Chase to start. Look, first, I think it is fair to describe the opportunity. And while our number of passengers is smaller, if you look at our revenues, it's essentially the same, which is indicative of the fact that United is in the best market with hubs in New York, Washington D.C., Chicago, Houston, Denver, San Francisco and Los Angeles. I think there's no question that we have the best set of markets and the best potential for cards for total spend. Great markets with high incomes, it is -- they are the premier markets with a premium card demand. And I think there's no question that we have the most potential. The issue is around realizing that with Chase and we are working hard with them. We are in discussions with them. Those have been ongoing and hopefully got a little bit of octane boost from the recent competitive announcement, but both sides are actively engaged and working hard on a win-win solution that work for Chase that work for United and that gets more customers more and more economics for both of us.

Thanks, Scott.

And we really are by the way -- in the future we're going to try to not -- we really don't have anything to add on the card, so we ask to not ask the same questions over and over again please.

Fair enough.

Thank you. From JPMorgan, we have Jamie Baker.

Oh, good morning, and thank you for taking my question. Following up on Gerry's MAX observations, but maybe for Greg, the cancellations to date have been well below those of other U.S. operators, even when adjusting for the fact that your fleet is smaller. Can you walk us through the mechanics a bit? Does it imply you were over-spared to begin with? Was it accomplished just by pushing off nonessential maintenance? What I'm trying to better understand is post-July, how do the potential pressures on margins actually show up?

Hey, Jamie, this is Greg. Thanks for the question. It was really a combination of things we're able to do to recover the schedule including, we did take a little operational risk in terms of utilizing spares we had. We moved the hangar plans around and deferred some maintenance as well as we changed some of the heavy check schedules on our aircraft. But it was a combination of things. With 14 aircraft that was something that we could manage for a month or two, given some of the flexibility we have in our maintenance plans. But beyond that, it gets really tough to manage, because there are not many maintenance and events that we can preclude doing within the time frame.

Sure. Okay. That helps. And second, MAX-related follow-up for whoever would like to take it. As we think about the potential timing of a pilot deal, I would initially assume that the two phenomena are mutually exclusive. But with all the MAX focus both for management and for ALPA is this slowing down the conversation that you'd otherwise be having with your aviators or not?

No, it's not. And I would say that ALPA has been a great partner for us on the MAX issue. While we have negotiations, we don't always agree about everything. But it comes to safety here at United that's one where we work hand in glove with ALPA and we appreciate their active involvement in the process so far. But it is not at all hindering or impacting the ongoing negotiations.

Cool. Just wanted to check. Greg and Scott, thanks very much.

Thanks, Jamie.

And from Vertical Research, we have Darryl Genovesi.

Good morning, everyone. Thank you for the time. Gerry, you had previously talked about flat to down CASMex in both 2019 and 2020. With some of the exogenous issues that you're facing this year and the move to a flat CASM guide, is there any reason why assuming the 737 MAX and your Pakistan issues are cleared up by year-end we shouldn't be thinking about down CASM in 2020?

So Darryl, if everything's cleared up this year, there's no reason that we wouldn't be focused on what we said we would do next year.

Okay. Are there any -- I guess what are the big levers that you still have to pull on CASMex? I realize that the capacity growth is helping, particularly during some of the off-peak periods. Are there any other focus initiatives that you would highlight as being the big CASM opportunities for over the next year, 1.5 years to get you to that guide?

I would describe the categories as the same as we've been talking about. There are some for instance gauge, which probably kicks in more next year than this year would be one. Continued efficiency and the use of our assets is another one. But generally, the categories will continue to be the same. It's just better execution.

Okay. And then could you also just give us a sense of the CapEx trajectory from here?

So we highlighted in the investor update, our schedule for new aircraft deliveries next year, which ties to what was disclosed in our 10-K. Next year is a peak year for wide-body deliveries. We have 17 next year on top of 28 narrow-bodies versus only 10 this year. That does drive incremental CapEx versus this year. It's too early to give you the precise number. But ballpark I can tell you you're looking -- the cost of those wide-bodies is about $1 billion more than this year. That's a peak. We expect wide-body deliveries to come down after that. We're very focused on making smart decisions on CapEx. An example of how we look at it, take the 777-300ERs that we're taking this year. We expect a first year ROIC on those aircraft in the mid-teens well above our cost of capital. And that only improves as those aircraft depreciate. I'd also highlight that we're focused where we can on mitigating aircraft CapEx between now and the end of next year. We actually have 30 used aircraft coming in. And if you look at what that's saving us versus new aircraft that's $600 million to $700 million of CapEx savings. So beyond that, I can repeat what we've talked about before, which is this is sort of on an normalized basis replacement of non-aircraft CapEx and kind of growth that are on GDP that's around a $4 billion CapEx number annually. But as we find opportunities to grow -- and like next year, you can see a year like next year where there's a little bit of a spike.

Thank you. Our next question is from Wolfe Research, Hunter Keay.

Hey, thanks. Good morning everybody. Just a little bit more about CapEx. I don't want to diminish anything from the CASM progress you've made, but do you have any idea how much the incremental CapEx is going to save you on the P&L for CASMex? And why did that CapEx come up relative to the initial plan on the wide-bodies Gerry? Thanks.

I'd say that it has -- that's been our plan now for a few years. It just happens that next year consistent with the growth plan that we had, it's a -- there's a spike in wide-bodies. But what it allows us to do in addition to the growth that had been planned, it allows us to really redeploy the wide-bodies much more effectively, putting the right aircraft on the right route and also sets us up nicely for the alternate retirement of some of those older aircraft. But keep in mind, these are 30-year assets we're investing in and these are all the newest most efficient aircraft, so they're going to have a nice CASM benefit for us.

Right. Okay. And then Scott, you used to say the old Orion system used to underforecast demand. Is it possible given all the investments in the premium products you guys are making and the strength in business travel that Gemini is still underforecasting some of that close-in demand strength now?

I think Jamie -- Hunter, its Andrew, sorry. I think we've made a lot of progress with Gemini and we've been very careful on to change our booking curve reflect the fact that we have more close-in demand. So, we learn from it every day obviously and we get better and better at it. But there may be still some upside there as we kind of go through the rest of the year as we tweak how we work with Gemini. So, that's more to come I think. But we've been very conscious to make sure that we start changing our booking curve to reflect the revenue potential of the airline and we successfully did that in Q1 and we think we're well on our way to doing that in Q2.

Thank you. Our next question comes from Dan McKenzie with Buckingham Research.

Hey, good morning. Thanks guys. A couple of questions. Regarding the news that's spilling into the media regarding negotiations with Expedia, I guess, first, how material is Expedia to the overall distribution of United's inventory first? And then second some investors are going to ask, of course, what it means for the full year guide in yield. So, I'm just wondering if you can help put some numbers around how to think about that.

This is Andrew. Maybe I'll try to answer that question. It's complicated from the perspective of we can sell tickets in many, many different ways. But we were clear earlier this year that we'll be moving on, on the distribution partners better suited to our future not our past. Expedia tried to stop us and quite frankly failed. The most simple way to say this is time to change. Companies need to evolve and innovate and we hear United have changed a lot. We have in particular invested in our own website and our app to be much more cost effective to be transparent and come up with the optimal sales abilities to distribute our content. Expedia has historically been very good in selling our lowest fares. But quite honestly we think we can sell our lowest fares just as well and that's where we are. So, we look forward to having a direct relationship with our customers going forward and that's really where we are with Expedia.

And I would just add since you asked about the full year guide we've assumed from the full year that effective at the end of September, we will not be in Expedia and we are still comfortable with our $10 to $12 guide.

Thank you. I appreciate that. And then I guess Andrew or Scott given the Easter shift, you've -- obviously, we hear the commentary on demand. But how would you characterize core underlying booking volumes? Is it normal elevated below average? So, on the first call you shared some booking perspective and it is helpful to have some volume perspective behind the revenue guide. So, just some perspective on how consumers are digesting what's going on with kind of the existing yield backdrop.

Sure. Well, as we talked about Q1 we thought was very strong. And as we look forward into Q2, I would say the same that we're really happy with demand levels across the Board. There are a few pockets, Argentina being one of them, that's a little weak. But overall we feel really good about this. Europe, for the next few weeks, is weak due to the Easter holiday shift, but after that looks really great in both cabins. And Latin America is I think clearly going to be our best-performing entity of the quarter and a big part of that is the Easter shift. So, there's a lot going on. A lot of the holidays have moved which affects how we look at things. But I would say the underlying demand that we see are going -- or particularly as we look out into May and June is very good.

Thank you. From Credit Suisse, we have Joe Caiado.

Thanks very much. Good morning everyone. Andrew are you able to quantify the contribution from Premium Plus revenue flights that's embedded in the Q2 revenue guide?

It's really insignificant at this point. I will say we started selling -- or we started flying the cabin earlier this month, Tokyo-Newark was the first route. And there's a couple of things we're looking at one of them what is the yield versus coach. And as I said earlier, that's tracking to more than two times coach. The other thing is we had expectations for load factors in excess -- payload factors in excess of 70%. And in fact the first two weeks the payload factor has been 89%. So, we've got this -- we really started-off with a great few weeks here with this new product, but this is really early days on very few of our aircraft today. But every day there'll be more and more. Ultimately, Premium Plus will be 7% to 8% of our wide-body capacity going forward. And given what we've seen over the last two weeks we think this will have an impact on our 2020 and 2021 financials in a really important way. So, I can't say how excited we are in particular given the data points we've seen over the last two weeks.

That's very helpful color, I appreciate that. Gerry one for you. Can you just maybe parse some of the puts and takes with respect to the unit cost outlook here for the year? I mean MAX is obviously adding some pressure, the lower capacity growth, but the change to the full year unit cost outlook is fairly small. So, can you just talk about some of the offsets and where those cost controls are really shining through or maybe what's outperforming your expectations?

I would just say it's indicative of the fact that as of now the number of MAXes we have is relatively small part of the fleet. So, the adjustment right now is solely a result of the MAXes and the suspension of service to Delhi and that pretty much everything else is tracking as we expected and that this is simply the arithmetic of changing the capacity outlook.

And thank you. From Raymond James, we have Savi Syth.

Hey, good morning. Two quick follow-up just on the MAX grounding. Could there be an impact on CapEx this year kind of what your expectations are for when deliveries will resume?

Obviously, if the grounding lasted long enough, Boeing wouldn't be able to deliver aircraft. But expectation that if this returned to service this summer, it won't impact the timing of our deliveries beyond this year. So, the aircraft scheduled for delivery this year we would expect to take this year.

Okay. Great. And then just on the other revenue, the non-passenger revenue. Any thoughts on kind of what you're seeing on the cargo front? And then also just the other revenue ancillaries doing really well, but other revenues kind of lost a bit of its momentum and kind of when you might expect that to pick up outside of new credit card deal or anything.

Hey Savi, this is Greg. I'll take the cargo piece and then turn it over to Scott for the rest of the question. On the cargo side, our cargo revenues were down 2.5% roughly, driven largely by capacity in the industry. But relative to our -- the performance of our peers, we continue to be really, really happy with the performance of our cargo team and driving a really, really good product for us across the network.

And the other revenue category -- this is Andrew speaking. Last year we had one-time payment from Chase that we didn't get this year so that -- I think that reflects a big chunk if not the majority of the change.

Thank you. From Cowen and Company, we have Helane Becker.

Thanks operator. Hi team, thank you for taking my question. My first question is -- and has Boeing offered you any compensation or offer to make you whole at all on that MAX being grounded?

Hey, Helane, it's Gerry. So, right now we're focused on assisting every way we can with regulators and with Boeing on solving the problem and that's all we're focused on. Having said that, obviously, there are some costs that we've been incurring and we expect to continue to incur. Boeing has been a great partner of ours for decades. And if you use some historical references such as the 787 situation a number of years ago we'll have a conversation with Boeing and I expect like we always do to resolve whatever that conversation is in a way that works for both of us.

Okay. Thanks, Gerry. And then my other question is completely unrelated and really has to do more with customer service. I think Denver airport right now is undergoing some construction in the main area where you go through security and Newark is certainly going through construction and seems to have been under construction for the better part of I don't know one, 1.5 years or so. Can you just talk about; A, any impact that has on your customer experience and whether or not -- and how long that will continue to go on for…?

Helane this is Greg. Thanks for the questions. We always work very closely with all of our airport partners in making sure that we mitigate as much as possible the impact on the customers. And a lot of the projects you actually talked about by the time they're finished will actually materially improve the experience for our customers. So these projects aren't easy. They are complex. And from time-to-time, we do get together with our partners and reassess where we are and what changes we may need to make to the programs to ensure that the impact on our customers is mitigated as much as possible.

Thank you.

From Deutsche Bank, we have Mike Linenberg.

Yeah, hey good morning, everyone. Hey, two quick ones here. Andrew just on PRASM for the June quarter, you mentioned that Latin America was going to be the best March quarter. Pacific looked like that was the best performer. Is there a moderation in Pacific? And what really -- what drove Pacific strength in the March quarter? Can you just give us some of the highlights? Thank you.

Yeah. Again great quarter really happy with the performance, but I'll try to give you a little bit more color. But in the March quarter across the Pacific we saw a good strength across really the entire region, but it was in the economy class cabin so that's actually great to see. We've seen really good strength in business class for a long time. So it's really nice to see the economy cabin catching back up across Pacific. Latin America as I said had a great quarter and looks really stellar for Q2. A big part of that is Easter shift and Latin America is doing incredibly well. But we see that strength continuing into May and June at this point as well. And the Atlantic again looks fantastic for May and June at this rate. And I'm really I think very bullish on the entire international entity for 2Q as a result.

Okay, great. And just my second question to Scott with Los Angeles unveiling the terminal zero and terminal nine projects, is that -- is terminal nine, is that the missing puzzle piece for United in L.A.?

That's probably an accurate description. We'll look forward to having terminal nine built someday. And today we're really full at Los Angeles. We have incredible utilization on our gates and we will look forward to the opportunity to get more gates and grow in Los Angeles at some point in the future when that's done.

And from Goldman Sachs, we have Catherine O'Brien. Catherine O’Brien: Good morning, everyone. Thanks for the time. With the progress you've seen in the last two quarters in margin expansion, could you talk about where your networks are seeing the biggest improvement? Is that all the mid-con hubs re-banking? Are there certain initiatives like segmentation there driving that? What's really been maybe the margin -- the leader of margin improvement you've seen over the last two quarters?

Sure. I'll try to take that on. I mean, really we have a whole host of commercial initiatives big and small. I mean, we've talked about all those on the call before and we tend not to break out the value for each of them individually for a lot of different reasons but it's all the usual suspects. In particular the performance in the mid-con hubs as we generate this incremental connectivity, which is key to -- or trying to accomplish we're really, really focused on that and that's a big part of it. But basic economy and the segmentation and where we're going on our Premium Plus, Premium Plus has a lot to offer in the future given its brand new. So, I'm really excited about the broad array of commercial initiatives we have and what they're going to deliver over the medium and long run. And then the last thing I'll say is the international potential of the company is incredible. We're starting Naples and Prague in a few week's time and we now have the ability to successfully we believe fly to Cape Town South Africa with a 787. So we have a lot of potential in the long run for our international division. But when you bring all of these commercial initiatives together with the product changes we're making, the connectivity changes, the schedule changes that will break the liability of our offering in the marketplace, I think you see the results that we saw in the first quarter and what we anticipate in 2Q of this year. Catherine O’Brien: Understood. Thanks so much for that color. And then maybe one more. So, in the past you've spoken about the importance of scope to compete with your major airline peers. With the innovation of the CRJ-550, do you feel better about your competitive position even in the event you don't get an increased scope? Or is that still top of mind in your discussions with the pilots?

So, actually I think you used the word there of scope really that we don't use. It is -- it's important that we'll be able to grow United Airlines. It's important that we will do that in a way that is good for our pilots and all of our employees, our customers and our shareholders. And so getting to a win-win position where we can offer our customers a great product in the markets that aren't large enough for mainline flying is really important. The CRJ-550 is going to give us a unique ability to compete for premium demand that none of our competitors have, but it still remains important. And we are working with our pilots on it to find a win-win solution that allows us to be competitive with other full service carriers across the board. And I'm confident that we're going to get there, we're going to do it in a way that is a win for us and our pilots feel good about being a win for them and their growth opportunities in the future.

Thank you. From Barclays, we have Brandon Oglenski.

Hi, good morning. This is actually Matt [ph] on for Brandon. So now you have all the mid-con hubs re-banked, I want to just come back to the opportunity there. Is it fair to say that the focus remains on the mid-cons to continue to optimize schedules? And really, how would we see -- is there a lot of opportunity left to make improvements within the hubs?

Sure. Andrew speaking. As we look at it what we're trying to do in the mid-con hubs is create a sufficient level of connectivity, a level of connectivity that quite frankly some of our competitors have had for years and for a number of reasons United didn't have. So we're well on our way, but we're still well short of the number of aircraft we want to have on the ground at the same time to create that level of connectivity. And we've adjusted the structures in each of the hubs to make that happen. And as we continue down this path, we will build the connectivity to make all of that come together and build our RASM strength. So we measure the connectivity how we rate versus others in similar sized cities and we still see a significant gap that we're closing over the next years or so.

Okay, cool. Now just a quick follow-up on that. Are there any structural limitations, or whether it's airport on the structure or employees or anything that could inhibit that growth or is that something -- particularly in Denver and Houston? I know Chicago has a little bit more. But anything to be aware of as you deploy that growth strategy?

So across all the different teams here at United, we've outlined where we're going as a team and whether it be the number of jetways that are hanging in the airport or the baggage system or ticket counter space, we've factored all of those issues into what we need to achieve the growth plan that we designed. So every airport has unique characteristics. Every airport has some strength. There's no doubt about that. But the plan that we've designed, we've designed an infrastructure plan around it that we can achieve in the short run to allow it all to happen. So there's nothing that's going to stop us from achieving the plan that we've laid out at this point in time.

Thank you. From Bernstein, we have David Vernon.

Hey good morning guys. Thanks. Andrew, I just wanted to follow up on the 78% -- 7% to 8% of capacity that's going to be Premium Plus. I think you said that was wide-body. Can you tell us kind of what the ramp should be over the next couple of years? I think that was a long-term goal but I want to see kind of what the volume number we should be working with for 2020 would be?

Yes. So, I think most of that is definitely all of that's online in 2021 and then it phases, so a little bit next year in 2020 and then all of it in 2021. The level is as we stand here today, while it's on quite a few aircraft actually, we're very careful on where we sell it as Premium Plus because we want to ensure that the right aircraft shows up at the right gates that have the product on board. So in year one of Premium Plus, we actually have the seats onboard, but we really can't monetize it the way we'd like to. So in 2020, you should see I would say in round numbers, 3%, 3.5% of our wide-body capacity being sold effectively as Premium Plus. In 2021, then we'd be between 7% and 8%.

And 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) And from The Associated Press, we have David Koenig. David, your line is open. (Operator Instructions)

I'm sorry. Two things, one super quick. If Gerry could complete his answer that he gave about MAX deliveries or any scheduled in the fourth quarter, we heard about two in 3Q. And then my question then Greg mentioned this in response to Jamie Baker, exactly what kind of maintenance are you deferring while your MAX 9s are grounded? And how much extra have you spent to-date to protect your schedule from those groundings?

So, on the deliveries, no we had no aircraft scheduled for delivery in the fourth quarter. Although I would expect that some of those third quarter aircraft end up slipping to the fourth quarter, but there were no previously scheduled fourth quarter deliveries.

Okay, great.

And then on the maintenance work that we've deferred to help cover the MAX schedule ranges from WiFi installations to voluntary -- other voluntary maintenance work that we've had scheduled that is perfectly able to be deferred to a later date as well as something as simple as pay in an aircraft we've deferred. So it kind of runs the gamut across what we do in the maintenance world on a voluntary basis.

But importantly, it's no safety-related item.

Exactly. That's what people wanted to know. And then how much extra have you spent so far to keep your schedule intact more or less?

I don't think, we have that answer for you, but it was not material.

Okay. All right. Thank you.

And from The Wall Street Journal, we have Alison Sider.

Good morning, hi. My questions are just sort of given the incidents and what's been detailed in the preliminary report. Are you satisfied with pilot training at Ethiopian Airlines and safety practices? How confident are you feeling sending customers on codeshare flight with Ethiopian? Or is that something you're reviewing just in light of everything that's happened?

We are confident in the training programs at United Airlines and what we do for training our pilots. I don't think we're prepared to comment on the training programs at Ethiopian. We do have a process that we go through and will continue to go through that involves IOSA standards for auditing, for all of our codeshare partners that we use, but we don't have specific commentary on their training programs.

So when mentioned an auditing process, is that something like initiated for Ethiopian now? Or is that something that they would undergo when you strike out a partnership? Or is it going to be an additional review of Ethiopian or your partners generally?

We go through that audit process with all of our partners and we have done that for at least as long as I've been in the airline industry.

Thank you. From Bloomberg News, we have Justin Bachman.

Hi, thanks for the time. I wanted to focus on the CASM-ex performance in the first quarter and wondering if you could go through some of the buckets that went into that performance in terms of the capacity growth and the maintenance deferrals that you did. And sort of what are the different areas that make that up and sort of by percentages? And secondly on CapEx, what -- when you have aircraft scheduled for delivery what's the breakdown of cost to United for pre-delivery payments versus what you pay upon delivery of the aircraft? Thank you.

So I'll take that second question first and that breakdown between pre-delivery deposits and what we pay at delivery varies airline to airline and it's really not something airlines specifically talk about. That might be a better question for Boeing to answer. With respect to first quarter CASMex performance which did end up somewhat better than our expectations, but really a lot of that was just timing, certain maintenance events that nothing more than we expected for instance some engine maintenance that ended up not having to be done, but we would expect that to be done later in the year. It's that sort of thing. It's strictly timing versus what our original expectations were.

Okay. But -- and then how much of that was just overall capacity growth that you have planned as far as the mix of -- was that active management? Or was it some of just the function of the airline's growth?

Well clearly the growth of ASMs helps us manage our CASM, but that's all built into the plan.

Thank you. From Reuters, we have Tracy Rucinski.

Hi, good morning. One quick question. Talking about pilot training, will you be requiring simulator training on the MAX?

Hey this is Greg. If you don't mind, I'd just like to provide a little context to your question. Based on the preliminary results of the investigations of the Lion Air and Ethiopian accidents, runaway trim was among the primary causes of the accidents. For decades, all of our pilots -- all of our Boeing aircraft here at United have been trained to respond to a runaway trim situation. In fact, the training around the situation is so central for our curriculum that the pilots are required to memorize the procedure. That's why we have consistently reiterated our confidence and ability of United pilots to safely operate United MAX aircraft. Now of course, if the regulatory authorities require any changes to our training programs, we will comply with them.

Okay. So no decision yet then on simulator training?

Right now, we have no plans to add any simulator training to our training regime. But obviously if federal -- if the regulatory authorities request that as added training, we will comply with that request.

And thank you. That was our last question. I will now turn the call back to Mike Leskinen for closing remarks.

Thanks to all for joining the call today. Please contact Media Relations if you have any further questions and we look forward to talking to you next quarter.

And thank you ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.