United Airlines CEO Scott Kirby Talks Airline Optimism
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From Morgan Stanley, reiterating its overweight on United Airlines, expecting forward guidance to reinforce U.S. airline optimism. The stock is up by 6% in early trading. Let's stick with United. The airline reporting its best first quarter performance in five years and offering investors dual forecasts in the face of economic uncertainty, writing in a statement, the company's outlook is dependent on the macro environment, which the company believes is impossible to predict this year.

with any degree of confidence. Joining us now, the main man, the United Airlines CEO, Scott Kirby. Scott, welcome back to the program, sir. It's good to catch up with you once again. Let me just understand maybe your approach to this earnings report, how you and the team decided, you know what, this time I think we have to do something different and offer a dual forecast. Where did that come from, Scott?

Yeah, we did. We thought it was appropriate to do something different. It starts with, you know, the environment has gotten more difficult. But first, you know, we did have, you know, as you said in the intro, the best margins we've had in five years. We grew margins year over year, only two airlines that are profitable. And as we kind of went through it, we still see a viable path to getting to our,

our, as long as bookings remain stable as they are today, to getting to our original guidance. But we also recognize that there's more macroeconomic uncertainty, that people are fearful of a recession. It hasn't happened yet, but that they're fearful of a recession. And so we wanted to also give investors some outlook on what we think a recession could look like if it happens here at

United. So really the goal was to just give investors more information. It's non-traditional. We're the first ones that I ever know of that have done something like this and so far the feedback has been really positive and I think investors and others appreciate that we try to give them a more fulsome range as we gave guidance this time. Scott, can you give us a sense if you were catering more to investor nervousness or whether you were responding to actual weakness that you see in some of the forward bookings by clients?

So I'm guessing you're referring to our capacity changes. And we're going to pull about four points of capacity from the second half of this year. That's really just a pure tactical economic decision. We do see weakness, and because we see weakness, it means we're starting to cancel some of the utilization flying. That red-eye flight that was barely profitable in really peak strong times becomes unprofitable when the demand environment weakens a little bit. Customers have more choice to fly at better times of day, and so they do.

And so all we're really doing tactically is pulling some of that marginal flying, marginal in good times turns negative in bad times. So we're just pulling that out of the system. How much do you see going forward, though, any kind of retrenchment from consumers whatsoever? A lot of people have been talking about how particularly international travel is going to come down with people from overseas not coming to the U.S. Are you seeing that in forward bookings, or has that kind of been more of a narrative than a reality?

It's been more of an narrative than a reality. We saw weakness starting at the end of January. We saw a step down. But it has stabilized. In March and even the first two weeks of April, it has stabilized. And the weakest area we see is actually the low-end domestic consumer here in the United States. International has remained quite strong. International, for what it's worth, is 82%.

US point of sale. So it's much more dependent on the US economy than foreigners coming to the United States. It's also less corporate than it used to be and because of that you know the leisure traveler is still going, the premium leisure is still there. Typically even in times of economic weakness the high-end consumer outperforms and that's what we thought would happen, that's what we've seen so far. We'll keep watching it of course but that's certainly what we've seen so far. How much has this really put you in a position to consolidate market share?

Right now, we keep seeing that among a lot of the leaders in different industries. This is time for them to compete on price, to compete on some of the offerings, and frankly, squeeze some of the other weaker players in the market so that you emerge on the other side a lot stronger. Do you see that happening with United right now? Well, United, we've had a five-year strategy to win brand-loyal customers, and we've done that.

So really nothing is changing. We're not doing anything incremental, anything different. We're continuing the path that we have been on because it's worked. It's led to the best margins in good times. I think that lead is going to expand in tough times, not because we're doing anything special, but just because we'll have more seats to sell available to those customers. And when you're the brand loyal airline, when times get tough and you have more seats to sell, more customers migrate to you. And so

We'll wind up selling more seats at lower prices because that's the way our yield management system works. But we'll sell just as many seats. It's going to make it much harder at the bottom of the customer choice pyramid. Scott, as you know, there's a lot of tension right now between the United States and China. That's been expressed in several rounds of tariffs from either side. We hope they can come to the table and have some talks, but so far, not great. For the maintenance of your plane, sir, and the exposure that you have to China, to Hong Kong, how are you managing that situation at the moment?

SECRETARY BLINKEN: So at United, we actually – we have more of our heavy maintenance work done here in the United States than any airline in the country. We've been growing here in the U.S. In fact, over a three-year period, we're going to hire about 5,000 maintenance technicians here in the United States, building huge new facilities in Houston and in Orlando. And most of our work is done in the free trade zone outside of Hong Kong, the work that is done in China. So we're monitoring it day by day.

But, you know, we have a high percentage here in the United States, more than anyone else, and feel good about our setup. Scott, some CEOs have been quite outspoken about what they'd like to see from the administration on policy. Are you willing to do that? Is there a reason why maybe you'd be a little bit more hesitant to weigh in? Well, I've spent a lot of time in D.C. this year, as I always do, but I've mostly been focused on listening instead of talking. So I wanted to understand best

where the administration was coming from, what their goals were, how they were trying to get there. And I actually got by the end of March, felt like I had a pretty good understanding of that. And if you have that kind of understanding and you can put everything that's happening into context, you know, it makes it a lot easier to run, manage the business, to not make panicky decisions. And, you know, what I think is happening here is, you know, we're nowhere near the end of the game yet. You know, these are still the opening moves of the chess game. And I think I,

and most people that I talk to, you know, or things have slowed down, but we're all in a kind of a take a breath mode. And let's wait till we get to whatever the new normal is going to be before we start making big long-term decisions. We've all got to take a deep breath. Your stock is up this morning by about 6.5%. I wanted to talk about something with you that we've been talking about for a while on this program. Scott, as you know, one of the most disruptive parts of flying right now is the boarding process.

And when you get on, everyone is wrestling to find space to put their bag over their seat. How do we address that situation, Scott? Because I can tell you as a traveller, it is the most annoying experience. And it's not Unite United, it's something we're seeing across the board.

As a father of seven, I understand it, trying to get on with a bunch of kids. And I'd say we're fixing that at United. The biggest thing we can do, we had to put bigger bins on the airplanes. We're over 50% through the fleet at United, but we're putting bins on all the airplanes that are large enough that on a 100% full airplane, every single customer can bring a rollerboard on and put it in the overhead. And I think that...

at its core is how we're going to solve it. Scott, how much more can you get people to pay for things that they used to know they could get? I know that Frontier used to do that with cans of soda and then they had to backtrack or checking bags. Are there other things that you can monetize or does it really come down to the credit card business, the loyalty program, counting on the front of the cabin? You know, uh,

At United, actually, we're kind of going the opposite direction. We have disaggregated the product. Give customers what they want. If you want the premium product, you can get it. You can go the regular economy product all the way down to basic economy. But, you know, we've got Starlink coming next year. We're going to have the best, the fastest Wi-Fi in the sky, and that's going to be free for our customers. So Wi-Fi is going to be free, and it's going to be by far the best experience, the most bandwidth, the fastest speeds, fastest

for any customers and you know in a lot of ways increasingly uh... instead of being an airline that also has a loyalty business we are becoming a loyalty business that runs an airline. I mean being able to get customers to Tahiti and Cape Town that's the cool sexy

that you get in the loyalty program. But, you know, the large airlines, particularly like United, you know, we really have the best, the deepest loyalty program. When I talked earlier about brand loyal customers, like customers that want to fly United Airlines. And that is the strength. That's what's given us the resilience

to have strong earnings even in a tough macro environment. It's what's going to let us outperform even if the economy gets weaker from here. That loyalty of customers, whether you call it the loyalty business or just having brand loyal customers, is the foundation that's letting United outperform. A masterclass in communications from the firm in the last 24 hours. Scott, I appreciate your time. Thank you. Scott Kirby there, the United Airlines CEO.

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