United Airlines Holdings, Inc. (NASDAQ:UAL) Q4 2023 Earnings Call Transcript

United Airlines Holdings, Inc. (NASDAQ:UAL) Q4 2023 Earnings Call Transcript January 23, 2024

United Airlines Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. And welcome to United Airlines Holdings Earnings Conference Call for the Fourth Quarter 2023 and Full Year 2023. My name is Tegan and I will be your conference facilitator today. Following the initial remarks from management, we will open the line 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 the call. If you do not agree with these terms, simply drop off the line. I will now turn the presentation over to your host for today’s call, Kristina Edwards, Managing Director of Investor Relations. Please go ahead.

Kristina Edwards: Thank you, Tegan. Good morning, everyone. And welcome to United’s fourth quarter and full year 2023 earnings conference call. Yesterday, we issued our earnings release, which is available on our Web site at ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the Company’s current expectations 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 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors.

Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on the call. Please refer to the related definitions and reconciliations in our press release. 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. Joining us on the call today to discuss our results and outlook are our Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Mike Leskinen. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now, I’d like to turn the call over to Scott.

Scott Kirby: Thank you, Christina, and good morning to everyone on the call today. Despite numerous geopolitical and other headwinds around the globe, 2023 really was the year that our plan for United Next came together. Our thesis at this time last year was that operational constraints, other factors were leading to cost convergence and those cost pressures in turn would lead to higher revenues. That is certainly true for United because our diversified revenue streams continue to differentiate us from other airlines. Another way of saying that is that we believe that a new link between United’s CASM and RASM was being solidified. And while it might be hard to get either a CASM or RASM forecast exactly correct, we can have higher confidence in forecasting the relationships between the two, and therefore, have higher confidence in our earnings [Indiscernible] margin forecast.

And despite a year filled with events that we could have never predicted, that’s exactly what happened in 2023. And so, I’d like to thank the 100,000 United team members around the world who worked so hard to make that happen. And those same 100,000 people continue to deliver in the face of a huge impact on our employees and customers from the MAX 9 grounding. I’m proud of our tech ops team who’s taken the lead and has been working 18 hour days nonstop since January 6th to ensure that the MAX 9 is a 100% safe before we return it to service. I’d also like to thank the FAA for their professional leadership in this situation and also acknowledge that they too are also working long hours and weekends with us in an effort to ensure that we know for sure what happened so we’d be confident that the remediation prevents it from ever happening again.

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Q&A Session

2023 really sets the stage for what is likely to be a repeat in 2024. United’s financial performance was impressive, especially if you consider where the analysts were tracking at this time a year ago. In 2023, we delivered full year earnings per share above $10, which was within the range of our initial United Next target of 10 to 12. I want to spend some time today examining how we got there and why we think those trends will persist in 2024. One, we expected the operating environment to be challenging, driven by pilot and other hiring constraints, FAA air traffic control steps, maintenance catch up and supply chain issues. It turned out to be even more challenging than we thought. Two, and those operating environment challenges led directly to industry capacity plans, including our own coming down 3 points on average as carriers adapted to the new operating environment.

For United, we made changes to our schedule and we closed out the year setting operational records. The improvements in Newark in particular are one of the most important accomplishments that we achieved last year. Brett will share more details in just a moment, but the FAA waivers right-size the airport and airspace to physical constraints and allowed us to running operations that’s performing better than ever at Newark. That’s been good for our business and it’s been really good for our customers. Three, but as we predict, the challenging operating environment led to cost pressures and cost convergence in the industry. To be fair, even we as United underestimated the inflationary pressures that we would face primarily from labor, maintenance and supply chain issues.

And that led to higher absolute CASM-ex than we were forecasting. But those same cost pressures are being felt across the entire industry. And a year ago when we talked, we believed the industry wide cost pressures would wind up as a pass through, much like fuel has been in the past. Four, and that is in fact exactly what happened. While industry cost pressures drove higher CASM-ex at United, we offset those higher than expected costs with higher than expected revenues. Five, which leads to the final point. While difficult to predictive events like the fuel price spike, rising conflict in the Middle East, fires in Maui, persistent inflationary pressure, so many other things that makes it difficult to predict United’s full year 2023 CASM and RASM 12 months in advance, the timing connection at United between CASM and RASM meant that we achieved our initial $10 to $12 EPS range despite those multiple headwinds around the globe.

The link between RASM and CASM combined with the success of United Next is what made 2023 such a successful and important year in our history, and we expect 2024 to follow a similar path for the same reasons. This is just the new normal. The operational challenges remain. It will be years before the FAA is back to full staffing. We’re still overlapping new labor agreements, which shows in our CASM and the supply chain challenges aren’t going away anytime soon. That means capacity will continue to ratchet down out of necessities and cost convergence will continue. But revenues will adjust to the new cost reality and you can expect United to maintain and grow EPS and margins. Two and half years ago, we laid out our United Next growth strategy.

In 2023, we demonstrated that the plan is working almost exactly as we expected and the future is bright. There have been and there will be more bumps in the road. But we continue to feel confident about our ability to grow earnings and margin over the long term because of the tighter connection between United’s cost and United’s revenue. Looking ahead to 2024, the United Next plan is working and no airline is better positioned to capitalize on industry and macroeconomic trends than United, and we’re continuing to move aggressively to capitalize on emerging opportunities. We’ll have more to share with you at our Investor Day later this spring. In the meantime, we’re focused on delivering another great year for our employees, customers and our shareholders.

And with that, I’ll hand it over to Brett.

Brett Hart: Thank you, Scott, and good morning. As of Saturday, January 6th, Boeing 737 MAX 9 aircraft has been grounded. We are currently the largest operator of the Boeing [Technical Difficulty] fleet type, the aircraft representing approximately 8% of our capacity in the first quarter. Our financial guidance assumes that United’s 79 MAX 9 aircraft is grounded [Indiscernible] January. I echo Scott’s gratitude for all at United who worked so hard [Technical Difficulty] travel plans were affected by the grounding of our MAX 9 fleet. I’m also extremely proud of our tech ops team who’ve been working carefully to ensure the safety of our MAX 9 aircraft before we start flying them again. 2023 was a year of growth and restoration.

And we closed out the year with strong record breaking operational results, carrying a record 171 million customers. The fourth quarter consolidated customer D0, A0 and misconnect rate were the best for any quarter in our history. Not only did we set company records for the quarter but we also ran record setting operations during our busiest time of the year over Thanksgiving and Christmas. Thanksgiving and the entire fourth quarter had the highest NPS scores in our post pandemic history. We wrapped up the year with our lowest ever cancel rate for the month of December. One of the largest challenges United and all airlines flying to and from New York have historically faced more flights than the air traffic system can handle is now being addressed, thanks to proactive intervention by the FAA.