Bloomberg Audio Studios, podcasts, radio news head of a big FED decision and on the heels of economic data. That's painting a mixed picture of conditions. But one of the best real time indicators of economic health can be had in the health of airline demand. I'm pleased to say that Lisa Abramowitz, the co host of Bloomberg Surveillance, joins me now and she's brought with her Scott Kirby, the CEO of United Airlines, the largest US carrier by destinations, fleet size, and available seat mile.
I always say Scott's actually the number one economists in the world. You have the actual real time look at what the consumer is doing. You saw the first half of the year is almost a recession. Second half looks vastly different. How much of a reacceleration are you seeing?
You know, we are a very good real time indicator of demand when these are uncertain or weak. First thing that businesses and consumers cut back on travel. It's also the tip of sphere, one of the first things that
they bring back when they start to feel better. And at the end of June it was like a light switch gout flipped and that the tax bill certainty, you know, past the tariff situation, while not finalized yet, got narrowed down to the level of certainty, and the geopolitical situation, particularly in Israel at least got narrowed down, and that certainty, I think led to an improvement in demand. And so
we saw that starting in July and August. Coming out of September when people are starting to book for Thanksgiving and the holidays, we've seen it even further accelration, particularly in consumer demand. So we are a real good, in real time indicator of the economy. And most of the economic statistics that you guys are looking at are backwards looking and they're reflective of sort of the mood and the sentiment of the country in April May June time period.
Our data is more real time.
I think the economy is therefore stronger than most people are progrognosticating where.
Is it coming from? Is it coming from business, you said, Is it coming from consumer? Is it coming from the front of the bus or the back of the cabin. How are you sort of describing this demand?
So really it's you know, our business skew is mostly medium to high end consumers, and that really is strong really, I think across the board demand has improved. Corporate was the first to begin recovering, particularly as we've come out of Labor Day and that's a more leisure booking period for the holidays. That demand has really picked up coming out of labor Day. So I think the consumers, certainly the business is feeling good. I think the consumer is
feeling good as well. It is more skewed to the premium, but a lot of that is because there's more supply. It's really more I think a more supply issue in economy. That there's a lot of economy focused airlines, you know, with more seats than they're able to sell, and so it feels like premium is better, but I think it's really more a supply issue in economy.
I think they're both pretty strong.
How much have you had to adjust in terms of the mix of what you're offering between the business class, first class, and of course what's going on in economy.
You know, we made it.
These are long term decisions. You can't adjust them in the short term. You know, the supply chain for new seats is three to four years, and so we made a decision coming out of COVID to really lean more heavily into premium and to give customers more choice, really giving customers choice and more options, and so that's tend to turned out to be the right decision. We really haven't changed that this year at all. Those are long term decisions. We like the path that we're on. We're
going to continue on that same path. But really, you know, we're going to try to offer customers choice all the way from basic economy all the way up to you know, life lap player seats. You know, across the oceans.
With regards to consumer travelers, are you seeing more frequency with regards to the people who are traveling?
You know, I don't really know. I mean, I just look at the overall demand is risey. I suspect that that's a combination of more people flying, but also some of the people that were already flying flying more often.
So this isn't personal. But when I was question when I was getting flights earlier this year for the family, they were actually pretty good deals. Yeah, and now when I'm looking for flights during the Christmas time, etc. I don't know, the prices are going up pretty significantly. How much pricing how much pricing power have you had.
Well, eric, travel is a great value.
It's it's down about fifty percent in real terms, you know, in the last thirty years or so.
It is great value. Peak periods are going.
To be higher, and the pricing environment, you know, when things are weak, the pricing goes down. When the economy is weak, pricing goes down even more than the economy, and when it starts to recover, it therefore correspondingly bounces back more so you do probably you probably will see that in the fourth quarter.
So you think that pricing can keep on going up to a certain degree, albeit with the real time pricing being lower value, et cetera.
I think pricing is going to go up sort of consistent with inflation. I don't think it's going to continue to devalue relative to you know, the economy, but I also don't think it's going to outpace you know, inflation in the broader economy.
How are you actually improving this experience of flying? I mean, you talk about obviously the investment in premium, but it's more than just offering a wider seat and you know, peanuts or.
Yeah, thanks.
Mostly what we're doing is investing for the whole aircraft. The most important thing we do is how are employees and how are people treat treat the customers. You know, I tell our flight attendants, I love our flight attends. They're the face of the United Airlines. There's nothing that matters as much to how customers feel as walking on an airplane and there's two flight attempts in the galley that are smiling, that are positive or happy, that care about you,
and you can tell that they care. But our you know, employees and how they treat you. The technology you know, we have by far the best app of any airline helps you when you have tight all kinds of things that matters. Putting you know, seatback entertainment on this is we're putting them on every single airplane and it's pretty remarkable. An airplane with seedback entertainment, you know, has double digit
higher MPs than another airplane. But guess what, the TSA scores are higher, the food tastes better, everything is better when you have that. So investing in the whole experience and the whole product, everything that you feel makes a difference. That's how you win brand loyal customer shore.
And obviously you can control control what goes on in the cabin but there's also a lot that you don't control as an airline, particularly when it comes to time, weather and other sort of faults in the system. Obviously you have shared some responsibility in that, but I am curious as to how you improve what you can control to ensure that on time is better, the experience outside of the cabin in the airport is better.
Well, we're great at the things that we control.
We're not perfect, but we're pretty good at running, really good at running a reliable operation. The biggest thing that we can do to improve for customers is air traffic control system. You know, about ninety percent of the delays in the country are air traffic control. That includes weather, but it's not just weather, and so getting the air traffic control system up to the levels that American deserves
is mission number one to improve for customers. And I'm really happy that this administration, starting with the President, is fully bought into doing that. Secretary Duffy has been great at driving this agenda, and then Administrator Bedford. Brian Bedford used to be the CEO of an airline, knows how to build it. I think we're I can already see the things that we're doing we're on a path to finally getting you know, I've fought this battle for twenty years.
We're on a fat path to finally getting the FAA fixed in a way that all the Americans deserve.
Romaine was trying to be nice and not asking is remain fixed or are we actually dealing with the incredible best that we had been dealing with. I mean, how much have you seen an improvement to the degree where you are proud to have that be your hub in the Twisty area?
Yeah?
Yeah, you know, I think Newark is a crown jewel for United Airlines and frankly for the country. It's the biggest gateway for a US airline flying to Europe, but it historically operated an unlevel playing field with LaGuardia and JFK, and the FAA has now put it on a level playing field.
Essentially slot controls managing the number of.
Flights at the airport to equal the capacity of the airport. And when they did that, we have this summer Newark was the most it was the most reliable summer that we've had. It's still the New York airspace, it's, you know, still the most challenge airspace in the world, But it was the most reliable we've had. In fact, the most on time arrival airline into the New York metro area this year this summer was United Airlines into New Ork because of the changes that.
The FA has made.
One thing that you've noted is that you've been gating share and that's one reason why some of your earnings have been outpacing some of your rivals. I wonder what you're targeting in terms of share gain. Next is our region is the Try State area with the JFK and the Jet Blue partnership, Is it another region that you're really kind of trying to go after.
We're really focused on our hubs really across the country, but in our hubs, grow in our hubs and investing for the customers so that more and more customers chooses. That also means that when you're anywhere that's not a hub, if you live in Nashville, or if you live in Columbus, Ohio, like and you're going to have to connect a lot on a lot of the travel anyway, United becomes a better and better option. So it really is across the board, but the biggest share gains we see are in our seven.
Hubs on the on Newark, though, I mean there was a drop off overall in passenger traffic in there because of those issues. Has that returned to normal.
It's pretty much returned to normal, and there was a huge drop and it still takes a little time for perception to catch up to reality. But the numbers, you know, show that that Newark has gotten on part so gotten onto a level playing field, and so the results are on par with the Guardian JFK and the FA has now done a really important step which has moved the air traffic.
Control out of this facility that's for fifty.
Percent understaffed on Long Island and into Philadelphia and the first permanent employees finished training the starting next month. And so every month the staffing is getting better and better. But that's been the biggest issue here in the New York airspace is air traffic control staffing. And as it gets better and better every month, like we already had a good summer, it's going.
To just get better.
And you're actually adding staffing at United at Newark we are well right, I mean you have a one in fourteen thousand people there already.
We have fourteen thousand. We're growing about two thousand a year at the moment.
Okay, so you've talked about how confident you are about the trajectory ahead. Why then do you have triple the cash that you had during before the pandemic. Why are you paying down debt? Why are you operating in such a conservative cash flow manner?
Because we know that something always happens in this industry, and when we were in COVID, I made a commitment first to myself, which I since made to all of our employees to set this airline up so that we never again have a furdle, that none of those people experience a fertile which is different than United has always
been in the past. You know, anytime there was any kind of whiff in the economy, you know the shrink and furlough to set it up, when we never did that, which is also good for our investors in the long term. That we can ride through a downturn is what that means. And more cash on the balance sheet and paying down debt gives us the financial firepower to deal with whatever the next crisis, and there's going to be one at
some point. To deal with the next crisis, stay focused on the long term keep investing for the long term and keep our eyes on the horizon instead of being whipped around by short term trends.
We've seen Wall Street really reward companies that have invested in capecks and it's sort of departure from the past, but this has been something that we've seen on an increasing basis. Some might say, well, you have in a cash pile, you could make some of that capital expenditure investment.
What would you be looking at, Yeah, well we have.
We've done you know, the last each of the last four years, I think is more CAPEX than almost in the airline history has ever done. We did the biggest aircraft orders in the history of aviation, which is where our most of our capecks goes to airplanes during the pandemic and at the time before and a half years ago, I did an event here at Nework to announce it. Pandemic was still raging and we did the biggest aircraft
orders in history. We got a lot of blowback, a lot of criticism, a lot of skepticism from Wall Street, but it was the right long term decision and it's clearly worked and our investors have been rewarded and they recognize that it's work. So I think doing that you take a heat at the beginning when you first do it, but then you've got to demonstrate that it was the right plan. You got to put the numbers up, you
got to deliver. But if you deliver, I think investors give you a lot more trust rope and let you focus on the long term.
Well, speaking of delivering, how confident are you in getting those deliveries on time?
You know?
Boeing, particularly for the seven thirty sevens Boeing is back on track. In fact, this year they're ahead of pace for the first time in a long time. I think they've really turned the corner on the seven thirty sevens. The seven eighty seven is still behind. Airbus is a little behind, not as much as Bowing was, but seven eighty seven I think they'll turn the corner. I think Kelly's doing a really good job there. It's good lead other issues. It's just going to expose the next problems
in the supply chain. I think engines. There's something like seven hundred aircraft around the globe that are grounded that right now because of engine shortages.
So I think engine shortages.
Is going to become the next industry wide challenge once bowing Airbus to get back to full.
Is that an effect of terror policy or just supply chain gum ups? What's caused?
You know, it's it's a hangover still perhaps from COVID. You know, it's a very very specialized, high.
Skilled machinists and others, and they've read a lot of them, you know, retired during COVID. They've had a real challenge at all of the engine manufacturers to get back to full speed.
You've been spending a lot of time in Washington, d C. Have you bought a place there.
I have not bought a place there. Spent a lot of time.
Expect to have a lot more there as you talk to policymakers.
You know, I've spent a lot. I spent a lot of time there in the last administration. I spent a lot of time there.
This you know, we're a big, high profile company and that comes with opportunities, obligations, responsibilities, and wathington DC as part of it. I thought it was the part of the job I would dislike the most. When I became the I thought it was the only thing i'd disliked. It turns out I like it, which is surprising, it's maddening, it's frustrating at times, but it's also a place where you can have an amplified voice to make a difference for your company, for your industry, for the world.
Scott really appreciate it.
Thank you enjoyed it.
Scott Kirby, the CEO of United Airlines, and our thanks to Lisa A. Bromwoods, the co hosts of Bloomberg Surveillance