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I would like to welcome everyone on Bloomberg Television and Bloomberg Radio. I am here in Los Angeles with the CEO of United Airlines, Scott Kirby. There is an incredible airline behind us. There are incredible exhibits here. We would be talking about all these new planes that United just bought,
but instead the world has sent some other things. I really want to start with this question of how you plan for the future with a backdrop that is probably the most uncertain for airlines in particular since COVID.
Well pleas for.
Having me, Lisa and I love the United Blue, but carry on. You know, really, the way we plan is being prepared in advance. And when we came out of COVID, I made a commitment to our employees as to do everything possible to put United in a position where we never again furlough employees, which has happened over decades multiple times that United. And to do that, we knew there
was some industry crisis to come. I didn't know what it was that would eventually come, but we're carrying triple the cash on the balance sheet that we had pre COVID.
We've moved to the.
Top of the industry in terms of margins, and we have the best credit rating that we've had in.
Over thirty years.
And what that does is give us the financial resources to look to the other side of the crisis, to continue investing in airplanes like this, to continue a full speed investing in the future, while we make tactical adjustments in the short term, but have the financial resources that we can look through the crisis to the recovery on the other side.
You keep calling it a crisis.
Last week we heard from American, we heard from Delta. They were talking about even upgrading their forecasts for the year, saying that consumer demand was so strong it could overcome whatever short term shot this is.
You have a very different forecast. Why do you think it's not going to be that short term and not that moderate?
So first I said exactly the same thing about demand. Demand is the strongness it's been ever. The top ten booking weeks of the year have all been in twenty.
And twenty six so far. So demand is incredibly strong right now. But I do think that oil prices are I think they're higher for longer.
It's reasonable for us to plan for that regardless, because the downside is pretty limited, Like we leave a little bit of demand on the table by not flying quite as much as this summer, So what that's not a big deal, but it gives us more optionality on the other side for the recovery.
So we're really focused on what the recovery is going to look like. And I think our forecast of oil.
Going to one hundred and seventy five and staying through up to one hundred to the end of next year is reasonable. I hope it's better, and there's a good chance it's better, but I think it's also reasonable, and planning and preparing for that really lets us come out stronger as we go through it.
And on the other side, you've talked about how you're cutting about five percent of capacity in particular in the Middle East to some of the roots there in order to reduce capacity preserve margins. Do you think that's it or if prices go even higher, do you expect that to actually be an even bigger count to capacity.
Watch and see what happens, particularly with demand. If our forecast of fuel prices is correct, then my guess is there's going to be an impact to the economy as well, and I hope not, but we'll watch that as it goes along.
But what we're doing right now really is.
Taking out flying that. You know, it's pretty marginal even in good times, and when oil price is double, it would lose money. And so there's just no point in flying flights that are going to lose money that can't cover the cost of fuel.
So it just seems reasonable to do it. We'll be nimble and see what happens with prices and demand.
The Middle East has been an area of expansion for a while. I know that a number of the airlines have really been moving heavily into the region.
Are you adjusting and.
If you're thinking longer term as a result of the conflict and potentially how long it could go on, Well.
We'll see, but I would guess that when this is over that places like Dubai come back one hundred percent.
I don't know, we'll.
Watch it see, but I would bet on Dubai for the.
Long term going forward.
You've talked about how you want to take advantage of this time, how you see this as a crisis not unlike what we saw during the pandemic, and that you'd be even interested in potentially picking.
Up some assets. What does that mean airplanes? Roots?
Yeah, so first, I don't think it's a crisis like COVID.
It's going to be a stress event. That's the word I use.
More is stress event for the industry. If our fuel forecast is right, but it's nowhere near the magnitude of what happened in COVID. And in a stress event like that, I want us to be we start in the strongest position. I want us to be consistently ahead of the curve, like every time there's something happening, I want us to be first to let everyone else follow.
And when we're doing that, you.
Know, and others take longer to adjust, it is going to amp up the stress on them. That many of them start with weak income statements, weak balance sheets, and we'll be there to pick up some of those assets. And it might be a win win for them, but we'll be there to.
Pick up some of those assets as we go through the crisis.
We'll sale acquisition of a company or just well.
See, there's lots of rumors about that going forward.
I'm curious.
Also, there's been questions about hedging against oil prices. You know, a lot of the airlines have really moved away from that because hasn't the profitable Delta has a refinery investment that has helped.
Somewhat to offset.
Some of these costs. Do you have any plans around that in any capacity?
So it's we're so bad, it's hard to effectively hedge.
We're just so big we move the market.
If we try to hedge, it's really hard to hedge the crackspread, you know, you know, oil prices have gone up, the crackspread has gone up even more. It's really hard
to hedge there, and so probably not. I actually tried to do a deal with AD years ago when I was at American and they foundered over a force majure clause where they wanted for it had just been a swap founded over a force majure or they said, well we need a force majure and I said, well that's the whole point, like what if the straits and before moves closed it, I said ten years ago, like that's when I want your hedge, and you can't get out of it.
So it's just really hard for us to edge.
Meanwhile, if this were the only crisis you'd be dealing with probably you'd be watching this clifully, but you'd be grateful.
There is also this question around all of.
The scenes that we see in social media, et cetera of TSA lines getting longer and longer. Have you noticed people missing their flights? I mean, how big of a problem has this been?
You know? Thank you to the TSA.
It's the vast majority of them are showing up to work. And I understood, like it's unconscionable that our politicians are.
Put our TSA age. It's safety professionals.
In a situation like this, But they're showing up to work. I love saying thank you to them every time.
I go through. Uh.
They're doing a great job. Yes, there are places where we've had long lines.
It's really the last week that it's started to increase a little bit. I am hopeful that we're near the finish line. You know, I'm on my.
Way back to d C after here, but I've been talking to folks in the Senate on both sides of the aisle. It does feel to me like we're close.
This feels like.
Kind of like the FAA felt, you know, where We're forty eight hours away. We've got the FA reopen feels very similar to me that we're close.
I hope having it resolved, just having ICE.
Agents there help things or things.
You know, I don't know.
That we were all trying to provide resources to TSA. You know, we're we and other airlines are doing things like providing meals and offering to use our staff to help with lines or to help with the exit, you know, monitoring the exits. Those are the kinds of things that the other government officials are doing. So the key though is like get TSA funded and.
Pay the people.
You've run companies for a long time. Have you ever spent more time in Washington, DC as a CEO?
Boy, I spend a lot of time there. I've spent more there probably this year than any other year.
Though, you feel like the system is fraying in terms of also like safety issues. I mean, there's been a lot of concern about what happened with Labordi at airport.
Yeah, you know, the system is safe. It really is safe.
It's by far the safest way to travel of any mode of transportation.
And I do think that we need to invest more in the.
FAA, both in staffing and then the technology. And I am like this is the first time in my career we've had an administration Secretary Duffy, Administrator Bedford that are fully committed.
To doing that and they are doing it.
And like staffing in Newark for example, it's the best it's been, you know, in my career. And we think we're going to be one hundred percent soy'll be the first time ever. I think that will be one hundred percent staff later this year. So on that road, the Secretary is about to ask, I think for another sixty seven billion for technology. I will encourage everyone on both sides of out let's do a bipartisan deal to get.
That done, as that we need to invest in our In the meantime.
We have consumers that have been incredibly resilient for all of this.
They still want to travel.
I mean, at what point do you start to see cannibalization. Are you're starting to see any pushback?
You know, I'm sure there will be some.
There is always a price elasticity, but we're starting from this perspective where airfares in twenty twenty five or two percent lower than they were in twenty nineteen, even though inflation was up twenty five percent, So airfares are up fifteen.
To twenty percent in the last few weeks, but that's.
Sort of covering half to sixty percent of the inflationary increase. So I think we have some room to go. But I also think, like you know, there will be less demand. There'll be fewer people traveling as prices go up. That's part of our cut capacity five percent. Like you know, when airfares have to go up because of oil prices, there are going to be some people that choose not to fly and to be naive not to realize that, and so pointing back to some of that capacity is a rational response.
How much do you expect prices to have to go up just to adjust to the oil prices?
Well, you know, if oil prices where they are today, that's eleven billion of expense for US, and that would require prices to be.
Up twenty percent to break even to cover that cost.
Meanwhile, you are announcing all of these new planes. A lot of them have put a real emphasis on the premium customer of Polaris on the both states, the by coastal kind of transit. You've talked a lot about how premium is the future.
Can you talk about how much.
It really is the growth sector and whether demand there continues.
To be or us well, the truth that we're investing nose to tail for all customers. I mean, everybody gets the best technology, best out technology in the world, Starling feedback entertainment. So it's not just premium. Premium gets a lot of the press, but we're investing those to tail to win customers, brand loyal customers everywhere. But clearly the premium demand has been much stronger than anyone ever realized. What I really think it is not that premium demand
is higher today than it was. It was always there. We didn't have the product to serve it. And once we create the product, we realize that they're demand that was in excess of what we knew. Also at United, like we just we were born on third base when it comes to premium with hubs in Newark, Dallas, Chicago, San Francisco.
Like you know, like sometimes it's going to be lucky.
We were born on third base where there's far more premium demand for our product, and so lets us be the leader.
Scott Kirby, wonderful for you to take the time, Thank you so much for being here. Wonderful to speak with you that was Scott Kirby, the chief executive officer of United Airlines.