United Airlines Holdings (NASDAQ:UAL) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
United Airlines Holdings reported a strong first quarter 2026, with a record operating revenue of $14.6 billion, reflecting a 10.6% increase year-over-year.
The company is focused on recovering 100% of the increase in jet fuel prices by increasing yields by 15-20%, targeting a pre-tax margin of at least 10% in 2027.
Operationally, United maintained the first position in on-time departures among the largest U.S. carriers, despite challenges from increased weather events and geopolitical disruptions.
Strategic initiatives include the introduction of new commercial products like Relaxrow and nested selling, along with fleet expansions with A321 aircraft to enhance premium offerings.
Management expressed confidence in passing through fuel cost increases and achieving double-digit margins by 2027, emphasizing the strength of brand loyalty and premium demand.
United has improved its balance sheet significantly, paying down $3.1 billion in debt while issuing its first unsecured bonds since 2019.
The company plans to reduce capacity by about 5% in response to high fuel prices, focusing on removing marginal capacity on off-peak days and times.
Management remains optimistic about future demand, particularly in premium cabins, and is prepared to make adjustments to align with financial targets.
Full Transcript
Regina (Moderator)
Good morning and welcome to United Airlines holdings earnings conference call for the first quarter 2026. My name is Regina and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions at that time. If you'd like to ask a question, simply press Star, then the number one on your telephone keypad. To withdraw your question, press Star one Again. 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 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, Christina Edwards, Managing Director of Investor Relations. Please go ahead. Thanks, Regina. Good morning everyone. Welcome to United's first quarter 2026 earnings conference call. Yesterday we issued our earnings release which is available on our [email protected]. 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 and 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 Form 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 this call and historical operational metrics will exclude pandemic years. Please refer to the related definitions and reconciliations of these non GAAP measures to the most directly comparable GAAP measures at the end of our earnings release. Joining us today to discuss our results and outlook are Chief Executive Officer Scott Kirby, President Brett Hart, Executive Vice President and Chief Commercial Officer Andrew Nicella and Executive Vice President and Chief Financial Officer Mike Luskinen. We also have other members of the executive team on the line available for Q and A. And now I'd like to turn the call over to Scott.
Scott Kirby (Chief Executive Officer)
Thanks Christina and good morning everyone. I'd like to congratulate the United team on a strong first quarter. We're building the number one brand loyal airline in the world and our financial results are indicative of the structural, permanent and irreversible changes that have happened at United and across the industry. Our first quarter results are just the latest proof point in our strategy to build a decommoditized brand loyal airline that's setting a new standard for what is possible for customers in air travel, we've proven that the winning strategy is to make travel easier and better for all customers. And while all of us at United are deservedly proud of the brand we've built, we aspire to go farther and we want to set a new higher standard by revolutionizing air travel for our customers. More immediately, of course, we're managing through the impact of jet fuel prices that have doubled. Industry stress events seem to happen every five to six years. While we didn't know exactly what or when it would be, we knew something would happen. It's the best thing we could do was to prepare United in advance. To that end, we have 1 tripled our cash balance, 2 moved to the top of the industry and profit margins and three strengthened our balance sheet. In fact, we ended 2025 with our highest credit rating in almost three decades. Advanced preparation allows us to stay focused on the long term while making near term tactical adjustments to account for elevated fuel prices. At the moment, our goal is to do whatever it takes to recover 100% of the increase in jet fuel prices as quickly as possible and to achieve double digit pre tax margins next year. Oil is incredibly volatile right now, but we but because we think we're moving towards 100% pass through, it allows us to have confidence in both our near and medium term earnings trajectory enough so that we can still provide guidance for United. Here's how we're thinking about our goals to get to 100% pass through and achieve double digit margins in 2027. 1. To recover 100% of fuel costs, yields need to increase by about 15 to 20% and we are assuming that fuel may remain higher for longer. 2. As yields increase, there will be an elasticity effect on demand we're estimating will lead to over the last overall demand. Well, we haven't actually seen that decline yet. Economics 101 makes us believe it's coming. 3. Less demand means that we should be supplying fewer seats to the market. For United, that means we're targeting capacity to be flat or up 2% for 3Q and 4Q on a year over year basis. It simply doesn't make sense to fly marginal flights that lose cash in a higher fuel price environment. Mike will provide more details behind our 2026 outlook. But our view for 2027 is that we're targeting a pre tax margin of at least 10%. We obviously have some time to see what happens, but if jet fuel remains elevated compared to our pre world levels as we think it might, we'd once again expect to require less capacity growth in 2027 than we were planning just two months ago. Realistically, there probably isn't enough time to make up 100% of the fuel price increase this year, but I feel very good about 100% recovery and getting to double digit margins in 2027. And because we've positioned United for success, we can make tactical adjustments to manage what we need to in the short term while also staying focused on our long term plan. I'm also more convinced than ever that our decade long strategy to build a great brand loyal airline that is obsessively focused on on making travel easier and better for all customers is the winning strategy. Finally, we've got a lot of press coverage regarding consolidation rumors. We've not commented specifically on those reports and aren't going to start today. So you can ask me about it if you'd like, but you won't be getting anything new from me on it today. With that, I'll hand it over to Brett. Thank you Scott and good morning. During the first quarter of 2026, United carried a record number of passengers while also navigating a challenging operating environment. The quarter experienced elevated weather events and geopolitical disruptions, but our teams remain laser focused on recovering from these events swiftly and delivering top tier reliability for our customers. In the first quarter, we continued our streak of ranking first in on time departures among the eight largest U.S. carriers. During the quarter, United's per seat cancellation rate averaged 44% lower than the next two largest U.S. carriers. Solid operational performance is the backbone of the airline and helped drive our highest first quarter on time Net Promoter score since the pandemic. During the quarter, customers increasingly engaged with our self service tools allowing us to drive more personalization throughout their journey. Day of app usage reached a record 86%, supported by continued mobile enhancements such as improved bag tracking and live TSA wait times. Additionally, I would also like to take a moment to thank the TSA employees who showed up to keep us safe during the government shutdown. We have also improved our disruption communications by embedding live maps directly within customer messages. These tools and redesign help us recover faster and make it easier for customers to navigate disruptions, another reason United remains differentiated and why we continue to build brand loyalty. Late last week, the FAA issued an order regarding the summer 2026 schedule at Chicago O'. Hare.
Brett Hart (President)
We are currently reviewing the FAA order and will share additional information, including any next steps as soon as our review is complete. We are pleased to reach a tentative agreement during the quarter with our flight attendants represented by the association of Flight Attendants. This agreement includes well deserved industry leading wages and other meaningful improvements for our flight attendants who play an essential role in caring for our customers and representing United every day. Voting concludes on May 12. On April 6, United celebrated its 100th birthday, a meaningful milestone for our airline, the generations of employees who have built it, and our loyal customers who continue to choose to fly the friendly skies on United. I want to thank all of our employees for the care and commitment they bring each day to our customers and to one another. As we recognize this milestone, we remain firmly focused on the future and on building an even better airline through continued investment in our product, our people, our network and our operation. With that, I will hand it over to Andrew to discuss the revenue environment and our other industry leading commercial initiatives.
Andrew Nicella (Executive Vice President and Chief Commercial Officer)
Thanks Brett Consolidated total operating revenue in Q1 increased 10.6% year over year to a record first quarter of 14.6 billion. Passenger Revenue per Available Seat Mile (PRASM) increased by 6.9% year over year. All regions had positive prasm in the quarter. I'd like to I described the start of the year as strong for all customer types and all regions. For January and February prior to any impact from the war, we saw ticketing for business revenues up approximately 12% while leisure was up a healthy 6%. Looking back at Q4, business ticketed revenues were up 6% and leisure was up only 2% year over year, creating a nice sequential increase in the first 2/3 of the quarter. Premium demand remains strong with Q1 premium revenues up 13.6% on 4.4% increase in capacity. Premium RASMs were up 8.9% year over year, leading Main Cabin by 4 points. It is clear that consumers continue to seek premium experiences. Business demand was strong in Q1 with revenues up 14% year over year and strength across all verticals. Headlines about TSA wait times did suppress demand between March 23 and April 1, but they have fully recovered since. Our loyalty business continued to outperform and total loyalty revenue was up 13% in the quarter. Acquisitions and spend were both very healthy and supported by updates we made to the mileageplus program. Late in the first quarter we implemented five broadly successful price increases along with an increase in baggage fees that began to offset the increase in the price of jet fuel. Price increases in response to the increase in jet fuel have been significant and across the board. However, global long haul increases have been a bit stronger than domestic. In January and February, United's selling ticket yields were up 4% year over year. In the first half of March that increased to 12% and further increased to 18% for the second half of March. So far in April this trend has continued and the last week selling yields for all future travel are now up 20% year over year. As you would expect, we sold 23% of our Q2 and 8% of our Q3 capacity at lower price points prior to the rise in jet fuel costs. We remain confident in our ability to fully recapture the fuel cost increases over time and in 2Q we expect to recover between 40 and 50% of the current increase. In response to higher fuel cost environment, we've begun to adjust capacity downward by approximately five points throughout the rest of the year. We now expect Q3 and Q4 capacity to be flat to up approximately 2%. Our adjustments removed marginal capacity on off peak days and flight times such as red eyes which we believe will fuel our recovery of fuel prices increases in the second half of 2026. Our current selling schedule is up just over 4% in the summer, but those capacity adjustments will be loaded in the next few months, next week or so to get the capacity out there selling appropriately. On our January call I hinted about new commercial initiatives that we believe will drive brand loyalty choice and increase revenue for United over the medium and long term. We have now formally announced these initiatives and I will summarize them today for you. To be clear, these changes have been in the works for years and they are made across all aircraft, all cabins and many different areas of the commercial business. First, and maybe of greatest importance, we've made the largest change in a decade to how we display and sell products on united.com and in our app internally. We describe this change as nested selling. Tested Selling took years to research, program and test and it's now active in our digital channels. We can now properly merchandise our grown product lineup. We have already seen large increases in upselling because of these website changes. We simply were unable to show all of the products we had for sale easily on the old website display. Second, as part of the website evolution, we've introduced base fares in our premium cabins. Base fares come with less just less checked luggage, no early seat assignments, and different club access features. To be clear, everyone on a base fare will be able to secure a seat assignment at any point via an ancillary purchase or for free during the check in window. These base fares allow consumers more control over their experience by choosing what services they want to include on their journey and were a tremendous success in the economy cabin with basic economy. Third, we announced that 50 A321 Coastliners are planned to join our fleet. With the Coastliner we can extend our award winning Polaris brand for the first time on all United flights from New York to Los Angeles and San Francisco. Fourth, we unveiled United's new Airbus A321XLR onboard products. These products on each XLR consistent with the Coastliner. However, we've modified certain aspects of each XLR for the unique needs of an eight hour Atlantic Cross in versus a transcontinental flight including a larger snack bar, more lavatories, more galley space and less main cabin seating density. Combined between the Coastliner and the XLR we expect to have a fleet of 100 A321s equipped with 20 lay flat beds and 12 premium plus seats. A commitment to this unique narrow body platform unmatched by others. Premium plus seats will be for the first time deployed on domestic routes at scale. Fifth to be a Premium brand, we needed to have a consistent product no matter what plane you fly on or where you're going. United redefined service to smaller communities a few years back with the CRJ550 and we've now extended that idea into what we're calling the CRJ456. We announced RelaxRoww, our latest product innovation for young families on global routes a few weeks ago. RelaxRow is a main cabin product that transforms three seats into a flat surface and includes bedding and pillows. And seventh, we said we would change Mileage plus to accelerate United's earnings. And we have members will now be awarded more miles when they fly if they hold our co branded credit card versus members who do not hold the card. We also announced discounts for redemption only available to credit card holders. All these actions will increase the value of being a Mileage plus member and holding our credit card. While we continue to work under a long term co brand contract with our partners from Chase, we're making changes to what we can control today. The due course. We expect to have a new contract optimized for all stakeholders due to the current market dynamics. Turning to our fleet, we have taken delivery of four high premium Boeing 787 9s with up to 16 more expected to be added in 2026. A total of 33 planned over the next two years. The interior of our new 789 has something for everyone and we believe further strengthens our premium brand. All of our commercial initiatives announced over the last few weeks have been years in the making, tested with countless customers and employee focus groups and and are ready for prime time. Our launch plan is Bold, quick and designed to increase customer choice, revenues and brand loyal customers. These new initiatives, plus previous initiatives like Signature Interiors and Starlink are additions expected to be largely rolled out in two years. The future is now United is now on final approach towards our product and premium vision, but it completely transformed United versus Pre pandemic for all customers. I could not be more proud of the United team that has spent countless years and hours planning these product changes. These are the type of changes and product improvements across all cabins and for all customers that we believe genuinely differentiate United. We will continue to watch the demand and pricing environment very carefully in the coming weeks and quarter to refine as necessary our approach to this rapidly changing environment. With that, I'll hand it over to Mike to discuss our results and our outlook.
Mike Luskinen (Executive Vice President and Chief Financial Officer)
Mike thanks Andrew. The first quarter has been a reminder that successfully managing an airline for the long term requires being prepared for short term shocks. We've accomplished that at United by earning brand loyal customers. That strategy has led to margins at the top end of our industry and the best balance sheet we've had in almost 30 years. The financial strength that's created reinforces our ability to make the right long term decisions. The latest challenge in our industry is the massive run up in fuel prices created by the conflict in global markets. Fuel prices remain volatile and we're monitoring the situation closely. We delivered resilient results with first quarter earnings per share of $1.19 within our initial guidance range of a dollar to $1.50 and up 31% year over year. Even with a 340 million higher fuel bill in the quarter, our pre tax margin was 3.4%, a 40 basis point expansion versus the first quarter of last year. Demand for the United product was already robust. Going into this heightened fuel environment, we believe we have the ability to pass on the increase in fuel due in large part to our brand loyal customers, continued demand strength and preference to fly United even at higher fares. In this elevated fuel environment we began to swiftly adjust capacity in addition to pulling our Tel Aviv and Dubai flights which together were 1.5 points of our capacity. These close in cancellations from low chasm markets along with significant storm related capacity reductions throughout the quarter pressured our unit costs and as a result our CASM-ex (Cost per Available Seat Mile excluding fuel) for the first quarter was up 5.9% year over year. As discussed, we are also proactively removing about 5 points of capacity for the rest of the year that we don't believe can cover the elevated cost of fuel. We expect capacity in the back half of the year to be flat to up 2%, several points lower than our original plan. That will continue to pressure our CASM-ex (Cost per Available Seat Mile excluding fuel), but we expect it will improve profitability and cash flow for the remainder of the year. This is precisely why we don't manage to CASM X but to long term profits and cash flow. Looking ahead, we expect second quarter EPS to be between $1 and $2 anchored by an all in fuel average price of approximately $4.30 per gallon for the full year. We are providing an updated and widened guidance range to encompass multiple scenarios. As we've experienced over the last two months, the world can change quickly, but in both higher and lower fuel price scenarios we expect to recapture 40 to 50% of the increased fuel cost in the second quarter, 70 to 80% in the third quarter and 85 to 100% by the fourth quarter. We expect to deliver a full year 2026 EPS in the 7 to $11 range. The demand environment to date remains strong and we expect will support a double digit increase in RASM in the second quarter and for the full year. If fuel prices remain on a downward trend we expect to be in the upper half of the guidance ranges and if fuel re escalates we expect to be in the lower half of the guidance ranges. With that said, United remains in a strong financial position. Our resilience in a high fuel price environment as well as our relative position in the industry provides further confidence in our long term target of achieving double digit pre tax margins as soon as next year. Our proactive approach to managing the network in this environment is helping us achieve this outcome. Turning to the balance sheet, we continue to march towards our goal of being investment grade in the quarter. We took actions to make further progress towards this goal and pay down more than $3.1 billion in debt unencumbering more assets by accelerating our repayment of 2 billion of our notes that were secured by our slots, gates and routes while also prepaying 400 million of near term maturity or higher cost aircraft debt. Additionally, the first quarter marked United's return to the unsecured market as we raised $2 billion across two unsecured bonds, our first unsecured issuance since 2019. The five year bonds priced at five and three eighths while the three year bonds came in under 5% at four and seven. 8. We successfully reset the credit curve for United, narrowing the gap in our credit spreads with investment grade peers to historically low levels. This was the first high yield bond issued with a coupon below 5% since Ford did it four years ago, our execution exceeded our initial expectations as the market responded with incredible demand. This is the strongest evidence yet that the buy side appreciates that we're knocking on the door of investment grade. In the first quarter we generated 2.9 billion in free cash flow. And while our free cash conversion in the near term will be pressured as fuel prices remain elevated, we remain committed to generating durable and growing free cash flow to wrap up our first quarter performance remained resilient. We are managing the business with the expectation that jet fuel remains elevated in the medium term. We're nimbly adjusting the network and cutting capacity that doesn't cover fuel costs, all while continuing to invest in our people and our hard product. As we look to the future. United is positioned to deliver stable double digit pre tax margins, strong free cash conversion and strong EPS growth on the other side of it. I'll now turn it to Christina to kick off the Q and A.
Christina Edwards (Managing Director of Investor Relations)
Thanks Mike. We will now take questions from the analyst community. Please limit yourself to one question and if absolutely needed, one related follow up question. Regina, please describe the procedure to ask a question. Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please press Star then the number one on your telephone keypad. Please hold for a moment while we assemble our queue. Our first question will come from the line of Jamie Baker with JP Morgan. Please go ahead.
Jamie Baker (Equity Analyst at JP Morgan)
Oh, hey, good morning everybody. So, Scott, you know the CNBC interview where you articulated, you know, the idea of a larger brand that would capture passenger flows that are currently flying international competitors? You know, it sounds like this is an idea that's still, you know, under development at United Airlines Holdings. But I'm curious, could you envision a world where United might operate its own hub in Europe the way that Pan Am once did? And second, do your existing partnerships with Star alliance members, do those relationships factor in at all to your thinking in this regard? I mean, I think the idea of capturing international flows is fascinating. I'm just trying to think through how you might get there and maybe consolidation is the only way.
Scott Kirby (Chief Executive Officer)
Well, thanks, Jamie. I thought you were going to get through that without saying the consolidation. You almost made it. But first, I think it's extremely unlikely that we'll open a international hub anywhere in the international. Our Star alliance partnerships are great. They enable global reach and breadth. They enable us to fly to lot, give our customers the ability to fly to lots of cities around the globe that are never going to be big enough for United Airlines on our own to fly to and usually fly miles to go to those kinds of places. And so those are all great. And really everything that I've said today, said on CNBC and Bloomberg this morning are all things that I've said in the past. I know people are now viewing it in a different light because of the rumors that came out last week. But everything that I said are things that I have said that in the past. And it really comes from, you know, we've had this vision to build a great brand loyal airline and it just worked incredibly well. Like you look at our first quarter results like with this kind of increase in fuel prices to deliver those kind of results, to be able to look through to the full year with fuel prices doubling and you know, still have reasonable confidence in $7 to $11 of earnings and stay focused on the long term. It's just, it is dramatically different here at United than it was in the past. In the past this would have been furloughing and deferring aircraft orders, cost cutting exercises and just all kinds of stuff to try to manage through the near term noise. And it's dramatically different. And we've won by winning customers in all classes of service. By the way, we invest nose to tail. Most of our investments apply to all customers. Starlink, seabec Entertainment in every seat, WI Fi, the best app in the world. They apply to every single customer on the airplane. And because that strategy has worked, I thought it would work, but it's worked even better than I thought. And you can see in our financial results, you can see it in the market share data and any in all of our hubs where we had big competitors, same things happened everywhere. It's not unique to competing with any one airline. It's happened everywhere. You can see it in the data and it's worked even better than I thought, which because it's worked even better than I thought it would, it allows us to raise the bar on ourselves and aspire to something even bigger. And I think, you know, there is this big global trade deficit in the US we compete with some really good airlines in the Middle east and Asia and they have some advantages that we don't have. And I actually haven't said what it takes to do it. And I don't even know the answer. Anything that it might be an answer comes with complications. And there's no, no certainty that any of them get there on their own. But it's an aspiration that we have at United. I've certainly talked about it and hinted at it, at least in the past. It is an aspiration that I think United uniquely is in a position to take a run at Dream big. That's the way we accomplish big things.
Jamie Baker (Equity Analyst at JP Morgan)
Okay. And for my quasi related follow up, you know, it's on the tape that the administration is readying a $500 million rescue package for Spirit. You know, I've been with you for the last couple of years in terms of permanent and irreversible structural change. But how does the industry continue to evolve if the government chooses to prop up failing businesses whose failures have nothing to do with fuel?
Scott Kirby (Chief Executive Officer)
Yeah, well, first, I don't know what's going to happen there. And I think that we're proving right now that well run airlines like United Airlines can even be profitable and certainly don't need bailouts in a time like this. And to your point, you know, Spirit is. I feel bad for the people of Spirit, but it's been pretty obvious that Spirit's business model was fundamentally flawed and the airline was not going to be able to make it or ever cover their cash operating costs. So I hope that doesn't happen. But if it does, we're going to keep focused on winning brand loyal airlines for brand loyal customers. For us, I don't think that this is nearly as big a deal as for others that are in the more commoditized space. If I was working at one of the airlines that deployed dependent on more commoditized travel, I'd be irate probably about this. But for us, like, I think, you know, we've so distanced ourselves from the rest of the industry that, you know, I don't, I think it's a policy, but I don't think it's going to have. Whether Spirit fails or keeps flying. I don't think it has much effect on United one way or another, to be honest. That's great, Scott.
Connor Cunningham (Equity Analyst at Melius Research)
Thanks for the color. Yep. Our next question will come from the line of Connor Cunningham with Melius Research. Please go ahead.
Scott Kirby (Chief Executive Officer)
Hi, everyone. Thank you, man. I'm pretty happy that I don't need to ask the Spirit question. In a world where fuel remains elevated for a long period of time. Just curious on how that changes your management style of a hub or just like your general view on profitability to the overall system, I assume you're refreshing that analysis for yourself all the time. Are you doing that for your competitors as well as you look for opportunities more broadly?
Connor Cunningham (Equity Analyst at Melius Research)
Thank you. Yeah, I think the answer is affirmative on all the above. We look at this daily, weekly, quarterly, monthly, you name it. As fuel prices go higher, the question is how will demand react? And at this point we can tell you that the price increases are going well and demand hanging in there really strong. What we've done is proactively canceled flights, particularly on off peak days and off peak times, expecting that there could be some demand weakness in those channels. We'll see. So we think we're ahead of the curve here and we'll continue to watch it and monitor it. But so far so good and demand is hanging in perfect. And then maybe just on the demand destruction commentary a little bit, I'm trying to unpack it a little bit because in the past you've talked about demand being somewhat inelastic to price and I realize you're not seeing it fall off now, but there's a lot of speculation that may happen. So as you run your scenarios, can you just talk a little bit about how you expect premium, maybe the business traveler to change or. I assume that the demand destruction really comes from the leisure side of the equation. So if you could just talk about how the scenarios kind of play out within your 2026 guidance. Thank you.
Scott Kirby (Chief Executive Officer)
I think we're a bit in uncharted territory. I think we can tell you right now that all types of customers remain particularly strong. Like just in the last week or so, our yields are now up 20% year over year. But even more importantly, the business part of our business, business traffic is over the last two weeks up 25%, business revenue up 25% and that's accelerated from up 16% in quarter one and 9% late last year. So these price points are being absorbed and passed through and volumes are increasing. And for United, you'll recall we had the unique headwind last year related to Newark, which we're going to lap in about 10 days, I believe. So it'll create easier comps for at least United and maybe harder comps for others. But the numbers look really fantastic over the last few weeks. Now we'll have to keep watching it, particularly as summer ends. And like, you know, in order to maintain these type of yields at United, I felt like we needed less capacity on Tuesdays, Wednesdays and Saturdays and off the times. And we've done that. But look, business traffic is strong. Leisure traffic is bouncing in the mid single digits right now, which I think I'm happy with. And so we'll continue to watch it. It is uncharted territory given the massive amount of changes we've done. But you know, we've had five broadly successful price increases and right now we are passing on, you know, yields that are up 20% year over year.
Mike Luskinen (Executive Vice President and Chief Financial Officer)
Hey, Connor, this is Mike. I just want to pile on because you asked about the guidance policy. We've long had a guidance of building in an act of God into the guidance. And so we, you know, what you're hearing from Andrew, what you're hearing from Scott, there's nothing in our bookings that suggests there's demand destruction. But I believe it's prudent to be prepared for that. But we are not seeing it. We're hopeful that we won't see it. The economy seems robust. The stock market is indicating the economy is robust. And it may be that that is an act of God we did not need to be prepared for. But that is our policy and we need to be prepared for lots of stu scenarios. Great, thank you guys.
Ravi Shanker (Equity Analyst at Morgan Stanley)
Next question will come from the line of Ravi Shanker with Morgan Stanley. Please go ahead. Great, thanks. Morning everyone. Just on fuel, it appears the debate appears to be moving from fuel inflation to fuel availability. Just trying to get a sense of what kind of visibility you guys might have, especially out in Asia or Europe regarding potential fuel shortages and what the plan B might be in that case.
Mike Luskinen (Executive Vice President and Chief Financial Officer)
Hi Ravi, It's a great question. We've got really good visibility for four or five weeks. And you are right to say that this issue is centered on Europe and Asia. It's much less of an issue in the US we don't see a lack of availability being an issue at all in the US It's a price issue. However, even in Europe and Asia as we sit here today, we think it is a price issue, not an availability issue. We think that as prices rise and you're seeing the price of jet rise much more than the price of Brent as crack spreads widen out. And so we think that price is going to be a rationing function that means there will not be spot outages. But we're watching it closely. The longer the market remains closed, the more that is of risk. And it is of risk in the regions you noted, Asia and Europe, not so much the U.S. great, that's very helpful.
Ravi Shanker (Equity Analyst at Morgan Stanley)
Color Mike, and maybe as a quick follow up, Scott, your first response. You said that you compete with some really good airlines in the Middle East. Obviously they're having a little bit of an issue right now. Do you see any structural share gain opportunities in transatlantic or even longer haul from some of those challenges or vice versa? Do you expect them to be aggressive when the situation settles down?
Scott Kirby (Chief Executive Officer)
I think it's temporary. And I think you look like what Dubai, not just Emirates, but Dubai you know, the city state of Dubai have accomplished is remarkable and impressive. And if I had to make a bet, I'd bet on Dubai. I think it's going to come back fully. Won't come back immediately. It's temporary but we'll come back fully.
Ravi Shanker (Equity Analyst at Morgan Stanley)
Very helpful, thank you.
Scott Group (Equity Analyst)
Our next question comes from the line of Scott Group with Wolff Research. Please go ahead. Hey, thanks. Good morning. So Scott, maybe this is a naive question, but why does the industry need a crisis to start pushing through such higher yields? Why can't we do it more sustainably? And then maybe just that point, I'll lump it all into like one question. When I take your 10% pre tax margin for next year, it sort of gets you to roughly $18 of earnings.
Scott Kirby (Chief Executive Officer)
I know you don't want to get into specifics but just at a high level, you know, as fuel hopefully starts to normalize lower, do you assume you hold on to this higher yield or do we have to give some of that back? So actually I'll answer that first question, the second one. I've watched this for at least 25 years now and I've come to the conclusion that. I guess I'll start with the conclusion every airline CEO should have to have spent two years at a reasonably senior position in revenue management. Understand it and it's core. Most of them haven't. That's the reason it's harder to get fares up. And I think what happens at airlines is the, you know, analysts and that are really smart that run revenue management. I'm looking at one of them in the room. Sorry to call you a geek, Dave. He's awesome. But I'm one of them too know that air travel demand is inelastic and, and that there's room to, to price more appropriately for our cost of capital and to return our cost capital. But the people in marketing and government affairs are better at telling the CEO oh you know, like that's a bad message. And so they're much better communicators to CEOs. And so the pressure internally in the organization is really hard to raise fares. It's even crazy right now you have a couple of airlines that are raising fares like crazy and then they run a fair sale every week. Like just the marketing team disconnected from the revenue management team and marketing team are better marketers and so they tend to win is really what happens. So you see it in a crisis and by the way, like another like sure bet, almost sure bet is in late October, November every year there's going to be Fare increases. And I eventually figured this out 20, 25 years ago that in October the teams finished the budget and they rolled up to the CEO and the CFO who pound the table and say that's an unacceptable result. And they say go raise fares, which they do. But it takes, that's not exactly a crisis, but it takes something like that. And it's goofy to me that that's the way it happens. It's nonsensical. But I actually think that's the reason that it happens. And I thought that for a long time and a crisis caused it to go up more. Now, as to the question of does this hold next year, I actually that this, you know, a situation like this at least has the potential to be different and for pricing to hold more first, like as I said earlier, I think or I said somewhere today, everywhere I've talked that airfares in real terms are down 27%, 20, 25 versus pre pandemic. And that had put a bunch of airlines, you know, either losing a lot of money or, you know, sort of break even really kind of only a couple of airlines returning their cost of capital. And everyone has to eventually return your cost of capital. And so I think it is more likely than not this time. And certainly the longer this lasts, the higher the probability goes that the pricing increases hold. You know, like we probably won't hold 100% if we'll normalize this. I told the team earlier today and it's just my guess that if things went, you know, back to normal, back to what, you know, mid February normal, I think we get keep 20% of the price increase next year and I think that's going to move towards 80% and every day it's ticking up the longer this, this goes on. So we're not going to give guidance for next year, but I do think that will be double digit margins next year. And your analysis is not unreasonable.
Brandon Oglinski (Equity Analyst at Barclays)
Our next question will come from the line of Brandon Oglinski with Barclays. Please go ahead.
Scott Kirby (Chief Executive Officer)
Hey, good morning and thanks for taking the question. Scott, I'm wondering if you could elaborate on, you know, winning brand loyal share and specifically as it equates to your Chicago o' Hare hub, especially now that there's, you know, proposed FAA summer cap on operations there. I guess A, how are you, you know, faring versus your competitor and then B, how do you anticipate complying with that? Thank you. So I'm answering more questions today than I like, but I'll do it in Chicago. We're still reviewing the order. But it does appear that we're not going to get to grow as much as we and our customers would like. But the real point is one, you make like we've won brand loyal share here in Chicago and it's never been about the number of flights or the number of gates, number of gates and flights where the output of what was happening with brand loyal customers. And we have by far the best technology, we have by far the best service, the best reliability are the best product. And customers have overwhelmingly voted. This isn't unique to Chicago Valley. This happened in all of our hubs. Customers in all of our hubs have voted overwhelmingly for United. We got three big hubs where we have three different big competitors, each of which we've won about 20 points of market share here in Chicago. We've actually won 38 points of market share with business travelers. So customers care about quality, quality really matters and we give great value to all customers. And so the brand loyal customers have switched. And absolutely nothing about that changes here in Chicago. But it does look like the FAA is going to, you know, not let us grow as much as we and our customers would have liked. And I wish we could grow more, but we can't. We've got other places we can grow and I look forward to someday being able to grow more here. But nothing changes about the sort of structure here in Chicago and the decade that we've spent winning brand loyal customers by creating a great airline for them.
Andrew Dodora (Equity Analyst at Bank of America)
Our next question will come from the line of Andrew Dodora with Bank of America. Please go ahead.
Mike Luskinen (Executive Vice President and Chief Financial Officer)
Hi, good morning everyone. Maybe changing gears a little bit. Throw this one out for Mike. Just diving into cost a little bit more on the maintenance side. Just trying to think about how this kind of trends. I know it can be lumpy throughout the year, but particularly as it trends as you cut five points of capacity throughout the rest of the year, I would think you get some leverage on the maintenance side. Or am I not thinking about that the right way? And just from a long term maintenance cost perspective, is this something we should think about growing maybe a couple points more than your capacity growth? Just curious on that line item. Thanks. Thanks Andrew for the question and I'll make a few points. Firstly, you should broadly expect our CASM X trends to move inversely with the amount of capacity that we take out. I think that's maybe obvious, but that's what happened in Q1. That's what you should expect for the remainder of the year. Number two, the sooner you take out flights, the further out those flights are, the more more you can variableize the cost. There's no doubt about that. But at United we're winning brand loyal customers by investing in this business. And nothing about this crisis is long term. And so you can expect us to continue to invest in the business. The final point I'll make you made about around maintenance. I think at United we have some unique opportunities to fight that trend where maintenance cost is expanding as a percentage of our costs. Part of that is gauge, but part of that is what we're doing in global procurement and how we are working with the great tech ops team that we have. So I'm very optimistic we will not face that same trend that much of the industry faces. Got it. Thank you for that. And then my second question. Certainly seems like you were busy at the start of the year on the balance sheet, but just on the buyback you had stepped it up this time last year and all the market volatility. But one Q this year very similar last few quarters. Just curious your thoughts on how you thought about the buyback. Thank you. Look, I think it's a great question and it's valid, but we have two objectives with our buyback in our capital management. Number one, we are committed, absolutely committed to getting to investment grade. And so we need to balance our buyback and our opportunism around buying shares when they're below intrinsic value with our commitment to getting investment grade. And so what you saw in the first quarter was another example of how we're balancing that. Really proud of the team for what we did with the two unsecured offerings. And I just want to reiterate that we are going to get to investment grade in all scenarios.
Sheila Kayalu (Equity Analyst at Jefferies)
Our next question will come from the line of Sheila Kayalu with Jefferies. Please go ahead. Thank you and good morning. Scott and Mike. Maybe another question for the revenue management geeks out there. You know, you're removing five points of planned capacity through the end of the year. You know, how do you think about what range fuel would need to settle in for United to return to that mid single digit capacity growth in the second half? And how do you think about irrational capacity coming back online and how do you manage cost in that environment as well as you continue to invest?
Scott Kirby (Chief Executive Officer)
That's a lot of questions. Sorry. Just pick one. It's okay. Look, I think we're going to watch demand really carefully. You know, we know how price is created in the business and we've cut this off peak capacity because we want to make sure that we can sustain these type of yield increases that we see right now and we'll continue to watch demand and you know, we're going to manage the business to hit the financial targets and margins that we have out there. And so you know, if, if we can do that with more capacity, we'll gladly bring it back online. But you know, where we are today would just end. You know, the economic lesson that Scott gave you at the opening would say that there should be some level of demand reduction related to a 20% bear increase. We haven't seen it yet and if we don't, you know, a really great outcome, but we're planning for that. If it doesn't turn out to be the case, we'll appropriately adjust our plans.
Tom Fitzgerald (Equity Analyst at TD Cowen)
Our next question will come from the line of Tom Fitzgerald with TD Cowan. Please go ahead everyone.
Andrew Nicella (Executive Vice President and Chief Commercial Officer)
Thanks very much for the time. Just want to ask a multi part question of Andrew about the commercial initiatives. If we bucket them into maybe merchandising fleet and mileage plus, would you mind just walking us through the margin uplift you're kind of contemplating over the longer term from some of these initiatives that they pan out like just in terms of thinking putting some of those, you know, those Airbus aircraft on those routes, like how they compare to the aircraft they're replacing, things like that. Thanks very much for the time. Yeah, I'll keep it really high level but and I'm glad you asked the question because the current conditions are super interesting. But you know, we've been working literally years on the seven initiatives that I had in my script earlier and we are really proud of all of them. We think all of them material. But properly merchandising our products and being able to sell them like we're unable to sell certain products is valued in hundreds of millions of dollars per year and the new aircraft we bring on that are optimally configured for the premium demand that we're seeing is also a gigantic number. I'm going to avoid assigning values to each of them individually. Maybe we'll do an investor day someday where we can talk about it in more detail. But all of those initiatives, and there are seven of them and they're really all seven of them are very, very significant, are about setting our future up to reach not only double digit margins but ultimately mid teen margins as we've talked about and we are well on our way. We've got it dialed in. We've I think figured this recipe out. We've segmented really effectively and we're not done is also what I would Tell you we have other ideas in the works and plan another media day next year to talk about them because we're really proud of all this and this RM stuff, the segmentation stuff, the willingness to pay, all of it, giving customers in all cabins more choices is incredibly effective and we're winning share all the time. So, you know, hopefully that answers your question appropriately. But I'm going to say it's just really materially significant to lay the proper foundation for the future.
Michael Linenburg (Equity Analyst at Deutsche Bank)
Our next question will come from the line of Michael Linenburg with Deutsche Bank. Please go ahead. Oh, yeah, I just one question here just on revenue recapture. I mean, thanks for outlining the progression through the year. What gives you confidence that you're going to get to 100% and do you actually need maybe outside help? You know, whether it's other carriers cutting capacity and maybe just give us a
Scott Kirby (Chief Executive Officer)
sense of how you recovered Russia, Ukraine, how quickly you were able to recover it back in 2022 when we had the last major fuel spike. Thanks. I'm not going to count on other airlines for anything, that's for sure. But from our perspective, the fact that we've already gotten to a 20% yield increase and you know, what we've done is we've cut off the capacity to make sure that we can sustain these higher yields. I feel really confident and I would say, look, before this fuel situation happened, I would tell you fuel is a pass through. And so I feel really confident we're passing it through. Demand is hanging in there. We've made the appropriate capacity adjustments for United to make sure that we can get to full recovery by the end of the year. And we're well on our way already between 40 and 50%. But the most optimistic thing is the fact that within a matter of seven or eight weeks we went from yields being up 2 to 3% to yields being up 18 to 20%. It's pretty darn remarkable. Mike. The underlying point is that for a growing portion of our customer base, this is a decommoditized business. The brand loyalty, United, you get it, you get a better experience, you get better value. And I think that the results speak for themselves.
John Gauden (Equity Analyst at Citigroup)
Great. Thanks, everyone. Our next question will come from the line of John Gauden with Citigroup. Please go ahead, John. Your line might be on mute.
Scott Kirby (Chief Executive Officer)
Thanks. Thanks for taking my question here. I wanted to just follow up on the field pass through. I think that commentary and that guidance was if we could maybe get a little bit of geographic color, kind of how pass throughs are evolving in Your opinion internationally versus in the domestic market. The capacity trends are very different. The fuel surcharge activity is very different. The hedging of the competitors is different. Maybe a little bit of color there would be helpful. Look, I think the color I would add is I thought that the domestic would be quicker to move than international and I was wrong. The international environment price, well, both are strong. I want to be really clear, but the international environment is actually better than domestic, that the price increases have been more substantial and are covering more of the fuel burden than they are domestically. And I think that's really remarkable. I think there's been changes in the overseas pricing behavior that have actually surprise me quite frankly given, given that I don't every detail but given what I know about the industry. So I'm really pleased with that and I do think, you know, these fares are going to be up and as Scott said, depending on how long this lasts, the longer it lasts, the higher they'll be up and the longer it'll stick in my opinion. But the international environment is better than the domestic environment at this point. John, I can't help myself. But you mentioned hedging by foreign carriers if they hedged. Brent, they're not hedging jet fuel. The biggest portion of the move in jet fuel has been crack spreads. So I think this experience has proven once again that hedging is a poor policy.
John Gauden (Equity Analyst at Citigroup)
That's great color guys. And if I could just follow up one more on the pass through through the end of the year it sounds like the assumptions embedded in that are status quo. Like you're not expecting all the other carriers to flash capacity or something like that driving your pass through. Is it safe to say that? Or are there other kind of industry dynamics that you're looking for to kind of drive 100% pass through by the
Chris Weatherby (Equity Analyst at Wells Fargo)
end of the year? Look, I can't speak for other airlines. We've engaged in self help. We know what it takes to pass on these price increases by what we're going to fly and we're out here to hit our financial targets and hit a double digit margin next year as Scott said. So I don't know what the goals and motivations and missions of the other airlines are. I won't speak for them, but that's ours and we're going to manage our capacity to achieve our goals independent of what the industry does. Our next question will come from the line of Chris Weatherby with Wells Fargo, Please go ahead.
Scott Kirby (Chief Executive Officer)
Hey, thanks. Good morning. Maybe just sort of sticking on this theme of the Fuel pass through and ultimately retention rates. You talked about holding on to 20 and maybe that going to 80 over time. Just want to understand the mechanism behind that. Is it just simply duration? Is it the sort of competitive actions around capacity that others take? Is it other price actions you could use like bag fees or other ancillaries that kind of stick even when fuel prices come down? I just want to understand that dynamic of how you can hold on for longer. Well, I think the longer the price of fuel remains in this range and the longer consumers pay these prices and airlines get used to this revenue stream, the more likely it is to stick. That's the simple perspective on it. I do think that international is running really well above domestic, as I said a few minutes ago. So it'll be interesting to see if that normalizes. But you know, the environment right now, you know, I think airlines want to return their cost of capital and particularly here in the United States, most don't. And that is unsustainable in the long run. So something had to change. It's unfortunate it had to be an oil crisis, but here we are.
Dwayne Finnentworth (Equity Analyst at Evercore ISI)
Our next question will come from the line of Dwayne Finnentworth with Evercore isi. Please go ahead.
Andrew Nicella (Executive Vice President and Chief Commercial Officer)
Hey, thanks. Just on the mileage plan changes, which seemed like they were motivated to get more people to sign up. Can you speak to the changes you're seeing in credit card update since you've made those? And I wonder if you could give us your current thinking about the timeline for a new comprehensive agreement. Look, you know, we, we've been working on the mileage plus changes for well over a year. You know, we thought we would engage in whatever activities we could control outside of a new contract. And the numbers, the uplift, the spend has been incredible. We're really, really happy with that. Let's, let's, you know, it's really new. So hopefully in a few quarters I can still describe it as incredible. I expect I will be able to do so. But these are changes that I think are really motivating for our frequent flyers. And we're at a record penetration rate of cardholders that are premier members at United. So I'm really happy with it. I think the details regarding our deal with Chase are largely confidential, but I think you can Google the expiration date and know that it's not tomorrow, but it's not that far off. And we're working with Chase. They're a great partner and run a really sophisticated program which is required by United given the size and magnitude of our Co brand portfolio. Look forward to what the future brings.
Michael Goldie (Equity Analyst at VMO Capital Markets)
Thank you. Our next question will come from the line of Michael Goldie with VMO Capital Markets. Please go ahead. Good morning and thank you for the question. By the end of the year, your aircraft count will be up some 8%. How do you think about the operating leverage of these assets in a recovery versus the decremental drag if flight activity remains constrained? And then related, how are you thinking about managing labor requirements as you take on this new equipment while managing capacity? Thank you, Michael.
Mike Luskinen (Executive Vice President and Chief Financial Officer)
I'll take the fleet question and I'll try to answer the labor question. In an elevated fuel environment, it only exacerbates the advantage of new fuel efficient equipment versus older equipment. And so you can see in our fleet plan, we expect to continue to take delivery. We're really pleased with Boeing increasing production rates on the narrow body. They've been a great partner to us. It is financially advantageous to take the new aircraft both from a margin and a return on invested capital standpoint. So you will see that now the other end of the spectrum are older aircraft. There's an opportunity to fly those aircraft in a, in a capital efficient way by managing the maintenance at the end of the life to maximize, to maximize the value we get out of those aircraft. You can bring the utilization down, have extra spares and have additional flexibility to fly the golden hour and to manage peaks. So I think we're in an enviable position from a fleet standpoint. You shouldn't see us change anything when it comes to managing labor and labor efficiency around that fleet. We've got a very sophisticated team and we make sure we are hired across all work groups at the appropriate level to make sure that we're managing. You know, while we invest in the customer, we're investing in the hard product, we're investing in our people. We need to make sure that we manage the workforce very efficiently. And I think we do that very, very well here at United.
Regina (Moderator)
And we will now switch to the media portion of the call. To ask a question, press Star, then the number one on your telephone keypad. Please hold for a moment while we assemble our queue. Our first question will come from the line of Leslie Josephs with cnbc. Please go ahead. Hi, good morning everyone. Just on the spirit. Potential bailout, I guess at this point. Looks like the administration is moving toward that. One, what's your comment on that? And two, does that change any of your assumptions for capacity or do you think there's going to be more capacity than you expected out in the market just because there was a liquidation risk earlier this year, recent weeks and then second just had a demand question if there's any geography where you are seeing a pullback. I think you mentioned that International was a bit stronger than domestic at least on yield. So curious if there's been any softness in any area.
Leslie Josephs (Reporter)
Thanks. Hey Leslie, I'll briefly I just said earlier in the call you may not have been on it's more fulsome answer I suppose. But in brief on Spirit well run airlines are still solidly profitable even in this environment as you can see from United. I don't think this crisis is anywhere near big enough to cause the need for an airline bailout. And you know my record, you got lots of quotes from me over the past several years going back into the last administration that the Spirit business model is fundamentally flawed and it's going to fail. I feel bad for the people. A lot of them will land jobs of the airlines every, every time that we have a new hire pilot class I go talk to them, I ask where people are from and there's a lot of spirit hands that get raised in the room but I don't think it's necessary. I also don't think it's terribly relevant to a brand loyal airline one way or another like United
Scott Kirby (Chief Executive Officer)
on demand. Look, putting the Middle east aside, we're seeing strength everywhere. But you know what I'll point out is we're really seeing strength in premium cabins going forward into Q2, particularly across the Pacific and across the Atlantic. We're keying up to I think a really strong performance and United had already gone into this summer season with a pretty conservative global long haul capacity number I think actually down year over year. So I think we're actually really set up to produce some very good numbers and we have very good business demand going into the Plourish cabins is my answer
Christina Edwards (Managing Director of Investor Relations)
and I will now turn the call back over to Christina Edwards for closing comments. Thanks Regina. As always, we don't control the environment but we do control how we perform in it. I appreciate your interest today and we will see you next quarter. Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.
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