Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the Fourth Quarter and Full Year 2022. My name is Candice, and I’ll be your conference facilitator today. Following the initial remarks from management, we will open the lines 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 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, Kristina Munoz, Director of Investor Relations. Please go ahead.

Thank you, Candice. Good morning, everyone, and welcome to United’s fourth quarter and full year 2022 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday’s release and the remarks made during the 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 this call. Please refer to related definitions and reconciliations in our press release. For reconciliation of these non-GAAP measures to 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; Executive Vice President and Chief Operations Officer, Toby Enqvist; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on the line to assist with Q&A. And now, I’d like to turn the call over to Scott.

Well, thanks, Kristina, and good morning, everyone. Before we do our normal [Technical Difficulty] walk you through a short deck that explains the intellectual rationale of what we’re[Technical Difficulty] and where we think the industry is headed over a longer term horizon. In short, we think there’s ample evidence that there really have been structural changes in the airline industry that set the entire industry up for higher margins than we had pre-pandemic. First, while the specific to the demand environment will be different, we expect it to return to at least [Technical Difficulty] it could go higher. Second, we believe cost convergence among all airlines as well as supply challenges may drive structurally higher industry margins. And finally, United has been pretty accurate about the macro outlooks, impact of COVID, and what the recovery would look like going all the way back to February 29, 2020. And based on that, United really did take a different and unique approach to the recovery. At the onset of the pandemic, we acted first, and we acted more aggressively than anyone else to protect our airline and the jobs of the people who work at United. At the time, in fact, some said that we were overreacting and that the pandemic wouldn’t be so bad. But by confronting that reality and acting quickly, our leadership team was able to be the first airline to move forward turning crisis into opportunity and began making plans for big investments in United’s futures, while others frankly were still in crisis response mode. It clearly had a head start and planning for the recovery, and you’re already seeing it in both our absolute results as we’ve achieved our 9% adjusted pre-tax margin ahead of schedule, and in our relative margin results compared to the rest of…

Thanks, Scott, and hello to everyone tuning in today. I first want to thank our employees for their exceptional performance over the holidays. We faced a really challenging operating environment that included some of the busiest days of the year and historical cold weather across most of our hubs and line station. While you wouldn’t know it from the holiday travel headlines, United was actually the most impacted airline from a weather perspective. 36% of all our flights were exposed [Technical Difficulty] 21st, and 26th, more than any other airline in the country. And even though our load factor was already high, we accommodated thousands of additional customers on short notice when their travel on other airlines was disrupted. Despite these headwinds over the holidays, our team connected 90% of our customers within four hours of their planned arrival and served more than 8 million people, 1 million more than we did last year. And our operation performed very well, especially because there were these tough conditions. United was among the airlines with the fewest cancellations during the holidays and we were number one in completion in Denver, San Francisco, Houston and Washington, and Dallas. And we practically eliminated all crew related challenges and cancellations compared to the 2021 holiday period. So, how did we do this? The answer lies in all the planning and investment we made during the depths of the pandemic. Instead of just trying to run the airline like we did in 2019, we worked over the last three years to prepare for a different, more complex operating environment and a sudden surge in travel demand. To prepare specifically for the 2022 holiday period, we’ve purposely built some slack in the schedule and reduced how often we fly during peak times. We accelerated our hiring and…

Thanks Toby. TRASM for the fourth quarter finished up 25.8% and PRASM up 24.6% versus the same period in 2019, a 9.5% less capacity, which was similar performance to United’s third quarter results and above the high end of our TRASM guidance for the quarter. TRASM growth for non-passenger revenue continued to outpace PRASM and Q4, although that will reverse in 2023. The reversal is due to cargo revenue decline in year-over-year to new post pandemic run rate that remained well above 2019 and co-brand credit card revenue growing slower relative to our rate of ASM growth for the year. PRASM in Q4 was strong across all parts of the network versus ‘19 with domestic results up 23%, Latin up 30%, Europe 11% and Pacific up 42%. International capacity in the quarter was down 12% and domestic was down 8%. Looking back at our revenue performance for all of 2022, our overall TRASM performance comparing to ‘19 was up 19.5%, about 6 points better than our expectation for the rest of the industry on average at this point and 3 points better than our network competitors during the same time period. To meet our overall 2023 outlook, we are expecting flattish TRASM for the year versus 2022. The impact of cargo and other revenues on TRASM in ‘23 is a negative 2 to 3 points year-over-year, implying PRASM up about 2 to 3 points in our outlook. As we think about the revenue outlook for 2023, we are bullish about global long-haul. We expect industry capacity across both the Atlantic and Pacific. The United is the largest carrier to be flattish versus 2019, which provides for an easy setup and positive RASM year-over-year. International demand remains incredibly strong, and we are looking at the potential for record profits and margins…

Thanks, Andrew, and thank you to the whole United team for closing out the year strong. With adjusted pretax income of $1.1 billion, we came in ahead of our fourth quarter expectations and not only returned to pre-pandemic levels of profitability, but actually exceeded the fourth quarter of 2019 on both an operating and pretax margin basis. Even more encouraging in the second half of 2022, we achieved an adjusted pretax margin of 9%, which matches our margin target for 2023 and puts us well on our way for that same success this year. Turning to costs. Our CASM ex performance in the second half of 2022 meaningfully improved versus the start of the year. As I mentioned last quarter, a big driver of this success is the return of the grounded 777 to flying and further improvement in our operational reliability. As we know, a well-run operation is a more cost-efficient operation. Looking ahead, we expect first quarter 2023 CASM-ex to be down between 3% and 4% with capacity up 20% versus the first quarter of 2022. On a full year basis, we expect 2023 CASM-ex to be about flat with capacity up high-teens versus 2022. This full year cost outlook is inclusive of investments in the system that support operational reliability, our current expectations for new labor increases, representing about 4.5 points of CASM-ex, excluding any possible signing bonuses, and a higher inflation outlook for all parts of the business. On the first point, one lesson learned during the pandemic recovery is that it is both economical and profit maximizing to provide cushion to our aircraft utilization. Instead of pushing utilization to its theoretical limit, we are focused on protecting our reliable operation. This minimizes delays and cancellations, which would otherwise drive higher costs such as overtime and…

Thank you, Gerry. We will now take questions from the analyst community. Please limit yourself to one question and if needed, one follow-up question. Candice, please describe the procedure to ask the question.

[Operator Instructions] The first question comes from Conor Cunningham from Melius Research.

There’s been some pushback just on the 2023 jet fuel guide and just trying to get comfortable with the link between cost and revenue. So, RASM is the highest it’s basically ever been. And even with the capacity constraints out there, industry capacity is now being added. So, what gives you the confidence that you might pass along additional cost headwinds on to customers in the current environment?

Hey. Conor, let me provide a little bit of color on that and maybe Andrew will as well. But first of all, we -- when we provide our fuel guidance, we did this quarter, what we always do, which is we look at the forward curve about a week ahead of the release. So last week -- those numbers, as you know, can change daily. In fact, if we had run it more recently, we would have put out fuel numbers potentially $0.10 to $0.15 higher. All things being equal, that would represent about 1 point of margin, but we are -- we continue to remain confident that there is the correlation between revenue and fuel that we’ve seen historically. For the first quarter, near term, we don’t have quite the same ability that we would have during the full year. But even for the first quarter, we still have February, March and fuel will change daily. And for the full year, we’re still comfortable that there is this correlation. And in fact, had we put a higher fuel number -- and there probably would have been a different revenue number. But let me just give you an example that gives me some comfort. But keep in mind that for the back half of 2022, where we achieved 9% margin, fuel was $3.68. So, we do have a lot of cushion. And I don’t know if Andrew has any additional color.

No, I think you covered it really well, Gerry. The -- we absolutely still do believe and have seen constantly over time that fuel is a pass-through on both, the up and the down. And the other thing I can tell you is, as we look at our advanced booking particularly starting in the mid-February time period out well beyond that and into Q2 we’re in a really good, strong supply-demand equation that’s allowing our RM systems to actively work to do what they do best. So, I feel really confident about the outlook.

Okay. And then just on the United Next plan. So when you guys talked about that originally, it was all about leading on costs, and I realize the environment has changed a lot since then. But, as you start to look at the cost structure that includes labor and so on, is your expectation that this -- like that United becomes a cost story again going forward -- in the post-2023 world, going forward. Thank you.

Well, Conor, there’s no question there’s been an industry reset on costs, and I think Scott did a nice job sort of describing that and the cost convergence ahead. For us, if you just look at our guidance we put out about six months ago for 2023, there’s been movement. There’s no question, probably about 9 points. 3 points of that is just the capacity difference between what we thought 6 months ago versus what we’re thinking today. Another 3 points in the labor numbers we put in, the rest is inflation and buffers. But what’s important for the United Next plan is the relative cost story, which remains very intact. So, whether it’s the mainline gauge benefit we’re seeing -- we will see from all the additional aircraft or less reliance on single-class 50-seat aircraft that have come out and will continue to come out of the operation. We’re very comfortable in the United Next cost story as it’s been adjusted for the industry cost impact.

Our next question is from Catie O’Brien from Goldman Sachs. Catie O’Brien: Maybe just coming at the revenue question a little differently, maybe for Scott or whoever else wants to answer. How do you think about getting back to airline revenue as a percentage of GDP? I think that makes a lot of sense conceptually. But, do you think the industry gets there on pricing if volume versus GDP is lower given the capacity constraints we talked about?

Well, I mean, if you go back and look at history, while load factors have gone up a little, I wouldn’t expect a lot of change in load factor. And if you went back a few years, pricing in real terms was higher [Indiscernible] it remains a great value. I mean, air travel prices are probably 50% lower than they were about 30 years ago in real terms. And you can still frequently pay more for your Uber to the airport than you do for your airline ticket to Florida. And so, I think -- but I think that what this means is the era of $4 prices from Los Angeles to Cabo and $7 from New York to Florida or $9 from Houston to Central America are probably a thing of the past. And cost convergence -- it’s up to other airlines to decide how to price the product. But I’m pretty sure it’s not upto them what’s happening to their cost structure. And as that is changing, we see it happening already. It is what happened last year. It’s what changed last year. We see that continuing, to Andrew’s earlier point, too, I look at the data as well and following our revenue management team is doing a great job. But the yield curve for February is higher than January. The yield curve for March is higher than February. And the yield curve for the second quarter is higher than March. And by the way, bookings are ahead in all periods. So, I think it’s a structural reset. I think it is the investor store or aviation, I think it’s good for everyone. I think it’s particularly good for airlines like United that have the sophistication, the technology, the infrastructure to operate in this more challenging environment. But it’s good for everyone. And it’s just a structural reset that’s reversing what happened over the past couple of decades, at least a possibility of it. I think it’s likely, but we’ll see it at least a possibility. Catie O’Brien: Thanks so much for that color. And live in New York, can definitely confirm on the Uber versus the airfare of late, so somewhere there. And obviously, a lot has changed, as we just talked about since the original United Next plan, particularly how the capacity bottlenecks we’ve been talking about have played out. How should we think about capacity growth over the next couple of years? Are you still targeting to be about 40% bigger in 2026 based on that 4% to 6% CAGR or help us reset the bar? Thanks so much.

I’ll try that. I don’t think we’re going to reset the bar here. Obviously, this is really dynamic. And the OEM delivery delays, both on engines and aircraft have been really unprecedented. So, we’re not going to reguide today to what 2026 looks like, other than we’re plotting our course in very bumpy skies when it comes to the availability of aircraft. And there’s not a quarter that goes by where I don’t get an update with obviously disappointing results from what our outlook looks like for aircraft deliveries. So, we’ll continue to monitor that. And at the appropriate point in time, we’ll update the guidance.

I think, the important point is we have real confidence in achieving our 14% margin under sort of all the plausible scenarios for aircraft deliveries.

Next, we have Jamie Baker from JP Morgan.

Gerry, a question on the labor cost assumptions, the pilots in the 4.5-point headwind. Do you expect the pilot economics to be backdated to January 1st, or are you using some other date? And also related to this, the EPS guide, do you also consider Delta’s profit-sharing formula to be market?

Jamie, nice question, but neither one of those we’re going to be able to talk about on the call. You’re asking for too much information regarding potential negotiations.

Okay. Second question for Scott then. On the topic of cost convergence, I think you said that the ability for discounters to maintain a significant wage arbitrage is narrowing or impaired. I didn’t quite get your language. But if we look at the Spirit and JetBlue TAs, yes, they’re incrementally expensive, but the resulting wage advantage to, let’s just go with Delta here. It’s still pretty much the same. So, were you implying that the arbitrage has to narrow even more, or did I misunderstand?

I’m saying, not implying, that I don’t think a world where they pay meaningfully less and still hire and successfully fly and complete their schedules. I think that’s an offset. I don’t think they can do it. And one of the other ULCCs has really been struggling this year with a completion factor, which at least had us internally wondering if they had pilot shortage issues because system’s been really pretty good. There was a one-day FAA outage, but the weather has been good, and they’ve been consistently having problems. And then 8 or 9 days ago, they put out a $50,000 signing bonus for pilots. And look, however you want to calculate it, however you want to look at it. And if you’re interested, I can give you some more real-time facts, like I’ve watched the data closely. And it’s not happening. I mean what happened over the holidays wasn’t just at one airline. And at all the airlines that had challenges, you can look at our data that we put out. And if you want data for what’s happening right now, I can tell you some more stuff. But, there are a number of airlines who cannot fly their schedules. The customers are paying the price. They’re canceling a lot of flights. But they simply can’t fly the schedules today. Maybe it’s pilots, maybe it’s something else, maybe it’s technology, maybe it’s infrastructure, but what I’m confident of the big three -- and by the way, I think JetBlue has invested in this, the big three and JetBlue are operating at a different level than everyone else for whatever the reasons are.

Next is Ravi Shanker from Morgan Stanley.

Scott, thanks for that kind of early intro to the call, pretty extraordinary set of kind of facts, an argument you laid out there. What does this mean for the industry kind of longer term? Kind of it’s really unusual to see an industry, to your point, try to grow in the face of the restrictions that they have like this? I mean, how does this end? I mean, do you think there’s going to be like regulatory scrutiny on kind of airlines trying to grow when they can’t, and that’s hurting service, or what happens next here?

Well, I think what it’s going to lead to one way or another is less capacity. You just -- it’s not mathematically possible for all the airlines to achieve their aspirations. And now, I’ll just give you the data. I’m not trying to pick on these two airlines. But, like this seems so blindingly obvious to me. And we talked about it a year ago, we were right all this year with capacity coming in 7 points lower, and I feel even more confident that we’re right today. And the data I’ll give you is snowstorm started -- pretty big sandstorm started in Denver yesterday afternoon and it continued through this morning, 11 inches of snow. So, that’s a tough operating environment. There are 3 large airlines -- there’s 3 airlines, so 2 in addition to United have big operations there. Yesterday in Denver and our mainline, we had a 100% completion factor, so no cancellation. [Technical Difficulty] canceled 12% of their flights, the other one canceled 27% of their flights. Starting off today, we’ve canceled a little less than 1%. Each of them have canceled 33% of their flights, like this isn’t new. And there’s like a dozen of the Wall Street analysts that breathlessly publish a weekly report on industry scheduled capacity. You guys are looking at the wrong data. If you want a forward indicator of what’s going to happen with capacity, you should watch completion factor. One of you should start looking at completion factor because airlines that are running like that, it means they can’t fly their schedule, and they’re going to have to adjust one way or another. That’s my thesis. That’s what happened last year, is what I think is going to happen next year. And all of the structural issues are multiyear -- I mean all of them are 3 years at best to address. And you put all of them together, this is a long-term structural issue. And I think, it challenges us too, but we just did more to invest for that future, saw coming earlier than others [Technical Difficulty] and are better prepared to deal with than everyone else. But it does challenge us too. But really like don’t take my word for it, don’t take the others word for it, just watch the data. That’s what’s happening with completion factors, and that’s going to tell you whether we’re right again this year or everyone else is right when they say they’re going to achieve the aspirations.

Great. Thanks, Scott. I think, you can be a good sell-side analyst when you decide to do something else at some point in the future.

I can’t [ph] do sell-side. You guys are way too negative. I’m too optimistic to be sell-sider.

Just maybe one follow-up. I think the point on corporates running out of budgets towards the end of last year was an interesting point. Do you guys have much data on kind of what ‘23 corporate budgets look like to avoid a similar situation this year? Thank you.

I don’t. What I’ll tell you is that the reset looks very good as we head into January, obviously. So, we’re really pleased with those numbers. October was a really good month for corporate and January is tracking at that or above that. And so, we’ll see where we go from here. But, I’ll tell you, this is an important number for United. We monitor it a lot and it’s moving in the right direction. And we’re highly confident, particularly for long-haul global that we’re going to get back to full strength, and that’s an enormous tailwind, I think, for at least airlines that rely a lot on corporate travel.

Next from Duane Pfennigwerth from Evercore ISI.

Just on the interrelation between fleet and CASM, if we just back up in time, you announced a big fleet order in June of 2021. I think that’s when you unveiled United Next. And your target for this year was down 4% relative to ‘19 on CASM-ex. You updated those views. Obviously, we had less capacity, inflation, et cetera. So you went from down 4% to up 5%, another big fleet order in December and now the outlook is plus 15% versus ‘19 versus your initial down 4%. So, I guess, the question is, given the constraints that you articulated very well, why does this investment rate still make sense? If you can’t grow at the rate that you hope to grow, why invest at a rate that assumes a much higher growth outlook at some point?

Well, to be clear, I think we can grow at United. I don’t think the industry can grow for all the reasons that we’ve set. I think at United, we can grow. We are clearly able to hire pilots, pre-pandemic, like most of we ever hired there’s about 900 in a year. We were right at 2,500 last year. Our team -- our flight training team has done an amazing job. There was a lot of work to do to get that training machine humming. It also helped that we had enough foresight to build 14 new simulators during the middle of the pandemic when everyone else was pulling back and shrinking. But that’s part of the -- that’s one of the probably the most complicated thing that airlines are struggling with, and we have that machine humming. We’re here in Houston at the flight training center and we acquired 4,000 flight attendants this year. We opened a new flight training center, another investment we made last year. I mean, really, the point is we invested to be able to grow. And I think we can grow. We have the other benefit. We’re taking 300-plus regional jets out of the system. So, that creates a natural slack in terms of departures. If you got FAA issues, air traffic control issues, if you’re a single fleet type airline, you buy all A320 family or all 737s, like you don’t have anything to take out to give you room. We do have 300 aircraft to take out. But really, the point is all the investments -- I mean, like one of the investments that I like that speaks to the foresight that we had coming into this was clubs, and we increased our club space by 48% during the pandemic, like that’s always a challenge. Trying to close clubs when they’re full in a constrained airport environment, it’s always tough on customers, like the pandemic was once in history, not once in a generation, once in history, a chance to do that with minimal impact because we didn’t have nearly as many customers flying in 2020 and 2021. And we’re the only ones that did it. And like there’s just stuff like that everywhere that United did differently. So to be clear, while I don’t think the industry can grow, I think we think United can. My guess is because of the [Technical Difficulty] our full target because those will be behind. We’re going to be filing a lower utilization than we were before, and there’s going to be less regional. So, we probably won’t be all the way to our target. But I think we can uniquely grow and expand margins in this environment when everyone else can’t, and it’s because of all the investments we made to set up for this.

Thanks for that, Scott. And obviously, hindsight is 2020. It’s been a unique set of circumstances. But I guess the question is, had you invested at a rate more aligned with your DNA where there’s real free cash flow to point to here, how much higher with this CASM outcome have been? In other words, if we’re up mid-teens relative to 2019, could you have invested at a much more modest rate and gotten to the same outcome? And I appreciate your thoughts on it.

I think if we -- I mean, look, if we’d invested -- if we had done the same thing everyone else did, we’d have the same problems they have right now. Instead of canceling 1% of our flights today in Denver, we would be cancelling 33%. That’s higher cost. Our costs would be higher. This isn’t just investment, like [Technical Difficulty]. Anyway, I think when you get to the end of the year, add dollars to donut, we have the lowest CASM, the best CASM performance. I recognize other people have better guidance and then maybe they will have better guidance. But I think in the real world, we’ve come to grips with what the real world means and how -- which you have to do to operate it. And you can see it in the data, you can see it in the operating stats, you can see it in the financial stats. And it’s a new world. You can’t run the airline like you did in 2019. I remember -- I read all the transcripts. And I read one of the transcripts, and Jamie asked someone, I don’t remember which airline it was, but asked someone when are we going to get back to pre-pandemic normal. And I don’t remember who it was or even what they said because I immediately thought the answer to that question is never. And I don’t think anyone else just figured that out yet. The answer to that question is never. It isn’t a new environment, it’s a new industry. And that creates higher costs. It does, but it’s also creating higher revenues. And I think it’s going to lead to across the board higher margins, but particularly for United.

Our next question is from Dave Vernon from Bernstein.

Hey. Andrew, I just wondered if you could sort of [Technical Difficulty] about what’s embedded in the TRASM guide for being flat? I know you mentioned PRASM was up 2 to 3 cargo down. What are you expecting out of the card program and the other revenue line as we think about ‘22 to ‘23?

We’re still expecting really strong results, but it’s just -- it’s not keeping up with the ASM growth rates that negative headwind. But our card program is doing really well. The partnership with Chase is just top-notch, new members into the MileagePlus program, relative to where we were in 2019, I think, were up about 50% in the same time period in 2022. So, all of that’s moving in the right direction. It’s just not keeping up with ASM growth in 2023, which creates that inversion between PRASM and TRASM. And obviously, you understand the cargo part of that.

Okay. And then, maybe, Scott, just to ask the question, it just kind of came up as you’re talking about the challenges around the industry having to reset its cost structure. Do you see any risk that as you’re kind of looking out and building the revenue plan around your own cost structure, setting fares at a level where you can recover that cost pressure that the rest of the industry maybe doesn’t get there. I guess, if the rest of the industry isn’t quite recognizing what the cost pressure of operating in the new normal is going to be, do you think they’re going to be under pricing and potentially creating some problems for you to absorb some of the costs that you’re building into the network? Thanks.

Well, if they’re right -- I don’t think they are, but if they’re right and they can return to 2019 utilization and efficiency, then we can, too. That will be easy to just go back to flying. So, no. The short answer is no. I’m not worried about it, because if they are right, it will be really easy for us to just fly the aircraft a little harder. And because we’re growing within a few months, just slow the hiring down and within a few months, you’d be back. To be clear, I think that’s extremely unlikely to happen. But we could adjust our cost structure down if it turned out that we were wrong, and that’s the new normal pretty easily.

Next, we have Andrew Didora from Bank of America.

I just kind of want to go back to fuel for a second, just because it has dominated my conversation so far. I guess, when you think about it conceptually, looking at your 2023 guide, it seems like you’re assuming fuel is going to $2.70 per gallon 2Q to 4Q. And Gerry, you said fuel is a pass-through. So I think that’s down like at least 30% from current market. Just how do you underwrite that kind of 2% to 3% PRASM growth in 2023 if fuel is coming down?

Let me start. Look, what I’d tell you is that I do think fuel is a pass-through in both directions and that it is dynamic on when we pick the number and we -- we adjust the revenue forecast for it. But more importantly, where we are in terms of demand and supply and cost convergence, as Scott just spoke about in quite a bit of detail, has just given us, I think, significant ability to utilize our revenue management system to make sure that the price points are where we need them to be. And we did that all through last year. And in fact, we did that all throughout the entire pandemic, where we led the industry, I think, 11 out of 12 quarters. So, we feel really good about where our revenue performance is. We feel really good about where our bookings are. We feel really great about our Q1 guidance, and we feel really good about where the RM system is currently managing price points for Q2 and beyond. We definitely believe in the GDP relationship. It is converging, and it’s converging for all the reasons that Scott talked about earlier. So, we feel really bullish about the outlook and the ability to achieve the revenues that we need to achieve.

Got it. Understood. And then, Andrew, you gave some pretty robust booking figures for February into March and kind of your whole outlook. Any color that you can provide in terms of how you’re thinking about 1Q by region, which regions might you see accelerating, which decelerating from here? Just kind of get a sense of how you’re seeing the world right now? Thank you.

Sure. I’ll go to try. I will say that I started with earlier, the global long-haul environment where capacity ex United is negative and capacity with United is just slightly about at 2019 levels relative to where GDP is this year, provide just an enormous set up to hit a home run on TRASM on our global long-haul network. So, we couldn’t be more bullish about that. And it’s simple, right? Supply is flat versus ‘19 and the propensity to travel along with the economy and GDP is dramatically higher. That sets up a very good opportunity for RM systems, and they’re actively working to do that. And bookings for spring and summer look really strong. So, to Europe, I just think it’s going to be another record RASM and margin year based on that setup, and it looks really good. Across the Pacific, the same exact capacity setup, by the way, where it’s slightly negative without United and about 100% with United relative to 2019 capacity and a very similar setup, but we also have the opening of China and all three markets, Hong Kong, Beijing and Shanghai, ultimately. And we think there’s going to be a significant bounce back in demand like we’ve seen in Korea and Australia and other places in the region. The only I think thing we’re watching more carefully is Japan, where the numbers look really good, but it’s based on U.S. point of sale at this point and not Japanese point of sale. We expect the Japanese point of sale to kick in later this spring and summer. So, that one has been slower to rebound. But again, U.S. point of sale just had an enormous, I think, pent-up demand and is ready to fly and is doing -- so really covers the…

Next is Helane Becker from Cowen.

So, just one question here. When we look at air fares and we compare, say, premium economy to where business class was pre-pandemic, it seems like the price points moved to that level, right? So, you have some economy fare. Then, you have a premium fare in economy that seems to be equal to what business was, and you seem to have business that is significantly higher. So, A, is that observation correct; and B, what’s your expected load factor in the front of the cabin?

All right. There’s a lot of numbers you put out there, Helane. What I’ll try to say is that paid first-class load factors, particularly here domestically are up a lot. They’re up 6 points. And so, our RASM growth in the first-class cabin versus the main cabin domestically is 15 points higher. So, it’s doing incredibly well, which we’re excited to see, obviously, because of our move towards more dual-class aircraft and monetizing the premium cabins. On our global long-haul fleet, I think it’s a little bit different than maybe what you said. The public price points may be exactly what you said, I don’t know. But the performance, I would say, is that Polaris is not back to where we’d like it to be just yet. But the middle cabin, the Premium Plus cabin is and better and the coach cabin is and better. And so, the RASM performance onboard the aircraft is a little bit more tilted towards the back of the aircraft or the middle of the aircraft on the global long-haul fleet than it is the front. And why I’m also particularly excited about this recovery in large corporate traffic is that is how we tend to fill the front of the aircraft. And so, the trends we see in January look just really good. And that also is a positive TRASM tailwind to the global network as we do a much better job of filling up Polaris with higher quality yield than we did in 2022. And I’m confident when we end 2023, we’ll be able to report that the Polaris paid load factors and paid yield are much closer to their 2019 baseline than they were in 2022.

Okay. That makes perfect sense. And then just for my follow-up question. I’m not sure whether you said that or Scott said this, but if ‘22 -- if nobody flew their capacity original plans in ‘22, which they didn’t, and they don’t in ‘23 and the infrastructure issues -- and I don’t see the government rushing to invest in air traffic control. In fact, I see it getting worse. I don’t see the FAA investing. As you think about this, doesn’t ‘23 get worse than ‘22 and ‘24 get worse than ‘23? And doesn’t that accelerate to the point where you can’t -- the industry just have more because you run out of space?

Pretty close to yes is the answer. We’re near the limit on capacity -- on flights in the system. There are places that are at the limits, and we’re near. And you can see it, like it works fine, and you can add more on good weather days when absolutely nothing goes wrong. Something goes wrong every week. I mean, there’s weather, there’s systems issues that happen at the FAA, they happen at individual airlines, there’s pipelines that get cut for fuel at airports, there’s vendors that fuel airplanes at airports that are short staffed or have higher sick calls, just the stuff that happens every day. And we’re near the capacity limit in terms of total number of flights.

And Scott, we should add to that though, what you said earlier that we’re getting rid of a large number of regional jets. So, the departure activity that we’re planning from our 7 key hubs in 2023 is still materially behind where we’re in 2019 from a departure level. The ASMs are a whole another story as we’ve talked about because of what we’re doing with gauge. But we’ve created the room in our hubs to be able to execute our plan. We have sufficient runway and gate space to do so.

Our next question is from Scott Group from Wolfe Research.

I got one near term and then one bigger picture question. Just when I just look fourth quarter to first quarter, the RASM guide, the implied revenue guide just worse than normal seasonality. Just given everything you were saying about February, March bookings, just help square with the revenue and RASM guide, please?

Yes. What I would say is that we definitely see a different set of numbers for like January 6th through February 15th than we do beyond that. And as I think about it, it’s our hypothesis that we do have a bit of a different type of seasonality post-pandemic than we did have pre-pandemic. So it just depends on the year -- the quarter-over-quarter year that you’re looking at. But look, the trade-off would be every weekend is potentially a holiday, allowing us hopefully to be able to depeak the summer and run a more constant level of operation from mid-February all the way through October, that’s really exciting and a lot more upside than maybe a few weeks in January that don’t look as good as they used to be. So, I think the trade-off is fine. But our hypothesis at this point, it is a different type of seasonality related to a post-pandemic environment.

Okay. And then, Scott, so bigger picture, if you’re not getting the unit cost leverage from capacity growth that maybe you thought you would have gotten a year ago, I guess, why grow so much and risk adding too much capacity to the market and risk pricing? And maybe just asked differently, if you didn’t grow as much, do you think you’d still hit the 9% margin, but at the same time, just generate better free cash flow?

Well, to be clear, we’re focused on margin, not CASM. We’re focused on margin. And while we aren’t updating -- upgrading our margin guidance, we’re already way ahead of the Street. I think everything we had in our deck today and everything we’ve talked about today certainly creates a plausible case that margins are going to be higher for all the reasons we’ve talked about. If we were not growing, I think our margins would be lower. I mean, clearly, it would impact our CASM. But I think the capacity that we’re going to add would be soaked up by someone else. And I think that -- anyway, I think our margins would be meaningfully less if we weren’t doing what we’re doing. And so, we’re doing it because we think this is a -- look, I think this is a once in the history of the industry opportunity. This is an event that’s never happened before. And I get that most of you on the sell side disagree. And I accept that you disagree and -- but I think the world has changed and the industry has changed. And by the way, we do have a lot of flexibility. And what I would say, you didn’t ask this as a question what I would say is if we’re not -- if there’s some reason that we -- doesn’t look like we’re going to hit our targets, if we’re structurally missing our targets, if we’re underperforming the industry and missing our targets, we won’t do all this growth. I mean, we have a ton of flexibility to move aircraft around. And we won’t do it. So, it isn’t just like [Technical Difficulty] damn the torpedoes. This is as long as it’s working, we’re going to keep moving. But I will tell you, every single data point increases my confidence at least it’s working. So look, we had with the highest pretax margins and fourth quarter of the big network carriers at least, we -- amazing enough, if you look at -- actually, we had the highest free cash flow in 2022 with the lowest net debt if you use traditional GAAP accounting with operating leases and include pensions. We had the lowest leverage ratio, like -- I mean, it’s working. If you look at our operating results, what’s happening in Denver today, like it’s working. So, we’re not going to change course on something that’s working. But if it stops working, then we absolutely have the flexibility to adjust.

We will now switch to the media portion of the call. [Operator Instructions] First up is Leslie Josephs from CNBC.

Just curious if you’re benefiting at all from book away from Southwest after the holiday meltdown, and also if you’re benefiting from pilot attrition coming from Southwest. And second question, do you see any impact from many travelers that are cashing in on their miles this year that they might have built up during the pandemic, and does that help or hurt you? Thanks.

I’ll give it a try, Leslie. It’s Andrew. I think we’re benefiting from running a world-class great global airline. When we look at the data and particularly not over like one week, right, over one quarter, when we look at the data over the last year plus, our team has been just hitting a home run and the data shows it. So, I think we’re really proud of where we’re at. We intend to keep that online. We have the appropriate buffers to make sure we can continue to deliver for our customers going forward, and we shall. In terms of frequent flyer growth, what I was going to say is the program is incredibly healthy. The redemption rates are quite normal given where we are with inventory availability and our customers are using their miles to fly all over the world in the largest global network of any U.S. carrier.

And on the pilot front, what I’d say is, it’s an amazing change. I tried to get out to the pilot training center and see new hire classes, and we’re hiring 200 a month, and I’ve started asking where they come from and show of hands. It used to be like from any of the large airlines, ULCCs, LCCs, big airlines, hardly any because you had to give up seniority to come. We now have a high percentage of people in those classes that are coming from all airlines. And I think the reason is because United has -- if you’re a pilot -- well, if you’re any one and you aspire to a career in aviation, United is a place to go. We’re well on our way in to be the biggest, but also the best Andrew talked about the brand, the reputation that matters a lot to people. Our pay rates are going to always be -- vary depending on the timing of contracts, but always basically going to be at the top of the industry. If you’re a pilot, United has the most growth opportunities and most opportunities, the fastest path to captain. The most widebodies of any airline by far in the country, like we’re the place to go. And people are actually giving up their seniority at all of our competitors for the opportunity to come and have a future at United that’s a testament to what all the people of United have accomplished and how bright we feel like the future looks.

Next is Alison Sider from The Wall Street Journal.

Just wanted to ask about the FAA outage last week. And I don’t know how you’re thinking about that. Is there a concern that there are other sort of -- of these systems that are vulnerable or that you think of as single points of failure and how you’re thinking about it? And what kind of conversations you’ve had with the FAA since?

So, I think this ought to be a wake-up call to -- for all of us in aviation -- something many of us in Aviation have been saying for a long time that the FAA needs more resources. By the way, I think they do an amazing job. During the Christmas struggles with the weather, a bunch of great things that they did. But 2, in particular, the water main break that flooded the tower in Newark and the same thing happened at one of the towers in Chicago, and they really quickly moved into backup facilities and kept the operation running. I mean, just a lot of people jump through a lot of hoops and deserve a lot of credit for that. But the hard facts are the FAA’s budget in real terms, it’s lower than it was 20 years ago. But the amount of work that they’ve been asking to is significantly higher. Huge resources devoted to space launches, drones, thousands of people were working on aircraft certification programs in the aftermath of the MAX disaster. And so, they’ve had to rob Peter to pay Paul. And they’ve done -- asked to do more, and they’re doing it less money. There’s fewer controllers than there were 30 years ago. And it’s people, it’s technology. And look, here in the United States, we should have a world-class best aviation system in the world. And we’re putting at risk if we don’t invest in it. And this is infrastructure. It was great that we passed a bipartisan infrastructure bill. This ought to be bipartisan as well, by the way that we passed the bipartisan infrastructure bill. But this isn’t concrete, but modern systems, modern technology and the right number of people for the FAA is an infrastructure investment that will pay dividends many times over for the country. And so, I hope that what this is, is an opportunity for us to look at this just like we looked at the country at the infrastructure bill in a bipartisan way, get the agency, the resources that they need because we have asked them to do more, and we’ll all be better off.

And then, if I could ask one more just on restoring flights to China. Are there like approvals either in China or the U.S. at the government level or like diplomatic things that need to happen in order to ramp that flying back up?

There are. At this point, United Airlines holds the rights to fly 4 flights per week to China. We intend to convert our current one-stop service to nonstop sometime in the next few weeks, hopefully. But we do not hold rights at this point to increase our service any further. And I believe that is an industry-wide type of situation. So, at this point, there’s no green light to go beyond what we’re currently flying.

Next is David Schaper from NPR.

Hi. Thanks for taking my call. I appreciate you guys doing this, this morning. A couple of questions I had have been asked and answered. So I’m going to kind of shift gears into something that might be coming out of left field. But the Biden administration announced last week a plan to get the transportation sector down to net zero emissions by the year 2050. I know the aviation industry has that goal as well. But how realistic is that really? And what is the cost to an airline like United to try to shift to sustainable aviation fuels to possible hydrogen-powered engines, that sort of thing?

Well, I haven’t seen the details of their plan. But, I think as a global citizen, it’s probably the most important thing that our generation needs to accomplish. I’m proud at United that we are not -- we are the leading airline around the globe on real sustainability initiatives, and we are one of the leading corporations. We are focused at United, but I think it’s the right focus for aviation on a number of fronts. One, unsustainable aviation fuels, -- by the way, the build back -- the inflation Reduction Act has a number of provisions -- regardless of what you think about everything else in the act, the sustainability provisions are meaningful, not just for our industry, but for everyone. And I think our transformative legislation makes it viable to start making investments in hydrogen and SAF. And we’ve been the leader and we’ve got even more coming, but a lot of projects that were going to be hard to do all of a sudden start to pencil out, at least potentially pencil out. And so I think it’s driving -- it is driving a lot of investment, and you can expect more from us on that. A lot of excitement in electric aircraft, what we’re working on there. And while I can’t replace everything because it’s never going to be big airplanes flying long distance, it will be a part of the solution. And then finally, carbon sequestration, I’m a climate change geek and have been for 30 years. And I used to have conversations like this. It wasn’t too long ago, even just a couple of years ago, and I would have to explain what the word sequestration meant. It’s real progress actually that people know what it is now and there’s more investment. We’re here in Houston. Occidental is our partner in a sequestration project. They’re a leader on that -- in that front. But a lot of others are moving into sequestration and the 45Q changes that happened in the Inflation Reduction Act are also really consequential for carbon sequestration. So I’m more encouraged today, I think, than I’ve ever been at the possibilities, but it’s a lot of hard work ahead, and it doesn’t happen overnight. I mean they’re not a magic silver bullet. But I’m also proud that United is leading, and we partner with everyone that would include the DOT, anyone that’s interested in doing the right thing and solving this in a real way, we’re happy to be partnered with.

Just a quick follow-up. What is the cost of all this, especially if governments, not just the United States but governments globally start imposing mandates to ship to alternative fuels that they cost a lot more to develop and use?

Well, I think what we need to do is drive the cost down. And so the -- for SAF, for example, what I like to think about is wind and solar energy, which because I’ve been a climate change geek for 30 years, I followed it, but it was 20 years ago, certainly 30 years ago. 20 years ago, everyone, everything you read or talked about wind and solar was it could never compete with fossil fuels, it could never be economic. Well, guess what? We passed legislation that had credits -- a carrot instead of just a stick, carrot. That carrot drove massive investment in R&D, drove economies of scale. And today, it’s cheaper to produce a megawatt of electricity from wind and solar than it is from fossil fuels. And the same thing can and I believe will happen with SAF. It is more expensive today, but we are in the very early phase of the development curve. And that’s what’s great about the Inflation Reduction Act is it creates those same kind of financial incentives that existed for wind and solar. And that is -- we know it because we’re involved with the companies. It’s driving investment into the space. And that’s what is needed right now at this phase, and that investment is going to lead to breakthrough is going to lead to economies of scale. And I think the costs are going to come down.

Our last question is from Bill Murphy from Inc.com.

I have two quick questions. The first, I believe if I understood, Scott, previously, you mentioned an unprecedented number of new pilots actually coming to United from other airlines. And I understand, of course, hiring especially, but not limited to pilots as a big industry constraint, a big effort, so. But I’m wondering, can you say anything more about that? Is this an effort specifically involved here now to recruit away from competitors in a way that you haven’t in the past? And if so, how do you go about doing that practically from -- besides simply positioning the airline is a good place to work? And I would have a follow-up.

It’s really the latter. It’s not a targeted airline to go after them, but people pay attention and United is the best place to work. And if you’re a pilot and want to work at the best place, a lot of them are just putting their applications in. We don’t need to do anything more than be the biggest and the best airline in the history of aviation, and that’s enough of a sell point.

Okay. So, no specific numbers to report on that you -- an uptick on that.

Well, I don’tknow what the numbers are I’m -- by anecdote I asked people. And I would guess that 30% of the people in those classes come from one of the large airlines. That’s just my eyeballing it in the room. But somebody at United probably knows the numbers, but I don’t know the specific numbers. I’m just proud of everything that team is doing.

And if I can just -- my other follow-up here. In previous calls and interviews, you’ve talked about kind of changing customer demographics, including things like the rise of work from anywhere of leisure passengers. I’m just wondering, if you have anything more to add to that now in terms of how you see that changing structurally in the post-pandemic world.

It’s a really interesting trend and we saw it again over the Thanksgiving and Christmas holidays. For example, for Thanksgiving, we saw a lot of people leave dramatically earlier for their vacation than they would normally do. And this year, Saturday, because if you left early, Saturday was actually one of our biggest return days, didn’t display Sunday, which is obviously always the biggest, so completely different pattern. And we saw that throughout the entire second half of last year. And it’s really exciting for our business because it allows us to DP things ultimately, run the airline differently and more efficiently. And remote work, while I’m sure will evolve and adjust over time, which is driving this, remote work does seem like a permanent feature in our workplace here in the country. And so we’re optimistic that this continues to be the trend based on everything we’ve seen. And it really is just -- it’s a different type of demand. It’s a different industry, and I think we’re well prepared for it. And it’s very exciting from a capacity and revenue management and customer point of view across the board.

I will now turn the call back over to Kristina Munoz for closing remarks.

Thanks, Candice, and thanks for everyone joining the call today. Please contact Investor or Media Relations if you have any further questions, and we look forward to talking to you next quarter.

Thank you, ladies and gentlemen. This concludes today’s conference. You may now disconnect.