Good morning and welcome to United Airlines Holdings Earnings Conference Call for the Fourth Quarter 2023 and Full Year 2023. My name is Tegan and I will be your conference facilitator today. Following the initial remarks from management, we will open the line for questions. This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed, or rebroadcast without the Company’s permission. Your participation implies your consent to our recording of the call. If you do not agree with these terms, simply drop off the line. I will now turn the presentation over to your host for today’s call, Kristina Edwards, Managing Director of Investor Relations. Please go ahead.

Thank you, Tegan. Good morning, everyone. And welcome to United’s fourth quarter and full year 2023 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the Company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the Company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on the call. Please refer to the related definitions and reconciliations in our press release. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss our results and outlook are our Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Mike Leskinen. In addition, we have other members of the executive team on the line available to assist with the Q&A. And now, I’d like to turn the call over to Scott.

Thank you, Kristina, and good morning to everyone on the call today. Despite numerous geopolitical and other headwinds around the globe, 2023 really was the year that our plan for United Next came together. Our thesis at this time last year was that operational constraints and other factors were leading to cost convergence and those cost pressures in turn would lead to higher revenues. That is certainly true for United because our diversified revenue streams continue to differentiate us from other airlines. Another way of saying that is that we believe a new link between United's CASM and RASM was being solidified. And while it might be hard to get either a CASM or RASM forecast exactly correct, we can have higher confidence in forecasting the relationships between the two, and therefore, have higher confidence in our earnings margin forecast. And despite a year filled with events that we could have never predicted, that's exactly what happened in 2023. And so, I'd like to thank the 100,000 United team members around the world who worked so hard to make that happen. And those same 100,000 people continue to deliver in the face of a huge impact on our employees and customers from the MAX 9 grounding. I'm proud of our tech ops team who's taken the lead and has been working 18-hour days nonstop since January 6th to ensure that the MAX 9 is 100% safe before we return it to service. I'd also like to thank the FAA for their professional leadership in this situation and also acknowledge that they too are also working long hours and weekends with us in an effort to ensure that we know for sure what happened so we’d be confident that the remediation prevents it from ever happening again. 2023 really sets the stage for what is likely to be a repeat in 2024. United’s financial performance was impressive, especially if you consider where the analysts were tracking at this time a year ago. In 2023, we delivered full-year earnings per share above $10, which was within the range of our initial United Next target of 10 to 12. I want to spend some time today examining how we got there and why we think those trends will persist in 2024. One, we expected the operating environment to be challenging, driven by pilot and other hiring constraints, FAA air traffic control steps, maintenance catch-up, and supply chain issues. It turned out to be even more challenging than we thought. Two, those operating environment challenges led directly to industry capacity plans, including our own, coming down three points on average as carriers adapted to the new operating environment. For United, we made changes to our schedule and we closed out the year setting operational records. The improvements in Newark, in particular, are one of the most important accomplishments that we achieved last year. Brett will share more details in just a moment, but the FAA waivers right-size the airport and airspace to physical constraints and allowed us to run operations that are performing better than ever at Newark. That's been good for our business and it's been really good for our customers. Three, as we predicted, the challenging operating environment led to cost pressures and cost convergence in the industry. To be fair, even we as United underestimated the inflationary pressures that we would face primarily from labor, maintenance, and supply chain issues. And that led to higher absolute CASM-ex than we were forecasting. But those same cost pressures are being felt across the entire industry. A year ago, when we talked, we believed the industry-wide cost pressures would wind up as a pass-through, much like fuel has been in the past. Four, and that is in fact exactly what happened. While industry cost pressures drove higher CASM-ex at United, we offset those higher than expected costs with higher than expected revenues. Five, which leads to the final point. While difficult to predict, events like the fuel price spike, rising conflict in the Middle East, fires in Maui, persistent inflationary pressure, and many other things make it difficult to predict United's full-year 2023 CASM and RASM 12 months in advance, the timing connection at United between CASM and RASM meant that we achieved our initial $10 to $12 EPS range despite those multiple headwinds around the globe. The link between RASM and CASM combined with the success of United Next is what made 2023 such a successful and important year in our history, and we expect 2024 to follow a similar path for the same reasons. This is just the new normal. The operational challenges remain. It will be years before the FAA is back to full staffing. We're still overlapping new labor agreements, which shows in our CASM and the supply chain challenges aren't going away anytime soon. That means capacity will continue to ratchet down out of necessity and cost convergence will continue. But revenues will adjust to the new cost reality, and you can expect United to maintain and grow EPS and margins. Two and a half years ago, we laid out our United Next growth strategy. In 2023, we demonstrated that the plan is working almost exactly as we expected and the future is bright. There have been and there will be more bumps in the road. But we continue to feel confident about our ability to grow earnings and margin over the long term because of the tighter connection between United's cost and United's revenue. Looking ahead to 2024, the United Next plan is working and no airline is better positioned to capitalize on industry and macroeconomic trends than United, and we're continuing to move aggressively to capitalize on emerging opportunities. We'll have more to share with you at our Investor Day later this spring. In the meantime, we're focused on delivering another great year for our employees, customers, and our shareholders. And with that, I'll hand it over to Brett.

Thank you, Scott, and good morning. As of Saturday, January 6th, Boeing 737 MAX 9 aircraft has been grounded. We are currently the largest operator of the Boeing MAX 9 fleet type, the aircraft representing approximately 8% of our capacity in the first quarter. Our financial guidance assumes that United’s 79 MAX 9 aircraft is grounded through January. I echo Scott's gratitude for all at United who worked so hard as travel plans were affected by the grounding of our MAX 9 fleet. I'm also extremely proud of our tech ops team who’ve been working carefully to ensure the safety of our MAX 9 aircraft before we start flying them again. 2023 was a year of growth and restoration. And we closed out the year with strong record-breaking operational results, carrying a record 171 million customers. The fourth quarter consolidated customer D0, A0 and misconnect rate were the best for any quarter in our history. Not only did we set company records for the quarter but we also ran record-setting operations during our busiest time of the year over Thanksgiving and Christmas. Thanksgiving and the entire fourth quarter had the highest NPS scores in our post-pandemic history. We wrapped up the year with our lowest ever cancel rate for the month of December. One of the largest challenges United and all airlines flying to and from New York have historically faced is more flights than the air traffic system can handle. This is now being addressed, thanks to proactive intervention by the FAA. Newark, United's largest hub, has been operating with the best reliability on record since the FAA mandated that flight activity be consistent with the airspace and runway limitations of no more than 77 operations per hour this fall. For United, that meant we reduced flight activity from Newark by about 10% and expect to continue with those cuts for the remainder of 2024. Our customers and every passenger flying from New York are now benefiting, and the cascade of delays that historically would flow across the United States from New York airspace has significantly improved. Our customer D0 from Newark hit a company record of 76% in Q4 of 2023. We expect this level of performance to continue as long as the FAA continues to mandate that flight operations remain at 77 or fewer operations per hour going forward. United plans to continue to upgauge our Newark flying to ensure that there is plenty of capacity available for our customers even with fewer flights. 2023 was also a banner year for employee recruiting, hiring, and retention at United. On the heels of hiring more than 21,000 people in 2022, we hired another 16,000 aviation professionals to our airline last year. We hire the best of the best. The skill and talent of our employees played a big role in our operational outperformance in the second half of the year, our record-breaking customer scores during the holidays, and our overall financial performance as an airline in 2023. We are a better, more successful airline because of our people and I'm proud of the way we've gone about growing our team. I'm happy to announce we will be paying our eligible employees $81 million in profit sharing next month. This is five times higher than 2022 and over two times higher than the average of the last 10 years. Our team, the beating heart of this airline, made sharing these impressive results today possible without them. With that, I will pass it over to Andrew.

Thanks, Brett. As Scott mentioned, cost pressures led to healthy revenue trends in the quarter with stellar performance over the holidays. Total revenues in the fourth quarter increased 9.9% on a 14.7% increase in capacity. Consolidated TRASM was down 4.2% and PRASM was down 3.3% for the quarter. Domestic demand was strong in the quarter and PRASM results were slightly negative year-over-year, a nice improvement from the third quarter. Atlantic PRASM growth in Q4 of positive 3.8% was consistent with Q3 year-over-year growth of 4%. We also experienced a small but measurable demand weakness across Europe in Q4 triggered by the conflict in Israel, but that has now moderated. United increased Asia Pacific flying by 82% in the quarter. PRASM was down 11.6% year-over-year. In the quarter, we increased flying to China from four weekly flights to twice daily, amongst many other changes we've now fully restored our capacity to pre-COVID levels across the Pacific. Latin American unit revenues decreased by 11.6% in the quarter, pressured by record industry capacity levels and heavy fare discounting. Cargo revenues continue to adjust to their new state post-pandemic. For 2023, cargo revenues were $1.5 billion, 31% lower than 2022, driven by all the revenue changes due to yields, not volumes. Turning to our outlook for the first quarter, we expect TRASM in Q1 to be approximately flat year-over-year, which is a nice sequential improvement versus the past few quarters. Domestic demand remains strong with increases in business traffic volumes year-over-year in addition to stronger pricing thus far this year, and we expect domestic year-over-year PRASM to be positive for the quarter. We see the best yield growth occurring on tickets purchased within a week of departure. Bookings and yields for Atlantic flying in early 2024 are also strong and we expect these trends to continue into the second and third quarters. Service to Tel Aviv will resume as soon as it's safe for our customers and crew, but no sooner than February 15th. We also saw a nice step-up in London Heathrow business demand in recent weeks, which has helped Atlantic results in Q1 to date when combined with lower United capacity to London. We remain focused on slow growth across the Atlantic for 2024. Asia Pacific growth remains above normal as we head into Q1. We continue to absorb the incremental Asia capacity added in 2023, and we expect all of United's new Asia capacity to produce strong margin results as we head into Q2 and Q3. Latin American RASM is expected to remain negative for Q1 year-over-year, a trend that's likely to continue into Q2. FAA imposed industry capacity limitations on Newark for virtually all of 2024 and San Francisco for most of 2024 will limit capacity from either airport. We've prioritized international growth over domestic at both hubs. We're optimistic that the demand will catch up with supply in 2024 in these two United hubs that have lagged the recovery elsewhere. In summary, we expect strong unit revenue performance on domestic and Atlantic capacity in early 2024 with weaker results in Asia as we absorb 2023 growth and in Latin America due to record industry capacity growth levels. While we expect international RASMs will grow slower than domestic for a period, we also expect that international flying will have materially higher margins for United versus domestic in 2024. We, at United, have created a durable commercial model that has diversified our revenue streams and our network and largely de-commoditized our product versus just about every other airline in the US, maybe with the exception of one. Our commercial strategy has resulted in fare levels at United that are less sensitive to changes in the price of fuel but also to the cost inputs at United, allowing us to overcome the inflationary cost pressures larger than we expected in 2023. You can see this in our relative revenue performance quarter-to-quarter. United’s unique hub system in the largest US cities and the network we have built over decades from these hubs underpins our outlook and gives United access to revenues and profitable flying others simply do not have or have not been able to replicate. The United Next fleet growth in recent years has allowed us to unlock the true value in our hub system, which you can see from our results today. Unique aircraft cabin and capacity plans continue to be a driver of our strong revenue performance, particularly as demand for premium products remains elevated. For example, domestic premium revenue grew 13% year-over-year in Q4, over double the rate of coach, another data point validating our strategy. While we remain focused on monetizing our growing premium capacity, we also remain committed to Basic Economy. Domestic Basic Economy revenue was up nearly 20% in the fourth quarter versus last year. Correcting gauge deficits at United remains a key component of the future. We continue to believe we can add gauge to domestic flying while maintaining strong unit revenues. Since 2019, United has increased its North American gauge by 22% while also leading in PRASM growth. For 2024, we intend to focus much of our domestic growth in our Mid-Con hubs in Washington and Dallas, as we have significant levels of new connectivity. This connectivity change is why we have confidence in the RASM being accretive in 2024. Diversified revenue streams across our global network remain key to our relative success as we implement our United Next plans. United's global network is a key structural advantage we will focus on in the coming years and it differentiates us. With that, I wanted to thank the entire United team and hand it over to Mike to discuss our financial results.

Thanks, Andrew, and thank you to the whole United team for closing up the year on a high note, both operationally and financially. I'm proud to report that in 2023 we delivered pretax income of $4.3 billion, a more than $3.2 billion improvement over 2022. We delivered earnings per share of $10.05 within our initial guidance range of $10 to $12, and well ahead of consensus expectations of about $6 at the beginning of the year. We achieved this despite significant industry headwinds and operational constraints that led to lower capacity. For the fourth quarter, we delivered pretax income of $845 million and earnings per share of $2, ahead of consensus and above the high end of our guidance range. Strong operational performance, robust revenue trends, and a decrease in fuel prices supported these results. Fourth quarter CASM-ex was up 4.9% as we did not operate flights to Tel Aviv for the full quarter. Additionally, effective with the fourth quarter, we are now classifying certain commissions that have been classified as contra-revenue and distribution expense. This has no impact on net income or cash flow. This change added one point to our year-on-year fourth quarter CASM-ex and increased fourth quarter year-on-year unit revenue by 0.6 points. The change will also result in an approximate one point headwind to year-on-year CASM-ex and an approximate 0.6 point increase in RASM through the end of the third quarter of this year. Underlying unit costs trended favorably during the quarter as the completion factor came in better than planned due to our strong operational performance. Compared to 2019, our relative performance on CASM-ex was near the top of the industry. As Scott outlined, delivering strong relative cost performance remains critical to the successful execution of United Next. We have always asserted that the costs borne by the entire industry are passed along in prices with a lag. Historically, this relationship has been clear with jet fuel prices. More recently, the relationship has been clear for both higher labor and higher maintenance costs as well. Notably, our unit cost in 2023 were up 17.8% versus 2019 compared to ultra-low-cost carriers whose unit costs are expected to be up 25% on average. That more than seven-point cost convergence occurred simultaneously with an emerging preference for United product, the top-tier operational reliability that United provides. The result is unsurprising. Our margins have dramatically and structurally improved and we're only in the early innings of that journey. For the first quarter of 2024, we expect a loss per share between negative $0.35 and negative $0.85. While our core costs remain on track, our first quarter CASM-ex faces a few headwinds. First, the cancellations of the MAX 9 flights have reduced first quarter capacity. Due to the close-in nature of these cancellations, most of our expenses are fixed, and we also incurred additional interrupted trip expenses. We expect the combination of these items will increase CASM-ex by approximately three points. Second, the contra-revenue reclassification in the distribution expense is a one-point headwind. Third, the impact of new labor agreements as they annualize adds an additional three to four points. Lastly, a higher volume of engine events and continued supply chain challenges lead to another one point of CASM-ex headwind. While the first two items I mentioned are United specific headwinds, labor and maintenance are industry-wide issues and the primary drivers of the cost conversions that Scott described earlier. Most importantly, we're confident that the pace of inflation in our costs will continue to be favorable versus our historically lower cost competitors. Building off of our 2023 momentum, we expect full year 2024 earnings per share to be between $9 to $11. We are encouraged by the trends we are seeing and our United Next plan is working well. This is our guidance but I'd be remiss if I didn't point out that our internal targets are higher. We plan to update our longer-term financial targets at our upcoming Investor Day. Looking ahead, we intend to take a different approach to guidance. As demonstrated in 2023 and just recently with the MAX grounding, we operate in a dynamic industry. With the no-excuses philosophy, we intended to remove detailed guidance shortly after I joined and led the Investor Relations team. The pandemic interrupted those plans. But now that we have passed the crisis and as we deliver on our earnings per share target, you should expect us to remove TRASM, CASM-ex, and capacity guidance and focus on earnings per share. We've provided RASM and TRASM for the first quarter but this is likely the last time we will do so quarterly. We will continue to provide fulsome commentary on the trends impacting our business. And we will continue to be transparent with our views of the longer-term future for both United and the industry that we're managing this business towards. We will earn your confidence by delivering bottom-line results. Shifting gears to the fleet, in the fourth quarter, we took delivery of 20 Boeing MAX and four Airbus A321 aircraft. Looking ahead to 2024, we have a total of 107 aircraft scheduled for delivery, 31 of those being MAX 9. It is unrealistic at this time to believe all of those aircraft will deliver as currently planned. We also have 277 MAX 10 aircraft on order through the remainder of the decade and an additional 200 options for MAX 10 aircraft. We are monitoring Boeing's progress towards certification of the MAX 10 closely. At this time, our current aircraft delivery schedule would lead to a total CapEx of approximately $9 billion in 2024. But given the MAX 9 grounding and the continued supply chain issues, there is this downward bias to our 2024 spend. We also expect a reduction in orders and deliveries from Boeing in 2025. This will require reworking of our fleet plan and we will share the details when that work is complete. Turning to the balance sheet, we ended the quarter with $16.1 billion in liquidity, including our undrawn revolver. Our adjusted net debt to EBITDAR was 2.9 times, consistent with our leverage target of less than three times provided at the start of the year. Managing the business toward positive free cash flow will be a top priority for our team over the coming years. Our stock is deeply undervalued, trading at less than four times earnings despite the fact that we delivered 19.5% revenue growth and realized significant structural improvement and relative profitability in 2023. But we also understand that generating free cash flow consistently, even while we execute our United Next strategy, is an important component to increasing our valuation. 2023 marked the first full year of the United Next plan. We faced curveballs but we adapted quickly and exited the year stronger than ever. It's clear that when customers are given a choice, they are choosing United. You can see it clearly in our revenue and margin performance relative to the industry. Finally, I'm happy to announce we will be hosting an Investor Day on May 1st in Chicago. We plan to provide an update on our progress with the United Next plan and introduce some of the United tailwinds that will drive continued margin expansion and sustainable free cash flow. I'm encouraged by our results and momentum, and I'm looking forward to delivering another solid year for our employees, customers, and shareholders. With that, I will pass it over to Kristina to start the Q&A.

Thanks, Mike. We will now take questions from the analyst community. Please limit yourself to one question and, if needed, one follow-up question. Tegan, please describe the procedure to ask the questions.

All right, we will go to the first caller in queue, Ravi Shanker from Morgan Stanley.

So maybe Scott, you said at the start that you saw pressure on your 2023 capacity and I think you kind of went through your order book and said there's downward pressure there expected as well. Does this want to make you look at the long-term United Next growth plans and kind of what can be practically achieved in the coming years? Is that something you can expect to do in the Investor Day?

Look, the reality is that with the MAX grounding, this is the kind of straw that broke the camel’s back in believing that the MAX 10 will deliver on the schedule we had hoped for. And so we're working through an alternate plan. We do expect our growth rate to slow in coming years. Though the United Next plan is firmly on track, it will take a little longer to get there. And we're working on alternate plans to see how much higher we can elevate the growth with the MAX 10. Now we're still counting on Boeing and we're monitoring the MAX 10 closely and we’re rooting and will do everything we can to help that aircraft get certified. It's a great aircraft. But we can't count on it and so we're working on alternate plans. The details we'll share when we have them. I hope we'll have more by the first quarter conference call, and we'll certainly have a fulsome update for you by our May 1st Investor Day.

And maybe as a quick follow-up. I think you guys have said Asia can be pretty decent kind of as it comes back. I think you guys were profitable on the China routes prior to the pandemic. Correct me if I'm wrong. Do you think Asia margins can be better than before and is that a temporary demand catch-up, or do you think that's sustainable kind of in the new normal?

As we rebuilt Asia, we definitely wanted to rebuild it so it has sustainably higher margins than it did pre-pandemic. And we've gone about that, I think, very carefully. We're back to our pre-pandemic size, which is nice at this point. And China was profitable for us pre-pandemic, although it was not our highest margin climb to be fair. As we bring it all back, our goal is to make sure that the Asia Pacific entity produces margins that are similar to that across the rest of our global network. And I think that at least in 2023, Asia Pacific is well ahead. I do expect things to move around a bit, particularly as more China flights come back online. But I think we're particularly bullish about what Asia looks like going forward. We added a lot of capacity in the quarter, we are absorbing it, and we expect in Q2 and Q3 that capacity is going to do very well. So very bullish about the long-term prospects in Asia post-pandemic.

First one for Andrew. So you said the 20% revenue increase for Basic Economy, what can you tell us about the composition of that growth? Is some percentage of MileagePlus members trading down? Is some percentage stimulation of brand new demand from scratch? Is some percentage of share shift from low-cost carriers? I guess the simpler question is who's driving the growth?

I think it's largely a share shift, Jamie. We developed Basic Economy numerous years ago now and have been refining how we sell it, how we distribute it, and that product. And it's an important product in our lineup. We do focus a lot on premium but we know we need to be competitive across the whole range of needs that our customers have in our hubs, and that required a competitive basic economy product that we could do profitably. And as we look at the data, we think the biggest change here is as we've increased our gauge, we've been able to attract more and more market share across the board, but in particular, we've been able to attract more of it from some of the low-cost carriers out there. So we're really pleased with this development. And it's given us every indication that we should continue to push forward as our gauge increases and we'll be able to more effectively take on that traffic and grow our share base even more.

And then for Mike, it was a couple of years ago, in fact, it might have been almost two years to the day that there were press reports that United was looking at monetizing a portion of MileagePlus and then things subsequently went pretty quiet on that front. So a couple of questions. First is, is loyalty as important to United as it is to Delta? Delta's leading so hard into this topic on its calls. And second, any thoughts on how United or the broader industry might get investors to value this cash flow at a higher multiple? And if the answer is no, I'm happy to cede the floor.

I appreciate the question. This is something I'm very passionate about. MileagePlus is a crown jewel in the businesses we have here at United Airlines. We've made some significant progress towards growing that business. We have a new leader in Richard Nunn. We have significant projects underway around data and how we can create a better customer experience and monetize that data at the same time. And you can expect a very fulsome update on the May 1st Investor Day. We do have ideas on how to bring the market attention to the value and higher premium multiple that those earnings should trade at. We have several options, and we'll share more when we're ready to share more. But we've discussed some of those; some of those have been written about in the analyst reports. And if the value is not recognized in our fares, we will take action to highlight that value in the near future.

Just getting back to, I guess, Scott, on the issue with the MAX 10. At least, fortunately, in the case of United, you do have a choice. You're a very large operator of the Airbus product as well as the Boeing narrow-body product. As we think about the issues with supply chain and constraints across the OEM space, is there at some point where you're thinking that given the size of United that it would be prudent to consider a wide-body from another OEM? Right now, it looks like the 787 is the future for United from a wide-body perspective, but you still have that A350 order out there. Has your thinking on that changed?

The A350 is an incredible aircraft. We have a significant order book for 787s right now and we have a mix of 777 aircraft; some are relatively older and a subset is quite young. As we look into the 2030's, the A350 is an aircraft that we are looking at. We don't have any new news to share with you today, but the timing will be at the early part of the next decade.

And then just a quick follow-up back to what Jamie brought up on Basic Economy. The 20% increase is obviously pretty significant. But last quarter, you were up 50%. And the question is, is that just a function of a more difficult comp or did you actively pull back on inventory of Basic Economy just given the surge that we've seen on the cost side, and back to your point about trying to maintain that gap between CASM and RASM?

No, we didn't pull back on it for that reason. Remember, these are year-over-year comps, but you have to consider the math of what we did last year. We're very bullish about Basic; we're also very bullish about the premium. The point is, we have a great diversified revenue stream across all of our cabins as we try to de-commoditize our product. We are hopeful that we'll continue to drive increasing volumes in Basic. It seems to be having the appropriate P&L effect at United and competitive effect across the industry. So it's something we want to do more of, not less of, and so you should expect that.

I'm a little confused on the comment about the link between CASM and RASM. I would have thought that would have been the case before. So I'm just trying to understand what's changed. Is it that you're being, like just better at predicting outcomes or is it really more of an industry comment that you're trying to drive home here?

It's really a comment about the industry. In the past, when United or another airline had an increase in CASM while others were seeing a decrease, the price became the lowest common factor. This is an industry-wide observation. Just like fuel costs, anything that impacts the entire industry is likely to be passed through. If it only impacts one airline, it isn’t. We were in this same room a year ago, and we may not have explained it clearly, but that was the point we were trying to communicate, and it has indeed occurred, and it will continue to happen moving forward.

I might stick with the cost side, just following on Conor's quickly here, versus your low single-digit ex-MAX impact CASM-ex guide for the first quarter. How do we think about the puts and takes through year-end versus that level of CASM-ex inflation? Before today, I was originally assuming growth would decelerate over the year, but CASM-ex comp fees, so each quarter in my model ended up looking pretty similar on a year-over-year basis, ex-MAX impacting the first quarter. Is that a fair way to think about it, or is there more lumpiness than that that I'm missing? And then I guess, just to put a finer point on one question, does first quarter and full year EPS include any flight and tenant accrual?

So Catherine, I'll address the last question first. Our guidance incorporates our expectations for labor agreements. In terms of CASM trends for the second, third, and fourth quarters, you can anticipate that the MAX headwind will dissipate. We believe we are nearing the point where that aircraft will be operational again. You will observe some specific advantages for United due to an increase in gauge. However, due to slower deliveries, this increase in 2024 will be lower than previously anticipated. Labor will continue to exert pressure of about three to four points, which is an industry-wide headwind for CASM-ex, not just specific to United. We expect this to result in higher TRASM to provide some offset. Nonetheless, as we approach the fourth quarter, we should see the bulk of this pressure decline. Additionally, we anticipate a maintenance headwind of about one point, which will be inconsistent from quarter to quarter. Currently, it seems to remain around one point in each quarter this year. Eventually, the aerospace supply chain will improve, but we don't expect that to happen immediately, likely extending well beyond 2024. To summarize, you should view the labor and maintenance headwinds as ongoing challenges.

And maybe just sticking with you, Mike, the $9 billion CapEx figure that's tied to your contractual commitments, unless I've got that wrong. Even as of your last 10-Q before the MAX grounding, you were expecting 17% less aircraft than the contractual amount. I guess there's probably more downside reset today given what's going on with the MAX. But in order of magnitude, does that delta between expected and contractual deliveries largely flip how we should think about downside risk on a dollar basis versus that $9 billion?

The delta in between contractual and expected is growing. We don't know exactly where it will settle yet, that's what we're working through now. We are working on an alternate strategy to mitigate some of the loss in growth. But yes, as you're thinking about CapEx coming below $9 billion this year and the trajectory for maybe lower than what you would expect CapEx in 2025 and beyond, that’s how you should think about it.

So Mike, I totally get your message that the plan is fluid and flexible. But as it stands today, I'm just wondering, do you think RASM is going to be positive this year? And then maybe just, can you help us just think about shaping the year a little bit? So if I look at last year, had a pretty massive second quarter and then moderation in the second half of the year. Are you thinking a similar shape or maybe more back half weighted? Any color there would be helpful.

Scott, I'll kick it off and say, yes, we think TRASM for the year will be positive, but the details will come from Andrew.

We're not giving exact guidance here other than, yes, we're very bullish on the year. I think I laid out a business case where domestic is starting the year incredibly strong. I think we've laid out a business case for where we're going to be with trans-Atlantic capacity. I do expect Asia capacity to step down materially as we head into Q2 and then Q3, which is obviously going to bolster those numbers, too. So I remain bullish on the year.

Scott, just specifically asked about the shape of our quarterly earnings through the year. It's going to look like a normal seasonal pattern, albeit with a slightly bigger loss in the first quarter due to MAX 9 grounding.

So here's my two questions. The first question is, as you think about 2026 margins and maybe you'll update us on May 1st, how do we bridge from the roughly 8% at year-end '23 to say 12% to 14% in 2026?

We will update our longer-term margin targets at Investor Day. But the tailwinds that we expect from the United Next strategy, from gauge, from the connectivity, from the preference to fly United, we have proven, it used to be a strategy on a piece of paper. We have proven that it's working. And so as we think about '24, deliveries being a little less than '25 and '26, of re-accelerating into that United Next strategy, we see just continued momentum. As for the specific level of 12% to 14% pacing, we're going to have to update you on May 1st. But the strategy is working and we're very confident in an upward trajectory to both earnings and margin.

And then just for my follow-up. I think, United Next targets, and obviously, you'll update them again, I suppose, $25 billion of adjusted net debt as of the end of last year, less than $18 billion for 2026. But the other thing is, how should we think about financing, let's just say, $9 billion is off the table for this year, let's bring it down to $6 billion or $7 billion plus debt paydown. How should we think about you getting to your target leverage over the next one to three years given the CapEx program, which might be $7 billion this year, but it might be $9 billion or $10 billion in '25 or '26?

Let me try to give you a high level view, Helane, and we can dig into more details in the near future. But as I sit here today and I think about the changes in CapEx related to the delay in deliveries, I expect free cash to cover our CapEx in most years, if not all years. And as far as additional paydown of the balance sheet, we expect that as our margins grow into that low double-digit, low-teen area, free cash flow will be quite positive, allowing us to pay down that debt. Now the pacing will be dependent on how much that CapEx profile changes and how quickly we get to what we think is that long-run, higher level of margin.

Just a couple for me. On international inbound, so basically international points available to the US. As you look across your network, how recovered is international inbound? How do you think about that growth of that demand set in 2024? And are there any markets that stick out from a recovery headroom potential?

What I would say is during the entire recovery, US outbound has been a stronger component of the traffic, really across the board, across the entire globe, and that continues today. I think origin Europe, particularly core Europe, Germany, continues to trail, as does Japan and Australia; and so we'll continue to monitor that. But the US consumer has made up the difference in most regions of the world quite effectively and has resulted in very strong results over the last year. So I think the outlook is strong but when the inbound customer profile starts to rebound, I think that's just further upside in the future. It hasn't happened consistently across the globe yet but we'll see what 2024 brings.

Just following up there. Any specific markets, maybe San Francisco, Asia inbound, any more bullish recovery thoughts there?

San Francisco is going to be very unique over the next six to nine months. There is a significant amount of runway construction going on in San Francisco that has dramatically limited our ability to fly there. It's also consistent with a slower recovery in that city. So I think that is actually probably okay, but you will see us fly a much reduced domestic schedule in San Francisco. The international flying continues to be very strong. But the smaller domestic schedule, combined with where we are in the recovery, I think it's going to be just fine for San Francisco in terms of our profit contribution. And San Francisco, Asia continues to perform exceedingly well.

So Andrew, I guess you mentioned this a little bit in your prepared remarks, but we've been hearing and seeing some data on corporate travel getting a bit better as well. Could you maybe dig in and speak to maybe any particular markets or verticals where you see any sort of outsized corporate growth? And have you seen this corporate growth sort of broadening out to make it maybe at a more sustainable level today than at other points in the recovery?

We've all sat on calls and predicted the recovery of business travel more times than I can count over the last few years. And I will say, Q4 was okay. It wasn't spectacular in any way. But as we started January in the new budget season for all of our big corporate clients, we did notice a significant step-up. So it's really early. It's only been a few weeks, and I hesitate to say, oh my gosh, it's fixed, because it's still well behind where it should be relative to GDP growth, of course. But look, it's a really nice step-up. We're seeing close-in yield gains as well that result from that. And I think that's one of the reasons our domestic RASM outlook is as strong as it is. So hopefully, that continues. At the end of the quarter, of course, we'll report on that and let you know how it looks. But at least for the first two weeks of January, we've gotten off to a really strong start and it gives us increasing signs that this is going to be a very good year.

And then for my second question, Mike, you have obviously a lot of talk on the call just on your future free cash flow potential. Just when you're looking at your free cash flow, when do you anticipate you will become a cash taxpayer?

Andrew, I think it's a few years off still. Let me get with my treasurer, Pam Hendry, and follow up with you on the precise year. It does depend on how CapEx moderates and it depends on profitability, but it's still a few years off.

I'll just keep it to one here at the end of the call. But maybe Scott or Mike, I mean, coming back to the context that your stock is trading like 3 times or 4 times P/E probably for the second year here, and also giving you guys credit, because I know a lot of us didn't think you could hit those United Next targets so many years out. But you are guiding to roughly flat margins at the midpoint this year. And I think what investors are worried about is things you can control or at least perceived control like costs that are going up for the industry here. Is this just a continued view that United is going to decouple from industry trends where you're going to be able to drive margin premium? And I guess what can you give investors confidence that that is the path forward here?

I believe we are witnessing a structural change in the industry, and there is ample evidence this year to support that. I think the investment community will eventually recognize this change as well. There is an industry that has traditionally operated as a commodity, but United and one of our legacy competitors have clearly set ourselves apart from that model. This differentiation is leading customers to prefer our airlines, resulting in the majority, if not all, of the revenue growth in the industry benefiting those two airlines. This is occurring alongside a convergence of costs. The primary reason low-cost carriers thrived was due to their lower costs, which are not as prominent anymore. This shift establishes a lasting potential for higher margins, creating sustainability for those margins. While we are still uncertain about the precise level it will settle at, it is clear this new margin is higher, more stable, and more resilient, though the capital markets have yet to recognize this reality.

So Andrew, I'd like to get some help from you if you can, in terms of helping to think through how some of the negative margin capacity that's going to be forced out of the industry is going to impact your fare ladder. Beyond the upward pressure sort of general maintenance, I'm just trying to like understand if we see a bunch of basic capacity rationalized, because some of these negative margin unbundled carriers have to take capacity out. How is that going to impact sort of basic fares versus economy fares? Anything you could give us to help translate that impact of capacity shift into what sort of impact it's going to have on your fare ladder would be really helpful.

I mean, I think that's probably a lot more detail than I can do on a conference call, to be honest. But just generally, unproductive capacity has been leaving the system. I think that's been good for the system and good for United. And so we'll manage our RM like we normally do to take advantage of all of the opportunities. But I just want to reiterate that our choice to diversify our revenues at the top of Polaris and at the bottom of Basic Economy is not something we're going to be giving up on. The Basic Economy is an important part of the airline; it is what our customers want, and we will continue to provide choice. We expect to provide more and more of it as our gauge increases. The competitive dynamics are what they are; I can't predict them. I only really can talk for United, and we'll obviously maximize our returns and do the right thing. But again, the diversified revenue streams that we're putting out there are working for us across not only the fare ladder but our geographic dispersion of our flying. And we couldn't be more pleased with our revenue results quarter-after-quarter, not just in Q4 and not just last year, and the outlook we have. If the industry is dynamic, it's always changing, we'll change with it. But it is a good time to be at United Airlines and be an investor in United Airlines.

And are you seeing any sort of benefit yet from some of that capacity rationalization as you look forward into forward bookings, or do you think that's something that's going to develop as we get through the year?

I think our outlook for Q1 for domestic PRASM says it all.

I know you talked about London and about slower growth across the Atlantic. I was wondering if you could talk a bit more from a consumer perspective. There's been some talk just about all the capacity across the Atlantic next summer. Do you see any impact on ticket prices? Do you see them going down or up, just given all that?

David, what I would tell you is that we're prepared for an incredibly strong summer. As I've said numerous times, we decided to go slow this year. We've tilted more of our capacity, particularly in Q1, to Southern Europe. And the biggest change is what we see with the consumer is that destinations in Spain and Italy have become more year-round destinations than seasonal. That is new post-pandemic, and we're reacting to it and moving more and more capacity out of Northern Europe, out of London Heathrow or Germany, and into Southern Europe, and we'll probably do more of that again next year. In terms of the price points, I'm not going to exactly predict that at this point. We don't really talk about pricing, but I would just say we expect a strong summer across the Atlantic. Our capacity is not growing materially, and we think that's going to really allow us to get all of the capacity we've added over the last few years to be mature and solidly profitable in 2024.

Scott, you made some comments on CNBC this morning that the MAX grounding broke the camel's back. Do you have confidence in Boeing's current leadership that it will be able to fix its problems that some people will have called the leadership into question and have faltered for all the quality problems? So do you have confidence in the current leadership?

Boeing has a long and impressive history with many talented individuals. They are one of the leading engineering and technology companies ever and have been a significant American company and exporter. Although they are facing challenges currently, I believe that Boeing is fully dedicated to making necessary changes and improvements. I am encouraging them to accelerate this process. This situation may affect United in the short term due to Boeing's difficulties, but there are capable people at Boeing who will ultimately resolve these issues. At crucial moments, we are also their strongest supporters. No one outside of Boeing wants to see them succeed more than I do, and I will do everything possible to assist them.

Just one clarification, Scott, about your comments about MAX and some people are misconstruing it that you are planning to cancel the order. Can you clarify your comments about MAX 10?

We are not canceling the order. We are taking it out of our internal plans. So we're removing it from our internal plans and we'll be working on what that means exactly with Boeing. But Boeing is not going to be able to meet their contractual deliveries on at least many of those airplanes, and I’ll just leave it at that.

Thanks for 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.