Good morning. And welcome to the United Airlines Holdings Earnings Conference Call for the Second Quarter 2024. My name is Brianna, and I will be your conference facilitator today. 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 Edwards, Managing Director of Investor Relations. Please go ahead.

Thank you, Brianna. Good morning, everyone. And welcome to United's Second Quarter 2024 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. 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 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 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 and available to assist in the Q&A. And now I'd like to turn the call over to Scott.

Thank you. Good morning, and thank you, Kristina. The United team produced another solid quarter. We did that while further sharpening our focus on improving our already strong safety culture over the last several months. Looking at a wide variety of metrics, our airline is safer than ever before with our culture rooted in constantly striving to make our airline safer for our employees and our customers. So we're continuing to work closely with the FAA and other partners to do exactly that. Additionally, thank you to our employees for delivering top-tier operational performance amidst challenging weather, including Hurricane Beryl in Houston and getting our customers to their destinations safely and on time. While this is a quarter where industry capacity growth exceeded still solid demand, it was also a quarter that continued to show the industry developing along the lines that we've been anticipating for the past couple of years. The pressure other U.S. airlines are experiencing today is due in large part to their unprofitable flying in many domestic markets. It was always inevitable that carriers would begin to cancel this unprofitable flying, and you see that happening in earnest in the second half of August in the schedules. As a result, it appears that the domestic industry capacity growth will moderate by roughly 5 points by the fourth quarter compared to where we were in the second quarter, which should provide a constructive setup as we close out the year and a particularly beneficial backdrop heading into 2025. Since COVID began in early 2020, United has consistently been ahead of the curve on the big picture developments driving the industry. We're running the best operation in our history despite operating in the most difficult hubs in the world, Chicago, Newark, and San Francisco and despite having more exposure to the issues at Boeing than any other airline in the world. Our people are proud of United and they have completely transformed the service and care for our customers. And we have the best commercial and revenue management teams in the world that are always on top of the demand environment, making strategic and technical adjustments to drive revenue. And the proof is in the pudding. We've now led the industry in domestic PRASM growth three years in a row, and that cannot happen by accident. United Next was a great strategy but a great strategy only works with great execution. And that has allowed us to structurally and permanently change our position within the industry. And while we are proud of our relative outperformance to the industry, we also know that our absolute results are all that really matter. They're solid right now but I can already see the impact that the schedule changes are having on our advanced bookings and yields as we hit the mid-August industry capacity inflection point. We are absolutely committed to our no-excuses philosophy and controlling what we can to hit our guidance. While the industry is developing as we expected and our relative results are outperforming as we expected, we are not going to rely just on industry changes outside of our immediate control. We're also taking steps in the short term to ensure that we meet our targets. That includes aggressive cost management and reducing domestic capacity by 300 basis points in the fourth quarter. The industry rationalization that we expected is beginning to play out, and we've reached the inflection point. The United Next plan continues to be the winning strategy for United. And as a result, we continue to expect to be within our full-year 2024 EPS guidance range of $9 to $11 despite the tough industry environment around us. And with that, I'll hand it over to Brett.

Thank you, Scott, and good morning. This quarter, we continued to achieve record operational performance, delivering the best on-time performance, completion factor, and seat cancellation rate for a second quarter since the pandemic, while flying the most passengers in the quarter ever in our history, over 44 million. Looking across our network, Newark, our largest hub, broke several of its own records in 2Q with its April and May on-time departures being the best in company history. The FAA waiver allowing for better balance between the number of flights and with the runways, facilities in aerospace and safely and efficiently handle it at Newark has enabled us to produce these results for our customers. Operational excellence was not limited to Newark. Six out of our seven hubs departed more on-time flights than our primary competitors. The improvements made over the last year to adapt to a more challenging operating environment have shown meaningful benefits to our reliability, particularly during times of regular operations. Our strong operation, underpinned by our safety culture, is translating into an even better customer experience and driving efficiency benefits to the bottom line. This would not have been possible without the commitment to operational excellence from our frontline employees. So thank you to all of them for their hard work. As I mentioned before, our strong operation is not only driving efficiency, but it is also positively impacting our customer experience. As a result, our NPS scores were the highest second-quarter results since the pandemic. We're investing in all aspects of our product, including the introduction of Tillamook ice cream on board our aircraft. Additionally, the United app continues to be the most downloaded airline app with new features like seat preferences that automatically reseat customers when their preferred seat becomes available. This summer, we also started texting live radar maps to customers during weather delays, so they can stay informed about how inclement weather in one part of the country can impact their journey. Investment in our leading product and customer experience will remain a key priority to United and will continue to differentiate us as a premier global U.S. carrier. Shifting gears to our employees, I'm pleased to share that after a brief pause in pilot and flight attendant hiring classes due to the Boeing delivery delays for the months of May and June, we resumed these classes in July. Looking ahead, we have a busy end of summer in front of us. The United team continues to innovate and adapt to a complex operating environment. While Andrew will describe some of the near-term trends, it's clear that United has a bright future, and we remain on track to deliver $9 to $11 in earnings per share this year. I'll now hand it over to Andrew.

Thanks, Brett. United today reported total revenues in Q2 of $15 billion, up 5.7% year-over-year. TRASM was down 2.4% on 8.3% more capacity year-over-year. We expect United's year-over-year unit revenues in Q2 to be the best of all our large peers. Domestic PRASM fell by 1.9% on 5.3% more capacity. As widely discussed, unprofitable industry capacity that exceeded still solid demand put pressure on domestic PRASM in 2Q. International PRASM fell by 3.6% on 12% more capacity year-over-year. Flights across the Atlantic had a small PRASM gain, while flights to Latin America and Asia continue to see declines year-over-year. Cargo yields have also stabilized at higher levels than forecasted, which is helping cushion some of the PRASM declines we have seen. MileagePlus had yet another strong quarter with revenues up 13%. Our three key revenue segments continue to gain ground. United gained ground in our key markets among frequent business road warrior travelers, which we continue to believe is due to our no-change fee policy, our diverse set of products, our leading global network, and our award-winning MileagePlus program. Revenue from these road warriors was up 11% in the quarter, while total passenger revenue was up 5%. Consolidated premium revenues increased by 8.5% to $7.4 billion. Premium capacity was up 9.1%. Demand for United's premium capacity, including Economy Plus, was strong in the quarter, outperforming non-premium seats. Business load factor contribution in the Polaris cabin increased year-over-year by 2.6 points. Polaris and Premium Plus RASMs were up 1.4 points year-over-year. We also continue to see strong demand for our premium domestic first-class product with sold load factors up 13 points versus 2019 and 8 points versus 2023. Contracted business revenues were up 10% year-over-year. Basic Economy revenues remained strong and were up 38% year-over-year. United plans to continue to increase the total number of seats we offer in basic as we grow our mainline gauge. However, basic as a percent of sales will likely stay stable or decline as we continue to expand higher margin premium capacity faster. When United offers basic fares for sale at competitive rates, we believe customers will always choose United first over a ULCC or an LCC, given the features of our product, which includes seat power and seatback entertainment along with the unmatched benefits of MileagePlus. Q2 revenue results for United and the industry did trail expectations. Looking back at the quarter now, it is increasingly clear that demand was indeed strong. It just could not keep up with the incremental domestic industry capacity added in 2024. Excess capacity, in turn, pressured yields. While July domestic industry capacity growth is published at similar levels to June, published capacity levels pivot in the second half of the quarter and beyond. Based on these schedules, we estimate that Q2 2024 industry scheduled domestic capacity increased by 6.6%. As we head into Q3, we expect July and the first half of August will look very much like June and Q2. We do see a step down in the second half of the quarter to 2.5% to 3% and through the overall quarter at about 4%. We also see the industry altering capacity on peak travel days more than usual later this summer. Peak day spill traffic is no longer filling up excess capacity on off-peak days such as Tuesday, Wednesday, and Saturday as it did in 2023 for leisure-focused lower margin airlines. We can also see from our internal data that Latin America unit revenue trends have stabilized in Q3 and PRASM declines will moderate significantly for the first time since 2Q 2023. But Latin America and Deep South unit revenues were strong in Q2 and look good going forward. In the third quarter, we do expect Pacific PRASM to remain negative. We do not lap our 2023 expansion wave until the fourth quarter. During the fourth quarter, we'll also lap China's return and expect more normal unit revenues from China, which is currently a material headwind in the region. Growth rates for the Pacific will also moderate as we end the year. We expect premium cabin RASM in Q3 will once again outperform coach at a level stronger than Q2 as we continue to see growth of road warrior customers in United and the continued popularity of the many elevated products that we offer. Mid-August is clearly the pivot point we've been expecting for some time as others race to adjust with what we believe is unprofitable flying heading into the period of seasonally less leisure demand. Competitive capacity overlap on United nonstop routes peaked in Q2, which will also help build better unit revenues for the second half of 2024 for United. We believe it's clear in our internal advanced revenue data for August that the pivot will be beneficial to United. Advanced PRASM for United is currently booked 4 to 5 points better in the second half of the quarter than in the first. Unfortunately, this expected pivot occurs only for about half of Q3. So the revenue quality will continue to be impacted for the time being. We're encouraged by the yield improvements we see booked in the second half of the quarter. As we look towards Q4, we estimate that industry domestic capacity will only be up about 1.5% to 2.5% based on what's currently offered for sale. On off-peak days, capacity could be flat year-over-year. While our relative results indicate that the United Next plan is working, we have decided to cut approximately 300 basis points of planned domestic capacity in the fourth quarter. While there are many macro issues outside of our control, the amount of capacity we offer is within our control. This change will help us accelerate RASMs we see in the second half of Q3 into Q4 and beyond. As noted in our published schedules, we will be optimizing our capacity in Q4 by time of day and day of the week, similarly to what we did in Q1 of 2024, which was very successful in increasing our relative RASM results. With that, I'll say a great thank you to the United team for another strong quarter with industry-leading financial and operational results. And I will hand it over to Mike to discuss our financial details.

Thanks, Andrew. And thank you to the United team for all of their hard work this busy summer season. In the second quarter, we delivered pretax income of $1.8 billion. Our earnings per share of $4.14 came in ahead of expectations driven by good cost performance. In the quarter, we continued our no-excuses approach to managing the business to maximize profitability and to consistently deliver on our earnings guidance. The second quarter is another solid result despite some capacity headwinds to the industry. We have never been more confident that our United Next strategy is working. We've successfully differentiated our business, and that will support sustainably higher profitability. Turning to costs in the quarter, unit costs, excluding fuel, were up 2.1% year-over-year on 8.3% capacity growth versus the second quarter of last year. Our strong second quarter CASM-ex performance was driven by three factors. First, over the year our operations team has invested in technology and improved their processes to better recover from irregular operations. Our ability to recover faster leads to a more reliable operation, and a more reliable operation is a more cost-efficient operation. Notably, crew-related disruption expenses such as premium pay and deadheading costs are much lower than we have seen during similar events in prior years. The full impact of these improvements drove approximately 1 point of CASM-ex improvement in 2Q compared to our own expectations. Second, as yields softened throughout the quarter, we doubled down on expense management to ensure we hit our EPS guidance. As we've discussed before, we have a no-excuses mentality with respect to hitting our EPS guidance and we will do what is necessary in the quarter to achieve that. These specific actions led to another 0.5 point of CASM-ex improvement in the quarter versus our plan. Finally, approximately 0.5 point of CASM-ex is associated with the timing of maintenance events, which were delayed and will likely be seen in the second half of 2024. As we look to the third quarter, we expect industry capacity rationalization to begin to take effect starting in mid-August. Money losing flights across the industry are being cut rapidly, thus supporting our confidence in our trajectory for both the third quarter and the full year. Our own third quarter system capacity plan moderates by approximately 3 points versus the second quarter on a year-over-year basis. While this is the correct action to take for United, this reduction in capacity, along with the impact from Hurricane Beryl in Houston puts pressure on CASM-ex and makes the third quarter the high point for CASM-ex for the year. Altogether, with the revenue backdrop that Andrew described, we expect our third quarter earnings per share to be in the $2.75 to $3.25 range. As for the full year, we continue to expect to fall within our original EPS range of $9 to $11. I realize that many of you will immediately point out that this implies a better-than-normal seasonal pattern for Q4 versus Q3 earnings per share. That's accurate, and it's what we expect. It has nothing to do with seasonality and everything to do with a better balance between supply and demand in the fourth quarter, which should lead to significantly higher yields and therefore, improved profitability. Andrew already touched on this, but I'd like to reiterate it. We aren't hoping for moderating industry supply; it's already happened and you can see it in published schedules and with our own reductions. Despite the excess industry capacity, it's clear demand for the United product remains strong and we expect our revenue growth to outperform the industry. Coupled with disciplined cost management, we expect United and one other airline to represent the vast majority of industry profits in 2024. On the fleet, in the second quarter, we took delivery of four Boeing MAX aircraft and five Airbus A321neo aircraft. We expect 66 aircraft deliveries in 2024. And with the movement of certain PDPs related to deliveries in future years, we now expect total adjusted capital expenditures to be less than $6.5 billion for the year. In the quarter, we generated $1.9 billion of free cash flow, while also continuing to invest in the business with almost $1 billion in capital expenditures. Earlier this month, we took advantage of this position to improve our balance sheet by voluntarily prepaying the $1.8 billion outstanding balance of the MileagePlus term loan that had an interest rate near 11%. This reduction in high-interest rate debt significantly reduces our interest burden. As of the end of the quarter, our adjusted net debt to EBITDAR was 2.6 times. I'm encouraged by our strong performance in the second quarter. Our team remains nimble as we've demonstrated our ability to adjust to an evolving environment. Thanks to the whole United team for their hard work. The United Next plan continues to run on all cylinders, and our confidence has never been higher about the trajectory of our business. With that, I'll pass it over to Kristina to start the Q&A.

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

The first question comes from Jamie Baker with JPMorgan.

First one for Andrew. So look, American is still in the early innings of backpedaling on some, not all, but some of the distribution and corporate contract revisions that they made last year. Curious what United is experiencing and what you're seeing and hearing, your conversations with corporate partners, how you expect commissions to trend over time, that sort of thing?

Well, first, I'd say we don't believe there was a sudden material or a significant windfall to United when American attempted to disintermediate travel agencies and force companies to book direct. So I don't think there'll be a windfall as American flips back again. We've maintained really long-term partnerships with our agencies and corporate partners. What we did during this time period is make sure that we put in long-term arrangements to gain long-term market share and make the corporations and the travel agencies more loyal to United. We'll see if that actually occurs, but I think the benefits of that are actually to come more than they are currently in our current revenue outlook. So that was our perspective on it. We think that there's no sudden windfall to United as a result of their change.

And then second, and maybe this is best for Scott. But just looking now at industry revenue to GDP, and I tend to use A4A figures just to remove forecast there. The recovery in this metric clearly stalled in the fourth quarter. It remains stalled in the first quarter. So we're still below that pre-COVID trend line. We've talked about this in the past and the possibility that post-COVID increased consumer mobility could allow the metric to exceed the pre-COVID average. I'm just wondering if you still think that's a possibility and whether this even shapes how you think about growth, or perhaps it no longer factors into your thinking at all, which is fine. Just any thoughts on that topic?

Well, this will be a little geeky economics 202... I think that absolutely, the airline revenue to GDP ratio is going to trend back. I'm not sure where it will close, but it is going to trend back upwards. If you looked in history, every time capacity gets ahead of demand, this ratio declines. The reason that happens is that demand for air travel is inelastic. The very first project I worked on when I was an analyst at American Airlines was estimating demand elasticity, it is inelastic. Every analysis you look at indicates that. But when airlines get over their skis on capacity, they rush to get the load factors up and they lower prices, and that lowers overall revenue. So it really is just as simple as this ratio goes down when supply exceeds demand. I am not at all surprised to see that happen. I am incredibly encouraged to see the rapid response that is happening. We'll probably talk about it more as we go through the call today, but beginning mid-August, I mean I've been through these cycles with capacity many times in my career, this is the fastest response. It’s also the biggest gap between the leading airlines and the other airlines, which is part of the reason the response is so fast, but the fastest response I've ever seen. So I expect that to close, but I think it's purely a function of capacity.

Our next question comes from Andrew Didora with Bank of America.

First question probably for Scott. Last night, Alaska announced more premium seating. There are reports out there, JetBlue could do the same. Obviously, a lot of discussion on your premium strength on the call today, certainly a tailwind. Just how do you think some of this premium RASM growth can trend from here, do you think some of it will be competed away? Or is the United product so unique that you feel like you can hold on to most of it here? Just would love your thoughts.

I'll start off with first, and it's really important, United is a premium business airline not because it's the latest fad but because it's core to the hub system we operate from. Our hubs are in premium markets. Given the success of us and one other airline with a similar setup, it's no surprise that others are copying us with new cabins or expanded cabins as we've seen in the last few days. I think attempting to copy our segmentation plan when it's something we’ve been implementing in earnest for more than seven years will be a challenge for anyone that does not operate from business center hubs. Our segmentation strategy is built on a complex set of products along with delivering excellent customer service. The ULCC business model in particular is built on simplicity, not complexity. So our belief is our lead in the premium front is generational and not short term. I'm not at all concerned about the changes of others. Maybe we're even a little flattered as they copy us.

I have a quick question for Mike. Great job on managing costs this quarter. Can you explain some of the near-term cost adjustments you're considering as you notice revenues are coming in slightly lower than expected? Are these adjustments primarily related to timing, or are they costs that will be permanently reduced?

Yes, it's a mixture. As I said in the call, running a strong operation is the best thing we can do for cost efficiency in the near term. The operational team has done a great job. We have some opportunities within tech ops also in this quarter, though. Some of those costs simply pushed to the right and were timing related. You will see some pressure in Q3. As we look longer term, some of the headwinds around CASM include labor deals that we're looking forward to finalize. We also expect to see some uplift in regional flying in the future. That will work against the gauge benefit that we expect over a two to three year timeframe. And so that's another headwind. And look, as Andrew spoke about, our premium product is in great demand. And so we continue to make investments in our product, in our airports, in our catering. And those will add costs, but we expect to add even more revenue. Those are some of the headwinds. Now tailwinds and we've been on this for several years, but we have an idiosyncratic tailwind of gauge that is like no one else in the industry. We continue to see some real opportunity from that. As we spoke about last quarter, we've now level loaded our skyline for aircraft. That's going to create a more stable growth pattern, which will allow us to hire more efficiently and make sure that every asset is staffed appropriately, allowing for more efficient growth. And then longer term, I do expect to have a more efficient maintenance operation. So a little bit of the puts and takes.

I'm going to actually pile on and give kudos to Mike, Jonathan Ireland, and Toby, because much of what you see in this is real structural changes. I mean Mike talked about the benefit that we've gotten from irregular operations. That team, the three of them combined with a lot of support from Jason Birnbaum, our Chief Information Officer, who's sitting in here with technology are really identifying the places where there's opportunity to pull permanent costs out. To me, like there's other places that it's happening, but the irregular operations expense improvement is one of the biggest proof points. We just have a great team that is doing those kinds of things. We didn't build that into the budget at the start of the year. We didn't realize how successful it would be; they're doing a lot of other work like that. I think we should have a really solid process and team for cost. While it was great to hit that in these quarters, that's something that is a permanent example, and we'll always spend less on irregular operations than we did in the past. I think there's a lot more of that to come.

Our next question comes from Conor Cunningham with Melius Research.

I think that many of us can buy into the idea that capacity is going to be rationalized near term, but the fear over the longer term is that someone is going to start to cheat again. So what's United's plan if the capacity reductions are just short term? Clearly, your margin structure has slipped; you're playing from an area of strength. But just curious on how you're going to approach a competitor set that's always looking to add supply at some point.

Well, let me start off with my views. I mean the unprofitable capacity is just not sustainable. We see the changes occurring, as Scott said. As you think about this question, you normally look at the pretax margins and liquidity and margins. But we did the same. However, I think even more insightful is looking at the network health of our competitors and how that is different today than it's ever been in the past to answer your question about whether the capacity will come back. Our estimate is margins for the worst quartile of flying for the five least profitable domestic-centric airlines is negative 25% to 35% today. We estimate that the severely unprofitable capacity is almost 10% of domestic ASMs. In the past, the magnitude of the worst line, in my view, has never been this bad. Lower margin airlines have never had such an overall gap to the higher margin airlines like United. I don't think one low margin airline failing or shrinking dramatically in any way will change the outcome for the others at this point, given the magnitude of the losses of the worst fly in. The other interesting thing is that the gross fly ins by these carriers is also extremely unprofitable; in some cases, they have largely run their course and there are just no new opportunities available today. That setup is really different and provides us with a backstop that we think that permanent change is on its way. Exactly when it occurs over the next quarter or two or three, it is hard to say. But it does feel like when you look at these facts and the magnitude of the worst quartile profitability that this is a very different environment and the capacity hopefully will be slow to come back. Only time will tell.

I understand that it's early, but you're making adjustments for the fourth quarter, and the implications for 2025 could be significant. I know you're not trying to provide capacity plans for 2025, but the United Next plan aimed for about 4% to 6% annual growth. Has that perspective changed considering the current environment?

You're right. We're not going to give the capacity guidance. What we are going to say is we're going to continue with some of the fundamentals of United Next, which improved connectivity was really important, and we'll continue to do that as we go forward. One of the key ingredients to United Next was the large narrow-body gauge and fleet size. As of today, we're a 110 aircraft short on that. We kept smaller aircraft around to compensate for that. But the A321 at United today is operating with 8 margin points above that of the rest of the narrow-body lead. We're really bullish as we get to the right fleet mix, one that all of our competitors already have in their business plans. We are going to continue to push the margins in the right direction. If you have anybody in the commercial team, they realize the importance of getting to a double-digit margin soon and we're all rowing the boat in the same direction to achieve that.

Our next question comes from Michael Linenberg with Deutsche Bank.

I know we have focused a lot on domestic capacity and it does feel pretty good as we move through the year. I guess one question on domestic. The 3 point reduction that you talked about in the fourth quarter, what's kind of the base or is that already loaded in the schedule or is that on the come?

We're not going to give guidance for Q4 at this point. We haven't finalized our Q4 schedules but we’ll make that information available.

And then, Andrew, since I have you on flipping over to international. I'm sure you've seen the headlines recently from Lufthansa, even Qatar Airways, making a deal about too much capacity, although at times, it seems like pot calling the kettle black here. But what are you seeing internationally, I guess, competitively as things move over time? And I do realize that some of the conversation coming out of the European carriers is an influx of capacity from Asian carriers to Europe. But maybe what are you seeing in some of your other major traffic lanes? Is that a potential issue as we move from '24 to '25?

The Asia-European dynamic mentioned by many airlines is not particularly relevant to United Airlines. I don't think that negativity affects our situation. However, we do see a shift happening. In the Pacific, we saw an 83% increase in capacity year-over-year last Q4, and we've nearly returned to pre-pandemic levels. This year, we expect a high single-digit increase. We're optimistic about this transition. In Latin America, South America has already shown positive growth, and we anticipate similar improvements in other Latin American markets. We have consistently stated that we are taking a pause on the Atlantic, unlike others. Our results in the Atlantic are strong and reflect the success of our strategy; we are pleased with how that segment is performing. The Atlantic appears promising moving forward with solid profitability. Overall, international operations are fundamentally different now compared to the pre-pandemic period, and our results demonstrate that change.

Our next question comes from Scott Group with Wolfe Research.

Mike, just want to clarify a couple of things. So you had a comment about the implied fourth quarter guidance. Just want to make sure you feel like we should be tracking towards the midpoint of the full-year guide. And then there was a comment in the release that says that you guys expect to have leading unit revenue performance among peers in the second half of the quarter. I know Delta talked about domestic RASM inflecting back positive in September. So I just want to make sure we're all on the same page and you think that you'll be positive on RASM exiting the quarter.

I'll let Andrew discuss September PRASM. At this stage of the year, the earnings per share range of around $2 and between $9 and $11 is something I would have preferred to narrow under normal circumstances. One would typically expect more certainty at this time compared to January when we first provided our guidance. Although we are experiencing a significant shift in the industry, pinpointing the exact timing and scale is challenging. Looking ahead to the third and fourth quarters, current trends based on yields and the published capacity suggest we will be at the lower end of the $9 to $11 range for the year. There are several factors indicating potential reductions in unprofitable flights that could lead to a better outcome. We intentionally kept the range broad and are committed to achieving a result within it.

I can confirm that we expect September PRASM for domestic flights to become positive based on the 4 to 5 point improvement we've observed so far, and we believe this trend will continue. Additionally, we anticipate that July will be the lowest monthly performance of the year.

And then I don't know if you have any early thoughts on CapEx for next year, less than $6.5 billion this year. Any thoughts on directionally higher, lower or similar for next year?

I think very little change from our prior guidance. We're targeting that 100 narrow bodies per year as we rebaseline the skyline, and nothing that we see right now would cause me to change that today.

Our next question comes from Duane Pfennigwerth with Evercore ISI.

Just on corporate, I think the last time we were together, you talked about improvement in the March quarter and basically holding serve in 2Q. I wonder if you could remind us your view on how recovered it is, both on a volume and a revenue basis and your thoughts on potential improvement from here. Basically, what's baked into the guidance in terms of incremental improvement on corporate?

The most important thing is it's a slow but steady improvement. I don't think we see a rapid change occurring anytime soon. It's recovered to roughly 100%. Obviously, that's far behind where it would otherwise be on a typical GDP relationship. The load factor contribution of corporate is down more than a few points relative to 2019. So it is a much smaller percentage on the airplane. But as we look, for example, in Polaris these last few months, we found the Polaris business load factor to be up a point and the premium leisure demand was down a point as we slowly transition back to corporate. But it's going to take a while, but it is happening.

And then maybe one for Mike. Can you just remind us what the next opportunities might be to pay down high coupon debt? Obviously, you took down loyalty debt, high coupon loyalty debt as soon as it was prepayable. What are the next two to three opportunities on that front?

As I mentioned earlier, we're currently at 2.6 times trailing 12-month net debt-to-EBITDAR, compared to 2.5 times in 2019, which means we've returned to pre-pandemic levels of leverage. We have a significant amount of cash on our balance sheet, and we're quite pleased with it for these reasons. We're also funding all the organic growth to support United Next, investing in our airplanes and our people, which are our top priorities for cash usage. The third priority is investor returns. Given our strong balance sheet and the organic growth we're financing, we now have considerable flexibility to consider investor returns and engage in further deleveraging. Regarding your question, there are currently no prepayable instruments with high coupons comparable to the 11% debt we just prepaid. There are no immediate opportunities of that scale to prepay additional debt.

Our next question comes from Sheila Kahyaoglu with Jefferies.

Andrew, maybe this one is for you or Scott. I believe you made a comment that the spread of the unit revenue performance is going to broaden between the premium mix and the economy cabin. So slightly different than the comment on premium your competitor made. So I think your premium revenues were actually down on a PRASM basis. So I wonder how much of that is premium softening or is that more revenue management actions you guys are taking to help with the economy cabin?

I'll give you the distinction. The premium cabin RASM was up. The premium RASM contribution was down and that's because of the definition of whether it includes Economy Plus or not. Economy Plus is obviously part of the main cabin. Economy Plus was infiltrated by the yield weakness of the main cabin. We did see that issue, and it resulted in the number that you just saw. If you look at just the PRASM contribution of Polaris and Premium Plus and domestic first-class, you would find that was up low single digits year-over-year.

And then maybe if we could talk about following up on, I think, Mike's question about Atlantic and regional capacity around the world. On Atlantic, how do you think that trends over the next four quarters? Do we have the same sort of oversupply issue you don’t seem to see that? And is that just given the fleet dynamics with wide-bodies and the premium cabin there? Can you maybe elaborate on that?

I believe the Atlantic had an exceptional quarter last year, especially noteworthy was June, which was remarkable. We're actually seeing a year-over-year improvement, and we're proud of that achievement. We believe our decisions regarding capacity allocation have enabled us to outpace our competitors. The capacity increase in Southern Europe, up 31% year-over-year this summer, has driven demand limits in that region. Overall, when considering United's performance, including our results in Southern Europe, I think it has been quite strong compared to last year. We are being cautious with our schedule planning for this year, and that careful approach will continue through the end of the year with our published schedules. Therefore, we're optimistic about the Atlantic's outlook moving forward.

Our next question comes from Brandon Oglenski with Barclays.

Mike, just a point of clarification here. I think maybe last quarter or two quarters ago, you said beyond 2024 CapEx should be in the $7 billion to $9 billion range. Is that with that anticipation of 100 narrow-body aircraft deliveries baked in?

That's precisely correct.

And I guess maybe for my follow-up for Scott or for Mike. I really appreciate the no-excuses mentality here. I think the Street likes your just EPS guidance and focusing on bottom line results. But I think you both would agree that you're below your next targets on margins right now and you are below profitability of last year, too. I think part of the challenge for investors here because your multiple is quite low, and I think you both would agree on that as well. Your CapEx outlook here is roughly matching your operating cash flow. I realize if you hit higher margins that you could offset some of that. But I think what investors are saying is, hey, why can't we see a more balanced capital allocation strategy, maybe a little bit less CapEx? I think maybe investors are frustrated that with the Boeing delivery delays, the MAX 10 issues, you guys didn't back off capital spending a little bit more. So can you put that in context for folks and why taking so many aircraft in the future should be relatively beneficial?

I completely understand your perspective. I am very much focused on creating shareholder value and generating free cash flow for our shareholders over time, as it's essential for improving our valuation. We recognize the importance of this. However, our United Next strategy is proving effective. Our confidence is based on the significant margin differences between successful and struggling companies, which have never been greater. The evidence indicates that we're not just in a challenging situation; we see a bright future ahead, and things are looking optimistic. While we may not know exactly how long this challenging phase will last, we are emerging from it in a strong competitive position with a unique product that our competitors cannot easily replicate, strengthened by competitive advantages that will lead to higher margins. As these margins grow, we will see increased free cash flow, which will translate into returns for our shareholders. I would ask for a bit more patience as we navigate this phase. All signs indicate that our strategy is effective, so you can expect that we will not be scaling back our efforts.

Our next question comes from Savi Syth with Raymond James.

Regarding the earlier comments on the Pacific region, I understand that it hasn't fully returned to its 2019 levels. The mix has changed, particularly with China showing a significant decline. Are there any notable consequences from this change in mix? Also, how do you view the potential for China to rebound, or do you see this as the new normal?

Savi, I think it's the new normal. Demand for China is down dramatically from where it was in 2019. It's also difficult to fly there because of the lack of Russian overflight ability. Those two combinations just make this the new normal. We've adjusted; we're back to pre-pandemic capacity. We've reallocated the capacity, I think, in a more profitable way. The Pacific is generating a solid margin. Obviously, the negative RASMs, particularly driven by China as China has fallen back to normal revenue performance, caused year-over-year numbers for the Pacific to look a little funny. We again lapped that later this year, and we'll definitely be beyond that after Q4.

Regarding the domestic market, last year many domestic companies were struggling, possibly due to overcapacity, but United did not face the same issues. I'm interested in understanding what might have changed in the second half of 2023 compared to the current situation. Is it related to capacity composition, passenger behavior, or pricing trends? Why is there more pain being felt today compared to the second half of last year?

I think it's all of the above, all those issues you just said. We've worked very hard to insulate ourselves from the changes, sometimes not very sound changes that are being made in the industry. I think we did a great job of insuring against that, but it's not a 100% insurance plan. In this particular quarter, the capacity growth was just so significant that it pressured yield in a way that it didn't in, for example, Q1. Our schedule changes in Q1, if you look at our RASM change domestically in Q1 alongside the Atlantic, our schedule changes were incredibly effective, particularly during the off-peak period, and maybe less effective in a peak period such as Q2. That’s one of the reasons I think we're excited to see how Q4 turns out because not only we’ve taken the same recipe book for Q1 and put it into Q4, which again had RASM changes that I don't think anybody in the industry expected out of United, but this time, the industry itself is even remarkably more different in Q4 of this year than it was in Q1 and how it’s reacted and how it’s changed. Again, it's changing because that flying has extremely negative margins by many of our competitors. So that’s a long answer to your, I think, very simple question.

Our next question comes from Ravi Shanker with Morgan Stanley.

Just a couple of follow-ups here. I know you said you didn't want to commit to your own Q4 capacity plans. But do you have a sense of how much industry capacity still needs to come out of the fourth quarter to get that demand and supply in balance, especially kind of that would help push your guidance up to the top half of the range?

I can't say for certain. What I can tell you is that we expect domestic capacity in Q4 to increase by about 2%, give or take a little.

And maybe a second one. I think it's pretty clear that investors are looking forward to your Investor Day as a pretty significant catalyst for the stock, especially kind of for long-term earnings and kind of updated United Next targets. Do you have a sense of when the timing of that would be and kind of when we'll hear more about that?

We don't have a date scheduled yet. We're working on it. We are still targeting later this year and we'll be back if and when we schedule and finalize that date.

Our next question comes from Tom Fitzgerald with TD Cowen.

I was wondering if you could talk a little bit about connected media and what the feedback from customers has been, what the feedback from brands has been, and just the timeline for that business to ramp?

Before Andrew answers the question, I'll use this, Tom, since you've replaced Helane, to say I wish her the best and I'm jealous of all her travels. Andrew?

On connected media, first, I think it's important that from a commercial perspective we are always trying to innovate and come up with new things to drive earnings. There are a lot of things on our book here that we haven't even begun to discuss, but connected media is one that we have announced. We expect a significant ramp up next year and we will discuss it in a lot more detail at the Investor Day. It's going to be innovative, it's going to be really meaningful, and really impactful for United Airlines going forward.

And then just a quick one. Is there any noise around lapping the Tel Aviv flying in the fourth quarter this year that we should think about in our models?

I don't think so. I mean Tel Aviv, when we pulled it out, was obviously about 2% of United Airlines. I think that number surprised everybody. It is lucrative flying for United to say the least. Its loss was significant. We've worked on reestablishing and servicing safely for our colleagues, and we’re flying it double daily today, and we intend to continue to expand to Tel Aviv and get back to our normal schedule. We don't think resuming Tel Aviv is going to be a drag on RASM if that's the heart of your question.

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

Scott, you've been pretty vocal about your views on the ULCCs and the low-margin airlines in the industry. But I'm wondering, given the comment earlier about the fact that they seem to be complicating their models now when their model was originally built on simplicity. Do you see that as being sort of an extra step that they're taking that may further speed their demise or whatever their eventual future is?

Let me try to take it, and Scott will correct me where I'm wrong. First of all, you have to understand that the world has changed fundamentally. With no-change fees in Basic Economy, things are just not as they were pre-pandemic. This core fact is often ignored in how people kind of set up the answer to what's going on today. I'll give you a rundown of what I think the playbook is and Scott can kind of add to it. First, when you face this type of problem, airlines generally push to grow out of the problem, but that usually doesn't work, and this happened in the previous quarters. I can recall this back when I worked for Continental Airlines in the late 1990s. The second step is network churn, where you think, well, we picked the wrong markets and we can fix that. But the next set of markets is usually worse than these markets you're flying today. The next change is business model changes. We notice Airline X is doing something different from us; let's match. That's really hard and slow. The next step is that everybody thinks, well, let's go premium. But that's a generational adjustment that just does not occur over a few quarters. Then the next one is let's push capacity on good days and months but cut hard on off-peak, and that's really hard to do because it's an inefficient use of assets. The next one is closing schedule changes because you're really concerned about your P&L and what's going on. We see a lot of closing schedule changes today from many of our competitors. Finally, you just shrink. Airlines have been operating under this simplistic model and it will be very difficult to make it complex without adding a lot of costs. Hopefully, that helps answer the question. Scott, anything to add to that?

The play is almost over.

This is a question for Scott. How worried are you that delays by manufacturers in delivering new, more fuel-efficient jets is hampering the industry's progress on cutting emissions as carriers are forced to fly older planes for longer?

I don't believe that's the main concern. The primary method to decarbonize aviation is through sustainable aviation fuel. While improvements in airplane efficiency are beneficial, they only result in marginal gains of 1% or 2% across the sector. Achieving sustainability with a viable fuel industry is essential for reaching our ultimate goal of complete decarbonization, which is set at 100%. That's why United is at the forefront globally, with our United aviation fund. We are investing in an industry that is still in its early stages, focusing on development and research. We have a strong understanding of the necessary chemistry and technology, but we now need to move towards commercialization. It's crucial to maintain our focus on this objective to decarbonize an industry that is otherwise very challenging to transform.

I will now turn the call back over to Kristina Edwards for closing remarks. Thanks, Brianna. And thanks to everyone for joining the call today. Please contact Investor and Media Relations if you have any further questions. Hope everyone has a great summer and look forward to talking to you next quarter.

Thank you, ladies and gentlemen, this concludes today's conference. You may now disconnect.