United Airlines Holdings, Inc. (UAL) Q2 2026 Earnings Call Transcript

Good morning and welcome to United Airlines Holdings Earnings Conference Call for the second quarter 2026. My name is Regina and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. At that time, if you'd like to ask a question, simply press star and the number 1 on your telephone keypad. To withdraw your question, press star 1 again. In order to get to as many questions as possible, we kindly ask that you please limit yourself to one question and one follow-up. This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed, or rebroadcast without the company's permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line. I will now turn the presentation over to your host for today's call, Christina Edwards, Managing Director of Investor Relations. Please go ahead.

Thank you, Regina. Good morning, everyone, and welcome to United's second quarter 2026 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 and are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q, and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. And historical operational metrics will exclude pandemic years of 2020 to 2022. Please refer to the related definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures at the end of our earnings release. Joining us today to discuss our results and our outlook are Chief Executive Officer, Scott Kirby, President Brett Hart, Executive Vice President and Chief Commercial Officer, Andrew Nacella, and Executive Vice President and Chief Financial Officer, Mike Leskinen. We also have other members of the executive team on the line available for Q&A. And now I'd like to turn the call over to Scott.

Thank you, Christina, and good morning, everyone. I want to start by thanking the United team for staying focused on taking care of our customers and running a best-in-class airline and not letting the conflict in Iran distract from the consistent execution we've become accustomed to. 2026 is once again demonstrating the durability and strength of the United Business Model. Our focus on building brand loyalty is evident in our strong top-line performance, with second quarter revenues up 16%, recovering about half the increase in fuel price for the period. The significant increase in fuel in just the past week is also proof that our strategy is resilient. At this time last week, I was planning to tell you that we had a good line of sight to growing earnings year over year based on what we expected our guidance to be at the time. But fuel has gone up a lot in the last week, and we've decided to once again be a leader by changing our guidance policy on fuel. We feel we owe it to investors to update our practice and provide guidance to reflect the most current fuel prices. The fuel price spike this month is equal to $1.12 of VPS, so if fuel goes back to where it was earlier this month, we expect to be above the high end of the guidance range while our multiples don't yet reflect it we believe this industry has structurally changed as demonstrated by the quickness of the fuel recovery for united but also at an industry level perhaps the most important structural change in the industry has been the significant inflation and harmonization in non-fuel costs like airport fees labor and maintenance cost inflation is what is driving fares higher though fares still remain 13% lower in real terms compared to pre-pandemic. In the quarters ahead, I expect yields to continue returning to reasonable pre-COVID levels that will ultimately allow the industry to earn its cost of capital. The impact of structural changes are just now beginning to be felt. Demand remains robust, as we expect both 3Q and 4Q RASM to grow faster than 2Q's 12%, and yields for fourth quarter are currently booked about 14 points higher for 4Q than at the same point in time for 3Q. Demand is strong, and the overall cost pressures continue forcing fares higher. United has proven that our brand-loyal strategy is working, and we're using today's environment to accelerate our investment in all aspects of the customer experience from nose to tail. My conviction in building a brand-loyal airline is stronger than ever, and I'm encouraged by the consistent share gains we've seen across the board and the corresponding financial results. The more brand loyalty we have, the stronger we expect our earnings will be during good times and the more resilient our earnings will be during industry shocks events. And I can already see and hear from customers that getting Starlink on all our aircraft is going to be a step function increase and are attractive to those customers.

With that, I'll hand it over to Brett. Thank you, Scott, and good morning, everyone. Second quarter is always an important moment for United as we accelerate into the busy summer travel season. and our employees once again rose to the occasion. Across the operation, our teams delivered a safe, reliable experience for our customers with the care, professionalism, and commitment that show how good leads the way every day. In the quarter, United carried 10 of our highest passenger days in company history, with the highest being over 640,000 customers carried on June 18th. We had top-tier on-time departures for the sixth consecutive quarter, ranking second amongst our largest U.S. competitors and representing our best on-time departure rate in the second quarter since the pandemic. We also had our lowest second quarter seed cancellation rate in company history. Notably, we saw meaningful improvements at our Newark hub, our busiest global gateway. For the month of June, Newark ranked number one in on-time arrivals, delivered its best on-time departure rate ever, and its lowest seat cancellation rate since 2018. These results reflect the continued strength of our operation and the work our teams are doing across the network to solve problems in real time, adjust as conditions change, and deliver a safe, reliable experience for our customers. And our customers noticed. We had our highest second quarter net promoter score since the pandemic in the second quarter. Starlink is another example of how we are investing in a better customer experience and differentiating United. During the quarter, we accelerated the rollout of free Starlink Wi-Fi and now expect to have close to 1,000 Starlink-equipped aircraft by the end of this year. Early customer feedback has been very strong, and Wi-Fi satisfaction scores on Starlink equipment are more than double the scores of other Wi-Fi operating aircraft. On labor, we are pleased that our flight attendants ratified a new agreement in May. This agreement is an important investment that is included in our outlook for the third quarter and full year 2026, and we remain committed to reaching much-deserved agreements. United Next continues to be the right plan for the company. We are building a United that is more reliable, more elevated, more global, and more customer-focused, strengthening the experience we deliver today and positioning us well for the future. We believe that our ability to remain nimble and proactively respond to evolving industry headwinds, such as higher fuel maximizes our earnings potential and proves how we have structurally changed for the better. Thank you again to the entire United team for delivering for our customers and each other. With that, I'll turn it over to Andrew to discuss the revenue environment.

Thanks, Brett. Overall, revenue performance was exceptional in the quarter and proved once again United's ability to quickly adjust to an ever-changing environment. I think our outlook for the rest of 2026 validates our commercial plans are working well. United's revenue accelerated across the board in Q2 with total operating revenue up 16 percent to $17.7 billion. TRASM PRAZM was up 12.1% year-over-year, with load factors up slightly, which indicates strong demand for United's products. We observed minimal to no negative impact on demand from higher price points, a trend we see continuing. Domestic passenger revenue was up 20.3%, with PRAZM up 12.2%. International PRAZM was also up 12%. Pacific led the way with PRAZM up 14%, Atlantic up 12.1%, and Latin up 10.7%. Cargo revenues were also strong, up 22.6%, and Loyalty revenue was up 11.3%. Mileage Plus program changes have been very effective in building momentum in new co-brand accounts, spend, engagement, and membership as expected. New co-branded credit card accounts reached a record level for the second quarter, up 22%, with Q2 card spend increasing 14%. Mileage Plus enrollments were up 9%, outpacing capacity by 5 points. We saw the largest increase in membership in Chicago and in New York. Premium revenues were up 16.4%, and Premium Prasm up 11.6% in the quarter. Rasms specific to the Polaris and Premium Plus cabins was up even more at 13.6% in the quarter. Main cabin rasms were up 11.5% in the quarter. This is the second quarter in a row where we've seen main cabin rasms positive after years of below average performance at an industry level. While main cabin RASMs turned the corner in 2026, our main cabin fares remained far behind inflation, driven by all costs, not just fuel. We are now just seeing a necessary catch-up in pricing. In fact, to put these current fare levels in context, the average main cabin fare today is minimally up versus 2024, well short of inflation, which is up nearly 7%. Close-in business travel is exceptionally strong in Q2. contracted business revenues flown up an impressive 27% year-over-year and bookends up 30, led by technology, financial services, and professional services. In Q2, United grew corporate share year-over-year in all of our hubs. These same positive business demand trends continued into early July and we expect to continue for the remainder of the year. We've adjusted our revenue management posture to save more seats for close-in business demand. The load factor contribution of business travel from all channels in the quarter was up about half a point year-over-year. Our outlook for the remainder of 2026 assumes demand strength from Q2 is consistent in Q3 and in Q4. Looking ahead, the pricing environment remains strong across the entire network, with selling yields up mid-to-high teens year-over-year in recent weeks, setting up a strong double-digit increase in year-over-year RASM. Currently, we're booked about 58% booked through Q3, and given current selling yields and strong demand, we do expect year-over-year RASM in Q3 and Q4 to exceed Q2. Consolidated Q4 yield is currently tracking up a strong 19% year-over-year, while Q3 yield at the same point in the booking curve sat up only 5%. United continues to gain local share in each of our seven hubs. Passion share in our hubs has increased seven points from 2019, by far the largest increase of any airline from their respective hubs. United's Q3 schedules are largely final. United's Q4 domestic schedules are not final and will be adjusted downward when finalized. While we are not providing capacity guidance anymore, we will make a final determination on Q4 capacity as we get closer to the quarter where we can properly consider the latest fuel and demand trends. United's efforts to decommoditize our revenue streams and create more consumer choice are accelerating as we head into 2027. New fleet and product initiatives position the business for RASM and margin gains in 2027 and beyond, and we're particularly excited to get RelaxRoe and the CRJ450 out for sale. We also have a very clear path to larger gauge in 2027 as well, which we expect will be accretive to results and a tailwind to ChasmX. We have renewed optimism that we'll take delivery of our first MAX 10 in mid to late 2027. The MAX 10 has more premium seats than the aircraft it replaces, along with the best-in-class Chasm. We've absorbed an increase in gauge from 104 to 126 seats since we announced United Next, but we're still about 10 seats from our goal of 136 seats in North America. We can also now see on the horizon completion of key aircraft modification programs, including fast and free Starlink Wi-Fi, seatback entertainment, larger overhead bins, and our refreshed onboard brandon. Our United Next plan will be largely done in 2027, but we have many new commercial and product initiatives coming. We will begin to rapidly spool up our fly-in on our new premium 321s, the XLR, and the Coastliner later this year and into 2027. We anticipate a fleet of 100 premium-configured 321s by the end of the period. At United, we're rewriting the definition of what a premium global airline looks like every day. By late 2027, we'll provide a consistent and elevated experience for all customers in all cabins, unmatched by anyone. I wanted to say thanks to the entire United team for delivering these excellent results across the spectrum. And with that, I'll hand it over to Mike.

Thanks, Andrew. the second quarter provided yet another proof point of the strength and resilience of our business and our United Next strategic plan. We've decommoditized United Airlines by earning an ever-growing proportion of brand-loyal customers, which in turn then allow us to generate durable financial results, especially during tough environments for the broader industry. Our strategy continues to deliver margins at the top end of the industry, a strengthening balance sheet and an overall financial position that allows us to focus on the long term our confidence in our ability to deliver double-digit pre-tax margins in 2027 and mid-team pre-tax margins beyond that has never been higher we delivered second quarter earnings per share of $1.99 at the high end of our guidance range of one to two dollars and pre-tax margin of 4.8 percent despite a $2.3 billion year-over-year headwind from fuel. Second quarter, ChasmX was up 6.1% year-over-year, which reflected pressure from labor deals and capacity reductions, all consistent with our expectations. We remained focused on driving greater efficiency without compromising the investments in our people, customers, and product that underpin our growing brand-loyal customer base. In the quarter, we were able to recapture 50% of the increase in fuel expense, and accounting for the sharp rise in fuel recently, we expect to recover 80% to 90% in the third quarter and full recovery by the fourth quarter. At today's prices, fuel remains almost $6 billion higher for the year compared to our outlook at the start of the year. Our focus on efficiency has helped offset some of the fuel headwind, but our ability to drive higher yields has been critical in helping cover the heightened cost of our operation. And, as Andrew mentioned, United has not seen a measurable demand impact based on the higher fares. In fact, if you zoom out to consider price inflation for travel over the last 10 and 20 years, airfare stands out as a tremendous value. Our customers increasingly desire a better travel experience. And we believe they will continue to pay reasonable prices for it. That's why we invest billions of dollars into our business. It's why our margins have been near the top of the industry. And it's why we expect to continue to deliver strong top line revenue growth and margins in the years to come. Looking ahead, we expect third quarter earnings per share to be between $2.50 and $3.50, underpinned with an all-in fuel price of approximately $3.69 cents based on Tuesday's curve. Given the recent run-up in oil, we felt it prudent to adjust our outlook to reflect the current environment. For the full year, we are tightening our guidance range to the high end of our previous guide and expect earnings per share between $9 and $11. Since early July, fuel prices have increased 15 to 20 percent, and our guidance reflects that pressure. However, if fuel prices return to prior levels, we expect to be above the high end of both ranges additionally given oil volatility we expect crack spreads to remain elevated for the remainder of the year in a year where the industry is experiencing a multi-billion dollar shock from oil this would be a fantastic outcome that demonstrates United's ability to absorb and manage through times of uncertainty and meaningful financial pressure on cost specifically our plan volume adjusted has remained consistent with our expectation at the of the year. The pressure on our unit costs in the first half of the year was solely driven by our close-in capacity adjustments and will remain a headwind to unit costs for the remainder of the year. We've consistently demonstrated that we will adjust capacity when necessary rather than operate flying that does not make economic sense. These actions reflect our focus on maximizing long-term profits and cash flow. With this in mind, in 2027, we plan to retire at least 80 aircraft as we continue to renew and upgauge our fleet, a step up from the last few years. Turning to the balance sheet. As the quarter began, the industry faced significant risk and uncertainty driven by the hostilities with Iran and the closure of the Strait Hormuz. Given that heightened volatility, we proactively secured additional funding to build extra liquidity to manage through a scenario where oil remained higher for longer. We raised capital through a series of private bank transactions that raise $3.7 billion of new debt that is attractively priced at a fixed rate equivalent in the low 5% range, pricing well inside of our most expensive existing debt. Once oil prices stabilize, our intent is to use this newly raised debt to prepay more expensive debt and to purchase aircraft with cash. Our ability to raise this quantum of debt at these terms further demonstrates United's improved financial position and progress towards investment grade. Since the beginning of the second quarter, we have prepaid approximately $1 billion of higher cost legacy aircraft debt and PSP debt. We will continue to closely monitor the situation in the Middle East, but in interim, this cap will provide us plenty of flexibility. We ended the quarter with $19.6 billion of available liquidity. We remain focused on achieving investment grade credit rating metrics and remain optimistic for our prospects later this year. To wrap up, demand for the United product is as strong as ever. Our customers continue to demonstrate a preference for the value our products provide. This supports our relative financial performance and reinforces our confidence in the durability of our strategy and our ability to deliver mid-teams margins in the future. I'll turn it to Christina to kick off the Q&A.

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

Thank you. The question and answer session will be conducted electronically. If you'd like to ask a question, please press star, then the number one on your telephone keypad. Please hold for a moment while we assemble our queue. Our first question will come from the line of Catherine O'Brien with Goldman Sachs. Please go ahead. Hey, good morning, team.

Thanks so much for the time. I know we're not going to get an actual RASM guide, but Android has had a couple of questions, all related, on the fact that 3Q RASM should accelerate into 3Q versus 2Q. Can you just help us think what that looks like for each of your regions RASM? You know, system RASM comp, that's fairly comparable to 2Q, but domestic has a tougher comp, and then the three international regions have easier comps. And I guess just anything we should also be aware of on other revenue or cargo as we make our assumptions on RASM acceleration? Just trying to get a sense of the puts and takes. Thanks.

Sure. Good morning. You know, when we look across the system, as I said in my script, you know, we see strength just about everywhere. You know, in Q2, I think, you know, we're particularly proud of our performance across the board, but really in the Atlantic and Pacific. And if you look at those numbers year over two even more proud, like we've got it really dialed in on those entities, and we see continued strength in both of those entities in Q3. Internationally, Latin America year-over-year will be the standout in Q3, considering it definitely has an easy comp, but the number for Latin in Q3 for parousin growth year-over-year will be off the charts. Cargo had a really strong quarter. Most of the gains in cargo for yield-related, not volume-related, and I expect that to continue into Q3 as well. So I think a really good outlook. The only place I can find that has, you know, lower yields than I would otherwise expect is Hawaii, but other than that, I think the system is firing on all cylinders. We've done, you know, a really good job, our capacity planning group, putting capacity where it needs to be. And I think it shows up in our results and the outlook for Q3 and what we've told you about the outlook for Q4.

Our next question will come from the line of Andrew Dodora with Bank of America. Please go ahead.

Hi, good morning, everyone. First question, Mike, I see 26 CapEx came down a little bit. I know on some delivery changes.

As we think about modeling your free cash flow the next few years, what year do you see as sort of peak CapEx and when you begin to see it bend down a bit more significantly Andrew thanks very much for the question you know we're focused on free cash flow uniquely focused on free cash flow we've talked about a 50% conversion rate for the next few years heading to 75% as we exit the decade the the capex is going to vary based on our results we're determined to get to double-digit margins as this is my script mid-teens margins longer term um as we get there faster we may allow capex to be a little bit higher as we get there more slowly we'll we'll manage capex appropriately but um what

what we're committed to is those free cash conversion figures okay um understood and then just as a quick follow-up here you know investment grade obviously a big goal of yours this year when you couple that with that path to double digit margins kind of that the capex comments you just had. How do you think about target leverage and future capital return potential as that kind of CapEx maybe decelerates from the peak? Thanks.

We've had significant consultations with the rating agencies. I expect and we plan for net debt to be below two turns. I think if you normalized our earnings this year for fuel, we would already be there. As we look into 2027, we will absolutely trend below two turns and in addition to the actual metrics what we've proven through this fuel crisis is the is the resiliency of this business and we think that at least for the airlines that have a brand loyal strategy we've proven a resilience that that would earn us a higher rating for the for the industry and the business itself so you put those to put those meaningful factors together. And I think the market is already recognizing us with investment grade type terms. And I think the rating is right on the precipice.

Our next question will come from the line of Sheila Kealu with Jeffries. Please go ahead. Good morning, guys, and thank you so much.

Maybe just to start it off, can you talk about Starlink? You've now installed it on 450 aircraft out of your 1,000 aircraft fleet, and that's expected by year-end or nearly most of your fleet. You know, how do you think about monetizing the addition of Starlink and the advantage versus your peers? And I guess, how do you think about new product introductions more broadly?

You mentioned Max 10 finally coming into the fleet at the end of 2027 and the XLRs. uh well thanks sheila um we've been doing a lot uh in the past five six years to really invest in the customer experience and you know we look at the disaggregated data market share data every single one of our hubs like just incredible growth uh from the local customers and it's been the right strategy and i think starling is probably going to be the biggest of everything that we've And, like, the feedback I get from customers is just unbelievable good when they get on a flight. We're doing everything we possibly can, including taking aircraft out of service. You know, as fast as Starlink can produce the antennas for us, we're going to get them on the airplane. And I think it particularly for, you know, many of the premium customers, but all customers, but for premium customers that really want to be able to make sure they're connected with high speed, it is going to lead to big share gains for us. We're excited about it, proud of it, and it's just the next step forward for us at United. We can already tell it's going to be big.

Great. And just on the new product introductions with the MAX 10 coming in, how do you think about that more broadly?

Well, look, we've been waiting a really long time for the MAX 10, and hopefully that wait is coming to an end. We have our first implementation going down the line for, I think, a July delivery of next year. So we're anxious to see that. You know, with the MAX-10, you'll see us stop taking delivery of MAX-9 shortly thereafter. The MAX-10 will be superior in every way, a little bit larger, and far less costs on the incremental side. So the marginal chasm is very low, applying the bigger aircraft. And that goes towards our, you know, chasm X goal. I think it's going to be a really great aircraft for making sure we have efficient growth into the future. Across the board, you know, the products look great on these aircraft. However, the XLR and Coastliner, which are the 321 NEO platform, are arriving this year. They have a lot of premium seats on board those aircraft, and you'll see us deploy them rapidly as we go into 2027, which will increase our premium seating faster than our main cabin seating for a bit. And we're really excited about that. These aircraft will have Starlink on board. They'll fly our most premier routes within the United States and, of course, to smaller destinations in Europe and Latin America. And I think it will be a game changer. We have about 100 of these coming before the end of the decade, far more than any of our primary competitors. So we're really leaning into the premium air body. We think it's going to be a structural advantage for United, and we're excited about that. And then last, the elevated 789. We have this fly-in, the studio suite is performing unbelievably well, and we are excited to rapidly at least the size of the elevated 79 fleet in 2027. You know, we won't have an infinite number of aircraft with that many premium seats. That's a really large complement on board, but we'll have enough to fly key routes in Asia and to London Heathrow where that plane makes appropriate sense, and our customers and the NPS scores show that they really love the amenities on board the aircraft. So that all adds up to a lot of different product features, and there's more to come, and we will let you know what those are at the appropriate point in time.

Our next question will come from the line of Connor Cunningham with Melius Research. Please go ahead.

Hi, everyone. Thank you. Mike, it seems like we're going to face peak cost pressures in 3Q this year. I know it's early and you're still investing heavily in the product and in the customer experience, but it just seems like you have the biggest opportunity on costs come next year. So maybe you could just talk about the puts and takes there and just why shouldn't we already be penciling in United leading on costs in 2027?

Thanks. Thanks, Connor. And to answer the question simply, I think you should. As we roll into 2027, we remain committed and expect the CASMAX in the the two to 3% range, core CASMX. That includes some investment, continued investment in the consumer. I also think you are thinking about the pacing of CASMX in 2026 correctly. I expect Q3 will be peak. And everything is working to plan. We're doing a great job of managing core CASMX. We're investing in the customer.

And the gauge growth that re-accelerates in 2027 is gonna get us right back on that two to 3% core CASMX path. okay great um and then you guys have obviously done a very good job of managing the business this year and and your conviction level around uh you know double digit pre-tax margins next year only seems to get a bit stronger but like if i still think about the opportunity set in front of you you know you have starlink unlocking uh mps scores ad businesses and so on um you know gauge premium merchandising it just you have a ton of stuff and a lot of that ramps actually past 27. So if you could just talk a little bit about how you view the long-term margin profile of the business, and it just seems like we are at a much different place than we've been ever before. Yeah.

Well, thanks, Connor. I'm afraid to answer that because you said it all so well. I don't want to screw it up. But here is what I think the margin path is for Unite, And it's just consistent with what I've said in the past. I think we're on a trajectory to get low double-digit margins with no structural changes in the industry. Just everything that you just talked about, the path that we're on, gets us to low double-digit margins. And, by the way, you know, somebody may ask it later, but we're going to exit 2026 at a revenue run rate, you know, here in the second half that would just on its own imply double-digit margins for next year, which I also expect. But we'll get to the low double-digit margins, you know, with no other kind of structural changes in the industry. I do, however, think that – and I think getting to mid-teens margins requires – or is likely to require some more structural changes in the industry. And I do think that's going to happen. I mean, it doesn't happen immediately. It takes time. But economic gravity always wins. And the reality is this year, you know, four of the eight publicly traded commercial airlines are probably going to lose money. They have an awful lot of flying that loses money, you know, on an individual route basis. And one way or another, that gets resolved over time. I'm not going to try to predict when. I'm not going to predict exactly what happens. But I think that probably drives us into the mid-teens margin drain. So on our own, even if none of that happens, we're on a pretty straightforward path, I think, to low double-digit margins. You get to add several points onto that as structural changes happen in the industry.

Our next question will come from the line of Jamie Baker with J.P. Morgan. Please go ahead.

Hey, good morning, everybody. Scott, on fuel, one concern we all hear quite often, particularly in light of elevated fourth quarter schedules, is that when fuel prices ultimately recede, capacity will come back on and hurt RASM. you may recall the back in 2016 I actually criticized you well I mean not you personally we said okay I knew you could take it we felt American under your leadership did just that and you know you'll cross things at that time you know as a way to sort of hammer some of your competitors particularly discounters so that's the basis of my question do you think the industry has

evolved to the point that this is less of a risk or is this something that you know analysts and investors should still so let me start with why prices have gone up um it's not fuel price fuel prices that you know accelerated a little it's not fuel price and it's not capacity it is what i said in my script probably the biggest structural change that's happened in the industry come out of COVID is cost inflation and cost harmonization, and the harmonization is really important. And what has happened is airport fees, you know, have gone up, you know, something like 60% since COVID. Labor costs have escalated dramatically. Maintenance is off the charts in terms of escalation. And those are all costs that every single airline pays the same. and that has driven that is why four airlines are going to lose money this year it's why one airline went out of business uh this year that is the underlying driver of price increases and even with fares up this year you know i said earlier this morning or in my script uh air fares are down still 13 in real terms uh compared to where they were in 2019 and and that's just basic economics in any industry has to pass along the price increases. So if I look at kind of where prices are right now, I would say 10% of the price increase, you know, 10% of price here in the second quarter was less capacity growth in the second and third quarter. 90% of it is the structural change that happened with cost increases. There was another fair increase this week as airfares, as fuel started to go back up, and there were no fair decreases when fuel went down. And so if you're an investor, what's different this time in 2016 is the cost harmonization across the industry. It's a dramatic structural difference. And so, you know, I think it's fair to be arguing about what the 10 percent is going to be. By the way, I think capacity for the fourth quarter is likely to come down. That's what happens every quarter, likely to come down. But even if it doesn't, you know, you're really talking about 10 percent of the fare increase that's sort of at risk. And the 90% is probably not done yet because all those costs haven't yet been recovered. This is about a structural change in the cost side of the business, which is forcing a structural change in the pricing and revenue side of the business.

Excellent. Thank you for the color. And then for Mike, you know, on this capital raise in the quarter, you know, how does this play into management's overall conservatism? excuse me you know marks in my view is that you didn't you didn't need to be this proactive you have tight unsecured access you've got access to WTCs i guess i guess we're just kind of wondering why you pre-fund all this capex when other options seem to exist uh jamie thanks for the question and look we just we have a track record and uh we're going to maintain that of being proactive We are right on the precipice of investment grade.

That's going to unlock a lot of options for us. And this was a very cost-effective. And the net cost, as we invest the proceeds in money markets, is very low. And so this was a very cost-effective way of adding some extra insurance in a way that will bring down an overall cost of carry as we prepay the more expensive. debt so it was uh it was truly a no regrets move and i'm really proud of the treasury team for the execution our next question will come from the line of tom fitzgerald with td cowan please go ahead hi everyone thanks so much for the time um two for me on loyalty just one would you um just update us on your latest thinking about the timeline on that contract renegotiation i know that's one of the longer term upside drivers for you guys um and then just my follow-up is um you

I know you redid the credit card program back in March just to further incentivize and then align with the credit card holders. I'm wondering how what they're really learning from that's been, if that's been having the intended result. Thanks for the time.

Sure. In terms of duration, you know, it'll say, I think it's out there on the internet somewhere, but we're in the sunset phase of the current contract, and that we have not started to re-engage with our bank partner Chase at this point but you know soon we'll do so but I think I think we're I can describe it as the sunset phase in terms of the program changes look I you know I gave a bunch of stats on my open-end remarks and we're really happy with the changes we did some of them were new and unique for the industry but I think it's had the desired effect you know I think the credit card space is most interesting, complicated, and also full of a lot of upside for United Airlines as we grow and take advantage of these opportunities as we grow our business, core of our business. It allows us to grow the credit card business even more. So we're super excited about it. I think the numbers are all moving in the right direction. You know, just to point out, we did have a out-of-period one-time adjustment in loyalty of the revenue in the quarter. That made our number look a little bit lower than it otherwise would be. It showed just under eight. Without that one-time adjustment, it would have been over 13. So, if you're looking at those numbers and thinking that the revenue slowed a bit in the quarter, they did not. We expect strong numbers in Q3 as well. So, I think we're really set up well. I couldn't be prouder of the changes. That was a year and a half of research and investigation and technology changes, but they're all implemented. They were implemented flawlessly and are doing really well. I'll also point out we implemented a lot of changes on United.com and how we sell tickets, how we sell nested fares. All those changes were really critical to our evolving and more complex product mix. They were also implemented flawlessly. The technology worked perfectly, and I'm really proud of the team for delivering all that. And I think the nested sell-in is also delivering exactly what I wanted it to deliver in the very early stages here.

Our next question will come from the line of Robbie Shanker with Morgan Stanley. Please go ahead.

Morning, everyone. Scott, it's interesting that you tied the industry-wide fare increases to overall cost inflation rather than fuel, and you said there was another round of increase this month despite fuel not hitting a new high-water mark. I think that's a demonstration of that. So as investors or analysts, what do we think is the new benchmark for when United could raise pricing going forward in the coming years? Is it a certain number of points of chasm inflation? Is it specific cost catalysts like a new labor contract? Or just trying to get a sense of how many kind of – what is the opportunity for pricing in an ex-fuel benchmark for the industry going forward?

Well, I'm not going to answer a further question on pricing. But I think the way to think about pricing, what's happened this year is sort of cleaning up the core basic pricing environment. That's the 90% that I talked about relative to capacity. You know, there's no more $9 fares from Houston to Central America or $4 tickets from Los Angeles to Cabo and some of the crazy stuff that just doesn't exist anymore. I don't think it's ever going to exist again. And so the core basic fare structure is in a much more reasonable place today, and it continues to, you know, go up as it has this week. The capacity side of the equation is really yield management. You know, how often you, you know, sell the lowest fare versus higher fares in the market, and that's sort of the 90-10 ratio that I think exists. but I think really the way for investors to think about this is to think about that 90-10 ratio and the cost structure inflation and the harmonization meaning everyone's costs have gone up on those things that are outside of our control um is 90 of the driver our next question will come from the line of scott group with wolf research please go ahead hey thanks uh good morning um just two quick things um the comment book yields 14 higher for q4 like any way to help us think like what

What that actually means for our models, like, is the implication RASM accelerates further Q3 to Q4? I just don't know, like, how to, like, actually, what to do with that comment. And then, Mike, you said retiring 80 aircraft next year, which is, like, how much capacity is that? Any, like, preliminary early directional thoughts about capacity growth next year? Thank you.

Well, I'll start. Look, you know, we kind of—we don't give RASM guidance, but I did give a lot of hints and that Q3 and Q4 would be above Q2. So we obviously think we're in a really good year-a-year RASM setup for the remainder of the year. In terms of that particular comment, I think it's a reflection that, you know, the incredibly low fares, as Scott pointed out, from L.A. to Cabo of $4 or $14. I think $14 is the accurate number, Scott, are no longer out there. So leisure yields far out in the booking curve are, you know, actually seeing the highest year-over-year change because of their incredibly low base and their reset during this current situation. So that's why that number seems so high. So I think we've given you the appropriate revenue guidance. I think it's a really good revenue outlook, and I'll leave it at that and hand it over to Mike for the second half.

Thanks, Andrew. And Scott, thanks for the question. Look, we've seen an acceleration in production for the OEMs, so we do expect to see more new narrowbodies and a few new additional widebody aircraft delivered next year. The aircraft we're retiring are older, less fuel efficient. They have older cabins, and so this, you know, refresh of the fleet is going to be an important driver to help drive a chasm tailwind to get us to that 2% to 3% range that I spoke about. So we're excited about it. Some of the aircraft, frankly, would have been retired sooner if there hadn't have been so many OEM delays.

Our next question will come from the line of John Godden with Citigroup. Please go ahead.

Hey, guys. Thanks for taking my question. Scott, you mentioned structural change a few times on the call. I think there's broad recognition that carriers like United are leading the charge in that, but that's obviously not the case for all the carriers. So the pushback we sometimes hear is that the industry structure is only as good as the least rational carrier, and the least rational carrier can be pretty irrational. I'm just curious how you address that, maybe just kind of reflect on that. and how you see that playing out from here. Obviously, you're making the right moves, but you're not in control of what other irrational moves others make.

Okay, I'll try. There's two structural changes. I've talked about, the first one I've talked about, which is going to be the focus to answer your question, is cost harmonization. And the short answer on that is it's not about doing something rational or irrational. Like, when your costs go up, like, you either make your revenue go up or you get fired and the next person makes your revenue go up or you go out of business. And so that's, like, that's not about, like, people making dumb decisions about where they fly and stuff. Like, they just don't have a choice. And that's the sort of 90% on cost. They do have a choice on the 10%, and sometimes they make bad decisions there. But, again, it's, like, it's the 10% of pricing. I think that that matters for, and that's the most important structural change for anyone trying to model the industry, you know, looking out for the rest of this year, 27 to 28. There's a second point, which is, I think the second most important structural change that's happened is the emergence of brand loyal airlines, and there's two of us. It took us a decade to get there, a decade of investment. You know, we look at our market share, you know, you even take a place, I'm not trying to pick on them, but it's true in every one of our hubs at a place like Chicago, where, you know, in 2016, we had a four-point deficit with local customers to our biggest competitor here, and we now have something like a 16-point premium. It grew again in the latest data, even with all the capacity that's been added. You know, we just brand loyalty wins. That does give us a level of not 100 percent, does give us immunity to what happens from a competitive perspective, but it gives us, you know, a lot of resistance to it, much less exposed to what happens from a competitive perspective, because the competitive capacity stuff impacts the commodity portion of the business, has a much smaller impact on the brand loyal part of the business. And so those two trends, the cost harmonization is, I think, incredibly important. And then for United specifically, you know, the brand loyalty is a second structural trend that's permanent. It's already said structural and irreversible.

Our next question will come from the line of Mike Lindenberg with Deutsche Bank. Please go ahead.

Oh, yeah. Hey, good morning, everyone here. I just, you know, we saw that flight caps were extended in Chicago, I think, a week ago through, you know, now the fall of 2027. How does it impact profitability? I know on one hand, you could argue there's less consumer choice on the other though it allows you to run maybe just a more reliable hub and helps connectivity and then as a related follow-up I saw you know recent caps being imposed in San Francisco what what's behind that and is that is that a permanent change to the San Fran you know operation and does that have an impact as well thanks for taking my question hey Mike it's Andrew I'll start off but you know so in Chicago the FAA recently put out an order that extends the caps for a year you know I quite frankly I don't know what's going to happen in 12 months where that's going

to change because the construction projects that O'Hare extend out almost indefinitely and so we'll see but you know our current plan given these gaps is to fly 650 flights per day which is what we're approved to fly almost indefinitely and so that does change the dynamics of the hub we will seek to up gauge it in the years to come to facilitate growth and like I don't think these changes are going to in any way hurt our profitability so it is what it is I think we're a little bit disappointed but we now have certainty I think as to what it's going to look like for an extended period of time and we We will strive to gain as much market share, put as many large aircraft in here, and expand through creative measures. And we will do so. We've done it in the past in New York, and we'll do it in Chicago if that's the new reality.

And I think I'll pass it over to Toby to briefly describe what's happening in San So real quickly, the FAA has changed the approach into San Francisco, which lowered the rates. We have worked hand-in-hand with them to try to come up with a new approach, which will get the landing rates up again. I'm not 100% sure yet that we can get back to 100% where we were before, but you should see an improvement in landing rates in San Francisco over the next two to three weeks.

There's also been a runway construction this summer, so that's a big driver.

Yeah, and that will finish in October.

Yeah, and it's also part of that, Mike, the last thing I'll add is that at the same time, the government extended the order in New York, so we are under similar levels of caps in Newark for another year, and again, you know, my expectations that's likely to continue, you know, we're simply out of runway space in many of these ski airports, and it's why our long-term plan is to focus on gauge growth, which our fleet plan sets up really Our next question will come from the line of Brandon Oglinski with Barclays.

Please go ahead.

And thanks for taking the question. And Andrew, maybe this is a good follow-up to that conversation there on the fleet plan. And maybe this is one from Mike as well. Just like, how do you leverage the newer and the older aircraft in the fleet? And I appreciate the increased disclosure today of 80 retirements. But even then, it looks like you're going to have, you know, a mix of old and new. So are you looking to maybe leverage certain portions of the fleet at peak periods and maybe on non-peak periods? if you could think about those. I appreciate it.

Well, you know, I think we're spending a lot of time understanding how much relative increase in capacity we offer in peak times, and we've talked about this on other calls. And, you know, I've been disappointed by our relative third quarter, for example, earnings and rasms, and we worked really hard this third quarter to make that a more durable quarter than it normally has. Obviously, the price of fuel kind of hides some of the progress we've made. But overall, you know, I think we're less excited about pushing the airline super hard in any particular week or quarter that happens to be a period of increased demand because, you know, we're worried about the increased cost of a 30-day peak or a 60-day peak as we run those cost structures throughout all 12 months of the year don't make as much sense anymore as they used to. So we're taking a look at that.

So overall, hopefully that gives you a bit of color on the way we're thinking about it i think we're going to be really careful on on how we peak the airline in any given peak period but brandon i i think it's a really insightful question so thank you for it um i think a barbell approach when it comes to fleet makes a ton of sense um having a modern larger gauge fuel efficient fleet for trunk routes um and for a core of the fleet makes a ton of sense and we've got great pricing great financing it maximizes not only profits but it maximizes return on invested capital to have some of these a larger amount of these younger more fuel efficient aircraft without a doubt but as we think about uh modulating capacity in the short and medium term based on uh based on the economics you know we talk about we're going to match demand to supply having some older aircraft that have a lower capital cost that we can use to peak and or to we can sit down cost effectively if the demand environment doesn't justify makes a ton of sense. And so that's exactly how we're managing the fleet. We're going to make sure as we think about the aircraft we're ordering and we're taking delivery of that we always have an element of that barbell approach so that we can remain nimble in many environments.

Our next question will come from the line of Dwayne Finnegworth with Evercore ISI. Please go ahead.

Hey, good morning. Thank you. Good call and good outlook. I wanted to dive a little bit deeper on the corporate travel recovery. I think that 27% or 28% growth number you put out. I don't know if you can get this granular, but I assume when you talk about contracted business travel, that skews more towards larger corporate accounts, larger enterprises. Do you have any insight into the growth in small and medium-sized businesses, which I assume were probably impacted more significantly by tariffs last year? And then just along those lines, staying on the corporate theme, just geographically, any standout hubs or markets where the corporate growth rates were tracking higher?

Sure, Duane. I'll start off. Look, it was a standout quarter, to say the least. And, you know, I'll go back in time. Just after the pandemic, we found our large corporates actually trail in the smaller corporates by a pretty significant amount. And I think you're correct. In the last few quarters, the large corporates have accelerated well, you know, above the smaller corporates, but not by a lot. They're just above. And I think if you looked at it over a long period of time, the large corporates are just kind of catching up with the small and probably even having gotten close to catching up yet. I haven't looked at that particular number. But I do agree the large corporates were a little bit more robust this time around than the smaller ones. But really, I think a standout quarter, it looks to continue into this quarter. It's a higher percentage of our load factor, which is nice to see. Although, to give you an idea, it's still five points of our load factor lower than it used to be pre-COVID. So, if corporate travel continues to accelerate and closes that gap, basically an 80% yield premium versus leisure, that's a significant amount of upside in the plan. We're not assuming that, but the half a point of load factor growth we saw was great. It's also great, you know, I was looking at across the Atlantic in Polaris to see our load factor up, and our load factor up was up in business premium, and our load factor was up in leisure premium at the same exact time. That is just the trifecta. I guess I need a third one to make it a trifecta, but it is really great. And so if we can continue to drive premium leisure growth as we drive corporate growth, wow, that's a lot of upside, and it's one of the reasons I think we're bullish for late this year and into 2027. So hopefully that answers the question.

Our next question comes from the line of David Vernon with Bernstein. Please go ahead.

Hey guys, and good morning. Thanks for taking the question. So Andrew, you mentioned earlier that you're sort of, you were very satisfied with the way that the method selling strategy was kind of working out within the premium cabinets. I think that's related maybe to load factor, but can you give us some color around, you know, what exactly that's giving to you in terms of buy-ups or better utilization and where you are sort of in the process of kind of implementing that fair strategy across the markets that you serve?

Sure. We rolled it out a few months ago. Again, it was a lot of research, consumer testing, and then technology changes to make that happen. Fundamentally, it provides consumers more choice. They get to pick the aspects of the journey they find the most value in. So we think it's a win for consumers. Right now, it is early days. And, you know, if I go back to, you know, the start of basic economy, I think we learned a lot over a period of years on how to best merchandise things and refine those very effectively over time. And so I would say we're in the very early ends of this. So the buy-up rate to the standard premium Polaris ticket is actually – I'm not going to give you the number, but the number is high. In fact, it's higher than I expected by a lot. And so we have a lot of work to do to get things tweaked and optimize things. But, again, early NNs, really happy with it, and more to come as we offer more products and our technology evolves to best sell these products. So we're really far down this segmentation path, but there's a lot more path ahead of us is what I would tell you.

Our next question will come from the line of Saudi Sight with Raymond James. Please go ahead.

Hey, good morning. I was just wondering if you could just follow up on an earlier question on kind of capacity growth. I wonder if you could provide a little kind of medium-term color on how you're thinking about it in terms of domestic versus international, given, you know, what you're planning on retiring and what you're seeing coming in?

Sure, I'll start. Others may want to chime in. You know, I think the domestic market is far more mature, in my opinion, and so the growth rates need to reflect that, ultimately, with GDP. The international market is different. I think it's been more lucrative for United. Quite frankly, our hubs are in optimal locations for international growth, and the relationship to, you know, GDP for the international line, it seems to me different than domestic. So that's a long way of saying that I expect our international growth rate in the coming years to be above our domestic growth rate.

That's helpful. And just if I might follow up on that, just, you know, it looks like premium capacity was up 4% in 2Q. How do you expect that to trend over the next 12 to 18 months as you're kind of adding all these premium products and getting kind of larger garage aircraft is the higher mix of premium.

Yeah, so the premium capacity will clearly grow faster than the main cabin capacity. I'm not going to give the numbers today, but that's fundamentally what our fleet plan and what the premium A321s that are coming online, that's going to happen. It's by design. We're happy with that and pleased with that. However, that does not mean that we're going to step away from basic economy. It does not mean we're going to step away from the main cabin. You know, there's a life cycle of the customer. We need to start with the customers that sit in the back of the aircraft and pay lower fares. So ultimately, someday they can sit in the front of the aircraft and pay higher fares. We know the full life cycle of the customer, and we're not going to forget that everybody matters on the airplane, and we're going to give an elevated experience to everybody on the aircraft. And I think we have a lot of proof points to say we're actually executing on that.

Our next question will come from the line of Chris Weatherby with Wells Fargo. Please go ahead.

Hey, thanks. It's late in the call. Just keep it at one. So I guess you guys talk about capacity in the fourth quarter, I think, and then you're thinking about adjusting it relative to cost inputs, fuel, potentially other things. Is there a way to sensitize that?

I mean, what are the sort of levels that you're looking at that give you a view on how you think about capacity in the fourth quarter? any help that you can give us around benchmarks would be would be great thank you i'll i'll start look you know as we were uh i think at the jp morgan conference and the price oil was spiking you know we made some aggressive changes uh to q3 and you can actually see them in our selling file we think that was the right thing to do um and we would do again if necessary we wouldn't change anything um as we think about q4 we we think about the same exact framework I will say, just for a little bit of color, you know, the reason our schedules are loaded the way they are currently in Q4 is we have been waiting on the FAA to issue the orders for Newark and Chicago, which just came out. So they will allow us to adjust our capacity now sometime next week and a few weeks after that as we get everything firmly in place for Q4. So for all of you waiting to see what our Q4 capacity will be, you won't have to wait all that much longer.

Chris, I do want to pile on Andrew's statements just philosophically. We at United are driving towards margins in cash flow generation, and we're going to match supply with demand, whether that's Q4, 2027, or beyond. We've built a good track record of that. You've seen when we've grown rapidly. We've done it in a way that does not dilute TRASM.

And we will now move on to the media portion of the call. If you'd like to ask a question, please press star, then the number one on your telephone keypad. We kindly ask that you please limit yourself to one question. Please hold for a moment while we assemble our queue. Our first question will come from the line of Alice Insider with Wall Street Journal.

Please go ahead.

Hi, thanks so much. I was wondering if you could talk a little bit about LAX, just sort of what the state of competition is there. You know, does it feel like it's becoming more of a battleground or is this kind of just the way it's always been, just sort of curious how you see that playing out.

Sure, Allie. You know, LAX is interesting. It's one of our seven hubs. We're firmly committed to it. We're growing it. It has been a battleground, but so is New York, so is Chicago, so is San Francisco. I feel we're in an incredibly competitive industry. The dynamics in LA are clearly at least four large U.S. carriers with similar shares, I expect that to be true a year from now, five years from now, and 10 years from now. It's a very competitive marketplace and we're in it to win it as well, but I expect it'll be competitive for the foreseeable future.

Our next question will come from the line of Leslie Josephs with CNBC. Please go ahead.

Hi, good morning. I'm wondering if you have any count on how many customers have uh defected i guess from other airlines and they're now uh united flyers loyal united flyers um and then just broadly on your growth um the us is a pretty mature market and just wondering if you had a few thoughts on that thanks uh look we we look at the market shares uh not every day but quite quite often um and uh you know i i you know i spend more time looking at RASMs than market shares, to be honest.

But that being said, we track the market shares. We look at it quarterly from the government data that's issued. We're gaining in all our hubs in the Bay Area. For example, in Q1, we're up 3.4 points year over year. That was the best performing share gain hub for United. But we gained in all of our hubs. We've done that consistently year after year. And I think it's simply we're offering a product that our customers love and more and more people love it every day so i think we're really happy with that uh and then you know i said it a few minutes ago i think the domestic market um is far more mature than the international market the appetite for american consumers to travel overseas uh seems really high to me whether it's southern europe or japan or anywhere else around the world i think the desire to explore is growing. And it's one of the reasons we're excited more about international growth in the coming years than domestic. But that's kind of where I think we are.

I will now turn the call back over to Christina Edwards for closing remarks.

Thanks, everyone. We appreciate your time today. Best of luck to everyone navigating the rest of earnings season. Safe travels and please contact Investor Media Relations if you have any further questions. We'll speak to you next quarter. Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.