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00:00We're going to go back to Rio de Janeiro now. That's where our colleague Lisa Abramowitz is, of course, the
00:03co-host of Bloomberg Surveillance. She's sitting down with the CEO of United Airlines, Scott Kirby. Lisa, take it away.
00:10Thank you so much, David. I am here still in Rio with Scott Kirby, the CEO of United Airlines. Scott,
00:16always wonderful to speak with you. Great to be here, Lisa. Thank you for being here. I was actually surprised
00:20by the tone here, and I shouldn't be surprised because every conversation I have with different executives in the airline
00:24industry, things are better than expected. Demand's actually picking up. It's been more resilient. This summer's going to be a
00:28record summer.
00:29You're hearing the same thing. Is that kind of your tone as well? Yeah, a lot of questions for people
00:33around the globe, really, like, because we're a U.S. airline, obviously, like, what do you think is going to
00:37happen in the Gulf?
00:38And people are worried about oil prices. But demand, you know, certainly U.S., anything related to U.S., feels
00:44strong. I think there are other parts of the globe that, you know, maybe are a little more concerned about
00:48demand, but really strong in the U.S. and mostly strong around the globe.
00:51And people have the view that, you know, they hope that this gets resolved at some point and that we're
00:56back on track to what was looking to be a really good year to start the year.
00:59Where are you seeing demand kind of fizzle around the world or at least fade just a touch in response
01:04to higher prices?
01:04You know, we don't really see it at United because, you know, 80 percent of our traffic, even international traffic,
01:10is U.S. point of sale.
01:12But you can, I think, see, you know, starting to see the glimmers and, you know, Asia is the first
01:17place, you know, the impact of oil and refinery issues in Asia have been the worst.
01:23And, you know, I think Africa, you know, certainly the Middle East has had an impact.
01:29So you can, I think, sense some worry, not really evidence of weakening of demand, but, you know, you talk
01:34to people in one-on-ones, you can sense some concern that if this goes, you know, sort of in
01:39the standard line all along, if this goes till July, it's going to be a problem.
01:42In March, if this goes into April, it's going to be a problem.
01:44And it keeps getting pushed down the road, fortunately, because demand stays strong.
01:47Well, and so, so far, you've raised prices about 20 percent, you've cut capacity about 5 percent.
01:53Is that enough?
01:54Do you anticipate more price increases and more capacity limitations?
01:57You know, time will tell.
01:58It depends on what's happening with the economy, what happens with oil prices.
02:01But I feel pretty good about where we are right now.
02:03You know, we laid out a path to getting to 100 percent fuel recovery.
02:06It certainly looks like we're still pretty much solidly on that path.
02:10And, you know, oil has come down a little, so I actually would move it a little earlier from when
02:15we said it.
02:16But we feel pretty good about where the demand environment is.
02:18And, you know, the consumer has been resilient even with fares, you know, up.
02:22But in truth, like fares are up 20 percent, but they're still, in real terms, lower than they were in
02:262019.
02:26So air travel remains by far the best value as part of the travel chain and have been pleasantly surprised
02:35at the resilience of the consumer so far.
02:37Is it all driven by the premium consumer who seems to be insatiable, or is it really across the board?
02:41You know, I always talk about it, at least at United, we're investing nose to tail for our customers.
02:45And most of the things that we're doing for the product apply to everyone.
02:49Seatback entertainment in every seat, Starlink on every aircraft, you know, great new interiors applies to everyone.
02:55And, you know, the premium has been stronger for a couple of years.
02:59It's still a little bit stronger, but it's pretty hard to, you know, I think it's been strong, you know,
03:04across the board for us.
03:06But, you know, we skew to the high end.
03:08And, you know, even the economy pastures are, you know, skewing towards the top end of that K-curve for
03:14air travel.
03:15And international, of course, skews even higher.
03:17But we really haven't seen any noticeable cracks in demand sort of anywhere in the cabin.
03:23And you've been upgrading all your planes quite considerably.
03:25Yeah.
03:26Nose to tail, whether it's the fold-down seats, to have you sleep across the bed.
03:30Yeah, exactly.
03:31Especially if you've got kids.
03:32I wish I'd had that one else.
03:33Anyway, moving forward, moving along.
03:35Do you find that it's difficult to upgrade as quickly as you want because of just some of the delays
03:39and deliveries that we're seeing in certain of the aircraft manufacturers?
03:41You know, we got ahead of it.
03:43We started ahead.
03:44You know, we ordered a lot of aircraft.
03:46We got ahead of the supply chain, you know, as being the first really back during COVID.
03:51We anticipated problems.
03:52So we actually overordered because we anticipated problems.
03:55The problems have been bigger than we thought.
03:57But we've mostly managed through those.
04:00And, you know, like seat manufacturing, seats are a big issue across the industry.
04:05We've mostly stayed ahead.
04:06We've been somewhat impacted by it.
04:08But we've mostly stayed ahead of that.
04:09And, you know, even Starlink, for example, you know, we're going to have the whole fleet done.
04:14We expect next year.
04:15It can't be done fast enough.
04:16But by being the first big airline to order, like we're at the front of the queue.
04:21And so most of the things we're doing because we're at the front of the queue, we're much less impacted
04:25than other competitors around the globe.
04:26There were reports that you were talking about Rolls-Royce a couple of minutes ago, talking about how they've been
04:31a problem in terms of just honoring contracts.
04:35And what exactly is the role in some of the delays that we're seeing, particularly with Airbus?
04:39Well, you know, engines are really the issue.
04:43I think they're going to constrain supply around the globe for probably the next decade.
04:48There's not enough engine capacity.
04:50There's something like 900 aircraft around the globe that are grounded right now that should be flying because they don't
04:55have engines that can fly.
04:57And it's a really it's not an easy problem to fix.
05:00And it's going to take time.
05:02And so really kind of we need all the engine manufacturers and really the forgings and castings that go into
05:07the blades.
05:08The engines are really, I think, the biggest constraint.
05:11And, you know, that takes time to fix.
05:13But we start fixing that.
05:14But, you know, all the aircraft that Boeing and Airbus, they're going to be able to produce a lot of
05:18aircraft, I think.
05:19They're both starting to get things on track for producing aircraft.
05:23But they're going to be producing gliders.
05:24It's just not enough engines.
05:26Well, gliders are not going to fly for the industry, quite literally.
05:29I cannot imagine that.
05:30Trying to have a long-haul flight on a glider.
05:32Do you think, though, that Rolls-Royce has been a bad actor or not as much of a good actor
05:37relative to, say, some of the others that have been ramping up?
05:40Well, that's certainly been our personal experience with United at Rolls.
05:44And that's what I hear from others around the industry, too.
05:47Has that constrained Airbus deliveries more than Boeing?
05:50You know, they each had constraints.
05:52You know, Rolls, you know, has been constrained.
05:55Pratt & Whitney, you know, has had a lot of well-publicized challenges.
05:58By the way, I respect Pratt & Whitney is working really, really hard to fix them.
06:02And that's all you can ask, really.
06:04GE is doing, you know, the best of the engine manufacturers.
06:07But all of them have had challenges.
06:09Going forward, it seems like all of the airlines are trying to upgrade as quickly as they can
06:12because it is going to be about the experience that you're living to the customer that's going to determine success.
06:18How much have you seen the pressures kind of come into play, the sort of pressures in the industry that
06:23you had been expecting
06:24as a result of some of the higher prices?
06:27Well, I think we're the ones creating pressure, to be honest with you.
06:30We're investing more than anyone.
06:31And we're doing the kinds of things really that no one has ever done, you know, whether it's the relaxed
06:36row here in the United States,
06:38putting Starlink on every airplane, but also the technology.
06:41Like, you use the United app.
06:42It is materially different than, I don't know who has the second-best app in the world, but they're way
06:48behind United.
06:49And we're just doing more and more of that.
06:51And it just changes how it feels to fly, and it's remarkable.
06:54That's how you win brand-loyal customers.
06:56I mean, you change the whole experience.
06:57It's not just about the route network.
06:59It's about the technology, the service, the reliability, and the product.
07:03And, you know, you've got to focus on all four of those.
07:05You've got to have all four of those things to win customers.
07:08And, you know, it's been working really well at United.
07:11We're just continuing to push to find ways to invest more and more and more in new creative ideas to
07:16make people think, hey, it's cool to fly United.
07:18Are you still thinking about consolidation in any form?
07:21Well, everyone's asking me about it.
07:23So you're still thinking about it?
07:24I'm trying to take it off the table.
07:26Yeah, yeah.
07:26I'm trying to take it off the table.
07:27We're putting it back on.
07:27So here it is.
07:28It's still on the table for you.
07:29You know, I said it at a conference last week.
07:33You know, I kind of came, for the last couple of years at least, thought that a big kind of
07:38transformative deal to create a great U.S. airline that could compete around the globe was really where the opportunity
07:45was.
07:46But I've always known that that would have required a willing partner, and we don't have one.
07:51So I think it means that United is likely sitting out the consolidation game.
07:56Meanwhile, going forward, we got the best jobs report in a long time on Friday, and a lot of it
08:01was driven by leisure hiring.
08:03We heard that across the board.
08:04How much of this is coming from just the organic demand heading into summer, and how much of this is
08:08really being driven by World Cup traveling?
08:10You know, World Cup is a tiny, tiny piece of it.
08:15It really is the fundamentals of demand, and you see it everywhere.
08:19Demand is strong.
08:20People are still investing in experiences.
08:23You know, I've told you before, like, to me, the economy, we're a really good real-time barometer of the
08:28economy.
08:28The economy feels stronger.
08:30The jobs report is consistent.
08:31Like, I wasn't that surprised by the jobs report, because it looks to me like the economy is doing pretty
08:37well.
08:37Do you think that oil prices will stay at this level and continue to be a challenge at a time
08:41when every airline executive here expects it to go down almost, except for you, but everyone expects the prices to
08:46go down?
08:46I've thought, sort of really since mid-March, that oil was going to be higher for longer.
08:50I continue to think that at some point I'll be wrong.
08:53It'll go down.
08:55But it's just hard for me to see any kind of outcome that the straights get reliably and sustainably open.
09:02They may open for a little bit, you know, but just the dynamics make it hard for me to think
09:07that that's going to happen.
09:08So I think this kind of $90 to $110 a barrel, you know, what do I know?
09:13I'm an airline CEO, but we're planning for that sort of for the indefinite future, that $90 to $110 level.
09:20Coming into this conflict, the baseline assumption was that if prices got to that level, they didn't stay at that
09:25level.
09:26There'd be bankruptcies.
09:27You'd have a lot of difficulties in the airline industry, and certainly there have been pressures.
09:31But the resilience of the consumer and the ability to absorb pricing has surprised everybody.
09:35Do you think that that will be the likely response to a persistently high oil price?
09:39Not necessarily people going out of business, but airline ticket prices going up and staying up.
09:43Yeah, I think airline prices, the consumer has been even more resilient.
09:47I thought the consumer would be resilient.
09:49It's been more resilient than I thought the consumer would be.
09:52So I think that will happen.
09:53But I also think, you know, you still look around, like United, Delta, and Southwest, by the way, are all
09:57three going to be solidly profitable this year.
09:59My guess is at all, $90 to $110, like everyone else is losing money, some a lot of money.
10:04That means there's a big chunk of those route networks.
10:07You know, if you're losing money overall, there's a big chunk that's losing a lot of money.
10:10My guess is the longer this plays out, the more and more it, you know, sort of pushes executives to
10:17make hard decisions that they would rather not make to just stop flying places and lose money.
10:21Going forward, is there any place that you want to be expanding in?
10:23Just to sort of wrap it up in our lovely beach here that we're sitting at in Rio.
10:27Yeah, we look forward to expanding really around the globe.
10:31A lot of our growth has been international.
10:33It slowed down this year, partly because, you know, Boeing's been behind on wide-body deliveries.
10:40They're starting to catch up.
10:41But we're looking forward, you know, international's been great for us.
10:43United was born on third base for international at hubs in Newark, which is the best, you know, Pacific Gateway.
10:49San Francisco, the best, you know, Pacific Gateway, Newark, Atlantic.
10:53Dallas is probably the second best Atlantic Gateway.
10:56So international has just been gangbusters for us.
10:58And we're opening up, you know, it's crazy to me.
11:00Our team is opening up cities, and I'm pretty informed.
11:03Like, I didn't actually know that city name.
11:06Scott Kirby, always wonderful to speak with you.
11:08Scott Kirby, the CEO of United.
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