聯合航空 (UAL) 2020 Q3 法說會逐字稿

Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the Third Quarter 2020. My name is Brandon, and I'll be your conference facilitator today. (Operator Instructions)

This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed or rebroadcast without the company's permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line.

I will now turn the presentation over to your host for today's call, Kristina Munoz, Director of Investor Relations. Kristina, you may begin.

Thanks, Brandon. Good morning, everyone, and welcome to United's Third Quarter 2020 Earnings Conference Call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com.

Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors.

Also, during the course of our call, we will discuss several non-GAAP financial measures. 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 the 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, Gerry Laderman. In addition, we have other members of the executive team on the line available to assist for the Q&A.

And now I'd like to turn the call over to our CEO, Scott Kirby.

Thank you, Kristina. Good morning, and thank you all for joining us today. I want to start by saying how proud I am of the entire United team. COVID continues to challenge our industry and United with a truly unprecedented crisis, but we've responded better than any airline in the world and in ways I couldn't have even imagined. Our team has been focused on the health and safety of both our employees and our customers, remaining flexible with changes to our network and continuing to provide caring service to our customers, which resulted in the highest Net Promoter Scores in our history.

We've had to be innovative, creative and very flexible, and our team has truly delivered. I want to sincerely thank all of our employees who made the difficult decision to leave United through one of our voluntary separation programs and those who have reduced their hours to align our staffing with demand. In spite of this, on October 1, I had my toughest day as the CEO because despite all of the incredible work and contribution of our employees, we still needed to defer more than 13,000 team members. Along with the entire United leadership team, I remain focused as our #1 goal to make sure United is the strongest, most innovative, customer-focused airline as we come out of this crisis because that's the way to ensure we can welcome all of our team members back.

I also want to recognize and thank our union partners, many of whom stepped up to work on creative deals to get us through the crisis, to reduce the number of impacted employees where we could, and importantly, set the airline up for a strong rebound. I'm proud of the partnerships we have with our unions and believe this is a real differentiator for United as we look to the future.

Since the beginning of the crisis, the hallmarks of United response has been to maintain an objective and realistic assessment of the virus's impact on our industry and to plan accordingly. In other words, at United Airlines, hope has never been our strategy. Instead, the best collection of airline professionals in the business have confronted the crisis head-on, and that approach has enabled us to take industry-leading actions, including leading on safety; closely aligning capacity with demand; cutting costs and reducing cash burn; using innovative approaches to raise over $22 billion in capital; pushing ahead with opportunistic commercial initiatives, such as the cargo operations, new route announcements; and being the first airline to eliminate change fees on domestic tickets; adding industry-first digital capabilities like search by map and travel destination guide; and entering into an industry-leading deal with our pilots.

Back in March, we were focused on the 3 pillars that were critical to our ability to survive the crisis: one, raise and maintain liquidity; two, reduce cash burn; and three, variabilize our cost structure. On the first point, I believe United has been more creative than any airline in the world in raising over $22 billion. On the second point, despite our larger business travel, coastal gateway and international exposure, on any apples-to-apples cash burn basis, we believe United has had the lowest cash burn throughout the crisis, so far, among network peers, and we expect that we'll be the first network airlines to return to positive cash flow when the demand environment recovers. And finally, we've made huge strides in variabilizing our cost structure by reaching a landmark deal with our pilots in a variety of voluntary programs with our union partners, all of which positions United to bounce back strongly and on short notice.

Having executed on our initial 3 pillars, our focus can and has now shifted squarely to what the recovery will look like. As difficult as this crisis has been, at United, we've done what it takes to get through the initial phase that will get us to the other side. As Churchill once said, "This is the end of the beginning." We were hoping we'd be wrong about the severity of the crisis, but our fact-based, objective approach equipped us to be more realistic and nimble in our response to the virus. We'll stay flexible. But increasingly, the light at the end of the tunnel is now visible. It's a long tunnel, and it will have twists and turns, but we'll begin to move back towards normal with what health experts are telling us is a widely available vaccine around the end of next year.

Given all the team has accomplished in this crisis, we're now able to turn the page away from just surviving to squarely focus attention on preparing for the rebound. And a culture that has served us well getting through the crisis and leading on financial innovation, customer enhancements, safety initiatives, commercial action and union partnership is the same culture that we expect will lead United being the global leader in aviation when this is over. The next 12 to 15 months are still going to be difficult, and the recovery will not be a straight line. But we've done what we believe it takes to get through. We can see the recovery on the horizon, and our attention can now be firmly focused there.

I want to thank all the people of United, those working full time, those on voluntary programs, our pilots who ratified a deal where they all agreed to work fewer hours to avoid furloughs and keep all pilots in their seats and position for a rebound and those that were sadly and voluntarily furloughed. To you, I'd say that all of us that are still here at United are focused on the recovery. And as the leader in this airline, I have no higher priority than bringing you back to work.

And now I'd like to turn it over to Brett.

Thanks, Scott. And let me echo your comments on how proud I am of the United team for their remarkable perseverance through this crisis. In the third quarter, more than 40,000 team members participated in early separation programs, voluntary unpaid leave programs or reduced work schedules, including about 9,000 employees who took an early retirement package, separation package or extended leaves of absence, which directly reduced the number of involuntary furloughs. These actions by our employees are some of the most meaningful to our company, and we all appreciate those who participated. We continue to make hard decisions in the short term to protect United jobs for the long term, and we're committed to bringing all of those furloughed employees back just as soon as the recovery allows. While we have begun to see a gradual improvement, with demand expected to sequentially increase 10 points in the fourth quarter, we still expect to operate at capacity levels around 55% below 2019 for the remainder of the year. Because of this, we had to make the difficult decision to furlough 13,000 team members. While we had hoped to get this number to 0, it is 65% lower than our original estimates due to the voluntary actions we have taken.

Additionally, we are grateful to Congress and the administration for their support on the CARES Act back in March, which was vital to preserving airline jobs. We diligently continue to work in close coordination with our union partners to get Congress to extend the CARES Act Payroll Support Program. This extension would allow us to bring back U.S. team members we had to furlough upon expiration of the CARES Act support on September 30. We will continue to engage leaders in both parties in Congress and in the administration to urge them to act.

As Scott mentioned, we have laid the groundwork that enables us to pivot our focus to what's ahead. Two significant components of preparing for the recovery are, first, working with our labor groups on flexibility; and second, staying at the forefront on all health and safety-related measures.

Last month, we came to an agreement with our pilots to avoid furloughs until at least summer 2021. The ALPA leadership and the United management team worked hard to come to an agreement. We are grateful to the ALPA leadership and our pilots for supporting an agreement to save thousands of pilot jobs. Importantly, their shared sacrifice positions United and our pilots for long-term success.

Additionally, we've worked with our AFA, IAM, IBT, AFCA and UniteHere labor groups on voluntary programs. We appreciate their partnership. Critically, all of these programs will enhance United's ability to bounce back strongly and quickly once there's a widely accepted treatment and/or vaccine.

We've also been at the forefront of health and safety with our approach to the crisis by working closely with our partners at the Cleveland Clinic and Clorox. We haven't just followed consensus views, but we've used real data, science and engineering to guide our safety decisions and implement industry-leading innovations.

We've continued to lead by supporting rigorous aircraft testing by DARPA, aircraft manufacturers and others to understand the airflow dynamics on aircraft and what that means for the safety of those traveling onboard. Recent CDC announcements point to the importance of airflow and ventilation to prevent or reduce the chance of virus transmission. Our studies confirmed that aircraft are a truly unique environment with air that is refiltered every 2 to 3 minutes through HEPA-grade filters and mixed with 50% air from the outside. We have now also identified another safety step to further increase onboard safety and one that, to our knowledge, only United has taken. At United, we are running auxiliary power units before passengers board and until deplaning is complete to maximize the benefits passengers receive from the unique airflow and ventilation environment the entire time they are on the airplane, not just when it is moving or in the air.

United was also among the initial U.S. airlines to announce COVID-19 testing for customers. We are working closely with GoHealth and Color to provide on-site and predeparture testing that meets the Hawaiian government's requirements. Starting today, customers traveling to Hawaii from San Francisco who opt for the testing will be eligible for exemption from the 14-day state quarantine. This is the next step in improving customer confidence in air travel, and we hope to expand this to other hubs and destinations. We're especially optimistic about the potential that a testing regimen like this has to restart international travel, commerce and trade.

When it comes to cleaning, United continues to use electrostatic sprayers before nearly every single flight to ensure the aircraft is clean and safe. We've also been pioneering the use of robots that apply an invisible, nontoxic, antimicrobial shield on every surface of the interior of the aircraft to further enhance the safety of everyone onboard.

We are making progress on rightsizing the airline to ensure long-term success. As Gerry will discuss in more detail, we have $19 billion of available liquidity and enough runway to make sure that when the recovery begins, United is in a position of strength. This is still a tremendous -- there's still a tremendous amount of uncertainty because we know it won't be a straight-line recovery. But as Scott mentioned, we have followed through on the 3 key pillars that have ensured our survival and will be the foundation for our success.

With that, I will turn it over to Andrew to discuss the revenue environment.

Thanks, Brett. I want to start off by saying we fully expect United to have led in all objective commercial revenue year-over-year measurements in the quarter, including TRASM, PRASM, cargo revenue and loyalty revenue, among our primary peers. We are pleased to report our business is starting to recover, and it's recovering quicker than others based on these standard and objective measurements.

Third quarter passenger revenue was down 84%, and system capacity was down 70%. Our top line revenue performance of down 78% was in line with our early expectations. Capacity for Q3 was planned to be down 65%. However, when demand trends weakened in late June and July, we revised capacity to be down 70%. Even with these late adjustments to Q3 capacity, we were only 1 point behind our original revenue outlook in the quarter, a cost, capacity and revenue trade-off that worked well. United, clearly, has the most conservative capacity plan, and that realistic assessment of demand helped us achieve our cash burn targets in the quarter.

Domestic PRASM in Q3 was down 45% on 65% less capacity. With borders up around the globe, our international client had a difficult quarter. International ASMs were down 77%, and RASM was down 55%. We operated over 3,000 all-cargo charter flights in the quarter, which contributed to a 50% improvement in our cargo new revenue versus last year. It's easy to see in this unique pandemic environment that cargo is a structural advantage for United. We're now preparing to transport large quantities of the COVID-19 vaccine. We always say our shared purpose at United is to connect people and unite the world. But for the near term, we'll be proud to add delivering vaccines to end the pandemic.

Demand at United's coastal hubs underperformed during the quarter, while our interior hubs outperformed. Our coastal hubs normally is over-indexed in business traffic and long-haul international traffic, so their results were not unexpected. Coastal hubs are typically a structural advantage for United, and we expect that they will be when business traffic restarts and borders come down and quarantines are lifted.

Turning to the fourth quarter. We expect total revenue to be down around 67% year-over-year and passenger revenues to fall by 72% with consolidated capacity expected to be down approximately 55%, a solid improvement versus the third quarter revenue performance. Our fourth quarter capacity will again be conservative. We anticipate our early 2021 capacity to be consistent with our Q4 December levels. We expect our real estate capacity levels to return us to cash positive ahead of our other network competitors.

Demand for our coastal hubs for Q4 is still expected to be weak. Slot waivers recently issued by the FAA allowed time for demand to recover prior to us having to initiate our full schedule from Newark. Incremental capacity we do add back in the fourth quarter is expected to be tilted towards our Houston and Denver hubs with the goal of getting us back on track to our original network objectives of building connectivity from our interior hubs and service to smaller communities.

Capacity is also added in non-hub point-to-point routes to Florida, which are experiencing quicker rebound in demand in the short run, not a typical market for United. In the long run, incremental first quarter warm weather flying will allow us to improve our first quarter relative to results.

In the past, United simply was under-indexed to warm weather destinations in the winter. While we have to take -- while we've had to take a pause on many of our international network plans for 2020, we continue to believe that we're well positioned as the leading global carrier to and from the United States, and we're taking actions to support a return to flying.

United supports an increased testing regime in the near term to lower borders and remove quarantines for those that can produce a negative COVID test within 72 hours of departure. We hope that by spring 2021, testing will be widely available, and governments around the world will adopt consistent measures to reduce or eliminate quarantines for those that test negative. Common Pass is one such initiative being prototyped between New York and London. And as we've -- Brett mentioned earlier, we're trialing tests right now between San Francisco and Hawaii. Expect a lot more to come.

Last week, we announced United will be the first U.S. carrier to resume nonstop service to China. Not only does this make flying easier for our customers by offering nonstop service but lowers our costs by eliminating technical stops. I wanted to thank both ALPA and the AFA as well as the team here at United that figured out a way to return back the nonstop China service and be the first U.S. carrier to do it. Creative solutions can get us back to doing what we do best, connecting people and uniting the world.

We're also excited to announce the addition of Johannesburg, Ghana and Lagos to our leading global network starting next summer. Our international gateways are home to vast volumes of leisure demand but also more importantly business demand. Africa is an opportunity in our network, and this new service represents a good chance to further extend our global lead while diversifying our 2021 capacity plan.

United is the only U.S. carrier operating nonstop service to India, and we will soon begin 2 new routes for a total of 5 flights. Daily nonstop service on our fourth route, Chicago to New Delhi, begins in December. Our fifth route and clearly one of the most anticipated ever will launch in May 2021 when we connect the 2 high-tech hubs of San Francisco and Bangalore.

Many of our existing and global routes are supported by cargo revenue. Our ability to capture cargo revenue allows United to return more passenger service to the network at a quicker pace with higher margins than our primary competitors, a structural advantage that will add to our quick bounce back.

We said last quarter that demand recovery would not be a straight line. And ultimately, we expect demand to plateau at about 50% until an effective vaccine is widely distributed. We haven't changed our view. United has clearly chosen capacity plans consistent with this view. Many of our commercial and customer initiatives have also been suspended as we focused on new priorities like CleanPlus during the pandemic.

Consistent with what Scott said about shifting our focus to recovery and restarting key projects in the near future, in August, we made the decision to resume work on the Polaris Cabin and Premium Plus cabins on our 787 fleet.

Our commercial priorities prior to COVID were improving the customer experience and delivering on the promise of better margins and a smaller margin gap to our competitive peers. Our focus today is a return to profitability as soon as possible, but our long-term focus remains on achieving the highest margins of our primary competitors. To achieve our goals, at points, we must be different. A few weeks ago, we confirmed our willingness to be different by being the first of the legacy airlines to eliminate domestic change fees. Keeping the customers our focus will, of course, be a key component of our plans. Thanks to the entire United team. With my flying routine getting back to normal, I see your dedication firsthand in these difficult times and have more confidence than ever we'll come out of this period strong.

And with that, I will turn it over to Gerry.

Thanks, Andrew. Good morning, everyone. For the third quarter of 2020, we reported a pretax loss of $2.3 billion and an adjusted pretax loss of $3 billion. As we continue to manage our business through the crisis, we are doing everything we can to mitigate our losses and, most importantly, to preserve liquidity. Through the efforts of the entire United family, we achieved our target in the third quarter of an average daily cash burn of $21 million plus $4 million of debt and severance payments.

During the quarter, we continued to bolster our liquidity, including closing on our $6.8 billion MileagePlus financing as well as obtaining committed funding through a $5.2 billion secured loan facility under the CARES Act loan program using international routes and related assets as collateral. We thank the United States Treasury Department, their financial advisers and attorneys for their support and focus to provide significant liquidity to the industry. We are currently working with U.S. Treasury to increase the amount available under the facility by an additional $2.3 billion for a total of up to $7.5 billion in available financing under the facility. In September, we borrowed $520 million under the facility and have until March of next year to take up to the total amount available to us. Also in the third quarter, we received $639 million under the original CARES Act Payroll Support Program for a total of $5.1 billion received under that program.

Earlier in the crisis, we put together a plan to end the third quarter with at least $18 billion of available liquidity. We more than met this goal, having ended the third quarter with available liquidity of $19.4 billion, which includes undrawn capacity under our revolver and the remaining funds currently available to us under the CARES Act loan but does not include the incremental $2.3 billion I just discussed, which is subject to final documentation.

In the third quarter, we reduced our total operating expenses, excluding special charges, by 48% and eliminated most spending other than what was absolutely needed to operate the airline. In addition to minimizing operating expenses, since the beginning of the crisis, we have remained focused on reducing capital expenditures, leaving only those projects that are critical to the business or would provide a quick financial return. We now expect our 2020 adjusted capital expenditures to be approximately $3.9 billion. With $2 billion already spent before the crisis, we reduced capital expenditures by over 60% for the last 9 months of the year.

Our current guidance does represent an increase of $200 million as compared to our guidance last quarter. This increase is essentially driven by our decision to purchase 16 Embraer E175 aircraft that we originally planned to have purchased by one of our regional partners. By purchasing the aircraft directly, we were able to finance the aircraft more efficiently with no additional upfront cash and lower interest rates throughout the term.

As usual, most of our capital expenditures this year represent purchases of new aircraft. One of the ways we have minimized cash burn is to require that any new aircraft we acquire, both this year and for the foreseeable future, will be fully financed. Since the start of the year, we have raised $1.6 billion in new aircraft financing. While there are fewer sources of financing today than existed precrisis, we have found sufficient funding at reasonable rates. Most recently, in September, we entered into an agreement with CBB Aviation for lease financing of 12 of our Boeing deliveries, including 2 787s and 10 737s. One 787 was delivered in September. The second one will be delivered this month, and the 737s are scheduled for delivery in 2021.

We continue to remain flexible with our fleet and don't expect to retire any of our mainline aircraft in the near future. In fact, we have returned nearly 150 mainline and regional aircraft back to service since July, reducing the number of aircraft temporarily grounded to about 450.

Looking ahead, we expect our fourth quarter total operating expenses, excluding special charges, to be down approximately 42% versus the fourth quarter of 2019. We also expect average daily cash burn for the fourth quarter to be $15 million to $20 million plus $10 million of severance and debt principal payment. This will bring us by the end of the year to over $16 billion in available liquidity or close to $19 billion if we include the addition of $2.3 billion we expect to have available under the CARES Act loan program.

Throughout the crisis, we believe we have led and will continue to lead our network peers on an apples-to-apples calculation of cash burn. We also expect to be the first network carrier to return to positive cash flow. As air travel demand returns and cash burn declines, our focus shifts from merely surviving to maximizing the long-term enterprise value of United Airlines.

In closing, we all recognize that this crisis is lasting longer than any of us expected, and there remains enormous uncertainty with respect to the demand, the pace of demand improvement. However, due to our aggressive and decisive actions since the start of the crisis, the preparations we have made to weather the storm and the sacrifices made by the entire United family, I am confident that we are well positioned to spring back quickly as we emerge from the crisis.

And with that, I will hand it over to Kristina to start the Q&A.

Thanks, Gerry. We will now take questions from the analyst community. (Operator Instructions) Brandon, please describe the procedure to ask a question.

(Operator Instructions) And from Cowen, we have Helane Becker.

When I read the press release last night, maybe this is for Scott or Brett, I felt like your tone changed a little bit and that you were maybe less pessimistic than I've heard you speak in the past few months, and I was just kind of wondering if that's right.

Well, thanks, Helane. Good to hear your voice. And what I would say is United, really going all the way back to the last weekend in February, has been focused on being realistic and objective about this crisis. We were accused by many of being pessimistic early on, and I pushed back on that notion because we weren't being pessimistic. We were trying very hard to be realistic about the crisis. And emotions like pessimism, optimism, hope, fear have no place when you're making decisions that involve the lives of tens of thousands of employees and the future of a great airline, and you just have to be objective and realistic.

And today, what we're expressing is not a shift from pessimism to optimism as much as it is an expression of confidence in the future. There's a great quote that I love and I referenced it earlier but -- from Winston Churchill that he said in 1942, over 2 years before the end of World War II, where he said -- after the African campaign when the Brits won in Africa that, "This is not the end. It's not even the beginning of the end. It is perhaps the end of the beginning." And I think that is the moment we are at now at United Airlines. We've done what it takes to get through the beginning. This is the end of the beginning. And much like in World War II, there was a long and painful, difficult road and a lot of sacrifice ahead.

The same is true for us. We're not getting through this until there's a widely available vaccine, which is probably around the end of next year. So we've got 12 to 15 months of pain, sacrifice and difficulty ahead. But we have done what it takes in the initial phases to have confidence. It's really about confidence on getting through the crisis and to the other side. And I think we'll look back at today, at this moment in time, we see it today. We were the first to call that how severe this would be, and I think maybe we're amongst the first to call the ultimate recovery. But we'll look back at this as the turning point. The light at the end of the tunnel is a long way away, but this is the turning point.

If not only what we see in the core business, there are 2 other coincidental announcements today that I think are really significant, perhaps not fully appreciated yet but really significant. One is the testing that's beginning to Hawaii. And United, under Brett and Toby Enqvist's leadership, have really driven that effort. And we've -- United, again, a lot of first in this pandemic, has been the first to get that done. And it's pushing to do more of that to open up international borders. And that is the only way.

There are things that we can do safely, even when the pandemic is still going. But -- and including flying on airplanes, but we're going to need testing to make that happen. And I think that will expand, and you'll see that expand. We'll look back at today as starting the testing as an important milestone.

And the other thing is the study that we've known about for months that has come out that we worked on with -- United worked on with DARPA and the Department of Defense which gives more evidence about how truly safe it is to be on an airplane. We recognize that, even if you're completely safe on an airplane, you have to have a reason to go. Disneyland needs to be open or your clients need to be accepting visitors in the office before you can go. That's why we think demand isn't going to get back -- won't get above 50% until there's a widely available vaccine. But these are 2 additional important milestones that simply give us confidence. It doesn't mean that the next several months aren't going to be difficult because they are. But we have confidence. And so if you're hearing the tone change, it has, and it changes the way we work. We're now focused on instead of just minimizing tomorrow's cash burn to survive the crisis, we're focused on even spending money where we need to, to invest in testing, as an example, or Andrew mentioned getting the Polaris mods back and going so that we're prepared for the recovery to welcome our customers back in 2022, which is when we think the recovery will begin in earnest.

But thanks for the question, Helane. And by the way, we look forward to testing in borders so that you and your husband can get your trip back to South America on United rescheduled.

Yes. Thank you very much, Scott. If you could just get that testing to Newark, I would be on that next flight.

And from JPMorgan, we have Jamie Baker.

Scott, in your interview this morning, you talked about the potential return to JFK. If I remember, when you initially discussed United's exit there, it was mostly because of the impact on corporate accounts as opposed to any massive share that United walked away from. Is that the way to think about your possible return, a tactical presence in corporate-sensitive channels? Or should we be thinking something more like United's presence in the '90s when there was an actual (technical difficulty)

I lost you there. I guess you said there was an actual hub at JFK.

Yes.

Certainly, our initial return, I think, would be coming back into transcon and perhaps service to our hubs. And you're right, it's the ability to service corporate demand. And we have been -- I did say that on CNBC. We've been working hard -- I guess this hasn't really been public, but we have been working very, very hard to use the pandemic as a way to get back into JFK. And I have reasonable confidence that we'll be successful.

The good news is all the work that's happened at JFK in the last few years means there's actually more airport capacity. There's not many places in the U.S. where there's additional airport capacity, but there should be more airport capacity. And we would be a new entrant there. So I look forward to getting back and competing aggressively. And for our customers who want to be able to fly in those transcon markets, we have our fingers crossed. And we're -- more than that, we are working hard to restore that service for you.

Okay. That's helpful. Second question, also pertaining to the interview this morning. And I apologize about my call waiting firing when I was asking. That was actually the New York quarantine tracing, so I'll probably have to call them back. So you talked about cash burn not being the right metric to look at. So I'm reminded of a scene in Mad Men, "If you don't like the conversation, change it." So how should that conversation change if cash burn isn't the primary metric of focus going forward?

Well, I guess I'll start, and then I'll look to Gerry to pile on. Look, cash burn is a metric that we used, we thought was the most important metric at the start of the pandemic. A lot of businesses where survival was at stake, it was the most important metric, not just in most airlines. But that's not the issue anymore. We have enough liquidity to get through the crisis. We've done what it takes. So that's no longer the issue.

And cash burn is one of those metrics that everyone measures -- well, one, everyone measures it differently. But two, we, for example, Andrew -- I mean this isn't a huge number, but we're starting Polaris mods again. That shows up in cash burn. It is the right decision to make for our customers, for our shareholders, for our employees for the long term. But if you're just focused on minimizing today's cash burn, you wind up with a myopic short-term focus. And I think we're getting back to focusing on traditional airline metrics: RASM, TRASM, earnings per share, margin.

I think it's 2022 before those things really become meaningful, unfortunately, but we are getting to a world where we're going to be focused on those. And the one thing that I think will be different, however, and probably at the top of that list of focus is something about paying down debt. I'm not sure yet what that is, but getting our absolute debt down from where it will be at the end of the pandemic is going to be priority #1. Gerry, do you want to add anything to that?

Yes. I'll just reiterate. Jamie, we do feel bad for all of you having to deal with all of us having different definitions of cash burn. So Scott said, ultimately, we get back to the more traditional metric. But for cash, it's about liquidity. So focusing on where we are at the end of the year on liquidity, the balance sheet, those become more important than trying to figure out each of the components of cash flow in a quarter and trying to do that adjustment that you all have to do because we all kind of describe it a little bit differently.

From Wolfe Research, we have Hunter Keay.

If your capacity is going to be down 55% in the fourth quarter and you're saying demand is not going to get better than down 50% until the end of next year, does that mean that you're done adding capacity back for the next few quarters?

Hunter, it's Andrew. We're clearly looking at it very carefully. We'll follow the demand trends. But as I said in my opening, we expect that our Q1 capacity is going to be very consistent with our Q4 capacity, particularly the ending part of the Q4 capacity. So that could very well be the case.

Okay. And then I look at your balance sheet, about $10 billion of obligations on there tied to the air traffic liability and deferred revenue from the loyalty program. How do I think about that working capital headwind burning down over the next 9 to 12 months as you guys add capacity back? And then just broadly, if you want to make that comment about working capital over the next maybe 18 to 24 months, Gerry, I would really appreciate some color there.

Andrew, do you want to start on the...

You're not muted. Okay.

Can you hear me now? Well, let me start, and Andrew can pile on. We have factored in when we're looking at our liquidity changing over the next year where we think ATL is headed. It's flattening out, only declined 1%. We would -- this is not obviously a normal year where you would see a significant decline in the fourth quarter. That's just not going to happen. But we are taking into account ATL as we kind of model next year. Andrew, I don't know if you have anything else to say about it.

Thanks, Gerry. No. As you just mentioned, we would have normally expected that our ATL in the quarter would have gone down by 10% or 11%. In fact, it was flattish. And we'd normally expect Q4 to start going down a little bit. And in fact, we expect it to be flattish. And it's really, I think, a sign that we are seeing an overall recovery, and then short demand patterns are not relevant to that. So we're pleased by the progress we've seen in bookings, and we're pleased by what we see in terms of the ATL when it normally would otherwise be declining.

From Raymond James, we have Savi Syth.

Just given the pilot -- the way the pilot agreement is structured and in terms of the fact that you haven't made any major fleet retirement decisions, is it fair to assume that you expect to kind of return to 2019 levels at some point in 2022 when things have recovered? Also, kind of the adjustments made -- that you've made so far on the cost structure, I was kind of curious what level of kind of minimum capacity you would need to reach to achieve like 2019 level unit costs?

Well, I'll start off with the fleet, and then I'll hand it over to Gerry. I think we're just -- we don't know. We're being flexible. We would sure like '22 to be equal to '19. I think that's probably unlikely. But we've parked a lot of these aircraft in the desert. They're ready to fly when we need them to fly, and we'll maintain that ability. You saw that in Q3 where we thought we were going to be down 1% and then demand weakened, and we immediately changed the plan to be down 70%. So we'll maintain that agility going forward, and the fleet is there if we need it but only if we need it. Gerry?

Yes. So Savi, as you know, CASM is directly related to capacity. And we'll start looking at that traditional metric of CASM-ex, which is the appropriate way for us to measure unit cost. And we feel comfortable that we can get the CASM-ex around flat to 2019 as capacity gets back to 2019 levels. So we're focused on it, and we're comfortable we can get there.

And related to that a little bit, like you mentioned that kind of demand is expected to recover by 10 percentage points. Is -- what level of demand is there currently like between leisure and business? I'm wondering if that comes more from business or if that comes more from leisure.

Savi, I'm going to say right now is I expect that to be more leisure oriented in the fourth quarter. And in fact, we've tilted our capacity to reflect that. So in fact, today is a step-up in our Hawaii capacity, coordinated obviously to the testing that we have out in San Francisco. And so we're expecting Hawaii to be a part of the increased revenue as we go through the fourth quarter.

Business demand is still down a large percentage. It depends on how you measure it, but anywhere from 85% to 90% down is kind of the trajectory that I would tell you it's at. It has improved a little bit, and it has improved more with smaller corporations than larger corporations at this point.

From Vertical Research, we have Darryl Genovesi.

Scott or Andrew, I appreciate the JFK tidbit. But in broader strokes perhaps, when you think about what the network looks like post recovery, how is it different from today? I mean is it more leisure oriented? Or is it more domestic oriented? Or just how has your thought process evolved around the overall network structure?

Good question, Darryl. Yes. I'm not going to be able to, I think, accurately predict it today. As Scott said, we're still early in this process. Clearly, we're going to be agile in the short to medium term and move capacity around to reflect where we're seeing demand today. And clearly, we're seeing more leisure-oriented demand. And that reflects how we've tilted the capacity again in Q4 with more sunshine capacity, more Caribbean capacity, more Hawaii capacity.

But look, we fully expect that business travel is going to get back on the road someday when the vaccine is out there and widely distributed. We are big believers in that. And so we think business traffic will rebound. It's clearly not going to bounce back to 100% on day 1, and our network will be different in 2021 and 2022 than what we'd otherwise have planned. But there will be a day in that future and hopefully in the near future where business traffic is back to the new normal. And clearly, the types of trips being taken will be different.

And as I've said before, this new remote work environment, I think, actually could be a stimulus to business traffic in that workers need to return to their corporate office a few times a month to do their work. And so business traffic may be different, but we think it will return.

Okay. And then maybe one for Gerry. Gerry, your restructuring spend is a little lower than what some others have announced. Can you just give us a sense of how you think about sizing the voluntary programs? And is there like a particular IRR you're chasing or a particular payback period?

And then also, if you could just comment. I think this most recent deal that you did with the pilots gave you some incremental flexibility to do additional early outs, so do you anticipate another voluntary separation program this calendar year? So I guess 2 questions in there. One is just on the framework, and then the second is just on whether there's another one coming.

Yes. I'm not sure that second question is for me. All I can tell you is that we are doing everything we can to overall variabilize our costs and to be able to be flexible in really every part of the cost structure.

From Stifel, we have Joseph DeNardi.

Scott, when you think about the relative importance or unimportance of corporate traffic to United's earnings power pre-COVID, how important was it? What does that suggest for United's post-COVID earnings power, if there is some structural impairment? And feel free to speculate on what you think that impairment may be.

Well, I'll let Andrew answer as well, but I'll start with my personal opinion, which is -- which I recognize is not the consensus. But we are, as you and me, we are social creatures, and I think business demand is going to come back. I don't think it's coming back immediately. I think demand sort of starts to recover in earnest end of next year, beginning of 2022, and business demand getting back to normal is, I would guess, 2024, but I think it will come back to normal.

I've been fond of saying the first time someone loses a sale to a competitor who showed up in person is the last time they try to make a sales call on Zoom. There's a great commercial from United that's over 30 years old that you can go Google, but it ends with, "I'm going to see that old friend." That was true 30 years ago. That will be true in the future because that is what human nature is.

And I -- business travel is incredibly important to United, and it was our bread and butter before. I think it will be our bread and butter in the future. It's going to be a few years before it comes back in earnest. But one of the things that I think is great when we talk about United being the leader in global aviation, we were headed in that direction before this all started. I think we're going to make a decade worth of progress during the pandemic. And when this emerged -- when we emerge, particularly given what our 7 hubs, given what our pilots agreed to do on keeping everyone in their seat, given everything that we're doing to invest in the customer experience like eliminating change fees, but everything that we're doing with our loyalty program, we're going to emerge as the world's #1 business class airline I think 2024 before it all comes back. But in that world, too, I think we will have picked up share, frankly, so don't even have to come back for 100% for that to be really successful for United.

I will caveat it, however, and say we're staying flexible. As Andrew said, we've got airplanes that are parked in the desert. And if we recognize that that's not a certainty, what I just described. and if it's wrong, we won't do it and we won't go there. But that's my guess for what is going to happen that business travel demand is going to recover that United is disproportionately going to win in that environment. Andrew?

I think the only thing I'd add to that, Scott, is that maybe going back to our hubs, our hubs are the home to a majority of the business traffic, the global business traffic to and from the United States, particularly in New York, Washington, D.C., San Francisco, Los Angeles and Chicago, and even some extent, Houston. And those markets, the business traffic, they're going to -- our markets are going to bounce back quicker and stronger in our opinion and allow us to get back to flying faster than others. So that's what we're thinking about as we go down the road.

The other thing I'll say is that the competitive environment is not the same. I look around the world, and the number of 747s and A380s that have been grounded is just -- it's very, very large, obviously. And so the competitive dynamics in the global arena for the next few years are simply going to be different. So there's a lot of calculations moving. Demand is moving. ASMs are moving and how flights are viable based on what gateways that it will depart from will be different in the upcoming couple of years than they were prior to this crisis, and we're prepared to be agile and work around all those things to come out quicker and stronger.

And from Evercore ISI, we have Duane Pfennigwerth.

Open to your suggestions on if there's a good way to do this, but I was wondering if you could provide some visibility into your cash OpEx savings. Obviously, quarter-to-quarter, it's not easy to do because capacity is moving around and hopefully recovering. But can you quantify cash OpEx savings that are hitting here in the fourth quarter? And if the fourth quarter is sort of not the best time frame, when do you expect to fully hit your stride on that front?

Yes. I'll take that. So I would say the fourth quarter is not the best quarter for a number of reasons. So next year, first quarter and through the year will be the best way to look at it, so we could give you better color in January. The problem with the fourth quarter is there is a lot of noise. There's the -- unfortunately, the severance noise. There's also noise associated with things that we did in the second and third quarter.

For example, when we started this crisis, the very first thing we did was, okay, let's look at cash payments and stop what we can, defer what we can. And we had terrific support from our suppliers and our vendors to say, "Okay. They can wait a little while." But we didn't ask for particularly volume extensions, but it's probably $250-ish million of payments in the fourth quarter that are associated with obligations that were deferred from the second and third quarter.

Maintenance expense is another good one. What I think most everybody in the industry would have done through the spring and summer is use that maintenance time on aircraft and let aircraft then kind of rest for a while before actually putting them into checks. That process has to start at some point. And for us, that process has started in the fourth quarter to get ready just for next year. And so we'll see maintenance expense up in the fourth quarter versus the third quarter, which is why next year is going to be the better year to kind of look at that.

That's super helpful, Gerry. And then if I could for my follow-up. Scott, can you just give us some perspective on testing as a solution? You brought it up and agree you have had some leadership there. But what are the gating factors? What really needs to happen? What are the regulatory bodies we should be watching? Is it a function of we don't have PCR tests available on a fast-enough basis today? Or is it just a lack of movement on the part of regulatory bodies?

Well, thanks. It's a really important question. But rather than me answer it, I'm going to let the real experts and the ones that have been driving the work, Brett and Toby, take a shot at it.

Thanks, Scott. Duane, I'll take the first shot, and then Toby can step in and offer perspective as well. I think one of the things that you have to keep in mind is that we're at a point in time where we have cities, we have states, we have different international regulatory bodies who are trying to regulate different standards and different tests to open up the market. So what we're doing, in particular, with Hawaii and San Francisco is we are trying to lay down a blueprint that we think is replicable in other areas, and that will help us open up new markets. So what we expect is that it will demonstrate that we can do this in an efficient and a very safe way.

One of the issues that we do have is that different tests are coming on the market, and we have varying levels of availability. We're working all of those angles to ensure that as we roll out these programs and we help to open new markets and convince new regulatory regimes around the world to adopt something that is fairly uniform that we'll be able to do that in a very effective way. Toby, I don't know if you want to add anything to that.

No. I think you said it perfectly.

From Deutsche Bank, we have Michael Linenberg.

Yes. Two questions here, just back to the testing. Andrew, you mentioned that Hawaii capacity is going to be increased in anticipation of increased volume, but I realize it's early. What are you seeing with respect to bookings as following the announcement of the test to Hawaii? And are you seeing actually a greater pickup in demand in the premium cabin, just given where the price point is of the tests relative to the fares?

Thanks, Mike. What I'd tell you is we had planned Hawaii down 54% in Q3 year-over-year. It will be -- sorry, Q3 down 85% year-over-year. In Q4, it will be down 54%. It will now be 9% of our domestic ASMs versus 4%, so we do anticipate and we have seen a demand recovery to Hawaii. Ultimately, I'll report out on that in January and let you know how it exactly went. But today is our first day of our bigger schedule, and we have very nice load factors outbound. And we expect it to be a strong holiday season as well.

So we're bullish that Hawaii, with the testing environment and the quarantine situation, with that lifted, with a good test, is well on its way. And we're excited to have grown our capacity, and we think we've put it in the right place at the right time. But again, we'll measure our success in January and let you know how we did.

Great. And then just the second one, and maybe you are the right person to answer this as well. Obviously, kudos to the team to not have any pilot furloughs. And yet, I still see that you, unfortunately, do have to remove 6 seats from the 76-seaters. There's been additional sort of language around scope or tightening of scope. Can you just elaborate on what some of those other elements of the scope are?

Sure. We really have a groundbreaking new agreement with our pilots that allows us to variabilize our cost structure and bounce back when we're ready to bounce back, and they definitely had some concerns about how we put it all together. And we worked selectively and collaboratively to come up with something that works for both of us.

The second change that you're talking about, in addition to the 76-seaters becoming 70, has to -- relates to the ratio of how many block hours we can fly on RJs versus mainline. And we agreed to temporarily restrain that number versus what's normally allowed. We don't think that's going to have any impact on our schedules later this year or next year based on the recovery that we have seen right now. So it was something we were able to do to provide some level of comfort to our pilots in our overall agreement that we think is a big win for United Airlines and quite unique for our business.

From Crédit Suisse, we have Joe Caiado.

Great. I just have a quick follow-up on the airport testing, rapid testing questions that have been asked. And that's really -- what are your thoughts on who should fund the cost of these testing programs? Is that something that should be funded by the government, by you? Or should it be funded by passengers in the form of higher-ticket costs?

Brett, you want to take that?

Sure, sure. Look, at present, our customers are covering the cost. And what we're going to work really hard to do is to drive down the cost of those tests as we move to additional markets. And if you look at the different types of tests that are available now, you have more traditional tests, which are more expensive. But now we have increasingly rapid tests available, and those tests are quite reasonable in cost and down in the $15 range.

So we think as more tests become available and we're able to provide more options in different markets that we'll get to a point where this is a cost, clearly is not an impediment, overall, to travel for our customers. And we think that it's a cost that can easily, at this point in time, be absorbed. So that's our perspective at the moment.

Got it. And then just a quick follow-up maybe for Gerry on cost. Appreciate that the next couple of quarters are certainly going to be noisy. There's going to be a lot of moving pieces. But just longer term, I mean, how should we think about the cost trajectory as you ramp back up in the next few years? What's the stickiness of the cost that you're taking out today? How much is structural? And just how should the expense lines recover as capacity and revenue recovers?

Sure. I think, as I mentioned, as we shift our focus back to more traditional metrics like CASM-ex, we'll use -- we'll get back to where we left off, which was taking 2019 as our baseline and managing costs the way we had precrisis, which is to do everything we can to keep CASM-ex flat or better over time.

And from Goldman Sachs, we have Catherine O'Brien.

So maybe just one on demand and the combination of all the talk on testing as well. So it seems like for most the pandemic, booking trends were very correlated with trends in cases or at least headlines on cases. Is that still true today? Or has spreading the word on cleaning standards, more testing, et cetera started to break down that relationship? And really just asking in the context of cases globally ticking back up here.

Catherine, it's Andrew. It's a really good question, and I think you've got on something that there is a different trend line now. Back in June, when we saw the spike in cases, we saw, really, a direct and negative impact on our bookings that impacted July and August. But I would say over the last 8 weeks or so, we've domestically have seen just steady progress. Even as headlines sound good or headlines sound bad, depending on what you read and when you read it, I think, domestically, we would describe we've seen steady progress, again focused on leisure demand, not on business demand, but steady progress that's divorced of the headlines, which is, I think, from our business perspective, nice to see.

Okay. Understood. And then -- and maybe just one more on business travel. So if business travel is going to take longer to recover than leisure or depending who you're talking to potentially not fully recovered to pre-COVID levels, what changes to the cost structure or product offering would United consider making to offset that change to the revenue mix, maybe over the short term or perhaps over the longer term, if it really does end up that we've had a structural shift down in just the amount of business travelers traveling in the future? Any thoughts there would be helpful.

I guess I'll start. And what I'd say is we don't think that's going to happen, so we actually think the opposite. We have been thinking about it, but I think that's probably something that is best kept to ourselves at this point in time for an outcome that we don't think is the base case scenario in any event.

And we will now take questions from the media. (Operator Instructions) From Bloomberg, we have Justin Bachman.

Yes. Getting back sort of to Catherine O'Brien's question about the -- a divorce between the headlines and booking trends. I'm wondering on the corporate side, what are you hearing from those accounts as far as what their gating factors are for when some of the larger corporations will get their people back on the road?

Justin, it's Andrew. And we've actually have asked our sales folks to get back on the road, and I was recently in New York, talking to some of our clients as well as we try to get back to this new normal. And what we hear is, one, that the policies of no travel have been relaxed, so there is the ability to travel. It's sometimes a little bit more cumbersome than it was in the past in terms of the rules you need to do. But the no-travel policy have mostly been eliminated, which was good to see.

And then second on traveler sentiment, that's what we track. Are people concerned about flying? And we've seen material progress in that number. In fact, the number in our last reading was the best we've seen since the -- really the crisis started in terms of concern about traveling, so really great progress on that front.

But as Scott said earlier, there needs to be a reason to travel. People need to be in their offices or around, and that really hasn't happened yet. So we're anxiously and we're watching, for example, the occupancy rate of New York City skyscrapers. And when that number starts to go up, I think you're going to see business travel start to rebound because there's a reason to travel. Right now, the reason to travel are just not sufficient enough to get business traffic started.

But once it does start, I think it's going to happen in a reasonable time period, as Scott said earlier. And travel, it really connects us and makes the difference on some of those key deals being done around the world, and so we fully expect it to come back. But the most important part is the travel policies have now been relaxed, so people can travel.

And from Wall Street Journal, we have Alison Sider.

Just curious how you're thinking about...

Alison, unfortunately, your line is staticky. We're not going to be able to take your question. (Operator Instructions) We're not able to get a connection with you, unfortunately. We'll take it from CNBC, Leslie Josephs.

United business model, because of the pandemic, has it changed forever? Do you see as much emphasis on international and corporate as you had pre-pandemic once we get through all this? Or is there going to be -- is United is going to look different for an extended period of time once we get through?

Andrew, did you get that?

Leslie, unfortunately, I could hear something about business models, but I really, otherwise, could not hear the question. There was a...

I think the question is, is business and international going to change? Or will our business model has to change as a result?

Okay. Well, look, we started just saying we'd be agile. We also added that New York, Washington, San Francisco, Chicago, these are the origin points and destination points for a majority of business travel to and from the United States. They also happen to be our hubs. So we're quite confident that when business traffic rebounds in whatever shape and form it does, it rebounds quicker in our hubs. And the financial viability of our flights is simply better than that of our competitors, in our opinion. And in fact, that was true pre-COVID as well.

So this is something we're not overly worried about. We think we're in a very good structural place, and we'll react to whatever we see in the world that we'll be agile because that's what we need to do. But we think we're in actually a good place in terms of where our hubs are, our fleet flexibility and how we're evolved in the network. We have made a number of changes to the network, reflecting diversifying of capacity and really risk. And for example, we've announced Ghana, Lagos, Johannesburg, Bangalore. So as we put our widebodies back to use, they won't exactly be going to where they were going precrisis, pre-COVID. So they go into a new set of destinations with a new distribution to capacity that we think reflects the new world. Obviously, we'll continue to adjust it as necessary.

And from Business Insider, we have David Slotnick.

I'm just curious when we were talking about grounded fleets, grounded planes before, the 737 MAX seems like it's about to be recertified. I was wondering if you're planning to bring those back into service right away or wait until demand picks up.

We don't know the exact date they'll be recertified. And at this point, we don't have them in the schedule this year. So likely sometime next year based on the schedule we hear from the FAA and Boeing.

At this point, we're going to try Alison Sider's line again. Alison, are you on the line?

Yes. I'm here. Can you hear me?

Much better, Alison.

Great. Good. Yes . I wanted to ask about what, if anything, you're hearing on state and local travel restriction, those might kind of come back or come back in greater force this winter if cases keep rising. Is that something you have conversations with the local officials about?

Alison, this is Brett. I'll take that question. We're certainly in close contact with state and local officials, and we have an interesting process in that they are all making independent decisions about how to govern their cities and states. So there, we think there's a bit of a wait-and-see approach in most states and cities, but we are working hard to understand the direction that they may be going in, and we're helping them understand what we're seeing.

And the -- we're certainly talking to them about the safety and health measures that we're putting in place on both -- in the spaces that we control in the airports and on our aircraft and making sure that they understand what we're doing to help facilitate travel and the importance of travel to their cities and states, which, by and large, they understand. So we're closely connected. We don't -- I can't speak to what may happen in the fall, but we are certainly in constant contact with them.

And from Reuters, we have Tracy Rucinski.

I was wondering if you could talk a little bit more about the significance of the Department of Defense study on cabin airflow and COVID transmission. Can the results be extrapolated to other aircraft beyond the 777 and the 767?

Yes. Thanks for the question. I do -- I think everything that's happened recently, this is the most significant announcement that has come out. And while it will be important to keep doing more testing, the reality is those tests are indicative of what happens on every airplane. An aircraft is just a remarkably safe environment. And even beyond just these tests, if you've been reading what the CDC and others have been saying recently, they talk about superspreader events and where it's dangerous, and it's indoors with poor ventilation and poor air circulation.

What these -- what we've demonstrated with the DoD and DARPA is that aircraft, because the airflow is from the ceiling to the floor and is not spreading amongst the customers and because the air circulation is being -- is going -- is happening every 2 to 3 minutes going through HEPA-grade filters with 50% air from the outside, there is no place indoors that is anywhere close to that. And aircraft through -- that's why IATA can say your chance of getting hit by lightning is equivalent to your chances of getting hit by lightning or others that said you'd need to fly 54 hours nonstop next to someone with COVID to a have a reasonable chance of catching it. Aircraft really are a truly uniquely safe environment.

One of the important things that United has done, however, that I would encourage other airlines around the world to do for safety is make sure that customers have the benefit of that robust airflow system the entire time they're on the airplane. And you maximize that by running the auxiliary power units before you start boarding passengers and until you continue deplaning passengers. United, I think, is the only airline that is doing that. It does cost some money, but it makes sure that 100% of the time customers onboard an airplane, they get the benefit of that robust airflow. But it is remarkable. We've known some of these facts for a while. It's encouraging to see more of them coming out into the public sphere. It is remarkable how safe you are onboard an aircraft.

And we have no further questions at this time.

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

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