United Continental Holdings, Inc. (UAL)Management Presents at J.P. Morgan Aviation, Transportation and Industrials Conference (Transcript)

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About: United Continental Holdings, Inc. (UAL)
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United Continental Holdings, Inc. (NASDAQ:UAL) J.P. Morgan Aviation, Transportation and Industrials Conference Call March 5, 2019 9:30 AM ET

Company Participants

Scott Kirby - President

Conference Call Participants

Jamie Baker - J.P. Morgan

Jamie Baker

[Call starts abruptly] Reminiscing these events, particularly when I get to introduce people that I've known for so long and I remember right after I started at J.P. Morgan; Scott was at America West, I got him to come out to New York, we were going to do a big dinner and it was really hard to get people to attend. And I think I brought about four or five juniors from other teams just so we'd have a decent load factor.

You may remember the dinner; this was when the waiter spilled a glass of red wine on Alice who was wearing a white blouse so that didn't go very well. But I remember emphasizing to people at that time, you really got to get to know this guy, this guy has been a matter and it was a struggle and I just wished that some of my stock picks over the years had been as good as that; so what a difference a year makes. You know, this time last year you were up here defending the mid-continent hub strategy by -- opined [ph] in my opening remarks that you are just one of two stocks, United is just one of two stocks that actually showed any momentum last year.

So, as I turn the mike over to Scott Kirby, the President of United; please convince us that that momentum will continue in 2019 and beyond. It's great to see you again.

Scott Kirby

Well, thank you Jamie, and thank you all for joining us today, both here in the room and on the call. And I think that's probably pretty good introduction today Jamie, because I'm going to spend the 10 to 15 minutes that I talk today giving what is probably not the typical speech at one of these Investor Conferences. And really, I want to speak more to the long-term and talk about the vision for United and where we're going, and why we think there are so many uniquely -- United opportunities that are going to cause what happened to 2018 to be a repeating phenomenon that we expect to continue to be able to perform strongly, probably outperform, but most importantly, be able to continue to grow our margins and our earnings in any kind of environment that gets thrown at us.

And so really this discussion today is going to be at little higher level and more conceptual about where we're going and why we think that creates uniquely united opportunities for us. And because of that I only have two slides to talk about today, but before we can talk about the future and where we're going, it's important to set the stage for the flight path that we've been on in the past few years and talk about how we got to where we are today. And if I look at this slide, I think that the modern birth of United Airlines was the beginning of 2016, and everything changed when Oscar Munoz became the CEO of United. I wasn't even at United, at that time I was in fact competing with United Airlines. But when Oscar came in and what Oscar recognized is that we are a customer service business, and then if you're going to provide good customer service, if you're going to run a good operation, if an airline is going to be successful, we had to have the people onboard.

And there have been years at United of difficult relations with the frontline employees and Oscar came to United and focused on rebuilding trust with that group and getting people to work together. That doesn't mean by the way that we always agree 100% of the time because there are times when we don't agree with our unions or whatever. But even when we disagree, we don't let the one person at a time that we disagree with each other affect the 99% of the time when our interests are aligned. And this really is the foundation that -- if you're going to build a great airline, you have to have the employees with you, you have to have everyone rolling in the same direction, you have to have everyone believing in the future of the company, believing in a vision to make it the best airline in the world and that is our goal, at United is to make it the best airline in the world.

And so that foundation of getting the culture -- beginning to change the culture is what allowed us to turn our focus in 2017 to running a great operation. And a great operation depends on employees doing all the little things well, and when you have difficult employee relations, they don't -- most employees will do their job but it's harder for them to go above and beyond. When they believe in the future, when they believe in the company, when they believe that we're all in the same team, all those little things start to come together. And so in 2017 we focused on running a great operation because one of the metrics if you're going to be the best airline in the world is that you have to run a great operation and get your customers to their destination on-time with their bags in a minimum amount of hassle.

Historically, at United, we've looked at the situation and said we have hubs in New York, San Francisco and Chicago which are three of the most weather air traffic controlled delayed prone airports in the world, and because of that we can never hope to be in the Top Tier of operating results. It was incredible in 2017 to see the team take the mission to try to become number one because again, we wanted to be the best; and if you're going to be the best, that just means we have to operate better than everyone else because our geography is more difficult. But to take that bull by the horns and in 2017 the metric I think that most of us look out for operational reliability in airlines is departures within zero and we move to number one on that metric and that momentum has continued to this day. Lots of other metrics that I can talk through, things like an 83 -- or several years in 83% reduction and long maintenance delays or cancellations, but really across the board improvement in operations. And when I'm at customer events I hear this INS page [ph] from our customers who all the time say they can tell particularly how frequent travelling customers can tell the difference.

And it's hard for -- those of you on Wall Street to put this in a spreadsheet but you can start to see it showing up in our revenue results. When customers know they can rely on us to take care of them and to run a reliable operation, more and more customers choose United Airlines when they have a choice. But it isn't just -- it hasn't just been about the hard operating metrics; we also started in 2017 to really focus on communicating with customers, and doing a good job, a better job when things go wrong. So irregular operations when there is weather as there was 24 hours ago here in New York, and some of you may have been caught up in it. We, I'm confident are the -- United were the best of any airline in the world at recovering from irregular operations. Now to some degree, necessity is the mother of invention; when you have hubs in New York, San Francisco and Chicago, you need to be good at recovering from irregular operations because of those airports; but we've gotten really much better than anyone else with lots of automations to do that.

We've built a customer solutions team that's available 24/7, that to my knowledge is unique in the industry that can help take care of unique situations anytime they occur, and unique situations occur when something happens like the Pakistani airspace is closed and flights from India can no longer fly non-stop to The United States; that team jumps into action and helps deal with the customer impact and situations from something like that.

We've also started in 2017 to really focus on changing the customer service culture that we have at United, and this is a mission that will continue in years to come. But to get focused on the humane, and taking care of people as opposed to being just an enforcer of rules, starting to empower our frontline employees to use their judgment and discretion to take care of customers instead of focusing on; here are a set of rules which sometime seem arbitrary and unfair to customers. We did things like; we have I believe the best technology of any airline in the world for our maintenance employees now who basically have all of their technology on an iPad and if you've ever been on airlines and seen somebody, a mechanic on the airplane, working on an airplane and they leave, and then they come back 20 minutes later, they are going to computers and getting paperwork, signing off on paperwork or going to the hanger to get parts, our employees -- our maintenance employees can now do everything sitting on the airplane with the iPad and it's been a home run, not just for them but obviously a home run from our customers because when there is a maintenance issue, we can deal with it much more quickly and get the airplane on the way.

So after rebuilding the culture, after really focusing on the operation in 2018, those were two building blocks that allowed us a little over a year ago as Jamie alluded to, to launch the growth plan. It's been gratifying to see the change and perception of the growth plan from where we were a year ago. While we were confident that the growth plan would be successful because the underlying driving connectivity, the underlying ability to make our hubs look more like successful hubs around the country, hubs that were already mature compared to our undersized hubs, it really was a huge opportunity for us. And look, at conferences like this, you've probably heard United executives for decades standup and talk about having the best network in the world but the results never reflected their best network in the world. And the reality is, when they were talking about that they left one word out, which was potential. United's 7 hubs absolutely have the best network potential of any airline in the entire world but we needed to realize that potential by growing them to maturity.

The hubs had been undersized and didn't have the same kind of connectivity, didn't have the same opportunity, consistently derived premium revenues, even though we're in the biggest premium markets in the country, and as we've started growing the hubs, it's been gratifying to see not only that of course our CASM came in flat or better but also that our RASM was up 4% -- over 4% last year, and industry-leading RASM, industry-leading CASM, which of course leads to industry-leading year-over-year margin performance. So it really was a big opportunity even though there were skepticism at first, it's been great to see the reaction not just in the stock price but more and more people that we talk to at conferences like this who are beginning to recognize that this really was and is a fundamentally unique United opportunity that we still have ability to continue growing in the years to come.

Once we've got the growth plan going, in 2019 and beyond, our focus is shifting firmly to the customer and the customer experience. This has been going on in the prior years but now that we have these building blocks in place, taking advantage of building on the core four which we launched about a year and a half ago, the core four by the way really has been a change in the way people at United think about their decision making and think about the customer. The core four is the four principles that we have are safety, caring, dependability and efficiency, but they are in that order. And particularly putting caring number two is what is impactful to our employees who are used to thinking of dependability; get the airplane out on time is what really matters. But the core four says caring is the second in our priority list and taking care of customers, and that's a big change culturally from what we've done historically.

But in 2019 and beyond, we're making significant investments in the product, from things you've already seen announce like free direct TV for all customers on the airplane, in fact in over 200 of the airplanes that we fly every day. Polaris lounges which have come out to rave reviews from our premium customers. The 550, an innovative new product that's going to provide premium service to small markets, something that no one else in the industry will have. Premium Plus, and the list goes on and on and on of initiatives that we have to invest in the product and make the flying experience better for our customers. We're also making these significant investments at the same time that we're continuing to drive productivity and efficiency through the rest of the airline. So we're able to make these significant product investments and still keep our CASM flat or better, at the same time that we're investing significantly for the customer. So we're focusing our resources on things that help the customer, on investments that help the customer and driving efficiency and productivity through the rest of the airline to fund those growths for our customers.

We're also focused on being easier to fly, and for taking care of our customers and communicating better to our customers, whether it's our industry-leading mobile app, programs like 'every flight is a story' which is a particular favorite of mine, not fully rolled out everywhere in the system yet but this is -- when there is a weather event or maintenance event that we're telling customers -- we're communicating to customers through text or email in real terms what's going on, instead of our traditional flight operational difficulty, your flight is cancelled or delayed for operational difficulty, we're sending the message that the polar vortex is coming to Chicago, temperatures are going to be minus 50 degrees, and because of that we're cancelling this flight. Here is a bunch of options for you to reschedule your trip if you'd want, or to get a refund if you want.

And it's remarkable on flights that we are telling customers using this 'every flight is a story' and telling customers what's going on, our customers satisfy -- customers never like a flight delayed or cancel but the customer satisfaction scores are dramatically higher, just by communicating in real terms what's happening on those flights and with those customers. We're experimenting with a new program in Denver called Dynamic DG [ph], another frustrating thing that happens for customers is, you can be coming again to an airport and your flight is a little late and you're incredibly tense and I'm going to make my connection, you run at the gate and the airplane is just pushed back and then you're in a customer service line waiting to get re-accommodated on another flight. It's complicated for a gate agent to know when to hold or delay that flight because that airplane might have a bunch of connecting customers at the next destination or it might have crews that are going to take a flight from the next destination, it's -- or the weather patterns might be different and it's going to be delayed in or out.

The gate agent doesn't have all the information and there is hundreds of variables that go into making that decision. We are testing automation, which we all eventually roll out to the rest of the system that tells an employee, tells customers, 'hey, here is five or six customers that are coming to this connection, they are going to be five minutes late but we know we can make up the time in-flight on this particular flight.' Sometimes we can't and we don't hold the airplane but when we can, it gives us automation that allows us and even in the experiments, we've saved over thousands of customers connections. These are just examples of the kind of cultural changes that are happening at United that are getting us to focus on the customer, they are not all inclusive but they are the kinds of changes that are really driving greater performance at United and causing customers to choose to fly United when they have a choice. All of that is what allows us to have confidence making long-term predictions.

When we first came out last year and guided to 11 to 13 from 2020 earnings, I don't think many people took that serious or viewed it as a commitment. In our view, we viewed it as a commitment, we have adopted whole heartedly the 'no excuses, sir' mentality that we are going to move heaven and earth as we've said to hit our numbers and to reach our guidance. It was great in 2018 to be able to raise guidance consistently as we went through the year, we continue of course to feel good about 2019, our guidance, and for 2020. But really, the point of this slide is, the structural change that I spent the first 15 minutes talking about is what gives us confidence to do this. We don't have to worry -- we're not as worried about the speed-bumps, speed-bumps are going to happen, whether it's transcom [ph] pricing, whether -- whatever; those things are going to happen but we've built a plan, the building blocks that we talked about on the previous slide, that means we're going to be able to overcome those speed-bumps and it gives us confidence that we can say that we're going to hit our targets in the long-term because we know they are so much uniquely United opportunity that's happening -- that is going to deliver these kind of results in the long-term.

So with that, I will wrap up. And, once again, thank you for coming and listening to us. Thank you for your support in the last year, as we've gone through the growth plan and the turnaround that has changed. And with that, I'll open it up to questions.

Question-and-Answer Session

Q - Unidentified Analyst

So Scott, thank you for that. This time last year, I asked you, what I suppose mighthave been perceived as a softball question…

Scott Kirby

Those are fine.

Unidentified Analyst

If there was one investor perception that you could change, what would it be and I believe your answer was something along the lines of changing the view that all capacity is created equal and all capacity is equally evil or something like that. Do you think you've succeeded in that? And if so, what is the next misperception that you would like to address and change for your shareholders?

Scott Kirby

So, I guess I won't go so far as say mission accomplished on that but I think we've certainly made a lot of progress. I think more and more are willing to give us the benefit of the doubt that all -- not all capacity is created equal, and every day that goes by we'll continue to prove that. And so while there are still skeptics, there are a lot smaller number than they were a year ago and I certainly wouldn't list that as the top challenge. I think if there is any -- I don't know if it's a misperception but a misunderstood opportunity at United is the amount of uniquely United opportunity that actually exists. And I try to give you a flavor for that in today's presentation, this really isn't a one-trick pony about the growth plan, there is so much incredible stuff that's happening at United, that's really what gives us confidence. We know the growth plan is fundamental to our opportunity but there are so much good stuff that's happening. In our last earnings call, we talked about the cultural change, I mean it really is amazing, the number of small things, something like the CRJ550, which came from the bottom-up.

When the 550 first got presented to me, I said, to the guys you're going to take an airplane that used to have 70 seats on it and fly with 50, there is no way we can make the economics work, and I was a skeptic but it turns out they could make the economics work, and that kind of innovation, creativity, willing to try things that are new and different is something that is unique to United, I know the culture is -- at our competitor is pretty well, that is something that is unique to United and there is hundreds of smaller things, you can see something like the 550, that's big. But I think that is probably an opportune -- may not be a misperception but an opportunity that is misunderstood about United, and it's what allows us by the way last year to come close to 100% recovery on fuel, it's what allows us to have confidence in giving guidance, it is what allows you to overcome speed-bumps, you know, you've heard others talk about the speed-bumps in the revenue environment for the first quarter, and we're able to overcome them because there is just so much uniquely United stuff that's happening beneath the surface.

Unidentified Analyst

Scott, just on the 550; is that something that would have happened if you didn't have your scope limitations that were negotiating with the pilots and so forth or you know, standalone, even if down the road you get some relief in terms of scope, you could envision the 550 once you've put it into the network staying there long-term?

Scott Kirby

You know, I'm not sure if it would have happened or not if we were on scope, that certainly was some of the genesis for thinking about it. That said, you know, regardless where we end up on scope, and I believe we'll eventually have a competitive scope deal but I suspect this is going to be something that we sort of stumbled into as a really good and uniquely United opportunity. The CASM on these airplanes is high single-digit but high single-digit higher CASM then on an existing 50-seater that we fly today but with a dramatically better product. And you take -- you know, we think we'll have just on a segment basis, probably double-digit increase in RASM, so in the short-term it's better and you take all those connecting traffics that is now going to fly in premium class and flow onto our flight from Chicago to Hong Kong or wherever it is; we think it's going to wind at being a home run.

So don't know for sure, we're going to be open minded and see how it works but my guess is that this is going to be something that we keep in place, even after we get a contract done with the pilots because it's going to be -- turnout to be the right financial decision, and particularly for the United network which is so premium oriented with where our 7 hubs are. It's also a product that we uniquely can offer.

Jamie Baker

We'll keep it here up I guess. So, Delta does a pretty good job at identifying what it considers to be long-term sustainable advantage and the low employment costs and the connectivity that they can afford in Atlanta, for example, a largely non-union labor construct that gives the more flexibility with staffing; that's part of their pitch, you've heard it before. And I think it's challenging in the airline industry to really identify sustainable advantage, I remember writing about American recommending the stock at one point because of the labor cost advantage, only to see the company file for bankruptcy a decade later because of labor cost disadvantage; so things change. What would you point to if anything in United's case that might fall into that illusive category of long-term sustainable competitive advantage?

Scott Kirby

So I'll point at two things; first is clearly the network and the hubs. And it's just a fact, United has the best hub structure, potential of any airline in the world where our 7 hubs are incredible markets, they are incredible premium demand markets, there is great opportunity for the mid-continent hubs to have higher connectivity, that is a structural advantage that as long as we size the hubs correctly, it's structural, and it's just upto us to realize it and there is -- it's an advantage that cannot be competed away. The second thing that I think is an advantage that is a growing advantage that will become an advantage and again, try to allude to it in our documents today is a cultural change that is happening at United, and we aren't there yet. We know that we have long ways to go but the cultural change that is happening at United, and really to me it's sort of -- I think of it in two pillars, one is the focus on the customer, the front line, how we treat customers, how we take care of customers, how we invest in the product for customers.

But the second one is, this is really sort of leadership culture around behaving more like a start-up, behaving more like a nimble-small company experimenting, trying new things, trying to be creative; that's a cultural -- that is an advantage, now it's a little harder to call it structural because perhaps another company could replicate that unlike they could with the hubs but that's a structural advantage that's really hard to change; changing the culture is not easy. And, look we had a unique opportunity at United, this is kind of a new leadership team coming in from the outside, and people that were hungry for change within the company, and you kind of need those ingredients to make that kind of change. So, the network is clearly a structural advantage that is going to be here for decades, forever to come. And the cultural change is an advantage, it's a growing advantage that we have today that I suspect will never be competed away.

Unidentified Analyst

Hi, I'm Tom [ph]. What really happened at JFK?

Scott Kirby

I can assume you're talking about United leaving the market. Well, look I wasn't at United at that time but United in a world where they wanted to keep capacity flat, so if you start with the top down directive to keep capacity flat, they looked at the transcom markets and said those were the bottom tier of profitability. And, so if you have a top-down directive to keep capacity flat, even though the markets were okay, and -- but if you had to cancel something, do you want to cancel something that's really profitable or do you want to cancel something that's kind of breakeven; and so United choose to cancel that. What United missed I think in that was not just the profitability of the transcom markets, there is also an assumption that the transcom customers would move to New York, some of them did, some of them didn't. What United lost in that I think was some of the large corporate accounts who had been exclusive United customers for whom the transcom market was a really big and important market, and because United was not in that market, now they were no longer flying United in premium class from LA to London Heathrow.

And I think that's probably what happened, it's water into the bridge, there is not anything we can do about it today. We are focused on winning in New York, and we've done a really good -- our team has done an incredible job here. New York by the way is a great airport for most people that are in New York, including here in Midtown, I would encourage you to try New York even if you're history and your travel pattern is normally had you going to LaGuardia and JFK, give New York a try, it's a great airport, there is great concessions at the airport, it's often times faster to get there than it is to get to JFK or LaGuardia, and you can get great service on United Airlines. So getting more and more people to try New York is our key to growth in the future, and I think if we can get you to try it a time or two, you will decide that it's a pretty good alternative to LaGuardia and JFK.

Unidentified Analyst

Did United marked success in regards to their operational performance? How do you see it impacting the company's credit rating scores, in credit metrics and overall credit profile going forward?

Scott Kirby

So, the United balance sheet is stronger today than it's ever been, we're proud of that, we intend to keep the balance sheet strong like it is today, we don't have any intention to lever up the balance sheet. I think if you just look at the basic core operating metrics, in a lot of ways we would be an investment-grade credit today but we're an airline, so it's harder. Our key focus on -- we don't today have a goal to become investment-grade or to change our credit ratings supposedly, but I think our credit story and perhaps ratings will improve just as our earnings improve. We expect to keep the debt, the balance sheet about the same but as our earnings are improving and we, obviously with our guidance expect that to consistently happen going forward, I think our credit story will get better and hopefully, the rating will come with that but it's going to mostly be driven on the earnings side.

Unidentified Analyst

And just in terms of quantifying the potential opportunity with -- in terms of that 4% to 6% capacity growth year on '18 to '20, help us appreciate where you think that gets you by the end of '20? Are you 80% away there, half way there as you look at the network in expanding the hubs? Thank you.

Scott Kirby

Well, a year ago we announced the 3-year growth plan, and I think that was a little unprecedented amongst airlines, and so we're 15 months into it, we're really happy with how it's worked so far. But we're going to wait and keep to see results, Oscar is fine to saying proof-not-promise. And so we want to continue to prove it that works before we start even thinking about and talking about 2021 and beyond.

Unidentified Analyst

I wanted to ask [indiscernible] and your thoughts on the Pacific, especially in relation to the Haneda applications, what's going to happen after 2020 when Japan becomes less of an influence versus China and you have all that capacity versus your peers? Thank you.

Scott Kirby

So the Pacific is a region that's doing much better for us as talked about on the last earnings call, so we've felt pretty good. Despite all the geopolitical noise that's happened, demand has remained strong really across the Pacific, including the China, and results right now are pretty good there. We've applied for six round trips to Haneda as the airline with the longest history in Asia, we think that -- and with our 6 hubs that we've applied from -- we hope that we win all 6, we think we offer the best outcome for consumers, and for the United States, so we are hopeful to win all 6 of those applications. From a financial perspective, my guess is that the first year that Haneda goes into effect you'll have a huge increase in capacity which will be negative to RASM for everyone across the Pacific for a year. And then, demand is growing quickly into that region and that it will quickly catch-up and in the long-term it will be a really, really good thing. But you will probably have one year of RASM pressure just because you will have a big spike in capacity.

Unidentified Analyst

Scott, I think it's pretty well known that Delta, they were talking about this morning, and American are earning more from their credit card relationships than United. So when we look at despite this being a J.P. Morgan Conference I'll bring that up; when we look at the EPS forecast that you put forth, maybe for you or for Mike, how much of that incremental growth in your earnings trajectory is simply the process of unlocking those contracts? I know you're not going to give us a number but how big a contributor is it to the projected EPS growth or are we focused too much on that and it's really just other initiatives and so forth that are fueling that growth?

Scott Kirby

Right now there is zero in our forecast for it which means it's all upside. And I don't know when the day is going to come but some day we're either going to have a better contractual relationship with your boss or with your company, or we're going to have a different contractual relationship. We will eventually get…

Unidentified Analyst

Is that a threat?

Scott Kirby

We will eventually get this fixed but -- because the contract still has long ways to run, we're not going to put anything in the numbers here. We do appreciate the relationship that we have with J.P. Morgan, I will see some of the people on that side of the business later today and continue to talk about it, we would like -- it is a competitive disadvantage, it is a sizeable difference between American and Delta today. From an investor perspective though, if I was in your shoes, I will look at that as purely upside because we're producing what we are today, and we aren't really driving -- that's not being driven by improvement in our credit card economics in all the results that you're seeing today. And that will happen at some point in the future, I don't know when but it will happen at some point in the future and at that point it will be a step function increase in our earnings profile.

Unidentified Analyst

Scott, have your views on profit sharing evolved overtime? I can add more to the question and I can remind you off discussions we've had in the past but this is -- your presentation today in a labor has not been -- in labor relations and the focus on the customer and employees; that is not really to your point earlier been a thrust of United presentations in the past. So some sort of evolution appears to be taking place; can you opine on that? Is Delta's success just sort of wearing you down on this topic, actually thinking of it [ph]?

Scott Kirby

We could have an interesting intellectual debate over whether it's better to pay employees in base pay more and less in profit sharing or pay more in profit sharing and lower their base pay but that's in interest -- well, that's an interesting theoretical discussion, the reality is profit sharing is the structure for the airline industry, and we essentially have pattern bargaining in the industry, and so we're going to have profit sharing. We could have a different structure and we could still all have great relations with our employees but that's the structure of the industry. We're focused at United, and as we've said, this has been Oscar's mission from day one that we've all whole-heartedly endorsed, I mean, made great progress on really having good strong relations with our frontline employees, and letting them know, communicating with them, letting them know what's going on, they like to be on a winning team, they are enthusiastic about the success at United, enthusiastic about the future and that is always front and center for everything we do, the rest is tactics, whether it's higher pay or profit sharing, it's just tactics. But the strategy is to have our employees believing in the company, believing in the mission, believing in the vision, and believing in the future.

Unidentified Analyst

And a follow-up; there was an earlier question before about JFK; what about LaGuardia? I mean, you're obviously familiar with what [indiscernible] costs are going to look like over the next several years, is that third-world facility is finally rehabilitated. Is there a role for low cost carriers at that facility? Is there a continued role for United or do the relative economics of New York just look so much better that you'd want to plug each and every asset in there instead? I mean, we're looking at what -- $45, $50 a head to a plane? I mean, that's relative to the average fare of many discounters, that would be a double.

Scott Kirby

So, I'll let the discounters talk about what they are planning to do but they -- although it sounds like at least, recently, they've had a pivot to wanting to grow in big markets again. We're -- for us LaGuardia is a spoke, we're going to always fight for LaGuardia to our hubs because there are a set of New York customers for whom LaGuardia is the preferred airport, I'll once again make a pitch for New York. For the vast majority of people that fly LaGuardia and JFK, at least for a high percentage of people here in Manhattan, New York is at least as convenient airport with a lot of advantages; so I'd encourage you to try New York. LaGuardia is going to be an important spoke for us, we have lots of business travelling to that market, it's not going to change when the CPE goes up, what's going to happen is prices are going to go up. When the cost for employment goes up, there is going to be higher prices at better [ph].

Unidentified Analyst

Sorry Scott, just a quick question in relation to Latin America but more particularly down into Brazil. With your kind of joint business with Avianca, Copa, as you extend down further into Brazil, do you see Azul tying into that or even Avianca, Brazil?

Scott Kirby

So we hope someday to have bring Azul in and have it as a four-way relationship. So we've got the plans for the JV that include Avianca and Copa, we have a great partnership with Azul, we also have an ownership stake -- small ownership stake in Azul, and believe they are a great airline to be partnered with in Brazil. So we hope someday to have that as a four-way deal.

Jamie Baker

Well, I'll ask another one. So a topic that came up with Delta yesterday, and I hadn't really thought much about it but they said one advantage to the timing of their merger was that they could really concentrate on getting the network set-up the way that they want to and then they built the fleet plan around that. And that digs [ph] the question is to maybe that's part of the challenge that's going on with American right now; I won't ask you to opine on that. But as it relates to United, with all of the network fluctuations that you've made and with the obvious exception of scope relief; are you fully confident that you have the right fleet in place to profit maximize this new network construct that you have overseen the development of in the last two years?

Scott Kirby

First, it's absolutely right. Look, airline -- our main asset is around network, and it is the foundation that you build on, that's why we can be with confidence that United is going to be the best airline in the world someday because we've got the best network potential. We today don't have the fleet where we ultimately want it to be. One of the real opportunities that's going to -- look, our fleet plan staff [ph] is already addressing this but that you will see happening in years to come is up-gauging. And particularly for United, as we're driving higher connectivity at our hubs and we're already running high load factors, you want bigger and bigger airplanes flying through the hub. It's a reason by the way that perhaps we wind up wanting to fly more 737s or A320 family aircraft instead of something like -- sort of a 100-seater plane because we have bigger hubs with more feed potential, more bigger local markets and more feed potential.

And so the fleet outcome for us might be different, probably is different because we have the opportunity to carry more customers in our bigger hubs because we have bigger markets in our hubs. And so one of the opportunities that we don't talk about a lot but sort of as we go through the 2020s is we're going to be driving higher gauge at United Airlines which -- while we're not giving guidance today for 2021 and beyond, it's something that's going to help us keep CASM really attractive in years to come. And we're doing CASM flat or better now for a second year in a row with gauge flat and that's a real -- it's going to be a real headwind for us or tailwind for us in the future.

Jamie Baker

All right, I think that wraps it up.

Scott Kirby

All right. Well, thank you all, I enjoyed it. And thank you for asking all long-term questions.