United Airlines Holdings, Inc. (NASDAQ:UAL) Q4 2021 Results Conference Call January 20, 2022 10:30 AM ET
Kristina Munoz - Director, IR
Scott Kirby - CEO
Brett Hart - President
Andrew Nocella - EVP and Chief Commercial Officer
Gerry Laderman - EVP and CFO
Conference Call Participants
Conor Cunningham - MKM Partners
Jamie Baker - JP Morgan
Savi Syth - Raymond James
David Vernon - Bernstein
Helane Becker - Cowen and Company
Duane Pfennigwerth - Evercore ISI
Sheila Kahyaoglu - Jefferies
Catherine O'Brien - Goldman Sachs
Michael Linenberg - Deutsche Bank
Andrew Didora - Bank of America
Myles Walton - UBS
Hunter Keay - Wolfe Research
Alison Sider - Wall Street Journal
Leslie Josephs - CNBC
Justin Bachman - Bloomberg
Dawn Gilbertson - USA Today
David Slotnick - TPG
Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the Fourth Quarter and Full Year 2021. My name is Brandon and I'll be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. [Operator Instructions] This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed or rebroadcasted 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.
Thank you, Brendan. Good morning, everyone, and welcome to United's fourth quarter and full year 2021 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 the 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 reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to table at the end of our release.
Joining us on our today to discuss our results and outlook are, Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team online available to assist with Q&A.
And now, I'd like to turn the call over to Scott.
Thank you, Kristina, and good morning everyone. Thanks for joining us today.
Before I get into the details of our fourth quarter and how we’re thinking about the year ahead, I wanted to share some brief observations about the recent developments regarding the rollout of 5G. Mostly, I want to thank the White House Secretary, Buttigieg, and the CEOs of AT&T and Verizon for finding and agreeing to an approach that mostly avoided what would have been severe disruption for passenger and cargo operations in this country.
This wasn't an issue created by the airlines. Every carrier follows the rules dictated by the FAA. Since we first heard from the FAA about this issue in November, United has been a 100% engaged to underscore the severe risks of the 5G rollout posed to aviation but more importantly to bring people together and drive consensus around common sense solutions. And while we don't have a final resolution quite yet, I'm confident we'll get there. This problem has been resolved collaborative -- can be -- has been resolved collaboratively, allowing a fulsome rollout of 5G without significant impact to aviation in 40 countries around the world, and we can do the same thing here in the United States.
While I wish it happened earlier, the good news is we now have everyone engaged, the FAA and DOT at the highest levels, the equipment aircraft manufacturers, airlines and the telecoms. And I'm confident we'll soon have a clear set of objective criteria that will allow a full rollout of 5G without significant impact to aviation.
I'll close this part of my comments by once again thanking the administration and Secretary Buttigieg, but also a particular thank you to CEOs of AT&T and Verizon for voluntarily agreeing to these near-term restrictions near major airports.
With that, I'll turn to discussing our results and outlook. Over the last year, the United’s team persevered through the impact of COVID, but also made incredible progress laying the foundation for the future. Omicron is, once again, impacting the near term. But as we've done since March 2020, we're taking action on capacity, and we remain confident in the long-term projections in spite of the near-term headwinds from Omicron. But before we discuss our results and outlook, I want to take a minute to thank and brag about all that the people of United accomplished in 2021.
In spite of the historic challenges, United came together as a team to get through the worst crisis in the history of aviation and set ourselves up to be the world's leading airline on the other side. We saw our NPS improved by 30 points versus 2019 and introduced United Next to grow the airline and improve the product for customers. But we also made unique, real and structural changes to our process and technology, which we believe is going to lead to best-in-class CASM-ex performance once we have the full fleet return to service.
I think perhaps one of the least understood industry changes is that United is expecting to exit 2022 at a CASM-ex run rate below 2019, an expectation that sounds very different than most others in the industry. It is a transformational competitive change. So, while we can't control the exact timing of course of COVID, we can improve the customer experience and control our costs, and that puts us in a completely different competitive position to outperform in the future.
In the short term, however, we're remaining responsive to the risk posed by the Omicron variant. Omicron is impacting demand in the near term, but the biggest impact of Omicron fueled surge in COVID cases we've seen so far was on our people, and it led to a significant disruption in our operational performance over the holidays. As tough as this period has been, I'm particularly grateful that because of our vaccine requirement, we are no longer losing vaccinated employees to COVID, and we still don't have any vaccinated employees hospitalized. Our vaccine requirement has truly saved lives.
As we look to the remainder of 2022, Omicron is impacting near-term demand, and we're reducing our capacity as a result. But bookings continue to be strong for March and beyond, and our base case remains a continued recovery in demand, including international and business. Gerry and Andrew will give you more specifics on what we're changing this year on capacity. But the important point is we remain confident on the long-term CASM-ex target and future of United. We believe and certainly hope that as a company and society, we are moving into the endemic stage of COVID. But we'll continue to manage as we have throughout the crisis and once again this quarter and be responsive to what actually happens instead of what we hope will happen.
I'll close by once again thanking the United team. They've done amazing things since the crisis began, and they've laid the foundation for United to be the world's leading airline going forward. And now, I'll hand it over to Brett.
I'd like to start by thanking our employees for their hard work in the quarter. In the busiest travel season since the start of the pandemic, our team dealt with disruptions from weather events; changing international travel requirements; and most recently, the impact from the Omicron variant. With Omicron impacting both our employees and the rest of the country over the holidays, our team pulled together to serve our customers, and we are grateful to them.
As Scott mentioned, this latest variant has caused a delay in the expected recovery and having an impact on bookings in the first quarter. However, we remain confident that travel will rebound quickly as cases subside. We expect a strong summer and second half of 2022, consistent with our expectations pre-Omicron. While Andrew will outline the changes we've made in the near term on capacity in just a moment, we are confident and committed to our 2023 and 2026 financial targets. With our United Next network plans in mind, we look forward to hiring the next generation of United pilots.
Next week, we'll host a grand opening of our United Aviate Academy in Goodyear, Arizona. We're excited about the role our world-class pilot training facility will play in recruiting and preparing the next generation of the United pilots. In fact, we welcomed the inaugural class in December, which consists of 30 students, 80% of whom are women or people of color. In the near term, we are making sure we are fully staffed as this is critical to executing our plan as the recovery takes hold.
As difficult as the holidays were, we are returning to a normalized operation. We've taken additional steps to ensure that disruptions are minimized for our customers through capacity management and incentives. Regarding the current labor environment, while we have small pockets of hiring challenges, those do not currently impact our ability to operate the mainline and are not impacting our capacity planning for 2022. We feel confident in our ability to achieve the level of hiring at United that supports the growth we are planning in the second half of 2022 and beyond.
Despite Omicron's recent impact, we've achieved the highest-ever Net Promoter Score in our history, which is undoubtedly due to the team's service improvements and technological advancements that make flying with us easier than ever.
A couple of examples. This year, more than 760,000 customers have benefited from ConnectionSaver. And the percentage of customers that have misconnected in 2021 is the lowest since the merger. Our clubs in the U.S. are back, and we're ready for international travel to return as well, as this includes six Polaris lounges. We made it easier than ever to order onboard with our PayPal QR Code. Also, our expanded beer, wine and snack offering is now available on nearly all flights over 2 hours.
Gerry will provide greater detail on our 2022 costs, but our 2022 budget incorporates the elevated inflationary pressures seen by the rest of the country and fully reflects the labor expense we expect to incur in the year. Importantly, the changes in our fleet and mix of flying however give us the confidence that we will reach CASM-ex below 2019 by the fourth quarter of this year, putting us on track to achieve our long-term cost goals in the United Next plan.
While the macro environment delayed the recovery, we continued to act on additional initiatives towards our goal to become 100% green by eliminating greenhouse gas emissions by 2050. United is now the largest airline to invest in zero-emission hydrogen electric engines for regional aircraft through a new equity stake in ZeroAvia, a leading company focused on hydrogen electric aviation solutions.
We also announced the second round of corporate participants in our Eco-Skies Alliance program. We believe each of these initiatives, among others, further solidifies United's position as the industry leader in sustainability.
With 2021 behind us, we're responding to the near-term volatility with areas of the business we can control, while continuing to invest in our people and products as we plan for our United Next plan that will transform the airline in the coming years.
And with that, I will now turn it over to Andrew to discuss the revenue environment.
Total revenue for the fourth quarter finished at the high end of our range and down 25% on 23% less capacity versus fourth quarter of '19. TRASM in the quarter finished down 2.5% versus the same period. We are pleased to reach the high end of our Q4 revenue guidance, but the Omicron variant did have around a 2-point negative impact on TRASM results and has delayed the anticipated demand and revenue recovery by a few months. Prior to Omicron, we were on track to deliver close to flat unit revenues in the fourth quarter of 2019 versus -- or fourth quarter versus 2019.
Just as in recent quarters, our cargo operation again delivered a record quarter for United. Total cargo revenue for the quarter was up 130% from the fourth quarter of '19 and finished the full year at $2.3 billion. Fourth quarter loyalty revenue and other revenue was up 3% in the third -- versus the fourth quarter of '19 to $518 million.
Now turning to our first quarter outlook. Leisure bookings and demand for late February and March are largely on track with our expectations. However, Omicron disrupted close-in leisure demand in January across most regions, and cancellations did increase. Bookings and cancellations are now starting to return to normal. Business demand fell sharply in January versus early December. Given business demand tends to book closer to the travel, we remain optimistic that we'll see a strong rebound as we progress through the quarter, although that's clearly linked to the virus.
Our revenue projections assume business demand rebounds by the end of February to where we were in early December or down approximately 40% versus the same period in 2019. Leisure demand trends that we've observed for travel later in the first quarter of 2022 have allowed us to manage our yield quality successfully versus our experience with the Delta variant surge. As a result, we remain optimistic that Omicron's impact, while significant, will be focused on January and February at this point. While we can't say if there will be additional widespread variants in the future, what we can say is that our expectation is that Omicron and each possible future variant will have a smaller and smaller impact on our revenue over time as compared to the impact of the Delta variant.
We now expect total revenue in the first quarter of 2022 to be down 20% to 25% versus 1Q '19, with capacity down between 16% and 18%. We have moderated our capacity plans in Q1, reflecting the anticipated lower demand in the near term as a result of Omicron. Lower capacity in Q1 along with a more conservative outlook results in our latest full-year 2022 plan having lower capacity than 2019. This is down from the 5% growth versus '19 we expected back in October.
We've moderated our 2022 capacity by lowering aircraft utilization and delaying the return to service to certain planes. Our ground is trapped with the 777 [ph] jets are now expected to fly again starting in March and then gradually reenter service fully by November.
We've also delayed the return of service of certain narrowbody jets into the second half of 2022 and lowered the planned utilization levels of our regional jets for the remainder of the year, addressing pilot shortages. These changes, typical mainline aircraft -- these new changes, typical mainline aircraft utilization is expected to be well below normal until Q4 of 2022. The phasing in of this idle capacity, particularly from larger jets and with lower utilization of RJs, will have a measurable impact on our gauge, CASM-ex and overall ASMs for each quarter of 2022, which Gerry will detail shortly.
We also continue to expect that our international long-haul flights will enter a strong period of margin improvement versus the last cycle as we enter the second half of '22. We expect that new capacity to Africa, India and the Middle East will mostly offset lower capacity to Asia for the foreseeable future.
We continue to watch international demand carefully, but expect a recovery in close-in demand post-Omicron. The booking curve for the Atlantic proved shorter than usual in 2021, and we expect to have a same record performance for 2022. As of now, bookings for the Atlantic for the peak travel season are on track, and we've seen some relaxation in border controls to Israel and England.
We are working closely with our global partners as we build back our international network. And late last year, we announced a great new partnership with Virgin Australia. United is the leading U.S. carrier to Australia, and we believe this partnership will allow us to quickly and more profitably resume our flight schedule to Australia.
We're on track to create the best onboard products by introducing the United’s signature interior. We've now taken delivery of 16 737 MAX 8s, with this interior. We're also making progress on our plan to modify the remainder of our narrowbody jets, so that by early '25, the entire mainline fleet will have this consistent and superior look and feel.
Our future fleet will have an increased premium mix with premium seats per departure in North America up to 75% by 2026. It is worth noting that in the fourth quarter of '19, we've already started to produce new records and ancillary revenue generated by seat upgrades by our leisure customers. This trend to sell in more premium products to leisure customers represents a meaningful amount of potential upside to our United Next revenue plans and can also help cushion the impact of business traffic in the event it does fully return.
As several of our largest competitors have reduced the size of their business class cabin by about 10% on global long-haul flight, we expect that to continue. And as a result, there is a structural change that we see in the long-haul international service.
Late in 2021, we are pleased to be right -- we were pleased to be recognized in the latest BTN survey completed by industry procurement leaders. These leaders clearly saw and rewarded our efforts to win their business, separating United from the bulk of the industry. We improved in every category, and we believe these results signify the hard work we're putting into women and ever increasing share of their corporate business, which again is a core component of our United Next plan.
Thanks to the entire United team. And with that, I'll hand it off to Gerry to discuss our financial results and outlook.
Thanks, Andrew. Good morning, everyone, and welcome to our first call of the New Year.
While we all would have preferred to be further along in the recovery, you will see from our results for 2021 and forecast for this year that we continue to make great progress and are well positioned to achieve the long-term goals we have discussed with you since last June.
Turning to the numbers. For the full year 2021, we reported a pretax loss of $2.6 billion and an adjusted pretax loss of $5.8 billion. For the fourth quarter of 2021, we reported pretax loss of $845 million and an adjusted pretax loss of $679 million. Our CASM-ex increased 13% on capacity down 23%, both versus the fourth quarter of 2019. While CASM-ex was within our guidance range for the quarter, it was slightly higher than the midpoint as a result of Omicron-related expenses.
Looking to the first quarter of 2022, there are two major factors impacting our CASM-ex. First, because of Omicron, as Andrew mentioned, we are adjusting capacity downwards to align with demand, consistent with the agile pivoting we've done throughout the crisis. Secondly, we currently expect that our 52 Pratt-powered 777s will mostly remain grounded through the first quarter. This reduction in flying keeps our aircraft utilization down about 16% in the first quarter versus 2019 and does drive additional cost inefficiencies.
First quarter 2022 capacity is expected to be down between 16% and 18%, with CASM-ex expected to be up between 14% and 15% versus the first quarter of 2019. The math associated with flying fewer ASMs than originally expected, together with the added Omicron-related expense, is driving around 3 points of expected CASM-ex pressure in the quarter.
By the fourth quarter of 2022, however, our base case assumption is that we are past Omicron and flying schedule with capacity up around 5% versus fourth quarter 2019. In this scenario, our utilization would reach near 2019 levels and gauge up about 16% versus the fourth quarter of 2019 and up 11 points versus the first quarter of this year, driven by the return of CASM-friendly 777s and the addition of 787s and larger 737 MAX aircraft. These factors, together with the full run rate benefit of our identified $2.2 billion in structural cost reduction, which we expect to achieve by this summer, would drive a material change in our CASM-ex performance over the course of the year from up 14% to 15% in the first quarter to down around 2% in the fourth quarter of this year in each case compared to 2019.
As I mentioned, these figures represent our current base case assumption for our 2022 flying. But as Andrew outlined, we are committed to aligning our [Technical Difficulty] and we will continue to be flexible given the uncertainty around the pace of recovery. As a result of this uncertainty, we expect our CASM-ex results for the full year 2022 could fall anywhere in a range of scenarios.
You may recall, in October, we set our planned capacity for 2022 would be up around 5% versus 2019, with CASM-ex lower than 2019. Our outlook on CASM-ex remains consistent with this prior outlook, though, since we now expect our capacity for the year to be below 2019 levels, we must adjust our CASM-ex to take into account the impact of fixed costs spread over fewer ASMs.
To provide some further bookend, if capacity for the year were about flat to 2019, we expect our CASM-ex would be up 2% to 3% versus 2019. If full year 2022 capacity is 5% below 2019, we expect our CASM-ex will be up about 5% versus 2019. We believe our results will land between those figures on a full year basis. Most importantly, we expect CASM-ex to improve throughout the year as our gauge and aircraft utilization materially improve in the second half and expect to end the year with CASM-ex below 2019 levels, as I noted earlier. Most importantly, the fourth quarter expected run rate for CASM-ex will put us well on track for our United Next cost plan for 2023 and beyond.
Turning to fleet. We currently expect to take delivery of 53 737 MAX aircraft and 8 787 aircraft during the year. As we noted on our previous earnings calls, the 787 aircraft were originally expected to deliver in the first half of 2021. We now no longer expect to take the 787 aircraft until after the summer of 2022, contributing to about 1.5 points less capacity versus our original plan. Given this timing, we now expect our adjusted CapEx in 2022 to be around $4.2 billion, plus about $1.7 billion of adjusted CapEx that moved out of '21 into 2022 for a total of about $5.9 billion for the full year.
To be clear, our total adjusted CapEx plan for the years 2021 and 2022 together have not changed since June of last year. There has simply been a timing shift, driven by aircraft delivery delays. We continue to expect to use a mix of debt financing, leases and cash to fund the acquisition of new aircraft depending on market conditions while tracking towards our United Next leverage target.
Importantly, we ended [Technical Difficulty] over $20 billion in liquidity, including our undrawn revolver, a strong cash position to continue to navigate the remainder of the crisis.
In closing, I'd like to thank my finance team as they have worked countless hours over the last two years to create and manage a flexible financial plan in response to a quickly evolving environment. We will continue to focus on appropriately managing our capacity and rebuilding our business back efficiently. We've observed that the impact of each variant on our business has decreased with each iteration. And we continue to expect COVID-19 to become endemic in the future. We remain confident in our 2023 and 2026 United Next financial target and our trajectory to maximize earnings power for the long term in the coming years.
And with that, I'll pass it back to Kristina to start the Q&A.
Thank you, Gerry. We will now take questions from the analyst community. Please limit yourself to one question and if needed one follow-up. Brandon, please describe the procedure to ask a question.
Thanks, Kristina. [Operator Instructions] And from MKM Partners, we have Conor Cunningham. Please go ahead.
Hey, everyone. Thanks for the time. When we think about United and the opportunity set that's ahead of you, international -- the international landscape is clearly what people talk about the most as the pandemic looks to sputter out. Just curious on your expectations have changed in terms of pent-up demand for international. Clearly, Asia is going to be -- going to take some time. But the European countries right now are starting to quickly ease restrictions as cases decline, which is super bullish for the spring and summer demand time frame. So, just curious on how things have changed from a high level from your thought process.
Thanks, Conor. It's Andrew. It's a really good question, and it's something we strongly believe in based on everything we've seen. We've definitely pointed a lot of incremental capacity across the Atlantic for this spring and summer in anticipation of this recovery. I can tell you, in fact, we're booked ahead from a passenger and revenue perspective on those flights this spring and summer already. And so, we're ready to get flying. We do need to get past this latest Omicron wave, but we feel really good about the future.
And more importantly, we kept all of our widebody jets in our fleet. We continue to modify them with the new business class cabins, so we have a consistent product across the range of our aircraft. And we operate from the best gateways in the United States, bar none. So, we do believe very strongly that there is tremendous international growth opportunity in front of us. We also believe that there's been significant structural changes. Smaller business class cabin is coming in from the United States and in fact, fewer flights. Many of those larger A380s and 747s have been retired by our competitors. And this sets us up incredibly well for the future year.
I have to admit, we can't be -- we're very bullish about the Atlantic in particular. And as you stated, Asia is going to be slower to come back. We look forward to coming back in full force. But we have redeployed our planes for the foreseeable future to other regions of the world in anticipation of a slower recovery in Asia. So, we think we have that from a revenue and P&L point of view under control as well. So really bullish about the future when it comes to international growth. And United's potential in that arena, we think is superior to all of our competition.
Okay, great. And then, when you embarked on the Mid-Con strategies and laid out United Next, loyalty was a huge component of that. And right or wrong, I think a lot of investors view airline loyalty as just one big pie. So, just curious if you could talk about how new sign-ups or maybe unique sign-ups have been for the loyalty program or credit card, or if you have any conversion figures from other airlines that United has seen as the operations improved over the years and so on. So, thanks again for the time.
Sure. We signed up 5.6 million new MileagePlus members this year, which is a record for the airline. We are really pleased by that, and it shows the growth and the prosperity in the program. And people want to be part of that program and be part of United. So, we don't think it could be any better.
In terms of credit card acquisitions, new accounts, we are up in the second half of this year versus where we were in 2019. So, that's going incredibly well as well. So we couldn't -- we're really optimistic about those particular numbers. And then particularly, with the new members, it's just a few years ago, we were doing 2.5 million to 3 million new members per year, and now we're up to 5.6 million. So I think it's a great tribute to United, where we fly, our brand, our customers are more and more interested in joining the MileagePlus program.
From JP Morgan, we have Jamie Baker. Please go ahead.
So, the strength in premium leisure is obviously an important topic, but there's some debate as to its sustainability. Are consumers permanently craving a better flight experience and therefore, they'll refuse to ever return to the back of the cabin or if it's just a temporary phenomenon driven by pent-up demand? So, to the extent that it is the former, are you seeing this elsewhere across the travel ribbon? I mean, for example, are club memberships showing commensurate strength? Are new card acquisitions skewing to the infinity card? I'm just wondering how broad the evidence is supporting the thesis that a large segment of your consumers are truly pursuing a better overall experience.
Well, Jamie, what I think I would say is we're going to need some time to prove that out. I think it is somewhat debatable. We feel really good about it. I mean, the numbers have been incredibly strong. Our seat product upgrades in this last quarter have never been higher. And that's even before we begin to transform into the United Next fleet, which has more premium seats onboard the aircraft. And we feel really strongly about segmenting our business and giving people a choice about where they want to sit on the airplane and what experience they want throughout the entire travel journeys. Everybody deserves that choice, and we're going to do it, we're going to do it great.
In terms of club memberships, what I would tell you is the bulk of our club memberships come through are premium card to the co-brand portfolio. So, it will be hard to measure that because we've introduced two new lower share cards in year. So the numbers are skewed by our new gateway card, for example. So, it's a little bit more difficult to particularly answer that question right now. But we've now seen this for two quarters in a row, a really strong premium leisure demand. Everything we see in the first quarter, I would say the same is true.
And we also see that in the business class cabin going [to and from Europe] (ph), where the performance there has been good. And the other thing I'll tell you is that while clearly PRASM has been down throughout this crisis, PRASM domestically in our premium cabins is almost flat, whereas -- the number in total in terms of PRASM. So again, that's a remarkable number as we go through this crisis in terms of premium demand, in my opinion.
Thank you, Andrew. As a follow-up to that, so a question on pricing. It feels like the booking curve for consumers is increasingly similar to what corporate used to look like. So, consumers are booking closer in, but it feels like business travelers are now booking further out. First, is that a fair characterization? And two, do you think you could still achieve pre-COVID corporate yields? Are sufficient fare fences in place, or does a further booking corporate buyer imply lower yields? I guess, that's the question.
Some of that’s TBD, to be honest. So, what I would say is that business traffic is down substantially. It had improved quite a bit as we were in the quarter last year. And so the booking curves are I think a little bit unreliable from where will they be in 2 or 3 or 4 months from now. So, I think we'll just have to wait a little bit longer than that. And until demand -- and really demand comes back to some level of normalcy across all those channels, the yield calculations are just going to be a little bit differently.
What I would say is that, particularly with business traffic and total business -- our total traffic, we've seen a remarkable comeback already in week three of the year versus where we were in week one of the year for total bookings and for business bookings. So, we're well on our way. And I think we're going to see things return to normal from a booking perspective, I would hope sometime in mid-February. And cancellation rates early this week are actually already back to a more or less 2019 standards. So, things have moved dramatically just in the last 2.5, 3 weeks.
From Raymond James, we have Savi Syth. Please go ahead.
Just curious on the cargo revenue side, that's held in well, I'm guessing better than what you would have expected earlier in 2021. And there seems to be a lot of dedicated capacity coming on. So, I'm not sure it seems to be making up for lost of belly space. I was curious if you -- what you expect in terms of cargo revenue trends for this year? And maybe if there's any kind of structurally something changed longer term?
Sure, I'll try to take that. I think what we're seeing is there's been a disruption in supply chains around the globe. And so, the use of air freight has increased or the need for it has increased relative to the amount of capacity available, and that's caused yields to go up.
As we look into Q1, I think those trends are pretty similar. And in fact, we expect our Q1 performance this year to be in excess of our Q1 performance last year, but it's still early in the quarter obviously, driven by the strong yields.
So, and if you talk to our cargo team, they would tell you that the supply chain disruptions, the backups at the ports, these things look likely to continue to some degree for the foreseeable future as we head into 2022. So, we're optimistic that cargo is going to have another great year. And kudos to our entire cargo team because the numbers that we are putting up relative to our competition are just staggering.
Along the lines, it's kind of something changing near term, like the cuts to service and kind of some of the small markets, the small markets is a big push for United not long ago. Do you see this kind of issue resolving itself as you get into 2023 or something, or is there kind of a need to change strategy here, at least when it comes to the regional operation of small market operations?
Sure. I'll try to take that. I'm taking all the questions here. I need to hand out a few questions to my colleagues. But, we -- first of all, what I would say is that as we take away service from small communities, we're disappointed to do that. We know the impact on these communities. And we alert them ahead of time, and we know it's a big deal. And we've already cut service to 20 communities in the United States in the last few months. Again, we know that's a really big deal. However, we are facing the pilot shortage on our regional aircraft, not on our mainline aircraft. And we expect that pilot shortage to continue for a while, including for the rest of 2022. So, we do expect, unfortunately, there will be a few more communities that we will have to remove from the network. We're still working out those details. And we have a lot of aircraft that we will underutilize for the foreseeable future. But that's kind of where we are.
In terms of our business plan, when we talked about the United Next business plan, just about 7 months ago, we had already kind of recognized these trends. We had already planned to reduce the number of RJs in our fleet, and what's happening is an acceleration of these plans. But from a revenue perspective, this has all been accounted for. And unfortunately, from an internal planning perspective, what we're seeing on the RJ pilot shortage is an acceleration, and what happens to the community we serve is an acceleration, but it is not unexpected for what we're really going to deal with over the next year or two.
From Bernstein, we have David Vernon. Please go ahead.
Gerry, I was wondering if you could help us think about kind of the exit rate of CASM-ex. It sounds like it's going to be much better than the start of the year because of some gauge increases. Can you talk about sequentially how gauge is increasing? And kind of that -- what's a good foundation on which to start building out a CASM outlook for 2023? Because I know there's the growth we're getting sequentially in the volume recovery, just trying to separate out how much of that is not sort of volume dependent, how much of that is coming out of gauge.
Good question. We've been clear since last June that one of the benefits that's really, in some ways, unique to United with our United Next plan is the increase in gauge. We've been under-gauged on the mainline. And the MAX order, particularly when the MAX 10 start next year, will help solve that problem. So we will provide going to next year additional color on gauge. This year, just from the first quarter to the fourth quarter, we expect 11% improvement in gauge and then more going into next year. But we'll continue to give you those numbers. But as we've been saying for the last six months, one of the great advantages we have and one of the reasons why we're so comfortable with our CASM guidance for next year is that, as we said, it's just math.
Yes. So sequentially, as we go through the quarters, is there an inflection point when that gauge really kind of pops up tied to the deliveries or schedule change?
Yes. So, -- well, two things. One, the 777s won't start impacting us until the second quarter. And then the 8 787s, which are still hanging out there, that will be a second half, as well as the 53 MAXes, effectively all in the second half of the year, most -- the vast majority in the second half of the year. So, there is a huge difference between the first half and second half on gauge.
All right. That's super helpful. And then, one last one for me. The other OpEx line kind of bumped up sequentially 220 [ph] or so million a quarter for the last 2 quarters. Are we at a budget level of around 1/4 per quarter for that other OpEx line, or how should we be thinking about that number? We're getting to 80%, 85% of 2019 levels of cost on that line. And I'm just wondering if there's structural take out I would assume some of that's in there. Like what absolute number for that other OpEx line should we be looking at for 2022 per quarter?
Yes. I think you've -- we've hit about the right run rate within a couple of hundred million dollars.
From Cowen and Company, we have Helane Becker. Please go ahead.
So, oil prices have gone up over $85. And I know there's going to be a lot of fuel efficiency with the newer aircraft that are coming in. But how should we think about the way you're thinking about fuel vis-à-vis pricing and the lag between the two?
Sure, Helane. I'll start. Traditionally, I think we had gotten to the point where we had a high degree of confidence that fuel is a pass-through. And I've said that many times in the past, and I continue to believe that.
During the crisis, with the supply-demand equation quite out of balance, I think that that has got out of balance. But as we look into Q2 and beyond, based on what we think is going to happen to demand and where we see supply, hopefully, those relationships come back into place. And we'll continue to make agile decisions on utilization of the fleet, given what the price of fuel is like we always have done in the past. So, I feel like we need a little bit more time to prove back that the equation is still valid, but we're well on our way.
Okay. And then, my other question is I don't know how to think about this, but I know Asia traffic is not coming back anytime soon, but there's a lot of cargo that you can do in that market. So, it makes sense to have capacity there. But when you think about what the Chinese are doing, I mean, I feel like they're in violation of the bilateral agreement that they signed. And I'm kind of wondering if after -- if part of what they're doing and not allowing you, your full complement of flights, has to do with the Olympics versus them being difficult with quarantine rules and so on, so that as you think about rebuilding Asia, China is not on the list of countries beyond maybe one or two cities and you think about like the rest of Southeast Asia. So, not sure who should answer that.
Well, I'll start, Helane, and then let Andrew talk about our specific plans. But what I'd say is on the Asia restrictions, look, governments around the world are all doing their best to manage COVID, and these restrictions are constantly changing. They've had a different set of standards in China, different approach than some of the western. But I don't think there's anything bigger to read into it, other than different countries are all feeling their way in an uncertain environment. So, I wouldn't read any kind of macro geopolitical questions into it. And then, I'll turn it back to Andrew to talk about sort of what our plans for aircraft and timing are.
The only thing I would add is that we recognize that Asia seems to be -- will have a slower recovery. And we have moved those aircraft elsewhere in the world, and we believe they're going to be really productive where we've moved them to. And we look forward to resuming our full schedule to Japan and China at some point in the future when we can.
From Evercore ISI, we have Duane Pfennigwerth. Please go ahead.
I wanted to ask you a couple of questions. One, just on changeability, which is probably where the industry was headed anyway, and you can refresh our recollection there. But obviously, we're in a weird time still. It's improving, but it's a weird time. But there is an impact on operations and perhaps call center resources and things of that sort with respect to changeability. So, are you guys thinking at all about that kind of over the intermediate term? Again, in a more normal demand environment, is some of the pure kind of frictionless changeability maybe too much of a strain to support?
Well, I think the way I would describe that is, we've made a number of changes as we've dealt with this crisis, including the elimination of change fees themselves. And that we think was the right thing to do. We should have done it years ago, quite frankly. We wish we had done years ago. And so, we don't think that's going to change or at least United, we are where we are. And we've adjusted our resources to make sure we can deal with that. Our customers now have the ability to make more changes than they did in the past, and are doing so. And we're kind of pleased to let that happen. And we think it's a great feature for us, and it's going to help us with our relative competitive stance versus other carriers in the country, which again we needed to do long ago. It's about time, and we're fully committed to it.
I appreciate those thoughts. I wondered if there wasn't maybe a fair category or something like that. Not that you tell me now in advance, but maybe a fair category where it didn't make sense.
And then, just a follow-up to Savi's question on the regional constraints. Do you have any anecdotes? I mean, some markets are going to be no longer addressable. But do you have any anecdotes of markets that you've maintained where you've sort of swapped it out? Does it, by default, imply lower frequency, or does it push into some new markets? If you could just talk about that more broadly maybe from a network perspective.
I don't think it pushes us into new markets. But, as we've classified this, there are places that have fewer flights and there are unfortunately places that have no flights. And we continue to adjust the formula. Again, for the most part, we anticipated this. The big difference here is this is occurring at a faster pace than maybe we anticipated six to nine months ago. So, it's just accelerating our United Next plan and where we're going to go to. But there will be communities that unfortunately don't have United service in the future. And there will be communities that have fewer flights, and there will be communities that have fewer flights with bigger aircraft. And that's kind of the outlook. We don't -- again, I said it a few minutes ago, we don't expect this to really materially improve in 2022, and we'll see where we go in 2023.
From Jefferies, we have Sheila Kahyaoglu. Please go ahead.
Maybe if we could think about your United Next targets, I know they're far out. But how do we think about the inflationary expectations you're baking into those targets? And how they've changed over the past six months?
Well, Sheila, it's fair to say that over the last six months, we've seen more inflationary structure than we might have expected a year ago. That's incorporated in our numbers and our guidance for this year and our comfort for next year. So, we've taken that into account.
And in terms of where we're seeing those inflationary pressures, we're no different I think than anyone else. Clearly, on the vendor side, airport vendors, we're seeing that, other suppliers, like everybody else, when you go to the supermarket, you're seeing higher food prices. We're seeing higher food prices, but we're managing through all that. And I can tell you that on our flight, if beef becomes too expensive, we always have chicken.
From Goldman Sachs, we have Catherine O'Brien. Please go ahead.
So, I know there are a range of outcomes on your capacity for this year that's going to be based on demand. But should we still be thinking about international being the bigger driver as you get back to growth mode later this year? So like if we end up with back capacity, which is one of your book ends, should we expect domestic to be down underlying that?
I will say the plans are still agile. We are going to fly less international than we expected to just a few months ago, but we're also going to fly less domestic. Whether in 100% proportional to each other, I think it's just too early to tell. So, I'm going to refrain from giving you an exact answer to that question.
Okay. Got it. Fair enough. And then, just on the forward demand outlook, I don't want to read too much into your word choices. I think in the release, you said you're optimistic about spring and excited about summer. Should we read this as you're seeing bookings come in stronger than what you're seeing for spring as many consumers are just more optimistic about COVID by the time we get to this summer, or just would love to hear kind of like how the bookings are looking right now, maybe over the next four or five months, based on what you've got on the books today.
Sure. I'll give it a try. What -- the first thing I'll say is that when the Omicron spike happened, that -- what really happened was cancellations peaked, particularly for close-in travel, and net bookings declined as a result of that, but total bookings also declined as a result of that. But all of that impact was really felt close in and not far out. And so, we are continuing to book March, for example, normally throughout the entire Omicron process, including from the perspective of our yields to be blunt. And that continues always beyond March all the way through the summer, where, for example, we look at the Atlantic we’re booked ahead from a passenger count and we’re booked to head from a revenue perspective, which means our PRASM is obviously positive in the future quarters for the Atlantic. So, all that is really good.
What Omicron did, it's caused a spike in near-term cancellations and reduction in near-term bookings, particularly for business travel. And what I can tell you over the last few weeks, we've already seen that start to come back in the line.
For example, in week one, we were down 48% versus 2019 for total bookings. In week two of this year, we were down 40%. And now in week three, week to date, we're down 25%. And so, we are seeing this really come back very quickly.
And the second point, as I said earlier, our cancellations are also now coming back into normalcy. So, this really -- again, there's a hole in January that we can't fill because it's just too close in, and there's a bit of a hole in February as well. But March looks normal at this point and definitely beyond that based on these trends. And again, bookings are coming back really, really quickly. Hopefully, we will be back to somewhat of a normal stance or at least where we were in the middle of the Q4 quarter, sometime by the middle of February.
And from Deutsche Bank, we have Michael Linenberg. Please go ahead.
Two here. One, can you just refresh us on your hiring plans for 2022, more specifically, number of pilots and mechanics? And how is the ramp? Is it spread throughout the year? Is it front-end loaded? Thank you.
Mike, it's Brett. Look, first, I'll say, in the back half of this year, we were really successful in meeting our -- a lot of our hiring goals. And obviously, we think we'll have no issues, in particular on the mainline next year moving those goals.
In terms of pilots, for instance, in back half of this year, we hired approximately 1,200 pilots. So, we think that trend will continue in the next year. Our overall numbers for next year, we expect to be in line with our needs. But we don't put out specific numbers at this point in time.
Okay, great. And then just quickly, Andrew, when I saw the guidance, the release, the March quarter revenue sort of what you were guiding to relative to others, it was good. It looked more favorable. And given that the March quarter historically has been seasonally much more challenging for you than your competitors, does that reflect maybe network changes over the last year? Is it cargo driving a bigger piece, ancillary, all of the above? Really curious what's allowing you to kind of catch up and at least narrow the gap with your competition. Thank you.
Thanks, Mike. I will say that improvement in our relative results in Q1 has been one of our long-term goals for many, many years. Obviously, there's a lot going on and a lot of moving pieces in Q1 of this year. But all of the factors you just said and all of us here at United kind of working together to move these things around has made an impact or really, I wish the Q1 guidance could be dramatically higher, but we are where we are. But I think we're on the right path for long term, and particularly, we're on the right path to making our Q1 results less of a gap to our competitors. And that, of course, will overall help us close margin gaps in the future because we do pretty well in Q2 -- our Q2 and Q3, given our global long-haul nature and our East West nature here domestically.
From Bank of America, we have Andrew Didora. Please go ahead.
I just kind of wanted to go back to the regional pilot issue. And if I can ask a little bit of a different question is if the regionals have or experiences pilot shortages, so do you expect this to eventually -- could this potentially creep into your mainline hiring plans, particularly given kind of the growth that you guys have ahead of you? And if it did creep its way in, would that be a risk to some of your longer-term CASM target?
Maybe I'll give it a try. At this point, we've had absolutely no trouble hiring for United mainline pilot jobs. And the second point is we are working very hard to make sure that the supply of pilots coming into this great business increases. And given where salaries are, the career potential, we're confident that's going to happen.
And of course, one of the things we've done, which is highlighted a lot is our Aviate Academy, where we're bringing new students, many of them diverse, into the United Airlines world very, very early in the process. And so, we're all working to make sure that there's plenty of pilots for the long-term supply, which we think is the case. But we do have a year or more where this needs time to get back into proper balance. And at this point, we haven't seen any impact to our mainline hiring abilities.
I guess as a follow-up to that, why do you think it's easier to hire into mainline than into the regionals? Is it just basically pay scales? So just curious what the -- kind of what that disconnect is?
Well, I'll take a shot at it, Andrew. You've done a great job today on the call, by the way. I appreciate it.
No, I want you to take a shot at it.
Look, I think this is an important point. And the big difference for us at the mainline is that at United, we create careers. They're not just jobs. Our average flight attendant ramp worker, gate agent, it's just back in a full -- in a normal year, once they get the top of the seniority scale with the union contract makes a 6-digit income -- can make a 6-digit income with great benefits. It's one of the few jobs, the few places that there are jobs left where you can support a family and send your kids to college and have great benefits and have security. And I think at the end of the day, that's the reason that we can hire at the mainline is because we create careers where people can spend their whole career here instead of just what's the hourly rate today.
From UBS, we have Myles Walton. Please go ahead.
I think there's a comment -- I know, Scott, on CNBC said second quarter, you're targeting profitable or hope to be profitable. I'm just curious, do you think for the full year, you have line of sight for pretax profitability? And then maybe, Scott, while you're answering that, if you're answering it, one of the first things that Russia did has done in previous instances with response to sanctions is shut down their airspace. Obviously, you get some limited capacity going to Asia at this point, so maybe it's not that big a deal. But relative to your plan for '22, how disruptive would that be?
So, on the first question, I tried at least on CNBC to say, we're trying to get out of the business of short term in the short-term ups and downs of COVID because we haven't been very good at it. We've been really good at the trajectory, but it's impossible to predict what's going to happen in the very short term. But, if we continue on the trajectory that Andrew described, where bookings went from down 48% the first week to down 25% this week, we are back on track to be profitable in both -- in the second, third and fourth quarter. It's probably getting to too fine a point to try to add up, which I guess is what you're asking. If I add up the second, third and fourth quarter, are those a number that's greater than the loss in 1Q? That's probably too fine a point for me to have confidence in forecasting at this point.
On the Russia point, I'm not going to speculate on that yet. We'll continue -- we -- at United, as the flag bearer for the United States lines up, be exposed in a good way, exposed in a bad way to geopolitics around the world. And so, we follow them closely and pay attention to them and have a good history of responding when something happens. But we're, like everyone, keeping a close eye on the situation in the Ukraine and how it develops.
From Wolfe Research, we have Hunter Keay.
Just to be completely clear, are you still reiterating the 9% pretax margin, the CASM-ex down 4 for '23 and also the 4% to 5% capacity CAGR for next year?
Hey Hunter, it's Gerry. Yes, we're confirming all that.
Okay, got it. Thank you. And then, as you think about the premium seats you're adding, I think you said it was going to be like 60% or something like that. But I think most of your top corporates were tech customers flying to Asia. You could argue that both tech and Asia are going to be the most likely sort of challenged segments to come back geographically and line of business, whatever you want to call it, how do you square that? And does this mean maybe fewer wide-bodies at an SFO forever, or is it just more like a timing issue in your mind?
Well, Hunter, forever is a long time, so I don't think I'm going to agree it forever. It's clearly, for the foreseeable future, we anticipate having a smaller footprint across the Pacific and those airplanes being redeployed elsewhere where they can be more productive for the business. So that's going to continue for a while. And when things change in Asia, we'll be ready to bounce back there. We have great partners in Asia, particularly with ANA in Japan and Air China in China. So we're ready to go when demand returns, but it's difficult to predict. There's no doubt, we did well in the business class cabin to Asia. But I can tell you, we did just as well across the Atlantic and to South America. It's one of our strong suits. And so, we feel bullish that Asia is definitely going to be tamed for the next few years from the United Airlines capacity perspective, but we're going to redeploy that capacity where it can be fruitful for the business and fruitful, in particular, in the business class cabin.
And again, as I said earlier, we're seeing smaller wide-body jets being used by our primary competitors across the globe. And so, that brings in not only less capacity in total, but significantly less capacity in the business class cabin. So, as you try to square a circle that has many different movements to it, what I would tell you is that capacity and demand is all moving. And there are plenty of scenarios out there where business traffic across the Atlantic could be less than 100%. But if supply is dramatically less than 100%, it may -- it should all work out.
Okay. Thank you. And this concludes the investor part of our Q&A. At this time, we will now take questions from the media. [Operator Instructions] And from Wall Street Journal, we have Alison Sider. Please go ahead.
Hi. Thanks so much. I'm just curious, talking about issues with the regionals and the pilot shortage there, how are you thinking about kind of the financial health of all your regional carriers? Is this something they can all survive, or do you anticipate any consolidation or any kind of substantial turmoil there?
Alison, it's Andrew. I'll let our regional carriers speak for themselves on their financial situation. I just -- I can't respond to that.
And I mean, I guess, just you mentioned sort of not having any trouble hiring pilots at the mainline level, but how about training? Are you seeing any kind of logjams or delays in the training process? And are you seeing any issues in your pipeline for mechanics?
From a training perspective, we have our flight training center in Denver, Colorado. And I'll let Brett speak to it, but I think things are really well under control there.
Yes. We're not seeing any issues with respect to the training process. And just to emphasize again, we're certainly not seeing any issues on the hiring side. So, we don't anticipate any issues with respect to any hiring across the board that we need to make in order to stay on plan with our mainline operations.
From CNBC, we have Leslie Josephs. Please go ahead.
I was curious if there are any incentives that you're having to offer around the country in various workgroups to track workers? And if there are any markets that are getting higher wages or signing bonuses, where are those? And where do you see that trend going throughout the year?
Yes. Hi. This is Brett Hart. We are taking it market by market. And certainly, we are seeing some parts of the country where there is some more difficulty in small pockets for hiring, and we're making necessary adjustments in those markets. But our approach is to take it. And just that way, we determine what needs to be done in a specific market. We try to maintain consistency across our organization, but we understand that there are different macro and micro economic factors at play, and we're adjusting to those. But at this time, what we can call out specific markets, I mean, I think we're being impacted in the same way that other employers are, both in our industry and, quite frankly, across other industries. And that information is pretty readily available.
And from Bloomberg, we have Justin Bachman.
This might be a question for Gerry, I'm not sure. But as far as the full year capacity plans, I'm wondering if you could discuss a little bit about where the various buckets of that are coming from in terms of the regional pilot issues, the variant demand issues, Boeing 787 delays and those sort of things being pushed back. Could you sort of discuss which areas are contributing to that and in what ways? Thanks.
So, Justin, it's Andrew. I'll try. I'm not sure if I completely understand the question. There are a number of categories that caused us to be off from the original 5% guidance for 2022. The first one of those is demand and the fact that the Omicron variant has kind of hit the industry, as you know. And so, we just -- we needed to take some fact to be at plan to reflect that, and we've done that. So when you look at the different categories of what's happening, and I don't have a slide in front of me that has the numbers, but I have a slide somewhere that does, is the 777s, 52 grounding aircraft, those 777s that are grounded normally represent about 10% of our business in total. And so, they're going to be flying in full force in Q4 this year versus flying in full force for the first three quarters. So, that's a big deal.
The second one is we've delayed the return to service of a bunch of narrowbodies that we have in storage. I don't have the exact number, but I think in Q4, it was in the neighborhood of 50 or so aircraft. And in Q1, it's slightly lower than that number, but still a really significant number. So, that's also a big category in terms of ASM services.
Third, the regional jets, because they are smaller aircraft that fly short distances, when we measure those in terms of ASMs, their impact on the capacity plan is actually quite small. And then beyond that, we just have lower utilization again to reflect the demand environment. So those are three, I think, of the larger buckets, unless somebody else has a category I'm missing, I think that's how I describe that. Does that answer your question?
Yes. Yes, no, that's kind of what I was hoping to hear about. Thanks a lot, Andrew.
From USA Today, we have Dawn Gilbertson. Please go ahead.
Andrew, I know you'd rather talk about Polaris, but a broad swath of travelers out there are on a budget and slide basic economy. I wonder if you could give an update on the trends you're seeing in Basic Economy. It's been a while since you released any kind of figures on like what percentage of bookings are in Basic Economy. And I'm wondering whether that's changed at all since the pandemic waivers are lifted and they're no longer changeable. And related to that, I wonder if you guys have any plans like Delta did to extend travel credit beyond the current deadline.
Good to hear your voice, Dawn. I think what I would say is throughout the crisis, the basic percentage of tickets sold has varied significantly at United. And today, it's somewhere in the high single digits domestically. During the crisis, it got as low as 4%. And before the crisis, it was well over 20%. And so, this number is moving around based on all kinds of different things. But as a result, it is a -- as we speak today, it is a much smaller percentage of our ticket sales in our domestic system than it has historically been pre-crisis. And I think that's really all I can say. In terms of the tickets, we are evaluating that now. I'll have more to say about that in the future. But our tickets are currently valid through the end of this year. So, people still have a ton of time out there to find their credits and burn them on United Airlines.
And from TPG, we have David Slotnick. Please go ahead.
I have a question about the international routes that you announced, the five new routes, I think it was earlier in the fall. What kind of bookings are you seeing from them so far? And are they tracking with international bookings overall, or are they a little bit off from the main?
I'll take that. So, international bookings across the Atlantic are -- for travel April and beyond, are ahead of 2019 levels. And all of our new markets are exactly at their expectations. I will say that each new market has a different booking curve, depending on where we're going. And each of those new markets is running on the booking curve we expected. We really have not seen the virus or Omicron in particular impact our long-haul demand across the Atlantic at this point for future travel.
Okay. Thanks. And then just a follow-up question to the 5G questions from earlier. There have been a handful of regional jets that have been affected. We've seen it even today, there was a couple of I believe United Express jets that went from -- had to divert from San Francisco to Reno. Do you anticipate a continued impact from the network just from the RJ issues?
I think there's a lot yet to be determined. There are modest impacts still from the rollout of 5G. They're not nearly as significant as they were scheduled to be without the agreement that was reached. But more to come. It's still very real time. We will work, hopefully, with the telecoms and the FAA through the whole process to further reduce the impact. But I don't know the full answer yet.
Thank you. Ladies and gentlemen, we will now turn it back to Kristina Munoz for closing remarks.
Thanks, everyone, for joining the call today. Please contact Investor and Media Relations if you have any further questions. And we look forward to talking to you next quarter.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. And you may now disconnect.