United Airlines Chief Commercial Officer Andrew Nocella at Skift Aviation Forum 2023

I'm not optimistic, but give it a try.

I was very happy with the summer quarter and Q2 as well. Q1 a little bit less so, obviously. But I think where we are, what we're doing, it's all coming together and we're gaining momentum. So I'm very excited to be at United and see what we're doing.

Absolutely real number. Long haul, which regions are performing the best for you guys right now? Really everything long haul has been amazing this summer. There's an incredible amount of demand. People are still recovering from the pandemic in many different ways. Whether it's the Atlantic or the Pacific or long haul Latin America, I think that's good. I do think there are certain close nearby markets in Central America and Mexico, Cancun being a really good example, that are pretty saturated. But most of the long haul are doing great.

Well, our take on this is the market here in the United States is more mature. We have multiple different types of carriers serving all these different markets. Ultimately, particularly as you approach the end of this decade, the growth in the United States is going to be very much tied to GDP, and growth rates of seven or eight or nine percent for the industry are just not going to be possible. But growing overseas, we think there's a lot more opportunity. I think at the end of the day, it's not that it's just so amazing on average. It's amazing when you have the seven gateways that United Airlines has. When you're talking about flying from New York and Washington going across the Atlantic, that's the place. Or San Francisco and Los Angeles across the Pacific, or Houston to Central America and Mexico. We were born on second or third base when it comes to global long haul flying. When I got to United and Patrick, as many of you know Patrick, we decided that we were going to take advantage of our structural advantages, and that's exactly what we did. We de-emphasized the things that don't work. We don't have a hub in the Southeast and we don't worry about it. It's not going to happen. But we do have all kinds of other great amazing assets that just weren't as loved as they needed to be, and we've been working for years and I think it's all kind of coming together. The other big thing we did was really reducing the regional jet fleet size. I think it's been fundamental to United but also fundamental to our competitors. We were spilling traffic left and right, flying New York to Atlanta on our 50-seat regional jet without any first class. We just don't do that anymore, and that's been revolutionary for United.

Look, one of the most amazing things that's happening right now that everybody should take notice of is there are different business models across the whole spectrum of all the biggest airlines in the country. Each of us is staking out what we do best. I'll let who you're referring to talk about what they do best. He likes to talk about it. He's a great guy, I love him. At the end of the day, we are just going to do what we do best. We tilt more towards global long haul than any of our competitors. Then there's a competitor that's based nearby here that's a lot more tilted towards domestic. Then there's everything in between. You have low-cost models, big airplanes, small airplanes. What I love about this is instead of all of us being the same and producing the same profit margin, we get to prove which business model is best. We'll just let one number stand for that, which is the profit margin at the end of the day. You can look at the numbers and see the momentum in the different business models and come to your own conclusion about what's the best model for today. This industry is cyclical. Things change. In the last cycle, domestic was better than international, but the current cycle we expect to last a really long time and for domestic to be mature. So we think we're in the right spot, and we're plowing ahead.

You're only going to see United fly to places that produce a profit. We are a for-profit business. That's fundamental. The difference in why United can consider these places, whether across the Atlantic or the Pacific, is our hub structure, our unique brand, and the aircraft we have. I've been at a lot of airlines, small and big, domestic and international. This is United's forte. This is what we do well. We can fly profitably to almost anywhere around the globe. That includes flying to our partner hubs, but it also includes flying right into London Heathrow where nobody's going to help us. We have 22, 23 flights a day at London Heathrow and we do really well. It's because of where our hubs are, and that's a structural advantage. We're going to push it and continue to push it.

I have high expectations for all of it. I want all of it to produce gigantic margins because the more money we make, the more we can invest back in our people, the communities we serve, our aircraft, and buy more aircraft and improve the product. It's really important. Is London back to where we'd want it to be? No. Is it solidly profitable? Yes. That's the simple answer. I think there are other markets around the world that are like that. London was a particularly heavy corporate business market, and as we all know, that part of the recovery has lagged for the most part.

The idea that you're investing in the future constantly, that you'll be profitable five or ten years from now, I don't think we really buy into that. These routes need to get up and be solidly profitable within year two. There's definitely in year one some RM issues in terms of how you're priced, what type of demand you expect, when the booking curve is going to come in. Sometimes you're a bit more risk averse, which causes you to undersell on the yield. But you learn the lesson. In year two, the market should be profitable. If it's not profitable in year two, you have to really start scratching your head whether it's ever going to be profitable. Developmental flying is like putting stuff on a credit card. You can do some of it and work to make it work, but at the end of the day, if it's not going to work, it's not going to work. You said on the earnings call that about 1% of your flying is considered new flying right now. We've been really focused on the United States in particular. The US number I was quoting, only 1% of our capacity this fourth quarter is new relative to the fourth quarter of 2019. Some of our competitors are just off the charts with new flying over that time period. The amazing thing about this business is data. We can see the RASM impact of the new flying. We chose to really focus on gauge. You say 'gauge' all the time, and I think it's been a very successful strategy.

I'll give it a try. Dave Bartels, who works for me, is our geek-out RM guy. He's amazing because not only is he good with the strategy, he's good with the black box. The rest of us look at that black box and say, 'What's going on in there?' Dave actually knows what's going on in the model itself. So I'll give it a try.

In the past, you just had these buckets and very discrete price points, and you couldn't price in between the buckets. There's a lot of opportunity because there are sometimes really large gaps between those price points. With continuous pricing, we can go in the middle and put the right price point out there for every flight in a way that we couldn't do before. Technology is amazing. Where all this will be five or ten years from now, who knows? It's stuff we couldn't do in years past. These fares are available, they tend to be available by NDC and on united.com. It's been very successful. Most of our big partners have seen this and moved towards more direct selling with United to get access to these fares. I think it's been amazing.

We could always move the fare. We just have the ability to sell at more discrete price points between the published fares. Sometimes it leads to a higher fare, but most of the time it leads to a lower fare. So I think it's a consumer benefit, but we also think it's a benefit to United. Most of the time we say lower fares, you think that's the right thing? In this case, this technology has been really unique and really helpful. I don't think we're the first airline to do it, and we're definitely not going to be the last.

I do like to go to Las Vegas. It's a little saturated apparently, but I still like to go. Look, you have to look at these demand trends. The models are fantastic. United has a homegrown model. But there are times where you need to override and put user influence on these things. For the summer of 2022, I remember going down to Dave Bartels and saying, 'This is going to be an unprecedented level of domestic demand. We need to make sure we don't sell out too soon.' So we were really careful. If you look at our history over the last 8 to 12 quarters, our yield performance has been very good. I don't credit me, I credit Dave Bartels and a great team that works for him in terms of making sure we sell the right price points, that we keep seats available up until the time of flight so we can sell them at the time of flight. Otherwise, it would sell out too soon.

I don't worry about that. No, lower load factors are okay. Having a few less seats or a few less people on the plane, we don't want to do that all the time, but it definitely helps the operation during irregular operations. We have more seats to work with. Our goal is not to maximize load factor. That doesn't work for us.

We spent a lot of time looking at our seven hubs and our passengers and what they wanted. If you go back to those years, you had a different business model that was producing margins that were dramatically higher than United. That's just the reality. It would have been easy to say, 'That business model produces 15 or 16% margins, why doesn't everybody do that?' We quickly staked out the fact that we needed to be uniquely United. That's a term I use a lot around United. We needed to find what our structural advantages were because I don't think we can copy Airline X, Y, or Z and outdo them in any way. I would never do that. We just looked at all the inherent strengths, the decisions we made, where we flew, how it worked. I've seen a bunch of airlines in my days, and it didn't take long for us to plot out a strategy and then start acting on it. We've been more or less on that same road this entire six years. There's no guardrail to guardrail action. Hopefully everybody can see that in our strategy. In the summer of 2021, we were very vocal about our strategy, calling it United Next, using gauge as a driver. We were never trying to just maximize capacity. We were trying to maximize gauge, and that resulted in more capacity, but it wasn't the primary motivation. It was gauge. We looked at what we did well and really focused on it. Most importantly, when we look at the people that live in our hubs and all the communities we serve, we're thinking about diversity of products, choice. The idea that people don't want choice is just silly. Sometimes you want to sit in first class, sometimes you want to buy basic economy, and everything in between. The idea that you are just not going to provide choice to all the people of Chicago or wherever you're flying just didn't make any sense to us at United. So we plowed forward with a choice model, with a diversity of revenue streams, with a global network bar none. We kept all the widebodies in the pandemic. We parked them temporarily, but we didn't part them out. Now they're all flying again. I think the results speak for themselves.

Look, I've been at a few airlines. I've been around the block. Every single airline is different, and I don't approach it the same way. It's amazing that we all have very different business plans because we get to see which business plan is going to work and not work, or how well. Time will tell on these things. For United, we are a premier airline. We have fantastic hubs, a range of products, and we are very consistent with what our brand means to us and the communities. We do things that make sense for our brand and our network, and I think we do it pretty well.

I'm more hands-on than I should be. We came out of the pandemic, and this is one of those things in the bounceback, because we always call it the bounceback. This is one of those things that we didn't bounce back as well with, in my opinion. Part of it is we changed the process. We serve an incredible 165,000 meals per day in our premium cabins. It's a lot of food. We just didn't bounce back out of the pandemic the way we'd like. I got involved with it about a year ago. It's an amazing feat, but it takes about eight months to change the menu on an airplane. You would think, 'Oh, just snap your fingers,' but just like everybody else complaining about supply chain problems, the same issues are related to food. We spend almost $2 billion a year on food. This is a big budget. But we have made incredible progress. We haven't been out there with press reports and press releases. We did a Polaris event in New York a few weeks ago that was very successful, and we didn't feature the food because we still want to make it better. But I can tell you, we measure everything at United Airlines. The scores we're getting on the food since we started changing Polaris in July of this year, we did it by region. We just upgraded London Heathrow to a new menu on September 1st. The scores are off the charts. We will talk about it more in the future as we have a lot more to say. We've changed the wine, we're about to change the bread, all the new entrees. I think we've come a long way. I do occasionally read the blogs, I have to admit, and the blogs have been a lot more kind on this subject. Our promise is to continue to invest and make it even better. I do think if you fly United today, the food experience is dramatically better than where it was a year ago.

We definitely earn a revenue premium. Instead of micromanaging every single one of those decisions and saying, 'If we add an olive, the NPS score goes up by X, Y, or Z,' I think that's a little bit silly. There's a certain brand that we are as United, who we want to be, and the products we want to offer. We know food is an important part of the United brand. It's not an important part of other airlines, and that makes complete sense to us. But for United, it is a part of the experience. We work very hard at it, believe it or not, and we're making a lot of progress. We will continue to recognize that given where we are, our global nature, the length of our flights, food is an important element of what we do on board.

Well, we don't have everybody living in Chicago. We're a big global airline. We're everywhere at all times. Even in the best of times pre-COVID, our in-office number was about 66% on average. Literally one-third or so of the people were always traveling. We are always out of the office by our nature as a travel company and a global company. Where we are today is trying to strike the right balance of being in the office and out of the office. There are times being at home and just running through your Zoom meetings one, two, three all day long isn't super efficient. But there are also times where you need to be in the office, where you need to develop people, particularly the young people, because it's just so much better to be in the office. So we have a balance. Our goal is to be roughly in the office approximately 50% of the time and remote the other 50% of the time. We'll see if we get there. It's evolution. This is important to our team members, so it's important to us. I don't think what we do today will be what we do a year from today because it's going to continue to evolve. But we try to provide flexibility for as many team members as we possibly can. Some of them do live outside of Chicago, but when it's time to be in the office, they need to be in Chicago, and they are.

I'd like to think they do, but I don't know for sure. It's hard to measure. It's going to evolve, is my take on this. I think right now we have a really good balance, but we'll see what the business needs. If it needs more in person, we'll be there more. If it needs less, I don't think we'll do less.

Sure, I'd love it.

No. In fact, I think I said it on the last call. We think about particularly for the Premier population, how to make sure that every one of our Premier members has a really great set of benefits because it's finite. There are only so many benefits that we can put into these programs. During the pandemic, we made sure that we were working to size the program so that in 2024 in particular, it was the appropriate size without having to make any sharp turns. That's where we are. We already said we won't be making any sharp turns. We'll make some tweaks to the program. We do that every year. So I expect some few minor tweaks for the 2025 year.

What level do you want to be?

I don't think you'll have to spend more money. I do think we're going to make it easier on the credit card side to combine credit cards to get status. Right now, the rules are a little clunky and just hard to understand, and you can't combine things on credit cards. We're actually going to make that easier.

I mean, we changed. You understand all your acronyms at United? No, there are a lot of them. But we went to a value-based system a number of years ago. We suspended the value-based system for a while during the pandemic for obvious reasons. Then we helped people get to the right number based on where they were and their spending or where they lived around the globe because the recovery was different in different areas. It's never perfect. But what we did do is make sure that the Premier population size was appropriately sized for 2024 and 2025 and beyond. Therefore, we don't need to make major changes.

They play a big role. We need to be really flexible with the aircraft and where we fly. Even during the pandemic, we continued to fly when most other, not most but many, other airlines stopped flying. We continued to fly to Australia. We were the only way non-stop to get from the United States to Australia for a long period of time. We delivered all the medical equipment to India during the worst of times because we continued to fly there. We're going to have to be really flexible given things that are happening around the globe. Israel is a really good example. Israel is almost 2% of United Airlines, and we're unable to fly there today. So it's a big deal. We talked about it on our earnings call. We look forward to getting back to some level of normalcy, but I also expect that's going to take some time. So we need to be really flexible with the capacity and be able to move it around and deal with these geopolitical issues as appropriate. It's something we do spend a lot of time on. We spend a lot of time looking at events around the world. While these things are very difficult for us to predict, we do have a lot of outside help trying to help us understand what's really going on on the ground all around the world to make sure that we can make the appropriate decisions for the safety of our crew, our team members, and our passengers.

Thank you. Good to see you. Thanks, everybody.