United Airlines Holdings Inc. (UAL) Q1 2022 Earnings Call Transcript

United Airlines Holdings Inc.  (NASDAQ: UAL) Q1 2022 earnings call dated Apr. 21, 2022

Corporate Participants:

Emily Zanetis — Manager, Investor Relations

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Brett J. Hart — President

Gerald Laderman — Executive Vice President and Chief Financial Officer

Scott Kirby — Chief Executive Officer

Gregory Hart — Executive Vice President

Analysts:

Savanthi Syth — Raymond James — Analyst

Conor Cunningham — MKM Partners — Analyst

Duane Pfennigwerth — Evercore ISI — Analyst

Jamie Baker — J.P. Morgan — Analyst

Michael Linenberg — Deutsche Bank — Analyst

Ravi Shanker — Morgan Stanley — Analyst

Helane Becker — Cowen and Company — Analyst

Catherine O’Brien — Goldman Sachs — Analyst

Brandon Oglenski — Barclays — Analyst

Christopher Stathoulopoulos — SFG — Analyst

Alison Sider — — Analyst

Justin Bachman — — Analyst

Chris Isidore — — Analyst

David Slotnick — — Analyst

Presentation:

Operator

Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the First Quarter 2022. 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 rebroadcast without the company’s permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line.

I will now turn the presentation over to your host for today’s call, Emily Zanetis, Manager of Investor Relations. And you may go ahead.

Emily Zanetis — Manager, Investor Relations

Thanks, Brandon. Good morning, everyone and welcome to United’s First Quarter 2022 Earnings Conference Call. Yesterday we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday’s release and the remarks made during this conference call may contain forward-looking statements, which represent the company’s current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company.

A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Also, during the course of our call, we will discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release.

Joining us on the call today to discuss 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 on the line available to assist with Q&A.

And now, I’d like to turn the call over to Scott.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Thank you, Emily, and thank you all for joining us today. I want to start this morning by saying a huge thank you to the United team. Our mission is uniting people and connecting the world and the foundation of United success will always be the strength of our people.

In the first quarter of this year, our team members continued to go above and beyond to take care of our customers and each other in what was a really difficult industry operating environment. The United team is stronger than ever. Our customers are seeing it and I along with the entire leadership team are grateful to them.

Our United Next strategy is firmly on track and we’re well on our way to our goal to build the biggest, best, the most profitable major airline in the history of the industry. Even during the early days of the pandemic, we were determined to do much more than just survive the pandemic and get back to normal. We’ve spent the last two years getting United ready — Airlines ready for this moment. We finally reached the inflection point as we transition from pandemic to endemic. And demand is stronger than I’ve ever seen in my career and that’s even before business travel fully recovers, though it continues to accelerate at a rapid pace and before international especially, Asia fully recovers. We expect that will lead to the best TRASM and highest quarterly revenue in our history in 2Q and despite the higher fuel prices, we’re forecasting approximately a 10% operating margin this quarter.

The rapid acceleration we’re seeing in business and long-haul as they move to catch up still strong domestic leisure demand gives us great confidence in the future outlook. But there are three reasons we believe investors should think that the hard work and strategic thinking, that were our focus during the pandemic, have United best positioned going forward.

The first, the United brand and customer preference. Throughout the pandemic, we’ve talked about our desire to decommoditize air travel and we’ve told you how stronger our NPS scores are. If I look back at history, what we’re really doing is trying to replicate what Continental successfully accomplished back in the ’90s and Delta did about 15 years ago. Those two airlines shifted to a strong customer focus and customers began to choose them because of their improved customer interactions and brands.

The result was rapid improvement in relative TRASM, which led to rapid improvement in cash flow and earnings, which led to significant stock price outperformance. For anyone paying attention, there have been hints that the same thing was happening at United throughout the pandemic as we led major carriers in TRASM, in seven out of the last eight quarters. But that really was the warm up. I recognize we still have a lot to prove and we must keep executing, but our TRASM outlook for 2Q is another strong indicator that customers are now choosing United, much like they began choosing Continental and Delta 30 and 15 years ago.

Second, CASM-ex. There’s a lot of industry pressures on capacity and CASM-ex but I am confident that United has set up to outperform by a wide margin. We do have timing issues with 777s, Boeing delivery delays, and all the invas — industry infrastructure required to bring capacity back reliably. And doing so reliably is our top focus. But ultimately, our gauge is going to grow approximately 30% by 2026 and that more than anything is going to drive the significant CASM-ex outperformance we expect at the same time imp — improving the product for our customers.

Three, United is uniquely positioned to benefit from fading COVID headwinds. As Andrew will detail, business travel is rapidly returning but it’s still not fully recovered and we expect United will benefit more than any other airline as that recovery continues. And international, especially Asia, is far from fully recovered. United is just more exposed to those sectors that we expect to have the most acceleration in the coming quarters.

If you’re going to invest in airlines, I think any of those three reasons should move United to the top of your pecking order, but I’ll give you one more, I think under-appreciated reason for why you should invest in airlines in the first place.

At United, we’ve talked in the past about the vastly improved supply-demand mix in the long-haul international markets but we’ve been worried about the domestic market. For reasons I’ll describe and I think the domestic market is also going to be robust. I think every single person listening to this call that has a spreadsheet with a forecast of industry capacity in the years to come is wrong and probably wrong by a lot. The pilot shortage for the industry is real and most airlines are simply not going to be able to realize their capacity plans because there simply aren’t enough pilots, at least not for the next 5 plus years.

Given the work that we’ve done on our brand and customer experience, United, of course, isn’t having any problems hiring pilots. We are always top tier for pilot pay, have a ton of growth opportunities for pilots coming soon, and we have, by far, the largest number of higher-wide — higher paying wide-body flights in position. But that’s not all. United increasingly is where employees including airline pilots want to build a career. They see the lucrative financial opportunities that I just mentioned but they also recognize that United is an airline where they can be proud to work.

From running a consistently top-tier operation to exciting new investments in our customers experience, to supersonic aircraft orders, to being a force for good in the communities we serve, we’re building an airline that leads and that is where the best in the industry want to build a long-term career. In fact, we now see a lot of pilots from other airlines applying to be pilots at United and that’s new behavior.

While we are in a good position for the smaller and mid-tier airlines, there just aren’t enough pilots to staff their growth aspirations. The other really large airlines will also probably be able to attract enough pilots, but for anyone else, I just don’t think it’s mathematically possible to meet the pilot demand for the capacity plans that are out there. You can already see the issues that are occurring at multiple smaller and mid-tier airlines over pilot shortages and looking forward, when United alone is ramping up to hire about 200 pilots per month, that situation is only going to get worse. This is not a temporary issue. Because of that, I now think the domestic TRASM environment is going to be much stronger in the years to come than we previously thought because supply is going to be constrained by lack of pilots.

You put all that together and we feel very bullish. The last two years have obviously taught us that macro events can quickly change our outlook. But our 2Q base expectation has us just 350 basis points shy of our 2019 adjusted operating margin. And we expect that our plans to bring the 777s back, continually to grad — continue to gradually add back capacity, and grow gauge are going to drive CASM-ex down significantly from their still COVID-elevated level.

We’re also confident that the robust business travel recovery still has a lot of room to run and we anticipate improvement in long-haul Asia that is not yet reflected in our revenue results. That means we’re more confident than ever, that we’ll meet or exceed our approximately 9% adjusted pre-tax margin target for next year, and particularly with our view of the supply dynamics in both domestic and international getting to at least our 14% target for 2026 seems pretty straightforward. I’ve been in this industry for a long time now. I’ve seen some ups and lots of big downs.

Looking back, there seems to be about once in a decade opportunity where the sentiment gets so bearish and the actual future outlook is so different from that sentiment that there is a significant outperformance for airline stocks for a few years. I think supply constraints, pilot being the biggest one, means this is that time again. And when that’s happened in the past, the whole industry tends to do well but usually one or two airlines do much better than the rest of the pack. We’ve already listed the reasons above and I suppose I’m not entirely objective, but it sure seems like United is the bet you want to make in that environment.

Before I turn it over to Brett, I want to congratulate our CFO, Gerry Laderman on becoming a first time grandfather. I’m sure you’ll hear the excitement in his voice later today. Well, maybe not, but I promise you, Gerry is really excited and congratulations on that cute baby grandson. Brett?

Brett J. Hart — President

Thanks, Scott. Last month, we were honored to be included in Time’s 100 Most Influential Companies for 2022. Our placement on Time’s list last quarter coincided with the announcement of Scott’s appointment to the Homeland Security Advisory Council and the White House’s announcement of my appointment to President Biden’s Board of Advisors on Historically Black Colleges and Universities. United continues to be firmly committed to being a leader in corporate America and investing in the future of our company for both customers and employees. We’re proud to be recognized for the hard work of the entire United family over the last year.

Becoming the best airline means not only being an industry leader on safety and innovation but also reliably getting our customers where they want to go on time and with their bags. Throughout the pandemic and during the recent recovery, the commercial aviation system has been stressed by supply chain constraints and staffing shortfalls at the FAA, TSA, and airport vendors among other factors. All of which test the stability of every airline’s operation. Some airlines built larger schedules that tested the limits of what they could operate, leaving their customers and the reputation to pay the price.

United chose a different path. We anticipated many of these challenges, even taking steps on our own to mitigate them. Importantly, we also made a conscious decision to prioritize our operational reliability by limiting the size of our schedule. That decision may have cost us some profits in the near-term but it’s the right long-term decision for our customers, our company, and the bottom line. We’ll continue to use that approach as we plan to add capacity in the months ahead.

In recent weeks, the people of United and our customers have come together to assist the people of Ukraine. United has donated $100,000 and more than 2 million frequent flyer miles to help transport relief workers and suppliers to those on the front-line of the crisis. As early as March, we announced fundraising efforts to support our humanitarian relief partners and our customers stepped up as they so often do. They donated 12.6 million frequent flyer miles in nearly $0.5 million to provide health care, shelter, food, and other lifesaving services to refugees. We appreciate our customers’ generosity and are proud of — proud to have teamed with them to support the victims of the conflict in Ukraine.

We continue to make progress towards our hiring needs as we look towards United Next. This January we celebrated opening our Aviate Academy in Arizona and welcomed the next generation of pilots to the United family. This flight training school is the first of its kind and we believe it will help to maintain a pipeline of qualified pilot candidates for United as our industry looks to combat the pilot shortage. We are particularly proud of providing the opportunity for aspiring pilots from diverse backgrounds to study and train at the Aviate Academy. Over the next 8 years, we plan to train 5,000 new pilots at Aviate, with the goal of at least half being women or people of color.

We are also continuing our path as the industry leader in sustainability. United remains the only airline that is committed to becoming 100% green by reducing 100% of our greenhouse gas emissions by 2050 without relying on traditional carbon offsets. And in 2021, we established a strong mid-term goal of reducing our carbon intensity 50% compared to 2019 by the year 2035. Our dedication to creating a greener tomorrow to real change is stronger than ever. We are investing in solutions that have the potential to actually reduce and ultimately remove the emissions from flying.

In March, we announced a collaboration with biotech Cemvita to commercialize the production of Sustainable Aviation Fuel. While we are proud to have invested in more sustainable aviation production than any other airline in the world, we’re also focused on making solutions like these scalable for the future. We also continue to engage with cross-industry partners and policymakers to support the case for urgent climate action. Through these and other actions, we are committed to making a real difference in climate change.

A key part of our sustainability progress will be enabled by technology. But at United, we’re also focused on using technology to enhance the travel experience. Currently, nearly three-quarters of our customers use our app on the day of travel. A valuable tool that helps our customers manage their travel instead of having to call the contact center or speak with an agent. While this helps our employees to be more efficient, we know from our survey data that customers who use our mobile app are more satisfied with their experience with United. This is why we continue to invest in new features like enhanced flight search options, better visibility into flight credits, contactless payments through the United wallet, and a new backdrop shortcut allowing you to zip through the airport lobby faster when you check a bag in the app before arriving at the airport.

As we adapt to COVID-19 becoming endemic, we need our customer and employee experience to reflect this new phase. We are pleased to see into our mask requirements are now gone for 99% of the country, as well as on-board domestic flights, select international flights, depending on arrival country’s mask requirements, and at US airports. We strongly believe the administration should eliminate the pre-departure testing requirements for transportation as well. As travel demand is surging, we believe eliminating these requirements will ease the travel experience for our customers.

In closing, I would like to express appreciation to our entire United team who have been critical throughout this inflection point. While we have always remained committed to our United Next strategy, the recent momentum in demand environment gives us even more confidence in United’s path forward.

I’ll now hand it over to Andrew to discuss this in more detail.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Thanks, Brett. I normally start each earnings call with an update on the previous quarter’s revenue performance. However, today it just seems more appropriate to start off with our Q2 outlook. We clearly passed a major inflection point with demand and yields and have a confident view of the future.

Q2 TRASM is expected to be up 17% versus Q2 of ’19. A step-change increase from our Q1 TRASM of down 3%. We’re confident United’s currently set up to achieve record TRASM and revenue results in the second quarter. The revenue inflection point started in March with TRASM up 9% versus 2019.

Revenue momentum is coming just — coming from just about every category including higher yield, ancillary seat sales, strong premium leisure demand, MileagePlus, rebound in business demand, and a record-setting season across the Atlantic this summer. Even parts of Asia are rebounding.

We often have talked about United’s high exposure to business traffic and the result that headwind in the pandemic caused. United produced industry-leading TRASM results during most of the pandemic, even when faced with this substantial headwind. Now with business traffic rapidly recovering, I expect United to have a tailwind versus more leisure-focused carriers, a fact I think we can see in our Q2 guidance.

Business revenue for the last few weeks has been down about 30%. With the last week now down only 20% versus the same period in 2019. Large corporations are now returning to travel at a faster rate than small. This is really important to United’s Q2 outlook. As of last week, business yields are now close to up 10% ahead of 2019. Given these revenue trends, business TRASM contribution is expected to be approximately 100% of 2019 levels soon. After all the debates about the return of business traffic, it’s nice to see this important milestone in sight, even with many businesses not fully back in the office.

Demand for business, leisure, and cargo traffic continues to be strong even as we pass on 100% of the fuel price increase versus ’19. United’s bookings for Q2 are strong and we believe we still have sufficient rooms to sell peak period travel at robust yields. Yield momentum is generally very strong across most of our regions. Across the Atlantic, we expect to grow by 25% this summer, becoming the largest airline in that region for the first time. We also see momentum in Australia and many other countries that have opened their borders and expect further gains when the inbound US testing requirements are relaxed. In Q2, we expect to operate Pacific capacity down about 65% versus ’19 and Latin American capacity up 9% versus ’19.

Cargo continues to produce strong results with revenues up 26% in Q1 of 2022 versus 2021, and up 119% versus 2019. Ocean shipping and supply chain disruptions continue to boost our revenue outlook for cargo.

During the pandemic, we found many traditional United structural advantages including our business-centric coastal health and long-haul network to be temporary disadvantages. United’s network during the pandemic even with all the changes we implemented was simply less focused on domestic markets, small communities, Florida, and near Latin America, which all performed better during the pandemic. And our Pratt & Whitney 777s were grounded, which meant we couldn’t take full advantage of strength to and from Hawaii.

Imagine now, United’s revenue potential in the context of our Q2 guide on areas which have been structural advantages including business traffic, coastal gateways, and global long-haul fully bounce back combined with a new, modern, and fuel-efficient fleet. Imagine a United where 50-seat single class jets only fly to small communities and don’t compete against competitors operating mainline jets at a fraction of the unit costs. Imagine a world where United offers premium seats everywhere our competitors do, when in the past we often had none.

We have a hard time imagining these things and the impact on our revenues. I just want to point you to our Q2 revenue guide. Global long-haul line is an area where we have a structural advantage. Opening of the borders is transformational for us. We are confident that retaining all of our wide-body jets during the pandemic was the right call. As we think about growth potential for the long-haul, we remain bullish on all of the long-haul opportunities.

I’ve often talked about the challenges we expect on the domestic front in the coming years with supply growing faster than demand. However, we increasingly doubt the ability in the industry to execute on previously planned growth levels. There is no single fix to issues constraining capacity and as a result, there is no quick fix. At a macro level, we expect less supply in the coming years. However, we still expect industry capacity growth to be more elevated in Florida, smaller communities where United has less exposure.

With this updated domestic outlook, our view of the revenue performance and profitability of domestic flying has improved. We have confidence in our ability to execute our United Next plan with known constraints, the largest, of course, being our pilot shortage. The pandemic delayed many of our commercial initiatives including the full road — full rollout of Premium Plus employers cabins on the long-haul fleet. But today we are nearing the end of these projects, so that we have a consistent and leading product.

We continue to offer Basic Economy with even more flexibility to our customers seeking the best possible price. Our investments in planes, clubs, and gates will be transformational. We’ll provide our customers with choices others don’t offer across multiple product types and desired service levels, along with the very best global network and the very best partners of any US carrier.

I’d like to thank the entire United team for their dedication over the last two years. We are set up well for the future and that future begins today. With that, I will hand it off to Gerry.

Gerald Laderman — Executive Vice President and Chief Financial Officer

Thanks, Andrew, and good morning, everyone. For the first quarter of 2022, we reported a pre-tax loss and an adjusted pre-tax loss of around $1.8 billion. Our CASM-ex ended the quarter in line with the guidance we provided last month at up 18% versus first quarter 2019.

Looking ahead, even with the elevated fuel prices which we expect to persist for a while, right now, we are seeing our revenue more than cover the increased fuel cost and as a result, we expect to achieve meaningful pre-tax income in the second quarter. Furthermore, based on our current revenue expectations, we also expect to produce a pre-tax profit for the full year 2022.

We currently expect our CASM-ex to be up around 16% in the second quarter and capacity down around 13% both versus the second quarter of 2019. We also expect that our unit cost will continue to sequentially improve over the remaining quarters of 2022. As the 52 grounded 777 aircraft return to normal service, we start to take delivery of additional large narrow-body aircraft and our aircraft utilization increases. We believe these capacity levers will drive a step function change in CASM-ex through 2022 as the relationship between our capacity growth and CASM-ex improvement continues to meet our expectations.

Our team has done a tremendous job managing all the costs under our control and we expect that focus to continue. However, the impact of continuing elevated inflation and the exact timing of the 777 return to service, generally makes precise forecasting difficult. Nonetheless, we are confident that our CASM-ex exit rate for the year will set us up well for 2023 and beyond.

Turning to fleet, as you know, new aircraft deliveries constitute the vast majority of our capital expenditures. We are reducing our adjusted capex expectations for the year by approximately $600 million to $5.3 billion as a result of supply chain and manufacturing challenges pushing some of our expected 787 and 737 MAX deliveries from this year to next year. While it is difficult to say with precision how many aircraft may fly, right now we are assuming two of eight 787s and seven of 53 737 MAXs will slip to 2023. Those aircraft will join the 737 MAX 8s, 9s, and 10s as well as Airbus A321 NEOs we expect to take delivery of next year. Bringing into our fleet, the aircraft we have on order is critical to the success of United Next and to our ability to continue to bring meaningful improvements in both CASM-ex and fuel efficiency.

Turning to balance sheet and cash, we ended the quarter with $20 billion in available liquidity. Our Treasurer, Pam Hendry and I, regularly discuss our optimal level of cash. Now keep in mind, we have both been around the industry for a long time, so it is difficult for us to think in terms of too much cash. However, it is fair to say that as the recovery continues, you will see us reduce our cash as we begin the deleveraging journey. In fact, we started this journey in the first quarter as we elected to prepay an unsecured maturity previously scheduled for repayment later this year, in addition to making our normally scheduled principal payment.

This resulted in our total debt declining by over $700 million during the quarter. Furthermore, in the first quarter, United produced $1.5 billion of cash flow from operations, driven largely by an over $2 billion increase in our advanced ticket liabilities. We’re pleased that our operating cash generation is approaching 2019 levels as an additional indication of the recovery’s progress.

I want to close by reiterating our confidence in our 2023 and 2026 earnings targets. We remain con — committed to achieving an adjusted pre-tax margin of approximately 9% next year and continue to have confidence in our 2026 target of about 14%, representing profitability well above 2019 levels. As we move into the second quarter, I want to thank my finance team for their dedication to remaining nimble and focused on our long-term goals. Our profitability outlook for both the second quarter and full year is a welcome milestone for all of us as we redouble our focus on United’s path ahead.

Looking even further ahead, since Scott mentioned my newborn grandson, Ezra, I can tell you that I am now more focused than ever to ensure that when Ezra grows up, he will recognize United as an airline people want to fly and where employees are proud to work. And perhaps most importantly for his generation, the airline that has met all of its commitments to the environment.

And with that, I’ll pass it to Emily to start the Q&A.

Questions and Answers:

Emily Zanetis — Manager, Investor Relations

Thanks, Gerry. We will now take questions from the analyst community. Please limit yourself to one question and if needed one follow-up question. Brandon, please describe the procedure to ask a question.

Operator

[Operator Instructions] From Raymond James, we have Savi Syth. Please go ahead.

Savanthi Syth — Raymond James — Analyst

Hey, good morning. Just given the comm — pilot commentary on the call. I was kind of curious, what role you see your regional partners playing and what that means to your kind of hub-and-spoke strategy.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Hi, Savi. It’s Andrew. When we developed the United Next plan a while ago, we assumed that there will be a much smaller contribution at regional flying in the plan and we’re marching down that road. It is more accelerated than we planned but it is kind of where we thought this was going a while ago. So I think we’re fine with that. And I think we are rejigging the network is probably the best term to make sure that we can generate the appropriate level of revenues with this new service level in these smaller communities. And I think our outlook for Q2 says we’re actually doing that really well and so our reliance on regional jets is going to be dramatically lower in the future.

That being said, we still plan to operate close to 300 of these aircraft, most of them being large regional jets in the future along with our CRJ-550s and so you have a spot at United flying to smaller communities because that is the right aircraft, but just a lot less than what it used to be.

Savanthi Syth — Raymond James — Analyst

Makes sense and thank you for that, Andrew. Just follow-up on a little bit — could you — got really helpful with revenue color, but I was just curious on the peak versus off-peak performance because that was a trend that saw really strong peaks and maybe off-peaks not as strong and how you’re thinking about as we exit the peak summer travel period?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I think we’re going to see — I think one of the most important things I said earlier was the RASM from business travel is actually approaching and will be 100% in 2019. So we now view business traffic as almost fully returned, particularly given the level of capacity that we’re often in the marketplace. As we exit the summer, we will rely more on business traffic. And we have a high degree of confidence that that’s just going to be perfectly fine and we’re going to continue to accelerate as we go through the fourth quarter with October being an incredibly strong business month, given where we see business trends today. So we’re very bullish on business and again, it’s nice to see after all of the debates about how much would come back and when it would come back that we are approaching 100% from a revenue recovery. And we have a long way to go because the offices have not fully returned yet, everybody is still not in their office. So we think there is actually more upside there than maybe a lot of people thought just a few months ago.

Savanthi Syth — Raymond James — Analyst

Thank you.

Operator

We have to Conor Cunningham. Please go ahead.

Conor Cunningham — MKM Partners — Analyst

Hey, everyone. Thank you for the time. I realize that earnings and margins matter the most but lots changed since the United Next plan and puts and takes are kind of evolving. When you look at the United Next plan, where are you willing to be the most flexible with? It just seems that the CASM-ex target is just too correlated to deliveries and that’s the most aggressive. Again, I realize that margins matter the most and all that stuff, but just how do you plan on navigating the timing issues of some of this stuff?

Scott Kirby — Chief Executive Officer

I’ll start and then let Gerry add. You’re absolutely right that margins matter the most and things have changed a little bit. But the basic vision, the basic strategy remains intact. And inflation is higher than we thought. We’ve built high inflation in over a year ago and we thought we are being conservative, but I think everyone has been surprised by how high inflation has been. So inflation is higher than we thought. We even got — in fact this year we got a full point of CASM-ex headwind from revenue-related expenses, which is a good reason to have higher CASM. So we do have higher inflation pressures.

We also have separately timing issues, this is principally around the 777, to a lesser degree Boeing deliveries. But the 777 is our biggest lowest CASM airplane and that is going to be a step function change once we get the full fleet back up and flying. We just don’t know for sure when it’s going to happen. It’s taken longer than we had hoped. So there’s timing issues but the high — the absolute level will be higher just because inflation, I think. But the important point is the real structural drivers that are important there for margin are how we are going to be growing gauge and what gauge and growth mean. And so I think the inflation raises the bar, the tide for everyone. And we already see happening right now, that tends to impact low cost carriers more than it impacts us. It means that we more than recover 100% of inflationary costs increases. And so the most important thing is what sort of happens I think to the relative CASM, and there’s nothing that’s changed about because it’s mostly about gauge. Most of that is just gauge growth and that’s just the math. We’re the last of big airline to do it and that’s just math of what’s coming.

But I also think what’s encouraging, you mentioned margin. The fact that we’re 350 basis points already away from 2019 margins with whatever you think the CASM-ex number is going to ultimately get to, however, high inflation is, it’s going to be meaningfully better, I think the 16% we have in this quarter. And that’s going to go straight to the margin. And the revenue environment — look, I think we’re in the first day. This is really kind of the coming-out party for the real return of business travel and international travel in this quarter. We are in the first inning of that recovery. There’s got to be upside on revenue as well. And that’s why just barring something bad happening in the world, 2019 — 2023 getting to 2019 margin levels seems pretty easy.

Gerry?

Gerald Laderman — Executive Vice President and Chief Financial Officer

Yeah. Just to give you a little bit more comfort. So in a world where what we’re seeing continues for a while, this sort of high single-digit inflation, that really only translates to a couple of percent on CASM-ex. And as Scott said, revenue is more than making up for that. So you’re not going to see dramatically different numbers on CASM-ex but what — everything we’re seeing makes us very comfortable that those margin targets are going to be achieved.

Conor Cunningham — MKM Partners — Analyst

Okay, great. And then, I think in the next year — there seems to be this misconception what your deliveries next year on the MAX is up there. All MAX 10 aircrafts and I don’t think that’s the case, but you guys haven’t quantified how many deliveries you’re expecting from the MAX 10 version. Can you provide a number for that for 2023? And then, if there is a delay, what’s the optionality that you have to kind of backfill some of that capacity or deliveries in next year specifically? Thank you.

Gerald Laderman — Executive Vice President and Chief Financial Officer

Yeah, so we can’t be specific because we don’t know exactly when the MAX 10 — first MAX 10 delivery will be and that’s going to dictate how many. But we never had a plan to take all of next year’s deliveries of MAX 10. In fact, it was less than half of the deliveries for next year. And so, we’ll wait and see. I am confident we’ll get the MAX 10 but you should talk to Boeing about the exact timing of when that first MAX 10 will be delivered. In the — but in terms of flexibility, they are producing plenty of MAX 8s and 9s for us. And so there can always be a little bit of a shift in timing of when 9s or 8s are delivered versus 10, but we’re comfortable. We’re going to take 8s, 9s, and 10s next year.

Conor Cunningham — MKM Partners — Analyst

Great, thank you.

Scott Kirby — Chief Executive Officer

Operator?

Operator

Evercore ISI, we have Duane Pfennigwerth. Please go ahead.

Duane Pfennigwerth — Evercore ISI — Analyst

Hey, thanks. On the issue of constraints for United in the industry, can you talk about constraints for United this year? We’ve had some discussion in the past about aircraft delivery rate but in terms of your specific sort of reduction in growth, how much of that is pilot related versus aircraft delivery rate or the timing which you referred to on the 777s? And could you expand on why you think the industry is going to be short pilots for more than a little bit of time, more — certainly more than 2022?

Scott Kirby — Chief Executive Officer

Okay. I’ll start and Gerry, Andrew can add. The biggest issue that we have, well, first on capacity is we don’t have a labor shortage. We’ve hired 6,000 people this year. We’re hiring 200 pilots per month. That’s not an issue for us. The biggest issue is 777s. That’s 10% of our capacity and they’re grounded. The other issue is just we’re realizing that the whole infrastructure is not set up to snap back to these rapid growth rates. I mean, it’s not just us. It’s the FAA, TSA, fuel vendors. There’s all kinds — even if we have enough of people, which we do, all of those constraints get in the way of a reliable schedule. We’re just not willing. We made so much progress with customers during the pandemic and really building the United brand. I think that’s going to be the most enduring change that we’re not willing to sacrifice that customer goodwill for the possibility of short-term promise — profit. And so — and look, month-to-date, we’re number one in on-time performance, number one in completion factor, so it’s paying off for our customers.

The pilot shortage, I’ll just give you some numbers. So we did a deep dive on pilots because we’re trying to — all of our regionals weren’t being able to hire and we had problems. And I think we’ve got 150 airplanes grounded right now and they’re never going to come back, I assume. And so, we did a really deep dive on it. It turns out that the industry over historically produces between 5,000 and 7,000 pilots a year. Mostly closer to 5,000 but can produce up to 7,000 pilots per year. Got a little lower during COVID. This year, the industry’s intent is to hire 13,000 pilots. And given the growth aspirations of other airlines, it’s even more next year. But there are only 5,000 to 7,000 available. That was an epiphany for us.

And by the way, a problem can’t be fixed. You could set up flight schools to get people to 25 hours and get their first license pretty easily, but they have got to get from 25 hours to 1,500 hours and that just doesn’t exist today. So in that 5,000 to 7,000 — over a few years that 7,000 could probably go up. I hope that it’s getting to 13,000 anytime in the next 5 or 6 years. And you look at that 5,000, if it’s a 5,000, United Airlines is literally going to hire half of them. Half of them are coming to United Airlines. So this is, I think, under-appreciated factor and it’s just not quick to fix.

Duane Pfennigwerth — Evercore ISI — Analyst

That’s great detail, Scott. Appreciate that. And I guess along those lines, is this idea that going to influence your capacity as well. So given the epiphany of this pilot math and you’re and a couple of others willing to really kind of protect the operation. Is that influence more than 2022? Is that 2023 influence as well and beyond?

Scott Kirby — Chief Executive Officer

Not yet. We’re focused on getting to where we can hire 200 pilots a month and successfully get them all through the training, all the upgrades happening. I’ve watched — this is pretty in the weeds but if you read some of the blogs and what some of the other pilot seniors are saying, see a lot of struggle. It’s not easy to upgrade — to build, to go from steady state kind of hiring to a step function increase. And it’s not just growth, there are so many retirements that have been going through COVID that everyone sort of has the step function increase. And it’s amazing to read some of the stuff about the constraints that are happening in other airlines.

We’ve gotten ahead of it. We had some bumps, by the way. We had some things where we were behind and had some bumps, but our team has gotten ahead of it and feel really good that we’re going to hit the — we can get the 200 pilots a month. But we’ve also learned a lot about having to meter it in. Take the 777, we’re going to go overnight from 50 or for 42 airplanes that are — or 46 — 44 airplanes that are flying to 96. So we’re going to more than double the fleet. Earlier we thought we would ramp that in really quickly. We did not realize that’s going to take that. This is part of the CASM timing, if you’d like. We’re probably — even if we get them done end of this month, it will probably be 9 months before we get all of them flying. It’s just going to take longer because systems are just not set up to do it. And that’s okay because it’s just a timing issue.

But we feel really good about our ability to hire and I want to make sure we’re executing solidly before we decide to go any faster. But I think it is a strategic advantage for United in particular. We’re the best place. If you’re a pilot, we are the best place to go. There’s some other good ones and there are some that aren’t good. I think it is a strategic advantage because it will be a shortage. It is a shortage.

Duane Pfennigwerth — Evercore ISI — Analyst

Appreciate the thoughts.

Operator

Please go ahead. From J.P. Morgan, we have Jamie Baker. Please go ahead.

Jamie Baker — J.P. Morgan — Analyst

Good morning, everybody. I was kind of hoping for a bullish call. So the first–

Scott Kirby — Chief Executive Officer

Sorry for the deadlines[Phonetic], Jamie.

Jamie Baker — J.P. Morgan — Analyst

First question–

Scott Kirby — Chief Executive Officer

I never want to give though is that all you got.

Jamie Baker — J.P. Morgan — Analyst

Yeah. All right. Well, don’t earn it. All right?

Scott Kirby — Chief Executive Officer

Yeah, I won’t.

Jamie Baker — J.P. Morgan — Analyst

My monosyllabic claim to fame, I suppose. A question for Andrew. Recognizing that Asian RASM was historically lower than system. Is there a way to identify, how much of the 17% RASM guide in the second quarter benefits from Asia still being shut down for the most part?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Good question. I don’t have that number offered up, but I can tell you there are parts of Asia that are rebounding pretty rapidly including if you put Australia in Asia and Korea is obviously in Asia. But Japan and China have not.

Jamie Baker — J.P. Morgan — Analyst

Damn.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

But what I will tell you is that our cargo strength in that direction is incredibly strong. So from a TRASM point of view, relative to 2019 compared to other regions of the world, it is behind the other regions of the world, but maybe less than you would otherwise think.

Jamie Baker — J.P. Morgan — Analyst

Okay, that’s helpful. And then Scott, you — I got to admit, you piqued my interest when you made a quick reference to the Continental Renaissance. I personally remember that both as a junior analyst, a Continental passenger, and even for a period of time a Continental employee. So it definitely struck a chord with me. Not sure if Gerry would want to weigh in as well, given he was there at the time that you referenced. But can you expand on that bit of history and why it’s even relevant for UAL and your shareholders right now?

Scott Kirby — Chief Executive Officer

Yeah and I’ll tell a funny story to embarrass both Gerry and Andrew at the end of it. But what happened — and look, Delta deserves credit. They did the same thing 15 years ago — around 15 years ago, is they built brands around customers choosing them. They changed how people felt, they changed how the employees felt, they changed how the customers felt. And people — customers started to choose to fly those airlines. So they proved is that air travel does not have to be a commodity and not — and everyone says it, but very few people do it. And I think those are two examples that were done. I think we’ve been doing it during the pandemic and we got a lot to prove. I acknowledge. And we got a long way to go, we’re not there. But we’ve told you the NPS numbers. I have anecdotes galore from customers, from people on Capitol Hill, from other CEOs and other industries about how different it feels to fly on United. Our people are proud of what we’ve done. They are proud of what we stand for. They’re proud of, Gerry mentioned sustainability for Ezra. They’re proud of that. They’re proud of the work we’re doing for diversity and into the Aviate Academy. They just — they feel like we’re leading again.

And that flows through to an energy of taking care of customers and focusing on customers. Look, if you go on an airplane and ask employee, ask pilot, ask flight attendants, ask gate agents how they feel about the airline, don’t tell them why, you’re going to get a different answer at United as you’re going to get it at a bunch of airlines. And that’s what happened at those other two airlines. That’s the key to — we’re a people business and that’s the key to greatness, is to actually have a brand that customers believe in. We’ve always had the best hubs at United Airlines and that’s been a frustrating thing for employees, for investors. If you look at the hubs at United and we never realized our potential. Realizing our potential, it was about, one, fixing the gauge, which also fixes the product. But also building a brand for United Airlines and that’s what we’re doing now.

You can already see it. I mean, the fact that probably we’ll be number one this quarter again, that will be eight of nine quarters. Despite the fact that all of the last nine quarters, I’m including the second quarter, we have still the biggest headwinds. We — business travel is not as recovered as domestic leisure and international leisure. We still have the biggest headwind and yet we’re number one. Just wait till those two things are back.

And the embarrassing story, I’ll say, I said this on one of our calls, one of our E-team calls, and Gerry like disappeared from the screen. He gets that crap [Phonetic]. He comes back and he has a T-shirt from the days of Continental but — I don’t remember what it said on the front, but on the back it had the stock price compared to the S&P 500. And Andrew’s like “Oh, I’ve got that t-shirt somewhere too but I can’t find it.”

Anyway, that’s what is happening at United. Gerry, you want to add anything?

Gerald Laderman — Executive Vice President and Chief Financial Officer

Jamie, two things. One, this will be a great conversation for you and I to continue next week when we meet–

Jamie Baker — J.P. Morgan — Analyst

Indeed.

Gerald Laderman — Executive Vice President and Chief Financial Officer

At the Wings Club lunch. So I invite people to attend that. The other thing is, look, I was there then, you’re right. And I saw what was happening and this isn’t — just say, this has been going on now for several years here. The same exact kind of focus everywhere in the business. One example, our — the aircraft, not just the incredible new MAXs we’re taking with the most customer-pleasing interiors in the industry, but the fact that we’re retrofitting all of the older aircrafts. It’s for our customers but it’s also for our crews. It’s a place they are proud to work and it shows. So just a lot of similarities. I’m sure the same thing happened with Delta 15 years ago. I wasn’t there then.

Jamie Baker — J.P. Morgan — Analyst

Sure. Sure.

Gerald Laderman — Executive Vice President and Chief Financial Officer

I was on the outside, but yeah, it’s just very, very similar.

Jamie Baker — J.P. Morgan — Analyst

All right, well I–

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I’ll add another point, which is, this is going to be a record quarter for United. What we didn’t talk about was Q2 of ’19 was a record quarter for United and I think that’s really relevant. The momentum is incredible and it’s incredible off of the unbelievably great quarter in our history and one of the best ones ever, so.

Jamie Baker — J.P. Morgan — Analyst

Listen, I appreciate you bringing the topic up. It’s quite honestly something that I hadn’t really thought of yet. So definitely gives me something to ponder. Thank you very much. Appreciate it.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

And you should all fly United and experience it. We can [Speech Overlap] shareholders and employees.

Jamie Baker — J.P. Morgan — Analyst

I leave the Wings Club and I pack my bag, I’m leaving the next day. So I’ll give you a report. Take care.

Scott Kirby — Chief Executive Officer

Brandon, next question please. Brandon, can we have the next question, please?

Operator

Mike Linenberg. Please go ahead.

Michael Linenberg — Deutsche Bank — Analyst

Yeah. Hey, good morning, everyone. Good — good results. Good outlook. Gerry, congratulations. So you get my single question here and it has to just do with jet fuel prices in the New York market. I’m curious. I mean, I realize that the Colonial pipeline — I think — I guess it terminates about a mile south of New York but we’ve heard that the flows have been light lately. How are you addressing that the fuel issue in the New York market? And maybe you are getting fuel again from the Colonial or maybe you’re tankering in. What are you doing to address it and maybe give us a sense what percent of your consumption today maybe is New York Harbour? Appreciate it, thanks.

Gerald Laderman — Executive Vice President and Chief Financial Officer

Sure, Mike. First, let me point out that the dislocation in that market has moderated. The difference in the crack spread two weeks ago was measured in dollars. Now it can be measured in cents at least. It is still elevated if you compare New York to Gulf Coast, let’s say. And so we — yeah, we do have a number of options. One is the pipeline. We also can resort as needed to tankering and so, yeah, we’re comfortable with our exposure. And with the problem sort of going away, that is helpful.

Michael Linenberg — Deutsche Bank — Analyst

Great. And then just a quick one here. Just Andrew, when we look at cargo revenue over $600 million. I mean, it’s been fantastic, the run over the past couple of years. But presumably, that’s not just the growth rate not being sustainable but maybe the absolute level, because I do believe you were still flying some airplanes cargo only. Does that level off? Do we see that sort of max out at some level as you move airplanes back into passenger service? Just your thoughts on that. Thank you.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Yeah. I think there is a little bit less room in the belly is when there’s a lot of luggage on board, so there is an offset. And some of the airplanes go to places they don’t have strong cargo demand but have strong passenger demand. However, that’s offset by the fact that there is 52 777s which are gigantic cargo machines that are not flying. So those 52 aircraft are going to add — as Scott said over the next 9 months re-enter service providing a lot more overall belly capacity. So that’s my view on that. Should we expect yields which are at record highs for cargo to start to moderate a bit? Absolutely. And we have that in our outlook and still feel really good about where we’re going because of the belly capacity of the 777 coming back online from a total revenue perspective.

Michael Linenberg — Deutsche Bank — Analyst

Very good. Thanks for that. Thanks, everyone.

Operator

From Morgan Stanley, we have Ravi Shanker. Please go ahead.

Ravi Shanker — Morgan Stanley — Analyst

Thanks. Morning, everyone. Scott, you said in your prepared remarks, also in the media yesterday that this is an unprecedented revenue environment in your career. With your commentary on the pilot shortage, it seems like a pretty unprecedented capacity constraint as well so that puts the industry in a pretty sweet spot. Usually, when demand outstrips supply that results in a pretty strong pricing environment as you’re seeing right now, but do you think the industry is also at the cusp of a multi-quarter long-term RASM or TRASM upside dynamic? A, it’s going to — how long do you think that lasts and B, do you think there is a point of demand destruction here where consumers at some point may not be able to take it?

Scott Kirby — Chief Executive Officer

Well, I’ll start with demand destruction. I don’t think we’re anywhere close to that and I’ll first give you a micro and then a macro view. We’re just getting back on a real dollar basis to where we were before the pandemic. Air travel remains a great value, a great bargain. I bet many of you, when you go on vacation pay more for one night at your hotel or pay more for your rental car or some cases pay more for your Uber or taxi to get to the airport than you do for your air fare. Air travel remains a great bargain and I don’t think we’re anywhere close to the demand destruction point of the curve.

Another macro way to think about this is we’re just now getting back to 2019 levels of revenue. But nominal GDP has grown by 16% as 2019. And normally we track nominal GDP. And so, from a macro level, I kind of look at it and think there’s another 16% — arguably there’s another 16% to go and we got results that are stronger they are today. We got that — and if you look at it at a micro level, business demand is not back yet, international’s coming back. All that makes sense. I don’t know if it’s exactly 16% but you would think that there is a pretty good way to go on the revenue recovery yet. So yes, I think TRASM is — I guess, just the first inning of the revenue, first real inning of the revenue in TRASM turnaround.

Ravi Shanker — Morgan Stanley — Analyst

Got it. And as a follow-up. I know it’s only been a few days but have you seen any pickup in domestic travel interest post the dropping of the mask mandates?

Scott Kirby — Chief Executive Officer

I don’t think we’ve — no is the short answer. It is not certain — certainly not something we would be able to discern in data.

Ravi Shanker — Morgan Stanley — Analyst

Great, thank you.

Operator

From Cowen and Company, we have Helane Becker. Please go ahead.

Helane Becker — Cowen and Company — Analyst

Thanks very much, operator. Hi, everybody. Thanks for the time. So Scott, as you think about the improvement in traffic that you’re seeing, are you also seeing an increase or maybe, Andrew, in loyalty card — loyalty sign ups in credit card acquisition?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Helane, we’re seeing an increase in everything. So in the MileagePlus front, we’re doing record card acquisitions, record card spend, and our retention rate for the card is better than it’s ever been. So it’s just — we’re firing on all cylinders at this point and MileagePlus is doing a great job of contributing to these results.

Helane Becker — Cowen and Company — Analyst

That’s very helpful. Thank you. And then, for Gerry. On the percentage of floating rate debt seems, I don’t know, relatively high. So are you concerned about higher interest rates causing an increase in interest expense from that or is that the first step that you’re thinking about paying down?

Gerald Laderman — Executive Vice President and Chief Financial Officer

My first — I don’t view actually our floating rate exposure as all that high, relatively speaking. The vast majority of our debt is fixed rate aircraft-related debt. So that’s really not something we’re particularly concerned about. And floating rate, the LIBOR is still at a relatively low level, so the floating rate debt is still perfectly attractive. Of course, the good part of floating rate debt is it’s generally pre-payable without premium. So it is there to prepay generally, not all of it right now, but a lot of it is. So that’s not — the current debt is not a concern. Obviously, as we move ahead into a higher interest rate environment, that may — that will be factored in as to kind of how we manage the balance sheet.

Helane Becker — Cowen and Company — Analyst

That’s very helpful. Thank you.

Operator

From Goldman Sachs, we have Catherine O’Brien. Please go ahead.

Catherine O’Brien — Goldman Sachs — Analyst

Hey, good morning, everyone. Thanks so much for the time. So this kind of touches on what you were answering to Ravi’s question, Scott. But a conversation I was having a lot last year is when do we lap pent-up travel? It sounds like from your comments that both domestic and some international markets and transtlantic and LatAm are running well ahead of 2019 at the same time for this summer. I guess, do you see that slowing at any point? And I guess if you do, how should we think about long-haul international and corporate pent-up travel backfilling that? Or is this just the wrong conversation to be having and we should be talking about something structural has happened to where we think demand for air travel is? Would love your thoughts. Thanks.

Scott Kirby — Chief Executive Officer

I’ll give you my opinion, it’s just opinion and others can have different opinions. But I think you almost answered the question. The answer to the question is I think there has been a structural change. And I’ll go back one step. No one knows for sure. No one has gotten the pandemic more right than United Airlines from the very beginning. I mean two years ago at this time, we weren’t just a minority when we said business travel will come back in its entirety. We were a minority of one. Nobody thought that. And now we’re going to do it this quarter. And what I think is through — I’ve certainly personally experienced and I’ve talked to enough people is that once people get back traveling, you realize how much you’ve missed it and took it for granted before.

It’s not pen- up demand. It’s a new higher level of travel. I am going to, I am certain or confident at least for the rest of my life travel more both on personal, for family and vacations and things and on business. And I think there are a lot of people like that. Losing it for two years or for a year or for however long people lost it, we are social creatures. We need to be with each other. We are more productive when we’re together at a conference or when we’re at dinner with a customer or a client than when we’re doing a simple transaction on Zoom and the kids are talking in the background and you’re reading your iPhone. It’s just not the same. And once you get back traveling, people realize it’s even more important and we got a lot of people. We see it in our corporate accounts.

They’re kind of flat lined doing nothing, then they start traveling and they zoom to past where they were. Look, I think that’s what’s going to happen. You don’t have to believe that to buy United Airlines stock or airline stocks because we’re still 16% behind the trend line of where we were on GDP. I happen to believe that we are going to surpass on a permanent sustainable basis where we were before. But that’s just one guy’s opinion.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, great. Maybe one for Gerry. I realize how difficult it is at the time the decisions of the FAA on the 777 and the 78. But I guess just based on your latest conversations, do you have any broad strokes on upper and lower limits of where we should be thinking about capacity for this year? And then maybe what that means for unit costs? Thanks so much for all the time.

Gerald Laderman — Executive Vice President and Chief Financial Officer

Yeah. As we said, the capacity for this year is going to be driven largely by the timing of the 777, so it will obviously improve over the course of the year. It’s tough to put a precise number to it, as I said. What we do know though is that the 777s in particular, as well as the large narrow bodies are all going to greatly benefit CASM, which is why we’re comfortable that we will get to where we want to be by the end of the year on CASM.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, thank you.

Operator

From Barclays, we have Brandon Oglenski. Please go ahead.

Brandon Oglenski — Barclays — Analyst

Hey, good morning, everyone, and congrats on the strong outlook here being back to normal. Andrew, I just wanted to follow-up. I think you guys explained it but 100% RASM on business travel such as means adjusted for your capacity relative to where you were, is that correct?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

That’s correct. Capacity is down a little bit, yields are up, for that component of traffic 10% and volume is down about 20% right now. So it all mathematically getting us close to 100%.

Brandon Oglenski — Barclays — Analyst

And I guess what is the outlook on recovery on international business travel demand? Is that ramping up this summer as well or do you really need to see the testing requirement removed?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Well, it is ramping up. So what I can tell you is in the current quarter, the business cabins are filling more with premium leisure business than traditional corporate business, but corporate business bookings across the Atlantic have largely returned to normal. So as we get into the summer, we do expect critically going across the Atlantic really decent business traffic relative to 2019 with revenue again at 100% or greater. The same is true in Latin America. It is a smaller business component than Europe. The same is not true for Asia, where we really haven’t seen a meaningful recovery in business traffic at this point to the bulk of our Asian network.

Brandon Oglenski — Barclays — Analyst

All right, thank you.

Operator

From SFG, we have Chris Stathoulopoulos. Please go ahead. Thank you. From SFG, we have Chris Stathoulopoulos. Please go ahead.

Christopher Stathoulopoulos — SFG — Analyst

Good morning, thanks for taking my questions. So, Scott, couldn’t agree with you more on the why need for travel. On the look forward for business, how much of that is small to mid-size versus corporates? And then, what are you seeing on your survey work or other data that you look at with respect to the mix of large corporate buyers from health care, finance, tech, consulting and the like? Any changes in the mix frequency and/or seasonality there? Thank you.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I’ll start. The booking curve has changed. It’s looking closer in than it did in 2019 as the first part. All the sectors are returning, some faster than others. Media, transportation, industrial seem to be moving quicker than technology. All that being said, I just want to point out San Francisco, which is a really important market to us. San Francisco, the top 16 metros in the United States with a lag and it was on the number 16 in terms of recovery a month ago. It’s now on number eight. And so there’s been a rapid bounce back in San Francisco. So I mean, I think we get the updated data, I think we’re going to see technology is back to the line. It’s the only way I can explain what I’ve seen in the macro numbers for that. So I think we’re really kind of bullish on that in the numbers or support in that case. Does that answer the question or are you have a follow-up?

Christopher Stathoulopoulos — SFG — Analyst

Yeah. The follow-up is separate. Thank you for that color. So the comments about industry capacity estimates out there have been wildly off and what feels like a Renaissance, if you will, for unit revenues. Assuming we can get oil and hold it below $100 and your deliveries take place as expected and we move deeper into this new stage of the recovery, is there an opportunity or what’s holding you back from getting to those margin targets faster? Thank you.

Scott Kirby — Chief Executive Officer

I think we will get there faster.

Christopher Stathoulopoulos — SFG — Analyst

Okay. Thank you.

Scott Kirby — Chief Executive Officer

Fast as 2023.

Operator

Thank you. And we will now take questions from the media. [Operator Instructions] From Wall Street Journal, we have Alison Sider. Please go ahead.

Alison Sider — — Analyst

I was wondering if you could talk a little bit about some of the smaller communities where your regional services had to pull back. Now, what do you think the future is for some of those markets? Do you think they’ll ever have air service by a network carrier again? Are they just going to have to figure something out? How do you see that developing?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

We’ve spent a lot of time talking to small communities and it’s been really frustrating that many of these communities have left the United network. That doesn’t mean they’ve lost all of their service in particular. That’s important though. But I do think it’s going to be a number of years before this can possibly change. And in the meantime, the smaller communities can expect additional level of service on much smaller aircraft is my expectation based on what I’ve been seeing in the industry today. Even that’s going to take time to spool up. So this is — it is as frustrating for United as it is for those small communities. But this is where we are and we’re doing our best to maintain service to as many of them as we possibly can. But it’s just that it’s — we really are stretched. We’re flying dramatically fewer regional jets today than we were in 2019. And we don’t expect that to improve at all in the next few years.

Alison Sider — — Analyst

And just a separate question, are you seeing any signs of increased COVID-related absences among your employees? And is that something you’re sort of doing any contingency planning for as the case numbers start to rise in parts of the country?

Scott Kirby — Chief Executive Officer

We are not seeing that and in fact was — got really good news yesterday for the first time in a long time. We have zero employees hospitalized for any complication from COVID, which is great. Something we track closely, what’s happening and zero. So quite the opposite is what we’re seeing.

Alison Sider — — Analyst

All right. Thanks.

Operator

And from Bloomberg, we have Justin Bachman. Please go ahead.

Justin Bachman — — Analyst

Hi, good morning, thanks for the time. I wanted to ask about some of the mechanics around your 777 return. What kind of work is still remaining to be done? What you’re waiting on the FAA? And then, what you’re doing for Boeing as far as the MAX certification, the MAX 10 certification and where that goes that gives you confidence that those will start up in 2023? Thanks.

Gregory Hart — Executive Vice President

Hey, thanks for the question. This is Greg Hart. There’s really two bodies of work underway on the 777. The first is we’ve worked with Boeing and the FAA to be able to start the modification work on those aircraft. We’ve got a number of aircraft complete and that work continues. Also, there is the regulatory process that Boeing is working to end, Pratt-Whitney are working through with the FAA. We are in the final legs of that and we appreciate Boeing’s, Pratt’s and the FAA’s publicity on the issue, and obviously expect the FAA at some point in the not too distant future to allow those aircraft to return safely to the air. Gerry, you want to take the MAX 10 certification?

Gerald Laderman — Executive Vice President and Chief Financial Officer

Sure. Yeah. As you can expect, we are in regular communication with Boeing. They’ve been very good about keeping us informed on the timelines for the certification for the MAX 10, which is why I said earlier I am confident that the MAX 10 will get certified and we’ll fly it next year.

Justin Bachman — — Analyst

Great, thank you. On another topic on the masks and the change in that policy this week. What are — you’ve talked about passengers being able to return who are on a list for not complying with your policy. What are some of the issues that you’re sorting through on who can return to United flights and who will not be allowed in the future related to that issue? Thank you.

Brett J. Hart — President

Yeah. This is Brett Hart. As you can imagine those who have been banned during this time period, it’s for a range of behavior. Some are relatively straightforward. It’s just a refusal to wear the mask. I mean, those conversations, we were able to handle in a reasonable manner. But there are those whose behavior was beyond just a general refusal to wear the mask. And so we will evaluate that behavior and if that behavior presented a risk to our team members and to other customers, then those are individuals who, it is less likely that we will welcome back to our airline. But as you can imagine, we’re going to take a very thoughtful approach to evaluating this and we’ll be getting in touch with individuals who have been banned as time passes.

Justin Bachman — — Analyst

Great. Thank you.

Operator

From CNN, we have Chris Isidore. Please go ahead.

Chris Isidore — — Analyst

Given that the domestic yields are about where they were first quarter of 2019 and that business fare — business travel is not yet back up to normal level, do you have any sense as to how the leisure travel yields are compared to that first quarter of 2019? Are they up X%? Can you give any guidance on that?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

They are definitely up. I’m sure all of our customers realized when they passed by a gas station out there that the price of fuel is dramatically higher and therefore, our largest, really our second largest cost component is dramatically higher at United. The leisure yields along with business yields are running ahead. Business yields, I already pointed out, were 10% ahead of 2019 at this point as we look into the second quarter and leisure yields are above that at this point as we look into the second quarter.

Chris Isidore — — Analyst

Above 10% but you’re not giving a number yet?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

No.

Operator

From TPG, we have David Slotnick. Please go ahead.

David Slotnick — — Analyst

Hi, good morning. Thanks for the question. I was wondering if you’re doing any contingency planning or have any plans in place just to deal with capacity issues at Newark this summer? I know that you have been sort of warning about problems with that again and just given the demand as well. Wanted to know how you’re planning to cope with all that.

Scott Kirby — Chief Executive Officer

Sure. I’ll try to stay calm while I do this Newark answer. I mean, it’s — frankly it’s outrageous what’s being allowed to happen at Newark. It is — the airport has the theoretical capacity to fly 79 operations per hour. That’s what the FAA says. That’s in perfect conditions which are rare at Newark. It is — it was the most delayed airport in the country in 2016, again in 2017, again in 2018, again in 2019. And the FAA has rules that limit the airport to 79 operations per hour and they are letting airlines violate those rules. And they’re just — I don’t know. It’s unheard of behavior for me for the FAA to just let people break or evenly break the rules. The two biggest offenders are Spirit Airlines and JetBlue. Spirit Airlines and JetBlue are paying the biggest price, their customers. I mean, it’s a disaster for their customers because they’re flying more flights than the airport can handle. They’ve canceled over 20% of their flights. One in five flights canceled. Canceled, not delayed. Canceled at Newark so far this month. I mean, it’s awful for their employees, it’s awful for their customers. Unfortunately, our employees and our customers are collateral damage to that. It is time for the FAA to enforce their own rules. It’s bad for consumers, it’s terrible for consumers what is being allowed to happen at Newark. It’s simply time for the FAA to enforce the rules.

David Slotnick — — Analyst

But I mean aside from communicating what’s going on with customers, is there any way that you can help customers mitigate this whether it is rerouting or recalling capacity or something like that?

Scott Kirby — Chief Executive Officer

Well, customers should book on United because our– as bad as it is — while it’s tough for us, our results are a whole lot better and our team is doing a great job at taking care of customers. If you are going to fly out of Newark, I’d certainly encourage you to book on United.

Chris Isidore — — Analyst

Okay. Thanks, Scott.

Operator

Thank you. We will now turn it back to Emily Zanetis for closing remarks.

Emily Zanetis — Manager, Investor Relations

Thanks 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.

Operator

[Operator Closing Remarks]