United Airlines Holdings Inc. (UAL) Q4 2022 Earnings Call Transcript

United Airlines Holdings Inc. (NASDAQ: UAL) Q4 2022 earnings call dated Jan. 18, 2023

Presentation:

Operator

Good morning, and welcome to United Airlines Holdings’ Earnings Conference Call for the Fourth Quarter and Full Year 2022. My name is Candice, and I will 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, Kristina Munoz, Director of Investor Relations. Please go ahead.

Kristina Munoz — Director, Investor Relations

Thank you, Candice. Good morning, everyone, and welcome to United’s fourth quarter and full year 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 the 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.

Unless otherwise noted, we will be discussing our financial metrics on a non-GAAP basis on this call. Please refer to the related definitions and reconciliations in our press release. 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; Executive Vice President and Chief Operations Officer, Toby Enqvist; 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 to assist with Q&A.

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

Scott Kirby — Chief Executive Officer

If you’re able to hear us? Okay. That was the question about whether you can hear us. Hopefully, everyone can. Well, thanks, Kristina, and good morning everyone. Before we do our normal 4Q [Technical Issues], I’ll walk you through a short deck that explains the intellectual rationale on what we’re doing [Technical Issues], and where we think the industry is headed over a longer-term run. In short, we think there is ample evidence that there really have been structural changes in the airline industry that set the entire industry up for higher margins than we had pre-pandemic.

First, while the specific to the demand environment will be different, we expect it to return to at least [Technical Issues], it could go higher. Second, we believe cost divergence among all airlines as well as supply challenges may drive structurally higher industry margins. And finally, United has been pretty accurate about the macro outlooks, impact of COVID and what the recovery would look like going all the way back to February 29, 2020. And based on that, United really did take a different and unique approach to the recovery. At the onset of the pandemic, we acted first and we acted more aggressively than anyone else to protect our airline and the jobs of the people who work at United.

At the time, in fact, some said that we were overreacting and that the pandemic wouldn’t be so bad. But by confronting that reality and acting quickly, our leadership team was able to be the first airline to move forward turning crisis into opportunity and began making plans for big investments in United’s future, while others frankly were still in crisis response mode. It’s clear we had a head-start in planning for the recovery, and you’re already seeing it in both our absolute results as we’ve achieved our 9% adjusted pre-tax margin ahead of schedule, and in our relative margin results compared to the rest of the industry.

On this next Slide, you can see what industry revenue has looked like as a percentage of GDP over time. A few interesting points. The industry still has about 15% domestic revenue growth left to go just to get back to 2019 levels here in 2023. Our base case 9% and 14% margin target assume that we just get back to the 0.49% ratio. In the 1990s and 2000s, however, revenue to GDP was even higher. As you’ll see in the next few slides, we think that cost convergence may drive revenues higher than 0.49%. And for what it’s worth, every single basis point of domestic increase translates into about 1 point of margin for United.

On Slides 5 and 6, I’ll address what I think is the most significant structural change to happen to the industry in a long time for a host of reasons. We believe the industry capacity aspirations for 2023 and beyond are simply unachievable. Just like 2022 when the industry capacity was 7 points lower than initial guidance and we believe the same thing will happen this year for the same reasons, we’ve talked a lot about the pilot shortage, which is just one of multiple constraints. We, along with Delta, American and Southwest alone are planning to hire about 8,000 pilots this year compared to historical supply in the 6,000 to 7,000 range. Pilots are and will remain a significant constraint on capacity.

Post-COVID, all companies, including airlines and the FAA, need to staff at higher levels, lower experienced levels combined with sick rates that are elevated because of COVID and new state legislation that makes it a lot easier to call in sick. We believe any airline that tries to run at the same staffing levels that it had pre-pandemic is bound to fail and likely to tip over to meltdown anytime there are weather or air traffic control stresses in the system. OEMs are behind on aircraft, on engines, on parts. Across the board, there are supply chain constraints that limits the ability of airlines to grow.

Finally, the FAA and most airlines, with the exception of the network carriers, have outgrown their technology infrastructure and simply cannot operate reliably in this more challenging environment. Taking all the above into the consideration, we think, at United, we need to carry at least 5% more pilots per block hour than pre-pandemic. In addition to that, air traffic control challenges mean our taxi and enroute flight times are elevated and growing, so the same number of block hours probably produces 4% to 5% fewer ASMs.

Put it together, we need 10% more pilots and 5% more aircraft to produce the same number of pre-pandemic ASMs. Like it or not, that’s just the new reality and the new math for all airlines. I think, however, we may be the only airline that’s actually figured this out and likely the only airline that has included this in our 2023 CASM-ex guidance already. And to be clear, all of these issues also impact United. The reality is that the airline industry is probably the most complex operational [Technical Issues] industry with by far the highest safety and regulatory standard of any industry in the country.

And COVID hit our industry harder than others, all of us, airlines and the FAA, whilst experienced employed and most didn’t invest in the future. That means the system simply can’t handle the volume today, much less the anticipated growth. At United, we also missed our capacity target for 2022. We had our own challenges over a year ago during Christmas of ’21. Omicron hit us all hard, but it also shone a spotlight on other strains in the system. We responded by proactively pulling down capacity. It was the only choice. You can’t change the engines on an airplane when it’s flying.

We flew a lot less last year than we’d have liked to fly, but we did it intentionally, because it gave us the breathing room to make even further investments in our technology and infrastructure and to increase our staffing levels. And we had a huge start — head-start compared to most airlines because we started with much better technology and infrastructure.

But also importantly, we got to acceptance quickly and didn’t spend much time in denial about the structural changes. We accepted that the structural changes were real and moved quickly to what to do about it. On that point, I also fully recognize that most, or perhaps all of our competitors, will get on their calls next week, and tell you one-time event, no big deal, no change to our capacity plans. If so, I think they’re just wrong. It’s intellectually hard and it takes time to get through the denial phase.

What happened over the holidays wasn’t a one-time event caused by the weather, and it wasn’t just at one airline. One airline got the bulk of the media coverage, but the weather was the straw that broke the camel’s back for several. This keeps happening over and over again, and you can see that despite good weather, ULCC still hadn’t recovered even as we entered the New Year. The operational difficulties are just the latest among numerous data points, proving the systemic challenges that are going to limit the growth in flights.

As you can see on the data on Slide 6, United’s hub locations mean that we’ve pretty much always have the worst weather. In spite of this, we were able to lead the industry because we’re doing a lot of things differently than we did historically. We made significant additional investments in technology and infrastructure. We’re running with 5% to 10% staffing buffers. That means we need more pilots, gate agents, flight attendants, rampers, etc., to fly the same schedule. We’re running with about 25% more spare aircraft than we did pre-pandemic, and we’re flying lower aircraft utilization. All of those obviously costs money, but it’s clearly the right thing to do for our customers and the most — among the most important things we can do to win their loyalty. And it’s turning out these buffers are much less expensive than the cost of avoiding the otherwise inevitable operational meltdowns.

In their forward guidance, other airlines are likely to talk about returning to 2019 utilization, efficiency, etc., but we believe they’re just wrong. Our industry has been changed profoundly by the pandemic and you can’t run your airline like it’s 2019 or you will fail, but don’t take my word for it, watch the data. United will always have the toughest operating environment. Any airline that’s operating meaningfully worse than United is out over their skies and they’ve simply outgrown their technology, infrastructure and resources.

Slide 7 transitions to the unique setup on the international front. This is one of the most stark examples of what United did differently than our competitors. Over the pandemic, we bet international would return strong post-pandemic. And because we were the only airline around the world with that view of the recovery, we were also the only airline to make two important strategic decisions. We didn’t retire widebody aircraft and we were the only airline in the world that negotiated a deal with our pilot union to keep pilots in place and in position. That allowed us to quickly bounce back. The decisions that our competitors around the globe made to retire aircraft and downgrade pilots take years to reverse. And because of that, they simply can’t grow and you already see that in this summer’s capacity data.

On Slide 8, I’ve already hit on the theme, so I’ll try not to belabor it here, but United had a conscious strategy to use the pandemic to invest in the future. Our large aircraft orders were just the latest example of this. New planes are big ticket items that get lots of attention, but other investments we’ve made in technology, infrastructure and people haven’t drawn big headlines, even though they too are essential to our success. The point here is that we really were unique. It wasn’t just one thing and it wasn’t just aircraft. It started with the fact that we always believed in a full recovery and, as a result, we invested and invested early.

On Slide 9, everything about this deck hopefully gives investors some comfort on why we have confidence in our margin targets. But I think there’s potential for margins to go even higher, making Slide 9 the money slide for this entire deck for me at least. You can have whatever view you want about capacity, but what really matters is cost convergence. It’s already happening, and I’m pretty sure it’s going to continue. I believe a world where ULCCs pay their pilots significantly less than us, yet they could still hire and retain pilots and they can somehow operate with previous staffing utilization levels, is just the [Indecipherable], it’s not a realistic scenario. And with cost convergence, by our betting man and actually I am, I bet that the revenue to GDP ratio is going back to the mid-5%s. We’ll see, and again, we expect to hit our margin targets even at the 0.49% level. But if it is true, I believe industry margins will go even higher. That’s not our official guidance to be clear, but it’s certainly possible.

And so, to conclude, I think the pandemic led to a structural change in the industry. The supply-demand dynamics are different than they’ve ever been in my career. I realize there is a lot of investor skepticism on that, but every data point keeps demonstrating it over and over again. And because United saw this ahead of everyone else, we were able to invest and prepare to take advantage of it.

To be clear, I think margins across the board are going to be higher in the airline industry. But because of the unique steps we just took to prepare for exactly this kind of recovery, you also already seeing United’s relative performance is strong, and I expect that lead to just expand. A huge thanks to the entire United team. You’re really doing an amazing job, and you are making United the biggest and the best airline in the history of aviation.

And with that, I’ll hand it off to Toby to explain some of these critical investments why they were important to the success of our operation through the most difficult holiday operating environment in my career. Toby?

Torbjorn J. Enqvist — Executive Vice President and Chief Operations Officer

Thanks, Scott, and hello to everyone tuning in today. I first want to thank our employees for their exceptional performance over the holidays. We faced a really challenging operating environment that included some of the busiest days of the year and historical cold weather across most of our hubs and line stations. You would know it from the holiday travel headlines, United was actually the most impacted airline from a weather perspective. 36% of all our flights were exposed to [Technical Issues] 26, more than any other airline in the country.

And even though our load factors was already high, we accommodated thousands of additional customers on short notice when their travel in other airlines was disrupted. Despite these headwinds over the holidays, our team connected 90% of our customers within four hours of their planned arrival and served more than 8 million people, 1 million more than we did last year, and our operations performed very well, especially considering these tough conditions. United was among the airlines with the fewest cancellations during the holidays and we were number one in completion in Denver, San Francisco, Houston and Washington Dulles, and we practically eliminated all crew-related challenges and cancellations compared to the 2021 holiday period.

So how did we do that? The answer lies in all the planning and investment we made during the depths of the pandemic. Instead of just trying to run the airline like we did in 2019, we worked over the last three years to prepare for a different more complex operating environment and a sudden surge in travel demand. To prepare specifically for the 2022 holiday period, we purposely built some slack in the schedule and reduced how often we fly during peak times. We accelerated our hiring and added staffing buffers in key locations. We’ve built firewalls to prevent an individual [Phonetic] weather events from spilling over into broader network. And finally, we beefed up our training in every department, including clearing out the pilot training backlog to be resource-ready for the peak travel demand season.

Again, as Scott said, our work to prepare goes back even further. Over the last three years, United invested in systems, training, tools and technology that would empower our employees and benefit our customers, including a modernized crew scheduling system with 800% improvement in performance, capacity and security versus 2019, a smarter schedule and operations coordination to build reliable and operable schedules, additional spare aircrafts in our fleet, upgraded technology infrastructure supporting our network, operations — airport operations and [Technical Issues]. Together with our industry-leading customer-facing technologies like ConnectionSaver and Agent on Demand, both of which now are integrated in our mobile app. Some of these investments are obviously more markable than others, but they all make a difference in our performance.

Finally, I want to point out the biggest difference maker for United this holiday season, our frontline teams. They worked as one team. They volunteered to pick-up extra trips and work over time and, again, braved record-setting cold temperature. It was the combination of their dedication and the proactive investment in technology and infrastructure that led to our success.

And with that, I hand it over to Andrew to talk about the numbers.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Thanks, Toby. TRASM for the fourth quarter finished up 25.8% and PRASM up 24.6% versus the same period in 2019, on 9.5% less capacity. This was similar in performance to United’s third quarter results and above the high-end of our TRASM guidance for the quarter.

TRASM growth or non-passenger revenue continue to outpace PRASM in Q4, although that will reverse in 2023. The reversal is due to cargo revenue decline in year-over-year to new post-pandemic run rate that remained well above 2019 and co-branded credit card revenue growing slower relative to our rate of ASM growth for the year. PRASM in Q4 was strong across all parts of the network versus ’19, with domestic results up 23%, Latin up 30%, Europe up 11% and Pacific up 42%. International capacity in the quarter was down 12% and domestic was down 8%.

Looking back at our revenue performance for all of 2022, our overall TRASM performance comparing to ’19 was up 19.5%, about 6 points better than our expectation for the rest of the industry on average at this point, and 3 points better than our network competitors during the same time period. To meet our overall 2023 outlook, we’re expecting flattish TRASM for the year versus 2022. The impact from cargo and other revenues on TRASM in ’23 is a negative 2 to 3 points year-over-year, employing PRASM up about 2 to 3 points in our outlook. As we think about the revenue outlook for 2023, we are bullish about global long-haul. We expect industry capacity across both the Atlantic and Pacific, where United is the largest carrier, to be flattish versus 2019, which provides for an easy setup and positive RASM year-over-year.

International demand remains incredibly strong, and we’re looking at the potential for record profits and margins across our global network. Asia has traditionally been a margin drag on our global flying, but we’ve worked diligently to rebuild the network and close this gap. And we think 2023 will validate that we accomplish that goal. Asia is also close to being fully opened, allowing United to reestablish the bulk of its Pacific flying outside of China. It’s worth noting that restrictions on the use of Russian airspace will constrain United from flying bulk of our China network in 2023. This same restriction will also limit our ability to fly to India.

While I would not normally provide revenue details about the months within a quarter, I think it’s important to share what we’re seeing in Q1. Our unit revenue outlook for February and March is largely consistent with the levels we’ve seen in the past three quarters at roughly 25% higher than ’19. We believe January is a negative outlier in Q1 with unit revenues compared to 2019 softer than the months after. We think this is primarily due to holiday time and with less demand for incremental weekend trips enabled by hybrid work schedules so soon after the year end holidays. But we expect the second half of February and March to be back on trend with booked revenue already 30% to 40% above the same period in 2019, and I think this validates our excitement for 2023. Overall, we expect our Q1 TRASM to be up approximately 25% year-over-year.

Another positive catalyst for 2022 revenues is the continued but slow recovery of traditional large corporate business travel. While November and December were low relative to October, it’s great to see that January is materially better by about 5 points versus the average for Q4 [Phonetic]. January represents the start of a new budget year for most, so it’s a great way to start the year. And we’ve heard often that budgets in 2022 were exhausted early as to why November and December travel were a bit disappointing for large corporate travel.

I talked about the great set-up we’ve seen in global long-haul earlier, we also see a nice setup for our domestic operations as constraints across the industry are everywhere for even the favorable supply-demand environment. United is also now quickly executing on the United Next plans focused on engage, premium seating, revenue segmentation, signature interiors and, most importantly, restore and build the connectivity which suffered during the pandemic. We’re opening 17 new mainline gates in Newark and 20 in Denver in 2023, which will enhance our customer experience and improve reliability. In Denver, the new gates will allow us to grow our most profitable hub and, in Newark, the new gates will allow us to transition more flights to mainline from express, consistent with our United Next plans.

In addition to gates, we opened more United Club space. In Newark, we have 69% more club space, and in Denver we’ll be up 180% versus 2019. We also have expanded club space in Chicago by 40% with a new club that opened last week, and in Dulles by 43%. Most of these club projects will soon be online and were planned during or prior to the pandemic. Importantly, there are more projects on the way in the years to come.

Looking beyond 2023, we continue to implement our United Next plans. We’ve adjusted our upward, our long-term gauge plan so that by 2026, our North American gauge will be up 25% versus 2022, and 40% versus 2019. United continues to be undersized in gauge as we await delivery of our large narrow-body planes that are largely absent from our current schedule, creating a margin gap versus our potential and versus others that have a significant fleet size in this category.

Activity suffered in 2022 due to a reduction in RJ flying capabilities and delays from Boeing. Pilot staffing at our regional operators has stabilized since pay changes went into effect, essentially matching one of our competitors, combined with our Aviate program to provide a four-year transition plan for pilots from an Express job to a United mainline career. Regional jet utilization is showing signs of improvement, but we still have a long way to go and it will be until about 2025 or beyond to get to normal. We have also signed new agreements with Mesa to expand our large RJ flying in 2023 and associated small community service, while our relationship with Air Wisconsin comes through a natural end. With this change, the number of regional partnerships has reduced from six to five and will eliminate approximately 40 single class 50 seat RJs that were not part of our long-term plans and Exchange Brad and dual-class 70 seat RJ. A clear win for United small communities and our customers. We build the connectivity will be a key focus in 2023 and 2024, and will be significantly additive to RASMs as it was in 2018 and ’19 given us confidence as we do it would optimal gauge this time around. Thanks to the entire United team.

And with that, I’ll turn it over to Gerry to discuss our financial results.

Gerald Laderman — Executive Vice President and Chief Financial Officer

Thanks, Andrew, and thank you to the whole United team for closing out the year strong. With adjusted pretax income of $1.1 billion, we came in ahead of our fourth quarter expectations and not only returned to pre-pandemic levels of profitability, but actually exceeded the fourth quarter of 2019 on both an operating and pre-tax margin basis. Even more encouraging, in the second half of 2022 we achieved an adjusted pretax margin of 9%, which matches our margin target for 2023 and puts us well on our way for that same success this year.

Turning to costs, our CASM-ex performance in the second-half of 2022 meaningfully improved versus the start of the year. As I mentioned last quarter, a big driver of this success is the return of the grounded 777s to flying and further improvement in our operational reliability. As we know, a well-run operation is a more cost-efficient operation. Looking ahead, we expect first quarter 2023 CASM-ex to be down between 3% and 4% with capacity up 20% versus the first quarter of 2022. On a full-year basis, we expect 2023 CASM-ex to be about flat with capacity up high-teens versus 2022.

This full-year cost outlook is inclusive of investments in the system that support operational reliability, our current expectations for new labor increases, representing about 4.5 points of CASM-ex excluding any possible signing bonuses, and higher inflation outlook for all parts of the business. On the first point, one lesson learned during the pandemic recovery is that is both economical and profit maximizing to provide cushion to our aircraft utilization. Instead of pushing utilization to its theoretical limit, we are focused on protecting a reliable operation. This minimizes delays and cancellations which would otherwise drive higher costs such as overtime and customary accommodation cost.

Turning to our expectations on profitability. As Andrew mentioned, demand remains healthy as a result and using the January 10th forward curve for fuel prices, we expect our first quarter 2023 adjusted pre-tax margin to be around 3%, resulting in an adjusted diluted earnings per share between $0.50 and $1. Additionally, picking on the successful second half of 2022 and with industry dynamics Scott described at the start of the call, we feel even more confident about achieving our United Next 2023 adjusted pretax margin target of 9% and expected adjusted diluted earnings per share between $10 and $12 for the full-year.

On aircraft, we currently expect to take delivery of 92 Boeing 737 MAXs, two Boeing 787s, and four Airbus A321neo aircraft in 2023. Assuming all of these aircraft are delivered, we now expect full-year 2023 total adjusted capital expenditures to be around $8.5 billion. Even with this elevated level of capex based on the capacity, revenue and cost guidance we’ve outlined, we expect adjusted free cash flow to be positive for the full-year. Looking beyond 2023, last month we announced an aircraft order with Boeing that included 100 for 787 aircraft, which will address much of our widebody replacement needs through 2032. We also received options for up to a 100 additional 787s that can be used for growth if there are margin-accretive opportunities to do so. Additionally, the order included 100 incremental 737 aircraft to both meet planned United Next targets and start preparing for narrow-body replacements in 2027 and beyond.

Our aircraft order book is one of our key assets as it provides us with both cost saving replacement aircraft and the ability to take advantage of profit enhancing growth opportunity. The cost of a flexibility built into the order book, we can also adjust the delivery timeline as the macro economy dictates.

Moving to the balance sheet, we ended the year with liquidity of $18 billion and reduced our adjusted net debt by $3.3 billion versus year end 2021. We continue to balance liquidity levels with deleveraging activity and financing opportunities as we expect to end the year having met our 2023 target of adjusted net debt to EBITDA of less than 3 times. We’re entering 2023 with a strong foundation and I want to recognize all of the hard work that has gone into running this great airline. We look forward to deliver for our customers, employees and investors in 2023.

And with that I will turn it over to Kristina for the Q&A.

Kristina Munoz — Director, Investor Relations

Thank you, Gerry. We’ll now take questions from the analyst community. Please limit yourself to one question and if needed one follow-up question. Candice, please describe the procedure to ask the question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from Connor Cunningham from Melius Research.

Conor Cunningham — Melius Research — Analyst

Hey, everyone, thank you for the time. There has been some push back just on the 2023 jump to your guidance. I’m just trying to get comfortable with the link between costs and revenue. So RASM is the highest it’s basically ever been and even with the capacity constraints out there, industry capacity is now being added. So what gives you the confidence that you might pass along additional cost headwinds on the customers in the current environment?

Gerald Laderman — Executive Vice President and Chief Financial Officer

Hey, Conor, let me provide a little bit of color on that and maybe Andrew will as well. But first of all, we — when we provide our fuel guidance, we did this quarter, what we always do, which is we look at the forward curve about a week ahead of the release. So last week — those numbers as you know can change daily. In fact, if we had run it more recently, we would have put out fuel numbers essentially $0.10 to $0.15 higher. All things being equal, that would represent about a point of margin. But we are — we continue to remain confident that there is the correlation between revenue and fuel that we’ve seen historically.

For the first quarter, near-term, we don’t have quite the same ability that we would have during the full-year, but even for the first quarter, we still have February-March and fuel will change daily. And for the full-year, we’re still comfortable that there is this correlation. And in fact, had we put a higher fuel number and they probably would have been a different revenue number. But let me just give you an example that gives me some comfort, but keep in mind that for the back half of 2022 where we achieved a 9% margin, fuel was $3.68, so we do have a lot of cushion, and I don’t know if Andrew has any additional color.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

No, I think you covered it really well, Gerry. The — we absolutely still do believe and have seen constantly over time that fuel is a pass-through on both the up and the down. And the other thing I can tell you is, as we — as we look at our advance bookings, particularly starting in the mid February time period out well beyond that and into Q2, we’re in a really good strong supply-demand equation that’s allowing our RM systems to actively work to do what they do best. So I feel — feel really confident about the outlook.

Conor Cunningham — Melius Research — Analyst

Okay. And then just on the United Next plan. So when you guys talked about that originally it was all about leading on costs and I realize the environment has changed a lot since then, but as you start to look at a cost structure that includes labor and so on, is your expectation at this — like that united becomes a cost story again going forward — post-2023 world going forward? Thank you.

Torbjorn J. Enqvist — Executive Vice President and Chief Operations Officer

Well, Conor, there’s no question that’s been an industry reset on cost. And I think Scott did a nice job sort of describing that and the cost convergence ahead. For us, if you just look at our guidance we put out about six months ago for 2023, there has been movement, there’s no question. Probably about 9 points, 2 points of that is just the capacity difference between what we thought six months ago versus what we’re thinking today. Another 3 points in the labor numbers we put in, the rest is inflation and buffers.

But what’s important for the United Next plan is the relative cost story, which remains very intact. So, whether it’s the mainline gauge benefit we’re seeing, we will see from all the additional aircraft or less reliance on single-class 50-seat aircraft that have come out and will continue to come out of the operation, we’re very comfortable in the United Next cost story as it’s been adjusted for the industry cost impact.

Operator

Our next question is from Catie O’Brien from Goldman Sachs.

Catherine O’Brien — Goldman Sachs — Analyst

Good morning, everyone. Thanks so much for the time. Maybe just coming at the revenue question a little differently, maybe for Scott or whoever else wants to answer, how do you think about getting back to airline revenue as a percentage of GDP? I think that makes a lot of sense conceptually. But do you think the industry gets there on pricing if volume versus GDP is lower given the capacity constraints we talked about?

Scott Kirby — Chief Executive Officer

Well, I mean, if you go back and look at history, while load factors have gone up a little, I wouldn’t expect a lot of change in load factor. And if you went back a few years, pricing in real terms was higher and it remains a great value. I mean, air travel prices are probably 50% lower than they were about 30 years ago in real terms. And you can still frequently pay more for your Uber to the airport than you do for your airline ticket in Florida. And so, I think — but I think that what this means is, the era of $4 prices from Los Angeles to Cabo and $7 from New York to Florida or $9 from Houston to Central America are probably a thing of the past.

And cost convergence, it’s up to other airlines to decide how to price the product. But I’m pretty sure it’s not after them what’s happening to their cost structure. And as that is changing, we see it happening already. It is what happened last year, it’s what changed last year. We see that continuing, to Andrew’s earlier point too, I look at the data as well and follow and our revenue management team is doing a great job. But the yield curve for February is higher than January. The yield curve for March is higher than February, and the yield curve for the second quarter is higher than March. And by the way, bookings are ahead in all periods.

So, I think it’s a structural reset. I think it is the investor store for [Phonetic] aviation, I think it’s good for everyone. I think it’s particularly good for airlines like United that have the sophistication, the technology, the infrastructure to operate in this more challenging environment. But it’s good for everyone. And it’s just a structural reset that’s reversing what happened over the past couple of decades, at least a possibility of it. I think it’s likely, but we’ll see it at least a possibility.

Catherine O’Brien — Goldman Sachs — Analyst

Thanks so much for that color. I live in New York and definitely confirm on the Uber versus the airfare of late, so somewhere there. And obviously a lot has changed as you just talked about since the original United Next plan, particularly how the capacity bottlenecks you’ve been talking about have played out. How should we think about capacity growth over the next couple of years? Are you still targeting to be about 40% bigger in 2026 based on that 4% to 6% CAGR or help us reset the bar? Thanks so much.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I’ll try that. I don’t think we’re going to reset the bar here. Obviously, this is really dynamic. And the OEM delivery delays, both on engines and aircraft, have been really unprecedented. So we’re not going to reguide today to what 2026 looks like, other than we’re plotting our course in very bumpy skies when it comes to the availability of aircraft. And there is not a quarter that goes by where I don’t get an update with obviously disappointing results from what our outlook looks like for aircraft deliveries. So we’ll continue to monitor that. And at the appropriate point in time, we’ll update the guidance.

Scott Kirby — Chief Executive Officer

I think the important point is, we have real confidence in achieving our 14% margin under sort of all the plausible scenarios for aircraft deliveries.

Operator

Next, we have Jamie Baker from JPMorgan.

Jamie Baker — JPMorgan — Analyst

Hey. Good morning, everybody. Gerry, a question on the labor cost assumptions, the pilots in the 4.5-point headwind. Do you expect the pilot economics to be backdated to January 1 or are you using some other date? And also related to this, the EPS guide, do you also consider Delta’s profit-sharing formula to be market?

Gerald Laderman — Executive Vice President and Chief Financial Officer

Jamie, nice question, but neither one of those, we’re going to be able to talk about on the call. You’re asking for too much information regarding potential negotiations.

Jamie Baker — JPMorgan — Analyst

Okay. Second question for Scott then. On the topic of cost convergence, I think you said that the ability for discounters to maintain a significant wage arbitrage is narrowing or impaired, I didn’t quite get your language. But if we look at the Spirit and JetBlue TAs, yes, they’re incrementally expensive, but the resulting wage advantage to, let’s just go with Delta here, it’s still pretty much the same. So, were you implying that the arbitrage has to narrow even more or did I misunderstand?

Scott Kirby — Chief Executive Officer

I’m saying, not implying, that I don’t think a world where they pay meaningfully less and still higher and successfully fly and complete their schedules. I think that’s the no set. I don’t think they can do it. And one of the other ULCCs has really been struggling this year with a completion factor, which at least had us internally wondering if they had pilot shortage issues because system has been really pretty good. There was a one-day FAA outage, but the weather has been good, and they’ve been consistently having problems. And then, eight or nine days ago, they put out a $50,000 signing bonus for pilots, like however you want to calculate it, however you want to look at it.

And if you’re interested, I can give you some more real-time facts, like I’ve watched the data closely and it’s not happening. I mean what happened over the holidays wasn’t just at one airline. And at all the airlines that had challenges, you can look at our data that we put out. You want data for what’s happening right now, I can tell you some more stuff. But there are a number of airlines who cannot fly their schedules. The customers are paying the price. They’re canceling a lot of flights. But they simply can’t fly the schedules today. Maybe it’s pilots, maybe it’s something else, maybe it’s technology, maybe it’s infrastructure, but what I’m confident of the big three — and by the way, I think JetBlue has invested in this, the big three and JetBlue are operating at a different level than everyone else for whatever the reasons are.

Operator

Next is Ravi Shanker from Morgan Stanley.

Ravi Shanker — Morgan Stanley — Analyst

Thanks. Good morning, everyone. Scott, thanks for that kind of early intro to the call, pretty extraordinary set of kind of facts, an argument you laid out there. What does this mean for the industry kind of longer term? Kind of it’s really unusual to see an industry, to your point, try to grow in the face of the restrictions that they have like this? I mean, how does this end? I mean, do you think there is going to be like regulatory scrutiny on kind of airlines trying to grow when they can’t and that’s hurting service or what happens next year?

Scott Kirby — Chief Executive Officer

Well, I think what it’s going to lead to one way or another is less capacity. Just it’s not mathematically possible for all the airlines to achieve their aspirations. And now, I’ll just give you the data. I’m not trying to pick on these two airlines, but like this seems so blindingly obvious to me. And we talked about it a year ago, we were right all this year with capacity coming in 7 points lower, and I feel even more confident that we’re right today. And the data I’ll give you is, snowstorm started — pretty big snowstorm started in Denver yesterday afternoon and continued through this morning, 11 inches of snow, that’s a tough operating environment. There are three large airlines — there’s three airlines, and so two in addition to United have big operations there. Yesterday in Denver and our mainline we had a 100% completion factor, so no cancellation. [Technical Issues] 12% of flights. The other one cancelled 27% of the flight. Starting off today, we’ve canceled a little less than 1%, each of them have canceled 33% or quite, and this isn’t new. And there’s like a dozen of the Wall Street analysts that breathlessly publishing weekly report on industry scheduled capacity, you guys are looking at the wrong data.

If you want forward indicator of what’s going to happen with capacity, you should watch completion factor. One of you should start looking at completion factor, because airlines that are running like that, it means they can’t fly their schedule and they’re going to have to adjust one way or another. That’s my thesis. That’s what happened last year. That’s what I think is going to happen next year, and all of the structural issues are multi-year, I mean all of them are three years at best to address and you put all of them together, this is a long-term structural issue. And I think it challenges us to, but we just did more to invest for that future. So are coming earlier than others and are better prepared to deal with it than everyone else, but it does challenge us to. But really like, don’t take my word for it, don’t take the others word for it, just watch the data. What so is happening with completion factor and that’s going to tell you whether we’re right again this year or everyone else is right when they say they’re going to achieve the aspirations.

Ravi Shanker — Morgan Stanley — Analyst

Great. Thanks, Scott. I think you can be goods sell-side analyst when you decided to do something else at some point in the future.

Scott Kirby — Chief Executive Officer

You guys are way too negative.

Ravi Shanker — Morgan Stanley — Analyst

Just maybe one follow-up. I think the point on corporates running out of budgets towards the end of last year was an interesting point. Do you guys have much data on kind of what ’23 corporate budgets look like to avoid a similar situation this year? Thank you.

Scott Kirby — Chief Executive Officer

I don’t what. What I’ll tell you is that the reset looks very good as we head into January, obviously. So we’re really pleased with those numbers. October was a really good month for corporate and January is tracking at that or above that, and so we’ll see where we go from here. But I’ll tell you, this is an important number for United. We monitor it a lot and it’s moving in the right direction and we’re highly confident, particularly for long-haul global that we’re going to get back to full strength and that’s a enormous tailwind I think for at least airlines that rely a lot on corporate travel.

Operator

Next question from Duane Pfennigwerth from Evercore ISI.

Duane Pfennigwerth — Evercore ISI — Analyst

Hey, thanks, good morning. Just on the interrelation between fleet and CASM. If we just — if we just back up in time, you announced a big fleet order in June of 2021, I think that’s when you unveiled United Next. And your target for this year was down four relative to ’19 on CASM-ex. You updated those views, obviously, we had less capacity, inflation etc. So you went from down four two up five, another big fleet order in December and now the outlook is plus 15 versus ’19 versus your initial down four. So I guess the question is, given the constraints that you articulated very well, why does this investment rate still makes sense? If you can’t grow at the rate that you hope to grow, why invest at a rate that assumes a much higher growth outlook at some point.

Scott Kirby — Chief Executive Officer

Well, to be clear. I think we can grow at United. I don’t think the industry can grow for all the reasons that we’ve said. I think at United we can grow. We’re clearly — we are clearly able to hire pilots pre-pandemic. The most we ever hired is about 900 in the year. We were right at 2,500 last year. Our team — our flight training team has done an amazing job. There was a lot of work to do to get that training machine humming. It also helped that we had enough foresight to build 14 new simulators during the middle of the pandemic when everyone else was pulling back and shrinking. But that part of the — that’s one of the, probably the most complicated thing that airlines are struggling with and we have that machine.

I mean, we’re here in Houston at Flight Training Center and we had 4,000 flight attendants. This year we opened the new flight training center and other investment we made last year. I mean, really the point is we invested to be able to grow and I think we can grow. We have the other benefit of — we’re taking 300 plus regional jet out of the system. So that creates a natural slack in terms of departures. If you’ve got FAA issue, air traffic control issues, if you’re a single fleet type Airlines by all A320 family or all 737s, like, you don’t have anything to take out to give you room. We do have. 300 aircraft were to take out. But really the point is, all the investments, I mean, like one of the investments that I like that speaks to the foresight that we had coming into this was clubs, and we increased our club space by 48% during the pandemic. That’s always a challenge. Trying to close clubs when they are full, the constrained airport environment it’s always tough on customers. like the pandemic was once in history, but not once in a generation. Once in history chance to do that with minimal impact because we didn’t have nearly as many customers fly in 2020 and 2021, and we’re the only ones who did it.

And like there is just stuff like that everywhere that United did differently. So to be clear, well I don’t think the industry can grow. I think — we think United can. My guess is because of the. OEM [Technical Issues] our full target, those will be behind. We’re going to be fine with lower utilization than we were before and there’s going to be less regional. So we probably won’t be all the way to our target, but I think we can uniquely grow and expand margins in this environment when everyone else can’t, and it’s because of all the investments we made to set up for this.

Duane Pfennigwerth — Evercore ISI — Analyst

Thanks. Thanks for that, Scott, and obviously hindsight is 2020, it’s been it’s been a unique set of circumstances. But I guess the question is, had you invested at a rate more aligned with your DNA or where there is real free cash flow to point to here, how much higher would this CASM outcome have been? In other words, if we’re up mid-teens relative to 2019, could you have invested at a much more modest rate and gone through the same outcome? And I appreciate your thoughts on it.

Scott Kirby — Chief Executive Officer

I think, look, if we would have invested it — if we had done the same thing everyone else do, we’ll have the same problems we have right now. Instead of cancelling 1% of our flights a day in Denver, we’ve would be cancelling 33%. That’s higher cost. Our cost will be higher. This isn’t just investments, like, I think when you get to the end of the year at best dollars to donuts, that we have the lowest cash, the best CASM performance. I recognize other people have better guidance and maybe they will have better guidance.

But I think in the real world we’ve come to grips with what the real-world means and how — what you have to do to operate and when executing the data, excuse me operating staff, you can see the financial staff and it’s a new world. You can’t run the airline like you did in 2019. I remember I read all the transcripts. And I read one of the transcripts and Jamie asked someone, I don’t even remember which airline it was. But asked someone, when are we going to get back to pre-pandemic normal. And I don’t remember who it was or even what they said because I immediately thought the answer to that question is never. And I don’t think anyone has else figured that out yet. The answer to that question is never. It is a new environment. It’s a new industry. And that creates our costs. It does. But it’s also creating higher revenues and I think it’s going to lead across the board higher margins, but particularly for United.

Operator

Our next question is from David Vernon from Bernstein.

David Vernon — Bernstein — Analyst

Hey, Andrew. I just wondered if you could sort of talk about what’s embedded in the TRASM guide for being flat? I know you mentioned PRASM was up two to three cargo down. What are you expecting out of the card program and the other revenue line as we think about ’22 to ’23?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

We’re still expecting really strong results, but it’s not keeping up with the ASM growth, creates that negative headwind. But our card program is doing really well. A partnership with Chase is just top-notch. New members into the Mileage Plus program relative to where you were in 2019, I think we’re up about 50% in the same time period in 2022. So all of that’s moving in the right direction. It’s just not — it’s just not keeping up with ASM growth in 2023, which creates that inversion between PRASM and TRASM. And obviously, you understand the cargo part of that, so.

David Vernon — Bernstein — Analyst

Okay. And then maybe, Scott, just to ask a question, just kind of came up as you were talking about the challenges around the industry having to reset its cost structure. Do you see any risk that as you’re kind of looking out and building the revenue plan around your own cost structure, setting fares at a level where you can recover that cost pressure that the rest of the industry maybe doesn’t get there. I guess, if the rest of the industry isn’t quite recognizing what the cost pressure of operating in the new normal is going to be, do you think they’re going to be under pricing and potentially creating some problems for you to absorb some of the costs that you’re building into the network? Thanks.

Scott Kirby — Chief Executive Officer

Well, if they’re right — I don’t think they are — but if they’re right and they can return to 2019 utilization and efficiency, then we can too. That will be easy to just go back to flying. So, no, the short answer is no. I’m not worried about it. Because if they are right, it will be really easy for us to just fly the aircraft a little harder. And because we’re growing and within a few months, just slow the hiring down and within a few months, you’d be back. To be clear, I think that’s extremely unlikely to happen. But we could adjust our cost structure down, if it turned out that we were wrong and that’s the new normal, pretty easily..

Operator

Next we have Andrew Didora from Bank of America.

Andrew Didora — Bank of America — Analyst

Hi. Good morning, everyone. I just kind of want to go back to fuel for a second, just because it has dominated my conversation so far. I guess, when you think about it conceptually, looking at your 2023 guide, it seems like you’re assuming fuel is going to $2.70 per gallon 2Q to 4Q. And Gerry, you said fuel is a pass-through. So I think that’s down like at least 30% from current market. Just how do you underwrite that kind of 2% to 3% PRASM growth in 2023 if fuel is coming down?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Let me start. Look, what I’d tell you is that, I do think fuel is a pass-through in both directions and that it is dynamic on when we pick the number and we opened — we adjust the revenue forecast for it. But more importantly, where we are in terms of demand and supply and cost convergence, as Scott spoke about in quite a bit of detail, has just given us, I think, significant ability to utilize our revenue management system to make sure that the price points are where we need them to be. And we did that all through last year. And in fact, we did that all throughout the entire pandemic where we led the industry, I think, 11 out of 12 quarters. So we feel really good about where our revenue performance is. We feel really good about where our bookings are. We feel really great about our Q1 guidance. And we feel really good about where the RM system is currently managing price points for Q2 and beyond. We definitely believe in the GDP relationship. It is converging, and it’s converging for all the reasons that Scott talked about earlier. So we feel really bullish about the outlook and the ability to achieve the revenues that we need to achieve.

Andrew Didora — Bank of America — Analyst

Got it. Understood. And then, Andrew, you gave some pretty robust booking figures for February into March and kind of your whole outlook. Any color that you can provide in terms of how you’re thinking about 1Q by region, which regions might you see accelerating, which is decelerating from here? Just kind of get a sense of how you’re seeing the world right now. Thank you.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Sure. I’ll give it a try. I will say that I started with earlier, the global long-haul environment where capacity ex United is negative and capacity with United is just slightly about at 2019 levels relative to where GDP is this year, provide just an enormous set up to hit a home run on TRASM on our global long-haul network. So, we couldn’t be more bullish about that. And then simple, supply is flat versus ’19 and the propensity to travel along with the economy and GDP is dramatically higher, that sets up a very good opportunity for RM systems, and they’re actively working to do that. And bookings for spring and summer look really strong. So, to Europe, I just think it’s going to be another record RASM and margin year based on that setup, and it looks really good..

Across the Pacific, the same exact capacity set up, by the way, where it’s slightly negative without United and about 100% with United relative to 2019 capacity, and a very similar setup. But we also have the opening of China and all three markets, Hong Kong, Beijing and Shanghai ultimately. And we think there’s going to be a significant bounce back in demand, like we’ve seen in Korea and Australia and other places in the region. The only, I think, thing we’re watching more carefully is Japan, where the numbers look really good, but it’s based on US point of sale at this point and not Japanese point of sale. We expect the Japanese point of sale to kick in later this spring and summer. So that one has been slower to rebound. But again, US point of sale just had an enormous, I think, pent-up demand and is ready to fly and is doing so steady, really covers the numbers. Once Japan comes back online from a point-of-sale perspective, I think that further strengthens that as well.

Latin America, near Latin America is the best I’ve ever seen it from a TRASM-RASM perspective at this point. And Deep South America is also very good. It is just not nearly as good as the amazing performance we’re seeing in [Indecipherable] Latin America. So, the setup for our global network is, I think, unbelievably good. And it’s really a very simple math, and there’s very little capacity growth out there and a lot of GDP. And if you look at our capacity guide, while we haven’t given you an international and domestic breakout, you can look at what we’re selling. And you can see how we’ve leaned into it for 2023 to make sure we maximize the profitability of the airline. And we think that we’ve done that very well.

Domestically, I also want to say, Scott talked about this cost convergence. We talked about the capacity constraints. What people think they’re going to fly in 2023 is not what will really be flown that happened in 2022. We think that’s going to happen in 2023. And given where we think total revenue is and ASMs will be less than that, we think there’s a chance for a positive RASM domestically as well. And it’s a really good setup. So, across the globe, amazing setup here at home, also a very good setup for a positive outlook for the year.

Operator

Next is Helane Becker from Cowen.

Helane Becker — Cowen — Analyst

Thanks very much, operator. Hi, team, and thank you for the time. So, just one question here. When we look at air fares and we compare, say, premium economy to where business class was pre-pandemic, it seems like the price points moved to that level, right? So you have some economy fare. Then you have a premium fare in economy that seems to be equal to what business was, and you seem to have business that is significantly higher. So, A, is that observation correct? And B, what’s your paid load factor in the front of the cabin?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

All right. There is a lot of numbers you put out there, Helane. What I’ll try to say is that paid first-class load factors, particularly here domestically, are up a lot. They’re up 6 points. And so, our RASM growth in the first-class cabin versus the main cabin domestically is 15 points higher. So, it’s doing incredibly well, which we’re excited to see obviously, because of our move towards more dual-class aircraft and monetizing the premium cabins.

On our global long-haul fleet, I think it’s a little bit different than maybe what you said. The public price points may be exactly what you said, I don’t know. But the performance, I would say, is that Polaris is not back to where we’d like it to be just yet. But the middle cabin, the Premium Plus cabin is and better and the coach cabin is and better. And so, the RASM performance on board the aircraft is a little bit more tilted towards the back of the aircraft or the middle of the aircraft on the global long fleet than it is the front. And why I’m also particularly excited about this recovery in large corporate traffic is that is how we tend to fill the front of the aircraft.

And so, the trends we see in January looked just really good. And that also is a positive TRASM tailwind to the global network as we do a much better job of filling up Polaris with higher quality yield than we did in 2022. And I’m confident when we end 2023, we’ll be able to report that the Polaris paid load factors and paid yield are much closer to their 2019 baseline than they were in 2022.

Helane Becker — Cowen — Analyst

Okay. That makes perfect sense. And then, just for my follow-up question. I’m not sure whether you said that or Scott said this, but if ’22 — if nobody flew their capacity original plans in ’22, which they didn’t, and they do in ’23 and the infrastructure issues, and I don’t see the government rushing to invest in air traffic control, in fact, I see it getting worse. I don’t see the FAA investing. As you think about this, does it ’23 get worse than ’22, and ’24 get worse than ’23? And doesn’t that accelerate to the point where you can’t — the industry just have more because you run out of space.

Scott Kirby — Chief Executive Officer

Pretty close to yes is the answer. We’re near the limit on capacity — on flights in the system. There are places that are at the limit. And we’re near — and you can see it, like it works fine and you can add more on good weather days when absolutely nothing goes wrong, something goes wrong every week. I mean, there is weather, there’s systems issues that happened at the FAA, that happen in individual airlines. There’s pipelines that get cut for fuel at airports. There’s vendors that fuel airplanes at airports that are short staffed or have higher sick calls. Just the stuff that happens every day and we’re near, but capacity in terms of total number of flights.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

And Scott, we should add to that though, what you said earlier that we’re getting rid of a large number of regional jets. So the departure activity that we’re planning from our seven key hubs in 2023 is still materially behind where we were in 2019 from a departure level. The ASMs are holding another story as we’ve talked about because of what we’re doing or gauge, but we’ve created the room in our hubs to be able to execute our plan. We have sufficient runway and gate space to do so.

Operator

Our next question is from Scott Group from Wolfe Research.

Scott Group — Wolfe Research — Analyst

Hey, thanks. Good morning. I’ve got one near-term and then one bigger-picture question. Just — when I just look fourth quarter to first-quarter, the RASM guide, the rent implied revenue guide just worse than normal seasonality. And just given everything you’re saying about February-March bookings, just help square with the revenue and RASM guide, please?

Scott Kirby — Chief Executive Officer

Yeah what. I would say is that we definitely see a different set of numbers for, like January 6th through February 15th, then we do beyond that. And I as I think about it, it’s our hypothesis that we do have a bit of a different type of seasonality post pandemic than we did have pre-pandemic. So it just depends on the year — the quarter-over quarter year that you’re looking at. But look, the trade-off with the every weekend is exponentially holiday, allowing us hopefully to be able to de-peak the summer and run a more constant level of operation from mid February all the way through October, that’s really exciting and a lot more upside than maybe a few weeks in January that don’t look as good as they used to be. So I think the trade-off is fine, but our hypothesis at this point, it is a different type of seasonality related to a post pandemic environment.

Scott Group — Wolfe Research — Analyst

Okay. And then, Scott, so bigger-picture. If you’re not getting the unit cost leverage from capacity growth that maybe you thought you would have gotten a year-ago, I guess why grow so much and risk adding too much capacity to the market and risk pricing. And maybe just ask differently. If you didn’t grow as much, do you think you’d still hit the 9% margin, but at the same time just generate better free cash flow?

Scott Kirby — Chief Executive Officer

To be clear, we’re focused on margin, not CASM, we’re focused on margin. And while we aren’t upgrading our margin guidance, we’re already way ahead of the street. I think everything we had in our deck today and everything we’ve talked about today certainly creates a possible case that margins are going to be higher for all the reasons we’ve talked about. If we were not growing, I think our margins would be lower. I mean, clearly would impact our CASM. But I think the capacity that we’re going to add would be soaked up by someone else. And I think that — anyway, I think our margins would be meaningfully less if we weren’t doing what we’re doing.

And so we’re doing it because we think this is a — look, I think this is a once in the history of the industry opportunity. This is an event that’s never happened before. I guess that most of you on the sell-side disagree. And I accept that you disagree. But I think the world has changed and the industry has changed. And by the way, we do have a lot of flexibility. And what I would say, you didn’t ask this as a question. What I would say is, if we’re not — if there’s some reason that doesn’t look like we’re going to hit our targets, if we’re structurally missing our targets, if we’re underperforming the industry and missing our targets, we won’t do all this growth. We have a ton of flexibility to move aircraft around and we won’t do it. So just like damn the torpedoes. This is — as long as it’s working, we’re going to keep moving. But I will tell you every single data point increases my confidence at least it’s working, though that we had with the highest pre-tax margins than the fourth quarter or the big network carriers at least.

We, amazingly enough, if you look at, actually we had the highest free cash flow in 2022, with the lowest net-debt if you use the traditional GAAP accounting with operating leases and include pensions, we had the lowest leverage ratio, like — I mean just work it. You look at our operating results and look what’s happening in Denver today, like it’s working. So we’re not going to change course on something that’s working. But if it stops working, then we absolutely have the flexibility to adjust.

Operator

We will now switch to the media portion of the call. [Operator Instructions] First up is Leslie Josephs from CNBC.

Leslie Josephs — CNBC — Analyst

Hi, good morning. Thanks for taking my question. I’m just curious if you’re benefiting at all from book away from Southwest after the holiday meltdown? And also if you’re benefiting from pilot attrition coming from Southwest? And the second question, do you see any impact from many travelers that are cashing in on their miles this year that they might have built up during the pandemic and does that help or hurt you? Thanks.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I’ll give it a try, Leslie, it’s Andrew. I think we’re — I think we’re benefiting from running a world-class great global airline. When we look at the data and particularly not over like one-week, right, over a one. When we look at the data over the last year plus, our team has been just hitting the homerun and the data shows it. So I think we’re really proud of where we’re at. We intend to keep that on line. We have the appropriate buffers to make sure we can continue to deliver for our customers going forward, and we shall.

In terms of Frequent Flyer growth, I will just say the program is incredibly healthy. The redemption rates are quite normal given where we are with inventory availability and our customers are using their miles to fly all over the world in the largest global network of any US carrier.

Scott Kirby — Chief Executive Officer

And on the pilot front what I’d say is, it’s a amazing change. I try to get out to the pilot training centers and see new hire classes, we’re hiring 200 month and I’ve started asking where they come from and show of hands. It used to be from any of the large — any of the large airlines, ULCCs, LCCs, Big Airlines with hardly any because you had to give up seniority to come. We now have a high percentage of people in those classes that are coming from all airlines. And I think the reason is because United has — if you’re a pilot, like you’re anyone and you aspire to occur in aviation, United is the place to go.

We’re well on our way to be the biggest but also the best, Andrew talked about the brand, the reputation, that matters a lot to people. Our pay rates are going to always be varied depending on the timing of contracts, but always basically going to be at the top of the industry. If you’re a pilot, United has the most growth opportunities, the most opportunities, fastest path to Captain. The most wide-bodies has been airline by far in the country, like where the place to go and people are actually giving up their seniority at all of our competitors for the opportunity to come and have a future at United, that’s a testament to what all the people of United have accomplished and how bright we feel like the future looks.

Operator

Next is Alison Sider, from the Wall Street Journal.

Alison Sider — The Wall Street Journal — Analyst

Hi, thanks so much. Just wanted to ask about the FAA outage last week. And I don’t know-how you’re thinking about that. Is there a concern that there are other sort of these systems that are vulnerable or that you think of a single points of failure, and how you’re thinking about it and what kind of conversations you’ve had with the FAA since?

Scott Kirby — Chief Executive Officer

So. I think this ought to be a wakeup call to for all of us in aviation — something that many of us in aviation have been saying for a long-time that the FAA needs more resources. By the way, I think they do an amazing job. During the Christmas struggles with the weather, a bunch of great things that they did. But two, in particular, water main break that flooded the tower in Newark and the same thing happened at one of the towers in Chicago, and they really quickly moved into backup facilities and kept the operation running. I mean, just a lot of people jump through a lot of hoops and deserve a lot of credit for that. But the hard facts are, the FAA’s budget in real terms, it’s lower than it was 20 years ago. But the amount of work that they’ve been asking to is significantly higher. Huge resources devoted to space launches, drones, thousands of people were working on aircraft certification programs in the aftermath of the MAX disaster. And so, they’ve had to rob Peter to pay Paul.

And they have to do more, and they’re doing it less money. There’s fewer controllers than there were 30 years ago. And it’s people, it’s technology, and look, here in the United States, we should have a world-class best aviation system in the world. And we’re putting at risk if we don’t invest in it. And this is infrastructure. It was great that we passed a Bipartisan Infrastructure Bill. This ought to be bipartisan as well, by the way, that we passed the Bipartisan Infrastructure Bill. But this isn’t concrete, but modern systems, modern technology and the right number of people for the FAA is an infrastructure investment that will pay dividends many times over for the country. And so, I hope that this is an opportunity for us to look at this, just like we looked at the country at the infrastructure bill in a bipartisan way, get the agency, the resources that they need, because we have asked them to do more, and we’ll all be better off.

Alison Sider — The Wall Street Journal — Analyst

Thanks. And then, if I could ask one more just on restoring flights to China. Are there like approvals either in China or the US at the government level or like diplomatic things that need to happen in order to ramp that flying back up?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

There are. At this point, United Airlines holds the rights to fly four flights per week to China. We intend to convert our current one-stop service to non-stop sometime in the next few weeks hopefully. But we do not hold rights at this point to increase our service any further. And I believe that is an industry-wide type of situation. So at this point, there’s no green light to go beyond what we’re currently flying.

Operator

Next is David Schaper from the NPR.

David Schaper — NPR — Analyst

Hi. Thanks for taking my call. I appreciate guys doing this, this morning. A couple of questions I had have been asked and answered. So I’m going to kind of shift gears into something that might be coming out of [Indecipherable]. But the Biden administration announced last week a plan to get the transportation sector down to net zero emissions by the year 2050. I know the aviation industry has that goal as well. But how realistic is that really? And what is the cost to an airline like United to try to shift to sustainable aviation fuels to possible hydrogen-powered engines, that sort of thing?

Scott Kirby — Chief Executive Officer

Well, I haven’t seen the details of their plan. But I think, as a global citizen, it’s probably the most important thing that our generation needs to accomplish. I’m proud at United that we are not — we are the leading airline around the globe on real sustainability initiatives, and we are one of the leading corporations. We are focused at United, but I think it’s the right focus for aviation on a number of fronts. One, unsustainable aviation fuels, by the way the build back — or the Inflation Reduction Act has a number of provisions. Regardless of what you think about everything else in the act, the sustainability provisions are meaningful not just for our industry, but for everyone. And I think our transformative legislation makes it viable to start making investments in hydrogen and SAF. And we’ve been the leader and we’ve got even more coming, but a lot of projects that were going to be hard to do all of a sudden start to pencil out — at least potentially pencil out. And so, I think it’s driving — it is driving a lot of investment, and you can expect more from us on that.

A lot of excitement in electric aircraft, but we’re working on there. And while I can’t replace everything because it’s never going to be big airplanes flying long distance, it will be a part of the solution. And then finally, on carbon sequestration, I’m a climate change geek and have been for 30 years, and I used to have conversations like this. It wasn’t too long ago, even just a couple of years ago, and I would have to explain what the word sequestration meant. It’s real progress actually that people know what it is now, and there’s more investment. We’re here in Houston. Occidental is our partner in the sequestration project. They’re a leader in that front. But a lot of others are moving into sequestration, and the 45Q changes that happened in the Inflation Reduction Act are also really consequential for carbon sequestration.

So I’m more encouraged today, I think, than I’ve ever been at the possibilities, but it’s a lot of hard work ahead, and it doesn’t happen overnight. I mean, they’re not a magic silver bullet. But I’m also proud that United is leading, and we partner with everyone that would include the DoT, anyone that’s interested in doing the right thing and solving this in a real way, we’re happy to be partnered with.

David Schaper — NPR — Analyst

Just a quick follow-up. What is the cost of all this, especially if governments, not just the United States but governments globally, start imposing mandates to shift to alternative fuel that may cost a lot more to develop and use?

Scott Kirby — Chief Executive Officer

Well, I think what we need to do is drive the cost down for SAF, for example. What I like to think about is wind and solar energy, which — because I’ve been a climate change geek for 30 years, I followed it, but it was 20 years ago, certainly 30 years — 20 years ago, everyone — everything you read or talked about wind and solar was, it could never compete with fossil fuels, it could never be economic. Well, guess what? We passed legislation that had credit — a carat, instead of just a stick a caret, that caret drove massive investment in R&D and economies of scale. And today, it’s cheaper to produce a megawatt of electricity from wind and solar than it is from fossil fuels.

And the same thing can, and I believe will happen with SAF. It is more expensive today. But we are in the very early phase of the development curve. And that’s what’s great about the Inflation Reduction Act. It creates those same kind of financial incentives that existed for wind and solar. And that is — we know it because we’re involved with the companies. It’s driving investment into the space. And that’s what is needed right now at this phase, and that investment is going to lead to breakthrough, it’s going to lead to economies of scale. And I think the costs are going to come down.

Operator

Our last question is from Bill Murphy from Inc.com.

Bill Murphy — Inc.com — Analyst

Hi. Good morning. I have two quick questions. The first, I believe, if I understood Scott previously, you mentioned an unprecedented number of new pilots actually coming to United from other airlines. And I understand, of course, hiring especially, but not limited to pilots as a big industry constraint, a big effort. So — but I’m wondering, can you say anything more about that? Is this an effort specifically involved here now to recruit away from competitors in a way that you haven’t in the past? And if so, how do you go about doing that practically from — besides simply positioning the airline is a good place to work? And I would have a follow-up.

Scott Kirby — Chief Executive Officer

It’s really the latter. It’s not a targeted airline to go after them, but people pay attention, and United is the best place to work, and if you’re a pilot and want to work at the best place, a lot of them are just putting their applications in. We don’t need to do anything — more than be the biggest and the best urine in the history of aviation, and that’s enough of a sell point.

Bill Murphy — Inc.com — Analyst

Okay. So, no specific numbers to report on that you’ve had an uptick in that?

Scott Kirby — Chief Executive Officer

Well, I don’t know what the numbers are. I’m executed by an anecdote, I ask people and I would guess that 30% of the people in those classes come from one of the large airlines. That’s just my eyeballing it in the room, but somebody in the United probably knows the numbers, but I don’t know specific numbers. I’m just proud of everything the team is doing.

Bill Murphy — Inc.com — Analyst

And if I can — just my other follow-up here. In previous calls and interviews, you’ve talked about kind of changing customer demographics, including things like the rise of work-from-anywhere leisure passengers. I’m just wondering if you have anything more to add to that now in terms of how you see that changing structurally in the post-pandemic world.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

It’s a really interesting trend, and we saw it again over the Thanksgiving and Christmas holidays. For example, for Thanksgiving, we saw a lot of people leave dramatically earlier for their vacation than they would normally do. And this year, Saturday, because you left early, Saturday was actually one of our biggest return days. Didn’t displace Sunday, which is obviously always the biggest. So completely different pattern and we saw that throughout the entire second half of last year and it’s really exciting for our business because it allows us to de-peak things, ultimately run the airline differently and more efficiently. And remote work while I’m sure will evolve and adjust over time which is driving this, remote work does seem like a permanent feature in our workplace here in the country. And so we’re optimistic that this continues to be the trend based on everything we’ve seen. And it really is just — its a different type of demand, it’s a different industry, and I think we’re well-prepared for it and it’s very exciting from a capacity and revenue management and customer point of view across the board.

Operator

I will now turn the call back over to Kristina Munoz for closing remarks.

Kristina Munoz — Director, Investor Relations

Thanks, Candice, and thanks for everyone 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]