United Continental Holdings Inc (NASDAQ: UAL) Q4 2019 Earnings Call Transcript

United Continental Holdings Inc  (NASDAQ: UAL) Q4 2019 Earnings Conference Call

January 21, 2020

Corporate participants:

Mike Leskinen — Vice President of Corporate Development and Investor Relations

Oscar Munoz — Chief Executive Officer

J. Scott Kirby — President

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Analysts:

Brandon Oglenski — Barclays — Analyst

Hunter Keay — Wolfe Research — Analyst

Darryl Genovesi — Vertical Research — Analyst

Jamie Baker — J.P. Morgan — Analyst

Andrew Didora — Bank of America — Analyst

Catherine O’Brien — Goldman Sachs — Analyst

Duane Pfennigwerth — Evercore — Analyst

Myles Walton — UBS — Analyst

Helane Becker — Cowen and Company — Analyst

Savi Syth — Raymond James — Analyst

Joseph DeNardi — Stifel — Analyst

David Vernon — Sanford Bernstein — Analyst

Dan McKenzie — Buckingham Research — Analyst

Michael Linenberg — Deutsche Bank — Analyst

Justin Bachman — Bloomberg — Analyst

Alison Sider — Wall Street Journal — Analyst

Presentation:

Operator

Good morning and welcome to United Airlines Holdings Earnings Conference Call for the Fourth Quarter and Full Year 2019. My name is Brandon and I’ll be your conference facilitator today. [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. 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, Mike Leskinen, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Mike Leskinen — Vice President of Corporate Development and Investor Relations

Thank you. Brandon. Good morning, everyone, and welcome to United’s fourth quarter and full year 2019 earnings conference call. Yesterday, we issued our earnings release and separate investor update. Additionally, this morning we issued a presentation to accompany this call. All three of these documents are available on our website at ir.united.com information in yesterday’s release and investor update the accompanying presentation 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 with 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 other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors.

Also, during the — 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, investor update and presentation, copies of which are available on our website.

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

Oscar Munoz — Chief Executive Officer

Thank you, Mike. It’s a pleasure to join you all this morning. 2019 was a banner year for us at United, highlighted by a four quarter streak of growing profit margins. This winning streak allowed us to reach our 2020 adjusted EPS target of $11 to $13 per share one full year ahead of schedule. This incredible performance would not have been possible without the dedication of the finest collection of airline professionals in the world. So, I want to thank the 86,000 members of United family, who work so hard to serve our customers. I’m also pleased that we were sharing our success with the profit-sharing payment that’s on average 45% higher than last year. With all that we’ve had to overcome in 2019, there is no group of airline employees in the world that is more deserving. You’ll hear more details about our financial performance from Scott and Gerry, but I also want to include — quickly touch on our fourth quarter results.

Our adjusted earnings per share of $2.67 is 11% higher than the fourth quarter of last year. This reflects 50 basis points of adjusted pre-tax margin expansion in this last fourth quarter, which as I mentioned is the fourth consecutive quarter that our pre-tax margin has grown, in the fifth consecutive quarter on an adjusted basis.

As you’ll hear today, we’re all quite proud of what we accomplished last year, but I am most excited about what it means for our ability to plan and deliver for our customers, employees and over the long-term, and that — and that also includes the announcement that we made at the end of 2019 about the leadership of this company with keeping this bright future in mind.

Piggyback to where United was when I took over as CEO in September of 2015 and where we are today, this company’s success is a testament to the power of long-term commitment to our proof, not promise philosophy. By every metric and benchmark by which the health and strength of our company’s measured and judged, the United of today finds itself in a much stronger position in the United of four years ago.

I made it a personal priority to guarantee our future by assembling a deep bench of talent in order to give our customers, employee base and investors’ confidence in our direction and leadership. Today, I am 100% confident that we have the absolute best leadership team of any airline, hands down. Taking advantage of our talent and cumulative experience by initiating deliberate, well planned and transparent transition is what healthy companies do. That’s exactly what we’re doing between now and the end of May when I’ll assume my new role as Executive Chairman. It was important for us to preserving this continuity and my partnership with Scott means we’ll continue to work to capitalize on the bright future that lays ahead, not just in 2020, but through the new decade. That’s why we we’re eagerly anticipating the chance to get together for Investor Day in March to share more about that long-term strategy.

So with that, Scott, over to you.

J. Scott Kirby — President

Thanks. And I’d like to start by thanking you, Oscar for all that you’ve done for United and for me personally in the last five years. United is a totally different airline today than it was when Oscar became the CEO. Oscar made his mission to change the culture at United by bringing the people of United together as a team. He put the customer at the center of our decision making and created an innovative, fast-paced environment where we seek to make the airline better every day and in every way. For me personally, Oscar has been a mentor and a friend. From day one, Oscar was direct. Reminding me that there was more to our business than numbers. Many corporate executives talked about the importance of employees and customers. Oscar doesn’t just talking about it. He lived at 24/7. I will be a much better CEO & person because Oscar reinforced the importance of focusing not only the numbers, but also our employees and customers. Leading by example as Oscar has, the only way to truly change of culture and make a difference. I’m fortunate to have the opportunity to step into Oscar’s big shoes as part of the planned and thoughtful transition and even after his Executive Chairman, Oscar won’t be far away as we continue on the path toward building the best airline in the world. That great patent delivering results and it couldn’t be prouder of what the team accomplished in 2019. We once again achieved our guidance metrics and reached our 2020 adjusted EPS goal a year early. We’ve done that by creating a culture of teamwork across the entire company and — by focusing on doing the right thing for our customers. You’ll hear more today from Greg Hart, our Chief Operating Officer, who is pinch-hitting for Toby, who is ill today and then, Andrew Nocella, our Chief Customer — our Chief Commercial Officer on some of the things we’re doing to improve the customer experience.

2019 demonstrates the resilience and potential of United Airlines. We faced a number of significant headwinds last year started out, the longer than expected government shutdown grounding of the MAX and geopolitical issues in places like China, Iran and Pakistan among others rather than use those headwinds has excuses however, the United team simply buckled down and persevere. It wasn’t anything and we weren’t perfect, but we didn’t use the bad step as an excuse. That’s one reason I view 2019 is a really good proof point of where we’re headed in 2020, to be able to grow full year adjusted EPS by 32% and adjusted pre-tax margins by 170 basis points despite all of those headwinds is pretty remarkable.

We know 2020 will come with its own unique set of challenges. In fact, couple of cropped up just the last 48 hours. We won’t make excuses for those either. We also can’t sit here and tell you that we know exactly how long the MAX will be grounded or what the economic impact of the Asian current of ours would be. The safety impact of the of ours is of course our foremost concern. We’ve been coordinating closely with the CDC to ensure that we’re taking all the necessary steps to ensure that our customers and employees can travel safely. At this point, public health agencies are not recommending any travel restrictions, but will follow their advice closely because they and we have some experience with situations like this. By working closely together, we have in the past effectively manage situations like this to keep our people safe and in doing so, we’ve seen demand bounce back.

Managing through the uncertainty is something that every airline in the world has to do. And here at United our formula is a complicated, but safety first and focused on delivering for our customers. Our team executed that strategy beautifully last year and its important part of why we’re so confident about what lies ahead in 2020 and beyond.

In closing, I’m truly honored to be given the chance to leave this great team. All of us at United are committing to making this the best airline in the world. You’ll hear more on the call today and in our Investor Day in March about some of what’s ahead in the long-term, and we’re all excited and committed to getting better every day for our customers, employees and shareholders.

And with that, I’ll turn it over to Greg.

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

Thanks, Scott. At United, our focus is to ensure our customers have a great experience with United across their entire travel journey. Consistency is key, as we deliver with caring service to every customer, on every flight, every day. With that in mind, I’d like to thank our over 160 million customers from around the world, whether you are taking an important business trip or a well-deserved personal vacations. We know you have multiple airlines to choose from and we truly appreciate your business.

Improving our customer experience works hand-in-hand with our growth strategy. Strengthen customer loyalty and increasing our field within travelers. We’re investing in the areas that customers tell us matter most. And we’re seeing positive returns on our customer satisfaction scores. More importantly, customers are increasingly willing to recommend United to their family and friends, and that is good for the bottom-line. In 2019, we saw United’s largest ever year-over-year improvement in net promoter scores.

Where does this progress come from. As we’ve shared with you over the past year, we made several foundational investments. Perhaps more important than any investments in our hard products, we continued our commitment to core four and carrying customer service through various employee engagement investments such as our Backstage 2019 event series, where you brought all of our 25,000 flight attendants to Chicago.

We elevated the flight experience for all travelers by expanding our autonomy snack selection and offering free DIRECTV. We launched ConnectionSaver, a new system that identify the flights to hold for customers making tight connections. We began operating the CRJ 550, offering first class and comfortable seating, as well as plenty of carry on storage space all on our 50-seat aircraft. Customer feedback has been fantastic. And since its launch the 550 is delivering our highest customer satisfaction scores on our short-haul routes.

We introduced new benefits for our MileagePlus members, with no expiration dates on our miles and offering free or discounted clear membership to provide an easier, more predictable secure experience at all of our hubs. Looking forward, we are even more excited about our portfolio of planned customer focused investments this year as announced that our meeting day. We will begin to upgrade our aircraft each year, featuring new overhead bands that offer one-to-one bag to customer storage ratio.

We’re updating our single class 50-seat regional aircraft with new seats and adding personal device entertainment. We’re enhancing our food offering, which includes pre-order capabilities. We will also be upgrading airport facilities at our hubs and some of our large line stations. Finally, we’ll continue our commitment to improving customer service. Starting this week we’ll bring all of our airport and contact center customer service representatives to Backstage 2020, and immersive to the experienced focused on caring for our customers.

The investments we have planned in 2020 and our abroad, improving the customer experience across many touch points. We’ll try a number of new ideas focused on key markets quickly what is impactful to our customers and then plan to roll out the best ideas more broadly.

With that, I’ll pass it off to Andrew to talk more about our commercial initiatives.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Thanks, Greg. 2020 will be a year of many of our commercial and customer initiatives mature and grain — gained critical consistency. In fact, the year is already off to a nice start. Ticketed revenue for business is strong for the first two full weeks of this year, an encouraging an indicator for the rest of the year. Before going into a few details about early expectations for 2020, let’s review our performance in the last quarter.

For the fourth quarter PRASM grew at 0.8%. Performance at the end of the year was really strong globally and met our PRASM plan one exception, parts of Asia, which I’ll speak about in a moment. In fact, the Sunday after Thanksgiving with one for the record books were system PRASM increased 15% year-over-year, our best day our best ever.

PRASM performance in our domestic network was up 0.6% on a 2.6% increase in capacity in the quarter. This PRASM increase was realized despite the 737 MAX grounding, which limited our mid-continent connectivity plans. International performance was even better than domestic in the quarter were 1.5% increase in PRASM on a 3.8% increase in capacity. We’re really pleased with the international momentum we’re seeing relative to industry results over the last few months. Latin America was our best performing international region in the fourth quarter. Latin PRASM increased 6.3% on a 4.4% increase in capacity. Performance across the Pacific sequentially improved in the — in the quarter relative to the third, that was still negative. PRASM decreased 1.2% on a 0.7% decrease in capacity, almost all the weakness occurred in Hong Kong, Beijing and Shanghai, all of these, all three of these were 2.6 point drag on Pacific performance and 0.3 point drag on system performance.

Atlantic PRASM was down 0.2% in the quarter on a 7.6% increase in capacity, due to weakness in the manufacturing sector, Germany point-of-sale demand continue to be soft, particularly for Premium business, all of that was partially offset by strong US point-of-sale demand.

Looking ahead for the first quarter 2020, we expect our consolidated passenger unit revenue to be flat to up 2%. Demand to Hong Kong remains difficult to predict. However, I will say that booked PRASM for Hong Kong is not expected to be a drag on PRASM results in the first quarter. We’ve also started to see demand trends for Germany stabilized in recent weeks with stronger demand from industrials, which has been sluggish for most of 2019.

On each conference call, I’d like to point out a few initiatives we have rolling out and their impact on the business and our customers. While we’re improving the experience to fly United for all of our customers, many of our commercial initiatives are focused on capturing high premium demand in our hub markets in 2020 and beyond. The business travel new survey BT United, a key assessment of how Airlines are perceived by corporate buyers and global travel agents. The primary source of Premium business for United. United finished in second place in late 2019 in this important survey. Improvement more than ever before in a single year, really distinguishing ourselves from many of our competitors. This service is a great example of listening and responding and effectively to corporate buyers needs. Congratulations to both our sales team and our frontline staff, who have empowered to make this happen.

Premium Plus, our new mid-tier wide-body jet product is ideally suited for of hub markets and created a 0.6 point tailwind for system PRASM in Q4, a slight acceleration versus Q3 and a trend that we expect to continue for most of 2020. We’re also now selling Premium Plus seats on select flights between New York and LA and San Francisco and are seeing great results.

Our analysis suggests that Premium Plus is having a minimal impact on demand, Polaris business class seats. For the first half of 2020, we expect to grow business class capacity across the Atlantic by almost 20%. We had in the past undersized business class cabins in key business markets like London, Heathrow and Switzerland, while offering too many economy cabin seats. We’re now right sizing the size of our premium cabins. More business that capacity is yet another initiative proven to help us achieve our full network potential.

2020 will be a big year, as we expect to finish most of our planned Polaris seating installations and Polaris clubs. Our Washington Dulles Polaris club is scheduled to open this spring. And by the end of the year, 90% of our wide-body jets are anticipated to have the new Polaris seats, including all of our 777 and 767-300.

In fact, this past weekend we loaded our scheduled for May and beyond for all 55 of our 777-200ERs have new Polaris and new Premium Plus seats selling as of May 8th of this year. We also launched our new cabin upgrade system called PlusPoints in late 2019. The goal was simple, to automate upgrades. we create — we also created skip a wait list feature for Polaris upgrades that’s available from time-to-time in different geographies, currently, it’s available and South America.

We look forward to resuming our mid-continent growth plan designed to maximize connectivity once the MAX is flying again. Even without the MAX, we’re making progress in smaller communities, with the addition of the CRJ 550. We also recently modified our Denver bank structure and it will be in fact this February and we’re already seeing positive response in our bookings for that change.

I also wanted to make a moment and talk about growth of our ancillary revenues. For the year, we grew ancillary revenues by over 12% on a 3.5% more capacity. As we look deeper into 2020, we expect this momentum to continue as we focus on better ways to distribute Economy Plus, getting this product on more shelves is one of our highest priorities and a better display on united.com, which is already in beta testing is a first step. And then, another important milestone, is that the record performance, a record performance of united.com and other direct channels, which now account for 50% of tickets for United in 2019.

I also wanted to note that Wi-Fi usage has grown by 45% in 2019 as we fix many of the bandwidth problems. While the technology and bandwidth doesn’t yet exist for getting ready for the day when domestic Wi-Fi will be free for our customers. Thanks to the entire United team for a great 2019.

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

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Thanks, Andrew. Good morning, everyone. And for those of you in Dublin for aviation week, good afternoon. Yesterday afternoon, we issued our fourth quarter and full year 2019 earnings release and our first quarter and full year 2020 investor update. You can refer to those documents for additional detail. For the highlights Slide 14 is a summary of our GAAP financials and Slide 15 shows our non-GAAP adjusted results.

We are pleased to report, adjusted earnings per share of $12.05 for the full year, up 32% versus 2018. For the year, adjusted pre-tax income was $4.1 billion and adjusted pre-tax margin was 9.4%, up 1.7 points year-over-year.

Our fourth quarter adjusted pre-tax margin was of 8% was up 0.5%, marking the fifth consecutive quarter of adjusted pre-tax margin expansion. As Oscar and Scott mentioned earlier, our resilience throughout the year helped us to offset challenges across the system, and drive margin improvement.

Slide 16, shows our total unit cost growth for the fourth quarter and full year 2019, and our forecast for the first quarter of 2020. Turning to Slide 17, non-fuel unit costs in the fourth quarter increased 2.7% on a year-over-year basis. This came in better than our original expectation of around 3.5% as our team worked relentlessly to offset various cost pressures. This brought our full year 2019 CASM, ex to up 1%.

As I’ve said before, the grounding of the MAX impacted CASM, ex by at least 1%. So, excluding this impact, unit cost in 2019 would have been flat or better year-over-year. Looking ahead, we expect first quarter 2020 CASM, ex to be up 1% to 2% year-over-year. As you can see on Slide 18, during the quarter, we took delivery before new and to used mainline aircraft as well as nine new regional aircraft. We also announced an order to purchase 50 new Airbus A321XLR aircraft which we plan to take delivery of beginning in 2024. The XLR will not only allow us to finish retiring, our last remaining Boeing 757-200 by replacing them with aircraft that are approximately 30% more fuel efficient, but in addition the XLRS range capabilities will also open potential new destination to further develop our route network and provide customers with more options to travel the globe.

Also in the fourth quarter, we repurchased $216 million worth of shares of our common stock at an average price of $88.95 per share, bringing our share repurchases for the full year $1.6 billion. As of year-end 2019, we had $3.1 billion left in authorization and will continue to be opportunistic in our share repurchase strategy. Our adjusted capital expenditures for 2019 ended at $5 billion, this came in slightly above our guidance of $4.9 billion as our Airbus order that we announced in December drove some incremental pre-delivery payments. We currently anticipate spending approximately $7 billion and adjusted capex for 2020. We continue to expect this to be a peak capex year, driven largely by the acquisition of 17 wide-body aircraft this year.

In addition, as Greg and Andrew mentioned before, we are making a lot of high return customer-centric investments that we will expect will not only improve customer experience but will help us to be a more profitable to airline. As we think about both capex and our share repurchase program, we are very cognizant of their impact on our fortress balance sheet that we have established and plan to maintain. The discipline we have shown as we continue to maintain strong liquidity, a large and growing pool of unencumbered assets and a very manageable scheduled debt repayments has been rewarded with tremendous access to attractive debt financing throughout our capital structure. In addition, our success in managing the balance sheet and reducing financial risk continues to be recognized. Just last week, Moody’s joined S&P and upgrading our credit ratings to positive outlook.

Lastly, Slide 19 has a summary of our current guidance for the first quarter and full year 2020. As you can see, we will no longer be providing capacity guidance for the quarter or full year or CASM ex guidance for the full year. Our focus is our long-term earnings targets. And as we move forward, we will plan for capacity at levels that allow us to achieve those targets. We currently expect full-year 2020 adjusted earnings per share to be between $11 and $13. While some may view this guidance to be a little conservative, we are only three weeks into the new year and are still facing uncertainty in both the timing of the reintroduction of the MAX and speed at which are associated capacity will ramp up. As always, we plan to update this target throughout the year as we continue to execute on all of our initiatives and we absolutely aspired to end of the year in a higher range, regardless of known and unknown headwinds that we as an industry routinely.

The most recent examples of Boeing’s announcement yesterday on the MAX and the uncertainty around the Coronavirus in Asia. We will gain more clarity on these items in the weeks to come. And at our Investor Day in March, we will, we will provide an update to our outlook. In addition, at our Investor Day, we plan to once again provide multi-year EPS guidance.

With that, Mike, will now begin the Q&A.

Mike Leskinen — Vice President of Corporate Development and Investor Relations

Thank you, Gerry. First, we will take questions from the analyst community, then we will take questions from the media. Please limit yourself to one question and if needed one follow-up question. Operator, please describe the procedure to ask a question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And first up from Barclays, we have Brandon Oglenski. Please go ahead.

Brandon Oglenski — Barclays — Analyst

Hey, good morning, everyone, and congrats on what was in hindsight challenging year in 2019. So, I guess incrementally on the capex, because this is a pretty big year at $7 billion. I think if we go back to your slides in 2018. It looks like maybe $5 billion to $6 billion was more of the expected range. So, can you talk to some of the opportunities that you see there that you’re willing to put capital behind this year and maybe even go a little bit deeper on the non-aircraft side as well.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

So, as I said the spike in capex is really attributable to those, wide-body aircraft. The 17 aircraft is just a peak year for that and really when you’re looking at, our fleet plan, you kind of have to look at it over several year time horizon, take sort of more of a run rate number. So, it’s really nothing more than that for this year. I would also point out that in that number, we are assuming the delivery of some MAX aircraft and so, we end up with no MAX aircraft. I would expect that number to come down a little bit.

On the non-aircraft side, I would say from what I’m seeing right now, the number is a little bit higher this year than last year, but that is all attributable to really finishing the various reconfiguration projects that we have to get the Polaris modifications done and some of the other customer-centric modification finished.

Brandon Oglenski — Barclays — Analyst

I appreciate that, Gerry. And I guess as a quick follow-up, Scott. As you take over here, what do you think is the right metric for investors to focus on, is it something like free cash flow or should we be thinking that United still in this transformation mode, there’s a lot of opportunities out there. So, focus more on earnings, revenue, what should we focus?

J. Scott Kirby — President

Well, all of the metrics are highly correlated with earnings, and so, I think the principal metric is probably earnings. Higher earnings drive higher free cash flow. Higher earnings to drive higher margins, higher earnings drive, higher return on invested capital. And so, I think we’re kind of dancing on the head of a pin when we try to distinguish between those because they’re also highly correlated. And because they are all highly correlated. I think we will focus more as we are in our guidance on earnings.

Brandon Oglenski — Barclays — Analyst

Thank you.

Operator

From Wolfe Research we have Hunter Keay. Please go ahead.

Hunter Keay — Wolfe Research — Analyst

Hey, good morning, everybody. Hey, Scott, sort of a philosophical question on pricing that not, certainly not a tactical one. You’ve been very clear over the years about the need to match the lowest fares in your market to win the long game. I’m just wondering if that’s becoming outdated. I know you never get anchored in your opinions, but I’m wondering if there is a point we feel good enough about the quality of your service that you’re providing to, we’re sort of blanket price matching becomes not only unnecessary but actually harmful to the brand, even though the long run.

J. Scott Kirby — President

So, we are increasingly focused on improving the brand United Airlines and the perception amongst customers. We’re making significant investments in that. We’ve talked to, we talked about backstage and Greg touched on a number of those investments. And it’s increasingly clear that there is a large segment of customers who choose based on the quality of the product and the quality of the customer experience. There are also customers out there who still choose their product based on price. And really, what I would say is, what we’ve done is try to create a segmentation where we can offer both sets of customers, what they are looking for and our basic economy product tends to be more focused on price of the rest of our products can be less focused on being price competitive.

Hunter Keay — Wolfe Research — Analyst

Okay, thanks. And then, what percentage of your credit card holders or premier status holders either one has zip codes outside of your hub catchment areas where was it before this recent growth spurt and where do you want it to be?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Hunter, it’s Andrew. I’d say, I don’t have the number of the top of my head, I don’t think it’s in the neighborhood of 50%, 50. Yeah. And I think we’d like to continue to diversify outside of our hubs. We’re doing, but we’ll have Christina contact you to get a few more details.

Hunter Keay — Wolfe Research — Analyst

Right, guys. Thank you.

Operator

From Vertical Research we have Darryl Genovesi. Please go ahead.

Darryl Genovesi — Vertical Research — Analyst

Hi, good morning, everyone. Thanks for the time. Gerry, I realize you don’t want to provide an explicit 2020 CASM, ex guide, but can you please help us understand some of what’s changed since your October call, when you guided 2020 CASM, ex flat, for instance, what percentage of your 2020 capacity did the MAX represent back then. And then, relative to that. What’s the CASM, ex hit associated with not having it for any period of time. However, you want to define.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Sure. Let me put it this way. We have not changed our commitment over the next several years, that our goal remain flat CASM, ex. And as I said in 2019 book-to-the-MAX, we would have been at least flat and actually in 2020 the same is generally true. And let me give you a little bit of color on the MAX. Looking at it today, we currently anticipate the MAX creates about one to two points of CASM, ex-pressure. So even if the MAX remains out for the full year taking the worst case, we expect that to be less than two points of CASM, ex, CASM, ex-pressure, but let me remind you that none of this deviates from our commitment to deliver on our EPS target.

Darryl Genovesi — Vertical Research — Analyst

Okay, thanks for that. And then just a quick follow-up on the non-op. What’s driving the year-over-year decline in the first quarter. I assume pension is probably down a little bit, but if there’s anything else. I mean, and then also, do you see that carrying through the year.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

So, that’s generally actually some changes we made in some of our post-employment benefit some of our post-retirement medical plans, where we were able to save some money without changing the benefits at all, that’s really the principal driver there.

Darryl Genovesi — Vertical Research — Analyst

Okay, thank you very much.

Operator

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

Jamie Baker — J.P. Morgan — Analyst

Hey, good morning, everybody. First one probably for Gerry. As it relates to the $11 to $13 guide for this year. I’m hoping you could talk a bit more about how that might have evolved. There was a time, when it was suggested that it could move higher clearly conditions evolved in a way that prevented that from happening. And I don’t think this came as a surprise. I’m not being critical of this fact, I’m just curious as to how your model for 2020 evolved over say the last four to five months. What the various puts and takes were. Whether $12 to $14 was ever pondered?

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

So Jamie, let tell you, from my perspective, it could have been $10 to $14. Just looking at the first two weeks of January, I look at the spot price for jet fuel every day and the impact it has on the forward curve for the rest of the year and if you look at it. So, you would have seen a lot of volatility. So given that, given some of the other unknowns out there and some of the unknowns that we just don’t know yet how they’re going to impact us, as I mentioned earlier. And my general nature of being a little conservative. That’s where we came out and as I mentioned, we absolutely aspire to raise the rain during the course of the year, but we’ll have to see what happens over the course of the next few months.

Jamie Baker — J.P. Morgan — Analyst

Okay, that’s helpful. I appreciate it. And second, just related to the MAX. I believe you have one SIM in Denver. Could you tell us what the SIM order book looks like something I’ve never asked before, and more importantly as Boeing inevitably have to shift around the Skyline. What would your interest to be in rescheduling deliveries, given the presumed aspiration of other global operators and whether there is an opportunity to monetize simulator access.

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

Hey, Jamie, this is Greg.

Jamie Baker — J.P. Morgan — Analyst

Hi, Greg.

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

How are you. Hey, we’ve got, currently one fixed trained device MAX, fixed trained device up and running, we’ll have a full-motion up and running in the next, I want to say six to eight week and over the coming months we’ll take delivery of two more sim. So, we actually feel really comfortable in terms of where we are relative to simulator capability. Obviously, we assumed a quicker delivery stream from Boeing and what we’ve seen and more than aptly prepared for whatever might come in terms of delivery stream.

Jamie Baker — J.P. Morgan — Analyst

Opportunity to monetize that access. That capacity.

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

Yeah, Jamie, it’s something we’ve done here at United in the past. We actually haven’t thought about it too much. We’ve been focused on our plans. Internal plans to make sure that we could meet whatever delivery stream, we have on the aircraft. It’s obviously something that we’ll think about. But I would expect to have too much third-party activators in simulators.

Jamie Baker — J.P. Morgan — Analyst

Excellent. I appreciate it. And on a personal note. Welcome back from Guam.

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

Thanks, Jamie.

Operator

From Bank of America we have Andrew Didora. Please go ahead.

Andrew Didora — Bank of America — Analyst

Hi, good morning, everyone, thanks for taking the question. Gerry, just had kind of a follow-up on the unit cost, and I know you’re not giving a full-year outlook. But the 1Q guide of 1% to 2% was better than what we were thinking better than the back half of 2019, it up 2.5%. Just trying to get a sense for is this 1% to 2% a good quarterly run rate, while the MAX is out. Was there some timing we should consider here, I guess basically any color you can provide about the cost cadence throughout the year would be helpful. Thanks.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Sure. As you identified, there’s always timing when you’re looking at the quarterly CASM numbers last year. You may remember there were some maintenance events weighted more heavily towards the back end of the year. So, the first half of the year. CASM, ex was better than the back half, we always take that into account, when we look at the full year and look at our commitment to deliver, but for the MAX flat or better CASM ex.

Andrew Didora — Bank of America — Analyst

And is that the way we should think about kind of that out years once the MAX back is sort of flat to flat to down CASM, is that what the plan is, right now without stealing any thunder from March?

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

It’s been our commitment. We’ve been public for several years on that, that’s our commitment. Keep in mind one of the tailwinds, we’re going to have, which is now been delayed a little bit is on gauge. If you look at our, what would have been our MAX delivery schedules, you would have seen the MAX 10 coming and those aircraft. In addition to growth replacing smaller gauge aircraft. So, that’s still a terrific had tailwinds that we have over the next few years.

Andrew Didora — Bank of America — Analyst

All right. Thanks, Gerry. I appreciate it.

Operator

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

Catherine O’Brien — Goldman Sachs — Analyst

Good morning, everyone. Thanks for the time. So a question, I think this year you’re performance is commendable despite the headwinds, the MAX and really appreciate your nose pieces mentality. But can you help us think about the negative impact of the MAX thus far. Just trying to get a handle on what the core business could produce without that headwind. Should we think about any impact above and beyond that CASM ex headwind you alluded to earlier?

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Well, keep in mind, the — had we had the MAX we would have benefited both on the CASM side, on the revenue side as well, that we as the other carriers who did not have the MAX, lost income as a result.

Catherine O’Brien — Goldman Sachs — Analyst

All right. I guess maybe like any, any — any color on, like maybe like a margin detrimental or EPS, you’re willing to share?

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Look, I’d say we’ve been careful to not use any of the events that have happened as an excuses. We delivered on getting a year early to our $11 to $13 EPS goals and we’re not going to start now using them as excuse. So, we’ll keep our conversations private with Boeing on what we think the impact was. And just leave it at that.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, fair enough. And then maybe just ask one quick follow-up. So, you’ve always had a really strong international network and of course you’ve been focused on strengthening parts of your domestic over the last couple of years. But United still is the highest percentage of passenger revenue booked as international network. Do you think that’s the right mix or do you think we’re going to see that change as you continue to strengthen our domestic network. Thanks.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

It’s Andrew speaking, I think it’s a really good question. And obviously these things cycle over time. There definitely a long period of time where international margins were greater than domestic. Thoroughly over the last few years, domestic margins have been greater. And we’ve been dividend here at United to fix our mid-continent gaps that we talk about regularly and we still think that is a priority, unfortunately the MAX delay has delayed our ability to properly fixed connectivity in our mid-continent hubs. And so, we’re going to be focused on that as we go forward for the next few years. But underlying all of it is really I think the best global network of any airlines to from the United States and we’re really proud of that and we think it has a lot of opportunities. We do think these things cycle and will be ready when the international environment as even better and we did see strong momentum late last year where that environment is better and international profit margins in fact are higher. And yeah, I think that’s going to come some day in the future, but right now focused on domestic, but we have a lot of strength and we have a lot of optionality in our international network.

Catherine O’Brien — Goldman Sachs — Analyst

Great, thank you.

Operator

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

Duane Pfennigwerth — Evercore — Analyst

Hey, thanks. On co-brand expansion potential certainly not going to ask you about timing, but at points in time, United talked about kind of a gap to where market rates were and those were kind of agreements you were close to. Some of that commentary was before Delta’s expansion with Amex and so my question is, in your opinion to Delta reset the bar for the market or just catch up to where the market already was?

J. Scott Kirby — President

I obviously Delta’s advertise their new deal with Amex a lot and we see it. We are in close contact with our partner, Chase and we continue to work with them on making sure that our co-brand card is the biggest and best it can be. It’s been growing a lot over the last few years and we’re about to launch a new business card, which we’re really proud of. So, there’s a lot more to come in this space, I think is what I would tell you today exactly where the market is where we are and where others are, I think it’s really a little bit difficult to tell sometimes based on what is reported and what’s not reported. But we will continue to make sure that the United co-brand is the best it can be thanks.

Duane Pfennigwerth — Evercore — Analyst

And then just for a follow-up. The premium seat — seating expansion clearly came across in the presentation, you are talking about making it easier to upsell premium economy. I wonder if you could quantify how many points of RASM that potentially represents when you’re when you’re ramped. Thanks for taking the questions.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Sure. We will actually talked about that more at Investor Day coming up, but we have definitely tilted our capacity as we enter in 2020. We expect premium products to be a bigger proportion of our revenue pie for the year and we expect that to have it really meaningful impact on RASM, but we’ll see what is details for a few weeks from now.

Duane Pfennigwerth — Evercore — Analyst

Thank you.

Operator

From UBS we have Myles Walton. Please go ahead.

Myles Walton — UBS — Analyst

Thanks, good morning. Andrew, you talked about the ancillary growth by 12% and I think you tie that to the greater point of sale,.com and direct channels reaching 50%. I’m curious, can you give some, so maybe meet around the argument of what the conversion rate looks like for the ancillary when they’re on the direct channels and also how high do you think that direct channel can get to you over the next couple of years.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

It’s a, it’s a big, it’s a hard number news, so getting from 50 to 60 is not something that’s going to happen overnight, but we would like to see united.com in our direct channels move towards the mid ’50s over the next few years. It’s a big goal. We’ll see if we can get there. That being said, there is no doubt we’re motivated to move in that direction to the conversion rates on united.com for ancillary revenues are simply dramatically higher. We don’t give the exact numbers, but they are higher. So, we are continuing to work to make that number higher in united.com by changing how we and show things in the products we offer. We’re also working with our partners that are third-party distributors to see how we can make those numbers get better as well. So, I think there’s a lot more upside but I talked about earlier was the fact that Economy Plus was being put on the shelf on united.com. In the past, I didn’t think we properly displayed that and which is new beta test we have going on and properly displaying the Economy Plus, we think that could have a meaningful impact on Economy Plus seat sales going forward. We have to get our products on the shelf for them to, to sell properly.

Myles Walton — UBS — Analyst

Just one clarification, I think in the response to a previous question, you talked about the Dash 10 getting pushed out further and that was part of the — the up gauging our seat growth per departure. I think you’ve given a previous metric, about 3% growth in seat per departure. Is that still valid for 2020?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I want to get that, simply not valid in Q1. there is a negative number are engaged in Q1, which were disappointed by somebody can get you to the annual number. I think it’s not, it’s no longer valid unfortunately.

Myles Walton — UBS — Analyst

Okay, thank you.

Operator

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

Helane Becker — Cowen and Company — Analyst

Thank you very much, operator. Hi, team and thank you very much for taking my question. Scott, when you look at, or actually, anybody can answer this, who knows the answer. When you look at what you had talked about a couple of years ago about replacing smaller aircraft with larger aircraft in key markets. Can you just update us on where that stands now. Like is that program is completely done, and so, all the capacity growth that you’re doing in 2020 is going to be in new markets and in connecting the dots.

J. Scott Kirby — President

Well, I’ll let. Andrew, I’ll let Andrew to add to it, but it’s nowhere close to done and it was a big setback in the MAX has been a big setback. There were a number of markets that would have been up gauged last year that would be being up gauged this year, up gauged the following year that are behind because of the MAX play.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Yeah, I think that’s absolutely correct. Yeah, we’re not where we hope we would be at this point, we have a lot more gauge to come going forward as Gerry also hinted out. But maybe the other way to look at it is our schedule depth. We’re just not where we need to be competitive schedule depth and we’re trying to correct that. And we’re also trying to engage in the right direction and the MAX delays kind of forwarded our progress on that front at least for 2019. And it looks like for a big chunk of 2020 at this point.

Helane Becker — Cowen and Company — Analyst

Okay, thank you. I appreciate the time.

Operator

From Raymond James, we have Savi Syth. Please go ahead.

Savi Syth — Raymond James — Analyst

Hey, good morning. Andrew, if I might just ask a little bit of a follow-up on the kind of regional entity trends that you were talking about. Could you give a little bit more color on generally what you’re seeing today. On that front. I know you mentioned Hong Kong will stop being a pressure and Germany is maybe you kind of bottoming are rebounding. So, is it fair to assume that those entities, we should see a sequential improvement. Just any additional color would be helpful.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

All right. I think for the quarter, at a macro level, the entities, I expect to come in and basically the same ranked or so I expect that the Latin American division will be our best I think domestic second, and then Europe third and Asia last again. In terms of a little bit more color. We’re just watching the situation in China. Beijing and Shanghai and also Hong Kong, very carefully. We do think that Hong Kong based on current trends is no longer a drag on PRASM, which was nice to see. I do expect that Beijing and Shanghai will still be a slight drag on PRASM. But what I can tell you is that demand over the last eight weeks to Beijing and Shanghai has actually increased. So, from a revenue perspective for the last 12 months, our ticked revenues to Beijing and Shanghai have been down 4%. But over the last eight weeks have been up 3%. So, I do think we’ve turned the corner there, absent any other significant situations that arise in China particularly Beijing and Shanghai. So, good progress. We’re watching Australia very carefully. The wildfires really had some impact on demand. So, we’ll keep a close eye on that. But all the rest of Asia, Japan, looks very good and Taiwan as well. In South America, I think is kind of lead the charge as well as Mexico, and Central America so that all looks I think very good. And in Europe, we’ve been deploying our new 767 high J to London, Heathrow. I think that’s having a nice tailwind on the system that has offset some of the Germany weakness, but in the case of Germany, we did see demand from our key corporate clients and travel agency sales go positive over the last few weeks, which is really nice to see after a, pretty much 12 months of negative numbers. So, we’re — we’re optimistic that Germany is on the mend and moving in the right for which had lots of do with industrial. So, overall across the globe, there are definitely a few spots but we generally see encouraging trends.

Operator

From Stifel, we have Joseph DeNardi. Please go ahead.

Joseph DeNardi — Stifel — Analyst

Yeah, thanks, good morning. Gerry, can you just provide a little bit more color around the step down in capex you’re expecting in 2021. If you look at the last 10-Q from October it shows about a $2.5 billion decline in aircraft purchase commitments year-over-year, but that was I guess before the Airbus order you referenced. So, can you just maybe update us on what that looks like now in 2021 versus 2020. Thank you.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

It’s a little early to be able to give a good numbers, largely because until Boeing tells us what’s the MAX delivery schedule is going to look like, it’s just tough next year would have been a year of significant MAX deliveries. We don’t know what’s going to happen. Yeah, on those as a little premature. We also don’t know how many of the MAX is that we assume for this year might get pushed. I mean all we know today is that there were 16 aircraft built, they’re sitting I’ve been Boeing facilities. We’d like to get those, when aircraft by delivery but particularly Boeing having shut down the line, they to tell us and there are other customers, how are they going to allocate slots to everybody. And that would drive a lot of the 2021 capex number. So, it’s just too soon to tell.

Joseph DeNardi — Stifel — Analyst

Okay. Gerry is the step down, a function of, is it hundreds of millions or is it billions.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

Again, it’s just too soon to tell on that.

Joseph DeNardi — Stifel — Analyst

Okay.

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

I don’t expect it to be billions portal, but it’s really too soon to tell.

Joseph DeNardi — Stifel — Analyst

Okay. Maybe just a question for Scott or Andrew, I’m trying to stump Scott. What percent of the tickets sold in 2019 were on fares, which were in the market in order to match a competitor’s fares versus what percent of tickets sold, that’s what Jim and I said was the right fare? Thank you.

J. Scott Kirby — President

I’m not sure I understand the question, but…

Joseph DeNardi — Stifel — Analyst

Trying to understand. Scott, how much of your revenue is subject to kind of the worst competitor in the market, how often do you have to just match fares versus how often can you go with what you think is the best fair at that point?

J. Scott Kirby — President

We’ll typically all of our fares are matching something, there will be multiple fares in the market. I guess your question is, how often are we selling the lowest fares in the market is really the right way to ask the question, and I don’t know the precision time that we get, it’s a single-digit percent of our sold at the lowest fare available in the market.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Yeah, I would agree with that, I mean Gemini, it gives us to the guidance in terms of what the demand forecast is open up or closed down and so and that’s it. By market-by-day by day by everything. So, I’m not sure else how is that.

J. Scott Kirby — President

But I think what you’re really getting at is like the lowest fare in the market is probably selling single-digit percent of our seat at the absolute [Technical Issues]

Operator

From Bernstein, we have David Vernon. Please go ahead.

David Vernon — Sanford Bernstein — Analyst

Hey guys, thanks for the time. Andrew, just to start out on the premium products or the Premium Plus rollout. The tailwind you guys cited kind of grew from 50 to 60 bps from 3 to 4Q. I’m just trying to get a sense for what the tailwind should be in 2020 as you ladder in, I think a broader rollout of that product. Should that — should that benefit sort of increase as we get through the year assuming stable conditions, not looking really for guidance you’re trying to make sure I understand how that rollout is going to going to affect the base business?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Yes, what I would say is the rollout will continue and we’re gaining critical mass and therefore, I’m optimistic we’ll see that number inch up even a little bit more as we head into Q1 and Q2. and maybe even Q3, and with all the 777 type of product. Then we start to lap as we really get into the later part of Q3 and Q4, and there is a little bit different in that. I think our expertise in how we manage the product will be a big driver and whether it can expand or not beyond that number. And so, I hesitate to say that as we enter the fourth quarter of 2020 that we can keep it at that same pace. But we’re optimistic that there is still a lot out there as we learn how to better manage it from day-to-day and flight-to-flight.

David Vernon — Sanford Bernstein — Analyst

And that should expand even a little bit more into 2021. I think you said you’re going to get to 8% of ASMs by 2021 Right?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Yeah. The maturity of the product really by early ’21 we have it. All the other things we are going to have it on, in fact, I think at this point we plan to have it on every whatever Intercontinental wide bodies. With the exception of 14 and 767-300. But every other aircraft is going to have it and it’s going to be very, very consistent. So, we’re excited to get out there and we do think it provides a continued tailwind whether it’s a 0.5 points or so, or 60, 60 basis points that seemed aggressive as you get that far out, but it is a continuing tailwind. Along with other actions that we’re taking on this front, whether it’s more first-class seats on our 319 the high J, 767 that we’re flying to London, Heathrow and Switzerland. So, there’s a lot of initiatives on this front to continue to roll out that we expect to provide a tailwind this unique United for the next year or two at least.

Operator

And from Buckingham Research we have Dan McKenzie. Please go ahead. Dan Mckenzie. Your line is open.

Dan McKenzie — Buckingham Research — Analyst

Yeah, hey, thanks, good morning, guys. Andrew, given the news this weekend. I’m wondering if you can help us think about the revenue shock absorbers. So first, does the preliminary revenue outlook embed some volatility in the demand data. And then setting aside the news from this weekend. I’m wondering what corporate clients are telling you about their international travel needs in a post-trade deal world is the thought that there could be some acceleration in international demand to come that we just can’t see today.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I think that’s the case. We actually just in the last few weeks have seen Beijing and Shanghai demand increase relative to where we were for most of last year. So, I don’t have an official readout from corporate clients on that part, but I will say, as we look at corporate demand for last year, I think it was really healthy. But when you look at it, divided by the different divisions around the globe. What you find is our Asia Pacific corporate demand was impact negative where the rest of the world was positive. So, it just provides an easier comp. So, I’m optimistic that absent the issue that we have this last few days that we’re going to see stronger results, particularly in the Asia Pacific region is relates to that. In regard to really I think forecast. And as we look at each quarter and we assess where we think things will turn out. We clearly have a tenancy to put a little bit of. I’d like to say wiggle room in the numbers for unknown things that will happen. This has been pretty predictable that there’ll be something I know that will happen in any part of the globe. And so, we do leave room for that and I think that you can see that over our track record of the last two years plus on RASM guide, what do we left exactly in that room only time will tell, but we do feel comfortable with current trends and the room we left in, but we’ll have to wait and see how things unfold over the next week or so to really be able to firmly answer at least how that relates to what’s happening in China today at this point.

Dan McKenzie — Buckingham Research — Analyst

That’s perfect. Thanks so much for the time, guys.

Operator

And from Deutsche Bank we have Michael Linenberg. Please go ahead.

Michael Linenberg — Deutsche Bank — Analyst

Oh. Hey, thanks, everyone, Hey, two quick ones here. Gerry on just the $7 billion of capex. What’s the rough split aircraft versus non-aircraft?

Gerald (Gerry) Laderman — Executive Vice President and Chief Financial Officer

It is roughly, call it $5 billion aircraft roughly $2 billion non-aircraft.

Michael Linenberg — Deutsche Bank — Analyst

Okay, great. And then just a question to Andrew. Andrew, I had heard somewhere that you are considering adding more seats to your 787 eights and nines, is that true. And what happens to your premium seating in those airplanes. If that does go through. Does that, is it coming down or is it just a different configuration. Thanks.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

Sure. So, the 789 is a heart of our 787 fleet. We have the most of those aircraft and the seating configuration on that aircraft as it relates to business class, I think remains identical. If that’s not the case somebody will get back to you. But we didn’t change the number of business class seats on the 789, as you just heard three configuration over the next, 12 months or so. So, we’re fine there. We did find a little bit of room in the coach cabin, so the density, the number of seats on aircraft did go up a little bit. So, there has more seats in total, but we didn’t lose any J seats on that. On the 788, we did reduce the size of the J-class cabin. I don’t have the number at the top of my head, I think 28 to 30 seats relative to where we are today which I think 36 seats. We did that because the missions that we’re going to be using the 788 on are likely to be more leisure-oriented that have lower business class demand. We have literally 150 plus wide bodies with very large J class cabins and in fact, some cabins getting bigger on all the other aircraft types. On this particular aircraft type in which we only have 12 units. We did reduce the size of the cabin to reflect how we will use the aircraft in the future, which has a more leisure-oriented tilt and business tilt, and we thought that was the right segmentation of seats onboard that aircraft, given how it will be used. But again, it’s called aircraft out of a fleet of almost 200 wide-body aircraft. It doesn’t move the numbers.

Operator

Thank you. And we’ll now take questions from the media. [Operator Instructions] And from Bloomberg, we have Justin Bachman. Please go ahead.

Justin Bachman — Bloomberg — Analyst

Yeah, hi, thanks for the time today. This question, I think it’s for Oscar or Scott. I wanted to ask about your decision to get rid of the capacity guidance and what sort of growth United we’ll see over the next year or two or three in terms of both the mid-continent, and if that’s just a function of the MAX uncertainty or if you’re now at a period where you’re slowing things down because you feel that you’ve regain that share that United did not have in the past. Thanks.

J. Scott Kirby — President

So, we have decided. Well, we want to folks our efforts and our guidance on earnings that’s the key metric that we’re trying to focus on and if that means we should 5% to hit our earnings growth targets that will do. It means should grow 1% to hit our earnings growth targets, and that’s what we’ll do, we’re really focused on earnings, and so, we always actually intended as we’ve built increasing credibility with hitting our numbers to start giving full year capacity guidance beginning next year of giving. We had one competitor already doing it. And given the uncertainty that we have with the MAX. We did a year really, the only thing that our changing guidance had to do with the MAX because we did it a year early because we have a lot of uncertainty. This year, but we always intended to do it and it’s really a focus on driving towards our earnings target and having all of us, focused on earnings metrics as the right metric.

Justin Bachman — Bloomberg — Analyst

Great, thanks. But as far as your — your comfort with the mid-continent strategy, where does that resume Andrew, Ted talked about sort of a hot given the MAX. Is that, is that coming back when you get the MAX?

Andrew Nocella — Executive Vice President and Chief Commercial Officer

I wouldn’t say it’s a halt. This is Andrew. I would say we are just not where we would otherwise have liked it to be because of the lack of the MAX. So, we have built connectivity. We focused impact in Denver, so that the Denver grid actually does continue. We are not where we’d like to be in Houston or Chicago so only time will tell. On the other thing I’ll add is, CRJ 550 which has been a, I think this success so far is you really well. And that does also help our mid-continent activity. But the MAX aircraft were a key ingredient to what we’re trying to accomplish and they’re not available to fly and therefore we’re behind schedule on where we’d otherwise like to be and we’re likely to be behind schedule for the foreseeable future. Given the latest announcement from Boeing.

Justin Bachman — Bloomberg — Analyst

Okay, thank you.

Operator

And from Wall Street Journal we have Alison Sider. Please go ahead.

Alison Sider — Wall Street Journal — Analyst

Hi, thanks. I was wondering if you could talk a little bit about how likely simulator training requirements could affect sort of the pace in the cadence of return to service eventually what kind of complications might that introduce and how long do you think it will take any color you have, it would be great?

Gregory (Greg) Hart — Executive Vice President and Chief Operations Officer

Thanks. Thanks for the question. This is Greg. We don’t anticipate any issues if simulator training is required by the FAA. As we talked about earlier, we have ample simulator capacity and we’re working on plans until allows us to provide by whatever guidance the FAA issues.

Alison Sider — Wall Street Journal — Analyst

Got it, thanks. And if I could just follow-up, I guess I’m just wondering if there is any kind of thinking of like a worst-case scenario, if the MAX doesn’t fly again, is there sort of a contingency plan for that. Like in the backroom somewhere or is that even something you consider a possibility if you would just have to give up on the MAX or how might that play out?

J. Scott Kirby — President

We continue to assume will be return the MAX and we are actually encouraged at what we hope is more, a more realistic timeline and target and we will be announcing soon. Our own push back a service that gives us time from what Boeing is now saying about the MAX return to service you give us time to get your plant back up and running, including time or classroom training simulator training for our pilots where they plan.

Andrew Nocella — Executive Vice President and Chief Commercial Officer

At this point we’re assessing the impact of the schedule, but we do not anticipate flying the MAX this summer.

Operator

Thank you. This concludes our question-and-answer portion. I will now turn it back to Mike Leskinen for closing remarks.

Mike Leskinen — Vice President of Corporate Development and Investor Relations

Thanks, Brandon and thanks to all of you for joining the call today. Please contact Media Relations, if you have any further questions and we look forward to talking to you next quarter.

Operator

[Operator Closing Remarks]

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