United Airlines CEO Scott Kirby spoke at the Bernstein Strategic Decisions Conference and spoke confidently about shedding costs and preparing for a rebound in air travel. He offered that bankruptcy isn’t a strategic option, that airlines are foolish to retire fleets too quickly, and that MileagePlus is going to be a great source of cash – whether by selling a ton of miles or borrowing against the program.

Overall (9) claims Kirby made seemed both new, compared to previous statements, and struck me as noteworthy.

• Can break even with half of a recovery. Kirby believes United will break even again once “50% of demand returns.” One simple and rough way to track this would be to look at when TSA starts screening over a million passengers a day again. That doesn’t mean load factors in the 40s, it means half the passengers will squeeze onto far fewer flights than before.

• No bankruptcy plan. It’s been clear that, after the federal government handed airlines a bailout worth 25% of annual revenue, no major U.S. airline will be forced into bankruptcy this year but that if demand doesn’t recover next year that path may change. I’ve had some commenters counter that an airline wouldn’t drop down to, say, $2 billion in cash which their debt covenants require them to keep before filing because it could be strategic to restructure that way.

  Kirby offered that there is “zero percent” chance, bankruptcy “is not even remotely in the plans at United Airlines” and is worse for all stakeholders. He “can’t understand the logic” of those who say it’s a strategic play.

• Expect MileagePlus To Lever Up. Though they failed in a recent $2.2 billion debt raise, he argues they have plenty of assets left to raise capital against and that’s especially true of MileagePlus. He offered,

  ]M]ore to come, anything is on the table for us, the reality is our loyalty program is not only incredibly valuable it’s one of the best pieces of collateral we have at united airlines.

  ..United is oging to have a valuable loyalty program that spins off a steady stream of cash, there is significant capacity to raise capital against that. The form and structure to be announced…I’m confident we can find ways to do it.

• Passenger Preferences Will Permanently Change From Covid and “safety, cleanliness, hygiene” will be “a permanent change” even with a vaccine. The enhanced cleaning of planes is something that will stick around even after the crisis.

• People don’t need social distancing on planes while repeating all the reasons why air travel is safe, Kirby offered that “airplanes don’t have social distancing.” United hasn’t been willing to promise not to sell middle seats, the way some competitors have. Instead they let people know they can change their plans to avoid full flights. However “only about 1% of people” are taking United up on making a free change when the flight might be 70% full.

• Don’t expect product investment for a long time This isn’t entirely new, but worth repeating, cash flow “will be devoted to improving the balance sheet first.” They’re borrowing a lot of money and they’re going to need to pay off debt before investing in the airline.

• It’s foolish to retire airplane types too quickly. Kirby sees no benefit from retiring fleets now versus parking them. On various trajectories of demand or in the competitive environment they have an expectation of what will happen to the fleet – but don’t know which will be the path forward through the crisis yet. As a result “there’s no upside to doing it today” versus waiting for more data to make a decision months down the line.

• United’s international flying is performing better than domestic. Yesterday United flew 48 widebody international cargo operations. When there’s no passenger demand there’s much higher cargo demand. International is likely better economics right now than domestic.

• We could see changes to United’s hub structure. Kirby has previously said there are ‘no sacred cows.’ Here he offered that “[i]f it’s a U-shaped recovery that takes a little longer there might be some changes” to hubs. “United is always going to be more international than its peers by nature of where its hubs are” noting San Francisco, Newark and Washington Dulles gateways.