Conor Cunningham

Conor Cunningham asked about Carnival's balance sheet target of sub-three net debt to EBITDA, why that specific level is appropriate, and if there's a desire to exceed the natural deleveraging of $2.6 billion this year. He also inquired about Carnival's approach to core pricing versus occupancy, specifically if the company is less willing to discount to fill ships, given historical supply swings in the industry.

Answer

CFO David Bernstein confirmed that Carnival is projecting to end 2026 below three times net debt to EBITDA, around 2.8 times, targeting approximately 2.75 times for a strong triple B rating. President and CEO Josh Weinstein emphasized that the Caribbean remains a fantastic market, and Carnival has successfully absorbed elevated supply before. He stated that the company is acting rationally to maintain price integrity while ensuring happy guests who spend on board, leveraging bundled pricing and promotions.

Conor Cunningham from Melius Research LLC asked for details on the improvement of 'laggard brands,' including what specific aspects are improving and any necessary investments, and inquired if dry dock expenses are expected to decrease in 2027.

Answer

CEO Josh Weinstein explained that some lagging brands were high performers in 2019 and are showing good improvement, while others are surpassing 2019 levels from a lower base. He noted that no glaring holes require significant investment, and other brands are considering similar midlife refurbishment programs to AIDA's. CFO David Bernstein stated that current plans project fewer dry dock days in 2027 compared to 2026, though plans can change.

Conor Cunningham asked for more detail on the 'laggard brands moving up the ranks,' specifically what improvements are driving this and if significant investment is required. He also inquired about the dry dock commentary, noting it has been a headwind for several years, and asked if dry dock expenses are expected to decrease in 2027.

Answer

CEO Josh Weinstein explained that some 'laggard' brands were high performers in 2019 and are already achieving double-digit returns, while others have improved against a lower 2019 baseline. He stated there are no glaring holes requiring massive investment, and progress is good across rationalized brands. CFO David Bernstein indicated that, at present, the plan is for fewer dry dock days in 2027 compared to 2026, but cautioned that plans are subject to change.

Conor Cunningham from Melius Research asked for more detail on "laggard brands moving up the ranks," specifically what improvements are being made and if investment is required to restore them to 2019 or past record levels. He also inquired about the dry dock commentary, asking if the dry dock cost headwind is expected to decrease in 2027 compared to 2026.

Answer

CEO Josh Weinstein explained that some lagging brands were already high-performing in 2019 and are showing good improvement, while others have surpassed 2019 levels but have higher past records to reach. He stated that no glaring holes require significant investment, and rationalized brands are progressing well. CFO David Bernstein indicated that, at the moment, fewer dry dock days are planned for 2027 compared to 2026, but cautioned that plans can change.

Conor Cunningham requested a more detailed breakdown of the drivers for the Q3 cost guide, particularly the impact of Celebration Key, and asked for details on the new loyalty program's link to the co-branded credit card, drawing a parallel to airline programs.

Answer

CFO David Bernstein detailed the 7% Q3 cost increase, attributing approximately one percentage point to Celebration Key operating expenses, one point to the absence of prior-year one-time benefits, and just over a point to a combination of advertising and lower capacity. CEO Josh Weinstein added that the new loyalty program will have a distinct tie to the co-branded credit card, allowing members to 'supercharge' earnings, but a card is not required to participate.

Conor Cunningham asked for a more detailed breakdown of the 7% Q3 cost increase, specifically the impact from timing shifts and the Celebration Key opening. He also inquired about the new loyalty program's connection to the co-branded credit card, seeking parallels to successful airline programs and details on current cardholder numbers.

Answer

CFO David Bernstein broke down the Q3 cost increase, attributing about one percentage point to Celebration Key, one point to the absence of prior-year one-time benefits, and just over a point combined to higher advertising and lower capacity. CEO Josh Weinstein added that while the new loyalty program will be supercharged by the credit card, specific cardholder data is not disclosed. He emphasized the card is a key part of the strategy but not required to participate in the program.

Conor Cunningham of Melius Research asked about the cost levers Carnival could pull if demand were to weaken and how the company's strategy of increased marketing spend is currently performing.

Answer

CEO Josh Weinstein identified the company's policy of not hedging commodities as a natural hedge in a downturn. He affirmed the marketing strategy is working, citing a 24% yield increase over the last two years as proof. He noted that while ad spend is up, it's unlocking demand effectively without requiring new ship capacity.

Conor Cunningham asked if new-to-cruise and new-to-brand guest bookings were accelerating for 2025 and requested an update on attracting younger demographics. He also inquired if Celebration Key is creating the expected "halo effect" on bookings for ships scheduled to visit.

Answer

CEO Josh Weinstein declined to comment on the future booking profile but noted the company's portfolio approach targets all generations, from millennials on Carnival Cruise Line to boomers on Holland America and Cunard. Regarding Celebration Key, he confirmed they are seeing a pricing premium and strong interest, but since all Carnival ships are scheduled to go, there is no direct control group to measure a halo effect against. He expects the real impact will come after the destination opens.

Conor Cunningham asked about the opportunity set in healthcare and small/medium-sized business markets, and how FedEx fits into the tech pipeline given the significant CapEx spending by AI players.

Answer

EVP and Chief Customer Officer Brie Carere highlighted FedEx's strong digital portfolio and customized visibility in healthcare, with a long runway for growth in a $70 billion market. She noted the best quarter in SMB share and performance in years. For data centers, she identified a rapidly growing $7-8 billion market that demands precision, where FedEx is well-positioned to win.

Conor Cunningham inquired about the opportunity set in the healthcare and small and medium-sized business (SMB) markets, and how FedEx fits into the tech pipeline, particularly given the CapEx spending by AI players.

Answer

Brie Carere, EVP and Chief Customer Officer, FedEx, detailed opportunities in healthcare (best digital portfolio, customized visibility, new quality programs, expanding cold chain, $9-10 billion base in a $70 billion market) and SMB (easiest to do business, best quarter in several years). She also addressed the rapidly growing $7-8 billion data center market, emphasizing FedEx's precision capabilities as a key differentiator.

Conor Cunningham asked about the Network 2.0 initiative, specifically questioning the margin contribution from packages currently in the new system and the reason for the lag in significant savings until fiscal 2027.

Answer

EVP & CCO Brie Carere expressed satisfaction with the program's execution, noting they are hitting pickup and delivery savings targets. She explained the financial benefits are lagged due to the upfront costs of implementation and service contingencies required to prevent revenue breakage. She reaffirmed the company is on track for the $2 billion savings target by FY27.

Conor Cunningham asked about the margin contribution from packages flowing through the Network 2.0 system and questioned why the financial benefits are being deferred to fiscal 2027, probing if there is a lag in margin ramp-up after implementation.

Answer

EVP & CCO Brie Carere affirmed they are hitting pickup and delivery savings targets but explained the financial flow-through is lagged. This is due to the upfront costs of implementation and building in service contingencies to avoid revenue breakage. She reiterated confidence in the $2 billion savings target by fiscal 2027.

Conor Cunningham of Melius Research asked for clarification on the air fleet strategy, questioning why the purchase of new 777s did not lead to an accelerated retirement of MD-11s.

Answer

EVP and CFO John Dietrich explained the 777s were acquired at attractive prices and support long-term growth projections in the international freight market. He noted the MD-11 retirement was extended to FY'32 to support international economy growth, as the assets are mostly depreciated but have useful life left, providing network flexibility.

Conor Cunningham of Melius Research asked if the reduction in the full-year earnings guidance was entirely attributable to pressure in the FedEx Freight business, noting that underlying trends in the Express segment appeared to be improving.

Answer

EVP and CFO John Dietrich clarified that while pricing actions are helping, revenue expectations are constrained across the board due to weakness in the U.S. industrial economy. He noted that demand for high-margin U.S. premium services is expected to remain muted, pressuring overall operating income. President and CEO Raj Subramaniam added that with 60% of Express and 90% of LTL revenue tied to B2B, the prolonged industrial downturn, now 24 of the last 25 months, is the primary factor.

Conor Cunningham of Melius Research asked about the current state of direct bookings within Expedia Group's B2C business and what a reasonable medium-term target might be, given accelerating trends and improved marketing efficiencies.

Answer

CEO Ariane Gorin stated that approximately two-thirds of consumer business bookings are direct, driven by loyalty programs and repeat travelers, while also seeking to attract new travelers. CFO Scott Schenkel noted an uptick in conversion rates within direct channels in recent quarters and highlighted strong Q3 traffic, which was ahead of Q1 and Q2, attributing B2C margin expansion to effective balancing and shifting of marketing spend to higher-returning channels.

Conor Cunningham asked about the current percentage of direct bookings in Expedia Group's B2C business, the recent uptick in direct bookings, and a reasonable medium-term target for this metric.

Answer

CEO Ariane Gorin stated that approximately two-thirds of Expedia Group's consumer business bookings come directly, driven by loyalty programs and returning travelers. CFO Scott Schenkel added that conversion rates in direct channels have started to tick up, indicating positive momentum, and highlighted good traffic in Q3, which was ahead of Q1 and Q2, supported by optimized marketing spend and channel reallocation.

Conor Cunningham of Melius Research LLC inquired about the long-term growth opportunity for international points of sale and whether booking curves were elongating.

Answer

CEO Ariane Gorin explained that for the consumer business, the international strategy is a focused approach on specific markets like Japan, Brazil, and Northern Europe, where they believe they can drive outsized growth. CFO Scott Schenkel noted that booking windows had shortened in Q2 but saw a pivot in early Q3 as cancellations were rebooked.

Conor Cunningham from Melius Research inquired about the booking curve, asking if there are signs of hesitation for future travel dates. He also asked about the performance of the international rollout relative to the core business and the state of international supply.

Answer

CFO Scott Schenkel stated there were no unusual booking curve dynamics beyond the previously mentioned softness in U.S. domestic and inbound travel. CEO Ariane Gorin highlighted strong international performance in the B2B business, with 30% room night growth in APAC, and noted that consumer brand investments are surgical, with Brand Expedia seeing mid-teens growth in key Western European markets.

Conor Cunningham asked about the tactical changes driving marketing leverage and for more details on the role of merchandising, cross-selling, and bundling in the company's strategy for 2025.

Answer

CEO Ariane Gorin described the marketing improvements as an ongoing process of becoming more sophisticated in analyzing returns across marketing, loyalty, and promotional spending by brand and geography. She highlighted that packages and bundling are core to the Expedia brand's DNA, as they provide great value to travelers and drive higher repeat rates. This will remain a key area of focus.

Conor Cunningham questioned the strategy behind adding one million Expedia listings to Vrbo, asking if this signals a greater focus on urban markets and if there's a difference in returns. He also asked about the priority level of improving the attach rate for other travel products.

Answer

CEO Ariane Gorin explained that the added inventory allows Vrbo to target a new market segment focused on more urban, shorter stays, though it is still early to assess returns. On the second question, she emphasized that selling multiple items is 'core DNA' for Brand Expedia and has always been a central part of its strategy, with continuous improvements in personalization and user experience driving attach rates.

Conor Cunningham questioned why the free cash flow conversion target of +50% for next year isn't considered an 'easy threshold,' given the incremental positives from the credit card deal, G&A efficiencies, and RevPAR re-acceleration.

Answer

Joan Bottarini, CFO of Hyatt, confirmed that the credit card deal will be beneficial for next year's free cash flow. She explained that one-time items impacted 2025, and Hyatt is returning to a normalized conversion rate in 2026. She also noted that incremental fees from Playa, post-asset sale, will be a meaningful addition to free cash flow conversion.

Conor Cunningham inquired about Hyatt's free cash flow conversion, noting the 40% target for this year and the reiterated >50% for next year, and asked if incremental positives like the credit card deal, G&A, and RevPAR re-acceleration would make the >50% target an easy threshold, also asking about working capital or hotel sales impacts.

Answer

Joan Bottarini, CFO, Hyatt, confirmed that the credit card deal will be helpful for next year's free cash flow. She explained that one-time items impacted 2025, but the company is returning to a normalized rate in 2026. She also noted that incremental fees from Playa post-asset sale will be a meaningful addition to free cash flow conversion.

Conor Cunningham of Melius Research LLC inquired about the drivers for the expected performance improvement in the second half of the year, the moving parts between Q3 and Q4, and the timeline for the co-branded credit card negotiations.

Answer

CFO Joan Bottarini explained that Q3 faces challenging year-over-year comparisons from one-time events in 2024, while Q4 has easier comps and positive group pace. She noted that while Hyatt is optimistic about the credit card renewal, specifics will be shared later in the year or early next. CEO Mark Hoplamazian added that group pace heading into 2026 is extremely strong.

Conor Cunningham sought to understand short-term demand trends, asking if demand had stabilized in April after accounting for calendar shifts. He also asked for more detail on international outperformance, specifically which regions have the most upside versus those with more muted outlooks.

Answer

CFO Joan Bottarini noted that while April was unusual due to Easter, preliminary results were positive, driven by strong momentum in Asia (ex-China) and the all-inclusive business. She said May and June would offer a clearer view of demand trends, particularly in the weaker upscale segment, which they are watching closely.

Conor Cunningham questioned Hyatt's appetite for further M&A and asked if the company's remaining owned hotels are still considered 'irreplaceable' as it continues its disposition strategy.

Answer

President and CEO Mark Hoplamazian confirmed that M&A activity will 'definitely calm down' as the company focuses on optimizing its current brand portfolio. Regarding asset sales, he clarified that no hotels are 'off limits' and that Hyatt is actively pursuing dispositions to achieve its target of 90% fee-based earnings by 2027.

Conor Cunningham of Melius Research asked about the current M&A environment, specifically regarding opportunities and valuation multiples for platform acquisitions.

Answer

President and CEO Mark Hoplamazian stated that while initial acquisition multiples appear high, Hyatt underwrites deals to achieve a low double-digit multiple on a run-rate basis after integration. He noted that Hyatt's last four acquisitions are tracking below a 10x multiple and that the company has significant 'white space' to add properties in underpenetrated markets, which is a key strategic advantage.

Conor Cunningham asked about the strategic benefits of Marriott's dual credit card issuer strategy (Amex and Chase) and whether having two partners offers a greater scale opportunity.

Answer

Tony Capuano (President and CEO) expressed satisfaction with the dual issuer strategy, citing its success in driving branding fee growth and loyalty program contributions. He highlighted that this approach provides access to complementary customer bases, broad market coverage, unique customer choices, and enhanced trial and point transfer sales.

Conor Cunningham inquired about the strategic benefits of Marriott's dual issuer credit card strategy with American Express and Chase, asking if having two partners provides specific advantages and contributes to a broader scale opportunity.

Answer

President and CEO Tony Capuano expressed satisfaction with the dual issuer strategy, citing its success in growing branding fees and loyalty program contributions. He highlighted that two issuers provide access to complementary customer bases, broad market coverage, unique customer choices, and greater trial/point transfer sales with proprietary card bases.

Conor Cunningham from Melius Research LLC asked about the Marriott Media Network, inquiring about its potential scale, profitability, and operational model.

Answer

President & CEO Anthony Capuano described the network as a platform for brands to connect with travelers using Marriott's deep guest insights for bespoke campaigns. While too early to quantify the economics, he noted that early interest has been strong. CFO Leeny Oberg added that it is a high-return adjacent business and that profits will be shared with hotel owners.

Conor Cunningham of Melius Research inquired about the group booking pace for 2026, given the longer visibility in that segment. He also asked about Marriott's strategic priorities, such as M&A or conversions, for strengthening the portfolio during a potential economic downturn.

Answer

CEO Tony Capuano revealed that group bookings for 2026 are currently tracking up 7%, with a healthy split between occupancy and rate. In response to a potential downturn, Mr. Capuano emphasized consistency, stating the company will continue to execute its existing long-term, deliberate growth strategies across all regions regardless of the economic cycle.

Conor Cunningham from Melius Research requested details on the implementation of the company's technology migration and its expected business impact. He also asked for the anticipated composition of 2025 RevPAR growth between ADR and occupancy.

Answer

CEO Tony Capuano explained the tech transformation will benefit associates, guests, and owners by simplifying processes and creating revenue opportunities beyond room sales. CFO Leeny Oberg added that the rollout will take several quarters. Regarding RevPAR, she expects 2025 growth to be more heavily weighted towards ADR, with group leading growth, followed by business transient and then leisure.

Conor Cunningham from Melius Research asked for a general sense of corporate travel spend excluding one-time noise, and inquired about the current Marriott Bonvoy direct booking contribution and OTA mix.

Answer

President and CEO Tony Capuano described corporate travel recovery as a 'slow and steady' grind upwards, encouraged by the continued return of large corporate accounts. CFO and EVP, Development Leeny Oberg stated that direct bookings remain steady in the low 70% range, with the OTA mix also consistent at 12-13%. She noted a slight increase in GDS bookings, reflecting the return of larger corporations.

Conor Cunningham asked if the mixed headwind from families becomes a tailwind when Great Stirrup Cay's water park comes online in the second half of 2026, and for details on the ramp-up of new investments at GSC. He also inquired if the increased occupancy from the family mix dynamic is leading to expected cost offsets, specifically regarding the spread between unit costs and net yield.

Answer

Mark Kempa (EVP and CFO) confirmed that GSC's full launch in the second half of 2026 is expected to be a tailwind, contributing significantly to yield in 2026 and fully in 2027, noting heightened consumer interest. Harry Sommer (President and CEO) explained that increased occupancy, particularly from third and fourth guests (children/teenagers), has very little marginal cost, thus improving overall unit cost and contributing to margin expansion. He emphasized that cost savings are not at the expense of product quality, as guest satisfaction and future bookings remain at record levels.

Conor Cunningham asked if the customer dynamic's mixed headwind would become a tailwind when the Great Stirrup Cay (GSC) water park opens, and for details on the ramp-up of GSC investments. He also inquired about the cost side of the mix dynamic, specifically if economies of scale from higher occupancy are offsetting modest yield headwinds, and the overall impact on the spread between unit costs and net yield.

Answer

Mark Kempa (EVP and CFO) confirmed the mixed headwind becomes a tailwind in H2 2026 with GSC fully online, reiterating GSC as a 25% yield tailwind for 2026 (partial) and full in 2027, noting heightened consumer interest. Harry Sommer (President and CEO) stated that margin expansion is broad-based, driven by mix, efficient itineraries, and scale. He emphasized that the marginal cost for third/fourth guests is minimal, improving unit costs, and that cost control is not at the expense of product quality, with guest satisfaction and onboard bookings at record levels.

Conor Cunningham of Melius Research LLC asked about the close-in booking opportunity as the company shifts to shorter duration cruises and how that fits within its revenue management strategy. He also inquired about the company's underlying earnings power for 2026, given the various headwinds experienced in 2025.

Answer

CEO Harry Sommer noted that sophisticated revenue management systems account for different booking curves and that record bookings reflect strong close-in sales without sacrificing the 2026 book position. CFO Mark Kempa added that the company is sticking to its optimal booking curve. Regarding earnings power, Kempa highlighted the 16% EPS growth in 2025 (which would be ~20% ex-FX) and reaffirmed confidence in achieving the 2026 targets, including EPS in the $2.45-$2.50 range.

Conor Cunningham asked how the company's inventory management philosophy changes during a soft booking period and if it prompts a re-evaluation of the 'optimal book position' strategy. He also inquired where cost efficiencies are being realized, given that marketing spend is increasing.

Answer

CEO Harry Sommer responded that while they made some tactical adjustments for Q3 Europe, the core strategy of maintaining price integrity, especially for future periods, remains paramount. He also revealed that marketing spend is actually increasing. CFO Mark Kempa elaborated that cost savings are system-wide, coming from eliminating waste and gaining efficiencies in areas like supply chain commercial negotiations and back-office technology, which do not impact the guest experience.

Conor Cunningham from Melius Research asked about any significant changes in inventory management aimed at better price utilization and inquired about demographic shifts, specifically whether new marketing partnerships were attracting more new-to-cruise customers.

Answer

EVP and CFO Mark Kempa clarified that there are no sweeping changes to revenue management, but rather a continuous process of refinement and improvement. President and CEO Harry Sommer added that the mix of new-to-cruise guests has remained stable and that the company is satisfied with the current demographic mix, while constantly using data science to optimize marketing efforts.

Conor Cunningham inquired if the 'low to moderate yield growth' outlook represents the core pricing outcome and what the potential swing opportunity is from improved yield management. He also asked what percentage of customers pre-book onboard spend.

Answer

CEO Harry Sommer explained that 2025 yield growth will be driven primarily by pricing, not occupancy. He noted that while ticket price revenue management sees continuous small improvements, a key opportunity lies in better revenue management of onboard products. He stated that 'nearly all' customers purchase some form of onboard amenity before their cruise.

Connor Cunningham from Melius Research asked for a breakdown of the Q4 routing outlook, distinguishing between U.S. domestic, Latin American, and Transatlantic performance. He also inquired about the maintenance outlook for next year, expecting a significant tailwind given a 30% increase this year and the retirement of E190 aircraft.

Answer

Marty St. George, President of JetBlue Airways, indicated that Q4 routing trends are consistent with overall observations, showing better performance in international markets compared to domestic. He suggested that capacity reductions by ULCCs might eventually alleviate pressure on domestic routes, but it's too early to confirm a trend. Ursula Hurley, CFO of JetBlue Airways, clarified that maintenance will remain a headwind next year because about half of the fleet (A320) is aging and operates under time-and-material agreements, not flight-hour agreements. She stated that this headwind would be offset by Jet Forward cost initiatives, contributing to a target of low single-digit CASEM ex-fuel growth.

Conor Cunningham of Melius Research LLC asked for thoughts on the fourth-quarter capacity setup, given strange seasonal patterns last year and fears of oversupply. He also requested clarification on the nature of the two-point CASM-ex benefit in Q3 from fleet changes.

Answer

President Marty St. George acknowledged the concern, stating JetBlue will fly to its annual ASM guide, which implies some capacity will be pulled from Q4 schedules, particularly during trough periods. CFO Ursula Hurley clarified that the CASM-ex benefit is from booking gains on various asset sales, including E190s and XLR aircraft, which have been better than anticipated. The full-year gain is expected to be a 1.25-point benefit to CASM-ex.

Conor Cunningham asked if the recent network changes are successfully growing the total number of customers choosing JetBlue and if these adjustments are making customers more dependent on the airline's product.

Answer

President Marty St. George responded with an 'absolutely yes.' He cited strong customer response and growth in markets like Providence, Bradley, Manchester, and Islip as proof that JetBlue is successfully attracting new customers, even in competitive environments. He asserted that in its core Northeast regions, JetBlue is becoming the 'default carrier for leisure,' justifying further growth in markets where customers show strong demand.

Conor Cunningham inquired about the future trend of network optimization, specifically whether the reduction of 195 operations and closure of 93 buildings would accelerate into 2026, and the remaining opportunities for enhancing network efficiency.

Answer

Carol Tomé, CEO, confirmed that the Amazon glide-down is ongoing, being three quarters into a six-quarter plan, which will lead to further consolidation of buildings. She stated that specific guidance and an outlook for 2026 regarding these efforts would be provided at the end of the fourth quarter.

Conor Cunningham asked about the trend of operations reduced (195) and buildings closed (93) and whether this is expected to ramp up into 2026, seeking insights into further opportunities for network efficiency.

Answer

Carol Tomé, CEO, confirmed that the Amazon glide down is ongoing, being three quarters into a six-quarter plan, which will lead to further consolidation of buildings. She stated that specific guidance and an outlook for 2026, including details on network efficiency opportunities, will be provided at the end of the fourth quarter.

Conor Cunningham of Melius Research inquired about the number of facility closures planned for the second half of the year, the current percentage of volume processed through automated facilities, and whether these initiatives are sufficient to drive margin expansion next year.

Answer

CFO Brian Dykes responded that the number of second-half facility closures is still under evaluation, as it depends on both the Amazon volume reduction and the broader macroeconomic outlook. He reported that 64% of volume was handled by automated facilities in Q2, an increase from 60% a year prior, which enhances network efficiency and flexibility. CEO Carol Tomé firmly stated that the entire strategic pivot, including these actions, is fundamentally designed to expand U.S. margins.

Conor Cunningham asked about the sequential improvement in the fourth quarter's outlook compared to September's messaging, specifically inquiring about the building blocks, the impact of increased capacity, and whether the two points from new initiatives would carry into the first quarter of next year, along with other unit revenue moving parts. He followed up on the decision to add incremental capacity, questioning its revenue contribution versus cost benefits.

Answer

CEO Bob Jordan explained the two points of added capacity resulted from delaying 737-700 retrofits into January, allowing extra revenue capture during holidays. He noted the guidance did not assume further macro inflection due to government shutdown uncertainty. COO Andrew Watterson clarified that while the capacity addition is RASM dilutive, it is EBIT accretive due to revenue from extra seats and lower retrofit costs. Bob Jordan reaffirmed commitment to the 2025 EBIT guide, emphasizing proactive cost management. Andrew Watterson further detailed the observed impact of government shutdowns on travel categories.

Conor Cunningham of Melius Research asked about future customer-facing initiatives and sought the new CFO's perspective on low-hanging fruit for cost savings. He also followed up on the loyalty program's performance.

Answer

CFO Tom Doxey stated that cost improvements are happening across the entire company, not from a single item, reflecting broad-based discipline. COO Andrew Watterson added that Southwest has a pipeline of future initiatives to strengthen its value proposition and is not waiting for current ones to mature before planning the next steps. He confirmed the loyalty program is self-reinforcing, with a strong new Chase agreement and new card offers coming soon.

Conor Cunningham asked what percentage of the initiatives driving the $1 billion EBIT build for 2025 are already in place and whether the company has considered more aggressive headcount reductions.

Answer

CEO Bob Jordan stated that while he couldn't give a specific percentage, the initiatives currently in place, primarily revenue management, have them on track to achieve the 2025 target. He also confirmed they are on track for headcount reductions and may consider tools like early outs as part of their broader cost plan, with COO Andrew Watterson adding context on improving workforce efficiency.

Conor Cunningham asked about the incremental dollar value expected from the loyalty program step-up in 2026, highlighting its potential as a significant driver for earnings.

Answer

Robert Isom, CEO, reiterated that the new Citi relationship is expected to grow cash remuneration by 10% per year, ultimately leading to $10 billion in remuneration and an additional $1.5 billion in net income. He emphasized that all investments are aimed at growing margins, increasing profitability, and enhancing shareholder value. He believes American has a strong opportunity in 2026 due to domestic capacity rebalancing, sales and distribution catch-up, the new Citi deal, and network restoration, which will benefit American more than its competitors.

Conor Cunningham inquired about the building blocks for 2026, specifically asking for the incremental dollar value expected from the loyalty component, given its potential as a significant driver for earnings.

Answer

Robert Isom, CEO, reiterated that the new Citi relationship is expected to grow cash remuneration by 10% per year, ultimately leading to $10 billion in remuneration and an additional $1.5 billion in net income. He emphasized that all investments are aimed at growing margins, increasing profitability, and enhancing shareholder value, with a capital expenditure profile that drives revenue benefits. Steve Johnson, Vice Chair and Chief Strategy Officer, added that continuous customer amenity improvements are an 'infinite game' that will help address labor and operating costs by providing better service and more premium opportunities.

Conor Cunningham of Melius Research LLC inquired about the expected sequential improvement in the U.S. domestic market for Q3 and asked about headwinds from the first half of 2025 that are not expected to repeat, to better understand the baseline earnings potential for 2026.

Answer

CEO Robert Isom confirmed that while July was tough, booking trends for August and September show improvement, with Q3 about 65% booked. CFO Devon May added that they see significant potential for margin expansion going forward, citing the improving domestic market, the new Citi credit card agreement starting in 2026, and ongoing investments in the premium customer experience as key tailwinds.

Conor Cunningham of Melius Research asked about changes to revenue management systems, like opening basic economy earlier, and the strategic importance of rebuilding in New York and Chicago for corporate share recovery.

Answer

Vice Chair Steve Johnson stated that current inventory systems are properly set up to manage weak main cabin demand. He affirmed that Chicago and New York are key network hubs where the company is not losing share and that their presence is critical for corporate clients.

Conor Cunningham of Melius Research asked why the full-year earnings guidance seems conservative at the low end, given the positive outlook on corporate share, loyalty, and costs. He also sought clarity on the earnings contribution from the new Citi contract.

Answer

CEO Robert Isom stated the forecast is based on current information, but believes American will outperform if the industry does better than expected. CFO Devon May noted the guidance midpoint of $2.20 represents a solid 10%+ year-over-year improvement. Vice Chair Steve Johnson clarified that while new Citi agreement economics start in 2026, he expects partners to overperform on new business minimums in 2025 as part of the ramp-up.

Conor Cunningham asked about evolving customer preferences for onboard products, given competitor moves like free WiFi, and how American's product stacks up. He also questioned if the revenue being recaptured from corporate channels would come at a lower margin, given the use of the word 'competitive' in describing new contracts.

Answer

CEO Robert Isom stated there is a clear preference for premium products, evidenced by an 8% rise in premium revenue, and noted American is expanding its premium seating by 20% by 2026. Vice Chair Steve Johnson addressed the corporate recovery, detailing a multi-step process of rebuilding relationships and infrastructure. He emphasized that partners see value in a competitive three-airline market, implying the goal is a sustainable, long-term profitable relationship rather than simply discounting.

Conor Cunningham from Melius Research asked for more details on the strategy behind doubling loyalty EBITDA, specifically inquiring about the impact of the Chase credit card deal renegotiation versus internal program enhancements. He also asked for an update on the mid-continent hub strategy rebuild and opportunities beyond the seven existing hubs.

Answer

CEO Scott Kirby expressed excitement about the loyalty program's potential, emphasizing United's status as a true loyalty program distinct from reward programs. He hinted at future initiatives to highlight the program's unique value, without divulging confidential contract details. EVP and Chief Commercial Officer Andrew Nocella stated that the United Next assignment, focused on domestic hub connectivity, critical mass, and gauge, is expected to complete in late 2026 or early 2027. He noted that while international margins lead, the gap with domestic margins is expected to shrink dramatically, and a broader look beyond hubs will occur after the current hub strategy is finalized.

Conor Cunningham of Melius Research LLC asked for an update on the thesis that the airline industry is on a path similar to the 2012-2014 cycle, given the challenging start to the year. He also inquired about how United is managing its Basic Economy product amid recent yield changes.

Answer

CEO Scott Kirby affirmed that the supply-side thesis remains intact, with the key difference this year being a weaker demand environment in the first half. He believes the industry is seeing a growing dispersion in results, favoring the two 'brand loyal' airlines. EVP & CCO Andrew Nocella explained that the softer Q2 demand environment created more open booking availability for Q3, which will likely result in a higher penetration of Basic Economy passengers in the quarter.

Conor Cunningham of Melius Research asked about the strategy to handle spill traffic from competitors and sought clarity on the drivers for the implied second-half EPS improvement needed to reach the full-year guidance.

Answer

CEO Scott Kirby explained that United's focus is on building the best airline for its own customers, which naturally creates a competitive gap, rather than explicitly targeting spill carriers. EVP and CFO Mike Leskinen detailed that reaching the full-year guide depends on stable booking trends, excellent cost management, lower second-half fuel costs, and profit-maximizing capacity cuts, noting the original contingency buffer is now gone.

Conor Cunningham asked about the future deployment strategy for Basic Economy amid reduced industry discounting and inquired about the conviction level in the upgauging strategy for 2025, given OEM delivery delays.

Answer

EVP and CCO Andrew Nocella stated that the Basic Economy strategy remains highly effective and will not change in 2025. Regarding fleet, he described 2025 as a 'pause year' for gauge growth due to delays, but reaffirmed it as a major margin tailwind for 2026 and beyond. CFO Mike Leskinen added that the CASM-ex benefit from upgauging is not factored into 2025 guidance.

Conor Cunningham inquired about United's strategy to capitalize on the evolving U.S. domestic market in 2025 and asked for an update on the path to achieving its double-digit pretax margin target by 2026.

Answer

EVP & CCO Andrew Nocella outlined a focus on building mid-continent hub connectivity, investing in customer products, and capitalizing on accelerating corporate traffic. CEO Scott Kirby added that competitor capacity discipline and struggles create a multiyear opportunity for significant margin expansion, similar to the 2012-2014 period.

Conor Cunningham asked about the profitability of different cabin segments, questioning if the gap in revenue growth between premium and main cabin serves as a benchmark for overall contribution differences and if a further step function change in profitability is expected. He also followed up on corporate recovery, asking if Delta is driving additional share gains or if the overall market is expanding.

Answer

President Glen Hauenstein stated that premium products, once loss leaders, are now the highest margin products, with margins descending in order of premium level, and Delta Premium Select margins are converging with Delta One. He attributed corporate growth to Delta's sales team and noted mild gains in total share and higher gains in revenue share, with corporate sales still in double digits even excluding the CrowdStrike impact. CFO Dan Janki emphasized that the 9% corporate growth in September had no CrowdStrike impact, showing real momentum.

Conor Cunningham asked about the profitability of Delta's cabin segments, specifically if the gap in revenue growth between premium and main cabin serves as a good benchmark for overall contribution differences, and if a further step function change in profitability is expected. He also followed up on corporate sales, asking if the 8% growth indicated share gains or market expansion, given that other travel industries aren't reporting similar gains.

Answer

President Glen Hauenstein stated that premium products are now Delta's highest-margin offerings, with profitability descending with the level of premium. He noted that Delta Premium Select margins are converging with Delta One due to its popularity. Regarding corporate sales, Mr. Hauenstein credited Delta's sales team for mild gains in total share and higher gains in revenue share. He and CFO Dan Janki emphasized that the strong corporate momentum, including double-digit growth in Q3 excluding any CrowdStrike impact, is real and driven by pent-up demand and continued growth outlook from corporations.

Conor Cunningham sought to understand the confidence behind the implied fourth-quarter unit revenue inflection, asking about the geographic drivers. He also asked for a bridge to the $3-4 billion full-year free cash flow guidance, questioning the drivers for the second half of the year.

Answer

President Glen Hauenstein explained that confidence comes from long-haul international travel inflecting up in the shoulder season and domestic trends moving in the right direction. CEO Ed Bastian noted the wide guidance range reflects remaining uncertainty. CFO Dan Janki detailed the H2 cash flow drivers, including pacing of investments, normalization of the booking curve, and releasing working capital built up in maintenance and operations.

Conor Cunningham of Melius Research LLC sought to understand the confidence behind the implied fourth-quarter unit revenue inflection, asking about geographic drivers. He also asked for a bridge to the full-year free cash flow guidance of $3-4 billion.

Answer

President Glen Hauenstein explained that long-haul international is expected to inflect positively post-summer, with domestic trends also moving in the right direction. CFO Dan Janki detailed the free cash flow drivers, including paced investments, normalization of the booking curve, and a significant release of working capital, particularly from maintenance materials. He also noted cash taxes would be deferred.

Conor Cunningham asked for context on the range of the second-quarter guidance and questioned if the weakness seen in the price-sensitive U.S. domestic market could eventually affect the stronger International and Premium segments.

Answer

President Glen Hauenstein stated that while they are monitoring the situation closely, they have not yet seen a spillover, noting strong cash sales for long-haul travel continue. CEO Ed Bastian added that historically, Delta has been advantaged during economic dislocations and expects the company to emerge stronger from the current environment.

Conor Cunningham asked about the potential for strong sequential revenue acceleration into the spring given difficult comps and inquired about the international supply environment, particularly for widebodies, and its impact on the transatlantic market.

Answer

President Glen Hauenstein highlighted a very strong demand period with record sales days in early January, suggesting a robust year ahead. He also noted a favorable competitive capacity setup in the transatlantic for spring and summer, expecting another record year, aided by the absence of the Paris Olympics headwind that impacted the prior year.

Conor Cunningham of Melius Research LLC asked how aggressively Delta plans to deepen its competitive moat amid industry turmoil and how it will differentiate its products, like Comfort+, from new offerings by competitors.

Answer

CFO Dan Janki and President Glen Hauenstein emphasized a consistent strategy of generating free cash flow and paying down debt to build a durable franchise. CEO Ed Bastian added that Delta has a 15-year head start on its premium platform, making it difficult for others to catch up, and will continue to accelerate investments in lounges, free WiFi, and personalization.

Conor Cunningham from Melius Research LLC asked if new, high-demand markets like Egypt and India are dilutive to the company's overall pricing strategy. He also requested an update on the long-term strategy to expand the customer base and point of sale beyond North America, with a specific focus on progress in the Chinese market.

Answer

Torstein Hagen, Founder, Chairman & CEO, explained that new destinations often use smaller vessels which require higher prices, so they are not dilutive. Regarding China, he confirmed they are marketing directly to Chinese consumers with four ships, a long-term strategy he believes is showing progress. Leah Talactac, President & CFO, also clarified a non-recurring $0.11 adjusted EPS impact from FX losses on Euro-denominated loans in Q2, which has now been mitigated through a natural hedge.

Conor Cunningham asked if Viking had implemented a previously discussed strategy to hold back inventory for Wave Season and inquired about cost management efforts to maintain a wide spread between pricing and unit cost growth.

Answer

EVP of Finance Linh Banh clarified that rather than holding back inventory, the company uses its dynamic revenue management system to price according to market conditions. Chairman and CEO Torstein Hagen addressed costs by highlighting the inherent efficiencies of their vessel designs, which makes them resilient to inflation. Banh added that while they expect SG&A leverage, they remain committed to investing in product quality.

Conor Cunningham asked about Viking's revenue management strategy, specifically if the company had adjusted its approach to holding back inventory for Wave Season. He also inquired about the outlook for unit cost management and potential efficiencies.

Answer

EVP of Finance Linh Banh clarified that rather than holding back inventory, the company uses its dynamic pricing system to react to market sentiment, citing a recent 2% rate increase for Rivers as an example. Chairman and CEO Torstein Hagen highlighted structural cost advantages from efficient vessel design. Banh added that cost management focuses on internal discipline and leveraging scale in SG&A while protecting product quality.

Conor Cunningham questioned why Viking exercised options for more Ocean ships rather than pursuing opportunities outside its core cruise business. He also asked about the operational readiness and pre-conflict contribution of vessels in Russia and Ukraine.

Answer

CFO Leah Talactac emphasized the significant whitespace for growth within their primary markets and expansion in Asia, making core fleet growth the priority. EVP of Finance Linh Banh added that the Russia/Ukraine ships could be brought back online relatively quickly if possible, but noted they are older, refurbished ships with lower margins than the modern longships.

Conor Cunningham inquired about the current state of the booking curve, asking how much of Q3 and Q4 remained to be booked. He also asked for the specific benchmarks, such as a margin or ROIC target, that define the company's principle of 'earning the right to grow.'

Answer

SVP & CCO Drew Wells estimated that 35-40% of Q3 and about 85% of Q4 were left to book. President and CEO Gregory Anderson explained that there is no single public benchmark for growth, but internally they focus on restoring historical margins, strengthening the balance sheet, and their cost of capital. He emphasized a focus on the core business model rather than growth for its own sake.

Conor Cunningham questioned the rationale for cutting only 7.5 points of capacity given the deteriorating revenue environment and asked if more cuts would be needed for the second half. He also asked a broader strategic question about how Allegiant might approach a potential downturn differently this cycle and whether M&A was a consideration.

Answer

CCO Drew Wells explained the capacity cuts were designed to maximize margin by ensuring flights cover variable costs, which most still do. CEO Greg Anderson added that they will aggressively manage second-half capacity as needed. On strategy, Anderson emphasized that Allegiant's flexible model is built for downturns and that while consolidation is not a requirement, the company remains open to all opportunities to drive shareholder value. CFO Robert Neal noted they are avoiding deeper cuts to preserve infrastructure for the eventual recovery.

Conor Cunningham sought clarity on the cost outlook, asking why Q1 would see the best unit cost improvement despite having less growth than subsequent quarters, and if the schedule-building approach has changed.

Answer

CFO Robert Neal explained that Q1's strong CASM-ex improvement is due to favorable comparisons against elevated crew training costs and the absence of the new flight attendant contract in Q1 2024. CCO Drew Wells added that the schedule-building process is fundamentally unchanged but is focused more on absolute dollar contribution than margin percentage in 2025.

Conor Cunningham of Melius Research LLC asked about the opportunity set for the loyalty program and the co-branded credit card, noting a potential gap versus land-based travel companies. He also sought clarification on the yield drag in Q4 from the timing of new ships like Star of the Seas and Celebrity XL.

Answer

President & CEO Jason Liberty confirmed the company has a co-branded credit card but is working to enhance its integration with the loyalty program in a more meaningful way, with changes coming soon. He stressed the focus is on loyalty that impacts guest behavior, leading to higher repetition and lifetime value. CFO Naftali Holtz clarified the Q4 yield impact, explaining that Celebrity XL's mid-November launch creates a ramp-up period similar to Star of the Seas in Q3. He also noted that fewer dry dock days in Q4 2025 compared to Q4 2024 create a drag on year-over-year yield comparisons, quantifying the combined impact at approximately 90 basis points.

Conor Cunningham asked how insulated the company's results are in a potential downturn, given survey data showing consumers prioritize value. He also questioned why the company isn't pursuing share buybacks more aggressively given its stated conviction.

Answer

CEO Jason Liberty stated that the strong value proposition of cruising serves as a significant buffer in uncertain economic times, as consumers know the quality and cost of the experience upfront. He explained that the pace of share buybacks is constrained by remaining net worth covenants from the COVID era, not by a lack of conviction, and the company is focused on recapturing dilution as soon as covenants allow.

Conor Cunningham of Melius Research asked for more detail on the 2025 cost guidance, specifically its cadence throughout the year. He also questioned the target demographic for the new river cruises, contrasting Celebrity's audience with that of a key competitor.

Answer

CFO Naftali Holtz explained that the cost cadence primarily follows the dry-dock schedule and ramp-up costs for new destinations. CEO Jason Liberty addressed the demographic question, stating the focus is on leveraging their own customer base, where the average Celebrity guest is in their mid-50s, rather than chasing a competitor's clientele.

Conor Cunningham inquired about future capital allocation priorities, asking if the focus would shift from deleveraging to shareholder returns. He also asked if ongoing cost pressures from new investments are now a permanent feature of the cost outlook.

Answer

CFO Naftali Holtz outlined a balanced capital allocation strategy: maintaining a strong balance sheet, investing in strategic growth, growing the dividend, and considering opportunistic buybacks. He and CEO Jason Liberty confirmed that costs from new investments are managed holistically within their 'strong cost control' framework, emphasizing that these investments are expected to be margin-accretive and drive higher returns.

Conor Cunningham inquired about the drivers behind the expected earnings ramp from Q3 to Q4 2025 and questioned the company's capital allocation strategy, particularly the pace of share buybacks given management's high conviction in its 2027 earnings target.

Answer

CEO Ben Minicucci explained the Q4 optimism is based on positive momentum starting earlier than last year, coupled with merger synergies. CFO Shane Tackett affirmed the stock is undervalued and that while H1 buybacks were aggressive, future repurchases will be balanced against earnings performance, without financing them through debt.

Conor Cunningham questioned the strong conviction in the $10 EPS target by 2027, asking for the key drivers that bridge the gap from the current outlook. He also asked for short-term details on how the booking curve and pricing are trending through the second quarter.

Answer

Executive Shane Tackett affirmed the $10 EPS target, explaining that all controllable factors like commercial initiatives, synergies, and cost management were on or ahead of plan in Q1. He expressed confidence that when the macro environment rebounds, the company is best positioned to capitalize. Andrew Harrison added that for Q2, April demand was stronger while May and June were softer, reflecting more exposure to the recent downturn.

Conor Cunningham of Melius Research asked if the 20% increase in Seattle connecting traffic was primarily driven by the new Hawaiian Airlines network connection or by changes to the legacy Alaska network. He also inquired about the outlook for spring break bookings and whether the strong Q1 unit revenue trend could improve further.

Answer

CCO Andrew Harrison confirmed the increase was driven by both factors, noting that reconfiguring flights to maximize connectivity in the low-demand months of January and February was highly effective. CEO Benito Minicucci added that Seattle's scale, with 350-400 daily flights, provides significant connection opportunities. Harrison stated that while spring is just starting to book, he expects a very strong spring break season, supported by ongoing network synergies.

Conor Cunningham inquired about the CapEx required for the first-class cabin expansion and whether the company faced any MRO capacity issues for the retrofits. He also asked about applying learnings from Q1 to improve Q4's seasonal performance.

Answer

CFO Shane Tackett stated the CapEx would be roughly $1 million per airplane, spread over a couple of years, and confirmed no issues with MRO capacity. On seasonality, CEO Benito Minicucci and CCO Andrew Harrison explained they are being more judicious with off-peak capacity and are attacking weaker periods with a portfolio of initiatives, including digital platform monetization, loyalty program enhancements, and better merchandising, not just network changes.

Conor Cunningham asked for updated thoughts on a subscription model or loyalty program, suggesting it seems more likely as Airbnb moves into experiences and other offerings.

Answer

CEO Brian Chesky agreed it is 'absolutely something that we're looking at.' He distinguished his vision from a simple points-based subsidy, suggesting a potential paid membership program that offers differentiated services and increases share of wallet, similar to how Amazon Prime increased usage frequency. The goal would be to get customers to use Airbnb more frequently, not just for annual travel.

Conor Cunningham asked for more detail on the positive outlook for China, including the expected RevPAR cadence for 2025 and an update on development and signing activity in the region.

Answer

Kevin Jacobs, CFO and President, Global Development, projected consistent low-single-digit RevPAR growth for China throughout 2025. He noted that development remains strong, with approvals, starts, and openings all up significantly in 2024, as lodging is less affected by the broader real estate slowdown. Christopher Nassetta, President and CEO, added that strong outbound travel from China is also providing a significant boost to Hilton's broader APAC business.

Conor Cunningham of Melius Research asked for commentary on the ULCC segment as a whole, whether more industry capacity rationalization is needed, and why scale is important for Frontier's long-term earnings and cash flow.

Answer

CEO Barry Biffle asserted that Frontier's model is validated, claiming it has one of the best domestic-only margins when accounting for loyalty subsidies at other carriers. He believes the domestic market still has too much capacity and expects market forces to continue driving cuts until carriers reach their target margins. Biffle explained that the biggest benefit of scale for Frontier is on the revenue side, specifically in growing its loyalty program, where moving from low-single-digit to upper-single-digit revenue per passenger presents a multi-hundred-million-dollar opportunity.

Asked to quantify the revenue opportunity from the new initiatives and clarify the nature of the additional liquidity initiatives mentioned in the press release needed to meet the year-end liquidity target.

Answer

The company confirmed the long-term revenue opportunity is significant, though perhaps slightly less than the analyst's $1B estimate. They noted near-term non-ticket revenue headwinds will be offset by the benefits of the new products over time. The additional liquidity initiatives refer to a few aircraft-related financing transactions that are currently in process.

Sought clarification on the Pratt & Whitney credits, including the driver of the $50M forecast spread, current engine turnaround times, and the split of compensation between 2023 and 2024. Also asked if the need for off-peak improvement was a Q2 or full-year comment and by how much it needed to improve.

Answer

Executives confirmed the $50M spread is based on AOG days, with current turnaround times exceeding a year. About $30M of the credits relate to prior periods (2023). For Q2, they are forecasting slight off-peak improvements but noted their strategic changes are aimed at bolstering these weaker periods over the long term.

Questioned the path to breakeven by year-end, the building blocks for margin recovery, the current value of unencumbered assets, and the status of refinancing the 2025 loyalty bond.

Answer

The path to improved margins relies on both a stabilizing domestic demand environment and internal cost/utilization efforts. The company has over $1.2B in financeable assets (hard assets, PDPs, aircraft equity). Discussions on refinancing the 2025 loyalty bond are in the early stages.