Good morning, and welcome to United Airlines Holdings' earnings conference call for the third quarter of 2020. My name is Brandon, and I'll be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. At that time, if you have a question, please press star followed by one on your touch -tone phone. This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed, or rebroadcast without the company's permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line. I will now turn the presentation over to your host for today's call. Kristina Munoz, Director of Investor Relations. Kristina, you may begin.
Thanks, Brandon. Good morning, everyone, and welcome to United's third quarter 2020 earnings conference call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com. Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release, Form 10-K and 10-Q, and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. During the course of our call, we will discuss several non-GAAP financial measures.
For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release. Joining us on the call today to discuss the results and outlook are our Chief Executive Officer, Scott Kirby; President, Brett Hart; Executive Vice President and Chief Commercial Officer, Andrew Nocella; and Executive Vice President and Chief Financial Officer, Gerry Laderman. In addition, we have other members of the executive team on the line available to assist with Q&A. Now, I'd like to turn the call over to our CEO, Scott Kirby.
Thank you, Kristina. Good morning, and thank you all for joining us today. I want to start by saying how proud I am of the entire United team. COVID continues to challenge our industry and United with a truly unprecedented crisis. We've responded better than any airline in the world and in ways I couldn't have even imagined. Our team has been focused on the health and safety of both our employees and our customers, remaining flexible with changes to our network and continuing to provide caring service to our customers, which resulted in the highest Net Promoter Scores in our history. We've had to be innovative, creative, and very flexible. Our team has truly delivered.
I want to sincerely thank all of our employees who made the difficult decision to leave United through one of our voluntary separation programs and those who've reduced their hours to align our staffing with demand. In spite of this, on October first, I had my toughest day as a CEO because despite all the incredible work and contribution of our employees, we still needed to furlough more than 13,000 team members. Along with the entire United leadership team, I remain focused as our number one goal to make sure United is the strongest, most innovative, customer-focused airline as we come out of this crisis because that's the way to ensure we can welcome all of our team members back.
I also want to recognize and thank our union partners, many of whom stepped up to work on creative deals to get us through the crisis, to reduce the number of impacted employees where we could, and , importantly, to set the airline up for a strong rebound. I'm proud of the partnerships we have with our unions and believe this is a real differentiator for United as we look to the future. Since the beginning of the crisis, the hallmarks of United's response have been to maintain an objective and realistic assessment of the virus's impact on our industry and to plan accordingly. In other words, at United Airlines, hope has never been our strategy.
Instead, the best collection of airline professionals in the business has confronted the crisis head on. That approach has enabled us to take industry-leading actions, including leading on safety; closely aligning capacity to demand; cutting costs; reducing cash burn; using innovative approaches to raise over $22 billion in capital; pushing ahead with opportunistic commercial initiatives such as the cargo operations and new route announcements; being the first airline to eliminate change fees on domestic tickets; adding industry -first digital capabilities like search by map and travel destination guides; and entering into an industry-leading deal with our pilots. Back in March, we were focused on the three pillars that were critical to our ability to survive the crisis. One, raise and maintain liquidity. Two, reduce cash burn, and three , variabilize our cost structure.
On the first point, I believe United has been more creative than any airline in the world in raising over $22 billion. On the second point, despite our larger business travel, coastal gateway, and international exposure, on any apples-to-apples cash burn basis, we believe United has had the lowest cash burn throughout the crisis so far among network peers, and we expect that we'll be the first network airline to return to positive cash flow when the demand environment recovers. Finally, we've made huge strides in making our cost structure variable by reaching a landmark deal with our pilots and a variety of voluntary programs with our union partners, all of which position United to bounce back strongly and on short notice. Having executed on our initial three pillars, our focus can and has now shifted squarely to what the recovery will look like.
As difficult as this crisis has been, at United, we've done what it takes to get through the initial phase that will get us to the other side. As Churchill once said, This is the end of the beginning. We were hoping we'd be wrong about the severity of the crisis, but our fact-based, objective approach equipped us to be more realistic and nimble in our response to the virus. We'll stay flexible, but increasingly, the light at the end of the tunnel is now visible. It's a long tunnel, and it will have twists and turns, but we'll begin to move back towards normal with what health experts are telling us is a widely available vaccine around the end of next year.
Given all the team has accomplished in this crisis, we're now able to turn the page away from just surviving to squarely focus attention on preparing for the rebound. The culture that has served us well getting through the crisis and leading on financial innovation, customer enhancement, safety initiatives, commercial actions, and union partnership is the same culture that we expect will lead to United being the global leader in aviation when this is over. The next 12-15 months are still going to be difficult, and the recovery will not be a straight line. We've done what we believe it takes to get through. We can see the recovery on the horizon, and our attention can now be firmly focused there.
I want to thank all the people of United, those working full time, those on voluntary programs, and our pilots who ratified a deal where they all agreed to work fewer hours to avoid furloughs and keep all pilots in their seats and positioned for a rebound. Those that were sadly involuntarily furloughed. To you, I say that all of us that are still here at United are focused on the recovery. As the leader of this airline, I have no higher priority than bringing you back to work. Now I'd like to turn it over to Brett.
Thanks, Scott. Let me echo your comments on how proud I am of the United team for their remarkable perseverance through this crisis. In the third quarter, more than 40,000 team members participated in early separation programs, voluntary unpaid leave programs, or reduced work schedules, including about 9,000 employees who took an early retirement package, separation package, or extended leaves of absence, which directly reduced the number of involuntary furloughs. These actions by our employees are some of the most meaningful to our company. We all appreciate those who participated. We continue to make hard decisions in the short term to protect United jobs for the long term. We're committed to bringing all of those furloughed employees back just as soon as the recovery allows.
While we have begun to see a gradual improvement with demand expected to sequentially increase 10 points in the fourth quarter, we still expect to operate at capacity levels around 55% below 2019 for the remainder of the year. Because of this, we had to make the difficult decision to furlough 13,000 team members. While we had hoped to get this number to zero, it is 65% lower than our original estimates due to the voluntary actions we have taken. Additionally, we are grateful to Congress and the administration for their support on the CARES Act back in March, which was vital to preserving airline jobs. We diligently continue to work in close coordination with our union partners to get Congress to extend the CARES Act Payroll Support Program.
This extension would allow us to bring back U.S. team members we had to furlough upon expiration of the CARES Act support on September 30th. We will continue to engage leaders in both parties in Congress and in the administration to urge them to act. As Scott mentioned, we have laid the groundwork that enables us to pivot our focus to what's ahead. Two significant components of preparing for the recovery are, first, working with our labor groups on flexibility, and second, staying at the forefront on all health and safety-related measures. Last month, we came to an agreement with our pilots to avoid furloughs until at least summer 2021. The ALPA leadership and the United management team worked hard to come to an agreement. We are grateful to the ALPA leadership and our pilots for supporting an agreement that saved thousands of pilot jobs.
Importantly, their shared sacrifice positions United and our pilots for long-term success. Additionally, we worked with our AFA, IAM, IBT, APFA, and UNITE HERE labor groups on voluntary programs. We appreciate their partnership. Critically, all of these programs will enhance United's ability to bounce back strongly and quickly once there is a widely accepted treatment and/or vaccine. We've also been at the forefront of health and safety with our approach to the crisis by working closely with our partners at the Cleveland Clinic and Clorox. We haven't just followed consensus views, but we've used real data, science, and engineering to guide our safety decisions and implement industry-leading innovations. We've continued to lead by supporting rigorous aircraft testing by DARPA, aircraft manufacturers, and others to understand the airflow dynamics on aircraft and what that means for the safety of those traveling on board.
Recent CDC announcements point to the importance of airflow and ventilation to prevent or reduce the chance of virus transmission. Our studies confirm that aircraft are a truly unique environment, with air that is refiltered every two to three minutes through HEPA-grade filters and mixed with 50% air from the outside. We have now also identified another safety step to further increase onboard safety and one that, to our knowledge, only United has taken. At United, we are running auxiliary power units before passengers board and until deplaning is complete to maximize the benefits passengers receive from the unique airflow and ventilation environment the entire time they are on the airplane, not just when it is moving or in the air. United was also among the initial U.S. airlines to announce COVID-19 testing for customers.
We are working closely with GoHealth and Color to provide on-site and pre-departure testing that meets the Hawaiian government's requirements. Starting today, customers traveling to Hawaii from San Francisco who opt for the testing will be eligible for exemption from the 14-day state quarantine. This is the next step in improving customer confidence in air travel, and we hope to expand this to other hubs and destinations. We're especially optimistic about the potential that a testing regimen like this has to restart international travel, commerce, and trade. When it comes to cleaning, United continues to use electrostatic sprayers before nearly every single flight to ensure the aircraft is clean and safe. We've also been pioneering the use of robots that apply an invisible, non-toxic, antimicrobial shield on every surface of the interior of the aircraft to further enhance the safety of everyone onboard.
We are making progress on right-sizing the airline to ensure long-term success. As Gerry will discuss in more detail, we have $19 billion of available liquidity and enough runway to make sure that when the recovery begins, United is in a position of strength. There is still a tremendous amount of uncertainty because we know it won't be a straight-line recovery. As Scott mentioned, we have followed through on the three key pillars that have ensured our survival and will be the foundation for our success. With that, I will turn it over to Andrew to discuss the revenue environment.
Thanks, Brett. I want to start off by saying we fully expect United to have led in all objective commercial revenue year-on-year measurements in the quarter, including TRASM, PRASM, cargo revenue, and loyalty revenue among our primary peers. We are pleased to report our business is starting to recover, and it's recovering quicker than others based on these standard and objective measurements. Third quarter passenger revenue was down 84%, and system capacity was down 70%. Our top-line revenue performance of down 78% was in line with our early expectations. Capacity for Q3 was planned to be down 65%. However, when demand trends weakened in late June and July, we revised capacity to be down 70%. Even with these late adjustments to Q3 capacity, we were only one point behind our original revenue outlook in the quarter, a cost, capacity, and revenue trade-off that worked well.
United clearly has the most conservative capacity plan, and that realistic assessment of demand helped us achieve our cash burn targets in the quarter. Domestic PRASM in Q3 was down 45% on 65% less capacity. With borders up around the globe, our international flying had a difficult quarter. International ASM were down 77%, and RASM was down 55%. We operated over 3,000 all-cargo charter flights in the quarter, which contributed to a 50% improvement in our cargo revenue versus last year. It's easy to see in this unique pandemic environment that cargo is a structural advantage for United. We're now preparing to transport large quantities of the COVID-19 vaccine. We always say our shared purpose at United is to connect people and unite the world, but for the near term, we'll be proud to add delivering vaccines to end the pandemic.
Demand at United's coastal hubs underperformed during the quarter while our interior hubs outperformed. Our coastal hubs normally over-index in business traffic and long-haul international traffic; the results were not unexpected. Coastal hubs are typically a structural advantage for United, we expect that they will be when business traffic restarts and borders come down and quarantines are lifted. Turning to the fourth quarter, we expect total revenue to be down around 67% year-over-year and passenger revenues to fall by 72%, with consolidated capacity expected to be down approximately 55%, a solid improvement versus the third quarter revenue performance. Our fourth quarter capacity will again be conservative. We anticipate our early 2021 capacity to be consistent with our Q4 December levels. We expect our realistic capacity levels to return us to cash positive ahead of our other network competitors.
Demand for our coastal hubs for Q4 is still expected to be weak. Slot waivers recently issued by the FAA allow time for demand to recover prior to us having to initiate our full schedule from Newark. Incremental capacity we do add back in the fourth quarter is expected to be tilted towards our Houston and Denver hubs, with the goal of getting us back on track to our original network objectives of building connectivity from our interior hubs and service to smaller communities. Capacity is also added in non-hub point-to-point routes to Florida, which are experiencing a quicker rebound in demand in the short run, not a typical market for United. In the long run, incremental first -quarter warm -weather flying will allow us to improve our first quarter relative to results. In the past, United simply was under-indexed for warm-weather destinations in the winter.
While we've had to take a pause on many of our international network plans for 2020, we continue to believe that we're well-positioned as the leading global carrier to and from the United States, and we're taking actions to support a return to flying. United supports an increased testing regime in the near term to lower borders and remove quarantines for those that can produce a negative COVID test within 72 hours of departure. We hope that by spring 2021, testing will be widely available and governments around the world will adopt consistent measures to reduce or eliminate quarantines for those that test negative. CommonPass is one such initiative being prototyped between New York and London. As Brett mentioned earlier, we're trialing paths right now between San Francisco and Hawaii. Expect a lot more to come.
Last week, we announced United will be the first U.S. carrier to resume nonstop service to China. Not only does this make flying easier for our customers by offering nonstop service, but it also lowers our costs by eliminating technical stops. I wanted to thank both ALPA and the ASA, as well as the team here at United, that figured out a way to return to nonstop China service and be the first U.S. carrier to do so. Creative solutions can get us back to doing what we do best, connecting people and uniting the world. We're also excited to announce the addition of Johannesburg, Ghana, and Lagos to our leading global network starting next summer. Our international gateways are home to vast volumes of leisure demand, but also, more importantly, business demand.
Africa is an opportunity in our network; this new service represents a good chance to further extend our global lead while diversifying our 2021 capacity plan. United is the only U.S. carrier operating nonstop service to India; we will soon begin two new routes for a total of five flights. Daily nonstop service on our fourth route, Chicago to New Delhi, begins in December. Our fifth route, and clearly one of the most anticipated ever, will launch in May 2021 when we connect the two high-tech hubs of San Francisco and Bangalore. Many of our existing and global routes are supported by cargo revenue. Our ability to capture cargo revenue allows United to return more passenger service to the network at a quicker pace with higher margins than our primary competitors, a structural advantage that will add to our quick bounce back.
We said last quarter that demand recovery would not be a straight line. Ultimately, we expect demand to plateau at about 50% until an effective vaccine is widely distributed. We haven't changed our view. United has clearly chosen capacity plans consistent with this view. Many of our commercial and customer initiatives have also been suspended as we focus on new priorities like CleanPlus during the pandemic. Consistent with what Scott said about shifting our focus to recovery and restarting key projects in the near future, in August, we made the decision to resume work on the Polaris cabin and Premium Plus cabin on our 787 fleet. Our commercial priorities prior to COVID were improving the customer experience and delivering on the promise of better margins and a smaller margin gap to our competitive peers.
Our focus today is a return to profitability as soon as possible, but our long-term focus remains on achieving the highest margins of our primary competitors. To achieve our goals, at points, we must be different. A few weeks ago, we confirmed our willingness to be different by being the first of the legacy airlines to eliminate domestic change fees. Keeping the customer in our focus will, of course, be a key component of our plans. Thanks to the entire United team. With my flying routine getting back to normal, I see your dedication firsthand in these difficult times and have more confidence than ever that we'll come out of this period strong. With that, I will turn it over to Gerry.
Thanks, Andrew. Good morning, everyone. For the third quarter of 2020, we reported a pre-tax loss of $2.3 billion and an adjusted pre-tax loss of $3 billion. As we continue to manage our business through the crisis, we are doing everything we can to mitigate our losses and, most importantly, to preserve liquidity. Through the efforts of the entire United family, we achieved our target in the third quarter of an average daily cash burn of $21 million plus $4 million in debt and severance payments. During the quarter, we continued to bolster our liquidity, including closing on our $6.8 billion MileagePlus financing, as well as obtaining committed funding through a $5.2 billion secured loan facility under the CARES Act loan program using international routes and related assets as collateral.
We thank the United States Treasury Department, their financial advisors, and attorneys for their support and focus on providing significant liquidity to the industry. We are currently working with US Treasury to increase the amount available under the facility by an additional $2.3 billion, for a total of up to $7.5 billion in available financing under the facility. In September, we borrowed $520 million under the facility and have until March of next year to take up to the total amount available to us. Also in the third quarter, we received $639 million under the original CARES Act Payroll Support Program for a total of $5.1 billion received under that program. Earlier in the crisis, we put together a plan to end the third quarter with at least $18 billion of available liquidity.
We more than met this goal, having ended the third quarter with available liquidity of $19.4 billion, which includes undrawn capacity under our revolver and the remaining funds currently available to us under the CARES Act loan, but does not include the incremental $2.3 billion. I just discussed, which is subject to final documentation. In the third quarter, we reduced our total operating expenses, excluding special charges, by 48% and eliminated most spending other than what was absolutely needed to operate the airline. In addition to minimizing operating expenses, since the beginning of the crisis, we have remained focused on reducing capital expenditures, leaving only those projects that were critical to the business or would provide a quick financial return.
We now expect our 2020 adjusted capital expenditures to be approximately $3.9 billion. With $2 billion already spent before the crisis, we reduced capital expenditures by over 60% for the last nine months of the year. Our current guidance does represent an increase of $200 million as compared to our guidance last quarter. This increase is essentially driven by our decision to purchase 16 Embraer E175 aircraft that we originally planned to have purchased by one of our regional partners. By purchasing the aircraft directly, we were able to finance the aircraft more efficiently with no additional upfront cash and lower interest rates throughout the term. As usual, most of our capital expenditures this year represent purchases of new aircraft. One of the ways we have minimized cash burn is to require that any new aircraft we acquire, both this year and for the foreseeable future, will be fully financed.
Since the start of the year, we have raised $1.6 billion in new aircraft financing. While there are fewer sources of financing today than existed pre-crisis, we have found sufficient funding at reasonable rates. Most recently in September, we entered into an agreement with CDB Aviation for lease financing of 12 of our Boeing deliveries, including two 787s and ten 737s. One 787 was delivered in September, the second one will be delivered this month, and the 737s are scheduled for delivery in 2021. We continue to remain flexible with our fleet and don't expect to retire any of our mainline aircraft in the near future. In fact, we have returned nearly 150 mainline and regional aircraft back to service since July, reducing the number of aircraft temporarily grounded to about 450.
Looking ahead, we expect our fourth quarter total operating expenses, excluding special charges, to be down approximately 42% versus the fourth quarter of 2019. We also expect the average daily cash burn for the fourth quarter to be $15 million-$20 million, plus $10 million of severance and debt principal payment. This will bring us by the end of the year to over $16 billion in available liquidity or close to $19 billion if we include the additional $2.3 billion we expect to have available under the CARES Act loan program. Throughout the crisis, we believe we have led and will continue to lead our network peers on an apples-to-apples calculation of cash burn. We also expect to be the first network carrier to return to positive cash flow.
As air travel demand returns and cash burn declines, our focus shifts from merely surviving to maximizing the long-term enterprise value of United Airlines. In closing, we all recognize that this crisis is lasting longer than any of us expected, and there remains enormous uncertainty with respect to the pace of demand improvement. However, due to our aggressive and decisive action since the start of the crisis, the preparations we have made to weather the storm, and the sacrifices made by the entire United family, I am confident that we are well-positioned to spring back quickly as we emerge from the crisis. With that, I will hand it over to Kristina to start the Q&A.
Thanks, Gerry. We will now take questions from the analyst community. Please limit yourself to one question and, if needed, one follow-up question. Brandon, please describe the procedure to ask a question.
Thanks, Kristina. We'll now begin the question-and-answer session, which will be conducted electronically. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to be removed from the queue, please press the pound sign or hash key. If you're on a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, if you have a question, please press star, one on your telephone keypad. Please hold for a moment while we assemble our queue. From Cowen, we have Helane Becker. Please go ahead.
Thanks very much, operator. Thanks for the time, everybody. When I read the press release last night, maybe this is for Scott or Brett, I felt like your tone changed a little bit and that you were maybe less pessimistic than I've heard you speak in the past few months, and I was just kind of wondering if that's right.
Well, thanks, Helane. Good to hear your voice. What I would say is United, really going all the way back to the last weekend in February, has been focused on being realistic and objective about this crisis. We were accused by many of being pessimistic early on, and I pushed back on that notion because we weren't being pessimistic. We were trying very hard to be realistic about the crisis, and emotions like pessimism, optimism, hope, and fear have no place when you're making decisions that involve the lives of tens of thousands of employees and the future of a great airline. You just have to be objective and realistic. Today what we're expressing is not a shift from pessimism to optimism, as much as it is an expression of confidence in the future.
There's a great quote that I love, and I referenced it earlier, from Winston Churchill, that he said in 1942, over two years before the end of World War II, where he said, after the African campaign and the Brits won in Africa, that This is not the end. It's not even the beginning of the end. It is perhaps the end of the beginning. I think that is the moment we are at now at United Airlines. We've done what it takes to get through the beginning. This is the end of the beginning.
Much like in World War II, there was a long and painful, difficult road with a lot of sacrifice ahead. The same is true for us. We're not getting through this until there's a widely available vaccine, which is probably around the end of next year. We've got 12 to 15 months of pain, sacrifice, and difficulty ahead. We have done what it takes in the initial phases to have confidence. It's really about confidence in getting through the crisis and to the other side. I think we'll look back at today; at this moment in time, we see it today. We were the first to call how severe this would be; I think maybe we're amongst the first to call the ultimate recovery. We'll look back at this as the turning point.
The light at the end of the tunnel is a long way away; this is the turning point. It's not only what we see in the core business. There are two other coincidental announcements today that I think are really significant, perhaps not fully appreciated yet, but really significant. One is the testing that's beginning in Hawaii; United, under Brett and Toby Enqvist's leadership, has really driven that effort. United, again, a lot of firsts in this pandemic, has been the first to get that done. It's pushing to do more of that to open up international borders. That is the only way. There are things that we can do safely, even when the pandemic is still going, including flying on airplanes.
We're going to need testing to make that happen. I think that will expand, and you'll see that expand, and we'll look back at today as starting the testing as an important milestone. The other thing is the study that we've known about for months that has come out that we worked on with United, worked on with DARPA and the Department of Defense, which gives more evidence about how truly safe it is to be on airplanes. We recognize that even if you're completely safe on an airplane, you have to have a reason to go. Disneyland needs to be open, or your clients need to be accepting visitors in the office before you can go. That's why we think demand won't get above 50% until there's a widely available vaccine. These are two additional important milestones that simply give us confidence.
It doesn't mean that the next several months aren't going to be difficult, because they are. We have confidence. If you're hearing the tone change, it has, and it changes the way we work. We're now focused on, instead of just minimizing tomorrow's cash burn to survive the crisis, even spending money where we need to invest in testing, as an example, or Andrew mentioned getting the Polaris mods back and going so that we're prepared for the recovery to welcome our customers back in 2022, which is when we think the recovery will begin in earnest. Thanks for the question, Helane. By the way, we look forward to testing opening borders so that you and your husband can get your trip back to South America on United rescheduled.
Yes, thank you very much, Scott. If you could just get that testing to New York, I would be on that next flight. Thank you. Thanks very much, team.
Yep.
From J.P. Morgan, we have Jamie Baker. Please go ahead.
Hey, good morning. Scott, in your interview this morning, you talked about the potential return to JFK. If I remember, when you initially discussed United's exit there, it was mostly because of the impact on corporate accounts as opposed to any massive share that United walked away from. Is that the way to think about your possible return, a tactical presence in corporate-sensitive channels? Or should we be thinking something more like United's presence in the '90s when there was an actual?
I lost you there. I guess that you said there was an actual hub at JFK.
Yeah.
Certainly, our initial return, I think, would be coming back into the transcons and perhaps service to our hubs. You're right, it's the ability to service corporate demand. We have been, well, yeah, I did say that on CNBC. We've been working hard. I guess this hasn't really been public, but we have been working very hard to use the pandemic as a way to get back into JFK. I have reasonable confidence that we'll be successful. The good news is all the work that's happened at JFK in the last few years means there's actually more airport capacity. There's not many places in the U.S. where there's additional airport capacity, but there should be more airport capacity, and we would be a new entrant there. I look forward to getting back and competing aggressively.
For our customers who want to be able to fly in those transcon markets, we have our fingers crossed, and more than that, we are working hard to restore that service for you.
Okay, that's helpful. The second question also pertains to the interview this morning. I apologize about my call waiting firing when I was asking that. It was actually the New York quarantine tracing. I'll probably have to call them back. You talked about cash burn not being the right metric to look at. I'm reminded of a scene in Mad Men: if you don't like the conversation, change it. How should that conversation change if cash burn isn't the primary metric of focus going forward?
Well, I guess I'll start, and then I'll look to Gerry to pile on. Look, cash burn is a metric that we used and thought was the most important metric at the start of the pandemic. A lot of businesses where survival was at stake, it was the most important metric, not just amongst airlines. That's not the issue anymore. We have enough liquidity to get through the crisis. We've done what it takes. That's no longer the issue. Cash burn is one of those metrics that everyone measures, well, one, everyone measures differently.
For example, Andrew, this isn't a huge number; we're starting the Polaris Mod again. That shows up in cash burn. It is the right decision to make for the airline, for our customers, for our shareholders, and for our employees for the long term. If you're just focused on minimizing today's cash burn, you wind up with a myopic short-term focus. I think we're getting back to focusing on traditional airline metrics: RASM, PRASM, earnings per share, and margin. I think it's 2022 before those things really become meaningful, unfortunately. We are getting to a world where we're going to be focused on those. The one thing that I think will be different, however, and probably is at the top of that list of focuses, is something about paying down debt.
Not sure yet what that is, getting our absolute debt down from where it will be at the end of the pandemic is going to be priority number one. Gerry, do you want to add any to that?
Yeah, I'll just reiterate. Jamie, we do feel bad for all of you having to deal with all of us having different definitions of cash burn. Scott said, Ultimately, we get back to the more traditional metrics. For cash, it's about liquidity. Focusing on where we are at the end of the year on liquidity and the balance sheet, those become more important than trying to figure out each of the components of cash flow in a quarter and trying to do that adjustment that you all have to do because we all kind of describe it a little bit differently.
Okay, that's very helpful. Thank you to both of you. Take care.
From Wolfe Research, we have Hunter Keay. Please go ahead.
Hey, good morning, everybody. Thank you. If your capacity is going to be down 55% in the fourth quarter and you're saying demand's not going to get better than down 50% until the end of next year, does that mean that you're done adding capacity back for the next few quarters?
Hi, Hunter. It's Andrew. We're clearly looking at it very carefully. As I said in my opening, we expect that our Q1 capacity is going to be very consistent with our Q4 capacity, particularly the end in part of the Q4 capacity. That could very well be the case.
Okay. Thanks, Andrew. I looked at your balance sheet, about $10 billion of obligations are on there tied to the air traffic liability and deferred revenue from the loyalty program. How do I think about that working capital headwind burning down over the next nine to 12 months as you guys add capacity back? Just broadly, if you want to make that comment about working capital over the next maybe 18-24 months, Gerry would really appreciate some color there. Thank you.
Andrew, do you want to start on the-
Oh, you're not muted. Okay.
Oh, can you hear me now?
I can hear you, yeah.
Well, let me start. Andrew can pile on. We have factored in, when we're looking at our liquidity changing over the next year, where we think ATL is headed. It's flattening out. It only declined 1%. This is not obviously a normal year where you would see a significant decline in the fourth quarter. That's just not going to happen. We are taking into account ATL as we kind of model next year. Andrew, I don't know if you have anything else to say about it.
Thanks, Gerry. As you just mentioned, we would have normally expected that our ATL in the quarter would have gone down by 10% or 11%. In fact, it was flattish, and we'd normally expect Q4 to start going down a little bit, and in fact, we expect it to be flattish. It's really, I think, a sign that we are seeing an overall recovery and the short demand patterns are not relevant to that. We're pleased by the progress we've seen in bookings, and we're pleased by what we see in terms of the ATL when it normally would otherwise be declining.
Thank you.
From Raymond James, we have Savi Syth. Please go ahead.
Hey, good morning. Given the way the pilot agreement is structured and the fact that you haven't made any major fleet retirement decisions, is it fair to assume that you expect to kind of return to 2019 levels at some point in 2022 when things have recovered? Also, can the adjustments that you've made so far on the cost structure? I was kind of curious what level of minimum capacity you would need to reach to achieve the 2019 -level unit cost.
Well, I'll start off with the fleet and then I'll hand it over to Gerry. I think we don't know. We're being flexible. We would sure like 2022 to be equal to 2019. I think that's probably unlikely. We've parked a lot of these aircraft in the desert. They're ready to fly when we need them to fly. We'll maintain that agility. You saw that in Q3, where we thought we were going to be down 1% and then demand weakened, and we immediately changed the plan to be down 70%. We'll maintain that agility going forward, and the fleet's there if we need it, but only if we need it. Gerry?
Yeah. Savi, as you know, CASM is directly related to capacity. We'll start looking at that traditional metric of CASM-ex, which is the appropriate way for us to measure unit cost. We feel comfortable that we can get to CASM-ex around the class of 2019 as capacity gets back to 2019 levels. We're focused on it, and we're comfortable we can get there.
Related to that a little bit, you mentioned that kind of demand is expected to recover by 10 percentage points. What level of demand is there currently between leisure and business? I'm wondering if that comes more from business or if that comes more from leisure.
I would say right now I expect that to be more leisure-oriented in the fourth quarter. In fact, we've tilted our capacity to reflect that. In fact, today is a step up in our Hawaii capacity, coordinated obviously with the testing that we have out in San Francisco. We're expecting Hawaii to be a part of the increased revenue as we go through the fourth quarter. Business demand is still down a large percentage. It depends on how you measure it, but anywhere from 85%-90% down is kind of the trajectory that I would tell you it's at. It has improved a little bit, and it has improved more with smaller corporations than larger corporations at this point.
That's all helpful. Thank you.
From Vertical Research, we have Darryl Genovesi. Please go ahead.
Hi, good morning, everybody. Thanks for the time. Scott or Andrew, I appreciate the JFK tidbit, but, in broader strokes, perhaps when you think about what the network looks like post-recovery, how is it different from today? Is it more leisure-oriented or is it more domestic-oriented, or just how has your thought process evolved around the overall network structure?
A good question, Darryl. I'm not going to be able to, I think, accurately predict it today. As Scott said, we're still early in this process. Clearly, we're going to be agile in the short- to medium- term and move capacity around to reflect where we're seeing demand today. Clearly we're seeing more leisure-oriented demand, and that reflects how we've tilted the capacity again in Q4 with more sunshine capacity, more Caribbean capacity, and more Hawaii capacity. Look, we fully expect that business travel is going to get back on the road someday, when the vaccine is out there and widely distributed. We are big believers in that. We think business traffic will rebound. It's clearly not going to bounce back to 100% on day one, and our network will be different in 2021 and 2022 than what we would otherwise have planned.
There will be a day in the future, and hopefully it's in the near future, where business traffic is back to the new normal. Clearly the types of trips being taken will be different. As I've said before, this new remote work environment, I think, actually could be a stimulus to business traffic in that workers need to return to their corporate office a few times a month to do their work. Business traffic may be different, but we think it will return.
Okay. Maybe one for Gerry. Gerry, your restructuring spend is a little lower than what some others have announced. Can you just give us a sense of how you think about sizing the voluntary programs? Is there a particular IRR you're chasing or a particular payback period? If you could just comment, I think this most recent deal that you did with the pilots gave you some incremental flexibility to do additional early outs. Do you anticipate another voluntary separation program this calendar year? I guess there are two questions in there. One is just on the framework; the second is just on whether there's another one coming.
Yeah, I'm not sure that second question is for me. All I can tell you is that we are doing everything we can to overall make our costs variable and to be able to be flexible in really every part of the cost structure.
Okay.
From Stifel, we have Joseph DeNardi. Please go ahead.
Yeah, thanks. Good morning. Scott, when you think about the relative importance or unimportance of corporate traffic to United's earnings power pre-COVID, how important was it? What does that suggest for United's post-COVID earnings power, if there is some structural impairment? Feel free to speculate on what you think that impairment may be.
Well, I'll let Andrew answer as well, but I'll start with my personal opinion, which I recognize is not the consensus. As human beings, we are social creatures, and I think business demand is going to come back. I don't think it's coming back immediately. I think demand sort of starts to recover in earnest at the end of next year, beginning of 2022, and business demand getting back to normal is, I would guess, 2024. I think it will come back to normal. I've been fond of saying the first time someone loses a sale to a competitor who showed up in person is the last time they try to make a sales call on Zoom. There's a great commercial from United that's over 30 years old that you can go Google, but it ends with, I'm going to see that old friend. That was true 30 years ago.
That will be true in the future because that is what human nature is. Business travel is incredibly important to United.
It was our bread and butter before. I think it will be our bread and butter in the future. It's going to be a few years before it comes back in earnest. One of the things that I think is great is when we talk about United being the leader in global aviation, we were headed in that direction before all this started. I think we're going to make a decade worth of progress during the pandemic. When we emerge, particularly given what our seven hubs, given what our pilots agreed to do, keeping everyone in their seats; given everything that we're doing to invest in the customer experience, like eliminating change fees; and given everything that we're doing with our loyalty program, we're going to emerge as the world's number one business travel airline. I think 2024, before it all comes back.
In that world, too, I think we will have picked up share, frankly. Don't even have to come back for 100% for that to be really successful for United. I will caveat it, however, and say we're staying flexible. As Andrew said, we've got airplanes that are parked in the desert, and if we recognize that that's not a certainty, what I just described, and if it's wrong, we won't do it, and we won't go there. That's my guess for what's going to happen: business travel demand is going to recover, and United is disproportionately going to win in that environment. Andrew?
I think the only thing I'd add to that, Scott, is maybe going back to our hubs. Our hubs are the home to a majority of the business traffic, the global business traffic to and from the United States, particularly New York, Washington, D.C., San Francisco, Los Angeles, Chicago, and even, to some extent, Houston. Those markets, the business traffic, and our markets are going to bounce back quicker and stronger, in our opinion, and allow us to get back to flying faster than others. That's what we're thinking about as we go down the road. The other thing I'll say is that the competitive environment is not the same. I look around the world, and the number of 747s and A380s that have been grounded is just very, very large, obviously.
The competitive dynamics in the global arena for the next few years are simply going to be different. There's a lot of calculations moving. Demand is moving, ASMs are moving, and how flights are viable based on what gateways they depart from will be different in the upcoming couple years than they were prior to this crisis. We're prepared to be agile and work around all those things to come out quicker and stronger.
From Evercore ISI, we have Duane Pfennigwerth. Please go ahead.
Hey, good morning. Open to your suggestions on if there's a good way to do this, I was wondering if you could provide some visibility into your cash OpEx savings. Obviously, quarter-to-quarter it's not easy to do because capacity is moving around and hopefully recovering. Can you quantify cash OpEx savings that are hitting here in the fourth quarter? If the fourth quarter is sort of not the best timeframe, when do you expect to fully hit your stride on that front?
Yeah, I'll take that. I would say the fourth quarter is not the best quarter for a number of reasons. Next year, first quarter and through the year will be the best way to look at it. We could give you better color in January. The problem with the fourth quarter is there is a lot of noise. There's unfortunately the severance noise. There's also noise associated with things that we did in the second and third quarters. For example, when we started this crisis, the very first thing we did was say, Okay, let's look at cash payments and stop what we can and defer what we can. We had terrific support from our suppliers and our vendors. Say, okay, they can wait a little while.
We didn't ask for particularly long extensions; there's probably $250 million of payments in the fourth quarter that are associated with obligations that were deferred from the second and third quarters. Maintenance expense is another good one. What I think most everybody in the industry would have done through the spring and summer is use up maintenance time on aircraft and let aircraft then kind of rest for a while before actually putting them into checks. That process has to start at some point, and for us, that process has started in the fourth quarter to get ready just for next year. We'll see maintenance expense up in the fourth quarter versus the third quarter, which is why next year is going to be the better year to kind of look at that.
That's super helpful, Gerry. If I could for my follow-up, Scott, can you just give us some perspective on testing as a solution? You brought it up , and I agree you have had some leadership there. What are the gating factors? What really needs to happen? What are the regulatory bodies we should be watching? Is it a function of not having PCR tests available on a fast enough basis today, or is it just a lack of movement on the part of regulatory bodies? Thanks for taking the questions.
Well, thanks. It's a really important question. Rather than me answering it, I'm going to let the real experts and the ones that have driven the work, Brett and Toby, take a shot at it.
Thanks, Scott. Duane, I'll take the first shot, and then Toby can step in and offer perspective as well. I think one of the things that you have to keep in mind is that we're at a point in time where we have cities, we have states, and we have different international regulatory bodies that are trying to regulate different standards and different tests to open up the markets. What we're doing in particular with Hawaii and San Francisco is we are trying to lay down a blueprint that we think is replicable in other areas and that will help us open up new markets. What we expect is that it will demonstrate that we can do this in an efficient and a very safe way.
One of the issues that we do have is that different tests are coming on the market, and we have varying levels of availability. We're working on all of those angles to ensure that as we roll out these programs and we help to open new markets and convince new regulatory regimes around the world to adopt something that is fairly uniform, we will be able to do that in a very effective way. Toby, I don't know if you want to add anything to that.
No, I think you said it perfectly.
Yeah.
From Deutsche Bank, we have Mike Linenberg. Please go ahead.
Yeah. Two questions here. Just back to the testing. Andrew, you mentioned that Hawaii's capacity is going to be increased in anticipation of increased volume. I realize it's early. What are you seeing with respect to bookings following the announcement of the test to Hawaii? Are you seeing actually a greater pickup in demand in the premium cabin, just given where the price point is of the test relative to the fares?
Thanks, Mike. What I'd tell you is we had planned Hawaii down 54% in Q3 year-over-year. I'm sorry, Q3 is down 85% year-over-year. In Q4, it'll be down 54%. It'll now be 9% of our domestic ASMs versus 4%. We do anticipate it, and we have seen a demand recovery to Hawaii. Ultimately, I'll report out on that in January and let you know how it exactly went. Today is our first day of our bigger schedule, and we have very nice load factors outbound, and we expect it to be a strong holiday season as well. We're bullish that Hawaii, with the testing environment and the quarantine situation with that lifted with a good test, is well on its way, and we're excited to have grown our capacity, and we think we've put it in the right place at the right time.
Again, we'll measure our success in January and let you know how we did.
Great. Then just the second one, and maybe you are the right person to answer this as well. Obviously, kudos to the team to not have any pilot furloughs. Yet, I still see that you unfortunately do have to remove six seats from the 76-seaters. There's been additional sort of language around scope or tightening of scope. Can you just elaborate on what some of those other elements of the scope are? Thank you.
Sure. We really have a groundbreaking new agreement with our pilots that allows us to make our cost structure variable and bounce back when we're ready to bounce back. They definitely had some concerns about how we put it all together, and we worked collectively and collaboratively to come up with something that worked for both of us. The second change that you're talking about in addition to the 76-seaters becoming 70 relates to the ratio of how many block hours we can fly on RJs versus mainline. We agreed to temporarily restrain that number versus what's normally allowed. We don't think that's going to have any impact on our schedules later this year or next year based on the recovery that we have seen right now.
It was something we were able to do to provide some level of comfort to our pilots in an overall agreement that we think is a big win for United Airlines and quite unique for our business.
From Credit Suisse, we have Joe Caiado. Please go ahead.
Hey, great. Thank you, everyone. I just have a quick follow-up on the airport rapid testing questions that have been asked. That's really what are your thoughts on who should fund the cost of these testing programs? Is that something that should be funded by the government, by you, or should it be funded by passengers in the form of higher ticket costs?
Brett, you want to take that?
Sure. Look, at present our customers are covering the cost. What we're going to work really hard to do is to drive down the cost of those tests as we move to additional markets. If you look at the different types of tests that are available now, you have the more traditional tests, which are more expensive. Now we have increasingly rapid tests available, and those tests are quite reasonable in cost and down in the $15 range. We think as more tests become available and we're able to provide more options in different markets , we'll get to a point where this is a cost that really is not a requirement overall to travel for our customers. We think that it's a cost that can easily, at this point in time, be absorbed. That's our perspective at the moment.
Got it. Thank you for that. Then just a quick follow-up maybe for Gerry on cost. I appreciate that the next couple of quarters are certainly going to be noisy. There's going to be a lot of moving pieces, but just longer term, how should we think about the cost trajectory as you ramp back up in the next few years? What's the stickiness of the cost that you're taking out today? How much is structural, and just how should the expense lines recover as capacity and revenue recover? Thanks for the time.
Sure. I think, as I mentioned, as we shift our focus back to more traditional metrics like CASM-ex, we'll get back to where we left off, which was taking 2019 as our baseline and managing costs the way we had pre-crisis, which is to do everything we can to keep CASM-ex flat or better over time.
From Goldman Sachs, we have Catherine O'Brien. Please go ahead.
Hi. Good morning, everyone. Thanks so much for the time. Maybe just one on demand and the combination of all the talk on testing as well. It seems like for most of the pandemic, booking trends were very correlated with trends in cases, or at least headlines on cases. Is that still true today, or has spreading the word on cleaning standards, more testing, et cetera, started to break down that relationship? Really just asking in the context of cases globally ticking back up here. Thanks.
Hi, Catherine. It's Andrew. That's a really good question. I think you've got onto something : there is a different trend line now. Back in June, when we saw the spike in cases, we saw , really, a direct and negative impact on our bookings that impacted July and August. I would say over the last eight weeks or so, we domestically have seen just steady progress. Even as headlines sound good or headlines sound bad, depending on what you read and when you read it, I think domestically, we would describe what we've seen as steady progress. Again, focused on leisure demand, not on business demand, but steady progress that's divorced from the headlines, which is, I think, from our business perspective, nice to see.
Okay, understood. Maybe just one more on business travel. If business travel is going to take longer to recover than leisure or , depending on who you're talking to, potentially not fully recover to pre-COVID levels, what changes to the cost structure or product offering would United consider making to offset that change to the revenue mix, maybe over the short term or perhaps over the longer term, if it really does end up that we've had a structural shift down in just the amount of business travelers traveling in the future? Any thoughts would be helpful. Thank you.
I guess I'll start. What I'd say is we don't think that's going to happen. We actually think the opposite. We have been thinking about it, but I think that's probably something that is best kept to ourselves at this point in time for an outcome that we don't think is the base -case scenario for any of them.
Thank you. We will now take questions from the media. As a reminder, if you have a question, please dial star one on your telephone keypad. Once again, please hold for a moment while we assemble our queue. From Bloomberg, we have Justin Bachman. Please go ahead.
Yeah. Hi. Thanks for the time today. Getting back sort of to Catherine O'Brien's question about the divorce between the headlines and booking trends. I'm wondering on the corporate side, what are you hearing from those accounts as far as what their gating factors are for when some of the larger corporations will get their people back and on the road? Thank you.
Hi, Justin. It's Andrew, and we've actually asked our sales folks to get back on the road, and I was recently in New York, talking to some of our clients as well, as we try to get back to this new normal. What we hear is, one, that the policies of no travel have been relaxed. There is the ability to travel. It's sometimes a little bit more cumbersome than it was in the past in terms of the rules you need to do it, but the no -travel policies have mostly been eliminated, which was good to see. Second in traveler sentiment that we track are people concerned about flying, and we've seen material progress in that number. In fact, the number in our last reading was the best we've seen since really the crisis started in terms of concern about traveling.
Really great progress on that front. As Scott said earlier, there needs to be a reason to travel. People need to be in their offices or around, and that really hasn't happened yet. We're anxious, and we're watching, for example, the occupancy rate of New York City skyscrapers. When that number starts to go up, I think you're going to see business travel start to rebound because there's a reason to travel. Right now, the reasons to travel are just not sufficient enough to get business traffic started. Once it does start, I think it's going to happen in a reasonable time period, as Scott said earlier. Travel really connects us and makes the difference in some of those key deals being done around the world. We fully expect it to come back, but the most important part is the travel policies have now been relaxed so people can travel.
Taking it from Wall Street Journal, we have Alison Sider. Please go ahead.
Hi, everyone. Thanks for taking my question. I'm just curious what you're thinking about.
Alison, unfortunately, your line is staticky. We're not going to be able to take your question. We'll have you dial star one again if you're able to, or hang up and dial back in. We're not able to get a clear connection with you, unfortunately. We'll take from CNBC, Leslie Josephs; please go ahead.
Hi. Good morning. Thanks for taking my question. Do you think that United's business model, because of the pandemic, is going to change forever? Do you see as much emphasis on international and corporate as you had pre-pandemic once we get through all this, or is United going to look different for an extended period of time once we get through this?
Andrew, did you get that?
Hi, Leslie. Unfortunately, I could hear something about business models, but I really otherwise could not hear the question.
I think the question is: Is business and international going to change? Will our business model have to change as a result?
Okay. Well, look, we started this saying we'd be agile. We also added that New York, Washington, San Francisco, and Chicago are the origin points and destination points for a majority of business travel to and from the United States. They also happen to be our hubs. We're quite confident that when business traffic rebounds, in whatever shape and form it does, it rebounds quicker in our hubs, and the financial viability of our flights is simply better than that of our competitors, in our opinion. In fact, that was true pre-COVID as well. This is something we're not overly worried about. We think we're in a very good structural place. We'll react to whatever we see in the world, and we'll be agile, because that's what we need to do.
We think we're in an actually good place in terms of where our hubs are, our fleet flexibility, and how we're evolving the network. We have made a number of changes to the network, reflecting a diversification of capacity and , really, risk. For example, we've announced Ghana, Lagos, Johannesburg, and Bangalore. As we put our wide-bodies back to use, they won't exactly be going to where they were going pre-crisis, pre-COVID. They'll be going to a new set of destinations with a new distribution of capacity that we think reflects the new world. Obviously, we'll continue to adjust it as necessary.
From Business Insider, we have David Slotnick. Please go ahead.
Good morning, everyone. Thanks for taking the question. I'm just curious; when we were talking about grounded planes before, the 737 MAX seemed like it was about to be recertified. I was wondering if you're planning to bring those back into service right away or wait until demand picks up.
We don't know the exact date they'll be recertified. At this point, we don't have them in the schedule this year. Likely sometime next year based on the schedule we hear from the FAA and Boeing.
Thank you.
At this point, we're going to try Alison Sider's line again. Alison, are you on the line?
Yeah, I'm here. Can you hear me?
Yes, that's much better.
Much better.
Great. Thank you. Good. I wanted to ask about what, if anything, you're hearing on state and local travel restrictions, if those might kind of come back or come back in greater force this winter if cases keep rising. Is that something you have conversations with state and local officials about?
Hi, Alison. This is Brett Hart. I'll take that question. We're certainly in close contact with state and local officials, and we have an interesting process in that they are all making independent decisions about how to govern their cities and states. We think there's a bit of a wait -and-see approach in most states and cities. We are working hard to understand the direction that they may be going in, and we're helping them understand what we're seeing. We're certainly talking to them about the safety and health measures that we're putting in place both in the spaces that we control in the airports and on our aircraft. Making sure that they understand what we're doing to help facilitate travel and the importance of travel to their cities and states, which, by and large, they understand. We're closely connected.
I can't speak to what may happen in the fall. We are certainly in constant contact with them.
Great. Thank you.
From Reuters, we have Tracy Rucinski. Please go ahead.
Hi. Good morning. I was wondering if you could talk a little bit more about the significance of the Department of Defense study on cabin airflow and COVID transmission. Can the results be extrapolated to other aircraft beyond the 777 and the 767?
Yeah. Thanks for the question. I think of everything that's happened recently; this is the most significant announcement that has come out. While it will be important to keep doing more testing, the reality is those tests are indicative of what happens on every airplane. An aircraft is just a remarkably safe environment. Even beyond just these tests, if you've been reading what the CDC and others have been saying recently, they talk about super-spreader events and where it's dangerous, and it's indoors with poor ventilation and poor air circulation.
What we've demonstrated with the DoD and DARPA is that aircraft, because the airflow is from the ceiling to the floor and is not spreading amongst the customers, and because the air circulation is happening every two to three minutes, going through HEPA-grade filters with 50% air from the outside, there is no place indoors that is anywhere close to that. Aircraft—that's why IATA can say it's equivalent to your chances of getting hit by lightning. Others have said you'd need to fly 54 hours nonstop, next to someone with COVID, to have a reasonable chance of catching it. Aircraft really are a truly uniquely safe environment.
One of the important things that United has done, however, that I would encourage other airlines around the world to do for safety is make sure that customers have the benefit of that robust airflow system the entire time they're on the airplane. You maximize that by running the auxiliary power units before you start boarding passengers and until you continue deplaning passengers. United, I think, is the only airline that is doing that. It does cost some money, but it makes sure that 100% of the time customers are on board an airplane, they get the benefit of that robust airflow. It is remarkable. We've known some of these facts for a while. It's encouraging to see more of them coming out into the public sphere. It is remarkable how safe you are on board an aircraft.
Thank you. We have no further questions at this time.
Thanks for joining the call today. Please contact investor or media relations if you have any further questions. We look forward to talking to you next year.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.