Scott Kirby
Chief Executive Officer at United Airlines
If you're able to hear us? Okay. That was the question about whether you can hear us. Hopefully, everyone can. Well, thanks, Kristina, and good morning everyone. Before we do our normal 4Q [Technical Issues], I'll walk you through a short deck that explains the intellectual rationale on what we're doing [Technical Issues], and where we think the industry is headed over a longer-term run. In short, we think there is ample evidence that there really have been structural changes in the airline industry that set the entire industry up for higher margins than we had pre-pandemic.
First, while the specific to the demand environment will be different, we expect it to return to at least [Technical Issues], it could go higher. Second, we believe cost divergence among all airlines as well as supply challenges may drive structurally higher industry margins. And finally, United has been pretty accurate about the macro outlooks, impact of COVID and what the recovery would look like going all the way back to February 29, 2020. And based on that, United really did take a different and unique approach to the recovery. At the onset of the pandemic, we acted first and we acted more aggressively than anyone else to protect our airline and the jobs of the people who work at United.
At the time, in fact, some said that we were overreacting and that the pandemic wouldn't be so bad. But by confronting that reality and acting quickly, our leadership team was able to be the first airline to move forward turning crisis into opportunity and began making plans for big investments in United's future, while others frankly were still in crisis response mode. It's clear we had a head-start in planning for the recovery, and you're already seeing it in both our absolute results as we've achieved our 9% adjusted pre-tax margin ahead of schedule, and in our relative margin results compared to the rest of the industry.
On this next Slide, you can see what industry revenue has looked like as a percentage of GDP over time. A few interesting points. The industry still has about 15% domestic revenue growth left to go just to get back to 2019 levels here in 2023. Our base case 9% and 14% margin target assume that we just get back to the 0.49% ratio. In the 1990s and 2000s, however, revenue to GDP was even higher. As you'll see in the next few slides, we think that cost convergence may drive revenues higher than 0.49%. And for what it's worth, every single basis point of domestic increase translates into about 1 point of margin for United.
On Slides 5 and 6, I'll address what I think is the most significant structural change to happen to the industry in a long time for a host of reasons. We believe the industry capacity aspirations for 2023 and beyond are simply unachievable. Just like 2022 when the industry capacity was 7 points lower than initial guidance and we believe the same thing will happen this year for the same reasons, we've talked a lot about the pilot shortage, which is just one of multiple constraints. We, along with Delta, American and Southwest alone are planning to hire about 8,000 pilots this year compared to historical supply in the 6,000 to 7,000 range. Pilots are and will remain a significant constraint on capacity.
Post-COVID, all companies, including airlines and the FAA, need to staff at higher levels, lower experienced levels combined with sick rates that are elevated because of COVID and new state legislation that makes it a lot easier to call in sick. We believe any airline that tries to run at the same staffing levels that it had pre-pandemic is bound to fail and likely to tip over to meltdown anytime there are weather or air traffic control stresses in the system. OEMs are behind on aircraft, on engines, on parts. Across the board, there are supply chain constraints that limits the ability of airlines to grow.
Finally, the FAA and most airlines, with the exception of the network carriers, have outgrown their technology infrastructure and simply cannot operate reliably in this more challenging environment. Taking all the above into the consideration, we think, at United, we need to carry at least 5% more pilots per block hour than pre-pandemic. In addition to that, air traffic control challenges mean our taxi and enroute flight times are elevated and growing, so the same number of block hours probably produces 4% to 5% fewer ASMs.
Put it together, we need 10% more pilots and 5% more aircraft to produce the same number of pre-pandemic ASMs. Like it or not, that's just the new reality and the new math for all airlines. I think, however, we may be the only airline that's actually figured this out and likely the only airline that has included this in our 2023 CASM-ex guidance already. And to be clear, all of these issues also impact United. The reality is that the airline industry is probably the most complex operational [Technical Issues] industry with by far the highest safety and regulatory standard of any industry in the country.
And COVID hit our industry harder than others, all of us, airlines and the FAA, whilst experienced employed and most didn't invest in the future. That means the system simply can't handle the volume today, much less the anticipated growth. At United, we also missed our capacity target for 2022. We had our own challenges over a year ago during Christmas of '21. Omicron hit us all hard, but it also shone a spotlight on other strains in the system. We responded by proactively pulling down capacity. It was the only choice. You can't change the engines on an airplane when it's flying.
We flew a lot less last year than we'd have liked to fly, but we did it intentionally, because it gave us the breathing room to make even further investments in our technology and infrastructure and to increase our staffing levels. And we had a huge start -- head-start compared to most airlines because we started with much better technology and infrastructure.
But also importantly, we got to acceptance quickly and didn't spend much time in denial about the structural changes. We accepted that the structural changes were real and moved quickly to what to do about it. On that point, I also fully recognize that most, or perhaps all of our competitors, will get on their calls next week, and tell you one-time event, no big deal, no change to our capacity plans. If so, I think they're just wrong. It's intellectually hard and it takes time to get through the denial phase.
What happened over the holidays wasn't a one-time event caused by the weather, and it wasn't just at one airline. One airline got the bulk of the media coverage, but the weather was the straw that broke the camel's back for several. This keeps happening over and over again, and you can see that despite good weather, ULCC still hadn't recovered even as we entered the New Year. The operational difficulties are just the latest among numerous data points, proving the systemic challenges that are going to limit the growth in flights.
As you can see on the data on Slide 6, United's hub locations mean that we've pretty much always have the worst weather. In spite of this, we were able to lead the industry because we're doing a lot of things differently than we did historically. We made significant additional investments in technology and infrastructure. We're running with 5% to 10% staffing buffers. That means we need more pilots, gate agents, flight attendants, rampers, etc., to fly the same schedule. We're running with about 25% more spare aircraft than we did pre-pandemic, and we're flying lower aircraft utilization. All of those obviously costs money, but it's clearly the right thing to do for our customers and the most -- among the most important things we can do to win their loyalty. And it's turning out these buffers are much less expensive than the cost of avoiding the otherwise inevitable operational meltdowns.
In their forward guidance, other airlines are likely to talk about returning to 2019 utilization, efficiency, etc., but we believe they're just wrong. Our industry has been changed profoundly by the pandemic and you can't run your airline like it's 2019 or you will fail, but don't take my word for it, watch the data. United will always have the toughest operating environment. Any airline that's operating meaningfully worse than United is out over their skies and they've simply outgrown their technology, infrastructure and resources.
Slide 7 transitions to the unique setup on the international front. This is one of the most stark examples of what United did differently than our competitors. Over the pandemic, we bet international would return strong post-pandemic. And because we were the only airline around the world with that view of the recovery, we were also the only airline to make two important strategic decisions. We didn't retire widebody aircraft and we were the only airline in the world that negotiated a deal with our pilot union to keep pilots in place and in position. That allowed us to quickly bounce back. The decisions that our competitors around the globe made to retire aircraft and downgrade pilots take years to reverse. And because of that, they simply can't grow and you already see that in this summer's capacity data.
On Slide 8, I've already hit on the theme, so I'll try not to belabor it here, but United had a conscious strategy to use the pandemic to invest in the future. Our large aircraft orders were just the latest example of this. New planes are big ticket items that get lots of attention, but other investments we've made in technology, infrastructure and people haven't drawn big headlines, even though they too are essential to our success. The point here is that we really were unique. It wasn't just one thing and it wasn't just aircraft. It started with the fact that we always believed in a full recovery and, as a result, we invested and invested early.
On Slide 9, everything about this deck hopefully gives investors some comfort on why we have confidence in our margin targets. But I think there's potential for margins to go even higher, making Slide 9 the money slide for this entire deck for me at least. You can have whatever view you want about capacity, but what really matters is cost convergence. It's already happening, and I'm pretty sure it's going to continue. I believe a world where ULCCs pay their pilots significantly less than us, yet they could still hire and retain pilots and they can somehow operate with previous staffing utilization levels, is just the [Indecipherable], it's not a realistic scenario. And with cost convergence, by our betting man and actually I am, I bet that the revenue to GDP ratio is going back to the mid-5%s. We'll see, and again, we expect to hit our margin targets even at the 0.49% level. But if it is true, I believe industry margins will go even higher. That's not our official guidance to be clear, but it's certainly possible.
And so, to conclude, I think the pandemic led to a structural change in the industry. The supply-demand dynamics are different than they've ever been in my career. I realize there is a lot of investor skepticism on that, but every data point keeps demonstrating it over and over again. And because United saw this ahead of everyone else, we were able to invest and prepare to take advantage of it.
To be clear, I think margins across the board are going to be higher in the airline industry. But because of the unique steps we just took to prepare for exactly this kind of recovery, you also already seeing United's relative performance is strong, and I expect that lead to just expand. A huge thanks to the entire United team. You're really doing an amazing job, and you are making United the biggest and the best airline in the history of aviation.
And with that, I'll hand it off to Toby to explain some of these critical investments why they were important to the success of our operation through the most difficult holiday operating environment in my career. Toby?
