United Airlines (UAL) presented its third-quarter earnings earlier this week, and it beat expectations for both revenue ($14.8 billion) and profits ($1.3 billion). Despite having its busiest September ever, the carrier attributed its blockbuster quarter to efforts to sell fewer seats.
“United’s domestic capacity in 2024 was shaped with the expectation that industry would remove unprofitable capacity in earnest in Q4,” chief commerical officer Andrew Nocella said on the company’s earnings call Wednesday. “As a result, United expanded slower than most during the first three quarters of the year, when capacity dynamics were less favorable, but importantly, our timing was right, tilting our growth to the quarter where the industry conditions would be the best.”
United Airlines (UAL) recently reported its third-quarter earnings, revealing a notable performance that exceeded analysts’ expectations in both revenue and profits. With revenues of $14.8 billion and profits reaching $1.3 billion, the airline’s success can be attributed to its strategic decision to sell fewer seats, a move that contrasts with broader industry trends.
United experienced its busiest September ever, serving approximately 474,000 passengers daily. This surge in passenger numbers reflects not only a rebound in travel demand but also United’s calculated approach to capacity management. The airline’s Chief Commercial Officer, Andrew Nocella, noted that the company deliberately expanded its domestic capacity at a slower pace compared to competitors, positioning itself to take advantage of more favorable market conditions in Q4.
Nocella explained, “United’s domestic capacity in 2024 was shaped with the expectation that the industry would remove unprofitable capacity in earnest in Q4.” This strategic foresight allowed United to navigate a challenging landscape where many airlines faced pressure to fill seats but struggled to maintain profitability.
Earlier in 2023, many airline executives expressed concerns over excessive capacity, which was leading to competitive pricing pressures. Lower-cost airlines found themselves particularly vulnerable as premium carriers sought to capture market share by offering competitive fares. This led to discussions within the industry about the need to cut capacity, allowing airlines to restore pricing power and improve profit margins.
United’s approach reflects a broader trend in the airline industry, where cutting unprofitable routes and flights has become a priority. By scaling back on available seats, United not only reduced its operational costs but also set the stage for increased ticket prices during peak travel periods, especially as the holiday season approaches.
Looking ahead, United is optimistic about its performance in the upcoming quarters. Nocella highlighted that many of the revenue challenges experienced in Q3 were primarily linked to weak yield performances from domestic leisure travelers, particularly those who booked their trips far in advance. However, he expressed confidence that as they enter Q1, the airline is already observing higher yields for similar tickets being sold.
This anticipated shift in pricing dynamics is crucial, as it suggests that United is well-positioned to capitalize on the increased demand associated with holiday travel. The airline’s strategy to limit capacity could pay off significantly as consumer spending on travel remains robustness
1. Increased Profitability: By reducing the number of available seats, United can potentially drive up ticket prices, thereby improving profit margins. This strategy is particularly effective during high-demand periods, where consumers are less price-sensitive.
2. Customer Experience: A focus on fewer flights can also enhance the overall customer experience. With less crowded flights, passengers may enjoy a more comfortable journey, leading to increased customer satisfaction and loyalty.
3. Market Positioning: United’s cautious expansion strategy allows it to differentiate itself from competitors that may be more aggressive in adding capacity. This positioning can strengthen United’s brand as a premium airline focused on quality service.
4. Long-Term Growth: By aligning its capacity growth with market demand, United can ensure sustainable long-term growth. This approach minimizes the risk of overextending itself in an uncertain economic environment.
Despite its strong performance, United faces several challenges as it navigates the complexities of the airline industry. Economic fluctuations, fluctuating fuel prices, and potential disruptions in travel patterns due to external factors (such as health crises or geopolitical events) could impact future profitability.
However, there are also numerous opportunities for growth. As travel demand continues to rebound, particularly in the international markets, United is positioned to leverage its strategic capacity management to capture new revenue streams. The airline’s focus on enhancing its fleet, investing in technology, and improving customer service will also be critical components of its growth strategy moving forward.
United Airlines’ third-quarter earnings highlight the effectiveness of its strategic decision to manage capacity proactively. By prioritizing profitability over sheer volume, United has not only positioned itself for a strong fourth quarter but also set a precedent for sustainable growth in the future. As the airline industry continues to evolve, United’s approach may serve as a model for others looking to navigate the complexities of capacity management in a post-pandemic landscape.
Earlier this year, executives in the airline industry began fretting that they were leaving money on the table because there was too much “capacity,” or seats available for sale. Lower-cost airlines, which were suddenly having to compete with more premium-branded names looking for market share, were especially vulnerable. Cutting that capacity, then, would help put upward pressure on ticket prices. (This effect will become especially pronounced as the holiday flying season rolls around.)
United touted that it ferried 474,000 passengers a day last month, its busiest September ever. It now expects to flip its momentum lucratively.
“Much of the revenue challenges we have seen in Q3 were in weak yields for domestic leisure customers who book travel far out,” Nocella said on the call. “As we look into Q1, we’re selling these very same tickets at yields that are much higher.”