United Airlines sees industry rationalization beginning to play out as it plans cuts to its own domestic capacity in the quarters ahead and reaffirms its guidance for the full year.
“The pressure other U.S. airlines are experiencing today is due in large part to their unprofitable flying in many domestic markets,” CEO Scott Kirby told investors on a July 18 second quarter (Q2) earnings call. “It was always inevitable that carriers would begin to cancel this unprofitable flying, and you see that happening in earnest in the second half of August.”While competitive capacity overlap on United’s nonstop routes peaked in Q2, growth in its premium and basic economy cabins were among the revenue streams helping to boost profits during the difficult period, executives said, as well as its market share among domestic road warriors. Looking ahead, United has reduced planned domestic capacity by approximately 3 points in the fourth quarter (Q4) compared to its previous plan and has reaffirmed a full year 2024 earnings per share (EPS) guidance range of $9-$11.
“United has long been preparing for the moment when industry wide domestic capacity would adjust—it’s now clear that inflection point is just 30 days away,” Kirby said. The airline expects “leading unit revenue performance among our largest peers in the second half of the third quarter,” he said.The mainline carrier estimates that Q2 industry scheduled domestic capacity was up by 6.6%, projecting those levels to dip to about 4% for overall Q3, and 1.5-2.5% in Q4, based on current schedules. “We also see the industry altering capacity on peak travel days more than usual later this summer,” United chief commercial officer Andrew Nocella noted. “Peak day spill traffic is no longer filling up excess capacity on off peak days such as Tuesday, Wednesday and Saturday as it did in 2023 for leisure focused lower margin airlines.”
For Q2, the Chicago-based airline reported total operating revenue of $15 billion, 5.7% up year-over-year, on a 3.1% lift in operating expenses to $13.1 billion. Its net income for the quarter was $1.3 billion, representing a year-over-year improvement of 23.1%. Its adjusted EPS was $4.14, versus its previously guided range of $3.75-$4.25. For Q3, it projects adjusted EPS of $2.75-$3.25.For Q2, the Chicago-based airline reported total operating revenue of $15 billion, 5.7% up year-over-year, on a 3.1% lift in operating expenses to $13.1 billion. Its net income for the quarter was $1.3 billion, representing a year-over-year improvement of 23.1%. Its adjusted EPS was $4.14, versus its previously guided range of $3.75-$4.25. For Q3, it projects adjusted EPS of $2.75-$3.25.
“We had anticipated Delta and United, which have been flying above much of the industry turbulence, to experience some chop, albeit still nicely profitable, which appears to be the case,” notes analysis from Raymond James.
United carried 44.4 million passengers during the three-month period ending June 30, setting a new company record for second quarter flying.Demand for its premium product remains strong, with those revenues growing 8.5% during the quarter, while basic economy revenue surged 38% year-over-year. United has previously pointed to its fleet upgauging strategy as driving that performance and enabling it to capture basic economy traffic from other airlines. The airline is planning to continue to increase its total number of basic economy seats, as it grows its mainline gauge. But it will also expand higher-margin premium capacity at a faster rate, therefore anticipating the basic offering—as a percentage of sales—to stay stable or decline.While other airlines begin to offer or expand their own premium products in response to current consumer preferences, United remains unfazed, seeing its lead as generational. The carrier pointed to its business-centric hub system, and a segmentation strategy it has been “implementing in earnest” for over seven years, built on a “complex set of products,” as among the factors giving it confidence.
Alaska Airlines recently announced a major expansion of premium seats, and some bargain-fare U.S. airlines have in recent months dropped certain fees, bundled perks and offered upgraded seating options to capitalize on current trends. United’s CEO has frequently expressed doubts on the viability of ULCCs in post-pandemic years, as they work to adapt to rising costs and other shared constraints. Their moves toward more premium-type offerings have not assuaged those doubts.I think these business models are simplistic and they will be very difficult to make complex without adding a lot of costs,” Nocella told investors. Added Kirby, “the play is almost over.”United Airlines sees industry rationalization beginning to play out as it plans cuts to its own domestic capacity in the quarters ahead and reaffirms its guidance for the full year.
“The pressure other U.S. airlines are experiencing today is due in large part to their unprofitable flying in many domestic markets,” CEO Scott Kirby told investors on a July 18 second quarter (Q2) earnings call. “It was always inevitable that carriers would begin to cancel this unprofitable flying, and you see that happening in earnest in the second half of August.”
While competitive capacity overlap on United’s nonstop routes peaked in Q2,United has long been preparing for the moment when industry wide domestic capacity would adjust—it’s now clear that inflection point is just 30 days away,” Kirby said. The airline expects “leading unit revenue performance among our largest peers in the second half of the third quarter,” he said.
The mainline carrier estimates that Q2 industry scheduled domestic capacity was up by 6.6%, projecting those levels to dip to about 4% for overall Q3, and 1.5-2.5% in Q4, based on current schedules. “We also see the industry altering capacity on peak travel days more than usual later this summer,” United chief commercial officer Andrew Nocella noted. “Peak day spill traffic is no longer filling up excess capacity on off peak days such as Tuesday, Wednesday and Saturday as it did in 2023 for leisure focused lower margin airlines.”“We had anticipated Delta and United, which have been flying above much of the industry turbulence, to experience some chop, albeit still nicely profitable, which appears to be the case,” notes analysis from Raymond James.
United carried 44.4 million passengers during the three-month period ending June 30, setting a new company record for second quarter flying.
“We’re running the best operation in our history despite operating in the most difficult hubs in the world—Chicago, Newark and San Francisco—and despite having more exposure to the issues at Boeing than any other airline in the world,” said Kirby. In Q2, United took delivery of four Boeing 737 MAX, and five Airbus A321neos. It expects delivery of another 12 MAX aircraft and nine A321neos in Q3, and projects 13 MAX deliveries and nine A321neos in Q4. According to its fleet plan as of July 17, that accounts for 36 total MAX deliveries in 2024 as disclosed in its first quarter earnings call, down from previousUnited ended Q2 with 958 mainline aircraft.
Demand for its premium product remains strong, with those revenues growing 8.5% during the quarter, while basic economy revenue surged 38% year-over-year. United has previously pointed to its fleet upgauging strategy as driving that performance and enabling it to capture basic economy traffic from other airlines. The airline is planning to continue to increase its total number of basic economy seats, as it grows its mainline gauge. But it will also expand higher-margin premium capacity at a faster rate, therefore anticipating the basic offering—as a percentage of sales—to stay stable or decline.
While other airlines begin to offer or expand their own premium products in response to current consumer preferences, United remains unfazed,response to current consumer preferences, United remains unfazed, seeing its lead as generational. The carrier pointed to its business-centric hub system, and a segmentation strategy it has been “implementing in earnest” for over seven years, built on a “complex set of products,” as among the factors giving it confidence.
Alaska Airlines recently announced a major expansion of premium seats, and some bargain-fare U.S. airlines have in recent months dropped certain fees, bundled perks and offered upgraded seating options to capitalize on current trends. United’s CEO has frequently expressed doubts on the viability of ULCCs in post-pandemic years, as they work to adapt to rising costs and other shared constraints. Their moves toward more premium-type offerings have not assuaged those doubts.
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“I think these business models are simplistic and they will be very difficult to make complex without adding a lot of costs,” Nocella told investors. Added Kirby, “the play is almost over.”