United Airlines (UAL, Financial) delivered impressive Q2 earnings, surpassing expectations and distinguishing itself from competitors. In contrast, Delta Airlines (DAL, Financial) missed its EPS targets, and American Airlines (AAL, Financial) lowered its Q2 EPS outlook in late May. CEO Scott Kirby attributed UAL's strong performance to a diverse revenue mix and cost-cutting measures. Although Q3 is expected to be challenging, with EPS guidance set at $2.75-$3.25, Kirby anticipates industry overcapacity issues will resolve by mid-August.
- UAL increased capacity in Q2, particularly in the Pacific market, where available seat miles (ASMs) surged by 37.2%. Latin America saw a 15.4% rise, and the U.S. experienced a 5.3% increase as UAL aimed to compete with low-cost carriers.
- The influx of available seats has pressured pricing. Leisure travelers are opting for shorter, cheaper flights, impacting UAL's passenger revenue per available seat mile (PRASM), which dropped by 2.9% in Q2.
- UAL's unit revenue decline is the main reason for its modest Q3 EPS guidance. To address this, the company plans to reduce domestic capacity by about 3% in Q4. This, along with other airlines cutting loss-making capacity, aims to restore industry balance, improving margins and profits.
- UAL reaffirmed its FY24 EPS guidance of $9.00-$11.00, indicating confidence that current challenges will subside soon. The company expects to achieve leading unit performance compared to its major peers in the latter half of Q3.
Meanwhile, UAL continues to manage costs effectively, with CASM down 4.8% in Q2, and is leveraging its revenue mix, including an 8.5% year-over-year increase in premium revenue. Overall, UAL's Q2 results exceeded expectations, and the reaffirmed FY24 EPS guidance suggests that overcapacity issues will soon diminish.
