Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- United Airlines Holdings Inc (UAL, Financial) reported total revenues of $15 billion for Q2 2024, up 5.7% year over year.
- The company achieved record operational performance, including the best on-time performance and completion factor since the pandemic.
- United's MileagePlus program had a strong quarter with revenues up 13%.
- The company led the industry in domestic PRASM growth for three consecutive years.
- United Airlines Holdings Inc (UAL) expects to be within its full-year 2024 EPS guidance range of $9 to $11.
Negative Points
- Domestic PRASM fell by 1.9% on 5.3% more capacity, indicating pressure from unprofitable industry capacity.
- International PRASM fell by 3.6% year over year, with declines in Latin America and Asia.
- The company faced challenges from weather disruptions, including Hurricane Beryl in Houston.
- Unit costs, excluding fuel, were up 2.1% year over year on 8.3% capacity growth.
- The industry capacity growth exceeded demand, putting pressure on yields and revenues.
Q & A Highlights
Q: What is United Airlines' experience with corporate contract revisions and distribution changes, especially in light of American Airlines' recent adjustments?
A: Andrew Nocella, Executive Vice President and Chief Commercial Officer, stated that United did not experience a significant windfall when American Airlines attempted to disintermediate travel agencies. United maintained long-term partnerships with agencies and corporate partners, making them more sticky to United. The benefits of these long-term arrangements are expected to materialize in the future.
Q: How does United Airlines view the potential for industry revenue to GDP ratio to recover post-COVID?
A: Scott Kirby, Chief Executive Officer, believes that the airline revenue-to-GDP ratio will trend back upwards. He noted that the ratio declines when capacity exceeds demand, as airlines lower prices to fill seats, reducing overall revenue. Kirby is encouraged by the rapid response in capacity adjustments, which he believes will help close the gap.
Q: How does United Airlines view the trend of increasing premium seating by competitors like Alaska and JetBlue?
A: Andrew Nocella emphasized that United's premium business model is core to its hub system and has been implemented over seven years. He believes that competitors attempting to copy United's segmentation strategy will face challenges, especially if they do not operate from business center hubs. United's lead in the premium segment is seen as generational and not short-term.
Q: What are the near-term cost levers United Airlines can pull to manage expenses amidst softer revenues?
A: Michael Leskinen, Chief Financial Officer, mentioned that running a strong operation is key to cost efficiency. Some cost improvements are timing-related, while others are structural, such as better management of irregular operations. Leskinen highlighted the importance of investments in technology and processes to drive permanent cost reductions.
Q: How does United Airlines plan to address potential long-term capacity increases by competitors?
A: Andrew Nocella noted that unprofitable capacity is not sustainable and that the worst quartile of flying for the least profitable domestic-centric airlines has significantly negative margins. He believes that the magnitude of unprofitable capacity today is unprecedented and that the industry will see permanent changes as a result.
Q: What is United Airlines' outlook for international capacity and competition, particularly in the Atlantic and Pacific regions?
A: Andrew Nocella stated that United has been cautious with its Atlantic capacity, leading to strong performance. He expects the Pacific region to stabilize as capacity growth moderates. Nocella also mentioned that Latin America unit revenue trends have stabilized, and PRASM declines will moderate significantly.
Q: How does United Airlines view the impact of delays in new aircraft deliveries on its emissions reduction goals?
A: Scott Kirby emphasized that sustainable aviation fuel (SAF) is the key to decarbonizing aviation, rather than relying solely on more fuel-efficient jets. United is focused on investing in and commercializing SAF to achieve its goal of 100% green aviation.
Q: What are United Airlines' plans for capital expenditures and fleet growth in the coming years?
A: Michael Leskinen confirmed that United plans to continue its strategy of taking 100 narrow-body aircraft deliveries per year. He acknowledged the importance of balancing capital allocation but emphasized that the United Next strategy is working and will drive higher margins and free cash flow in the future.
Q: How does United Airlines view the recovery of corporate travel and its impact on overall demand?
A: Andrew Nocella noted that corporate travel is recovering slowly but steadily, with load factor contributions from corporate travelers still below 2019 levels. However, there is a gradual transition back to corporate travel, particularly in premium cabins.
Q: What is United Airlines' approach to managing high-coupon debt and improving its balance sheet?
A: Michael Leskinen highlighted that United has already achieved pre-pandemic levels of leverage and has significant cash on hand. The company is focused on funding organic growth, investing in its business, and considering investor returns. There are no immediate opportunities to prepay high-coupon debt, but United is committed to further deleveraging and improving its financial position.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
