Skift Take

United's first quarter earnings call was uneventful. For an airline that has had more than its share of drama over the past four years, that's a good thing.

United Airlines is making progress adding its new business class cabins to wide-body jets, and plans to introduce a plane with its new Polaris seats every 10 days until it completes cabin retrofits at the end of 2020, executives said Wednesday.

The new seats, introduced by United CEO Oscar Munoz in June, 2016, began flying last year, but have not been installed as quickly as customers would like. They’re now on only 19 aircraft, according to the carrier’s website, though United executives have said the program is on schedule, despite some early snags because of manufacturer delays.

In addition, executives said Wednesday on their first quarter earnings call, United soon will begin introducing its long-haul, premium economy product, called Premium Plus, to long-haul jets. While that project won’t finish until the end of 2020, United said it could begin selling premium economy late this year in advance for 2019 flights. The product should begin appearing on aircraft this summer, but at first, United will only let passengers buy up to it at the last minute.

The new premium products are key facets of United’s plan to close a key financial gap with Delta Air Lines and American Airlines, both of which tend to report higher margins. As part of that plan, United is also trying to grow, planning to increase capacity 4-6 percent in 2018, 2019 and 2020, mostly through new flights at three hubs — Chicago, Denver and Houston.

When United executives detailed their growth plan in January on their fourth quarter earnings call, investment analysts reacted warily, with some fearing the market could not absorb all the extra flights without fares falling. But the airline said it had no choice, arguing more robust hubs with better connecting opportunities for customers would produce bigger profits. And so far, fares have held up.

The analysts were less critical on this call, with many instead asking polite questions about how United planned to execute its strategy. Executives assured analysts United has enough gate space and capacity at the three airports, and noted that they do not need concessions from the pilot union to grow.

Eventually, United would like to fly more 76-seat jets flown by regional airlines, which would require a deal with pilots, but in the meantime, it can add flights with 50-seaters. United does not need pilot consent to fly more of the smallest regional jets.

Wall Street has reason to be content. United, like most U.S. carriers, remains sustainably profitable, with the airline reporting net income of $147 million in the first quarter, an increase of 48.5 percent year-over-year. The first quarter is typically the weakest for U.S. airlines, and United tends to be weaker than its competitors, because it has fewer flights to Florida. But this year, United held up well in the year’s first three months.

“The revenue environment is robust and the strongest we’ve seen in a long time,” chief commerical officer Andrew Nocella said.

For the first quarter, United increased capacity 4.2 percent, year-over-year. Meanwhile passenger revenue per available seat mile, which measures how much money United makes for each customer it flies one mile, increased 2.7 percent year-over-year.

“While results don’t afford definitive evidence as to the longer-term merit of its mid-continent hub/growth strategy, sufficiently resilient core results may hopefully temper lingering investor skepticism,” Jamie Baker, an analyst at J.P. Morgan Chase, wrote in a note.

Transatlantic routes showed the strongest year-over-year improvement, due in part to strong business class seat sales. Latin American routes also showed considerable gains because of robust demand to Central America and the Caribbean. In addition, United said domestic unit revenues increased because of “healthy” business and leisure demand.

“It’s early, but based on everything that we can see so far gives us increasing confidence that we’re in the right path with the growth plan,” United President Scott Kirby said.

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Tags: airline innovation, united airlines

Photo credit: United Airlines will introduce a plane with Polaris business class roughly every 10 days for the foreseeable future. Pictured is the cabin on a Boeing 777-300ER. United Airlines

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