United’s third-quarter results were strong, but higher-than-expected costs in several key areas will prove to be challenging in the months ahead.
United Airlines executives outlined third-quarter earnings results in an October 18 conference call. Here are six of the most interesting takeaways.
1. Cost Pressures Are Weighing on Profit Outlook
The price of fuel continues to be volatile, Chief Financial Officer Michael Leskinen said on the conference call. The airline expects an average fuel price of about $3.28 in the fourth quarter, up from $2.95 in the third quarter.
Higher-than-expected labor and maintenance costs are affecting United’s fourth-quarter outlook. Maintenance costs — especially related to an increased need for spare parts — are elevated as the industry grapples with supply chain issues and aircraft delays.
“Looking ahead to 2024, we feel good about the core fundamentals of our expenses,” Leskinen said. “However, we are facing sizable headwinds with labor and expectation of a new flight attendant agreement, and continued higher maintenance expenses.”
2. Focus On Basic Economy
United executives focused on the opportunity in “basic economy.” The airline says this fits in with its “upgauging” strategy of increasing the size of the aircraft it offers on routes so that it can offer more seats with fewer flights.
Chief Commercial Officer Andrew Nocella said that basic economy fares make the airline more competitive against its ultra-low-cost peers, and provide more choices for customers.
These fares are the cheapest, and the most limited in terms of changes and perks. For example, fares do not include a carry-on bag and flight changes are not allowed. Basic economy passengers also board last on most flights unless they have status.
United had limited ability to offer these fares last year because its flights were selling out too quickly, Nocella said. Now it has more space for these passengers and will continue to focus on selling basic economy fares as it receives larger aircraft.
“Basic economy is now 12% of our domestic passengers, and we expect to be even more competitive in this segment of the market in the future with the arrival of our large narrowbody jets in 2024 and 2025,” Nocella said.
Basic economy revenue was up 50% year-over-year in the third quarter.
“It’s a better product for us,” United CEO Scott Kirby. “We’ve figured out how to make it work, but we now have the gauge to be able to sell the product.” Earlier this month, United ordered 110 additional Boeing 787-9s and Airbus A321neos.
3. United Added Athens Flights to Help Connect to Tel Aviv
United provided guidance Tuesday on how a prolonged war in Israel could affect profits, showing a potential 30-cent hit to earnings per share for the fourth quarter if flight suspensions continue past October.
Executives noted that United added flights in Athens, Greece to help connect passengers to Israel with Tel Aviv flights suspended. It also set up a “dedicated support desk” to assist customers with Tel Aviv flights.
Before flights were suspended, United was serving Tel Aviv twice daily from Newark, once daily from San Francisco, three times per week from Washington Dulles and four times per week from Chicago O’Hare, a United spokesperson told Skift.
The airline added four round-trip flights between Newark and Athens in addition to its two regular daily flights from Athens.
4. United is Focusing on Premium Revenues
United’s revenues from premium products were up 20% in the third quarter — more than half of all passenger revenue.
One example is the Premium Plus (premium economy) product, which is available on its twin-engine international aircraft. Nocella said revenues for the product are up seven times compared with 2019 levels. Premium Plus seats include perks including roomier seats, free hot meals and two free checked bags.
5. United Won’t Change Its Premier Status
After Delta Air Lines announced significant changes to its SkyMiles loyalty program in September, United management clarified that it would not make any material changes to the way it calculates Premier status through its MileagePlus program in 2025.
“We very much believe in never causing a situation where everyone has a Premier status, which obviously results in no one receiving an adequate level of Premier benefits,” Nocella said.
United offers four levels of Premier status that offer perks such as free checked bags and Economy Plus access.
6. United Is Planning for Supply Chain Delays
Like other carriers, United is continuing to adjust for aircraft delivery delays. The airline will take 12 fewer aircraft in the second half of the year than it had planned in July, Leskinen said, with those deliveries moving to 2024.
United has been facing supply chain delays affecting its timeline for upgrading its cabins, as reported by CNBC earlier this year.
Chief Operations Officer Toby Enqvist said the airline is about a year behind on its program to upgrade its cabins and expects the project to be complete in 2026. It is flying about 120 aircraft with the new design right now, he added.
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