Boeing 737 Max updates, a doubling down on basic economy and soaring Mediterranean demand defined United's fourth quarter earnings call.
United Airlines is reevaluating its fleet plan due to Boeing 737 Max 10 delays, the carrier’s CEO said in a call with analysts on Tuesday.
“We are taking it out of our internal plans,” United CEO Scott Kirby said during the call. “We’ll be working on what that means with Boeing. But Boeing is not going to be able to meet their contractual deliveries on at least many of those airplanes.”
Earlier in the day, Kirby expressed his frustrations with the delays in an interview with CNBC. The Max 10, along with Max 7, have yet to be certified by the Federal Aviation Administration.
Mike Leskinen, United’s chief financial officer, said on the call that the carrier had 107 aircraft deliveries scheduled for 2024, but after the Max 9 grounding, it is now “unrealistic” that those planes will arrive on time.
The United CFO also added that United is expecting a reduction in orders and deliveries from Boeing in 2025.
“We’re monitoring the MAX 10 closely, and we’re rooting for it and we’ll do everything we can to help that aircraft get certified,” Leskinen said. “It’s a great aircraft. But we can’t count on it.”
United plans to turn its attention to the Airbus A350, a widebody jet, as it remains bullish on international travel for the remainder of the decade and into the 2030s.
“The A350 is an incredible aircraft. We have a significant order book for 787s right now, and we have a mix of 777 aircraft, some are relatively older and a sub fleet is quite young,” Leskinen said. “As we look into the 2030s, the A350 is an aircraft that we are looking at.”
Despite some strong words from United’s top team, the problems with Boeing didn’t cast a major shadow on United’s fourth-quarter earnings call. Here are four other key takeaways from the call.
1. A Rise in Domestic and Transatlantic Demand
After the pandemic, carriers saw significant upticks in demand for international travel, particularly for flights to Europe and Asia. But now it looks like domestic demand is picking up.
United chief commercial officer Andrew Nocella said domestic flying remained strong, and the carrier expected that demand to potentially catch up with the high consumer appetite for international travel.
“I hate to say the word exceptional, but we’re seeing really good strength in domestic right now,” Nocella said.
In the first couple weeks of January, corporate bookings were also up, but it’s unclear if that trend will continue deeper into 2024. Business travel, once a staple for the airline industry, hasn’t bounced back since the pandemic as more companies opt for hybrid or remote work policies.
However, the high demand for leisure travel has more than made up for the lack of business travel, something that has helped airlines such as United, American Airlines and Delta Air Lines deliver record profits post-pandemic.
As for international travel, Nocella said transatlantic bookings in the first few weeks of 2024 were strong. The carrier plans to focus on its first-quarter international capacity on southern Europe, with Nocella noting that countries Spain and Italy have become year-round destinations for travelers.
“That is new post-pandemic,” Nocella said, “and we’re reacting to it and moving more and more capacity out of Northern Europe, out of London Heathrow, Germany, and into Southern Europe.”
2. Bullish on Basic Economy
United’s domestic revenue for basic economy was up 20% in the fourth quarter.
The carrier has sought to expand its basic economy offerings, hoping to take a slice out of the ultra-low-cost carrier market share and diversify its revenue streams to remain competitive in the industry.
“We’re very bullish about basic. Also bullish about premium,” Nocella said. “And the point is, we have a really great diversified revenue stream across all of our cabins as we try to decommoditize our product.”
Ultra-low-cost carriers such as Spirit Airlines and Frontier have been hit the hardest by softer-than-expected demand for their bare bones offerings.
United is betting that through its expansion of basic economy, travelers who normally fly with ultra-low-cost carriers will instead flock to United for its low fares and ability to buy premium products.
In a previous call with analysts, Nocella noted that basic economy comprises 12% of United’s domestic passengers and he expected that number to grow as the airline receives its larger aircraft deliveries, allowing it to create more low-fare seating.
3. Flight Cuts Continue in New York
Travelers can expect to see flight cuts stay the same at Newark Liberty International Airport, one of the carrier’s largest hubs, United president Brett Hart said on the call.
Airlines operating in New York-area airports have been forced to cut flights as the FAA enacted slot waivers, stemming from a persistent air traffic controller shortage. The waivers are meant to aid with congestion in the airports and allow airlines to operate fewer flights, while using bigger planes to avoid significantly cutting capacity.
Hart said the carrier cut capacity in Newark by around 10%, and anticipated those reductions would remain the same in 2024.
However, those cuts haven’t interfered with United’s operational reliability in Newark. Kirby noted that operational performance at Newark was “better than ever,” despite the flight reductions.
“That’s been good for our business, and it’s been really good for our customers,” Kirby said.
4. By the Numbers
United posted a fourth-quarter net income of $600 million and a full-year net income of $2.6 billion. Revenues in the fourth quarter were up 9.9% — at $13.6 billion — compared to the same period in 2022.
Operating margins for the quarter were at 7.3%, a 3.8% decrease from last year. And for 2023, United had an operating margin of 7.8%, a 2.6% increase from 2022.
In the first three months of 2024, United is forecasting a loss due to the Max 9 grounding. The carrier said in a filing on Monday it expects an adjusted loss of 35 to 85 cents a share.
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