United Airlines Holdings, Inc. (UAL) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Record Operational Performance: United Airlines achieved record operational performance in Q2 2024, including the best on-time performance, completion factor, and seat cancellation rate for a second quarter since the pandemic, flying over 44 million passengers.

• Premium Revenue Growth: Consolidated premium revenues increased by 8.5% to $7.4 billion, with premium capacity up 9.1%. Demand for United's premium capacity, including Economy Plus, was strong, outperforming non-premium seats.

• Strong Financial Results: United reported total revenues of $15 billion in Q2, up 5.7% year-over-year. Pretax income was $1.8 billion, with earnings per share of $4.14, ahead of expectations.

• Strategic Capacity Adjustments: United plans to cut approximately 300 basis points of planned domestic capacity in the fourth quarter to ensure meeting targets, reflecting aggressive cost management and strategic adjustments.

• Investments in Customer Experience: Investments in product and customer experience, such as the introduction of Tillamook ice cream onboard and new features in the United app, have led to the highest second-quarter NPS scores since the pandemic.

Pessimistic Highlights

• Pressure from Industry Capacity Growth: Industry capacity growth exceeded demand in Q2, putting pressure on domestic PRASM, which fell by 1.9% on 5.3% more capacity.

• International PRASM Decline: International PRASM fell by 3.6% on 12% more capacity year-over-year, with flights across the Atlantic having a small PRASM gain, while flights to Latin America and Asia continued to see declines.

• Cargo Yields and Basic Economy Revenues: Although cargo yields have stabilized at higher levels than forecasted, basic economy revenues, despite being strong and up 38% year-over-year, reflect the challenges in balancing premium and basic fare offerings.

Company Outlook

• Full Year 2024 EPS Guidance: United continues to expect to be within the full-year 2024 EPS guidance range of $9 to $11, despite the tough industry environment, with strategic capacity reductions and aggressive cost management in place.

• Q3 and Q4 Expectations: For Q3, earnings per share are expected to be in the $2.75 to $3.25 range. Q4 is anticipated to see an improvement in balance between supply and demand, leading to significantly higher yields and improved profitability.

• Long-Term Strategy and Investment: United remains committed to its United Next strategy, focusing on improving connectivity, expanding premium capacity, and investing in customer experience to drive long-term profitability and shareholder value.

Q & A Highlights

• Q: Can you discuss the impact of American Airlines' distribution and corporate contract revisions on United? (Jamie Baker, JPMorgan)

  A: United has maintained long-term partnerships with agencies and corporate partners, focusing on long-term market share and making corporations and travel agencies more sticky to United. No sudden windfall is expected as American adjusts its strategy. (Andrew Nocella)

• Q: How do you view the potential for airline revenue to GDP ratio to trend back upwards? (Jamie Baker, JPMorgan)

  A: The ratio declines when supply exceeds demand due to the inelastic nature of demand for air travel. The rapid industry response to adjust capacity is encouraging, and the ratio is expected to trend back upwards. (Scott Kirby)

• Q: With competitors increasing premium seating, how does United view its premium RASM growth? (Andrew Didora, Bank of America)

  A: United's premium business model is core to its hub system in premium markets. The strategy is built on a complex set of products and excellent customer service, making it difficult for competitors to replicate United's success in the premium segment. (Andrew Nocella)

• Q: Can you discuss near-term cost levers and whether these are timing-related or permanent? (Andrew Didora, Bank of America)

  A: The cost performance was driven by improved recovery from irregular operations, doubling down on expense management, and timing of maintenance events. Some costs are timing-related, while others, like irregular operations expense improvement, are permanent. (Mike Leskinen, Scott Kirby)

• Q: What's United's plan if capacity reductions are short-term and competitors start adding supply again? (Conor Cunningham, Melius Research)

  A: Unprofitable capacity is not sustainable. United's network health and the magnitude of losses in the worst quartile of flying by competitors suggest that the current industry setup is different, providing a backstop for permanent change. (Andrew Nocella)

• Q: How does United view its 2025 capacity plans in light of current adjustments? (Conor Cunningham, Melius Research)

  A: While specific capacity guidance for 2025 is not provided, United will continue improving connectivity and expanding premium capacity as part of the United Next plan, aiming for a double-digit margin. (Andrew Nocella)

• Q: What are your thoughts on CapEx for next year? (Michael Linenberg, Deutsche Bank)

  A: The target of 100 narrow bodies per year remains, with total adjusted capital expenditures expected to be less than $6.5 billion for the year. (Mike Leskinen)

• Q: How does United expect to perform relative to peers in terms of unit revenue performance in the second half of the quarter? (Scott Group, Wolfe Research)

  A: United expects domestic RASM to flip positive in September, with advanced PRASM bookings 4 to 5 points better in the second half of Q3 than the first. (Andrew Nocella, Mike Leskinen)

• Q: Can you provide insights into corporate recovery and expectations for improvement? (Duane Pfennigwerth, Evercore ISI)

  A: Corporate recovery is slow but steady, with demand roughly back to 100% of pre-pandemic levels. The transition back to corporate is happening, but it will take time. (Andrew Nocella)

• Q: What are the next opportunities to pay down high coupon debt? (Duane Pfennigwerth, Evercore ISI)

  A: With the balance sheet already at pre-pandemic levels of leverage and significant cash on hand, United has flexibility for investor returns and further deleveraging, though no instruments of high coupon like the recently prepaid debt are currently prepayable. (Mike Leskinen)

• Q: Can you discuss the feedback and timeline for the connected media business to ramp? (Tom Fitzgerald, TD Cowen)

  A: Connected media is expected to significantly ramp up next year, with more details to be discussed at the Investor Day. It is seen as innovative and impactful for United's future. (Andrew Nocella)

• Q: How does United view the impact of delays in delivering new, more fuel-efficient jets on emissions reduction? (Claire Bushey, Financial Times)

  A: The key to decarbonizing aviation is sustainable aviation fuel, not just more efficient airplanes. United is leading in investing in sustainable aviation fuel to achieve its goal of 100% decarbonization. (Scott Kirby)