United Airlines Holdings Inc (UAL) Earnings & Analysis

Latest quarter

United reported third-quarter revenue of $17.9 billion, below the consensus, although both figures round to $17.9 billion. Adjusted earnings per share were $2.54, below the consensus of $2.60.

Revenue rose 17.4% from $15.2 billion a year earlier. United’s filing attributed the increase in passenger revenue primarily to higher yield—the average revenue received per passenger mile—and more passengers. The filing also said cargo revenue grew on higher freight yields and slightly higher tonnage, while other operating revenue benefited from mileage revenue from non-airline partners and more visits to United Club lounges.

United’s operating margin fell to 8.08% from 9.16%, while gross margin declined to 64.3% from 70.7%. The filing said aircraft fuel expense rose $1.8 billion from a year earlier, primarily because the average price per gallon increased.

Diluted earnings per share rose to $3.14 from $2.90. United reported free cash flow of −$1.7 billion, compared with −$231.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CFO Michael Leskinen said United recovered much of the third-quarter increase in fuel expense through revenue, but that much of the price increase occurred after tickets had already been booked. He said the airline was confident it could recover fuel-cost increases, albeit with a lag.

Chief Commercial Officer Andrew Nocella said United was managing revenue and margins rather than targeting a fixed proportion of seats filled. He expected higher yields to help recover fuel costs, with somewhat lower load factors. Nocella also said customers were choosing higher-priced options within United’s newly tiered products and that the airline would continue refining how it sells them.

CEO Scott Kirby said evidence that Starlink was attracting customers from other airlines was mostly anecdotal. He said United hoped to retain those travelers through its service, aircraft and technology. Kirby expects Starlink-equipped aircraft to account for 61.0% of departures by the end of 2026 and 87.0% by June 1, 2027.

Kirby said the revenue benefit from Starlink alone would probably not be enough to achieve United’s pretax margin goal in 2027. He said the airline would probably also need lower fuel prices, lower industry capacity or continued industry willingness to accept fewer filled seats in exchange for higher fares. Kirby expected fuel to remain elevated through 2027 and did not specify when he thought industry supply changes might occur.

Discussing cost pressures, Leskinen said United was targeting 2.00% to 3.00% growth in cost per seat mile excluding fuel in 2027. He identified distribution and airport costs as pressures and said larger aircraft could help offset them. Leskinen added that United would cut capacity on loss-making flights when fuel prices spike: “we are managing the margin, not CASM ex.”

On fleet plans, Leskinen said United expected more than 100 narrow-body aircraft and about 2 wide-body aircraft a month in 2027, giving it an opportunity to replace older, less efficient aircraft. For the fourth quarter, he expected cost growth per seat mile excluding fuel to slow and revenue per available seat mile to accelerate from the third quarter.

Guidance

Leskinen said United now expects fourth-quarter recovery of higher fuel costs to be similar to the third quarter, rather than the full recovery previously anticipated, following a rapid late-quarter increase in jet fuel prices.