Airlines: BofA Industrials, Transportation & Airlines Key Leaders Conference Takeaways

Research evidence excerpt

Airlines: BofA Industrials, Transportation & Airlines Key Leaders Conference Takeaways

United Airlines

Mike Leskinen, CFO; Kristina Edwards, IR; Katlynn Kennedy, IR

Demand remains strong; industry distress supporting pricing power

Demand continues to be very strong across cabins and geographies, with no signs of

elasticity even as fares move materially higher. UAL’s customer base sits at the upper

end of the K-shaped economy, where behavior is more influenced by equity markets than

day-to-day fuel costs. Historically, low-cost and weaker carriers have undercut pricing,

keeping industry fares depressed. With many carriers under financial stress given the

fuel situation, there is a greater need and willingness to hold price in the face of higher

fuel. As a result, UAL is increasingly confident that fares may not need to come down

even if fuel prices eventually retreat, and management indicated they will be focused on

maintaining pricing discipline.

Airlines late to premiumization, runway remains

UAL believes the airline industry has been slower than other travel sectors (hotels,

cruise, ride-share) in adopting premium segmentation. The company continues to shift

its seat mix towards premium offerings and further segmenting cabins (now segmenting

Polaris), to provide more choice for customers and better incremental yield capture.

While management acknowledged there is a natural ceiling to premium penetration, they

emphasized that they do not believe they are close to that limit today. Given the margin

differential between premium and main cabin, incremental premium seating remains

economically attractive.

Upgauging and connectivity build a structural moat

Management sees upgauging as a meaningful profitability tailwind, particularly as