United Airlines Holdings (UAL): Better-than-expected revenue/cost performance drive increased confidence in medium-term margin

Research evidence excerpt

United Airlines Holdings (UAL): Better-than-expected revenue/cost performance drive increased confidence in medium-term margin

ic period. United management’s view is that while

fuel driven capacity cuts have driven a portion of this year’s RASM gains (~10% by

their estimate), the majority is driven by structural changes to the industry’s cost

structure with significant increases across labor, airport, and maintenance costs

post-pandemic. With the exit of some of the more aggressive pricing on the low cost

side, the industry has now started to price air fares to reflect the reality of the

current cost structure. As such, United management expects RASM gains to be

durable even in a lower fuel environment.

n Fleet deliveries/retirements: United expects to accelerate fleet renewal in 2027

with management planning to retire at least 80 older aircraft while accelerating the

introduction of larger-gauge and more premium-configured aircraft. The company

expects the first 737 MAX 10 deliveries in mid-to-late 2027 and a step up in

deliveries of premium configured A321XLRs and Coastliners, with management

anticipating a fleet of ~100 premium configured A321 aircraft by the end of the

decade. Management also highlighted its barbell fleet approach, combining a

growing fleet of modern aircraft for core flying with a selective use of older aircraft

that provide flexibility during peak demand periods.

n Balance Sheet: United raised $3.7 billion of liquidity in the bank market during the

quarter at a fixed rate equivalent coupon in the low 5% range given the heightened

level of geopolitical uncertainty and its potential impact on jet fuel prices.

Management highlighted that once fuel prices moderate, these funds could be used