Scott Kirby Told You So

United may have lost money in the first quarter, but Wall Street loved it anyway. United's CEO is delivering on the plan he promised coming out of the pandemic.

Dear readers,

I have it on good authority that some executives celebrated at the Willis Tower in Chicago on Wednesday — not just because United beat analysts’ expectations for the first quarter, but also because (finally!) the market rewarded the airline for it. I try not to focus on equity prices because they don't tell the whole story, but many readers who work at United are compensated partially in stock and they've been underpaid for awhile, so I say: good for them.

United still lost money, because this was the first quarter — the worst reporting period for U.S. carriers. United had a pre-tax loss of $164 million on total operating revenue of $12.5 billion. Yet, knock out the $200 million (or so) in lost revenue and higher costs caused by the grounding of the airline’s Boeing 737 Max 9 in January, and United says it would have turned a profit.

By the end of Wednesday, United's stock had jumped more than 17 percent, making some subscribers very happy. Analysts, too, were encouraged by United's first quarter, in which the airline reported a 6 percent jump in domestic PRASM.

"The drivers of strength in the U.S. airline industry skew more to United than almost everyone else, so as long as premium and corporate mix continue to improve (no reason they shouldn’t) and international trends remain healthy this summer, United will continue to stick out as a winner," Conor Cunningham of Melius Research wrote.

As is often true after good quarters, executives were in a talkative mood on Wednesday's earnings call. CEO Scott Kirby, who gives his opinions less often than he once did, shared details on the “moat” he believes he has built at United, separating it from competitors. Chief commercial officer Andrew Nocella spoke about the reemergence of business travel, and the durability of premium demand, as well as softness in some global markets. Nocella also answered a question about the 'ring for champagne' button that may someday be available for a subset of United’s Polaris customers.

And yes, executives touched on the airline's FAA audit, which undoubtedly is a nuisance but probably not something that's going to affect the carrier's long-term financial targets or growth plans.

By the way, on this week’s episode of The Air Show, I discuss United’s earnings call and Delta’s call with Brett Snyder (a.k.a. Cranky Flier). That episode is available now on Apple Podcasts or wherever you listen.

Let's get into the good stuff.

United flew where (and when) people wanted to go in the first quarter

United long has struggled in winter because of its big city-centric network, but the issues mounted last year as the corporate customers who once buoyed the airline in January and February curbed their travel. Nocella said he didn't like United's performance in the first three months of 2023, when the airline had a pre-tax loss of $256 million. Rather than wait for business travelers to return, Nocella said the airline changed its approach by adding more domestic and Caribbean flying.

Other airlines have bemoaned the extra industry capacity to Las Vegas, Florida, and the Caribbean, yet most of it worked for United, Nocella said. Florida capacity increased 20 percent year-over-year "with financial results well above our system average," Nocella said. In Las Vegas, he said, capacity was up 7 percent "with strong financial results."

Nocella shared an oblique criticism of the airlines (like Frontier) who have whined about how Las Vegas and Florida have become oversaturated.