United Airlines is steadily moving towards profitability
United Airlines Holdings, Inc. (UAL) presented its quarterly report on April 20 after the closing of the main trading session in the United States. Revenue of one of the largest American air carriers fell short of the consensus forecast and amounted to $7.566 billion, and a loss per share reached $4.24, which turned out to be slightly higher than expectations.
The financial results of United Airlines turned out to be expected because at the beginning of the year, the epidemiological situation once again worsened, and non-flying weather often observed. Under the influence of these factors, canceled many flights.
As a result, the management had to lower the initial guidance for throughput from 82 to 84% from the level of the first quarter of 2019 to 81%. However, the market was counting on a higher flight rate: the actual RPM was 7% lower and amounted to 38,644 million passenger miles.
The average occupancy rate on flights was 72.6% against the forecast of 78%. Most of all — from 83% in the fourth quarter of 2021 to 77.5% in the first quarter of 2022 — the load fell on domestic routes. It increased mainly the number of international flights because of the demand for flights to Latin America and the Asia-Pacific region.
UAL’s total revenue was 27.2% lower than the result of the same period in 2019. However, despite a small share of freight traffic, it is expanding. The revenue of this segment increased by 119.2% compared to the results of the corresponding quarter of 2019.
The average income per passenger for the reporting quarter because of the deterioration of market conditions remained at the level of January-March 2019, and the specific indicator of expenses excluding fuel increased by 17.8%.
First, an increase in salary costs, which in absolute terms mounted, explained this dynamic to 97% of the level of the first quarter of 2019, although the number of employees has decreased by 6% over two years. In the current inflationary realities, it forces airlines to significantly raise salaries in order to avoid a shortage of personnel.
UAL representatives hope that competitive salary offers and benefits packages will help keep existing employees and attract new ones. However, industry experts warn it will take some time for airline personnel to recover to the level recorded before the outbreak of the pandemic. UAL representatives expect that the Chicago Job fair will help fill some of their many vacancies.
The company plans to expand the volume of transatlantic and domestic traffic this summer (FOX). In conditions of increased volatility of energy prices, the profitability of the company may deteriorate because of the lack of hedging positions: the price per gallon of fuel consumed increased by 40.5% compared to the level of January-March 2019.
The airline’s operating profit remains in negative territory, but United Airlines plans to make a profit in the current quarter with a favorable forecast of operating revenue. The benchmark for TRASM growth is about 17% to the result for the second quarter of 2019. They achieve if this goal, the indicator will set a historical maximum.
Despite the pressure from increasing costs because of volatility in the fuel market, as well as the need to raise wages, United Airlines expects an increase in operating margin to about 10%, which is only 2.9 percentage points less than in the same period of 2019. Industry experts say that the prices of air tickets do not prevent the preservation of demand for them. In an industry-wide context, online flight expenses in March increased by 28% compared to the level for the same month of 2019.
According to Adobe Digital Insight, referenced by the WSJ, the actual volume of orders for March increased by 12%. These results give United Airlines reason to expect powerful performance in the high season and confidently move towards profitability.
