United Airlines Faces Higher Costs – 6 Earnings Call Takeaways

19.10.2023 - 02:29 / skift.com / Scott Kirby / United Airlines / Andrew Nocella / Airlines

United Airlines executives outlined third-quarter earnings results in an October 18 conference call. Here are six of the most interesting takeaways. 

The price of fuel continues to be volatile, Chief Financial Officer Michael Leskinen said on the conference call. The airline expects an average fuel price of about $3.28 in the fourth quarter, up from $2.95 in the third quarter. 

Higher-than-expected labor and maintenance costs are affecting United’s fourth-quarter outlook. Maintenance costs — especially related to an increased need for spare parts — are elevated as the industry grapples with supply chain issues and aircraft delays.

“Looking ahead to 2024, we feel good about the core fundamentals of our expenses,” Leskinen said. “However, we are facing sizable headwinds with labor and expectation of a new flight attendant agreement, and continued higher maintenance expenses.”

United executives focused on the opportunity in “basic economy.” The airline says this fits in with its “upgauging” strategy of increasing the size of the aircraft it offers on routes so that it can offer more seats with fewer flights.

Chief Commercial Officer Andrew Nocella said that basic economy fares make the airline more competitive against its ultra-low-cost peers, and provide more choices for customers. 

These fares are the cheapest, and the most limited in terms of changes and perks. For example, fares do not include a carry-on bag and flight changes are not allowed. Basic economy passengers also board last on most flights unless they have status. 

United had limited ability to offer these fares last year because its flights were selling out too quickly, Nocella said. Now it has more space for these passengers and will continue to focus on selling basic economy fares as it receives larger aircraft. 

“Basic economy is now 12% of our domestic passengers, and we expect to be even more competitive in this segment of the market in the future with the arrival of our large narrowbody jets in 2024 and 2025,” Nocella said. 

Basic economy revenue was up 50% year-over-year in the third quarter. 

“It’s a better product for us,” United CEO Scott Kirby. “We’ve figured out how to make it work, but we now have the gauge to be able to sell the product.” Earlier this month, United ordered 110 additional Boeing 787-9s and Airbus A321neos.

United provided guidance Tuesday on how a prolonged war in Israel could affect profits, showing a potential 30-cent hit to earnings per share for the fourth quarter if flight suspensions continue past October.

Executives noted that United added flights in Athens, Greece to help connect passengers to Israel with Tel Aviv flights suspended. It also set up a “dedicated support desk” to assist customers with