United Comes Out Strong Despite Delivery Delays, FAA Oversight

17.04.2024 - 21:47 / skift.com / Spirit Airlines / Scott Kirby / Delta Air Lines / United Airlines / Andrew Nocella / Helane Becker / Meghna Maharishi / Frontier Airlines

From Boeing delivery delays and increased Federal Aviation Administration oversight to escalations in the Middle East, it would seem like United Airlines might be in hot water. 

But United executives don’t seem worried. The carrier had a strong first quarter — it reported a pre-tax loss of $164 million but that was primarily due to the 737 Max 9 grounding. 

“Without the grounding of the Max 9, we clearly would have produced a profit in the quarter,” said Andrew Nocella, United’s chief commercial officer, during a call with analysts on Wednesday. 

The carrier saw corporate travel bounce back with a 14% increase during the first quarter and revenues from United MileagePlus were up 15%. Nocella said United also saw a rebound in London, where revenues for Polaris, its business class product, were up 8%, despite 11% less capacity to the city. 

And United’s strategy to woo premium and budget travelers seems to be working: The airline reported a 14% increase in premium revenues and basic economy sales were up 35% in the first quarter. 

“Basic has clearly changed our competitive stance versus the ULCCs,” Nocella said. 

Wall Street analysts expected a poorer first-quarter performance as the carrier was hampered by aircraft delivery delays and a string of safety incidents that prompted more FAA oversight. 

“This is the airline’s first time generating an adjusted operating profit in the March quarter since 2019,” wrote TD Cowen analyst Helane Becker in a note to investors Tuesday night. “The fact that the MAX9 grounding caused a $200 MM headwind makes it even more impressive.” 

United shares rose by as much as 15% following the release of its first-quarter earnings. 

United CEO Scott Kirby has been outspoken on the viability of ultra-low-cost carriers like Spirit and Frontier Airlines. Previously, Kirby said he expected the industry to “see a shakeout” as ultra-low-cost carriers grappled with higher operating costs and declining revenues. 

This time, Kirby said the “industry has structurally changed,” with United and “at least one other” carrier having a “better proposition for customers.”

Kirby said United had a unique advantage with its products, service and international network. The United CEO added that the carrier has been able to sell basic economy tickets in a way that’s profitable and competitive with the ultra-low-cost carriers. 

“We have a better product, we have a better network, we have a better loyalty program and they choose to fly us and that makes it unique,” Kirby said.

Part of United’s ambitious expansion strategy is to eat into the market share of ultra-low-cost carriers. To do so, United has been expanding its number of basic economy seats and Nocella has previously said the carrier plans to