United Airlines (UAL, Financial) shares have surged over 90% since early October. Following Delta Air Lines' (DAL, Financial) impressive Q4 earnings on January 10, UAL needed to deliver strong results to avoid a sell-the-news reaction. UAL exceeded expectations with significant EPS and revenue growth, driven by high demand across its segments: premium revenue increased by 10%, corporate by 7%, and economy by 20%. The company also benefited from improvements in unit costs.
Expectations for strong Q4 results were high after DAL's positive report, making UAL's guidance the main focus. UAL did not disappoint, forecasting Q1 EPS well above expectations and anticipating continued robust demand. The company expects domestic unit revenue (RASM) to be solidly positive year-over-year in Q1, with international RASM also improving.
- The airline industry's capacity control efforts have enhanced pricing power and profit margins. UAL's Q4 RASM turned positive at +1.6%, compared to the previous quarter's -1.6%. This improvement was anticipated, as UAL had positive domestic unit revenue in August and September, setting the stage for quarterly RASM growth.
- Lower fuel costs reduced CASM by 1.6%, boosting profits. Adjusted pre-tax margin increased by 350 basis points year-over-year to 9.7%, while adjusted EPS rose by 63% to $3.26.
- UAL anticipates non-fuel costs to remain under pressure due to prior capacity reductions in its domestic and Atlantic schedules. In Q4, CASM-ex increased by 5.0% as capacity growth slowed to 6.3%, compared to a 14.7% surge in the same quarter last year, when UAL and low-cost carriers like Frontier Group (ULCC, Financial) and Spirit Airlines expanded capacity to meet demand.
- Due to cautious cost outlook, UAL's FY25 EPS guidance of $11.50-$13.50 fell slightly short of estimates at the midpoint. However, CEO Scott Kirby forecasts double-digit pre-tax margins in 2025, leveraging the same premiumization trend as DAL.
Without an outstanding earnings report, UAL's stock, currently at record highs, might have faced challenges. Despite some unit cost pressures from capacity reductions and fare hikes, the report was strong, and the company's outlook suggests positive future performance.
