United eyes another blockbuster summer, but growth faces headwinds

Another blockbuster summer awaits, United Airlines said on Wednesday, despite cautioning headwinds will force changes to the carrier’s ambitious growth strategy for the coming years.

United reported a $124 million net loss during the first quarter. Though it’s hardly good news, it comes with something of a silver lining-esque disclaimer: The carrier estimates it lost about $200 million in January when the FAA temporarily grounded its 79 Boeing 737 MAX 9 jets following an inflight emergency on an Alaska Airlines-operated MAX9.

“If the Boeing MAX 9 hadn’t been grounded, we would have been profitable for the quarter,” United CEO Scott Kirby told analysts during a conference call Wednesday.

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United on Wednesday revealed it reached a deal for compensation from Boeing, the company said in a federal filing viewed by TPG.

At airports this summer, expect the crowds to again set records.

“I think we will as an airline, and as an industry,” chief commercial officer Andrew Nocella said. This echoed predictions TSA administrator David Pekoske made Tuesday on Capitol Hill. Pekoske said airport checkpoints may, for the first time ever, top 3 million travelers on some peak days.

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Business resurgence

It’s not just vacationers driving United’s optimism.

The first few months of 2024 brought a somewhat surprising resurgence in business travel following years of lackluster performance after the peak of the pandemic. United bookings made through corporate accounts surged 14% over 2023 levels in the first quarter.

Delta Air Lines reported similar progress last week.

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That business resurgence perhaps helped boost United in its “material rebound” at London’s Heathrow Airport (LHR), executives said. There, revenue from the carrier’s Polaris cabin climbed 8% over last year despite 11% less capacity in London.

KYLE OLSEN/THE POINTS GUY

With plans to dramatically grow its fleet in the coming years, the airline is heavily affected by aircraft delivery delays at Boeing. Some delay concerns predate 2024. However, they have now been made far worse by FAA-imposed production constraints at the plane-maker in the wake of the Alaska MAX 9 incident.

United now expects to receive 65 narrow-body jets and five wide-body jets in 2024. That’s down from 101 aircraft expected at the start of the year and the 183 it was contractually supposed to receive by December 2024, the carrier said Tuesday evening.

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With no signs the delays will end anytime soon, the airline this week detailed a “leveled-out” fleet plan for the coming years.

Future delivery expectations revised

United now plans to convert numerous existing orders of the 737 MAX 10 jet (which still isn’t FAA-certified) between 2025 and 2027 to MAX 9 orders, the carrier said this week. It has additional options to convert other future MAX 10 orders to MAX 9s and MAX 8s as well.

United also announced letters of intent to lease 35 Airbus A321neo aircraft, which are expected for delivery between 2026 and 2027.

These moves are meant to “optimize the delivery skyline,” chief financial officer Michael Leskinen said Wednesday.

“Boeing’s repeated delivery delays had created an impractical bow wave of aircraft deliveries that both United and Boeing had to address. And we have,” Leskinen told analysts.

Compensation deal revealed

To offset financial hurdles related to both the January MAX 9 grounding and MAX 10 certification delays, United recently reached a deal with Boeing for compensation, the airline revealed in a filing Wednesday with the U.S. Securities and Exchange Commission.

The confidential April 14 arrangement, United said, involves credit memos for future purchases from the plane-maker. United did not say how much the credits are for.

It’s worth noting that United’s compensation deal with Boeing comes after Alaska Airlines previously revealed it would get $160 million from the plane-maker.

‘Leveled-out’ fleet plan

In all, United expects to take delivery of an average of 100 narrow-body jets annually over the next three years.

Though it’s less than United originally expected, the carrier sees it as a way to clarify its plans — from managing aircraft to plotting its route map and hiring employees.

The carrier will also likely leave wiggle room in scheduling new, future jets into service, Kirby noted.

“If we think we’re going to take 100 aircraft this year, we’re only going to put 90, or some lower number, into the schedule,” Kirby said. “If everything is on time and on plan, then we’ll have a few extra spares around for a couple of months. That’ll cost a little bit, but it doesn’t cost nearly as much as over-staffing by 40 airplanes.”

Meanwhile, United is currently contending with its own FAA scrutiny following a series of maintenance events in recent months that led Kirby to write a letter reassuring customers of the airline’s safety commitment.

In announcing the stepped-up oversight at United, FAA leaders said the safety review may delay some certification activities.

That could briefly delay the entrance of three newly-delivered United MAX 9 jets into service, Kirby said Wednesday.

Though the FAA audit has delayed the launch of two high-profile routes, the agency’s review should have “minimal impact” on the airline’s overall plans in 2024, president Brett Hart told analysts.

“These reviews are being taken very seriously,” Hart said. “And we will see this as an opportunity to further strengthen our commitment to safety.”

On top of aggressive plans to acquire hundreds of new aircraft, United is in the midst of a major overhaul of its aircraft interiors as part of its strategy branded “United Next.” It includes larger overhead bins, better inflight entertainment screens and Bluetooth connectivity at each seat.

By the end of 2024, half of the carrier’s North American fleet should be retrofitted with the changes, Hart said Wednesday.

Asked by TPG, an airline spokesperson could not comment on the timeline for the completion of the retrofits. However, Hart’s comments came a year after United first acknowledged it would miss its target to retrofit the entire fleet by its original goal of 2025 due to supply chain constraints at the outset of the process.

United has been on an ambitious expansion in the Pacific, with its capacity to destinations like Asia, Australia and New Zealand up around 66% in the first few months of 2024 versus last year.

However, in the second quarter of this year, the company expects its revenue per available seat mile (or “RASM,” a key financial indicator for airlines) will be down versus last year in the region.

“We do plan to make capacity adjustments to a small number of underperforming routes later this year,” Nocella acknowledged Wednesday.

Still, United executives said they remain bullish on the carrier’s Pacific plans. They have reason to be, said Helane Becker, industry analyst at TD Cowen. Becker noted “not every market is a home run” amid the airline’s breakneck growth over the Pacific.

“Since fuel costs are volatile, United has to review the markets it flies into and decide whether the route makes sense,” Becker said. “Then, they adjust the network. I feel this is not surprising, and business as usual.”