In one example, United Airlines today announced that they will reduce their domestic flight capacity by 4%. This reduction will take effect starting with the third quarter of this year. Despite constantly disappointing domestic demand, the airline faces a bleak competitive scenario. Simultaneously, it is benefitting from robust international and premium travel which is inflating its profitability.
Even with all the changes to its domestic capacity, United Airlines has chosen not to change its full-year guidance. The carrier is expecting adjusted EPS of between $11.50 and $13.50 for the year. And in the case of an economic recession, it assumes a falloff in future earnings. It projects EPS to be in the range of $7 to $9 on an adjusted basis.
United Airlines, in its latest quarterly report, just posted record revenues of $13.21 billion. This number represents an increase of over 5% from last year. That figure missed expectations from analysts, which had called for $13.26 billion. Despite strong travel demand, the airline’s domestic unit revenue plunged 3.9% in the first quarter. This steep drop foreshadows the storm that’s brewing for the domestic market.
The airline did experience a phenomenal surge in international capacity. At the same time, unit sales skyrocketed more than 5% – almost 10% in the last quarter. Due to this expansion, United Airlines announced profits of $387 million, or $1.16 a share. This is an amazing reversal from the net loss of $124 million, or 38 cents share, they reported last year. Its adjusted earnings of 91 cents per share was above Wall Street’s expectation of 76 cents per share.
The airline likewise pointed to growth in international and premium-cabin bookings as a driver of first-quarter revenue. It logged a drop in domestic coach sales, a sign that consumers are increasingly looking to fly premium, especially as air traffic rebounds.
Looking forward, United Airlines is projecting second-quarter adjusted earnings per share between $3.25 and $4.25. The carrier credits its bullish second quarter outlook to robust demand for premium-cabin bookings and international travel.
United Airlines is optimistic about its long-term outlook. If booking trends continue to deteriorate, the airline will have to cut its 2025 projections. The possible rebase could lead to downward earnings revisions. Now they may fall to a range of $7-$9 per share, lower than the previously announced range of $11.50 to $13.50.