United Airlines (UAL) Gaining Some Altitude After Nudging Q3 Guidance Higher
1:19 pm Wednesday, September 07th, 2022
With a frenetic peak travel season winding down, it appears that the incessant demand for air travel is not tapering off, based on United Airlines (UAL) updated 3Q22 guidance. After initially guiding for revenue and TRASM (Total Revenue Per Available Seat Mile) growth of 11% and 24-26%, respectively, UAL is now forecasting increases of 12% and 25%. The bump higher in UAL’s revenue guidance is modest, but it eases concerns that the macroeconomic headwinds that have pressured many retailers will start hurting travel demand this fall.
Encouragingly, UAL is now experiencing improved operational reliability, while costs are “inline to slightly better” than its prior expectations. This suggests that staffing levels are starting to more closely align with demand, enabling UAL to avoid more costly cancellations. Still, the improvements are pretty marginal at this point, as reflected in the revised Q3 outlook.
Due to the slightly enhanced capacity forecast for Q3, UAL now anticipates CASM-ex to be up around 16% versus its previous guidance of up 16-17%. Although UAL didn’t provide CASM (including fuel) guidance, it did disclose that average aircraft fuel price/gallon is trending roughly in line with its expectations at $3.83.
Although the revisions to UAL’s Q3 guidance are rather slight, the update brings a sense of relief that business conditions haven’t further deteriorated since UAL and its peers’ reported earnings in late July. In UAL’s Q2 earnings press release, CEO Scott Kirby struck a cautious tone, warning that the economy may slow — and potentially enter into a recession — in the near-to-medium term. He also highlighted the industry-wide operational challenges that were constraining capacity, and the record high fuel costs, as key risks that could derail UAL’s recovery. While those risks have not dissipated, the brightening outlook for Q3 shows that conditions have become a little smoother, rather than more turbulent.
