For years, Delta has been the benchmark for profitability in the American airline industry. We know that United is obsessed with becoming Delta, so much so that you’ll constantly hear United executives refer to what’s happening at the airline. Scott Kirby may even have a life-size cutout of Ed Bastian in his office. I don’t know.
Last week, Delta became the first major U.S. airline to release its second-quarter 2024 financial results, and they were mixed. While Delta reported record revenue, its net income fell nearly 30% from a year ago. Delta executives also offered a gloomy outlook for domestic overcapacity, which is likely being felt across all airlines.
Well, United has now released its second-quarter 2024 financial results, and frankly, they look a lot like Delta’s, except in some ways they’re up rather than down. Has United finally managed to make changes that put it in the same league as Delta financially, or was this a lucky quarter?
United reports fairly solid financial results
Let me start by emphasizing once again that all U.S. airlines are sounding the alarm about overcapacity in the domestic market. So the overall outlook for the industry is not positive at the moment, and it seems to me that profitability may have peaked in 2023, at least for the foreseeable future.
In this context, I would say that United actually did a great job in the second quarter of 2024, and the carrier’s financial results appear comparable to Delta’s. Let me highlight some of the highlights of United’s financial results:
- United reported operating revenue of $15.0 billion, up 5.7% from the same quarter in 2023
- United reported net income of $1.3 billion, up 23% from the same quarter in 2023
- Total revenue per available seat mile (TRASM) was 18.81 cents, down 2.4% from the same quarter in 2023
- Cost per available seat mile (CASM) was 16.39 cents, down 4.8% from the same quarter in 2023 (although United made a one-time payment to pilots in the second quarter of 2023 tied to their new contract, which largely explained the decline).
Given that Delta sets the standard for the industry, how do United’s results compare to Delta’s?
- Delta reported operating revenue of $15.4 billion, up 5.4% from the same quarter in 2023
- Delta reported net income of $1.31 billion, down 29% from the same quarter in 2023
- Total revenue per available seat mile (TRASM) was 22.31 cents, down 1% from the same quarter in 2023
- Cost per available seat mile (CASM) was 19.28 cents, up 2% from the same quarter in 2023
As you can see, the airlines are getting closer in terms of results. While Delta’s net income fell 29%, United’s increased 23%.
United makes interesting statements about its market position
In sharing these financial results, United points out that premium revenue increased 8.5%, while basic economy revenue increased 38%, compared to the same quarter last year. While premium revenue growth is a good thing, I’m not sure that the increase in basic economy revenue is necessarily something to brag about?
It’s a good thing to fill seats, and it’s something that’s necessary for United as the airline increasingly operates larger and narrow-body planes. However, one could also argue that people aren’t choosing to buy tickets at higher fares, which isn’t necessarily a positive thing.
An airline might just as well consider the reduction in basic economy revenue as a good thing if more people bought tickets at non-basic fares. I’m pretty sure United would be happy if it had the same load factor it has now, while having fewer basic economy passengers.
Here are some comments from United CEO Scott Kirby on the financial results:
“The revenue diversity advantages we have built with our premium customers, our Basic Economy customers and our on-the-road travelers, combined with the world’s best loyalty program and best-in-class customer service, have propelled our margins to near the top of the industry. Looking ahead, we see several airlines beginning to cancel loss-making capacity and we expect unit revenue performance among our largest competitors in the second half of the third quarter. United has long been preparing for the moment when domestic capacity across the industry will adjust. It is now clear that the inflection point is just 30 days away.”
The commentary on unit revenue performance piques my curiosity. United says that by mid-August 2024, the airline expects to have the best unit revenue among its peers. United says this is because the industry as a whole will be reducing capacity after the peak summer period, and United believes it is best positioned to take advantage of this.
That’s a pretty bold claim, so I’m curious to see if it turns out to be the case.
Is United Finally in the Same Financial League as Delta?
Of the three largest U.S. airlines, Delta has been the most profitable in recent years, followed by United and then American Airlines. At this point, Delta and United executives say nearly all of the U.S. industry’s profits will come from just two airlines. In the most recent quarter, Delta and United posted comparable financial results.
The question is whether United can maintain this momentum or whether this quarter is a one-off. For example, in the first quarter of 2024 (typically the toughest quarter of the year), Delta reported a net income of $614 million, while United reported a loss of $194 million. Granted, some of this is due to the 737 MAX 9 grounding, which impacted United but not Delta, but that doesn’t explain the entire difference, as it’s estimated to have cost United about $200 million.
Has something fundamentally changed at United recently, or was this just a good quarter? Certainly, United is the most global of the “big three” U.S. carriers, and demand for premium long-haul flights has been very strong, so United has been able to take advantage of that.
That’s fine for about half the year, but it’s more difficult in late fall, winter, and early spring, when demand for long-haul flights is very low and there are only a limited number of off-season destinations to fly to. Last year, United experimented with a big expansion in the South Pacific, which was worth trying but wasn’t a complete success because it took a big hit on yields.
Only time will tell how this plays out. Will United more consistently have second and third quarter results that are comparable to Delta’s, while the first and fourth quarters are a different story? Or will United also manage to close the gap for the rest of the year?
In conclusion
Delta has released its financial results for the second quarter of 2024, and they are impressive overall. While the airline is having to lower its guidance due to general overcapacity in the industry, it is performing in line with Delta, which has long been a goal of United management. This is in stark contrast to the first quarter of 2024, and even the second quarter of 2023.
Only time will tell if United will be able to maintain this momentum, but it appears the airline is on the right track.
What are your thoughts on United’s financial results and its performance compared to Delta?