Good morning, and welcome to United Airlines Holdings Earnings Conference Call for the Third Quarter 2026. My name is Regina, and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions.
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Thank you, Regina. Good morning, everyone, and welcome to United's Third Quarter 2026 Earnings Conference Call. Yesterday, we issued our earnings release, which is available on our website at ir.united.com.
Information in yesterday's release and the remarks made during this conference call may contain forward looking statements. Which represent the company's current expectations, which are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations.
Please refer to our earnings release Form 10 ks and 10 Q and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors. Unless otherwise noted, we will be discussing our financial metrics on a non GAAP basis on this call. And historical operational metrics will exclude pandemic years of 2020-2022.
Please refer to the related definitions and reconciliations of these non GAAP measures to the most directly comparable GAAP measures at the end of our earnings release. Joining us today to discuss our results here in Houston and outlook are our Chief Executive Officer, Scott Kirby; President, Brett J. Hart Executive Vice President and Chief Commercial Officer, Andrew Nocella; Executive Vice President and chief financial officer, Michael Leskinen. We also have other members of the executive team on the line available for Q&A. And now I would like to put the call over to Scott.
Thanks, Kristina. Thank you all for joining us on the call today. it is been an eventful year, but it is once again given us the opportunity to demonstrate how decommoditizing and becoming a true brand-loyal airline was a structural change for United. It gives us resilience in volatile times, I expect it will lead to strong results in a normalized environment.
We built an airline that our employees are proud of, and they are delivering and have made United the leading airline around the globe. Before I start, I want to congratulate Boeing on the certification of the MAX-10. Fantastic aircraft, and we look forward to taking our first delivery next year.
On this call, we will talk a lot about 2026 in the current environment, but I want to take a couple minutes to focus on 2027 and specifically answer the question what will it take for us to reach our goal of double digit pretax margins next year? We live and breathe no excuses. And the 1 thing you will never hear us say or use as a planning excuse is if it were not for fuel.
Instead, we are planning for and actually expect fuel to remain elevated for all of 2027. It also appears that industry capacity will accelerate. Obviously, either of those things could change and get us to double digit pretax margins, but we are not counting on it.
So what would it take to get there in a higher fuel and capacity environment? To be blunt, even though we are outperforming, the traditional way of looking at it, it would be hard. So in fairness, I have been pleasantly surprised that the industry's ability this year to raise yields and pass through much of the increase in fuel prices. it is possible that airlines will continue to focus on yields at expensive load factor.
That alone could get us to double digit margins next year. But we are not going to assume that will happen. You have heard me say in the past that hope is not a strategy.
Instead, we are focused on things we can control, and those are the big investments we have made over the past several years in products, service, and technology. And 1 of those things is StarLink, a new and truly differentiating RASM tailwind in 2027. Today, about half of United departures are on Starlink equipped aircraft, We offer more Starlink flights than the entire US airline industry combined.
We currently expect to reach 61% of departures by the end of 2026, 87% by June 1, available fleet wide by the end of 27. Importantly, also seeing evidence that Starlink is a motivating factor for customers to choose which airline they fly. that is why we launched a new tracker so people can check if their flight has it, and it can follow along as we outfit our fleet. it is hard to get brand loyal customers to switch airlines. And while it is mostly anecdotal, we are seeing 2 important things happen. 1, customers who are brand-loyal to other airlines and have flown them for years switched to a United flight solely because of Starlink.
And 2, once they try us, they stick with us because they also experience great service and all the nose to tail things we have invested in for years, like new aircraft, larger seat back screens in every class of service, oversized bins, technology like ConnectionSaver, and a mobile app that is dramatically better than anything they have experienced before. We know that eventually, high speed, low Earth orbit Wi Fi will be industry standard for everyone. For 2027 and really 2028, we are well on our way to being the only global US airline with Starlink at scale.
So a lot of new customers are going to try us. it is a huge head start. And we are gonna press our advantage wherever we can. And while others are just ramping up on their LEO Wi Fi installations, we will be on to our next wave of product and technology to sustain our lead and further deepen the competitive moats around our business.
Our mission will be to show new customers the very best of United, and then earn their long term loyalty by demonstrating that we are the number 1 airline in everything else as well. With both fuel and industry capacity expected to be elevated next year, Will that share shift happen fast enough to get us to double digit pretax margins? While I do expect a meaningful RASM tailwind from Starlink in 2027, to be honest, it probably is not enough on its own.
To get there in 2027, we probably also need at least 1 of the 3 following things to happen. Lower fuel, lower industry capacity, or a continued willingness for the industry to trade load factor for yield. Regardless of what happens on how big the RASM benefits are in 2027, however, Our series of big customer investments, including Starlink, and some big new ideas we have not even announced yet that are coming in the not too distant future, have merged as a new tailwind to a plan that was already working at United.
And we expect 2020. To exit 2027 with more brand loyal customers than we otherwise would have had and expect that to lead to higher RASM in 2027 and beyond. And with that, I will pass it over to Brett.
Thank you, Scott, and good morning. First, I want to thank all of our United employees for their tremendous work throughout the quarter. Our team demonstrated exceptional resilience and adaptability working together to restore operations and get our customers to their destinations.
United ranked second in on time departures for the third quarter. With United being first among the top 7 US carriers in July. We also delivered our second best third quarter post-pandemic seat cancellation rate in United history.
Ranking first amongst the 3 largest US carriers for the quarter. Ultimately, strength of our operation is reflected in our customer satisfaction results. In the third quarter, we saw our highest quarterly NPS score since 2022 amidst record passenger growth.
Our people remain at the center of everything we do, and in August, we completed the first phase of our expanded pilot training center in Denver. Increasing our capacity to train up to 860 pilots per day with 86 flight simulation training devices 52 of which are mow. Are full motion simulators.
This investment supports both our existing workforce and our ability to develop the talent needed for United's future. Transportation Secretary Buttigieg and FAA Administrator Whitaker announced that they are seeking an additional $30 billion in improvements. For our nation's air traffic control system.
A safer and more resilient ATC system will benefit United's customers and operations. And we are actively engaged with the administration in both sides of the aisle in congress to advocate for this much needed funding. And it is especially exciting to be here in Houston today as we celebrate a major milestone in the transformation of Terminal B at George Bush Intercontinental Airport.
This project represents a significant investment in 1 of our most important hubs, and we believe it will fundamentally improve the experience for millions of customers traveling through Houston. We are making significant investments across our hub network. Including at Washington Dulles, where we are also advancing a major airport transformation and expect to open a new concourse with 14 additional gates next month.
Together, these investments reflect our continued execution of our strategy to build a stronger airline positioned for long term profitable growth. With that, I will turn it over to Andrew.
Andrew Nocella
EVP, Chief Commercial Officer
Thanks, Brett. United's top line Q3 revenues increased by 17.4% year over year to a record 17.9 billion. TRASM increased by 15.9% with yields up 17% Passenger load factor fell modestly.
Consumers and businesses have been accepting price increases. Which we believe is a result of fares lagging the rest of inflation along with other aspects of travel costs for many years. Looking at revenues by cabin, in Q3, premium revenue, including economy plus, increased 17% on a 2.5% increase in capacity.
Premium PRASM increased 14.1%. Nonpremium revenue in. Revenue increased 18.4% on 0.5 point increase in capacity with RASM up 17.8%.
Against the backdrop of strong premium cabin revenue growth, it was nice to see standard economy cabin RASMs up. Recall that in Q1 of 26 was the first time in 12 quarters that economy cabin RASMs were positive. In other words, yields still have a long way to go to catch up with inflation whether measured before or after the pandemic.
We expect economy RASM to outpace premium once again in Q4. At revenues by travel purpose, Business revenue increased by 22% in the quarter with yields up 15%. Contracted business revenues increased by 26%.
Premium business continues to be strong with load factors in the premium up a little over half a point year over year and up 3.6 points since 2019. Business load factor in the quarter increased by almost a point. While Starlink is important to all of our customers, it is critical for our business customers which we believe will be a key driver of revenue and share growth in 2027.
Leisure revenues were up 16% with stronger year over year yield gains than business traffic. Leisure load factor fell modestly by 1.3 points which reviews a small amount of elasticity given higher ticket prices. A trade we would make every day.
Cargo revenues increased by 23% year over year with most of the increase occurring in yields as our global long haul capacity growth was minimal in the quarter. Loyalty revenue had another strong quarter, up 17% Remuneration from Chase was up 15%, portfolio spend on our co brand cards was up 13%. We remain on pace to generate 1 million new accounts in 2026, a material increase from 2025, thanks to changes to MileagePlus along with strong marketing from both United and Chase.
I have talked about United's efforts in the past to deseasonalize our business by improving the relative RASM performance of Q3 We made substantial progress in Q3 of 2026 on this goal. Fuel costs may make our progress hard to see, but we believe these recent results are another milestone towards our goal of reaching double digit pretax margins as we move forward into a more normalized fuel environment. My goal in absolute RASM is Q1, Q2, and Q4 to be similar each year but a slight reduction in Q3, given less business traffic that travels during the summer.
We can tailor our network and capacity to achieve this goal over time. We expect RASM and yields increase sequentially from Q3 to Q4. Selling yields have been up in the very high teens in recent weeks including some weeks north of 20%.
However, we know we need to achieve more to recapture fuel costs as we see them today. For a little more color on RASM, strength in Q3, Central America, The Caribbean, Florida, Newark, and London were strong RASM tailwinds in the quarter. In fact, Florida RASMs were up 26% in the quarter alone.
Hawaii, The South Pacific, and Chicago were RASM relative laggards in the quarter. Hawaii will have a better Q4, but will still underperform. A quick note on Chicago.
Starting in the second quarter of 27, we expect minimal domestic industry capacity growth at O'Hare due to the FAA capacity screened constraints where the growth in total flights is capped. United is capped at 600 daily flights and we think that may be the likely outcome well into 2028 at this point. United's revenue share in Chicago continues to climb as we win more brand loyal customers.
United hit the key milestone in Q2 of 2026 capturing 50% of Chicago based passengers revenue for the first time Congratulations to the entire United team for delivering this amazing achievement. Beyond Chicago, we also saw share gains in all remaining United hub cities with the latest data released by the DOT. We believe these share gains will increase further in 2027 as Starlink becomes commonplace across all United flights.
As we think about what changes from today to the end of 2027 for United, wanted to give you a few highlights. We will continue the efforts to deseasonalize our RASM production. We are excited to reestablish JFK as the destination in 2027.
We will largely complete our United Next Connectivity goals in our MidCon hubs by December 2027. We will turn more of our attention towards our coastal gateways and international expansion in 2027 and beyond. We will open amazing new terminal facilities in Houston tomorrow and in Dallas in just a few weeks.
We will also open numerous United clubs. Our newest club right here in Houston, Texas opens tomorrow, which will not only be United's largest club, but the largest in The Americas. By the end of 27, we expect to finish installing Starlink on all our jets.
Both mainline and express. We will finish installation of our interior signature cabins, including seatback, entertainment for all, large overhead bins, and new Leiden by the end of 27. We will also grow premium capacity faster than main cabin capacity as we introduce the A321neo and XLR at scale we believe no other airline is contemplating.
We will launch RelaxRow, an economy plus open middle seat extending premium products to all cabins as we elevate the experience in all cabins for all passengers. We will continue to refine our product segmentation and retailing with the introduction of tiered fares across our network and various product types. Again, we will add more than 1 million new co brand accounts as we enter the sunset years of our existing Chase agreement.
And we aim to recapture 100% of the price of oil in 2027. At United, we will continue to stay focused on our consistent strategy and path recognizing that our relative results show our plan is working. Our goal is double digit pretax margins, and we remain steadfast in our commitment to deliver them.
And with that, I will pass it over to Mike.
Michael Leskinen
VP, Corporate Development & IR
Thanks, Andrew, and thank you to the entire United team for the tremendous effort as we manage through a high fuel cost environment. An environment in which most of the industry will lose money, Our third quarter results reinforce why United is on the right path and demonstrate how much progress we have made earning brand loyal customers. Which are critical to delivering resilient and durable earnings.
In the third quarter, we were deliberate about where we deployed capacity and continued to thoughtfully invest in the business. We remain determined to be we remain determined to achieve double digit pretax margins and an investment-grade credit rating. Our ability to pass on higher fuel costs through higher ticket prices is stronger than ever before and demonstrates how much United and the industry has transformed.
In the third quarter, we delivered earnings per share of $2.54 and a pretax margin of 6.2%. Earnings per share were within our guidance range. Fuel prices accelerated in the quarter and drove a $1.8 billion increase in expense year over year.
We recaptured 72% of the increase in fuel expense, as much of the increase versus our guidance occurred in the period. And most of our revenue was already on the books. We are highly confident in our ability to recapture 100% of increases in our fuel cost, but with a lag.
Our CASM ex was up 7.8%, and that higher rate now captures the full run rate of expense from our flight attendant deal. We also incurred the impact of close in capacity reductions. We expect Q3 to be the high watermark for CASM ex and expense growth will step down in the fourth quarter and then step materially lower in 2027.
Outside of the impact from closing capacity reductions, our CASM ex trajectory has remained consistent with our expectations at the start of the year, I wanna thank our team for their diligent work to keep us on track in such an inflationary environment. Looking ahead, we expect fourth quarter earnings per share to be between $0.50 and 1.50 assuming an all in fuel price per gallon of approximately $4.80. Based on last Friday's forward curve.
Underlying this guidance is a CASM ex that will decelerate and a TRASM that is accelerating compared to the third quarter. This is a good setup as we exit the year. We are forecasting that our fuel recapture in the fourth quarter will be similar to the third quarter given the continued increase in fuel prices.
This is lower than the 100% we were anticipating due to the rapid spike in jet fuel prices late in the third quarter. Turning to the balance sheet. We ended the quarter with $17.7 billion of liquidity.
Including our undrawn revolver. And paid down approximately $1 billion of debt. We raised 900 million of new debt that was priced at a fixed rate equivalent in the low 5% range.
Additionally, we upsized our revolving credit facility last week from $3 billion of unfunded liquidity to 5 billion. And we extended the maturity 2 more years to 2031. We intend to reduce gross debt by the same amount as we target $18 billion in liquidity at year end.
Expect this shift to unfunded liquidity to save approximately $70 million of annual interest and fees. This is currently the largest airline revolving credit facility in history, and yet another proof point of the strength of our business and our balance sheet. Rising oil prices have impacted our near term metrics.
With our net leverage at 2.4 turns, However, we remain determined to achieve investment grade metrics and hopefully also ratings next year. We continue to target net leverage of less than 2 turns. Our financial performance continues to demonstrate strength of United's business model and our ability to execute through industry shock events.
We cannot control oil prices or geopolitics. But we can control how we run our airline. And in an environment like this, the gap between airlines that have invested for the long term and those that have not has become even more apparent.
While our relative margin has been industry leading, we remain focused on achieving absolute double digit pretax margins as our top financial goal. We will continue making investments that further our competitive advantage, and it will lead to those double digit pretax margins. I will now turn it to Christian to kick off the Q and A.
Thank you, Mike. We will now take questions from the analysts. Please limit yourself to 1 question and if needed, 1 related follow-up question.
Regina, please describe the procedure to ask a question.
Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please press star then the number 1 on your telephone keypad.
Please hold for a moment while we assemble our queue. Our first question will come from the line of Mike Linenberg with Deutsche Bank. Please go ahead.
You know, I am staring at $5 jet fuel, and hard to believe that you are still on track to do $3 billion of pre tax profit or more this year. So obviously, United has clearly cracked the code here. But a question directly to Mike.
Look, as best as I can tell, among publicly traded airlines, I think you had the highest liquidity position of anyone and yet you upsized it by another $2 billion. And so if my math serves me right, I presume your liquidity is right around $20 billion unless you paid down debt recently at quarter-end. Why the step up?
And is it you know, because you already had a lot. Is it just being poised for opportunity? I mean, we know that things break at $5 Jet fuel.
Talk about, like, the philosophy behind having so much cash. Thanks for taking my question.
Michael Leskinen
VP, Corporate Development & IR
Yeah. Thanks, Mike. it is a great question. And it does create optionality.
But we are cost conscious. And so if you think about when we raised our debt and where we are investing the liquidity, the cost of carry is relatively low right now, number 1. Number 2, the upsizing the revolver is gonna allow us to carry that liquidity in a more efficient way.
So I said in my prepared remarks, but let me repeat. We intend to bring that liquidity to $18 billion at year end. $20 billion is too much. And so we will bring that we will bring that down. that is going to save us over $70 million in interest and fees.
And as we, earn in an investment grade credit metric, we will reevaluate the level of liquidity. But we are comfortable with this. It we are an industry that asteroids hit.
We are well prepared for lots of events, and it is a relatively low cost of insurance to carry the extra liquidity.
And, Mike, I will just quickly add. If people think we did that for optionality to do M&A activity, That is absolutely 100% not the rationale. it is to save $70 million to get to the same liquidity targets we had anyway. it is simple.
Thanks, everyone. Our next question will come from the line of Tom Fitzgerald with TD Cowen. Please go ahead.
Hi, everyone. Thanks very much for the time. it is curious for Andrew, you have mentioned a lot of momentum on the loyalty side of the business. And I am just kind of it is been kind of running the low double digit rate the last couple of years, a million new co brand accounts annualizing next year.
And then some of the other the benefits with Starlink, you made a lot of leadership changes on loyalty. Connected as well. I guess, long-winded way of saying, could we see, like, that other revenue line item accelerate maybe, in the low teens potentially next year?
Andrew Nocella
EVP, Chief Commercial Officer
I think we hope so. The as you pointed out, the milestone of 1 million new accounts, if those accounts mature and spend more next year and the year after, that is how that calculation works, as I think we are all aware of. And so we will do a million accounts this year.
We will get those accounts spending. We will get them upgraded to higher credit cards, the club card in particular. And then we will do another 1 million accounts next year.
And that is a big investment in making that number terms of total loyalty revenue, you know, increase hopefully in the mid teens, at least 14% or 15% consistently for the next few years or maybe even higher.
Thanks. that is really helpful. And then just I could squeeze in a quick follow-up on the tiered fare categories. Just curious early learnings with that and maybe how you could think about that tailwind into next year.
Specifically around buy up to basic business? Thanks again for the time.
Andrew Nocella
EVP, Chief Commercial Officer
Yeah. I will say that we are really pleased by the launch of the tiered products, and we continue to--we are doing a bit more in the next few weeks. I think it is been great for our customers.
It provides more options for them. And great for the airline as well. We redesigned united.com specifically to sell them effectively, and we will continue to refine our approach on that I think has even more upside.
The buy up rates are incredibly high. Consumers know what they are buying, and we disclose it very carefully. This has worked for years.
It started with basic economy. A little more than 10 years ago. We have learned a lot of lessons on how to do this, and I just think it is been really monumental for us, more so than people realize.
And we are glad to pave the way on this. It was a very good idea and we look forward to refining it. And if you recall, the early days of basic economy took a lot of refinements, and I think we are just at the early days of this phenomenon in the other cabins as well.
Our next question will come from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.
I wanted to ask about the fleet, maybe just based on delivery slipping out of 2026 in your view for higher for longer fuel and accelerating capacity. Are you thinking that 2027 deliveries and retirements? And maybe as a follow-up to that, your specific plans on MAX deliveries across the 9 and 10 models in 2027.
Michael Leskinen
VP, Corporate Development & IR
Hi, Sheila. Look. We are really excited and wanna congratulate Boeing for the certification of the MAX-10.
The MAX-10 is a big part of our upgauging strategy. it is gonna be a very competitive aircraft for our network. So, very excited about taking delivery of that. As we look into 2027, rather, think we are gonna take about 2 wide body aircraft a month.
And we will take over 100 narrow body aircraft. So we have some pent up demand in our fleet with older aircraft that are maintenance inefficient, fuel inefficient, And so regardless of where we end up the amount of capacity we end up flying, there is an opportunity for us to modernize the fleet and to up gauge the fleet that has really strong economics. So we are excited to accelerate that rate of delivery on both narrow and wide.
Our next question will come from the line of Conor Cunningham with Melius Research. Please go ahead.
Hi, everyone. Maybe I will push back a little bit on that opening statement from you, Scott. Just the bear the bear thesis that is out there is that you know, you already had low fuel You had structural change in the industry.
That brought industry supply, you know, super low for a long period of time. And now you obviously feel a spike. You know, industry supply is ramping into that.
You are still seeing competitors discount close-in. I. I am trying to feel comfortable about the long term double digit pretax margin. It just feels like tweaks in supply do not get you there anymore.
So just. If you could just paint the picture a little bit better, I think that would be helpful. Thanks.
I will do my best. So I will disaggregate it into unique to United and industry. Unique United, we have been winning share, you know, kind of everywhere we fly at all of our hubs for a while now.
And we have pretty good anecdotes already. I mean, it is mostly anecdotal now, but Starlink is causing customers to move. And what they.
I hear from those people is they get on. Like, the number 1 thing I hear is they picked the United flight. there is some other hub. Live somewhere else or a frequent flyer somewhere else.
They pick a United flight, and they say, oh my god. The app is amazing. Why does not any other airline have that?
And then the people are nice, and they wind up switching. So I know, I do not know I do not think that is gonna happen fast enough personally in 2027 to get us to double digits without some other structural macro changes, as I said in my opening comments. But it is a big tailwind.
And, so that is sort of unique to United. On the structural level, boy, you know, I happen to think that oil prices are gonna. That jet fuel prices are gonna be high all the way through.
Next year. There have been an awful lot of airlines say, you know, managing their business as if it were not for fuel, you know, which in the short term is a way to absolve yourself of responsibility and accountability. But I just do not think that is gonna last.
So I. Really, what I think is going to happen-- I do not know the timing. I think this is more a question of when than if. But if oil prices stay high, I think they will through next year, I find it low probability that every airline runs out what their current capacity plans are for the full year.
I know they are all gonna get on calls and say it. But once they get an activist investor coming in or something else like that happens, like, changes your mind in a hurry. And I just.
Like, the losses will be. So 6 to 10 U.S. airlines are going to lose money this year. And if fuel's higher next year, like, you know, it just the stress is building.
So I think there are gonna be supply changes. You know, actually, being successful as an airline is really simple. 1 golden rule: do not fly places that lose money. Well, it is simple.
Very few people follow it, but there is gonna be less loss making flying. I think by the end of next year, I do not know when it is gonna happen, but I think at some point next year, these calls are gonna be transitioned to 2028 is gonna be a really good year, because structural. More structural changes happen this.
And structural change has happened this year. The fact Spirit went away was a reprieve for some airlines for making hard decisions. It gave them a reprieve.
But there is other airlines that are next up on the firing line. I think changes are coming.
Okay. Thank you. Maybe kicking over to Mike. it is been difficult to model costs, and I know it is not just a United thing. it is more of an industry problem.
So. Or an industry headwind. If you could just maybe I know you are talking about decelerating growth into next year, but if you could just give any color around 2027 and how you view cost.
I think just people are trying to get comfortable with that side of the equation as we determine where fares go in general. Thank you.
Michael Leskinen
VP, Corporate Development & IR
Yeah. Thanks, Scott. And I think it is a reasonable question to ask.
This team has done an incredible job of managing the inflationary pressures we faced in 2026. And so I will repeat what I said in my script. Were it not for the voluntary reductions in capacity, Our 2026 CASM X is tracking exactly where we expected it to at the beginning of the year.
So given the inflationary pressures and given what we have seen from peers, I think that is an incredible result. We look to 2027, we are going to continue to target 2-3% CASM ex. We are definitely facing inflationary pressures of the biggest inflationary pressures we are facing is from increasing distribution cost.
Because as fares go up, the distribution cost is a percentage of fares. We are facing airport costs that since the pandemic have gone up by 60%. So there is lots of work to do to run a more efficient airline to offset those inflationary pressures.
At United, we are gonna have a unique tailwind in increasing gauge growth 2027. We are gonna work hard to live within that 2-3% CASM ex. In 2027 and beyond, but we do have our work cut out for us.
The last thing I will say is in environments like this where fuel prices spike, we are gonna have no hesitation to cut capacity of flights that are losing money. We are not managing the CASM ex. We are managing the margin.
So we are doing a great job relative to CASM ex. We are not changing their goals. The goals are gonna remain aggressive.
But make no mistake, we are managing the margin, not CASM ex.
Our next question will come from the line of Andrew Didora Bank of America. Please go ahead.
Hey, good morning, everyone. Thanks for taking the questions. I guess my first 1 for Andrew or Scott, I guess, you talk about this higher-for-longer fuel environment in 2027.
I guess do you think industry capacity should shake out next year? And how does United's growth fit into that overall, industry backdrop?
Andrew Nocella
EVP, Chief Commercial Officer
You know, I think Scott gave the macro answer to that question largely, so I do not think I want to repeat it. You know, for United, we are very conscious of our capacity. I think about it every day.
And look at every flight in every market, and we are nimble, we will make the right decision, and we will make the right decision in 2027 as well as we usually do. Think we have a very good track record on this.
Okay. Thanks. And I guess second 1 just quickly for Mike.
You know, obviously, there was a loyalty transaction out in the market a couple of months ago with Air Canada, that I think shed a little bit more light on the value of that business. You know, I do not. I know you do not need to do that type of deal, but I think in the past, you have sometimes floated the idea of, you know, providing a little bit more disclosure just to give investors a little bit, you know, more color on that business.
You know, have you had any new thoughts post that transaction? Thank you.
Michael Leskinen
VP, Corporate Development & IR
Thanks, Andrew. I love the question. And look, we are the first airline to use the loyalty.
Our loyalty program as collateral in the pandemic. So, I wanna compliment the Air Canada team-- I want to compliment the Air Canada team on an incredible transaction. I think it highlights the value of these loyalty programs, the tremendous value that, frankly, we are not seeing in our share prices.
That said, here at United, as Andrew has shared, we are getting close to the sunset of our existing contract with our partner. Number 1. Number 2, given that, it makes sense, given that it is about to sunset, and given that it is a historic contract that it does not have modern economics.
It makes much more sense for us to wait and get the new contract and then provide the additional disclosure. So for now, holding pattern, but Air Canada did an amazing job of highlighting the value that exists in these programs and particularly here at United.
Our next question will come from the line of Jamie Baker with JPMorgan. Please go ahead.
Hey, good morning, everybody. So Scott, since you brought up the C word, you have been vocal the C-word, consolidation. What do you think?
Oh. You have-- you have was consolidation. What do you think?
Oh. You. You have been vocal.
You have been vocal about not engaging in M&A. You have spoken about JetBlue specifically, given the, you know, among other things, 10 to 15% margin gap between yourselves and them. In a preference to, quote, unquote, go big I believe that was your term when it comes to consolidation. there is been no movement in American forward in terms of regime change, but we have seen JetBlue's market cap get decimated here. We have got $2 billion of loyalty bonds trading at, you know, whatever, half of par.
Obviously, it is such a subject, but why should not United be a potential solution for JetBlue as they ponder a restructuring?
Well, I have done enough talking this year, I think, about the c word, as you say. And I have done enough talking to be newsworthy in the last 48 hours. Actually, I did an interview 7 weeks ago to be newsworthy, so I am not gonna create any new I just have nothing new to add on that.
Like, we are focused on. You can hear from our call. You can hear from our tone.
We feel great. About what we are doing, here at United. I wish oil prices were lower in the short term.
But I am really proud of the team. You know, the fact that we are able to you know, be doing this well, in this environment. it is a matter of when, not if, we get to double digit margins on a stand alone basis. We just have.
And I think, by the way, Starlink is. It is the second-- Schedule is number 1. It is the clear number 2.
In choice when people are choosing an airline. To me, it is a significant advantage we are gonna have for the next couple of years. And so we are really focused on.
My message to the team is we are gonna have new customers trying us from other airlines, and our mission. I am going to do it with a bunch of employees here in an hour, is make sure they know that United is the best airline in the country for them to fly and get them to be long term customers. I would say, by the way, for those on the call that are listening, that fly other airlines, at some point, in the next 12 months, when you find yourself on a second or third United flight because of Starlink.
And you find yourself taking the application for the credit card, and you realize that you have switched airlines, you will get a twofer. You will have upgraded your airline and your stock investment idea.
Okay. Fair enough. And then, Andrew, just quickly, can you expand on your earlier Chicago comment?
And I know you do not want to give, you know, specific in terms of hub profitability, but on a fuel neutral basis, can you help us think about the shape of how margins have evolved there and what you expect to occur after the, you know, April date that you identified a few minutes ago. Not talking absolute, I am just looking at how to change ex fuel, if you will, in Chicago profitability has looked.
Andrew Nocella
EVP, Chief Commercial Officer
Sure. Well, look, I will start off with and looking backwards at our RASM results, in Q3, I do not think you saw any speed bumps. Right?
And looking forward to our outlook for Q4 I think our numbers also show there are no speed bumps. That being said, there is a bit more capacity in Chicago than normal year over year. That headwind, I think, turns into a tailwind as of April given the way the FAA is managing capacity at the airport.
Overall, you know, I am I am not going to add a lot of fuel in this fire, but I would tell you that RASM premium we have to brand x is about 14 points, and our CASM premium, is better by 3 to 4 points. So I will I will leave you to do all the economics and math that it results in, but that is the latest data that we see. We watch it daily.
But, overall, I think that the macro point is it is it is a minor thing in our Q3, Q4 numbers. And as we enter the bulk of next year, I think Chicago becomes a tailwind as of April and beyond.
Our next question will come from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Good morning, everyone. In the prepared remarks, you spoke about deseasonalization efforts in 3Q bearing fruit. And potentially that extending to other quarters as well.
Can you just remind us what that means for how we think about the 4Q to walk on maybe key KPIs probably leading with capacity?
Andrew Nocella
EVP, Chief Commercial Officer
Yeah. So first of all, going back to Q3, mean, I. I have been disappointed over a period of years that q 3's relative financial results have been disappointing versus Q2, which has gotten incredibly strong. June, in particular, is an amazing month now, much, much more than it had been in the past.
And August is the opposite of that. I think as kids go back to school earlier, And so we have been working really hard to make sure that we can get to a path where our Q3 earnings are at par with the other quarters. For Q4 and Q1, we had a lot of work on Q1 coming out of the pandemic.
Particularly as business traffic evolved. And I think that is common a long, long way, particularly with our Atlantic RASMs and relative profitability. But as I said earlier in the opening, we would like for the RASM performance in all the quarters to be same other than Q3 where premium business traffic in Q3, we think that should be a little bit lower.
Again, that given, you know, there is just less number was masked by fuel, I think, in Q3 of this year. But that is our goal. And, you know, be seasonalizing the business creates a lot more ability to fly and even schedule almost year round.
Creates other cost efficiencies, which we think is the right way to go. And that is what we are evolving to as quickly as we can.
Very good. Thank you. Our next question will come from the line of Brandon Oglenski.
With Barclays. Please go ahead.
Hi, good morning, and thanks for taking the question. So Scott or Andrew, I think you both mentioned potentially trading load factor for yields or maybe dialing that in and revenue management systems is that something that United is maybe considering even more looking into 2027?
Andrew Nocella
EVP, Chief Commercial Officer
Look. I think it is obvious where the price of fuel is. it is obvious where our total CASM is, and it is also, therefore, math mathematically obvious what eels need to do. Do I expect there would be some impacts on load There was a tiny a bit in Q3.
They will probably be a little bit more in Q4. But, you know, we know where yields need to be for United. And we are taking all the appropriate actions to get there so we can recover 100% fuel.
And I do expect that means slightly lower load factors. And I will just reiterate, we do not manage to a fixed load factor target. that is not how it works. Not how it should work.
We manage to maximize our RASM and our long term margin goal. And if load factors fall, are incredibly high, by the way, relative to all of the past and my experience in this business, that is perfectly okay.
Appreciate that, Andrew. And I guess you know, what are a little bit worried about here is obviously if you look at fourth quarter domestic capacity, both United and your large competitor American are up about 8% to 9% domestically and obviously into a higher jet fuel environment. I mean, can you just talk to us about like the classic prisoner's dilemma between this?
And I think, Andrew, highlighted the relative performance in Chicago. But I guess, how does this ultimately resolve? And can this be a more sustainable long term outlook competitively?
Andrew Nocella
EVP, Chief Commercial Officer
Well, I. I am not gonna talk about the other guy in that level of detail. I can tell you that we are winning share. We are winning share in all our hubs, not just Chicago.
By the way. And we have a amazing competitive tool out there with Starlink to help us monetize that more even for their next year. And I will also point out why Starlink is so, so important to us is in this unique advantage.
Is that, you know, we have a fair. You know, our hubs are contested. Much more than the average legacy airline, and therefore, are a lot more splitters that split their business between airlines.
And in fact, there are a few people in our hubs, I do not know exactly why, that give a higher share of wallet to the other airlines. And we are gonna reverse that next year and gain more share. So we feel really good about the unique aspects for where we are going.
For Chicago, you know, I like it or not, the FAA has imposed caps, and those are a reality. And that is gonna change game a bit. And we like our advantage in Chicago. it is a good advantage to have, and we will work it and continue to push it.
So I like our position, quite frankly. In Chicago, for the short run and the long run. But I do think the competitive heat, as maybe you would describe it, is gonna be different for them at vast majority of 2027.
Just because of the conditions placed upon us by the FAA and also because of our gains of share because of Starlink.
Our next question will come from the line of John Godyn with Citigroup. Please go ahead.
Scott, just wanted to ask another 1 about the industry structure and really just kind of get your perspective You talk about a structure where there is a small cluster of airlines that are succeeding, executing, winning, etcetera, and a separate group that are struggling with when we look at that group that is struggling, generally oversimplifying their turnaround plans are usually something like we are gonna add some premium seats. We are gonna change some fees and fares. We are gonna add a couple bells and whistles for the passengers.
And you know, we are gonna double or triple our earnings in 2 or 3 years, which, of course, is way faster than, you know, United did when it was doing its turnaround. You. You are somebody who is actually quarterbacked a lot of these turnarounds successfully.
I am just curious what your reaction is when you see other airlines that have never done it simplifying it in that way.
Well, thanks. You described it kindly. I will describe it, I think, more accurately.
I am not meaning to be mean. I look at those strategies as hope is our strategy. And it is not gonna work.
The reason it does not work is because it is not bells and whistles. You use the term bells and whistles. You cannot put a couple of bells and whistles on it.
And have these. You cannot just put a first class in. You cannot just put in a seat that has a door or whatever.
You know? Like, you just cannot match selectively some of the things that have been done. it is a lot. it is it is the whole package. And, you know, we have the best product, I think, the Western world now on our aircraft, and we have got some recognition of that from others. that is the easiest part to match for another airline, to match the product. it is really important but it is the easiest part to match.
The rest of the stuff is harder. We are the best. We are the most reliable airline in each 1 of our Newark is now the most reliable of the 3 New York airports.
We invested in the incredible amount in technology to do that, and that is why we are. We operate in the hardest places in the country. that is why we are number 1. that is hard to replicate. Technology, incredibly hard to replicate.
I do not think people appreciate how big the technology advantage is at United. If you fly United, you can see it in the app, but the app is the tip of the iceberg. We started 6 years ago a program, hundreds of millions of dollars that we spent to get our technology moved off of legacy platforms and systems and into modern programs.
Well, not just moving it to the cloud, but moving it to modern platform. And so we can move fast and do things that others simply cannot do because we did that. At the time, there was no ROI on that.
Because we did not know what we would do with it, but it enables us to do incredible. So our technology lead is massive versus. I do not know who is the second best airline in the world, but it is massive versus, all of them and then finally, service.
When you create an airline, that your employees are proud of, and that is my job is get our employees inspired to believe in United, and they do, and they are delivering for And so you put that whole package together, that is what being premium. it is all of the above. Like, you cannot. You know, like, the analogy that I use, you cannot just, like, take a 4 Seasons room, copy the room, put it in a motel 6, and expect it to be a 4 Seasons.
You need everything else that goes with it. To be successful. And there are only 2 airlines in the country that have been doing.
We have been doing for 10 years. Like, it is. You just do not snap your fingers and say, oh, I am gonna match this 1 element and it works.
So I am not worried about it as a competitor. They are doing that. It might be better for their own airlines.
Like, they may be able to upsell at their own airline and stuff, but brand loyal customers are not gonna switch, because of that.
There was a lot there. 1 thing you did not emphasize was international networks. And the and the importance of international networks in all of this. Well, We do see some of these domestic carriers kind of suggesting or exploring or trying to execute on international build outs?
Any perspective there?
No. The reason I did not say that is because the commodity part of business is the route network. Almost everyone in the business with the exception of people that sit in the conference rooms at United and Delta, thinks of air travel as a commodity and the air.
The route network is incredibly important. Like, Patrick is sitting in this room. Like, he is the best in the world.
Cool destinations on the map like Greenland, or Ulaanbaatar or Sapporo now. And that is a nice to have for the frequent flyer program, but that is the commodity part of the business. are what sets a brand airline The service product technology and reliability a brand loyal airline apart. And by the way, for international, you know, United was born on third base.
You know? Like, I wish we had a huge domestic hub like Atlanta or Dallas. We do not. that is a weakness newer us compared to the other guys.
But on international, country. Dulles, and San Francisco are really the 3 best hubs in the For international, particularly premium, but all international service. And we happen to have hubs in those places. it is just a natural advantage for us.
Our next question will come from the line of Scott Group with Wolfe Research. Please go ahead.
Scott, I think there is an assumption that whenever fuel eventually goes lower, we are gonna get some chunk of, you know, this pricing back? And I will practice. Maybe this is just a really dumb question, but, like, you are all demonstrating so much more pricing power than I think any of us thought a few quarters ago. it is like, why cannot price or RASM or whatever, like, continue to go up whenever fuel eventually goes lower.
Like, I guess, like, can pricing ever, like, decouple from capacity, or is that just, like, way too naive of a thought or hope?
You know, it is an insightful question, and I will try to answer it. I have answered a lot of questions today, but I will answer this 1, too, because I think it is really important. First, I think it is important to note that while pricing has gone up a lot this year, it is still down in real terms compared to 2019.
So we are bouncing still off of a COVID low. And air travel remains a great value. The more important point for will it stay and will it hold is I think we are demonstrating this year that it is different this time. it is different this time because costs have escalated so much across the industry. it is not just fuel price.
Our airport fees at our hub airports are 60% higher now than they were pre COVID. And those are the kinds. Those that escalate.
You know, maintenance fees, engines, like, all that stuff has just gone through the roof. And those apply to every airline. In the past, the cost leaders were the high margin, low cost airlines.
They are now the low-margin, no longer low-cost airlines because costs have been harmonized. And every airline, you know, like, 6 to 10 U.S. airlines are going to lose money that year. it is expensive to fly airplanes and you do not. You cannot continue to exist unless you can get to profitability.
And so I think that tide has to rise for everyone, or those airlines simply will not exist. which, of course, would adjust pricing as well. They will not exist if they cannot get pricing up. And that is what is happened this year.
People by and large, have been willing to accept lower load factors. I think it is an important point. You know, I said it in my opening script, Maybe we will be able to trade that.
Maybe a way we get there next year anyway. It does not happen a 100%. there is still temptation from people to run fair sales and things, but mostly people have been willing to trade yield for load factor because they look at it and say, like, I have to charge what my cost is. It cost me x flight airplane.
My yield has to be higher than x. And that sort of fundamental math applies to every airline. And it is actually why I am pretty confident that we are not gonna take steps backwards in pricing because know, everyone's looking at.
You know, they gotta get their yield at least above their cost. And, and the number of airlines are not there yet. So I feel confident.
Like, I have been around the industry a long time like you, and it is certainly easier, by the way, if there was less capacity. it is more straightforward. Because the temptation to run a sale and boost your load factor is lower if you are already booked high. So it is gonna be easier but I think there is a good.
I certainly think pricing's gonna stay. But I think that there is a good chance that we the industry surprises to the upside on yield next year. Even in a higher capacity environment.
And then, Mike, just real quick. Like, when you talk 100% fuel recapture next year, like, realistically, what is the fuel price we need to get back to actually get there?
Michael Leskinen
VP, Corporate Development & IR
Look. We are trying not to be a hedge fund or fuel trader as So what we do is we look at current crack spreads, and we look at the forward curve. Or.
For Brent, And if you look at that fuel price in 2027, would be over $4 for the full year. And it would be about $4.50 for Q1 and $4.20 for Q2, drifting to $3.70 by 4 q at 2027. So we think about we think about that as the base case.
I am sure that is wrong, but we do not try to prognosticate on any different viewers forward curve. So that is what we would need to pass through.
Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Please go ahead.
Hey, thanks. Good morning. A couple of quick ones.
Andrew, where are you seeing the most sequential improvement in yields into 4Q either by geography or customer segment? And really hoping I know broad based is a popular term right now, really hoping we can get more than that. Thank you.
Andrew Nocella
EVP, Chief Commercial Officer
Sure. I mean, the simple answer, as I said earlier, is leisure yields are higher than business, but business is still strong. But the momentum is a bit stronger in international.
As you saw in Q3, Latin had a great quarter. I expect that to happen yet again in Q4. Not going to lose any momentum there.
But I also expect the Atlantic and the Pacific to gain momentum. So and that. that is why we gave the guide, and that is how we are talking about our acceleration into Q4. So, hopefully, that helps.
That does help. And then just very quickly, cargo. Can you speak I mean, you mentioned that it is mostly yield, but is this macro?
Is this geography? Is this go to market? What is driving the continued strength in cargo?
Thank you.
Andrew Nocella
EVP, Chief Commercial Officer
Asia is definitely very strong. You know, as you know from our numbers, we did not grow our global long haul. A lot last year and in particular in the high-cargo tracks, we did not.
So we have been focused on yield in the bellies because the bellies are relatively full to begin with. So we did a great job on that track and we will see where it goes next year. But the environment for cargo, I think, does remain strong.
Is more of a commodity based product than our passenger seats at this point. We are aware of that. We are our best to even decommoditize cargo. that is whole another subject But cargo is an amazing part of United Airlines.
We lead the way in The United States and expect to continue to do so for a long time to come.
Our next question will come from the line of Catherine O'Brien with Goldman Sachs. Please go ahead.
Just 1 on corporate for Andrew. So, you know, continues to a bright spot. I understand that leisure yields are, you know, having a bit of recovery here, but still really strong corporate yields.
With corporate load factors up 1 point in Q3, you know, that is that is better than the, I think, up half a point in Q2. Do you expect that to continue to improve based on current 4Q trends? And then I guess maybe just you know, higher level.
If we see a larger step up in corporate volume recoveries, which I think are still a decent amount lower than 2019, what could this mean for premium cabin pricing over the medium term?
Andrew Nocella
EVP, Chief Commercial Officer
Yeah. I mean, corporate is still, you know, I would say, 4-5 load factor points behind 2019. As a contribution to United Airlines.
So as that continues to move in this direction, obviously, we are really excited. This is another place that we are born on third base for all the obvious reasons. Our third base, not third place, For all the obvious reasons.
And so I think that is a meaningful tailwind to the premium global business carriers, in which there is primarily 2 in the country. And so that is, I think, a big tailwind for us. The trends for Q4, shines in the United Network.
And I think you will see that when we are talking about this in January of next year.
Maybe just 1 on 27 capacity. I mean, as we have talked about, United's 1 of the only carriers making money this year, capacity to accelerate into next year. You know, I think there is quite a few other carriers who should probably be looking at their 27 capacity plans with a lot more scrutiny than United.
But does overall industry capacity growth figure into your plans? On growth just given the impact that could have on the pricing environment?
Andrew Nocella
EVP, Chief Commercial Officer
Yes. Well, Scott talked about this, I think, in a great amount of detail on that. I do not think anybody's capacity plans for 2027 are firm And even when they are, they probably will not be realized for numerous different reasons.
I will kinda leave it at that. You know, I think we have a very good track record of making great capacity decisions, and I expect we will do the same in 2027.
We will now switch to the media portion of the call. If you would like to ask a question, please press star then the number 1 on your telephone keypad. Please hold for a moment while we assemble our queue.
Our first question will come from the line of Leslie Josephs with CNBC. Please go ahead.
Hi. Good morning, everyone. Andrew, you had mentioned, the load is going down a little bit and how, maybe going forward, the pricing strong, it does not really matter.
Do you worry at all about customers getting priced out of air travel period? And if airfares stay this high. And then I also wanted to ask you Scott, Ed Bastian is getting honored at Wings Club later this week, and I was wondering if you have any words for him and how you see your competition with Delta currently.
Thank you.
Well, I will start then. I have a huge respect for Ed, and I have been public in saying, you know, I took inspiration from what Delta did. Now I think we have passed them, and we are the innovator now.
But I took a lot of inspiration from what Ed did. And I am going to miss it because we are hosting a big charity event in Dallas this weekend, but I texted Ed, as soon as he got it and said that well deserved, maybe a decade late that you should have got it a long time ago. But I think Delta and Ed have done a great job.
It is it is well deserved. He should have gotten it earlier. But I am sorry I am gonna miss it.
We have got a conflict.
Andrew Nocella
EVP, Chief Commercial Officer
Leslie, I will take the part of the question, I guess. Look. You know, our perspective is we need to charge prices that recover the total cost of what it costs to fly an airline, and we have to do that.
But that being said, as we create our products, we are aiming to elevate for all in all cabins for all passengers. and create value for all in the process of doing so. And the latest example is you know, Wi Fi that works. it works at scale, it is gonna be a reason, I think, you know, customers increasingly choose United Airlines in 2027 and beyond.
Our final question will come from the line of John Pletz with Crain's Chicago Business. Please go ahead.
Morning. You mentioned that think capacity at O'Hare will be lower for longer. Why is that?
And why is it gonna be good for United?
Andrew Nocella
EVP, Chief Commercial Officer
Well, you know, I. This is a really complicated assessment. But there is an enormous amount of construction occurring at O'Hare. It goes through the early 20 thirties and that is the timeline.
We wish it was faster, by the way. We were always supportive of redeveloping the field and getting modern facilities. when maybe others were not, And we look forward to those facilities being built. But in the meantime, it is a construction zone.
And we need to reflect that reality. And I think the taxiways and other aspects of the airfield which do not have immediate changes of plan for them, are just gonna take years to resolve. it is disappointing. As we invest all this money in the field.
I think United Airlines would like to grow. But at the same time, we. it is important that it be a reliable airfield for all travelers on all airlines. We have had numerous conversations with the FAA about this, and that is where I think it is coming out.
And so my guess is that this restriction lasts for a longer than full effect, but that is simply my guess based on what I see from the construction at the airport and the timelines for completion.
You cut out there a bit. You said my guess is what?
Andrew Nocella
EVP, Chief Commercial Officer
That this is a restriction that lasts until the construction at the airport is done and the taxiway situation has been resolved.
Alright. Thanks. I will now turn the call back over to Christian Edwards for closing remarks.
Thanks everyone for joining the call today. Please contact Investor and Media Relations if you have any further questions, and we look forward to talking to you next quarter. Bye, everyone.
Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.
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