United Airlines updated its quarterly guidance to reflect a projection of loss in the first quarter. Let’s review how United CEO Scott Kirby presented the updated guidance to investors.
United Airlines CEO Offers Insights On Expected Q1 Loss
Speaking on a call with Chase analysts at the J.P. Morgan 2023 Industrials Conference, Kirby immediately addressed the updated guidance and the looming loss:
So I’ll let least start and address that issue head on, which I hate to ever miss guidance. And we have a pretty good track record of not doing it. And really, I think what happened in the first quarter is we should have had forecast for RASM in the first quarter.
And whether it’s seasonality has changed, it is a different environment. We had a bad forecast, and we own it. We missed it. we sure don’t want to do that ever again. But I think the bigger picture, while I hate that we missed it, everyone up here hates that we missed the forecast it’s not something we do often.
The bigger picture is the outlook looks really strong. And if we look we didn’t share first half versus full year in our earnings call, but had we shared first half, RASM is actually a little bit above where it would have been. And just I recognize given that we missed the first quarter, how can we demonstrate that credibly.
In short, Kirby says nothing here except that that the RASM forecast was incorrect. RASM stands for revenue per available seat mile and is calculated by:
RASM = Total Operating Revenues/Available Seat Miles
Total revenue includes not just ticket prices, but all money the airline makes. To calculate available seat miles, you must multiply the available seats on a plane by the number of miles that plane will fly per flight.
Let’s return to Kirby.
Our confidence on the revenue environment hasn’t changed. Our forecast was off for the first quarter, but our confidence hasn’t changed…
We feel really good about where we are. I apologize for missing guidance. We don’t want to guide conservatively that we never miss but was disappointed that we — and recognize that you’re disappointed that we missed. I do feel confident about 2Q and beyond.
Again, Kirby feels confident about next quarter and the full year, but does not get into the weeds of why there is a loss this quarter.
However, we do know a few things, as revealed in the 8-K:
- United is factoring in pilot contracts into the earnings forecast
- Fuel prices are up more than expected
- Business travel remains weak and was seasonally-adjusted winter travel was lower than excepted
CONCLUSION
United Airlines has updated its guidance and now expects to report a quarterly loss. While Kirby has emphasized that the full year still looks great, higher fuel prices, weak business demand, and a looming new contract with pilots are to blame.
I’ll have more thoughts on the pilots contract angle next.
image: United
I don’t need any fancy pants financial talk, I think we all know the real reason is that united is woke
Average…dull…
Oh please….learn what “woke”means before you sound like a bigger fool!
Average republican is a lefty troll.
Of course the chuds running this website don’t care about the comments section of their website.
Can you even explain what the made up work “woke” means? Us your words.
Define “woke”?
What a clown!!! Airfares, milk and eggs are the top 3 things that prices skyrocketed and drove inflation. And he is trying to explain why his airline lost money.
Why are they factoring in a pilot contract into Q1 results when they don’t have a deal with their pilots yet? Fuel prices being up is an excuse, fuel prices have been up for more than a year. How did they get that forecast wrong?
I think the real reason United expects a loss in Q1 has more to do with their international network than any thing else. Traditionally Q1 is when there is the least amount of traffic especially TATL traffic, in Q1 of this year United is operating their most robust TATL schedule that we’ve ever seen. It has been a non revs dream, even employees who just stated are getting Polaris on international flights during Q1 2023. Usually United would pull back on some TATL flights, some would get reduced to weekly and others would be suspended from January through the first week or so of March. However this year their TATL schedule was more robust than it was in Q1 of 2019. Kirby got too bullish, started believing his own b.s., dismissed the number crunchers who probably warned him in private this would happen and now he is going to have to eat humble pie.
The reason to include a new pilot contract is that the contract is going to be retroactive in one way or another. That has to be reported on financial statements based on best knowledge. It won’t be 100% accurate, and probably too low, but within reason.
Better hope their FA group don’t start lobbying for a 35% raise.
Why not?? He wants to increase the duty day to a measly 18 hours…..
I’ve noticed you are very derogatory towards flight attendants. Did you try to become one and get turned down? Once again, the market will pay what it’s willing to. You act like you’re an airline analyst or something, when you don’t have a clue what you’re even talking about. But in every thread, you have issues with flight attendants, and I’m willing to bet that stems from jealousy. Your condescending remarks about their duties is ludicrous. You have no clue, which is apparent by your posts, of what it entails to be a flight attendant, on a daily basis.
The updated guidance is akin to a verbal tap dance
Typical of new style CEOs, never take the blame for anything. Note the number of times he said “we”, I assume do low level employee will get the axe.
Using a fall in business demand as an excuse for the Q1 loss sounds suspicious when you listen to broader reports that it is coming back. Hotels are going gangbusters. In fact, I question how hotels are reporting high occupancy rates and raising rates if business travelers are not paying them. Leisure has come back strong, but I can’t imagine that many people vacationing in business hotels in boring cities. My guess is that Kirby is referring to a drop in international premium revenue. UA and AA added a lot of new TATL markets early on, and I believe that was a mistake. DL is just now doing so for summer 2023 and has been hesitant to add metal unless the demand is truly there.
The bottom line is: United sucks. I was GS for many years and shifted much of my flying to Delta last year. I’m flying mostly Delta this year, but have also flown AA, Spirit, and Breeze. All of those flights were better than UA. The disgusting food and poor service are catching up and I hope it continues to hit their financials. You put crap in the market and people will steer clear.
Well said, Anthony.. right on point.
Garbage product, bottom line!
Maybe they have the business philosophy that one of the EU airlines used to have – if profitability falls, just raise prices to make up for it. Didn’t work, for some reason.
The customer service is bad because their employees don’t feel appreciated. You take care of your employees and they will take care of your company. Bottom line.
Scott Kirby says we had a quarter loss because ……TV dinners prices are up
LOL.
Crying poor mouth during labor negotiations is nothing new, United AND Continental have done that for years. Look for press releases crowing about aircraft purchases and Club upgrades in the near future.
If United signs these exorbitant contracts with their pilots and mechanics, compounded with lackluster profits in the next 5 or so years, then bankruptcy is just around the corner. Delta is just playing United with a royal flush.
United is simply too expensive and there is no flexibility in their pricing. They rely heavily on business travel but business is very bad across the board and there are simply not enough business travelers willing to pay for extremely high ticket prices. The product is not bad at all but this CEO is definitely no good for this airline. He’s just another Smisek.
What about the fact that negotiations for the new AFA contract for flight attendants, currently expired, has been stalled as well.
Please see third bullet point under 8-K highlights:
“Business travel remains weak and was seasonally-adjusted winter travel was lower than excepted”
I believe you may have intended to say: “Business travel remains weak and seasonally-adjusted winter travel was lower than expected”
The biggest mistake ever made by United is joining hands with emirates. Emirates destroyed anyone who worked with them. Qantas was smat enough to get thrmselves away and so did jetblue and silver airways. Srilankan too.
One Thousand dollars economic class ticket for domestic flight? Most of people would ignore UA
I paid more than $500 for a one-way with United this week from Pittsburgh to Shreveport – it’s the state of the market at the moment.
United pilots will take this airline under like they did the first time…Continental Airlines was the best there was but the UA culture destroyed everything Gordon Bethune built. The toxic environment at UA makes it a miserable place to work, they will reap what they sow.
Well said John
United’s business product has been total ass for months, and now it shows in the financials. Hopefully, this means an end to Kirby’s endless cost-cutting in favor of improved service.