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
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.