United Airlines Holdings Inc. posted stronger-than-expected third quarter earnings, as demand for premium travel and loyalty revenue offset softer profit growth.
The airline reported adjusted diluted earnings per share of $2.78, beating analyst estimates, and total operating revenue climbed 2.6% year-over-year to $15.2 billion, supported by a 6% increase in premium cabin revenue year-over-year and 9% increase in loyalty revenue.
“United has created enough of a loyalty program, and perks like the fancy seats and the lounges that people keep coming back to, even though, in theory, they might be able to get a cheaper seat on a different airline,” said Nicolas Owens, an equity analyst for Morningstar.
During the call, the company boasted about its continued commitment to delivering these premium experiences to customers, reporting to have invested over $1 billion dollars in enhancements across all cabins such as Starlink high-speed Wi-Fi on planes, seatback screens, and extra leg room.
The results mirror Delta Air Lines Inc’s third quarter performance, which also leaned on premium demand. Delta reported a 9% increase in premium revenue, though its economy segment fell 4% compared with a 4% increase in United’s main cabin revenue.
United CEO Scott Kirby expects this momentum to carry the company into an even stronger fourth quarter, claiming it will have the highest total operating revenue for a single quarter in company history. These expectations are likely also anchored in uptick in travel due to the holidays.
Still, the stock fell 5.63% to $98.19 on Wednesday, marking the largest percent decrease since June and ending a three day positive uptick. The lack of confidence from investors could be fueled by the 1.66% decline in net income year-over-year slightly below analysts estimates.
“As a shareholder, I always like to see profitability rise, not fall,” said George Ferguson, Airline analyst at Bloomberg Intelligence. “I expect these people that run my business to find a way to get me a better return, not a worse return.”
Operational challenges at Newark Liberty International Airport, one of United’s largest US, likely weighed on results. Over the summer, issues with staffing shortages triggered widespread delays and cancellations, pushing some travelers to neighboring New York City airports.
The current government shutdown poses additional headwinds if travelers cut back amid expectations of airport bottlenecks and safety concerns tied to federal employees furloughs. However, the company reassures the public that there has been no indication so far that the government shutdown is impacting airport operations, claiming the vast majority of the controller workforce is continuing to show up to work, and is anticipating to round out the year with a strong fourth quarter.