For years, Delta has set the benchmark for profitability in the United States airline industry. We know that United is kind of obsessed with becoming Delta, to the point that you’ll constantly hear United executives referencing what’s going on at the airline. Scott Kirby might even have a life size cutout of Ed Bastian in his office. I dunno.
Last week, Delta was the first major US airline to report its Q2 2024 financial results, and they were a mixed bag. While Delta reported record revenue, net income dropped nearly 30% compared to a year ago. Delta executives also shared a rather bleak outlook regarding overcapacity in the domestic market, which is no doubt being felt by all airlines.
Well, United has now reported its Q2 2024 financial results, and frankly they look quite similar to Delta’s, except in some ways they’re trending upward rather than downward. Has United finally managed to make changes that put it in Delta’s league financially, or was this a lucky quarter?
United reports pretty strong financial results
Let me start by once again emphasizing that all US airlines are sounding the alarm about how there’s overcapacity in the domestic market, so the overall outlook for the industry isn’t positive at the moment, and it sure seems to me like profitability may have peaked in 2023, at least for the foreseeable future.
Within that framework, I’d say United actually did a great job in Q2 2024, and the carrier’s financial results look comparable to those of Delta. Let me hit on a few of the highlights of United’s financial results:
- United had operating revenue of $15.0 billion, up 5.7% compared to the same quarter in 2023
- United had net income of $1.3 billion, up 23% compared to the same quarter in 2023
- Total revenue per available seat mile (TRASM) was 18.81 cents, down 2.4% compared to the same quarter in 2023
- Cost per available seat mile (CASM) was 16.39 cents, down 4.8% compared to the same quarter in 2023 (though United had a one-time payment to pilots in Q2 2023 related to their new contract, which largely explains that decrease)
Since Delta sets the standard for the industry, how do United’s results compare to those of Delta?
- Delta had operating revenue of $15.4 billion, up 5.4% compared to the same quarter in 2023
- Delta had net income of $1.31 billion, down 29% compared to the same quarter in 2023
- Total revenue per available seat mile (TRASM) was 22.31 cents, down 1% compared to the same quarter in 2023
- Cost per available seat mile (CASM) was 19.28 cents, up 2% compared to the same quarter in 2023
As you can see, the airlines are getting closer together in terms of their results. While Delta’s net income was down 29%, United’s was up 23%.
United makes interesting claims about its market position
In sharing these financial results, United emphasizes that premium revenue grew 8.5%, while basic economy revenue grew 38%, compared to the same quarter last year. While growing premium revenue is good, I’m not sure increasing basic economy revenue is necessarily something to brag about?
I mean, it’s good to fill seats, and it’s something that has been necessary for United, as the airline increasingly flies larger narrow body aircraft. However, one could similarly argue that people aren’t choosing to buy up to higher fares, and that’s not necessarily positive.
Like, an airline could just as easily claim a reduction in basic economy revenue as a good thing if more people were to buy up to non-basic fares. I’m pretty sure United would be happy if it had the same load factor it currently does, while having fewer basic economy passengers.
Here are some comments that United CEO Scott Kirby made about these financial results:
“The revenue diversity advantages that we’ve built with our premium customers, Basic Economy customers, and domestic road warriors, on top of the world’s best loyalty program and leading customer service, have propelled our margins to near the top of the industry. Looking forward, we see multiple airlines have begun to cancel loss-making capacity, and we expect leading unit revenue performance among our largest peers in the second half of the third quarter. United has long been preparing for the moment when industry wide domestic capacity would adjust – it’s now clear that inflection point is just 30 days away.”
The comment about unit revenue performance piques my interest. United is claiming that as of mid-August 2024, the airline expects to have the best unit revenue among its peers. United claims this is because the industry overall will decrease capacity after the summer rush, and United feels it is best positioned to take advantage of that.
That’s quite a claim to make, so I’m curious if it turns out to be the case.
Is United finally in Delta’s league financially?
For the “big three” US carriers in recent years, Delta has been the most profitable, followed by United, followed by American. At this point, executives at both Delta and United claim that basically the entire US industry’s profits will come from just two airlines. During this past quarter, Delta and United had comparable financial results.
The question is, can United maintain that momentum, or was this quarter a one-off? For example, in Q1 2024 (typically the toughest quarter of the year), Delta reported a net income of $614 million, while United reported a loss of $194 million loss. Admittedly that was partly due to the grounding of the 737 MAX 9, which impacted United but not Delta, but that doesn’t explain the whole difference, as that’s believed to have cost United around $200 million.
So has something fundamentally changed at United recently, or was it just a good quarter? Admittedly United is the most global of the “big three” US carriers, and long haul premium demand has been very strong, so United has been able to capitalize on that.
That’s awesome for around half of the year, but more challenging for late fall, winter, and early spring, when long haul demand is way down, and there are only so many counter seasonal destinations you can fly to. Last year United experimented with a huge South Pacific expansion, which was worth trying, but wasn’t a total success, as it greatly impacted yields.
Only time will tell how this evolves. Will United more consistently have Q2 and Q3 results that rival those of Delta, while Q1 and Q4 are a different story? Or can United find a way to narrow the gap the rest of the year as well?
Bottom line
Delta has reported its Q2 2024 financial results, and they’re impressive overall. While the airline is having to lower its outlook due to general industry overcapacity, the airline is performing on Delta’s level, which has long been the goal for United management. This is in stark contrast to Q1 2024, and even in contrast to Q2 2023.
Only time will tell if United can maintain this momentum, but it seems like the airline is headed in the right direction.
What do you make of United’s financial results, and performance compared to Delta?
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