United Hopes To Turn High Oil Prices Into An Advantage, As It Cuts Flights

It’s obviously an incredibly challenging time for the airline industry, due to impacts of the conflict with Iran, plus the spike in fuel prices that we’ve seen. It’s interesting to get a pulse on how different airline executives are approaching this situation. Some seem to basically be viewing this as a temporary blip, while United Airlines CEO Scott Kirby has a different perspective…

United CEO Scott Kirby’s optimism about high fuel prices

United Airlines CEO Scott Kirby has just sent a memo to employees, intended to address the questions he has received about what the war in Iran and higher fuel prices mean for the company in the short and long term. I think his memo is really interesting, because he’s essentially claiming that this situation could allow United to come out ahead.

Let me share most of the memo, which also focuses on many of the lessons learned from the pandemic:

You’ve heard me say repeatedly, that post-COVID, we knew that industry stress events were inevitable. And while we couldn’t predict what they would be, my personal North Star for the last five years has been to position United so that we can avoid system-wide furloughs again. In fact, I’ve wanted United to be in position to use a tough industry environment to further extend our lead as the best airline in the world – much as we did during COVID.

And to do that, we would have to do three things:

1. Increase our cash balance –– we have about three times as much cash as we did when COVID started.
2. Lead the industry in profit margins – United and Delta represented ~100% of the total US industry profitability last year. That means that higher oil puts a lot more stress on United’s competitors and that stress happens faster. We have the time and the luxury to ride this out and stay focused on the long term.
3. Strengthen our balance sheet – we ended 2025 with the highest credit rating we’ve had in more than 30 years.

Because we’ve done all the above, we can manage what we need to in the short term while also staying focused on our long-term plan to grow and build the world’s best brand loyal airline.

The reality is, jet fuel prices have more than doubled in the last three weeks. If prices stayed at this level, it would mean an extra $11B in annual expense just for jet fuel. For perspective, in United’s best year ever, we made less than $5B.

That may sound scary, but the first piece of good news is that, for now at least, demand remains the strongest we’ve ever seen. The 10 biggest booked revenue weeks in our history have been the last 10 weeks.

But it may be a challenge to continue passing through much of the increased fuel price if oil stays higher for longer.

Here are some steps we’re taking in both the short term and the long term:

• Plan for fuel being higher for longer – our plans assume oil goes to $175/barrel and doesn’t get back down to $100/barrel until the end of 2027. Honestly, I think there’s a good chance it won’t be that bad, but as you’ll read below, there isn’t much downside for us to preparing for that outcome.
• Stay ahead of the curve – we were better than any airline in the world during COVID at seeing over the horizon and making decisions earlier. That let us catapult out of the COVID crisis with the best growth and investment plan of any airline in the world. If we’re right that oil stays higher for longer, we’ll be in a better position to be first on many decisions that others will follow.
• Stay focused on the long term – many of you will remember in United’s past that storm clouds like this caused United to furlough employees, defer aircraft orders, downgrade to regional jets, go through cost cutting exercises, delay investments in the future, etc. We are NOT going to do that. We have the financial firepower to continue to stay focused on the long term. We will continue full speed ahead to take delivery of about 120 new aircraft this year, including 20 new 787s, and will take another 130 new aircraft by April 2028.
• Double down on investment opportunities – I’ve told the technology team to use this time to invest MORE and further expand our lead. Similarly, I want to use this time to really get moving on transformational facility investments – think more and better clubs, new infrastructure investments at our hubs, and expansion at EWR that can get us up to 100 widebody departures a day.
• Be smart and nimbly manage our schedule – In the short term, that means tactically pruning flying that’s temporarily unprofitable in the face of high oil prices. So, we are canceling about 3 points of flying in off peak periods (think redeyes, Tues/Wed/Sat flying) during Q2 and Q3 and we’ll pull a point of capacity in ORD when the FAA process concludes. We’ve pulled TLV and DXB service, which represents about another 1 point of capacity. That’s about 5 points of this year’s planned capacity in the short term, and our current plan is to restore the full schedule this fall. To be clear, nothing changes about our longer-term plans for aircraft deliveries or total capacity for 2027 and beyond, but there’s no point in burning cash in the near term on flying that just can’t absorb these fuel costs.
• Capitalize on competitive dynamics – I listened to most of our competitors at the J.P. Morgan conference this week and many said some version of “hope is our strategy.” It’s possible they’re right and that the war ends quickly. But if it doesn’t, this will be our opportunity down the road to buy assets, absorb network changes, etc.

Importantly, here’s what we’re not doing: cost cutting or deferring investments in the future. Those are small dollars at best, they’re distracting, they aren’t necessary for United and they deter us from our mission to build the best airline in the history of aviation.

I’m typing this as my 12-year-old son Sean cheers for his teams in his March Madness Bracket. And there’s a part of me that can’t help but feel United is playing offense right now with potentially big rewards at the end.

We’re ready, we have a plan and we’re going to continue executing that plan.

I realize this note may seem like a lot, but the simplest thing I can say to all of you is the bottom line – I want you to sleep well at night knowing United prepared for this and I’m asking you to stay 100% focused on what you’ve been doing to take care of each other and our customers.

Thanks for all you’re doing to make United the best airline in the history of aviation.

My take on Kirby’s optimism about high fuel prices

Before I share my take, let me just highlight what I’d consider to be the key points of his memo:

• For the spring and summer, United is going to cut capacity by 5%, which includes a 3% cut in non-peak flying, roughly a 1% schedule reduction thanks to Chicago (ORD) flight cuts, and a 1% schedule reduction due to Dubai (DXB) and Tel Aviv (TLV) flights
• Kirby basically thinks many competitors are using hope as a strategy, and don’t actually have a plan for navigating this crisis
• If things don’t improve quickly, Kirby seems to think some competitors will need to shrink or even go out of business, and “this will be our opportunity down the road to buy assets, absorb network changes, etc.”
• United claims it will keep investing while other airlines cut costs, in hopes that it will allow the airline to emerge stronger than ever
• While the cost environment isn’t good, the revenue environment is very good, with United seeing its 10 highest ever weeks of booked revenue
• Kirby is planning for higher oil prices to stick around through the end of 2027, and the company’s oil bill could be increasing by around $11 billion per year

I have huge respect for Kirby, and I think nowadays he’s the most consequential leader in the US airline industry. He’s also really good at having a narrative that employees can get behind, and he’s really consistent in his messaging (down to even calling United “the best airline in the history of aviation”).

The thing about Kirby, though, is that there’s no such thing as bad news for United, as he spins it. Now, I think that partly comes down to wanting employees to feel at ease, and that’s good. And he’s also right that airlines that are profitable and have good balance sheets have a lot more breathing room when things go wrong.

That being said, I do think he’s maybe a little overly confident. United operates by far the most ultra long haul flights of any US airline, so the airline also has the most exposure to the impacts of higher oil prices. The economics of a 15-hour flight look a lot different if the cost of oil doubles.

In fairness, United also has upside with its ultra long haul network in terms of new demand from people looking to “skip” Gulf hubs, enroute to their final destination. But without much higher fares, the economics won’t work.

Next, I’m not sure Kirby has actually outlined much of a specific strategy here. He talks about how competitors have a “wait and see” approach, and it seems like United is taking a “wait and see, but we have a good balance sheet,” approach.

We’re seeing a mild cut in flying (which I’m sure we’ll see at most airlines), but other than that, the idea is that United can weather the storm, and I think that’s ultimately fine. But a potential $11 billion annual increase in fuel costs will make just about any airline lose money.

Much like in the early days of the pandemic, it’s anyone’s guess how this all plays out, in terms of conflict, oil prices, etc. Is this something that will be resolved within weeks, or are we possibly entering an era where this is the “new normal?”

Bottom line

United Airlines CEO Scott Kirby has addressed the current situation in a memo to employees. The airline is potentially looking at an annual fuel bill that’s $11 billion higher than before. Kirby believes the airline is well positioned to deal with whatever happens, given its good balance sheet, while also throwing some shade at competitors.

In the short term, United is cutting capacity by around 5%. In theory the airline has the most exposure to higher oil prices given the nature of its network, but then again, ultra long haul flying might also be a competitive advantage, in terms of being able to skip the Gulf hubs.

What do you make of Kirby’s memo to employees?