United Airlines Sees Strong Demand, Fare Power as Fuel Costs Rise

Key Points

• Demand remains resilient despite rising jet fuel prices, with strong fourth-quarter bookings, healthy premium-cabin performance and improving economy and corporate travel. United expects to recover higher fuel costs through fare increases, although pricing adjustments will occur with a lag.
• United is focusing on profitability over market share by cutting lower-margin routes and investing in differentiated products, including premium amenities, lounges, Starlink connectivity and Airbus A321XLR international service.
• The airline sees potential for 10%+ margins and stronger cash generation if fuel prices stabilize, while targeting free-cash-flow conversion of roughly 75% and significant long-term growth from its Chase co-branded loyalty program.

United Airlines NASDAQ: UAL Chief Financial Officer Mike Leskinen said demand has remained resilient, allowing the carrier and the broader airline industry to raise fares to offset higher fuel costs while continuing to invest in a more differentiated customer experience.

Speaking at an investor conference, Leskinen said the airline industry is becoming less commoditized as travelers place greater value on reliability, product quality, premium amenities and inflight connectivity. He said consumers are increasingly willing to spend on experiences, supporting demand across both premium and economy cabins.

“We are not flying to maximize market share,” Leskinen said. “We’re flying to maximize profitability and free cash generation.”

Demand and fuel-price response

Leskinen said United has seen “very little evidence” of demand destruction despite rising jet fuel prices. Fourth-quarter bookings have remained “tremendously strong,” he said, while premium-cabin demand has continued to perform well. Corporate travel volumes have also improved, though they remain 4.5 percentage points below the company’s pre-pandemic baseline.

Economy demand and pricing have strengthened as well, according to Leskinen. He attributed that improvement to United’s efforts to enhance the travel experience throughout the aircraft, rather than concentrating investments only in premium cabins.

The CFO said higher fuel costs are passed through to customers with a lag, since tickets already booked cannot be repriced. United had about 35% of its fourth-quarter tickets booked at the time of his remarks. He said nothing had changed in the company’s view that it can recover 100% of higher fuel costs over time, subject to that lag.

United has also adjusted its schedule as fuel prices increased, removing some lower-margin routes that no longer meet its profitability threshold. Leskinen said the airline expects to continue making such decisions, including eliminating certain December flights and potentially further changes in 2027 if fuel remains elevated.

• Third-quarter cost pressure is expected to represent the peak for unit costs excluding fuel, Leskinen said.
• United expects those costs to decline in the fourth quarter and remain lower in 2027.
• The company continues to target core cost per available seat mile, excluding fuel, growth of 2% to 3% in 2027.

Premium products and network differentiation

Leskinen said United sees room for further pricing gains among airlines that offer a differentiated service. He stressed that fare increases must be supported by investment in a better product, citing improved reliability, customer segmentation, airport lounges and Starlink internet connectivity.

United’s introduction of basic Polaris fares has produced higher-than-expected buy-up rates to standard Polaris, he said. The results indicate that customers value access to the airline’s lounges and are willing to pay for a complete premium experience.

“Segmentation, in the end, it helps us drive yield, but it’s customers paying for what they want,” Leskinen said.

The company also expects its Airbus A321XLR aircraft to support high-margin international service to smaller cities in Western Europe. Leskinen said the aircraft’s lower trip costs and Polaris suite configuration will enable United to offer direct East Coast-to-Europe service to destinations that may not support larger widebody aircraft.

He described the strategy as a way to avoid competing on identical routes with identical products, which he said can lead to commodity-like returns.

Loyalty, free cash flow and margin goals

Leskinen said United’s co-branded credit card program with Chase has substantial room for growth. He cited second-quarter increases of 22% in new co-brand accounts, 14% in card spending and 9% in MileagePlus enrollments. Changes to the card program have encouraged more United customers to place the airline’s card “at the front of the wallet,” he said.

The current agreement is in its “sunset phase,” Leskinen said, but he expects a future agreement and product enhancements to help expand card acquisitions and spending economics over time. He said the loyalty ecosystem represents “hundreds of millions of dollars” in potential upside.

On profitability, Leskinen said United has “eyes on 10% margin plus” if fuel prices stabilize. He said the company does not necessarily need lower fuel prices, but needs more stability. Over the longer term, he reiterated a belief that United has a path toward mid-teens margins, though he said that would take years to achieve.

Leskinen also reaffirmed United’s target to increase free-cash-flow conversion from roughly 50% toward 75%. Excluding growth capital expenditures, he said conversion would exceed 100%.

“Healthy companies generate free cash flow,” Leskinen said. “The best measure of earnings quality is free cash conversion.”

Air traffic control and future mobility

Leskinen said limits on scheduled operations at capacity-constrained airports such as Newark and Chicago can improve the customer experience and United’s profitability, particularly at connecting hubs. He said matching flight schedules to an airport’s physical capacity can reduce preventable delays.

He also discussed United’s investments in electric vertical takeoff and landing aircraft companies, including Archer and Eve. Leskinen said eVTOL aircraft could eventually offer customers quicker, more predictable trips to congested airports such as Newark and JFK, although adoption will likely begin in less congested airspace because of air traffic control challenges.

Leskinen said United’s enthusiasm for the technology has increased as commercialization approaches, while emphasizing that integrating eVTOL operations into congested airspace will require further air traffic control modernization.

About United Airlines (NASDAQ:UAL)

United Airlines Holdings, Inc NASDAQ: UAL is the parent company of United Airlines, Inc, a major U.S. airline headquartered in Chicago, Illinois. United provides scheduled air transportation for passengers and cargo, serving destinations across the United States and connecting North America with international markets throughout Latin America, Europe, Asia, Africa and the Middle East.

The company operates a broad network through hubs including Chicago, Denver, Houston, Los Angeles, Newark, San Francisco and Washington, DC Its services include economy, premium-economy and business-class travel, as well as air cargo transportation.

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