3Q23 earnings beat the street’s expectation but full-year guidance slashed on surge in jet fuel prices and Israel-Hamas war
- United booked 3Q23 adjusted EPS of US$3.65, surpassing consensus’ estimate by 9% but missed its initial guidance
- Non-fuel cost increase were manageable, but steep increase in fuel costs will weigh on profitability
- Shift to outbound travel led to decline in domestic yields, but this was largely offset by increase in international passenger yields
- Full-year EPS guidance cut substantially by US$1.45-2.15 due to jet fuel price spike and flight suspensions
3Q23 EPS in line with consensus but fell short of management guidance. United Airlines booked US$3.65 of adjusted diluted EPS in 3Q23, which is lower than UAL’s guidance of US$3.85-4.35. Nevertheless, this is still higher than the consensus average of US$3.35. While operating revenues are quite on track at US$14.5bn (+12% y-o-y) and increase in non-fuel unit costs are still within expectations at 2.6% y-o-y, average fuel price per gallon was higher at US$2.95 (+11% q-o-q) vs. the expected US$2.50-2.80 due to the recent volatility in oil prices. On the revenue side, capacity increase was on track at +16% y-o-y, and though domestic passenger yields dipped by 2% y-o-y, this was offset by a 3% y-o-y increase in international passenger yields, with routes to Europe and the Pacific exhibiting the most strength.
Full-year EPS guidance slashed due to volatility in fuel price and suspension of flights to Tel Aviv. Jet fuel prices witnessed a sharp rise due to geopolitical unrest in the Middle East. This prompted UAL to revise its fuel price outlook to US$3.82/gallon (reflecting an 11% q-o-q increase). In addition, the airline has put a halt on all its flights to Tel Aviv. Consequently, UAL’s 4Q23 EPS projections now hover between US$1.50 and US$1.80, contingent on the duration of these flight suspensions. This conflict particularly affects UAL, as it boasts the highest number of flights to Israel among its competitors. UAL’s updated guidance is notably lower than consensus expectation of US$2.05. This translates to a lower full-year EPS guidance of US$9.55-9.85 vs. previously guided US$11-12. On the revenue side, management remains optimistic with 9% y-o-y growth for 4Q23 revenue, which will bring FY23F revenue to US$53.6bn, or a 19% y-o-y increase (vs. previous guidance of 18%), underpinned by sustained momentum on international travel. However, risks are skewed to the downside at this juncture, given that the group is fully unhedged with regards to jet fuel consumption, while a dimmer macroeconomic outlook could curb travel demand.