United Airlines, buoyed by a significant recovery in market conditions, delivered surprisingly strong cargo results in the first quarter that likely will be the benchmark for comparing the performance of other airlines.
United (NASDAQ: UAL) reported after Tuesday’s market close that sales for freight and mail were $391 million, a notably small dip of 1.8% from the same three-month period in 2020 considering the air logistics sector’s 16-month slump that lasted into the second half of 2023 and the revenue hit taken by airlines. CEO Scott Kelly said on a conference call he anticipates it will be the last year-over-year decline in cargo during the near term.
Last week, Delta Air Lines reported cargo revenue declined 15% during the first quarter to $178 million.
Last year, United Airlines’ cargo revenue slid 31% to $1.5 billion as supply and demand in the airfreight sector normalized from the go-go days of the pandemic. Cargo’s relative strength during the quarter is underscored by the fact that revenues were only slightly below $402 million in the fourth quarter of 2023, which is generally the strongest freight season of the year. United’s revenues were down 14.8% year over year in the fourth quarter.
The Chicago-based carrier said cargo revenue ton miles — a measure of revenue generation based on how much cargo is carried and how far it is carried — increased 16.6% to 852 million in the quarter ended March 31.
The cargo division benefited from the upturn in the air cargo market, which grew about 12% year over year during the first quarter. Price reporting agencies show volumes are still 8% ahead of last year at this time as the market heads into the slower summer months. Rates have recovered to where they were a year ago and are 25% higher than they were in July.
United’s cargo results shouldn’t be attributed only to good luck. The airline consistently outperforms its U.S. peers and many international competitors because of its large widebody fleet and ability to maintain deep relationships with freight forwarders that tender most shipments and its large widebody fleet.
Overall, United Airlines posted earnings that exceeded analysts’ expectations with operating revenue of $12.5 billion, up 10% year over year. It had an adjusted pretax loss of $79 million, but would have have been profitable were it not for a $200 million impact related to the grounding of Boeing MAX 9 aircraft after a door panel blew out on an Alaska Airlines flight in January.
It was the first time United generated an adjusted operating profit in the first quarter since 2019. “The fact that the MAX 9 grounding caused a $200 million headwind makes it even more impressive,” said TD Cowen analyst Helane Becker in a client note.
The earnings report said travel demand remains strong, with business travel finally making large post-pandemic strides.
United expects to take delivery of 61 narrowbody aircraft and five widebodies in 2024, compared to contractual commitments for 183 narrowbody aircraft, due to Boeing delivery delays. The fleet changes will reduce full-year capital expenditures to about $6.5 billion from $9 billion. United also has a modified fleet plan for the following three years to get more near-term capacity, including the conversion of MAX 10 orders to MAX 9s, and signed letters of intent to lease 35 Airbus A321 neos. Management said it anticipates bringing in about 100 narrowbody aircraft in each of the three years under the new plan.
United’s stock was up 11% in early Wednesday trading to $46.34 per share.
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