UNITED AIRLINES CEO ANALYZES THE AIRLINE INDUSTRY…AND NAMES NAMES

United Airlines CEO Scott Kirby has analyzed industry-wide earnings numbers in a video message to employees, arguing that the future of United Airlines is bright, even if a recession hits and the broader airline industry falters. Unlike in more public settings, Kirby names names here. But even so, there are (self-admitted) warning signs that United is now reckoning with that may soon dampen Kirby’s optimistic outlook.United CEO Scott Kirby Analyzes Airline Industry, Future Of United Airlines
Kirby begins his video, which was viewed by Live And Let’s Fly, by thanking employees for their work to stabilize operations during what has been a very tumultuous summer of travel. He then pivots earnings, noting, “We’ve now finished the second quarter earnings reports, and we have a good idea of where everyone stands in the industry.”

On Winners And Losers
Kirby believes the airline industry is bifurcating into two tiers, with United, Alaska, and Delta alone in the top-tier:

“[T]he industry has really bifurcated into three airlines, United, Alaska, and Delta, that are at the top of the pack and then everyone else. I mean, it is pretty remarkable. American Airlines is just going to be break even. Southwest Airlines is going to actually lose money after decades of being the industry leader. They’re going to actually lose money here in what is the second-best quarter of the year.”

To illustrate, he presented a chart showing projected 2024 Q3 pre-tax margin for eight major US carriers with United, Alaska, and Delta all at 9%. Spirit, at the opposite end, is projected to have a pre-tax margin of -30%.

While American and Southwest were singled out, the most scorn was reserved for Spirit Airlines:

“And then the low-cost carriers are just a disaster. These are going-out-of-business numbers for a number of these airlines. You look at Spirit Airlines for example at -30%. That’s a number that is hard to put in context. But if you thought about that at United, if we had a -30% margin, it would mean we actually lose $4.5 billion in a single quarter.

“It really is remarkable how the industry has changed into a few airlines that are at the top of their game, and then everyone else.”

He’s right that Spirit’s current trajectory is unsustainable, though the carrier has responded by totally upending its traditional business model.

On Absolute Numbers
While United can boast of relative success compared to its peers, Kirby lamented that net margin is lower than it was last year and also lower than 2019, the last pre-pandemic year.

“While we’re outperforming everyone else, if you look at our absolute results, they’re still down on a year-over-year basis and they’re down compared to where were in 2019.”

Does that mean a recession is coming? Kirby suggests it does not matter:

“Many of you ask me, is there a recession coming? You’ve been reading about that in the newspaper. You might have seen the volatility of the stock market. People worry about what that means for the future. I want to tell you two things on that front.

“First, we have set United up with the goal that we will never again have a systemwide furlough at United Airlines. And we’ve done that, I’ve talked about that before, by carrying more cash on the balance sheet, by being at the top of the industry in profit margins, and by continuing to pay down our debt. We’ve still done those things.”

Here, I do think Kirby is being hopelessly optimistic. It’s not a Doug “Nostradamus” Parker quip like “American Airlines is never going to lose money again,” but if there is another swift economic downturn, pandemic, or other natural or political disasters, I would certainly expect systemwide furloughs.