Executive Summary / Key Takeaways

• United Airlines demonstrated significant resilience in Q1 2025, achieving its best first-quarter pretax margin since the pandemic and expecting to be one of only two profitable airlines, despite a softer macroeconomic environment and moderating demand trends.
• The company's strategic focus on winning brand loyal customers through investments in its network, premium products, operational reliability, and differentiated technology like Starlink is proving effective, driving market share gains in key hubs and providing a competitive moat.
• Financial performance in Q1 2025 showed robust revenue growth (+5.4% year-over-year), particularly in cargo and other operating revenue (including loyalty), coupled with disciplined cost management (CASM-ex up only 0.3%), leading to a substantial improvement in operating income.
• UAL maintains a strong liquidity position ($15.3 billion in unrestricted cash/short-term investments) and is making progress on deleveraging (net leverage reduced to 2.0x), supporting its capital allocation priorities including opportunistic share repurchases ($0.4 billion in Q1 2025).
• While acknowledging macroeconomic uncertainty and the risk of a recession, United provides a bimodal outlook for 2025, reaffirming its base case EPS guidance of $11.50-$13.50 if demand stabilizes, and projecting a resilient $7-$9 EPS even in a downside scenario, underscoring confidence in its structural profitability.

Setting the Scene: United's Strategic Transformation and Competitive Foundation

United Airlines Holdings, Inc. (UAL), through its wholly-owned subsidiary United Airlines, Inc., stands as a major player in the global aviation landscape. Operating a comprehensive network spanning the U.S., Canada, Atlantic, Pacific, and Latin America via its seven U.S. mainland hubs and participation in the Star Alliance, United transports millions of passengers and significant cargo volumes annually. The company manages its vast operations as a single segment, with strategic and resource allocation decisions driven by profitability metrics.

The post-COVID era marked a pivotal moment for United, giving rise to the "United Next" strategy. This plan was born from a clear vision of an evolving industry, focusing on fundamentally changing United's position by decommoditizing air travel, achieving cost convergence, building revenue diversity, and concentrating growth in areas of competitive strength – primarily its hubs. This strategic pivot, often counter to prevailing industry sentiment at the time, has aimed to build a resilient business capable of outperforming across economic cycles.

Central to this strategy is the relentless pursuit of brand loyal customers. United believes that winning and retaining these sticky, lifelong customers is the key to achieving superior margins in favorable conditions and maintaining a significant lead when times are tough. This focus is supported by tangible investments across the customer journey.

The competitive landscape in the airline industry is intensely fierce, with rivals vying for market share across routes, fares, capacity, schedules, services, and loyalty programs. United competes directly with major U.S. carriers like Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines (LUV), each employing different models and holding varying strengths. While some competitors focus on cost leadership or specific geographic niches, United's strategy is built around leveraging its global network and hub strength to offer a differentiated, full-service product. Management asserts that United is now a brand loyal leader in six of its seven hubs and tied in the seventh (Los Angeles), a significant improvement from historical positioning and a critical element of its competitive advantage. This positioning allows United to be less of a "spill" carrier, relying less on lower prices to fill seats compared to competitors.

Technological Differentiation: Powering the Customer Experience

A cornerstone of United's differentiation strategy is its investment in technology, aiming to enhance both operational efficiency and the customer experience. While the company has invested billions in technology over the past decade, including foundational elements like mobile tools for employees and self-service options for customers, the most prominent current differentiator is the rollout of Starlink satellite Wi-Fi.

United is actively installing Starlink across its fleet, aiming to provide the fastest Wi-Fi in the industry. This initiative is progressing, with the first installation completed on a United Express aircraft and FAA certification secured for the Embraer 175 regional jet fleet. The company is on track for the first Starlink-enabled regional flight in Spring 2025 and expects the entire two-cabin regional fleet to be retrofitted by year-end. The first mainline aircraft installation is anticipated before the end of 2025.

The stated goal of Starlink is to revolutionize the in-flight experience, offering speeds significantly faster than existing services. Specific quantitative performance metrics for Starlink's benefits over alternatives were not detailed, but the strategic intent is clear: to provide a superior connectivity experience that enhances customer satisfaction, supports the use of the airline's award-winning mobile app (which sees continuous feature updates), and contributes to winning and retaining brand loyal customers. This technological edge is viewed as a key component of United's competitive moat, particularly against competitors who may lag in adopting such advanced, customer-facing technology.

Beyond Starlink, the company continues to invest in its digital platforms, aiming to make travel more transparent and easier for customers, further supporting the goal of building brand loyalty through a seamless experience.

Operational Execution and Q1 2025 Financial Performance

United's strategic investments are translating into improved operational performance, which in turn supports financial results. The company served more customers than ever in Q1 2025, achieving its highest NPS scores and best on-time arrival performance since the pandemic. Operational reliability, including the second lowest first quarter seat cancellation rate in company history, is highlighted as a key factor contributing to both customer satisfaction and cost efficiency.

The financial results for the first quarter of 2025 demonstrate the impact of these efforts, even amidst a softer macroeconomic backdrop. Total operating revenue reached $13.21 billion, a 5.4% increase from $12.54 billion in Q1 2024. This growth was primarily driven by a 4.8% increase in passenger revenue to $11.86 billion, supported by a 4.9% capacity increase, 3.8% more passengers, and a 1.2% improvement in yield. Cargo revenue saw a notable 9.7% increase to $429 million, attributed to higher tonnage and yields. Other operating revenue grew by 10.5% to $923 million, boosted by increased mileage revenue from non-airline partners (including co-brand credit card spending) and United Club memberships.

Despite the revenue growth, the macroeconomic environment did impact performance. Domestic main cabin RASMs were down 5% year-over-year in Q1 2025, with weakness particularly pronounced on off-peak flights. However, premium cabin unit revenues were up mid-single digits overall, with international Polaris and Premium Plus RASMs showing strong growth (8% and >5% respectively), partially offsetting the domestic main cabin softness. Business revenue growth moderated to 7% in Q1 2025 from 15% in Q4 2024.

Operating expenses increased at a slower pace than revenue, rising 1.3% to $12.61 billion. Salaries and related costs increased 5.7% to $4.16 billion due to higher pay rates, increased flying activity, and a 4.5% increase in headcount. Aircraft fuel costs decreased 8.6% to $2.70 billion, primarily due to a lower average price per gallon, despite increased consumption from higher flying activity. Landing fees and other rent increased 8.6% to $873 million due to rate increases and higher volume. Aircraft maintenance costs decreased 5.4% to $731 million due to lower engine overhaul volumes. Regional capacity purchase costs increased 11.1% to $650 million, reflecting an approximately 17% increase in regional capacity. Other operating expenses rose 8.3% to $2.33 billion, driven by increased flying activity costs and IT expenditures.

Disciplined expense management, coupled with favorable timing of maintenance events, contributed to a minimal 0.3% increase in CASM-ex year-over-year in Q1 2025, which management expects to be the best CASM-ex performance of the year.

Non-operating expenses, net, decreased significantly to $129 million from $263 million, primarily due to a 21.6% decrease in interest expense ($356 million vs $454 million) resulting from lower debt balances. Miscellaneous net also improved, partly due to the absence of prior-year debt extinguishment fees.

These factors resulted in operating income of $607 million, a substantial improvement from $99 million in Q1 2024. Income before income taxes was $478 million, compared to $164 million in the prior year. Net income for Q1 2025 was $387 million, a significant turnaround from a $124 million net loss in Q1 2024. Diluted earnings per share were $1.16, compared to a $0.38 loss per share in the prior year.

Competitive Performance and Positioning Deep Dive

United's competitive standing is increasingly defined by its success in cultivating brand loyalty and leveraging its network and product differentiation against rivals with different strategic priorities or structural disadvantages. While direct comparisons using the latest TTM financial ratios show varying performance across major carriers, United's Q1 2025 results highlight its ability to generate profitability even when some peers may struggle.

Comparing TTM financial ratios (as of the latest available data):

• Profitability: UAL's TTM Operating Profit Margin (9.70%) and Net Profit Margin (6.34%) are competitive within the major U.S. airline landscape. While some peers might show higher margins in specific periods or segments (e.g., Southwest's historical low-cost advantage leading to higher operating margins), United's recent performance demonstrates its ability to improve profitability, especially in challenging environments. Its EBITDA Margin (13.25%) also reflects solid operational cash generation.

• Financial Health: UAL's TTM Debt/Equity Ratio (2.61) indicates a higher leverage position compared to some peers like Southwest (0.78), though potentially comparable or better than American Airlines (-9.44, indicating negative equity). United's focus on deleveraging (reducing net leverage to 2.0x in Q1 2025) is critical to improving its financial resilience and reducing interest burden, which decreased significantly in Q1 2025. The company's liquidity position ($15.3 billion cash/short-term investments) provides a buffer against market volatility and supports investments.

• Efficiency: While specific comparable CASM figures for all peers were not readily available, management commentary suggests UAL's CASM-ex performance in Q1 2025 (up only 0.3%) reflects strong cost management efforts, even as some maintenance costs shifted. United's strategy of operating a high percentage of flights during "golden hours" (7 AM - 8 PM) and having lower overall aircraft utilization, while seemingly counterintuitive for efficiency, is viewed by management as a key to their relative success and profitability, particularly in winning high-value traffic.

United's competitive advantages, such as its comprehensive global route network and the strength of its MileagePlus loyalty program, differentiate it from domestic-focused carriers like Southwest and provide leverage in international markets against global competitors. The company's investments in premium cabins and customer-facing technology like Starlink further aim to elevate the brand and capture higher-yielding traffic, creating a competitive moat that is difficult for rivals to replicate quickly, especially those with different fleet compositions or business models built on simplicity.

Management explicitly states that competitors attempting to copy United's segmentation and product differentiation are "generations behind" and unlikely to catch up quickly due to the years of investment required. This technological and product lead is seen as a durable advantage.

However, UAL faces vulnerabilities, including its higher debt levels compared to some peers and potential exposure to macroeconomic downturns that could impact demand, particularly in price-sensitive segments. The company's reliance on aircraft manufacturers like Boeing (BA) and Airbus (EADSY) also presents risks related to delivery delays and increased FAA oversight, which can impact capacity plans and costs.

Indirect competitors, such as video conferencing, continue to pose a long-term challenge to business travel demand, requiring airlines like United to emphasize the irreplaceable value of in-person interaction and enhance the travel experience to justify the cost.

Overall, United is positioning itself as a resilient, differentiated carrier focused on brand loyalty and profitable growth, leveraging its network, product, and technology to outperform in a competitive and uncertain environment. Its strategic responses, such as tactical capacity cuts and disciplined cost management, are aimed at maximizing profitability in response to market conditions and competitor actions.

Outlook, Guidance, and Risks

United's outlook for 2025 reflects both confidence in its strategic direction and an acknowledgment of the prevailing macroeconomic uncertainty. For the second quarter of 2025, the company expects earnings per share to be between $3.25 and $4.25, with top-line revenue growth anticipated to be positive. International RASMs are expected to remain positive in Q2, with the Pacific likely strongest, followed by the Atlantic and Latin America, although domestic RASMs are expected to be negative.

For the full year 2025, United is providing a bimodal outlook, reflecting the difficulty in predicting the macroeconomic environment with certainty. In a base case scenario, where the environment remains weaker but stable and booking trends hold steady, the company expects to deliver adjusted earnings per share within its original guidance range of $11.50 to $13.50. This assumes continued strong cost management, lower fuel costs in the second half of the year, and profit-maximizing capacity adjustments.

However, recognizing the "real risk" of a U.S. economic recession, United also models a downside scenario. In this case, they anticipate an additional five-point reduction in total revenue for the remainder of the year, on average per quarter, starting around Q3. Even in this recessionary environment, the company expects a full-year adjusted earnings per share between $7 and $9. Management highlights that remaining solidly profitable through a recession would be a first for United and would justify significant multiple expansion, proving the business's resilience and the durability of its decommoditized model.

Liquidity remains strong, with $15.3 billion in unrestricted cash, cash equivalents, and short-term investments at the end of Q1 2025.

The company generated $3.7 billion in operating cash flow and over $2 billion in free cash flow in Q1 2025. United expects to generate full-year free cash flow approaching $3 billion in the base case and positive free cash flow even in the downside scenario.

This cash generation supports ongoing investments in the business, progress towards the long-term net leverage target of less than two times (reaching 2.0x at the end of Q1 2025), and the opportunistic share repurchase program, with approximately $1.0 billion remaining under authorization as of April 10, 2025.

Key risks to the outlook include the actual trajectory and severity of the macroeconomic environment, potential impacts of trade tariffs and geopolitical conflicts on demand and costs, ongoing aircraft delivery delays from manufacturers (Boeing and Airbus), increased FAA oversight of production, labor market constraints, volatile fuel prices, and the potential for new regulations imposing additional costs. United's strategic capacity adjustments, cost diligence, and focus on brand loyalty are intended to mitigate these risks and position the company for resilience.

Conclusion

United Airlines has demonstrated a notable shift in its competitive posture and financial resilience, underscored by its Q1 2025 performance. The company's deliberate "United Next" strategy, centered on winning brand loyal customers through significant investments in its network, premium product offerings, operational excellence, and technological differentiation like Starlink, is yielding tangible results. Despite a softer macroeconomic environment impacting demand and creating uncertainty, United achieved its best first-quarter pretax margin since the pandemic and expects to be profitable, a testament to the structural improvements made.

While challenges persist, including macroeconomic volatility, potential recession risks, and external factors like aircraft delivery delays and regulatory pressures, United's strong liquidity, progress on deleveraging, and commitment to disciplined cost management provide a solid foundation. The bimodal guidance for 2025, projecting profitability even in a downside scenario, highlights management's confidence in the durability of its transformed business model. For investors, United's story is one of strategic execution leading to enhanced resilience and a strengthened competitive position, aiming for sustained profitability and value creation even as the industry navigates dynamic market conditions.