Executive Summary / Key Takeaways

• United Airlines is executing a transformative "United Next" strategy, shifting air travel from a commodity to a brand-loyal experience. This approach, centered on significant customer product investments and technological differentiation, is driving resilient financial performance even amidst macroeconomic volatility.
• The company reported strong Q3 2025 results, with adjusted diluted EPS of $2.78 exceeding guidance, and anticipates full-year 2025 earnings growth, projecting EPS in the better half of its $9 to $11 range. This resilience is a testament to its strategy, which aims for sustained double-digit pretax margins.
• Technological advancements like Starlink Wi-Fi, advanced seat-back screens, and AI-powered operational tools are enhancing customer experience, driving cost efficiencies, and creating a competitive moat, with Starlink-equipped regional flights already demonstrating "game-changing" NPS scores.
• United is strategically expanding its international network and premium capacity, while optimizing domestic flying and leveraging its MileagePlus loyalty program, which management believes has the potential to double its EBITDA by the end of the decade.
• Despite industry headwinds such as labor negotiations, geopolitical tensions, and aircraft delivery delays, United's disciplined capital allocation, including debt reduction and opportunistic share repurchases, is strengthening its balance sheet, evidenced by an S&P upgrade to BB+.

The Decommoditization of Air Travel and United's Generational Lead

United Airlines Holdings, Inc. (UAL) is fundamentally reshaping its trajectory and the broader airline industry. Since the fall of 2020, United has pursued its "United Next" plan, a vision predicated on the belief that air travel is not a commodity. This strategy focuses on cultivating brand-loyal customers through substantial investments in product, service, and technology, aiming to establish a structural, permanent, and irreversible competitive advantage. This strategic pivot has positioned United as a leader in brand loyalty across six of its seven hubs, a significant shift from historical industry dynamics.

The airline's core business revolves around transporting people and cargo through its extensive mainline and regional operations, serving a comprehensive route network across the United States, Canada, Atlantic, Pacific, and Latin America. This network is further bolstered by its participation in Star Alliance, the world's largest airline alliance. United's strategic emphasis on decommoditizing air travel is evident in its commitment to offering superior value across all cabins, from Basic Economy to Polaris class, thereby winning and retaining customers who prioritize experience over mere price.

Technological Edge: Fueling Operational Excellence and Customer Loyalty

Central to United's strategy is its aggressive investment in technological differentiation, which serves as a dual engine for enhancing customer experience and driving operational efficiency. The company is investing over $1 billion annually in customer product enhancements, with another $1 billion planned for 2026.

A prime example is the accelerated rollout of Starlink Wi-Fi. Following FAA certification for its Embraer (ERJ) 175 fleet in Q1 2025, the first Starlink-equipped Boeing 737-800 took flight from Newark in October 2025. More than half of United's regional fleet now has Starlink installed, with full fleet expansion expected by 2027. This technology is touted as "game-changing," offering "the fastest, most reliable and free for Mileage Plus members, WiFi in the skies," and has already led to "dramatically higher NPS scores" on inaugural flights, with one flight recording 145 gigabytes used by 170 connected devices. This superior connectivity is a unique differentiator against competitors, many of whom offer slower, for-pay Wi-Fi services.

Beyond connectivity, United is enhancing its in-flight experience with advanced seat-back screens. By September 2025, 64% of its fleet had undergone a "signature interior conversion," representing an investment of over $1.6 billion. United operates 765 jets with more than 146,000 seat-back screens, which management views as a defining characteristic of a premium U.S. airline. These screens are foundational to the emerging Connected Media business, which aims to double revenues in 2025 versus 2024, and again in the following year, by delivering unique, personalized content and services.

Operationally, United is leveraging technology to drive cost efficiencies and improve reliability. Modernizing maintenance technologies with iPads allows technicians instant access to troubleshooting manuals and parts ordering directly at the aircraft, leading to faster aircraft turns and improved workforce efficiency. The "Orca tool" utilizes AI to optimize aircraft routing, crew pairings, and customer connections, enabling quicker recovery from irregular operations (IROPs) events. These technology-driven savings contribute to a lower CASM-ex (Cost per Available Seat Mile, excluding fuel) and a more reliable operation, which is crucial for customer satisfaction and brand loyalty.

Further enhancing its premium offerings, United plans to introduce the Polaris Studio Suite in late 2025, featuring suites 25% larger than regular Polaris suites, complete with ottomans and 27-inch 4K screens. The first flight with this new interior on a Boeing 787-9 Dreamliner (outfitted with eight Polaris Studios and 56 Polaris business class suites, up from 48) is set for early 2026, with 30 Dreamliners expected to feature the new interior by 2027. These innovations are designed to solidify United's premium market position and drive higher revenue generation.

Financial Performance: Resilience Amidst Macro Volatility

United's financial performance in 2025 underscores the resilience of its "United Next" strategy, even in a challenging macroeconomic environment. For the three months ended September 30, 2025, total operating revenue increased by 2.6% year-over-year to $15.225 billion. Despite this, total operating expense rose by 4.2% to $13.830 billion, leading to a 10.8% decrease in operating income to $1.395 billion and a 1.7% decrease in net income to $949 million. However, the adjusted diluted earnings per share of $2.78 for Q3 2025 surpassed the company's guidance range of $2.25 to $2.75, demonstrating effective cost control and operational efficiencies.

Year-to-date through September 30, 2025, United reported a net income of $2.309 billion, a 6.7% increase over the same period in 2024. Total operating revenue for the nine months reached $43.673 billion, up 3.1% year-over-year. Passenger revenue, the largest component, grew by 2.5% for the nine months, driven by a 6% increase in capacity and a 4.7% increase in passengers. Premium cabin revenues were particularly strong, increasing 6% year-over-year in Q3 2025 and outperforming the main cabin. Other operating revenue, which includes loyalty program contributions, saw a robust 10.8% increase for the nine months, primarily due to higher mileage revenue from non-airline partners and increased United Club memberships. Cargo revenue also contributed positively, increasing 5.5% for the nine months due to higher tonnage and yields.

Expense management has been a critical focus. While salaries and related costs increased by 6.2% for the nine months due to increased flying activity, headcount, and pay rates, aircraft fuel expense decreased by 6.7% due to a lower average price per gallon. Distribution expenses saw an 8.4% decrease for the nine months, attributed to a shift in sales channels and refined assumptions for credit card fees. Interest expense decreased by 16.8% for the nine months, driven by lower debt balances and a reduced average cost of debt.

Liquidity remains robust, with $13.30 billion in unrestricted cash, cash equivalents, and short-term investments as of September 30, 2025. The company also maintains a $3 billion undrawn revolving credit facility. United has made significant strides in deleveraging, prepaying $1.80 billion of a secured term loan in July 2024 and redeeming $1.52 billion of MileagePlus senior secured notes in July 2025, fully unencumbering the MileagePlus business. This focus on strengthening the balance sheet is reflected in an S&P upgrade to BB+ in August 2025, its highest rating in over two decades, with Moody's and Fitch also assigning positive outlooks.

Strategic Initiatives and Growth Trajectory

United's strategic roadmap is designed to capitalize on its competitive advantages and drive sustainable, profitable growth. A key pillar is network expansion, particularly in international markets. The company plans to moderate Pacific growth in the first half of 2025 as capacity added in 2024 matures, but is launching new initiatives, such as operating 737s on Narita feed flights to destinations in Asia that do not support nonstop U.S. service. For Summer 2026, United is adding new international routes to cities in Croatia, Italy, Scotland, and Spain, reinforcing its position as the largest carrier across the Atlantic.

The fleet modernization program is crucial for enhancing both customer experience and cost efficiency. While 2025 is a "gauge pause year" due to OEM production delays, gauge growth is expected to accelerate significantly in 2027 as the A321 fleet reaches critical mass. This will drive cost convergence and allow United to accept more Basic Economy passengers profitably. The company has firm commitments totaling $54.30 billion for aircraft purchases from Boeing (BA) and Airbus (EADSY) through 2033.

The MileagePlus loyalty program is a significant revenue driver, with loyalty revenues growing 9% in Q3 2025 and expected to end 2025 up over 12%. Management believes there is "potential to double the EBITDA from our loyalty program in the years to come," emphasizing its status as a "true loyalty program" that offers substantial value and utility. United is working to provide segment disclosure for this business to enhance transparency regarding its earnings resiliency and growth.

Strategic partnerships also play a vital role. The "Blue Sky" collaboration with JetBlue Airways (JBLU), cleared by the U.S. DOT, is a notable development. This partnership will grant United access to slots at JFK International Airport for up to seven daily round-trip flights starting in 2027, marking United's return to JFK. It also includes an exchange of eight flight timings at Newark Liberty International Airport and reciprocal loyalty program benefits.

Competitive Dynamics: A Differentiated Path to Profitability

United's competitive positioning is rooted in its "generational lead" as a brand-loyal airline, a stark contrast to the commoditized segments of the industry. Management asserts that "air travel is not a commodity" and that United, along with one other airline (implicitly Delta Air Lines), represents the "2 brand loyal, structurally profitable and revenue diverse airlines, which together will represent about 100% of industry profits in 2025."

This differentiation is critical in an industry where profitability is now "inversely correlated with aircraft utilization," meaning airlines with the highest utilization often have the lowest margins. United's strategy focuses on profitable flying rather than maximizing utilization, a key distinction from commodity-based carriers.

Compared to Delta Air Lines (DAL), United shares a similar focus on brand loyalty and premium offerings. Both are investing heavily in customer experience, with Delta also enhancing its Delta One cabin and dedicated lounges. United, however, highlights its extensive global network and strategic hub locations (Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco, and Washington, D.C.) as superior, particularly for international gateways. While Delta has strong operational efficiency, United's investments in technology and network scope aim to create a more comprehensive and sticky customer experience.

Against American Airlines Group (AAL), United positions itself as the more premium option. United's commitment to seat-back screens (765 jets with over 146,000 screens) is a direct contrast to American's strategy of largely omitting them on domestic flights, which United's Chief Commercial Officer, Andrew Nocella, states "define a premium airline in the U.S." While American is also upgrading its business-class suites with features like sliding doors and plans to offer free Wi-Fi to loyalty members, United's multi-decade investment in product and technology is seen as creating a significant lead that is difficult to replicate.

In comparison to Southwest Airlines (LUV) and other ultra low-cost carriers (ULCCs), United's strategy is fundamentally different. United's CEO, Scott Kirby, has described the ULCC model as "fundamentally broken" and "dead," arguing that it fails to attract repeat customers due to a "screw the customer" approach. He points to the "stressed financials at many airlines" and the fact that "much of their domestic flying once again lost money in 2025." United's focus on brand loyalty, even in its Basic Economy offerings, aims to capture customers over their full lifecycle, providing a profitable entry point while offering a superior overall experience. The "cost convergence" at high-cost airports further challenges the profitability of ULCCs in these key markets, where United has a strong hub presence.

United's ability to de-seasonalize capacity and balance demand levels across the year, through its optimal mix of leisure, premium leisure, and business demand, provides another emerging advantage over commodity-based airlines that primarily seek profit opportunities during peak leisure travel periods. This strategic flexibility allows United to maintain higher margins and greater stability.

Outlook and Guidance: Charting a Course for Double-Digit Margins

United's management expresses strong confidence in its future financial performance, driven by the continued execution of its "United Next" strategy. For the fourth quarter of 2025, the company provides adjusted diluted earnings per share guidance of $3.00 to $3.50. United anticipates growing earnings for the full year 2025, expecting EPS to land in the "better half" of its $9 to $11 guidance range. This outlook implies an approximately 18% growth in earnings per share versus 2024 at the midpoint of its initial guidance.

Looking further ahead, CEO Scott Kirby projects at least 1 point or more of margin expansion annually, normalized for macroeconomic activity, which is expected to lead to low-teen margins. As industry restructuring progresses, he anticipates several more points of margin expansion, moving United into the mid-teen margins. CFO Mike Leskinen reiterates the long-term target of achieving double-digit pretax margins.

The CASM-ex (Cost per Available Seat Mile, excluding fuel) is projected to run around 2% to 3% annually over the multi-year timeframe. This forecast incorporates 3-4% general inflation (including labor), a 1-point annual tailwind from gauge growth, and 1 point from core efficiency improvements. These benefits are partially offset by approximately 1-point CASM-ex pressure from customer experience investments, which are expected to generate more than offsetting revenue.

United expects to generate over $3 billion in free cash flow in 2025. Free cash flow conversion is currently trending above 50% due to the timing of aircraft deliveries, is expected to remain around 50% as capital expenditures rise, and accelerate to approximately 75% by the end of the decade. The company plans to take delivery of 71 narrow-body aircraft and 10 wide-body aircraft in 2025, with gauge growth expected to accelerate in 2027 as the A321 fleet reaches critical mass.

Key Risks and Headwinds

Despite a compelling outlook, United faces several pertinent risks. Labor relations remain a significant factor, with approximately 82% of its 111,900 employees represented by various U.S. labor organizations. The rejection of a tentative agreement with the Association of Flight Attendants (AFA) in July 2025 means negotiations are ongoing, and potential future agreements could impact labor costs.

Geopolitical conflicts pose a continuous threat, with airspace closures (e.g., Russian airspace due to the Russia-Ukraine military conflict and interruptions from Middle East conflicts) creating competitive disadvantages for U.S. airlines, particularly for direct flights to China and Hong Kong. CEO Scott Kirby has called for a level playing field, noting the unfairness of competing with Chinese airlines allowed to use Russian airspace.

Regulatory challenges from the FAA and DOT, including increased oversight of aircraft production and potential new rules, could lead to higher operating costs and capital expenditures. Aircraft delivery delays, particularly for the 737 MAX 10, also remain a concern, potentially impacting capacity growth plans.

Furthermore, macroeconomic uncertainty and potential economic downturns could impact travel demand, especially for price-sensitive leisure travelers. An extended federal government shutdown, as warned by CEO Scott Kirby, could also negatively affect bookings as public confidence erodes.

Conclusion

United Airlines is firmly committed to its "United Next" strategy, which has demonstrably transformed its competitive standing and financial resilience. By prioritizing brand-loyal customers through sustained investment in technology, premium products, and operational excellence, United is carving out a differentiated path in an evolving industry. The company's ability to deliver strong earnings in challenging environments, coupled with a clear roadmap for margin expansion and robust free cash flow generation, positions it favorably for long-term value creation. While labor dynamics, geopolitical risks, and macroeconomic shifts require vigilant management, United's strategic focus on decommoditizing air travel and leveraging its technological leadership provides a compelling investment thesis for discerning investors seeking stability and growth in the airline sector.