United Airlines Holdings, Inc. (UAL) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparison is with Q1 2022. UAL is the holding company for United Airlines, Inc.; United accounts for nearly all consolidated revenue, expenses, assets, liabilities and operating cash flows. Figures below are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $11.429 billion | $7.566 billion |
| Operating loss | $43 million | $1.376 billion |
| Net loss | $194 million | $1.377 billion |
| Basic and diluted loss per share | $0.59 | $4.24 |
| Operating cash flow | $3.142 billion | $1.476 billion |
| Capital expenditures, net of flight-equipment deposit returns | $1.843 billion | $402 million |
| Net increase in cash, cash equivalents and restricted cash | $611 million | $190 million |
Operating margin was approximately negative 0.4% and net margin approximately negative 1.7% in Q1 2023. At March 31, 2023, unrestricted cash, cash equivalents and short-term investments totaled $17.2 billion; cash and cash equivalents were $7.634 billion and short-term investments $9.522 billion. The company also had a $1.75 billion undrawn revolving credit facility. Current assets were $21.586 billion and current liabilities $23.635 billion.
Long-term debt was $30.666 billion, including current maturities; the company reported approximately $37.2 billion of debt, lease and other financial liabilities, with $3.9 billion due within 12 months. Stockholders’ equity was $6.668 billion. Debt fair value was $29.429 billion versus carrying value of $30.666 billion. UAL and United reported compliance with debt covenants.
Material changes versus Q1 2022
- Revenue grew 51.1%, led by passenger revenue, up 61.8% to $10.274 billion. Cargo revenue fell 36.5% to $398 million; other operating revenue increased 28.1% to $757 million.
- Passenger demand and capacity improved: passengers rose 25.5%, available seat miles 23.4%, and load factor increased 7.3 percentage points to 79.9%. Passenger revenue per available seat mile rose 31.1% to 15.63 cents.
- Operating expenses increased 28.3% to $11.472 billion, less than revenue growth. Fuel expense rose 42.3% to $3.174 billion, with fuel price per gallon up 15.6% and consumption up 22.8%. Maintenance expense increased 72.5%, distribution expense 78.3%, and salaries and related costs 19.2%.
- CASM, the GAAP cost per available seat mile, increased 4.0% to 17.46 cents; CASM-ex, a non-GAAP measure, was essentially flat at 12.54 cents versus 12.55 cents.
- Interest expense increased 14.6% to $486 million, partly offset by interest income of $170 million versus $5 million in the prior-year quarter. The net loss narrowed substantially, but the company remained loss-making.
- Geographic revenue increased in every region: domestic to $7.167 billion, Atlantic to $1.832 billion, Latin America to $1.316 billion and Pacific to $1.114 billion.
Outlook, commentary, risks and unusual items
- No specific earnings or operating guidance for future periods is stated in the provided filing text. Management said it expects existing liquidity and operating cash generation to cover anticipated needs for the next 12 months, and expects long-term needs to be met through capital-market access and operating cash flow.
- Management noted the airline’s usual seasonality: second and third quarters have historically been stronger than first and fourth quarters. It expects long-term travel-demand growth to offset higher costs if there are no significant, prolonged COVID-19 relapses or global economic disruptions, while warning that near-term results and growth plans may be volatile or delayed.
- Principal cited risks include fuel-price volatility, inflation, labor and supply-chain constraints, operational challenges at third parties, competition, economic downturns, geopolitical conflict and continued Russian-airspace restrictions, aircraft delivery delays, and uncertainty in the recovery of business and international travel, particularly China.
- Aircraft deliveries are exposed to delays. United reported expected shifts in Airbus A321neo and Boeing 737 MAX deliveries, including six 737 MAX 8 aircraft delayed from Q2 2023 due to a manufacturing-process issue. Management did not expect the delays to be extensive or materially affect its 2023 capacity plan at that time.
- Aircraft, spare-engine and other capital commitments totaled $52.1 billion, based on contractual schedules and before adjustments for reported delivery delays. Separately, estimated future regional capacity-purchase payments totaled $12.2 billion. The company expected to wind down its Air Wisconsin agreement and terminate operations by early June 2023.
- United had approximately 96,300 employees; about 84% were represented by labor organizations. It accrued Q1 expense related to a potential new pilot collective bargaining agreement, but the filing text does not provide a clear amount. In April 2023, United reached a tentative agreement with IAM-represented employees, subject to ratification.
- Reported unusual items included $14 million of operating special charges, primarily accelerated depreciation and asset-sale items, and $24 million of nonoperating unrealized investment gains. The filing also describes certain aircraft sale-and-leaseback financings that did not qualify for sale accounting.
- Credit ratings were below investment grade (UAL: S&P BB-, Moody’s Ba2, Fitch B+). The company cautioned that further downgrades could constrain or raise the cost of financing. Significant assets are pledged under financing agreements; $12.9 billion of floating-rate debt is subject to increased-cost provisions.
Important facts for investors to verify
- Whether stronger bookings, yields and load factors persist, and whether revenue growth continues to outpace costs.
- Fuel prices, wage and labor-agreement costs, and the effect of inflation and maintenance needs on margins and cash flow.
- Actual Boeing and Airbus delivery timing and any resulting changes to capacity, capital spending or the $52.1 billion commitment schedule.
- Debt maturities, interest-rate exposure, covenant compliance, financing access and the availability of the revolving credit facility.
- The size and timing of pilot-contract accruals, labor settlements and regional-carrier transition costs; the Q1 pilot accrual amount is not clearly stated in the filing text.
- Whether management’s liquidity and demand expectations are affected by seasonality, economic conditions, geopolitical developments or operational disruptions.