United Airlines Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report; the provided filing text does not give a clear set of Q4-only financial results. United Airlines, Inc. is wholly owned by UAL and accounts for nearly all of its consolidated revenue, expenses, assets and operating cash flows.
Business context
United operates a global passenger and cargo airline with a hub-and-spoke network and regional service through United Express. Its strategy centers on United Next: growing and modernizing the fleet, increasing aircraft gauge and premium offerings, improving operations and customer service, and managing adjusted unit costs.
Financial and operating performance
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Operating revenue | $44.955 billion | $24.634 billion | Up 82.5% |
| Operating income (loss) | $2.337 billion | $(1.022) billion | Returned to operating profit |
| Net income (loss) | $737 million | $(1.964) billion | Diluted EPS was $2.23, versus $(6.10) |
| Operating margin | Approximately 5.2% | Approximately (4.1%) | Calculated from reported operating income and revenue |
| Operating cash flow | $6.066 billion | $2.067 billion | Improved with operating recovery and working-capital changes |
| Capital expenditures | $4.819 billion | $2.107 billion | Aircraft, deposits, facilities and technology |
| Unrestricted cash, equivalents and short-term investments | $16.4 billion | — | Down approximately $2.0 billion year over year |
| Debt, finance leases, operating leases and other financial liabilities | $37.3 billion | — | Includes $3.6 billion due within 12 months |
Passenger revenue rose 98.2% to $40.032 billion as travel demand and pricing recovered. Cargo revenue declined 7.6% to $2.171 billion as market capacity increased; other operating revenue rose 31.8% to $2.752 billion, including higher partner mileage revenue and lounge sales.
Operating expenses increased 66.1% to $42.618 billion. Fuel expense rose 127.9% to $13.113 billion, reflecting a 72% increase in average fuel price per gallon and higher consumption. Salaries and related costs increased 19.9% to $11.466 billion, while maintenance and distribution expenses also rose materially. Adjusted CASM-ex, a non-GAAP measure, improved to 11.73 cents from 12.96 cents; GAAP CASM increased to 17.19 cents from 14.36 cents.
Operating activities generated $6.066 billion. Investing activities used $13.829 billion, including substantial net purchases of short-term and other investments as well as capital spending; financing activities used $3.349 billion, including $4.011 billion of principal payments. The company reported approximately $31.6 billion of debt principal and $1.75 billion of undrawn revolving credit availability. It was in compliance with debt covenants at year-end. Credit ratings were below investment grade.
Material changes versus the prior comparable period
- Revenue and passenger volumes rebounded sharply from 2021: passengers increased to 144.3 million from 104.1 million, and load factor rose to 83.4% from 72.2%.
- Operating results shifted from a $1.022 billion loss to $2.337 billion of income, and net results shifted from a $1.964 billion loss to $737 million of income.
- The year-over-year comparison is affected by $4.021 billion of CARES Act grant credits recorded in 2021; 2022 had $140 million of operating special charges and no comparable grant credit.
- Fuel costs, labor costs, maintenance and distribution expenses rose with higher activity, inflation and fuel prices. The company recorded $133 million of profit-sharing expense in 2022.
- Capacity operated at approximately 87% of 2019 levels. Passenger revenue exceeded 2019, while total revenue was $44.955 billion versus $43.259 billion in 2019.
Outlook, risks and unusual items
- Management said the long-term outlook remained positive, citing expected continued travel recovery and United Next benefits, but noted uncertainty from the economy, fuel, inflation, labor and supply constraints, aircraft delivery delays, operational limitations and lingering pandemic effects.
- United delayed part of its planned 2023 capacity increases and said further schedule modifications could be needed. It expected approximately $8.5 billion of gross capital expenditures in 2023, including assets financed through debt and leases.
- United Next entails substantial aircraft commitments: the company expected about 700 new narrow- and widebody aircraft by the end of 2033. It disclosed delivery delays for Boeing 737 MAX and Airbus A321neo aircraft and a confidential Boeing settlement providing future credits related to 787 delivery delays.
- Key risks include fuel-price volatility (the company does not hedge fuel), high leverage and refinancing/covenant exposure, labor negotiations and staffing constraints, regional pilot shortages, supplier concentration and aircraft delays, airport and air-traffic congestion, cybersecurity, geopolitical conditions and regulation.
- Legal and environmental contingencies remain uncertain. The company recorded $94 million of 2022 charges related to legal matters, including decisions affecting its ability to assert federal preemption in some labor-related cases. Management did not expect pending matters, based on information then available, to materially affect the company, but acknowledged outcomes are unpredictable.
- Climate targets include net-zero greenhouse-gas emissions by 2050 and a 50% reduction in carbon intensity by 2035 versus 2019. SAF supply remains limited and costly; SAF used in 2022 was less than 0.1% of United’s aviation fuel.
- Ernst & Young issued unqualified opinions on the UAL financial statements and on UAL’s internal control over financial reporting. China route-authority impairment and deferred-tax-asset realizability were identified as critical audit matters.
Important facts for investors to verify
- Whether passenger demand, fares and load factors remain strong enough to offset fuel, labor, maintenance and other cost inflation.
- Actual 2023 capacity, capital spending and aircraft delivery timing versus management’s plans and the large multiyear purchase commitments.
- Liquidity, debt maturities, variable-rate exposure, collateral requirements and continued compliance with financing covenants.
- Progress in operational reliability, staffing and regional-carrier capacity, including effects on schedules and customer experience.
- Assumptions supporting the $1.0 billion carrying value of China route authorities and realization of deferred tax assets, including federal NOLs.
- Developments in legal matters, labor agreements, environmental rules and contingent guarantees that could affect costs or cash needs.