United Airlines Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The combined filing covers United Airlines Holdings, Inc. (UAL) and its wholly owned airline subsidiary, United Airlines, Inc. (United); their operating results are substantially the same. Figures below are in U.S. dollars unless noted.
Business context and results
United operates a global passenger and cargo airline network. Q3 capacity was about 90% of Q3 2019 levels. Management cited the continuing recovery in travel demand and stronger pricing, alongside higher fuel and other operating costs. Airline results are seasonal; historically, Q2 and Q3 have been stronger than Q1 and Q4.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $12.877B | $7.750B | $32.555B | $16.442B |
| Operating income (loss) | $1.458B | $1.037B | $960M | ($614M) |
| Net income (loss) | $942M | $473M | ($106M) | ($1.318B) |
| Operating margin | 11.3% | 13.4% | 2.9% | (3.7%) |
| UAL diluted EPS | $2.86 | $1.44 | ($0.33) | ($4.10) |
Revenue, costs, and operating metrics
- Q3 passenger revenue rose 75.6% year over year to $11.653B; cargo revenue fell 4.0% to $498M, while other operating revenue increased 22.2% to $726M. Total revenue increased 66.2%.
- Q3 operating expenses rose 70.1% to $11.419B. Fuel expense more than doubled to $3.755B, reflecting a 78% higher average fuel price per gallon and 23.1% greater consumption. Salaries, maintenance, distribution and other operating expenses also increased with higher activity, inflation and related costs.
- Q3 passenger load factor was 87.3%, versus 76.1%; TRASM rose 32.3% to 19.02 cents, while CASM rose 35.4% to 16.87 cents. Non-GAAP CASM-ex was 11.22 cents, roughly flat versus 11.26 cents.
- For the first nine months, revenue nearly doubled, but fuel expense increased $6.003B to $9.796B. The period remained slightly loss-making despite a $1.574B improvement in operating income.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $4.908B, compared with $2.336B in 2021. Capital expenditures, net of flight-equipment deposit returns, were $2.280B. Investing cash outflow was $9.442B, largely reflecting purchases of short-term and other investments; cash, cash equivalents and restricted cash decreased $7.006B.
- At September 30, unrestricted cash, cash equivalents and short-term investments were $18.7B, including $11.258B of cash and $7.437B of short-term investments. Management said liquidity and expected operating cash flows should meet anticipated needs for the next 12 months.
- Long-term debt carrying value was $31.445B, including current maturities. Total debt, finance lease, operating lease and sale-leaseback obligations were approximately $38.4B, of which $4.5B was due within 12 months. The company had $1.75B available under its revolving credit facility and was in compliance with debt covenants.
- Current liabilities were $21.989B versus current assets of $22.689B. Advance ticket sales increased to $8.747B from $6.354B at year-end 2021, and frequent-flyer deferred revenue totaled $6.578B.
Material changes and unusual items
- Q3 net income increased to $942M from $473M; operating income rose 40.6%. However, operating margin declined from 13.4% to 11.3%, as expenses grew faster than revenue.
- Comparison with 2021 is affected by CARES Act grant income recorded as operating credits: $1.132B in Q3 2021 and $4.021B in the first nine months of 2021. These credits did not recur in 2022. The nine-month 2021 period also included severance and impairment charges.
- 2022 special operating charges were $20M for Q3 and $124M year to date, primarily including $94M of legal-related charges. Q3 nonoperating results included a $28M unrealized investment gain; year-to-date investment results included a $12M unrealized loss.
- Debt fair value was $28.951B compared with its $31.445B carrying amount at September 30, 2022. The filing reports $31.857B of contractual principal payments, before unamortized debt discounts, premiums and issuance costs.
Outlook, risks, and commitments
- For Q4 2022 versus Q4 2019, United expected scheduled capacity down approximately 9%–10%, TRASM up 24%–25%, CASM-ex up 11%–12%, and adjusted operating margin of approximately 10%. These are non-GAAP outlook measures; the filing does not provide reconciliations to GAAP projections because certain items could not be forecast without unreasonable effort.
- Management said fuel costs could remain elevated or rise further through 2022. It cited inflation, labor and supply-chain constraints, operational challenges involving third parties, COVID-19 uncertainty, geopolitical conflict and airspace restrictions, and aircraft delivery delays. United had delayed some planned capacity increases and may make further schedule changes.
- United Next is intended to expand and differentiate the network and premium offering; execution, aircraft integration, supplier performance and delivery timing are risks. Boeing advised of delivery shifts, and United estimated additional 737 MAX delays.
- Aircraft, spare-engine, improvement and other capital commitments totaled $34.6B, including $3.0B for the remainder of 2022 and $8.4B for 2023. Timing may change; the commitment schedule does not adjust for specified aircraft delays.
- Other exposures include approximately $2.0B of guaranteed airport special-facilities bonds, $95M of guaranteed regional-carrier aircraft mortgage debt, and floating-rate and non-U.S. financing subject to increased-cost provisions. Management believed pending legal matters would not materially affect results or financial position, but recorded the legal charges noted above.
Important facts for investors to verify
- Whether demand, fares and capacity trends support the Q4 outlook, and how actual results compare with the stated non-GAAP targets.
- Whether fuel, labor, maintenance, distribution and other cost pressures ease or continue to compress margins.
- Progress toward sustained profitability and cash generation given $38.4B of fixed obligations, near-term maturities and significant capital commitments.
- Whether aircraft delivery delays, operational constraints and United Next execution affect planned capacity, costs or returns.
- The composition and expected use of advance-ticket and frequent-flyer liabilities, and any changes in customer credit redemptions or demand.