United Airlines Earnings: Cost Growth Portends Industry Drama as CEO Predicts a Shakeout

United Airlines reported third-quarter capacity and revenue right in line with our expectations, but growth in the no-moat airline's unit costs again outstripped our expectations. We maintain our $35 fair value estimate. We see a scenario emerging that may favor full service airlines like United, who can defray their costs across multiple segments of travelers. By contrast, no-frills airlines are experiencing similar cost growth but have nowhere to hide from sudden fuel price spikes this summer and a leveling off of domestic demand.