Depsite Positive Outlook, Bumpy Ride for United

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We think optimizing the company’s hubs via flight rebanking, fixing the company’s revenue management system, improving operations, and enhancing the MileagePlus program represent substantial upsides that are specific to United. Management laid bare the company’s antiquated revenue management system and made a convincing case for how they could squeeze 1-2 percentage points more out of passenger revenue per available seat mile by the latter half of 2018, as well as another 1-2 percentage points by 2020. We think the bulk of other initiatives such as refleeting, upgauging aircraft, segmenting passenger demand, and engaging in various efficiency measures are required to simply keep up with peers in a fare-constrained environment.

Management didn’t provide formal guidance but does expect capacity to move up 1%-2% in 2017, which roughly mirrors the expansion seen this year. Capital expenditures should come in at roughly $4.3 billion next year and $3.4 billion in 2018. Cost per available seat mile will increase 3.5% to 4.5% year over year in 2017, excluding fuel but including recent labor deals. From 2018 to 2020, United anticipates CASM excluding fuel to increase less than 1% annually. All labor agreements are amendable starting in 2020, while the pilots can amend as early as 2019.

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