United Airlines

United earned 16% more revenue and 12% higher yields on 3.5% more capacity in the second quarter, while fuel costs rose 84% and structural costs increased 6.1% compared with 2025, resulting in 17% less operating profit. Premium ticket sales gained 16%, while basic seats generated 11% more revenue.

Why it matters: United Airlines has joined Delta in offering industry-leading segmentation of travel, allowing it to outearn most of the industry. Its fortunes are tied to continued demand for premium travel experiences from well-heeled consumers and price-insensitive business travelers. Travel demand so far in 2026 closely resembles the overall volume of early 2025, with merely 0.5% more travelers passing through security by the end of June. United's premium-ticket sales continue to outpace economy-ticket sales, and ticket prices are on the rise industrywide, following the fuel cost spike. Management indicated its expectations for a return to moderate capacity growth in the second half of 2026 are improving, and it would appear that travelers have not begun to balk at persistently higher fares.

The bottom line: We have increased our fair value estimate for no-moat United's shares to $102 from $95, reflecting a near-term rebound in profit due to abating fuel costs, as well as United's industry-leading revenue yield, which we believe may persist in the medium term as unprofitable competing flight capacity exits the US domestic network. Even with our forecast of nearly $8.4 billion in EBITDAR in 2026, United's shares seem overvalued, as we do not anticipate that market conditions will allow the airline to maintain such outsize profits indefinitely.

Our fair value estimate for United Airlines Holdings is $102 per share, 10 times our 2026 GAAP earnings estimate, and an enterprise value multiple of 6.5 times our 2026 EBITDAR estimate. We increased our fair value estimate for no-moat United's shares from $95, primarily due to a steeper near-term profit rebound following the fuel price spike in early 2026.

Beyond 2026, we forecast low-single-digit, potentially lumpy, revenue growth over our forecast period, during which we expect United to capture a small amount of market share from low-cost providers and potentially from American, and we see recent record yields normalizing with a long-term subsiding of fuel costs. United returned to 2019 capacity levels in early 2023, and we expect available seat miles to be approximately 24% higher in 2030, our midcycle year, than in 2019. Our earlier growth estimate projected ASMs to be 33% higher by 2030.

Over the medium term, even if a consumer recession slows demand for a few quarters, we still expect steady demand for domestic leisure travel and strengthening business travel as workers return to offices. We anticipate United's load factors will plateau at around 83%, and average passenger revenue yields will eventually dip below $0.20 per mile due to competition, despite United's premium customer segments' loyalty.

Our average operating margin forecast for United is 9.4% (peaking at 13.6% in 2027), about 120 basis points below the 2015-19 average, which declined steadily over that period. We no longer see evidence that pandemic-related restructuring has generated labor efficiencies at United, and while the airline and its peers will benefit from elevated yields indefinitely, these are just offsetting the increases in unit costs they experienced as they rehired necessary crew and renegotiated labor agreements. We forecast about 3 cents more in structural costs per available seat mile in United's midterm future than it experienced in 2015-19, with passenger revenue yields more or less tracking unit costs.

Based on delayed airplane deliveries from Boeing and Airbus, we're expecting capital expenditure to be about $7.5 billion in 2026 and increase toward $8 billion or more subsequently, before eventually tapering off as the airline takes delivery of some 250 aircraft it has on order, though the timing of these deliveries remains uncertain. We expect capital expenditures to remain elevated over our five-year explicit forecast as United continues to add capacity and renew its fleet.

We think a high cost of equity and above-average cost of debt are reasonable assumptions for this airline, given its highly cyclical business model and somewhat leveraged balance sheet, which leads us to a 8.2% weighted average cost of capital.

We assign United Airlines a Morningstar Economic Moat Rating of none.

Airlines rent seats by the hour on aircraft that fly for decades, their operations and financial results subject to fluctuations beyond their control including volatile fuel costs, growth in labor costs, weather, seasonal variation in travel demand, and ticket prices in most markets. The airline business remains price-competitive, capital-intensive, and labor-intensive, all of which make it difficult for an airline to generate any profit beyond its cost of capital. IATA, an industry group, published estimates in 2020 and 2026 that return on invested capital had only approached the industry's cost of capital once in 30 years, never exceeding it. Our own modeling reflects the same reality for United: over the last decade, it showed volatile annual ROICs ranging from 26% to negative 30%, averaging 7.3%, consistent with our 8.2% cost of capital estimate. We forecast United’s ROICs approaching its cost of capital in our midcycle forecast.

What's more, the industry was pummeled by severe macroeconomic shocks over the last two decades: Sept. 11, 2001, two global pandemics (SARS and covid-19), and the global financial crisis. Airlines experienced drastic and systemic disruptions to their operations, staffing, and financial viability, resulting in much higher leverage and many bankruptcies. Similar shocks are likely to recur at any time, which no airline can defend itself from, leaving investors persistently at risk of permanent capital loss.

Although the amount of fuel needed to power every flight is known to the gallon by weight at takeoff, the price the airline will pay for it can vary widely over a week, seasonally, and regionally. Most important about fuel prices is that each airline experiences them in more or less the same way: they are a commodity. Most of the time, airlines can pass this cost on to customers by charging more per mile when fuel prices are high. Over the long term, airline CPI, a component of consumer CPI, has been remarkably stable (notwithstanding bumps since 2022 that reflected transitory spikes in fuel prices), implying that aggregate airline fares operate similarly to a commodity, as well.

Major US carriers have partnered with a credit card issuing bank to promote loyalty programs that feature their frequent flyer points. For some, these programs, in which the bank pays the airline more for the points up front than they are technically worth to redeem, represent the lion's share of ongoing operating profit. We do not see these programs as changing the competitive dynamics or structural profitability of the airline. Rather, the airlines have time-shifted when they experience any profit from serving a loyal segment of customers, in many cases redeeming points for perks such as premium seating and lounge access that add incremental cost to provide and maintain.

Through persistent price competition, basic advertised airfares now only include transportation for a passenger (and a small personal item) in an unassigned seat. Labor and other cost inflation have narrowed the historical gap in structural unit costs between discount and full-service carriers. Instead, by charging higher fares to include baggage allowance, seat assignments, and a widening array of other perks, and by exchanging them for collected loyalty points, airlines have tried to establish switching costs among certain segments of their customers. For us to reconsider our moat rating, United’s premium customer segments would have to represent a large enough, loyal enough, and profitable enough portion of revenue to deliver economic profits over an entire cycle. However, we believe that industry fundamentals and price competition will still outweigh segmentation through the next downturn.

The most-costly competition airlines engage in is for aircraft. Every other decade or so, Boeing and Airbus offer new models powered by new engines that can fly farther, carry more passengers, and consume less fuel. We observe a steady increase in available seat miles (ASMs) flown per gallon of fuel consumed across all airlines, as they consistently upgrade their fleets. Delta, United, and American were able to fly an average airplane seat about 60 miles on a gallon of fuel in 2012 and approached 70 in 2023. They fly hub-and-spoke routes with regional and wide-body jets that burn more fuel per seat mile than narrow-body jets. Southwest went from 70 ASMs per gallon a decade ago to over 80 in 2023, its mileage advantage versus the Big Three because it flies only variants of the narrow-body 737 on point-to-point routes. The mileage trend reflects improvements in engine efficiency, wing design, and fuselage materials, and it represents a competitive ratchet that no airline can afford to ignore: multiplied over many hundreds of millions of ASMs per year, even a small difference in fleet efficiency would represent a structural disadvantage for an airline competing on similar routes. Thus, airlines constantly refresh their fleet to stay competitive (new seats, bigger luggage trays, and the like are a side benefit of new planes that also may augment an airline's brand perception for a short time).

Airlines provide invaluable service to their customers and communities, often stimulating the economies of those destinations they connect to the global travel network. However, investors in airlines are literally flying on a wing and a prayer, as we see no prospect for durable economic profit in this industry. Instead, we observe that the duopoly airframe suppliers Airbus and Boeing and the oligopoly engine manufacturers GE, Safran, Pratt & Whitney, MTU, and Rolls-Royce reap the economic reward from providing successively more efficient, powerful aircraft that airlines line up to buy or rent so their service and cost profile can keep up with competing carriers.

The United Next strategy is boosting capacity per plane and drive stronger profitability with more efficient planes.

Demand for air travel recovered more rapidly from the covid-19 pandemic than the industry's ability to expand capacity to meet it.

Due to United's many long-haul international routes, it gets more mileage than peers from an average flight.

Like other global airlines, United is persistently exposed to costly disruptions from weather, geopolitical strife, commodity prices, and other hard-to-predict phenomena.

Competition from low-cost airlines and full-service peers put a limit on United's ability to pocket higher fares in most of its cabins.

Business travel recoveries tend to lag economic recoveries, and United has high and evolving business travel exposure.