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United Airlines reaps cargo benefit from supply chain chaos

Return of 777 capacity to compensate for decline in freight margins as company eyes 2022 profit

United Airlines is flying toward a profit in the second quarter. The cargo division did it's part in the first quarter with a big jump in sales. (Photo: Jim Allen/FreightWaves)

United Airlines’ cargo business continued its superlative performance in the first quarter with $627 million in revenue as the airline presented a bullish outlook for a return to profitability in the second quarter and full year.

CEO Scott Kirby said in a LinkedIn post that United is “exiting the tunnel” after two years of pandemic losses and cutbacks.

Sales for United Cargo improved 119% from pre-pandemic levels and were 26% better than a year ago even though cargo revenue ton miles — tons multiplied by distance traveled — were 1.7% lower than in 2019 at 791 million.

The airline said it moved about 274 million pounds of freight, including 41 million pounds of medical supplies such as test kits, personal protective equipment and pharmaceuticals. 

“Ocean shipping and supply chain disruptions continue to boost our revenue outlook for cargo,” Chief Commercial Officer Andrew Nocella said on Thursday’s earnings call. 

The latest bottleneck is in Shanghai, which is under strict lockdown procedures that have severely constrained cargo flows to the world’s largest port and forced mass cancellations of passenger and freighter flights. Logistics and airline executives say air cargo demand will be extremely high when the city reopens and companies rush to evacuate stranded freight. 

United Airlines (NASDAQ: UAL) has outperformed its mainline domestic peers by a wide margin since the pandemic began even though the other carriers have also achieved record cargo revenues of their own. Last week, Delta Air Lines (NYSE: DAL) posted $289 million in cargo revenue for the quarter, a 51% gain over 2019. 

United capitalized on its strong relationships and service commitments with freight forwarders and heavy use of cargo-only passenger flights early in the crisis. Even after discontinuing most mini-freighter operations as passenger demand returned, the airline continued to adjust its widebody network to include destinations with robust cargo demand. 

A major factor in airlines’ cargo revenue surge has been scarcity in cargo capacity coinciding with strong trade flows, which pushed up global airfreight rates by an average of  140% since 2019.

United plans to gradually return 52 Boeing 777s with Pratt & Whitney engines to service over the next nine months, which will add a substantial amount of bellyhold space for cargo. The planes have been grounded for a year while the airline, manufacturers and aviation regulators work to understand the cause of an uncontained engine failure in one jet last year. The Federal Aviation Administration has approved the reintroduction of the 777s if  protective shields are installed in the engines and more inspections are conducted.

Ready for takeoff

The airline lost $1.4 billion in the first quarter, or $4.24 per share on an adjusted basis, due to higher costs for labor and fuel combined with reduced capacity, according to Wednesday’s financial report. Revenue was $7.6 billion. Analysts took the result in stride during a first quarter buffeted by disruptions such as the Russian invasion of Ukraine and the omicron variant. Both figures closely aligned with Wall Street’s consensus expectations.

First-quarter capacity and revenue were down 19% and 21%, respectively, from 2019, but United issued second-quarter guidance for a 17% increase in revenue per available seat capacity — putting it on track for the highest revenue for the period in company history. 

Leisure demand is very high, future bookings are nearly at 2019 levels for the summer season, and the highly profitable business segment is rapidly improving even as United passes on fuel price increases. The airline also expects a solid recovery in international demand, which has been slow to recover so far because of COVID-related travel restrictions around the world.

Business revenue, as a percentage of available seats, will in fact be on par with 2019 within a few weeks, according to United. 

Kirby predicted a boom in travel that will move the industry well beyond 2019 levels because people realize how much they missed travel and took it for granted before.

“It’s not pent-up demand. It’s a new higher level of travel. I’m confident for the rest of my life I’ll travel more both for personal and on business. And I think there are a lot of people like that. We are social creatures. We’re more productive when we’re together at a conference or dinner with a customer,” he said. “We are going to surpass on a permanent, sustainable basis where we were before.”

The company forecast it will be solidly profitable in the three-month period with an operating margin of 10%, only 2.9 points below the 2019 level and achieved despite forecast jet fuel prices rising to $3.43 per gallon from about $2.88 per gallon last quarter. Passenger capacity in the Asia-Pacific region will improve to 65% below pre-pandemic levels. United also said it plans to grow 25% in the trans-Atlantic, making it the largest airline in that market for the first time. 

The resurgence of international passenger business is a net benefit for companies with goods to move, but it also means cargo has to compete for aircraft space.

“There’s a little bit less room in the bellies when there’s a lot of luggage on board, so there is an offset and some airplanes go to places that don’t have strong cargo demand but have strong passenger demand,” Nocella acknowledged. “That’s offset by the fact that there’s 52 777s, which are gigantic cargo machines, that are going to reenter service.”

The record yields that have boosted cargo revenue will eventually start to moderate, but United is confident it can maintain the cargo momentum, the chief commercial officer said.

“We have that in our outlook and still feel really good about where we are going because of the belly capacity of the 777s coming back online.”

More FreightWaves/American Shipper stories by Eric Kulisch.

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Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals and a Silver Medal from the American Society of Business Publication Editors for government and trade coverage, and news analysis. He was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. He won Environmental Journalist of the Year from the Seahorse Freight Association in 2014 and was the group's 2013 Supply Chain Journalist of the Year. In December 2022, Eric was voted runner up for Air Cargo Journalist by the Seahorse Freight Association. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. He has appeared on Marketplace, ABC News and National Public Radio to talk about logistics issues in the news. Eric is based in Vancouver, Washington. He can be reached for comments and tips at [email protected]