Delta vs United: Premium Boom, Economy Squeeze

Welcome to the airline weekly lounge. My name is Jay Shabbat, and I'm joined today by

Magna Mairishi. Today, we're going to talk about U.S. airline earnings with a focus

on United and Delta. Hello, Magna. Hello. Okay. So it's earning season. So happy

earning season to you and yours. That's, let me get that out of the way. We have United.

We're speaking today, by the way, on Wednesday, January 21st, in the afternoon, and United

just released their earnings. They actually did it on, they actually released the numbers

yesterday, Tuesday, and this morning, they held their earnings call with Wall Street.

So we were, we have the numbers. We also have Delta's numbers, Delta went a week prior.

So if you've seen the latest airline weekly issue, all of our analysis of Delta is, you

may have read that already if you're listening to this. So we have the Delta numbers. We have

the United numbers. I will go through some of the highlights and then we'll kind of get

into the United call and maybe talk a little bit about Delta calls well. So here we go.

Let me begin as usual. And this is for the fourth quarter, October to December of 2025.

So this numbers were reporting here. As usual, Delta be united in terms of operating margin,

which is the number we look most closely at. And they beat them just by a tiny bit. Delta

had a 10% operating margin, 10.1. If you want to get, take it out to the 10th decimal there.

When United had 9%, so think of a 10% versus 9%. So pretty, pretty typical that Delta usually

does come a point or two ahead of United. Both of these results though were very, very good.

In fact, I would call Delta's results really, really good. And I would call United's results

really, really, really, really good. I was extremely impressed with the United results.

And I'll say a few reasons why I look at it, kind of scope it out as we, as we go through

this discussion here. But remember this about Delta versus United in the fourth quarter,

very important is that Delta actually paid only 228 per gallon for their fuel. Whereas United

paid 249. So if you kind of equalize those, if they were paying the same amount of money per

gallon for fuel, it's, you know, you might, you bet, you basically United might be ahead,

or at least they'd be pretty equal. So impressive that United was able to score that 9%

operating margin, even with the higher operating margin cost. A few other things that I should

note about United versus Delta since we're comparing the two is that United does probably have more

exposure to the federal government traffic, which was of course, kind of depressed in Q4 because

of the very lengthy government shutdown. And I say that they're more exposed because they do

after I'll have a Washington hub, they're big in Washington, Dallas. And even, I want to say Denver,

where United has a hub is also a very, very large market for federal government traffic that might be,

I think there might be more federal government employees in Denver than anywhere in the country,

except Washington, you know, got to check me on that. But I know it's a big, there's a lot of

federal offices there. So again, give United credit for doing so well despite the fuel issue,

despite the government exposure. And I think what really impressed me about United's results,

I mean, there's a couple of things there. I mean, like we can talk about the unit cost differential.

I mean, United's unit cost X fuel trending very, very, very well barely up at all year over year,

whereas Delta's was up more than something like 4% year over year. A lot has to do with United's

is growing faster. They're getting a lot of economy scale, economies of scale through faster

expansion. But the other thing that I think United is just kind of in the right, right place

at the right time is that they do have more premium exposure than even Delta. I mean, Delta,

of course, is very premium airline. They're just really pushing in that direction, putting more

premium seats in the aircraft. But if you look at some of particularly a wide body aircraft,

a lot of United's aircraft configurations are even more premium than Delta's. And then they're

also flying from these, you know, a lot of these big, if you think about the hubs, where United

is flying from your Chicago's in New York's and Washington, San Francisco, whereas Delta's more,

you know, Atlanta Minneapolis, you're going to have more of that big premium base in these giant

cities. So it's a long way of saying that I think United is really, I mean, both of these carriers

are doing really, really well. They both say demand is very, very strong, but United in particular

really stands out for having just a really, really strong fourth quarter, all things considered.

So having said all that, probably too much, but let's focus now, move our focus to the call,

United's call. And I was only able to listen to bits and pieces. I was kind of in and out,

but Magna, you listen to the entire call, right? Yep. Okay. So give us some highlights. What did

United have to say? Yeah, I felt like the call was very similar to Delta's. One of the big takeaways

to me was that United is also expecting to see some upside and main cabin seats. Delta executives

were commenting on that last week as well. I think they're expecting domestic to do a little bit

better as some of the bigger ultra low cost carriers like Frontier or Spirit continue shrinking

capacity or if Spirit just goes bust altogether. They finally expect to see some improvement there

since that's been a pretty like weak spot for them. I think especially in the fourth quarter for

United domestic was weak, especially because of the government shutdown when all the airlines had

to trim their schedules when the FAA was imposing, was imposing that order on them. So I think that

was definitely like a big thing. Another little interesting thing is international demand is generally

doing really well, but I think Latin America seems to be a little bit of a sore spot right now,

particularly because of the Caribbean. There's been a surprising softness in bookings

to the Caribbean right now just because of everything that was going on in Venezuela.

I think it's interesting that that's still having a bit of a lingering impact, but United also

said that things were beginning to go back to normal. Yeah, that incidentally, I heard that as well,

and immediately I thought that can't be good for Spirit either. I mean, they're kind of heavy

Caribbean exposed, Jeppo Lou, very Caribbean exposed. So we'll find out more about those airlines

when they start reporting in the coming weeks to back to United and Delta. So yeah, they did

international versus domestic, and particularly the premium versus the non-premium.

And I had some Delta breaks those numbers out in terms of the revenue that they get from premium

tickets premium seats versus revenue that they get from non-premium seats. And it was pretty

remarkable. I think for the first time ever last quarter, they said that they earned more from

the premium seats than they did the non-premium, which is total revenue, which is pretty amazing

because you could think there's just a lot more non-premium seats. So the average revenue

per seat just has to be just really, really good on that. And I have it here. Let's see if I can,

I'm googling as I talk here. So forgive me, but yeah, their main cabin, the fourth quarter,

their main cabin revenue. So basically think about economy class tickets, the revenue from that

was actually down seven percent year-to-year, but their revenue from premium seats was up

nine percent. I mean, that's, you talk about diverging directions. I mean, that's a very stark

contrast there. And it's interesting, you know, they in the United call part, part of it that I

heard, anyway, there was a discussion about what's the reason that these non-premium seats are

doing so poorly now. Why is that market so weak? And Scott Kirby, the head of United, insisted

that it has everything to do with supply and nothing to do with demand. So maybe, I mean, that's

that's a, and it's a little, I was kind of messing around in Syria, Syria, and Dio looking at

different the seat schedule capacities for different markets and different time periods. And

you know, if you look at just US domestic seats, I'm not breaking this out by premium or now

premium or anything, but you have to think, you know, domestic is more non-premium. If you look at

total domestic seats in the US, it's only up by about seven percent from 2019. So, you know,

we're talking kind of a very long period of time. So that's an, you know, an average of what like,

you know, one percent a year or something like that. It doesn't seem like there's a supply problem

in the US, but Kirby insists that there is. He may be referring to, you know, some united specific

over capacity markets like Chicago. And I'll let you talk about it. I thought it was kind of

interesting. I heard some of Kirby's comments about United and Chicago, if you want to tell us

anything about that. Yeah, I feel like, you know, there's been in some sort of, I guess, the

call to turf war with American over O'Hare. I think like United is still the biggest out of O'Hare,

but I think both of them have just been continuing to expand out of sort of like competition.

I think there was also just because there was an issue with like the number of gates that could

be allotted to American. I think like American was embroiled in some sort of lawsuit with like

the city of Chicago over that. But like, I think Kirby was really, Kirby was really coming for

American in the call today. I think he was like, Oh, American is going to be in the red.

Like, you know, we're going to pretty much like dominate. They're going to lose a billion

dollars this year. Yeah. So, I mean, I guess they're still very confident on their place in Chicago.

And I think their ability to outcompete American there. I guess we'll see what American says

in response to that, I guess next week. Yeah. The rebuttal will be, it will be quite interesting

as well. So we have to wait another week until that. Okay. So anything else to add on United

Magna about their call or any other thoughts will then take a break and talk a little bit more

about the Delta results. Yeah. I mean, I will say even this goes for Delta 2. I think like this

year, they, you know, Scott Kirby and Ed Vash and they both kind of started off with 2025

was a very rocky year. There were a lot of uncertainties. And I thought it was just interesting

because I think I remember last year at the beginning of the year, the tone in January was very,

very positive and very, very upbeat. And obviously like both of these carriers did deliver pretty

strong results. But I do think now there's a little bit of cautiousness. And they don't want to

get too cocky just because last year I think was just pretty unpredictable with like the tariffs.

I think also even just inflation not really going away. And then the government shut down like

lasting for well over a month. So I guess we'll see what happens in 2026. Yeah, no good. I'm glad

I'm glad you said it because I neglected to say that demand both these carriers say demand looks

really good right now. But as you said, it looked really good last January too. And then it fell

apart March, April. So yeah, fingers crossed from their perspective that nothing gets in the way

this this year. I was really surprised at just how bullish they were on business demand in

particular. I mean, United was I think I wrote down in my notes that I mean, they literally

used the word amazing for for business bookings. Is that does that do you recall them using that

term? Or am I imagining that? Yeah, it was very positive. It was like a very bullish

very, very bullish on business demand. So I think that's kind of small business corporate

demand. I don't think they distinguish. But in general, I just think that that whole business segment

is looking really, really good right now. Remember that they do have a hub in San Francisco,

which is kind of the epicenter of the AI boom. That's where a lot of the artificial intelligence

companies are based. And yeah, maybe maybe some of that Washington traffic that was lost in

Q4s coming back. I think that when they say business traffic, that would probably include government

as well, although they didn't say anything specifically about government demand. So so yeah,

it's looking good. So we're going to take a break now and we'll come back. We'll talk a little

bit more about Delta. Okay, we're back. Magna, did you listen to the Delta call the week prior

as well? Yep. Okay, tell us about Delta. What's going on with them? Yeah, Delta didn't also deliver

very strong fourth quarter. And I think they also have a pretty positive outlook for the year.

I think their guidance for 2026 is a little bit was more conservative than United's. I think,

but one of the interesting things that Delta did start doing was emphasizing its sort of

diversified revenue streams. They started disclosing how much they're making from their

MRO unit maintenance repair overhaul. And I think they were also emphasizing cargo a little

bit more on loyalty as well. I do wonder that emphasis on these diversified revenue streams does come

from that wanting to be cautious bit. But I think that was a pretty big takeaway. It was really

interesting to see how I think MRO they said their revenue was up 25% in the fourth quarter.

And it seems like they're expecting revenues to eventually top three billion dollars just from

that business alone. But I guess that might also make sense because it is like the largest MRO

provider in North America. Yeah, and it's just a very good time with the market being so tight with

the if you think about all of the engines that need work because of these GTF issues,

inspection issues. And because of I mean, there are so many planes on order right now. And

there's just a lot of a lot of maintenance shops across the world are just full. So there's a

you know, a lot of the man chasing limited supply. So it's kind of a good time to to be in that

business. So yeah, that's that's very, very promising for them. And speaking of new aircraft

orders, Delta went shopping. Want to tell everybody what are they buying? They're finally buying a ton

dream liners. Finally. Yeah, I guess they're going to probably phase out those 767s. And I think this

is like one of their newer like Boeing widebody additions. I feel like their fleet has been more

Airbus heavy on that front compared to their competitors. Definitely. Yeah, they've definitely

been more of an Airbus buyer than a Boeing party buyer, particularly on the widebody side. So yeah,

the 787s, I believe they're the only major global airline in the world. Besides Cathay Pacific,

big question mark there. I don't know what they're what's in their mind, but that has not ordered

the 787 that either doesn't fly it or hasn't ordered it. I go find a few kind of smaller type

era fin air and tap air Portugal that don't don't fly the dream liners. But if you anything,

any of these like very, very big global carriers, pretty much everybody flies the dream liner and

Delta will join the club. Yeah, in the roadering, they're actually getting the dash 10 model,

which is the one that has a little bit less range. But people call it the category killer for

for chasm for unit costs. It has just really excellent unit costs. I think Glen Howe and Stein,

and congratulations to him, by the way, on his retirement. I'm going to put him in my airline

hall of fame. I think he's had a brilliant career. So as he retires, he gave this was his last

earnings call for Q4. And he, I think he used that term, that about the 78710 that it's

category killer on on unit cost. And particularly on transatlantic, just like I'm awesome, awesome

aircraft for serving transatlantic markets between the US and Europe. So yeah, so again,

just there's just a summary here. Both Delta and United are off to a really good start, I think,

for 2026. And their fingers are crossed. That same thing doesn't happen. This year has happened

last year with the springtime blowup that we saw with the man last year. But so far so good.

Yeah, I think also like another thing with Delta. I think as far as their international growth goes,

it seems like they're more focused on other regions, just besides transatlantic. It seems like

there's a little bit more focus on the middle east and the Pacific region as well, because they're

bringing back like their Hong Kong service to, for example. So I guess we'll see how much growth

they get in that region since it's been a little bit slower to rebound compared to Europe post-pandemic.

Yeah, there's a lot more for United and Delta, and you know, to understand American,

there's a lot more of these overseas routes that are becoming economically viable because of a

variety of different changes. One is just, you know, some of these new aircraft that are coming in

are just so good. You know, we mentioned the 787s being one example that you can do a route that

might not have made money with a 767, but can make money with a 787. So as these new modern

aircraft with great economics online, it opens up more route opportunities. At the same time,

I think the relatively strong dollar, I mean, the dollar was weakened last year versus most major

currencies, but when the dollar's strong, that does kind of open up opportunities for U.S. carriers

to do more stuff overseas. So there's, yeah, you know, in the U.S. economy seems to be still holding

up pretty well. So for all these reasons, I heard United say today, Andrew Nasella, who's,

you know, their chief, was his title commercial officer. He, you know, he says we're, we have

every bit of intention to, you know, continue to add dots to our route map in the coming year.

So it should be more of that to come. Yeah, and then I guess Delta is also doing more unique

destinations in Europe as well. It's a Stardinia and multi-service, I think, starting in the summer.

Mm-hmm. Yeah, yeah, and you can do things seasonally, could do things just a few days a week,

and sometimes that can make a route more viable as well. So, well, anything else to add,

Megna? No, I think we hit all the points. I feel like the, the calls were pretty similar this time

around in terms of a brick matter. I think they said a lot of the same things. Yeah, except that

the United calls more entertaining because of the, yeah, the Chicago fracas there, the, yeah,

the, all the commentary. Yeah, yeah, yeah. So he's always wanted to listen to Kirby try to get

under American skin, but that just me, me, me sitting by with popcorn. It's, uh, well, I'm sure we'll

get a lot more commentary, a lot more insight as more US airlines start reporting when you said

American is next week, right? We'll probably have a few more coming in in either next week of the

week after and then we'll have them probably all in by either the end of the month or maybe the

first week of February and we'll get a real clear picture of what's going on in the US

overall, but that's all I have. So we'll put this episode to a close. Thanks everybody for listening

and hope to, hope you'll join us next week.

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