Executive Summary / Key Takeaways

• Strategic Resilience Amidst Volatility: United Airlines Holdings, Inc. ($UAL) demonstrated remarkable resilience in the first half of 2025, growing earnings and pre-tax margins despite a volatile macroeconomic environment and operational challenges at its Newark hub. This performance underscores the effectiveness of its "United Next" strategy, centered on brand loyalty and revenue diversity.
• Demand Inflection and Industry Rationalization: A significant positive inflection in demand, particularly in business travel, began in early July 2025, coupled with anticipated industry capacity adjustments from lower-margin airlines. This sets a favorable backdrop for the second half of 2025, with management guiding for full-year EPS between $9 and $11.
• Technological Leadership as a Core Moat: United is leveraging advanced technology, including its industry-leading mobile app and the rollout of Starlink Wi-Fi, to enhance customer experience, drive operational efficiency, and unlock new revenue streams, further solidifying its competitive advantage.
• Strengthening Financial Foundation: The company continues to prioritize balance sheet health, highlighted by the voluntary prepayment of $1.52 billion in MileagePlus notes, fully unencumbering this "crown jewel asset." Strong free cash flow generation, projected at over $2 billion for 2025, supports strategic investments and opportunistic share repurchases.
• Competitive Landscape Transformation: United, alongside one other major carrier, is positioned as a brand-loyal, structurally profitable airline, benefiting from cost convergence at high-cost airports and gaining market share in its key hubs, signaling a permanent shift in industry dynamics.

The Flight Path to Differentiation: United's Strategic Evolution

United Airlines Holdings, Inc. has undergone a profound transformation, particularly since its rebranding in 2019 and the strategic pivot initiated in late 2020 with the "United Next" plan. This strategy is not merely about growth; it's a fundamental re-engineering of the airline's competitive position, aiming to establish a "structural, permanent, and irreversible" advantage in the global aviation landscape. At its core, United seeks to win and retain brand-loyal customers by offering a diverse range of products and services, fostering cost convergence, and leveraging technological differentiation.

The industry itself is evolving into an equilibrium where economic necessity compels airlines to focus on their comparative strengths. United's management asserts that the sector is increasingly bifurcated, with two "brand loyal, structurally profitable and revenue diverse airlines" (United and one other, implicitly Delta (DAL)) generating the bulk of industry profits. This contrasts sharply with lower-margin carriers, which are increasingly forced to cut unprofitable capacity, particularly at high-cost airports. For instance, the cost per passenger at the three New York City airports is $48, a substantial portion of the average ULCC fare of $67 in those markets. This dynamic makes sustained profitability challenging for low-cost models in such environments.

United's strategic focus on its seven major U.S. hubs—Chicago, Denver, Houston, Los Angeles, New York-Newark, San Francisco, and Washington, D.C.—is central to this competitive positioning. The company has documented significant market share gains in these critical markets. In Chicago, its passenger share lead of local origin traffic expanded to 22 points ahead of its next largest competitor in Q4 2024, a dramatic improvement from a negative gap in 2015. Similarly, in Denver, United increased its lead by 10 points for Denver-based passengers, and gained 2.1 points in market share in the Bay Area in late 2024. These gains underscore the success of United's strategy to attract and retain high-value, brand-loyal customers.

Technological Edge: A Differentiated Experience

United's commitment to technological differentiation is a cornerstone of its competitive moat. The company views technology not just as an operational tool but as a key driver of customer loyalty and revenue growth. Its investments span across customer-facing applications, in-flight connectivity, and operational efficiencies.

The United mobile app is a prime example of this differentiation. It offers features like ConnectionSaver, which has saved the day for over 3 million customers since its launch over five years ago, a benefit still not copied by competitors. The app's self-service success rates have doubled, freeing up employees to assist customers with more complex needs. Furthermore, the patented Agent on Demand technology allows customers to text, talk, or video call a live agent, enabling cross-airport collaboration during irregular operations. United is also integrating GenAI to expedite customer search and improve communication during delays, providing more transparent and understandable information.

A significant technological differentiator is United's investment in Starlink Wi-Fi. The FAA certified the first Starlink-equipped Embraer 175 aircraft in March 2025, with the first commercial flight planned for May 2025. The company aims to install Starlink on approximately 40 regional jets per month, with the entire two-cabin regional fleet expected to be retrofitted by year-end 2025. Mainline aircraft installations are anticipated to begin before the end of 2025. Management describes Starlink as a "game changer," offering "fast and free Wi-Fi" that will revolutionize the in-flight experience and unlock new revenue opportunities through its "Connected Media" business. This initiative aims to double media revenues in 2025 versus 2024, with significant value expected to be unlocked in late 2026 and 2027 by combining Starlink with existing seatback screens.

Beyond connectivity, United is enhancing its premium product offerings. The Polaris Studio Suite, planned for introduction later in 2025, will offer 25% more "living area" and 27-inch 4K screens, with the 787-9 Dreamliners featuring 99 premium seats (Polaris plus Premium Plus). This focus on premium capacity, which saw revenues increase 5.6% year-over-year in Q2 2025, with premium RASMs performing 6 points better than non-premium, is a direct response to consistent strong demand from high-end consumers who have shown no deterioration in their willingness to purchase premium experiences, even amidst economic uncertainty.

Financial Performance and Operational Resilience

United's financial results reflect the impact of its strategic initiatives and its ability to adapt to a dynamic environment. For the first six months of 2025, the company reported net income of $1.36 billion, a 13.5% increase compared to the first half of 2024. This was achieved despite a 4.7% decrease in operating income, demonstrating effective cost management and non-operating tailwinds.

In the second quarter of 2025, total operating revenue increased 1.7% year-over-year to $15.24 billion. Passenger revenue grew 1.1% to $13.84 billion, driven by a 5.9% increase in capacity and a 4.1% rise in passengers, though partially offset by a 3.2% decrease in yield. Cargo revenue saw a 3.8% increase to $430 million, and other operating revenue climbed 8.8% to $970 million, primarily due to higher mileage revenue from non-airline partners, including its co-branded credit card with JPMorgan Chase (JPM), and increased United Club memberships.

Operating expenses in Q2 2025 rose 6.5% year-over-year to $13.91 billion. Salaries and related costs increased 7.7% due to higher flying activity, a 5.0% increase in headcount (to 111,300 employees as of June 30, 2025), and increased pay rates. Aircraft fuel expense decreased 11.4% due to a lower average price per gallon, despite increased consumption. Aircraft maintenance materials and outside repairs saw a 20.8% increase, driven by higher engine overhauls. A significant factor impacting Q2 expenses was a $561 million special charge related to a tentative agreement with the Association of Flight Attendants. Non-operating expenses, net, decreased by 59.6% to $77 million, largely due to a 15.5% reduction in interest expense from lower debt balances and a reduction in the average cost of debt. The effective tax rate for Q2 2025 was 22.0%, down from 23.9% in Q2 2024, primarily due to a release of valuation allowance related to realized capital gains.

Liquidity remains robust, with $15.6 billion in unrestricted cash, cash equivalents, and short-term investments as of June 30, 2025, up from $14.5 billion at year-end 2024. The company also maintains a $3.0 billion undrawn revolving credit facility.

In a significant move to strengthen its balance sheet, United voluntarily prepaid the remaining $1.52 billion balance of its MileagePlus senior secured notes on July 7, 2025, fully unencumbering this "crown jewel asset." This strategic prepayment, along with earlier actions, has reduced gross debt by almost $11 billion since the peak debt level of COVID, bringing the average cost of debt to 4.7%. The company's net leverage stood at 2.0x at the end of Q2 2025, with a long-term target of below 2x and a clear path towards an investment-grade rating, as reflected by positive outlooks from Moody's (MCO) and Fitch.

Free cash flow generation is a top priority, with the company projecting over $2 billion for the full year 2025. United also continues to return value to shareholders, repurchasing approximately 7.6 million shares for $0.6 billion in the first half of 2025 under its $1.5 billion share repurchase program, with $0.8 billion remaining authorized as of July 10, 2025.

Outlook and Strategic Trajectory

United's outlook for the remainder of 2025 and beyond is shaped by a confluence of improving demand trends, anticipated industry supply rationalization, and the continued execution of its strategic plan. For the third quarter of 2025, the company expects adjusted EPS to be between $2.25 and $2.75. This guidance incorporates an anticipated 1-point margin impact from the lingering effects of operational disruptions at Newark in Q2.

However, management is increasingly optimistic about the demand environment. Recent sales data from early July 2025 indicates a positive inflection, with a 6-point acceleration in booking demand compared to Q2, and a double-digit acceleration in higher-yielding business revenues. Domestic ticket sales are now showing positive year-over-year yields for the first time since February. This resurgence is attributed to a decline in geopolitical and macroeconomic uncertainty.

On the supply side, published industry domestic capacity for August and September 2025 indicates a slight year-over-year decrease, a notable shift from earlier projections of nearly 4% growth. This industry adjustment, driven by low-margin airlines cutting unprofitable flying, is expected to benefit United. The combination of normalized Newark sales, reduced industry capacity, and improving demand sets up a favorable environment for Q4 2025, which management believes could be similar to the strong performance seen in Q4 2024. The full-year 2025 adjusted EPS guidance is set between $9 and $11, with management suggesting this could prove conservative if current booking trends persist.

United's long-term vision remains focused on achieving "solidly double-digit margins." The company plans to further narrow the margin gap between its domestic and international flying by building domestic connectivity at its hubs and introducing larger gauge narrow-body jets with more premium seats. Gauge growth is projected to be up 2% in 2026 and accelerate in 2027, driven by new aircraft deliveries, including the A321XLRs expected in summer 2026.

International operations continue to be a strong point, with Pacific operations showing impressive RASM growth in Q2 2025. United plans new service to Thailand, Vietnam, and the Philippines later in 2025, subject to government approval, further expanding its leading global network. The company's "Blue Sky" collaboration with JetBlue (JBLU), cleared by the USDOT, will grant United access to slots at JFK International Airport starting in 2027, marking its return to JFK and strengthening its presence in the New York City and Boston markets through reciprocal loyalty benefits.

Risks and Challenges

Despite the positive outlook, United faces several risks. Operational disruptions, as experienced at Newark in Q2 2025 due to FAA technology outages and staffing shortages, can significantly impact financial performance. While Newark has seen a "dramatic turnaround" with runway construction completed early, FAA technology upgrades, and the implementation of hourly flight caps, the broader national air traffic control (ATC) infrastructure remains a concern. United is actively advocating for increased funding to modernize ATC systems.

Geopolitical and macroeconomic uncertainties, including potential trade tariffs and regional conflicts, continue to pose risks to travel demand and fuel prices. Aircraft delivery delays from OEMs (Boeing (BA) and Airbus (EADSY)) could impact fleet modernization and capacity growth plans. Labor relations also present a challenge, as evidenced by the rejection of the tentative flight attendant contract in July 2025, which could lead to ongoing negotiation costs and potential disruptions.

Conclusion

United Airlines is executing a well-defined strategy that is reshaping its competitive standing and driving resilient financial performance. By prioritizing brand loyalty, diversifying revenue streams, and making significant investments in technology and premium products, United is solidifying its position as a leading, structurally profitable airline. The recent positive inflection in demand, coupled with anticipated industry capacity rationalization, provides a strong tailwind for the second half of 2025 and beyond.

While macroeconomic uncertainties and operational challenges persist, United's proactive management, strong liquidity, and commitment to deleveraging position it favorably. The unencumbering of the MileagePlus program further enhances its financial flexibility and highlights a key asset with significant intrinsic value. The ongoing focus on technological innovation, from Starlink Wi-Fi to advanced app features, is not just about enhancing customer experience but about building a durable competitive moat. As the industry continues its transformation, United's strategic differentiation and technological leadership are poised to drive sustained margin expansion and long-term shareholder value.