United expects to see rising costs as demand for international travel remains strong

Long-haul flying demand is still at record highs. However, fares could creep up in the coming months as airlines face soaring costs.

United Airlines said Wednesday during an earnings call that it expects costs to start climbing in the coming quarter but that travel demand remains strong.

Scott Kirby, United's CEO, said he was confident United could withstand a tough operating environment — partially caused by rising fuel costs and the war in Israel — thanks to its sprawling domestic and international networks, along with its range of cabin classes offering consumers more choices when it comes to traveling.

"Even in a tough industry environment, we're producing strong absolute results while producing the best relative results in our history," Kirby said at the earnings call. "From basic economy, which allows us to compete profitably on price on the low end and all the way up to Polaris on long-haul international, United is able to give our customers the real choice they want."

Consequently, United is doubling down on international travel following a summer that saw robust demand for it, which still continues to eclipse the appetite for domestic travel. In response to the high demand, United has added more routes to Asia and placed an order for 110 more long-haul jets.

Andrew Nocella, United's chief commercial officer, said United focused the majority of its third-quarter growth on international travel, increasing capacity by 22%. He added that international profit margins remained well ahead of domestic ones for the Chicago-based carrier.

However, with rising fuel costs, flyers could expect to pay more for international flights as United tries to keep up with demand. Mike Leskinen, United's chief financial officer, said fuel was "volatile" and "worked against us in the quarter."

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Compounding those challenges is the war in Israel. In response to the ongoing war, United was one of many airlines to suspend service to Tel Aviv, Israel's Ben Gurion Airport (TLV), and if service to Israel remains suspended through the end of 2023, the Chicago-based carrier said that could put a dent in its profits in the fourth quarter.

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Despite the challenges, United offered a rosy outlook for international travel in 2024.

Even as the trend of "revenge travel" waned following the coronavirus pandemic, Nocella said United saw major gains, particularly in Asia, and planned to expand capacity in the Asia-Pacific region. However, despite transatlantic travel proving profitable for United, especially in southern Europe, the carrier has no plans for a significant transatlantic expansion in 2024.

Nocella said United will further lean into international travel, though, especially in the latter half of the decade.

"We're really bullish on international," he said. "We've come a long way. It's very profitable. And there's a lot more to come."

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