United expects costs to rise as international travel demand stays strong

Long-haul flying demand has remained at record highs, but travelers may soon see an increase in fares as airlines grapple with rising costs. United Airlines, during an earnings call, expressed its expectation of cost increases in the coming quarter, but also highlighted the continued strength of travel demand. United’s CEO, Scott Kirby, expressed confidence in the airline’s ability to withstand the challenging operating environment, attributing it to the company’s extensive domestic and international networks, as well as its wide range of cabin classes that offer travelers more choices.

United Airlines is doubling down on international travel following a summer that saw robust demand, which still surpasses the appetite for domestic travel. In response to this high demand, United has added more routes to Asia and placed an order for 110 additional long-haul jets. Andrew Nocella, United’s chief commercial officer, stated that the majority of the airline’s third-quarter growth was focused on international travel, resulting in a 22% increase in capacity. He further noted that international profit margins remained superior to domestic ones.

However, with the rising cost of fuel, passengers should expect higher prices for international flights as United strives to meet the demand. United’s chief financial officer, Mike Leskinen, acknowledged the volatility of fuel costs and stated that it worked against the airline in the quarter.

Compounding these challenges is the ongoing war in Israel, which has led United and several other airlines to suspend service to Tel Aviv’s Ben Gurion Airport. If service to Israel remains suspended until the end of 2023, United anticipates a negative impact on its fourth-quarter profits.

Despite these obstacles, United Airlines remains optimistic about international travel in 2024. While the trend of “revenge travel” following the pandemic has diminished, United has experienced significant gains, particularly in Asia, and plans to expand its capacity in the Asia-Pacific region. Although transatlantic travel has proven profitable for the airline, especially in southern Europe, United does not plan for a major transatlantic expansion in 2024. However, Nocella emphasized that the airline will continue to focus on international travel, especially in the latter half of the decade.

In conclusion, while long-haul flying demand remains strong, travelers should be prepared for potential fare increases in the coming months. United Airlines is confident in its ability to navigate the challenging operating environment, thanks to its extensive network and range of cabin classes. The airline is prioritizing international travel, expanding routes to Asia and investing in long-haul jets. However, rising fuel costs and the war in Israel pose additional challenges that may impact the airline’s profitability. Nonetheless, United remains optimistic about the future of international travel, especially in the Asia-Pacific region, and plans to further capitalize on its success in the coming years.

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