Which Of United Airlines’ Operating Regions Offers The Best Growth Potential?

United Airlines (NASDAQ: UAL) is one of the largest passenger airlines in the world and operates an extensive domestic and international network which spans across the Americas, Europe, Asia-Pacific, Africa, the Middle East, the Caribbean, and Australia. Amid ongoing fears of a slowdown in the U.S. economy, United Airlines’ Latin American operations have posted strong results in the last three quarters, primarily due to increasing average fares and passenger load factor. Trefis compares how revenues have trended for United Airlines’ Domestic operations vs. Latin America in an interactive dashboard, parts of which are summarized below. Notably, Latin America represents just about 8% of United Airlines’ Revenues – a figure that can see sizable growth over coming years.

A Quick Look at United Airlines’ Revenues

United Airlines reported $42 billion in Total Operating Revenues for full-year 2018. This includes three revenue streams:

• Passenger Revenue: $38 billion in FY2018 (91% of Total Operating Revenue). It represents income from the sale of air tickets and other ancillary offerings for the company’s mainline and affiliate carriers. If a ticket is sold and travel is yet to happen, the company recognizes income from such tickets as air traffic liability. Due to the complex structure of ticket pricing, cancellation and rescheduling, a certain portion of the liability is recognized as passenger revenues based on recognized historical patterns.
• Cargo: $1.3 billion in FY2018 (3% of Total Operating Revenue). It represents income freight and mail services.
• Other Revenue: $2.4 billion in FY2018 (6% of Total Operating Revenue). It comprises of the sale of loyalty points to credit card companies.

Strong growth in Latin America likely due to increasing demand

• United Airlines reports operating revenues across four geographies: Domestic (U.S. and Canada), Atlantic, Pacific, and Latin America.
• In 2018, the Domestic, Atlantic, Pacific, and Latin America regions contributed 62%, 17%, 13%, and 8% of total operating revenues, respectively.
• In the first three quarters, United Airlines’ revenues from Latin America observed an 8% growth, primarily due to increasing average fares and passenger load factor.
• Though the company’s domestic operations also observed a 6% growth, the average fare and passenger load factor have remained relatively flat.
• Moreover, the Atlantic and the Asia Pacific regions also reported a lukewarm performance, primarily due to declining average fares.
• According to recent reports, increasing demand for air travel is likely to continue in Latin America for the next two decades and is a potential growth opportunity for all regional and international carriers.

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