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United Airlines (UAL) executed well and set itself apart from its competitors in Q2, generating better-than-expected earnings, while Delta Airlines (DAL) fell just short of EPS expectations and American Airlines (AAL) cut its Q2 EPS outlook back in late May. CEO Scott Kirby credited the company's diverse revenue mix and its cost cutting efforts as key factors behind its solid Q2 performance. And while Q3 is shaping up to be a difficult quarter, as reflected by UAL's downside EPS guidance of $2.75-$3.25, Mr. Kirby sees clearer skies ahead, predicting that the industry-wide overcapacity issues will be corrected in mid-August.

• Following a similar flight path as its peers, UAL ramped up capacity in Q2, especially in its Pacific market. More specifically, available seat miles (ASMs) soared higher by 37.2% in the Pacific, followed by a 15.4% increase in Latin America. In the U.S., ASMs were up by a healthy 5.3% as UAL looked to keep pace with low-cost carriers which have steadily added seats in order to capitalize on the robust travel demand. 
• This influx of available seats has naturally put downward pressure on pricing. Making matters worse, leisure travelers have become increasingly price sensitive, opting for shorter, less expensive (and less profitable) flights. This, in turn, is putting pressure on UAL's passenger revenue per available seat mile (PRASM), which declined by 2.9% in Q2.
• UAL's sagging unit revenue performance is the primary cause for its soft Q3 EPS guidance, but the company is planning to reduce its own domestic capacity by about 3% in Q4 compared to its original plan. Alongside other airlines canceling their loss-making capacity, UAL's efforts will help to restore balance in the industry, creating an environment that's more favorable for margins and profits.
• On that note, UAL reaffirmed its FY24 EPS guidance of $9.00-$11.00, indicating that it does anticipate this turbulence to subside over the next month or so. In fact, the company believes that it's best-positioned to benefit once the supply/demand inflection point is reached in mid-August. UAL is predicting that it will achieve leading unit performance relative to its largest peers in the second half of Q3.

In the meantime, the company will continue to keep a tight lid on costs -- CASM was down 4.8% in Q2 -- while capitalizing on its revenue mix, including premium revenue, which increased by 8.5% yr/y. Overall, UAL's Q2 results were solid, exceeding participants' muted expectations, and the reaffirm of its FY24 EPS guidance provided reassurance that the overcapacity headwinds will abate soon.