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With shares skyrocketing by over 90% since the beginning of October, and with competitor Delta Air Lines (DAL) posting an impressive Q4 earnings report on January 10, United Airlines (UAL) needed to deliver exceptional Q4 results in order to avoid a sell-the-news reaction. The company did just that, flying past EPS and revenue expectations due to robust demand across each of its businesses -- premium revenue was up 10%, while corporate and economy were up 7% and 20%, respectively -- and due to some unit cost improvement. 

Given that strong Q4 results were all but a given in the wake of DAL's upside report, the focal point mainly rested on UAL's guidance. The company didn't disappoint in that regard either, guiding Q1 EPS well above expectations while commenting that it anticipates the robust demand trends to continue this quarter. Accordingly, UAL expects domestic unit revenue, or RASM, to turn solidly positive on a yr/yr basis in Q1, with international RASM showing continued improvement.

• Staying on the topic of RASM, the industry-wide efforts to rein in capacity are paying off in the form of stronger pricing power, and, in turn, higher profit margins. In Q4, RASM swung into positive territory for UAL at +1.6% versus last quarter's -1.6% performance. The improvement doesn't come as a major surprise, though, because UAL noted last quarter that it experienced positive domestic unit revenue in August and September, setting the stage for this return to quarterly RASM growth.
• Alongside the rebound in RASM, lower fuel costs pushed CASM down by 1.6%, providing another boost to profits. Adjusted pre-tax margin expanded by 350 bps yr/yr to 9.7% and adjusted EPS jumped by 63% to $3.26.
• The one blemish is that UAL expects that its non-fuel costs will remain pressured from prior capacity reductions in its domestic and Atlantic schedules. In Q4, CASM-ex increased by 5.0% as capacity growth decelerated to 6.3%. For a point of comparison, in the year-earlier quarter, capacity surged by 14.7% as UAL scrambled to meet rising demand while low-cost carriers like Frontier Group (ULCC) and Spirit Airlines also flooded the market with more seats.
• Because of this more cautious outlook on costs, the company's FY25 EPS guidance of $11.50-$13.50 fell just short of estimates at the midpoint of the range. Still, CEO Scott Kirby is predicting double-digit pre-tax margins in 2025 as the airline capitalizes on the same premiumization trend that DAL is banking on. 

Anything short of a remarkable earnings report from UAL likely would have created some turbulence for a stock that is flying at record highs. Other than some unit cost pressure that's arising from UAL's efforts to reduce capacity and push fares higher, the report was pristine, and the company's outlook indicates that clear skies are on the horizon.