Rising Climate Costs And Capital Burdens Will Restrict Operations

Key Takeaways

• Environmental regulation and necessary fleet investments threaten to inflate costs, erode margins, and constrain long-term profitability.
  
• Structural changes in business travel and rising macroeconomic pressures could limit revenue recovery and expose the company to amplified financial and earnings risks.
  
• Structural advantages, operational improvements, and premium product investments are driving robust earnings resilience, revenue growth, and enhanced financial flexibility for long-term shareholder value.

Catalysts

Through its subsidiaries, provides air transportation services in the United States, Canada, Atlantic, the Pacific, and Latin America.

• Even with recent improvements in bookings, United Airlines faces the prospect of escalating climate regulations and the specter of prospective carbon taxes, which could drive up operating costs over time and require substantial capital outlays for fleet upgrades. This would severely erode net margins and constrain long-term net earnings growth.
  
• The apparent stabilization and partial rebound in business travel may not be durable, as structural shifts toward remote work and virtual meetings are expected to entrench a permanently smaller addressable market for high-yield corporate travel, reducing future premium revenues and pressuring overall revenue growth.
  
• Persistent inflation and continued higher interest rates threaten to depress discretionary travel, especially among consumers in developed markets. This dynamic could suppress load factors and limit revenue recovery, while simultaneously driving up United's debt servicing costs and dragging on net income.
  
• United's aggressive multi-year capital expenditure plan exposes the company to substantial financial risk; large outlays for fleet renewal and network expansion will drive leverage higher and increase interest expense, which could diminish free cash flow and limit capacity to return capital to shareholders.
  
• The push for international and long-haul network growth increases United's exposure to geopolitical volatility, regulatory uncertainties, and potential global demand shocks, amplifying the risk of revenue instability, margin compression, and significant earnings volatility in future periods.

United Airlines Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on United Airlines Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming United Airlines Holdings's revenue will grow by 3.2% annually over the next 3 years.
• The bearish analysts are assuming United Airlines Holdings's profit margins will remain the same at 5.7% over the next 3 years.
• The bearish analysts expect earnings to reach $3.6 billion (and earnings per share of $11.76) by about July 2028, up from $3.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.3x on those 2028 earnings, down from 8.8x today. This future PE is lower than the current PE for the US Airlines industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 1.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.2%, as per the Simply Wall St company report.

United Airlines Holdings Future Earnings Per Share Growth

Risks

• United Airlines demonstrated resilient earnings and margin growth in the first half of 2025 despite significant macroeconomic and operational headwinds, which suggests that its structural advantages, such as brand loyalty and revenue diversity, may support stable or even improving net margins over the long term.
  
• The recent recovery in both business and domestic travel demand, along with double-digit acceleration in business bookings and inflection in yields, points to a potentially sustained reversal in revenue softness and could drive higher flown revenue and earnings going forward.
  
• Successful operational improvements at key hubs, especially Newark-now more reliable and efficient following infrastructure investment and capacity controls-set a foundation for stronger customer perception, load factors, and, ultimately, revenue and profitability levels in those high-value markets.
  
• Continued execution on fleet modernization, premium product upgrades, and digital investments, including initiatives like Starlink connectivity and Connected Media, position United to capture higher-margin premium traffic and ancillary revenues, supporting upward trends in both revenue and net margins over the long term.
  
• Strengthened balance sheet metrics, significant deleveraging, and substantial free cash flow generation create greater financial flexibility for capital returns and growth initiatives, which may further enhance shareholder value and support the share price through expanded earnings and improved return metrics.

Valuation

• The assumed bearish price target for United Airlines Holdings is $63.71, which represents two standard deviations below the consensus price target of $103.42. This valuation is based on what can be assumed as the expectations of United Airlines Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $130.0, and the most bearish reporting a price target of just $43.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $63.7 billion, earnings will come to $3.6 billion, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $90.43, the bearish analyst price target of $63.71 is 41.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.