Goldman Sachs optimistic about United Airlines (UAL.US) rising another 50%: Growth momentum expected to continue, fuel costs exert pressure but profitability remains industry-leading

According to reports from Zhitong Finance APP, Goldman Sachs noted that United Airlines (UAL.US) reported third-quarter results in line with expectations. For guidance, the company provided a fourth-quarter earnings per share forecast below market consensus due to rising jet fuel prices, but its fourth-quarter revenue guidance is above expectations.

On Wednesday, United Airlines' stock closed up 4%, outperforming both Goldman Sachs' coverage universe excluding UAL and the S&P 500, which gained about 0.5%. Goldman Sachs believes the main driver behind United Airlines' outperformance was its better-than-expected fourth-quarter revenue guidance. The company expects fourth-quarter unit revenue (RASM) growth to accelerate, while Goldman Sachs had previously forecast a deceleration in RASM growth. Based on the bank's recent conversations with investors, there was also a general expectation before the earnings report that RASM growth would slow down.

Given the sharp rise in jet fuel prices in recent months, Goldman Sachs was also encouraged by management's comments: management is willing to make certain trade-offs in load factor in order to improve yield and ensure revenue covers fuel costs, as this approach helps maximize RASM and profit margins. Management also stated that if further capacity adjustments are necessary, the company will continue to implement relevant measures.

Growth momentum is expected to continue. Corporate travel demand close to departure dates remains strong, international route RASM growth is expected to accelerate, and several markets that previously underperformed are expected to improve. Although Goldman Sachs expects elevated jet fuel prices to persist for a prolonged period, delaying United Airlines' target of achieving double-digit profit margins by 2027, the bank still expects the company to remain one of the most profitable airlines in the industry.

Goldman Sachs gives United Airlines a "Buy" rating and adjusts the target price to $152, suggesting a potential upside of 50% from the current price.

Double-digit Pre-tax Profit Margin Target

Management pointed out that achieving double-digit pre-tax profit margins by 2027 will be challenging, as jet fuel prices are expected to remain high and industry capacity may accelerate growth.

A series of initiatives from United Airlines itself are expected to drive RASM improvement, including gaining greater market share as Starlink services continue to roll out, but these measures alone may not be sufficient to achieve the target. Management emphasized that, beyond United Airlines' internal growth drivers, achieving this goal by 2027 may also need at least one of the following three additional factors to change favorably: lower fuel prices, reduced industry capacity, or the entire industry continuing to prioritize yield over load factor.

Cost Outlook

United Airlines reported a third-quarter unit cost increase (excluding fuel, CASM ex-fuel) of 7.8% year-over-year, better than the pre-earnings market consensus of 8.0% and Goldman Sachs' expectation of 8.3%.

Management anticipates that the third quarter will be the peak for CASM ex-fuel growth, with a deceleration in the fourth quarter and a significant decline by 2027. The company noted that the higher cost increase in the third quarter reflected the full cost impact of the flight attendant labor agreement and the effect of capacity reductions close to departure dates. Excluding the latter's adverse impact, overall third-quarter CASM ex-fuel was roughly in line with expectations at the start of the year.

Looking ahead to 2027, management continues to target a long-term CASM ex-fuel framework of 2%-3% annual growth. Increasing aircraft seat specifications will be an advantageous factor, helping to partially offset inflationary pressures, including rising distribution and airport costs.

Management noted that achieving this cost target next year will still require considerable effort. They also highlighted that if cutting capacity to below original plans would maximize profit margins, the team would always prioritize managing margin performance—even if this puts upward pressure on CASM ex-fuel—rather than simply controlling CASM ex-fuel.

Revenue Drivers

Management stated that, in the third quarter, unit revenue (RASM) in Central America, the Caribbean, Florida (with Florida RASM up 26% year-over-year), Newark, and London outperformed other regions in the network; while Hawaii, the South Pacific, and Chicago lagged behind.

Regarding underperforming markets, management indicated that Hawaii market trends are expected to improve in the fourth quarter; starting from April 2027, due to capacity restrictions imposed by the U.S. Federal Aviation Administration (FAA) at Chicago O'Hare, Chicago's trend is expected to shift from a drag to a positive. United Airlines expects that from the second quarter of 2027 onward, the increase in domestic airline capacity in the Chicago O'Hare market will be very limited.

Corporate travel demand remains strong. Total corporate business revenue grew 22%, with yields up 15% and load factor rising by about 1 percentage point. Revenue from contract corporate customers grew even more, up 26% year-over-year.

Looking ahead, management forecasts strong performance in business travel again for Q4. They noted that the contribution of corporate travel to load factors still has room for improvement, as this indicator remains 4 to 5 percentage points lower than in 2019.

2027 Capacity Outlook

Although management has not formally provided 2027 capacity guidance, they have shared some key drivers for future capacity growth.

The company expects to receive 24 wide-body and 100 narrow-body aircraft in 2027, including the larger MAX 10 model. Management expects larger aircraft seat specifications will be one of the drivers for 2027 capacity growth. They also expect high-end cabin capacity growth in 2027 will outpace economy class capacity growth.

Regarding which regions in the route network will be growth focuses, as United Airlines' "United Next" program's hub connectivity goals across central U.S. are expected to be largely completed by summer 2027, management plans to shift focus toward coastal hub airports and international route network growth opportunities.

Balance Sheet

United Airlines had $17.7 billion in liquidity at the end of the third quarter and repaid about $1 billion in debt during the quarter. The company also issued $900 million in debt, with an equivalent fixed-rate financing cost in the low 5% range. At the same time, it increased its revolving credit facility from $3 billion to $5 billion, boosting available liquidity.

The company aims to maintain liquidity at $18 billion by the end of fiscal 2026. The expanded revolving credit facility is expected to save about $70 million annually in interest and fees; if the management team chooses other ways to raise additional liquidity while keeping liquidity levels unchanged, costs could be higher.

Management stressed that increasing liquidity should not be viewed as creating more options for mergers and acquisitions, but rather as a relatively low-cost insurance policy against fuel price volatility.

At the end of the third quarter, the company's net leverage ratio was 2.4x. Management reiterated that the goal remains a net leverage ratio of below 2x and continues to work towards achieving the financial metrics required for investment grade credit rating by 2027.

Outlook, Valuation, and Risks

Goldman Sachs has slightly lowered its fourth-quarter earnings per share forecast for United Airlines from $1.02 to $1.00 (market consensus via FactSet: $1.72); its 2026 EPS forecast from $6.75 to $6.73 (consensus: $7.85). This adjustment reflects the latest impact of rising fuel prices, partly offset by better-than-expected revenue trends.

Goldman Sachs has lowered its FY2027 EPS forecast from $11.30 to $9.75 (consensus: $12.58) and its FY2028 EPS forecast from $15.45 to $13.35 (consensus: $17.61). These adjustments also factor in rising fuel costs and are recalibrated based on an improved revenue trend.

Goldman Sachs has cut its 12-month target price from $160 to $152, as the bank revised share count forecasts and lowered the target EV/EBITDAR multiple from 5.0x to 4.9x to reflect increased geopolitical risks driving jet fuel prices higher.

Key downside risks include: competitors responding to United Airlines’ growth plans and thereby eroding the benefits of network restructuring; further delays in aircraft delivery schedules; or a stall in the current observed corporate travel recovery momentum—a revenue source on which United Airlines relies more heavily than peers.