United Airlines has been riding high. Its "United Next" strategy, focusing on premium services, a global network, and customer-friendly policies, has propelled the airline to the top of the industry in terms of margins. CEO Scott Kirby confidently declared a "structural change" in the airline industry, with United leading the pack, insulated by a "moat" of its own creation. But a closer look at the Q1 2024 transcript, coupled with a hidden detail from the Q4 2023 transcript, reveals a crack in this seemingly impenetrable armor.

Kirby's "moat" analogy, while powerful, hinges on one crucial assumption: customer preference. He argues that United's superior product, network, and loyalty program entice customers, creating an unbreachable barrier to competitors. This strategy seems to be working, at least for now. United has successfully chipped away at the two main "breaches" in this moat: business travelers lured by competitors offering free change fees and price-sensitive customers seeking disaggregated fares. The elimination of change fees and the introduction of Basic Economy, combined with higher gauge aircraft, plugged these holes.

But a new vulnerability is emerging: the very foundation of United's premium strategy – fleet renewal and growth – is faltering. In the Q1 2024 transcript, the airline announced a significant reduction in planned aircraft deliveries, pushing their fleet renewal and growth goals further down the line. This shift is directly tied to Boeing's ongoing production delays, a fact acknowledged by Kirby as "the straw that broke the camel's back" in the Q4 2023 transcript. While this detail was briefly mentioned in the previous quarter, its implications for United's long-term strategy seem to have flown under the radar of many analysts.

The delay in aircraft deliveries, particularly the MAX 10, has several implications. First, it directly undermines United's plan to grow its premium capacity, the cornerstone of its revenue strategy. New, larger aircraft are needed to accommodate the increase in premium seats and to attract the coveted high-yield customers. Second, it disrupts operational planning and cost management. United, like its competitors, is struggling with labor, maintenance, and supply chain challenges, all exacerbated by the unpredictable delivery schedules.

This dynamic highlights a potential contradiction in United's current narrative. While confidently proclaiming a "new normal" built on higher margins and robust revenue growth, the airline is simultaneously grappling with a significant constraint on its ability to deliver the very capacity needed to fuel this growth. The "moat" may hold strong against competitors vying for customers, but it could be undermined by an external force, the OEM supply chain, which lies outside United's control.

Capital Expenditure and Aircraft Deliveries: A Shifting Landscape

Let's delve into the numbers. In the Q4 2023 transcript, United outlined an ambitious fleet plan, expecting to take delivery of 107 aircraft in 2024, with a capital expenditure of $9 billion. However, even then, the airline acknowledged that it was "unrealistic" to expect all those deliveries to materialize.

Fast forward to the Q1 2024 transcript, and the airline is already adjusting its fleet plan, reducing its capital expenditure to $6.5 billion. The number of aircraft deliveries has been revised downwards from 101 to just 66.

This substantial reduction, coupled with the admission that the MAX 10 will likely not be delivered on schedule, casts a shadow over United's long-term growth ambitions. The airline is scrambling to find alternative plans, exploring lease options for Airbus A321neos, a move that reflects both the urgency and the uncertainty surrounding their fleet renewal strategy.

Implications for Investors and United's "Moat"

So, what does this mean for investors and for United's "moat"? It's too early to declare the strategy a failure. United is clearly outperforming its peers, demonstrating a remarkable ability to navigate the current turbulent environment. But the delayed aircraft deliveries pose a significant risk. If United cannot secure the capacity needed to expand its premium product offerings, its revenue growth could stagnate, jeopardizing its hard-won margin advantage.

The May 1st Investor Day will be a crucial event. United needs to address these concerns head-on, providing a clear and detailed roadmap for its fleet renewal and growth plans. Investors will be watching closely, scrutinizing not just the aspirational targets, but also the airline's ability to navigate the ongoing supply chain challenges and to solidify the "moat" that Kirby believes has structurally transformed the industry.

"Fun Fact: Did you know that United Airlines was the first airline to offer a frequent flyer program? The MileagePlus program, launched in 1981, revolutionized the industry, paving the way for the loyalty programs we know today."