United Airlines Sees Smoother Air Ahead As Its Stock Surges

Shares of United Airlines (UAL) surged over 17% following the release of better-than-expected first-quarter financial results. Should the world’s leading airliner, measured by destinations, maintain its upward trajectory this month, it will mark its first six-month winning streak since 2016.  

United’s climb to its highest level in eight months ensued after it disclosed a first-quarter adjusted net loss of $0.15 per share, significantly surpassing Wall Street’s forecast of a $0.58 loss per share. This performance also marked a substantial improvement from the first quarter of 2023, during which the company recorded a loss of $0.63 per share.   

Revenue demonstrated a robust 10% year-over-year growth, reaching $12.5 billion, driven by notable increases in both domestic and international passenger revenue per available seat mile (PRASM). Coupled with a 14% decrease in average fuel expense to $2.88 per gallon, these results suggest that the U.S. airline industry is benefiting from strong air travel demand and moderating costs. 

Business, International Travel Are Recovering 

Until recently, the airline industry’s recovery post-pandemic has largely been fueled by pent-up demand for leisure travel. While consumer enthusiasm for vacation getaways continues to buoy the resurgence of passenger airlines, there’s now a gradual uptake in corporate travel demand as well.   

A significant drive of United’s outperformance in the first quarter was the resurgence of business travel. The company highlighted that business demand surged by a double-digit percentage from Q4 of 2023 to Q1 of 2024. Is this indicative of corporate America rediscovering the value of face-to-face meetings and growing weary of Zoom and other video conference platforms?   

Regardless of the driving forces behind the uptick in business travel demand, United seems to be benefitting from the convergence of two powerful tailwinds: leisure and corporate demand.   

Moreover, United may find another robust growth driver in international travel. With strong growth observed in the Pacific region, international passenger revenue surged by 16% year-over-year in the first quarter, reaching $4.4 billion.   

In light of Boeing’s ongoing challenges in delivering new planes, CEO Scott Kirby indicated that the company plans to leverage the aircraft it does receive to “profitably grow our mid-continent hubs and expand our highly profitable international network.” 

United Expects A Return To Profitability In Q2 

United Airlines anticipates a significant return to profitability in the current quarter. The company’s second-quarter earnings per share (EPS) forecast of $3.75 to $4.25 greatly surpassed the $3.73 consensus forecast, prompting multiple upward revisions from analysts. Although Wall Street’s latest estimate for Q2 EPS stands at $3.96, slightly below the midpoint of management’s guidance, the outlook remains positive.   

Looking ahead to the full year, United projects EPS in the range of $9.00 to $11.00. At the midpoint of this range, the stock boasts a 2024 price-to-earnings (P/E) ratio of approximately 5x. In comparison, industry peers American Airlines and Delta Airlines are trading at 6x and 7x this year’s earnings, respectively. Meanwhile, Southwest Airlines stock commands a 2024 P/E of around 20x. 

Wall Street Expects More Gains For UAL Stock 

With multiple growth drivers, including increasing demand for business and international travel, United Airlines stock could see continued upward momentum over the next 12 months. The company’s valuation below that of its peers, coupled with improving growth prospects, has instilled optimism on Wall Street.   

Following the release of the Q1 earnings report, Bank of America raised its price target on United Airlines from $60 to $70 while maintaining a Buy rating. The firm cited a “strong” Q1 performance and optimistic outlook for Q2, also raising its 2024 EPS guidance to $10.70, which aligns closely with the high end of management’s guidance.   

United’s Q2 earnings report in July 2024 is expected to serve as a crucial indicator of summer travel demand and the overall health of the recovering airline industry. Investors will likely scrutinize these results for insights into the industry’s trajectory moving forward.