Categories Analysis, Industrials

Earnings Preview: United Airlines (UAL) likely to gain more altitude this year

It is estimated that both revenues and the bottom-line improved year-over-year in the first quarter

For United Airlines Holdings, Inc. (NYSE: UAL), 2023 was a year of growth and rejuvenation, with the aviation giant delivering strong performance aided by the rebound in passenger traffic. While the company is fast emerging from the pandemic-era business slump, elevated costs and supply chain issues remain challenges.

After plunging to a multi-year during the crisis, United’s stock is yet to get back on track though it has pared a part of the loss. The stock witnessed several ups and downs since then and is currently trading around 50% below the record highs of November 2018. In a sign of an uptick in investor sentiment ahead of the upcoming earnings, UAL gathered some strength this week.

Q1 Estimates

When the company reports first-quarter results on Tuesday, April 16, after the closing bell, Wall Street will be looking for a loss per share of $0.54, on an adjusted basis. The estimate represents an improvement from the year-ago quarter when the company incurred a loss of $0.63 per share. Analysts predict an 8.9% increase in revenues to $12.44 billion for the March quarter.

“Two and half years ago, we laid out our United Next growth strategy. In 2023, we demonstrated that the plan is working almost exactly as we expected, and the future is bright. There have been and there will be more bumps in the road. But we continue to feel confident about our ability to grow earnings and margin over the long term because of the tighter connection between United’s cost and United’s revenue. Looking ahead to 2024, the United Next plan is working and no airline is better positioned to capitalize on industry and macroeconomic trends than United…,” said Scott Kirby, United’s CEO, at the Q4 earnings call.

United Next

Being part of a capital-intensive and cyclical industry, the company has laid down what it calls the United Next strategy to accentuate post-COVID growth. The initiative, which focuses on capacity expansion, cost-reduction, and sustained profitability growth, is expected to help the business achieve long-term efficiency. Taking a cue from the bullish outlook for the air travel industry – estimated to grow beyond the pre-pandemic levels in the next few years – United has been adding international destinations lately.

While the company is aggressively executing its expansion program, delays in the delivery of aircraft from Boeing have slowed down the process to some extent, forcing the management to ask pilots to take voluntary unpaid leave. Since the majority of its fleet is comprised of Boeing aircraft, the recent issues including the production crisis faced by the latter would spill over to United’s operations. In the near term, lingering supply chain issues and economic uncertainties are also a concern. While geopolitical tensions tend to affect people’s travel plans, pricing pressure from rising competition could weigh on the company’s margins.

Strong FY23

United’s quarterly profit has topped expectations consistently for over a year, after the bottom line emerged from the negative territory post-pandemic as passenger traffic picked up momentum. The trend continued in the fourth quarter though adjusted income declined 19% year-over-year to $2.00 per share. At $13.6 billion, Q4 revenue was up 10% year-over-year and above consensus estimates. Passenger revenue accounted for more than 90% of the total.

UAL mostly traded below its 52-week average so far this year. The stock traded down 2% on Wednesday afternoon after opening the session higher.

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