United Airlines (UAL) bets on growth plan; sees stronger second half

Leading aviation companies are struggling to meet the pent-up demand amid capacity issues and infrastructure constraints even as the post-COVID recovery gathers pace. United Airlines Holdings Inc. (NASDAQ: UAL) reported record profit for its most recent quarter, after rebounding from a long losing streak a year earlier.

Things have improved a lot since the company’s stock plunged to a multi-year low following the coronavirus outbreak three years ago when flights were grounded across the world. UAL is on the recovery path now, and it looks on track to return to the pre-COVID levels soon. In the past twelve months, the shares gained about 20%.

United Next Plan

The management is of the view that the strong second-quarter performance is due to the effective implementation of the United Next strategy, which aims at expanding the fleet and growing capacity. Meanwhile, the broad industry is going through a transformation, with new players entering the market and some companies pursuing consolidation as the ‘new normal’ sets in. Supply chain issues and infrastructure constraints – especially while operating in large and crowded airports — are among the main challenges airline companies currently face. The shortage of pilots and changing weather patterns add to the problem.

United Airlines delivered record earnings, on an adjusted basis, in the June quarter, marking a significant improvement from the prior quarter when it incurred a loss. Second-quarter earnings more than doubled to $5.03 per share on revenues of $14.1 billion, which is up 17% from the year-ago quarter. Passenger revenue, which accounts for more than 90% of the total, rose an impressive 20%, which was partially offset by a 37% fall in cargo revenue.

“The outlook for United and our United Next strategy is incredibly bright, as highlighted by our financial results this quarter. This quarter demonstrates that we’re ahead of our planned targets and the challenges to emphasize that the industry backdrop gives us a clear path to our 14% pretax margin in 2026. As we march towards that goal, we’re focused on setting the airline up for success,” said the company’s CEO Scott Kirby during an interaction with analysts.

Record Results

The bottom line beat estimates for the fourth time in a row. The strong performance can be attributed to multiple factors including an accelerated growth in passenger traffic, continued drop in fuel expenses, and higher capacity. Buoyed by the positive outcome, the management raised the lower end of its full-year 2023 guidance range — now expects adjusted earnings per share between $11 and $12.

Currently, United Airlines stock is trading broadly in line with its long-term average. It opened Wednesday’s session lower and traded down 3.9% in the afternoon.