United Airlines
Initially, airline shares dropped due to the increase in case counts which made clear that a full return to normal was not imminent. Now, shares have been under pressure as oil prices exceed $80 and start to undermine margins even in the face of strong demand.
Inside the Numbers
In Q3, United Airlines posted a loss of $1.07 per share which was better than expectations of a loss of $1.69 per share. Revenue also topped at $7.8 billion vs $7.7 billion. Both figures were substantially above last year's results due to the pandemic hurting travel demand. For example, last year's Q3 saw revenue of $2.5 billion.
Including federal aid into the mix would show that United had a small profit for the quarter, but the EPS figure strips that out. A better comp may be to look at United's performance relative to 2019. In Q3 2019, it had $11.4 billion in revenue which shows that the company still has room to improve to return to pre-pandemic levels.
The company is slowly increasing its capacity to meet increased demand. In Q4, it says capacity will be 23% less than 2019 with revenue expected to be 25 to 30% lower. It also sees fuel costs at $2.39 a gallon in Q4, an increase from $2.14 in Q3.
Stock Price Outlook
One challenge for United and all the other major carriers is that business travel and international travel are going to be the last segments to recover. In fact, many believe that business travel may never fully reach its previous heights given that people are more comfortable with remote work and doing deals over Zoom
In terms of United, investors should stay on the sidelines. Case counts falling is a bullish catalyst, but rising oil prices also benefits and is a headwind.
