Avoid United Airlines Stock Because ‘Tough Times’ Are Ahead

The CEO of United Airlines (NASDAQ:UAL) is in an unenviable position. His airline was humming just seven months ago. Fuel costs were down and passenger volume was up. But now, UAL stock has plummeted 68% since the start of the year. Amid the novel coronavirus chaos, the company has just announced a management shakeup in an effort to survive the crisis.

ual stock

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The move may make United Airlines more nimble, but it spooked the market. After several weeks of modest improvement, UAL stock closed at $28.89 on Thursday, May 28. That’s a 5.9% drop, and shares closed down again on Friday.

The move, the messaging and the market reaction reinforces my take on UAL. This is a stock to avoid.

United Airlines Announces Management Changes

On May 27, United Airlines CEO Scott Kirby published a message to the company’s 100,000 employees. He announced COO Greg Hart would be stepping back from his role to “instead focus on critical medium and long term issues.”

In addition, the former COO will gain a big responsibility:

“… developing strategies to allow flexibility in our cost structure, including labor costs. Our costs are not designed for the near-term uncertainty of travel demand. Demand could be down 30% or it could be down 70%. The way to best survive this crisis is to be able to nimbly adjust the size of the airline, including labor costs, to meet demand and importantly, be ready to bounce back quickly when the virus is defeated.”

The move includes shuffling several vice presidents, including Jon Roitman, who will assume the role of COO starting today.

Kirby ended his message with words meant to inspire. However, he also starkly pointed out there’s anything but clear skies ahead:

“There are tough times ahead. But there are also glimmers of hope – our schedule is expected to be down 75 percent in July, a slight improvement over May and June. While we can’t quite see the light at the end of the tunnel yet, it’s not pitch black in here anymore.” 

The Coronavirus Crisis

United Airlines is in a world of hurt caused by the pandemic. But, it’s not alone. All of the airlines are feeling it right now. 

Passenger travel — both domestic and international — has collapsed. The cost of keeping planes flying has risen because of extensive cleaning procedures. Government funding was short term and it came with big catches. There’s a ticking time bomb of pre-paid fares for flights that were subsequently canceled. Airlines worldwide likely owe $35 billion in refunds or credits. Globally, airlines are beginning to fall, including several U.S. regional airlines that have declared bankruptcy.

There is no relief for United or other airlines in the near future. Business travel has all but stopped during the pandemic. Those highly profitable business class seats may never fill the way they did before. And that makes sense. Why spend money to send staff to costly meetings when video conferencing has proven so effective?

Vacation travel isn’t expected to return to anything remotely resembling “normal” levels until researchers develop and deploy a vaccine. Even then, the worst recession in generations could hobble consumer spending for years to come.

Layoffs to “nimbly adjust the size of the airline” can’t happen until October, under terms of the CARES Act funding United received. When they inevitably arrive, expect labor unrest to add to the airline’s major challenges.

Bottom Line on UAL Stock

United Airlines gets an F rating in my Portfolio Grader. However, this is a case where you probably don’t need a technical analysis to see for yourself that UAL stock should be avoided.

And if it’s already part of your portfolio? United Airlines didn’t make the cut on my list 7 Low-Rated Stocks to Sell Before They Drag You Down, but that wasn’t because it didn’t deserve to be there. It just so happens that other stocks are in worse shape.

After a brief taste of recovery, UAL is on its way down again. A corporate shakeup shows the company is taking extreme measures in an effort to survive the “tough times” ahead. Unfortunately, there’s little in this airline’s future that looks positive.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

Article printed from InvestorPlace Media, https://investorplace.com/2020/06/sell-ual-stock-coronavirus-layoffs/.

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