I happened to read an article on ZDNet recently that discussed how United Airlines (NASDAQ:UAL) was opening up its flights to China. That might seem like good news for owners of United Airlines stock. However, to me, it looks like just another reason to dump UAL stock and buy Apple (NASDAQ:AAPL) instead.
Business Will Remain Bumpy
First, let’s talk about the goods news for UAL as it relates to China. ZDNet contributor Chris Matyszczyk reported in his July 4 article that the airline would resume its flights between San Francisco and Shanghai on July 8.
That piece of news follows on the July 1 announcement by the airline that it was adding 25,000 domestic and international flights in August when compared to its flight total in July. That increase includes 350 daily flights from each of its U.S. hubs, including New York and Newark.
That’s good news, for sure.
However, the airline’s August 2020 schedule will still only be 40% of what it was in August 2019. Domestically, it will operate at 48% of the August 2019 schedule, which means international flights to places such as China will still be dramatically lower than last year at this time.
Any way you slice it, United’s going to continue to hemorrhage cash.
To make matters worse, the airline has said there are going to be booking declines and potential furloughs in the future as a result of the novel coronavirus’s resurgence in many parts of the country.
Reuters reported July 1 that travel restrictions and a 14-day quarantine period imposed by the states of New York, New Jersey, and Connecticut for incoming travelers from American hot spots, severely cut into “near-term net bookings” at its Newark hub. Newark’s net bookings are currently 16% of last year’s net bookings.
So, despite the fact August’s flight numbers will be triple flights operated in June, investors aren’t going to be able to predict top-line and bottom-line results accurately. Analyst estimates are effectively useless for the foreseeable future.
What’s This Got to Do With Apple?
According to Business Insider, Apple spends upwards of $150 million each year, sending its employees to China to keep an eye on its supply chain. That’s 50 business-class seats each day for flights on United’s route from San Francisco to Shanghai. That’s 5-0.
And while I’m sure Apple spends money for flights on other airlines, that seems like a fantastic amount of money for a single route, albeit a critical one.
However, to Apple, the $150 million represents just 0.43% of its 2019 operating expenses. If it stops sending people to China, or more likely, reduces the amount of travel overseas, Apple likely won’t be affected one way or the other by the reduction in cash outflows. Still, United will most certainly suffer from not having this cash in its bank account.
As I like to say, investors have options.
The Bottom Line on United Airlines Stock
To me, it seems like a no-brainer to avoid a troubled industry such as the airlines, opting instead for the safety of a tech giant like Apple, who will figure out how to make reduced travel an asset, not a liability.
As for United Airlines stock, I continue to advocate that if you must invest in the airlines, do so through the U.S. Global Jets ETF (NYSEARCA:JETS), which has seen assets under management skyrocket in 2020 due to Covid-19.
“I don’t think you could draw up a better game plan for somebody looking to benefit from a resurgence in air travel than to buy some shares of JETS. Millennials might do some dumb things — who doesn’t? — but buying JETS is not one of them if, and it’s a big if, their reason for doing so is they believe air travel will eventually return to normal, historical volumes,” I wrote on June 30.
At the time I wrote this, United stock had a weighting of 9.65%. As of July 7, it’s dropped slightly to 9.13%. However, it’s still the third-largest holding behind only Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV).
As long as the coronavirus continues to surge, I wouldn’t invest in any of the airline stocks individually, or through JETS.
If you own United Airlines, I would seriously consider dumping its stock, redeploying the proceeds into Apple. It’s the smarter way to handle your money.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.