United Airlines Has No Tricks for the New Normal

Cramming people into seats probably isn't going to help United Airlines stock

If you’re in upper management at United Airlines (NASDAQ:UAL), U.S. Surgeon General Dr. Jerome Adams probably doesn’t rank among your favorite people in government. It was his exasperated plea to the public not to buy masks that resulted in a concerted public campaign effort to save protective equipment for healthcare professionals. But subsequent confusion about the request likely contributed in part to the volatility of United Airlines stock.

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Here’s my reasoning. At first, most Americans – who are kind-hearted and considerate individuals – obeyed this governmental request. Later, several medical experts weighed in on the issue, stating that masks were useless against contracting Covid-19, the disease that the novel coronavirus causes. Silently, though, many in the public wondered if the masks were so useful for front line workers, why wouldn’t the government recommend them for everyone else?

Turns out, masks are useful – or at least that’s what the present narrative dictates. For instance, if you want to go grocery shopping, most stores require that you wear a facial covering. The adage now is no shirt, no shoes, no mask, no service. But Americans can’t help that they were lied to, seeing that their original instinct was to mask up.

Naturally, consumers will be skeptical about anything moving forward. Specifically for United Airlines stock, the underlying company must drum up demand to survive this pandemic. Unfortunately, deep skepticism now clouds the airline industry.

Essentially, with the government acknowledging that people should trust common sense, few will believe airliners that closing the middle seat and regular clean ups will do anything. If the feds are willing to lie to the public, why should they believe a corporate entity?

United Airlines Stock Finds Itself in an Impossible Situation

As you might guess, debate still rages about the face mask issue. According to LiveScience.com, experts have mixed answers. That too is another problem. If mitigation procedures represent a hard science, why the varying answers?

Nevertheless, from my research, I believe most experts find consensus on this: if masks are combined with social distancing, you can greatly reduce the risk of infection and for spreading the disease. Sadly, social distancing is exactly the worst kind of headwind for United Airlines stock.

Forget for the moment that you’re stuck in a flying tube with no chance of escape. Over the last several years, airline companies have been pushing seats tighter. Of course, this resulted in ridiculously cramped quarters and unhappy customers. But for stakeholders of United Airlines stock, along with others like Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV), the decision spelled big profits. In fact, here’s what Time had to say about this “restrictive” trend last year:

Even if paying customers are less happy, packing more of them into cabins has helped turn around the U.S. aviation industry in recent years. In Asia, where 100 million people fly for the first time every year, the strategy is now the bread and butter for low-cost carriers serving an exploding middle class that cares more about price than comfort.

I’d like to emphasize that the airliners only turned around their business because of this strategy. Thus, it only makes sense that if United Airlines stock were to move higher, they need to pack even more people into their flights, not less. Therefore, both United and American Airlines (NASDAQ:UAL) have made the decision to lift capacity limits.

But here’s the glaring problem – who’s willing to fly in such conditions?

Improving Travel Demand Is Still Not Enough

If I didn’t know any better, I’d think that the coronavirus was deliberately flipping the bird to the airline industry. After squeezing as much profit as they could from every flight, this pandemic has now forced everyone to rethink travel.

Yes, travelers have risen significantly in number. According to the Transportation Security Administration’s passenger screening numbers, on June 29, 625,235 people flew by air. That’s over 25% of last year’s volume, which is a significant improvement over April’s single-digit capacity.

But that’s still only a quarter of last year’s demand. Thus, it’s still a disaster for United Airlines stock. Sure, you can have some fun with the comparisons against small numbers. But at the end of the day, a quarter is a quarter.

Ultimately, that’s not going to cut it. As luck would have it, we’re seeing big spikes in coronavirus cases throughout the country. And this just incentivizes more social distancing, especially if you have no pressing need to travel. Until we have a substantive solution to this crisis, you’d best stay away from UAL stock.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/united-airlines-stock-has-no-tricks-for-the-new-normal/.

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