Like the entire airline industry, United Airlines (NASDAQ:UAL) remains vulnerable to novel coronavirus headlines. That much was on display in late June when United Airlines stock slumped almost 12% amid reports of a second wave of virus cases.
In fact, the shares of United and other carriers are in precarious spots. In early June, United flirted with $50; yesterday it closed at $34.45. Over the past couple of weeks, investors have been hearing that several states, including prime summer tourist destinations such as California, Florida and Texas, are experiencing substantial upticks in coronavirus cases. Last week, United said it was suspending service to Myrtle Beach, S.C. because of an increase in Covid-19 cases there.
Myrtle Beach isn’t a prime vacation destination, but it’s still a tourist spot. Moreover, the fact that a carrier is halting flights to a leisure destination at this time of year shows that the airlines are still being greatly affected by Covid-19.
Airlines can be hurt by rising coronavirus case counts, and the industry could be weak until a vaccine is launched. Unfortunately, a vaccine may not be administered for many months.
A Quintessential Good News/Bad News Scenario
In recent weeks, airline stocks have rebounded as the economy has reopened. With some justification, United participated in that rally.
The company restored some routes that were previously scrapped at the height of the pandemic. Specifically, it resumed flying to 150 U.S. and Canadian cities.
That’s a step in the right direction. To recover fully, however, the company’s other international routes must be restored. For U.S.-based carriers, routes to regions such as Europe and Latin America are essential because those are high-margin flights, and they’re far more lucrative than, say, flying from Los Angeles to Las Vegas or from Chicago to Denver.
Prior to Covid-19, United flew to a diverse group of Latin American destinations. But because Brazil is one of the global epicenters of the virus, many of those routes have been suspended. Brazil isn’t the end-all and be-all of any carrier’s existence. But the situation in Latin America’s largest economy is so dire that some healthcare experts and pharmaceuticals companies believe the country, along with the U.S., is one of the ideal places to test coronavirus vaccines.
On the bright side, United announced on June 26 that, starting next week, it will restart its San Francisco-to-Shanghai route. That route is highly profitable for United.
“Prior to suspending service to Shanghai in February due to COVID-19, United was the largest U.S. carrier serving China and operated five daily flights between Shanghai and its hubs in San Francisco, Los Angeles, Chicago and New York/Newark,” according to the carrier.
The Bottom Line on United Airlines Stock
With United, or any airline equity for that matter, investors are making a bet that either a cornavirus vaccine will soon come to market or that the number of coronavirus cases will drop sooner than later. There’s almost a patriotic feel to investing in airlines stocks, including United Airlines stock.
On a more tangible level, however, United is staring at a 2020 revenue decline as large as 50%. Further, many industry observers think that its capacity may not return to 2019 levels until 2019.
Those are certainly frightening forecasts. But investors who believe that United is a rebound story in progress should look to buy dips in United Airlines stock. After all, some analysts say United is undervalued, while its shares are well-positioned to rebound to the high $30s.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.