United Airlines Stock Is Only a Buy If You’re in It for the Long Haul

United Airlines (NASDAQ:UAL) has seen constant turbulence this year with flights grounded for months on end and travel (both corporate and leisure) reduced for the foreseeable future. With that said, travel isn’t going to disappear forever because once cases subside, experts believe that the airlines including UAL stock will see a quick bounce back.

united airlines plane ual stock

Source: travelview / Shutterstock.com

This means that although United Airlines’ stock is trending lower due to a Covid-19 demand slump, it is also a great opportunity for investors to buy in while prices remain low.

The stock also showed promising signs of recovery last week when the prices rose after the airline announced its largest round of layoffs.

As United scrambles to find a grip in a volatile market, the stock may be a good buy for its long-term gains.

UAL Stock Soars After Pilot Layoffs

Like many of its peers in the airline industry, the pandemic took a huge toll on United Airlines. During the first half of 2020, passenger revenue fell by 59.7% and the government had to intervene with payroll support to help the airline avoid massive layoffs and downsizing.

The $25 billion financial aid package sanctioned by the government served as a financial cushion for airlines in the first few months of 2020 and the deal is set to expire in September. With no recovery of air travel in sight, airlines have lobbied for an extension in the aid package but Congress has not reached a resolution on their decision.

This uncertainty of the future left many airlines with no choice but to layoff and furlough workers to keep with the falling demand. Following its peers, Delta (NYSE:DAL) and American Airlines (NYSE:AAL) that announced layoffs earlier this month, United said on Thursday that it is expected to cut 2,850 pilot jobs between Oct. 1 and Nov. 30.

The number of planned layoffs is higher than Delta and American Airlines but United has made the decision based on current demand for travel as well as for the remainder of the year which continues to remain low due to the resurgence of cases across the U.S. The airline also has greater exposure to international travel which could result in a long road to recovery.

However, investors reacted well to the news of the layoffs and UAL stock gained 2% following the announcement. The pilot layoffs represent just one group of workers and United announced that nearly 36,000 jobs will be at stake if the airline does not receive government aid in the coming months.

Airline Stocks Take Off After Covid Vaccine Hopes

Although airlines are taking the necessary safety precautions to keep passengers safe, travel is unlikely to reach its pre-pandemic levels unless a Covid vaccine is available. As airlines continue to wrestle with its low passenger numbers, UAL stock price increased by more than 7% last week when the Food and Drug Administration (FDA) announced that cases were down 22% since July.

Furthermore, the FDA also announced that an experimental vaccine by AstraZeneca (NYSE:AZN) was on the fast-track to approval. The company has created a plasma therapy that can be used to treat hospitalized Covid patients. While this is great news for investors who are bullish on airline stocks, United still has a long road to recovery with domestic travel down by 70% from the prior year.

The development of a vaccine also comes with a lot of moving parts and it could take a number of trials before a successful vaccine can be created at scale. Nevertheless, any news that gets us one step closer to a cure is a win for UAL stock in the turbulent airline industry.

The Bottom Line on United Airlines Stock

United Airlines stock prices will likely remain in constant flux in the coming months as new developments regarding a potential Covid-19 cure or more layoffs could be a boon or doom for the stock price.

Although the airline’s current stock price a far cry from its value this time last year, United will gain its footing once again when travel recovers from the pandemic. The only downside is the lack of clarity of when this will be.

In my opinion, assuming airlines survive this downturn, there are large gains to be made ahead if investors buy-in while prices remain low. If you are an investor who is tolerant to risk buy UAL stock but don’t expect to see returns for at least a couple of years.

On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.


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