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A Path to Q3 Profitability Brightens the Outlook for United Airlines

United Airlines (NASDAQ:UAL) stock took a horrendous beating after the onset of the Covid-19 pandemic, but some bold traders saw this as a buying opportunity.

The side of a United Airlines (UAL) plane with "united" written above passenger windows. Represents airline stocks.
Source: travelview / Shutterstock.com

Starting in the summer of 2020, UAL has made impressive gains, suggesting that confidence in the company’s eventual comeback was well placed.

However, now the Delta variant is raising the specter of another sell-off. In light of this, should prospective investors hold off on taking a position in United Airlines?

Not necessarily. The Delta variant is an issue, no doubt, but it’s not a reason to just abandon UAL stock altogether.

As we’ll see, developments in the United Kingdom bode well for United Airlines, and a general uptick in leisure passenger traffic could brighten the fiscal outlook considerably.

A Closer Look at UAL Stock

Before the Covid-19 pandemic wreaked havoc on the travel industry, UAL stock was flying high. Indeed, from 2018 to early 2020, the stock was knocking on the door of $90.

Today, we have to be more realistic and admit that $90 isn’t a reasonable target yet, though the bulls might be able to re-visit that number in 2022 or possibly even in late 2021.

For the time being, $60 will be the level to watch. AAL stock has been hovering around $47 today after touching $60 briefly in the middle of March.

In order to be fair and balanced, I should point out that United Airlines has trailing 12-month earnings of right around -$18 per share.

That’s a problem the company will need to overcome, and the spread of the Delta variant won’t make it easy.

But before you give up all hope, let’s explore some developments “across the pond,” as they say. Over there, the travel market could be poised for a major recovery.

O.K. in the U.K.

Travel-market investors cheered the announcement that England will reopen to fully vaccinated travelers from the U.S. starting today.

That’s huge news for United Airlines, of course. Yet, please note that there are conditions.

First, customers traveling to England must be fully vaccinated in the U.S. Plus, the vaccines must be approved by the Food and Drug Administration (FDA).

Also, those customers must take a test before departure as well as a PCR test within the first two days of arrival.

Those conditions will be inconvenient for the travelers, but overall this is a big win for United Airlines.

In the wake of this news development, United Airlines announced that it will add more than 40 weekly flights to England. Apparently, this will include six daily flights between the U.S. and London.

The airline even looks forward to launching new nonstop service between Boston and London.

Anticipating a Full Recovery

We’ve discussed some great news from the U.K. However, let’s not restrict our outlook to just one region.

Overall, there are signs that the travel market is recovering despite the spread of the Delta variant.

In fact, Southwest Airlines (NYSE:LUV) recently reported that leisure passenger traffic in June increased to 2019 levels.

Even while admitting that “we are all worried about this Delta variant,” Southwest Airlines CEO Gary Kelly maintained an optimistic tone.

“I think that that’s really the key is that the demand, remarkably has recovered, it is very strong,” Kelly said.

And Southwest Airlines isn’t the only aviation company with a positive outlook.

Boldly but realistically, United Airlines is now expressing confidence that the company will be profitable in the third quarter of 2021 and beyond.

According to a recent press release, the company “expects continued gains as more businesses return by end of summer and into 2022.”

Even better than that, United Airlines anticipates a “full recovery in demand” by 2023.

The Bottom Line

The path to profitability won’t be easy for United Airlines. Moreover, investors should be aware of the challenges posed by the Delta variant.

Nevertheless, there are signs of a rebound in the travel market in the U.K. and elsewhere.

And with UAL stock still trading at a relatively low price, long-term investors can get on board and prepare for takeoff.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2021/08/path-to-q3-profitability-brightens-the-outlook-for-ual-stock/.

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