United Airlines Remains a Laggard in the U.S. Airline Industry

Investors would be wise to follow the same advice regarding the big four airlines that emerged early in the pandemic. Unfortunately, for United Airlines (NASDAQ:UAL) stock that means investors should avoid it. 

a United airplane flying through the sky
Source: NextNewMedia / Shutterstock.com

The early narrative that emerged at the onset of the pandemic was that among the big four U.S. airlines there would be clear winners and losers. United Airlines was on the cusp, but I’d argue that it was more the latter than the former. 

Most investors anticipated that Southwest Airlines (NYSE:LUV) and Delta Air Lines (NYSE:DAL) would suffer less, and rebound quicker. Essentially that is what has happened. 

So, given United’s relative weakness and continued losses there’s little reason to invest currently. 

Earnings Are Inconclusive

United Airlines released earnings on July 20. Though there were arguable bright spots among the report, it was mostly inconclusive. 

I’ll clarify. What was inconclusive is just how quickly the market can expect United Airlines to rebound. What wasn’t inconclusive was that United Airlines continued its losing streak which predated the pandemic. 

Essentially, there is little that indicates United can expect normal operations to resume to any predictable degree any time soon. And given that it is somewhat of a laggard, inventors probably shouldn’t be interested in it at this point. 

According to the company’s expectations, it should achieve profitability* – with the same asterisk included in the earnings report itself – in Q3 and beyond. As the report clarifies, profitability refers to positive adjusted pre-tax income. 

Whether United reaches that goal or not is somewhat irrelevant. Because it has clearly been a weaker operator pre-dating the pandemic. In 2019 United Airlines recorded $43.259 billion in revenues, and yet managed only $3 billion in net income. 

Stronger Comparables

For the sake of comparison, Delta recorded $47.007 billion in revenues and $4.767 billion in net income in the same period. That means Delta squeezed 58.9% more income out of revenues, which were only 8.66% greater. 

That’s part and parcel of the reason Delta and Southwest were almost guaranteed to suffer much less than United and American Airlines (NASDAQ:AAL) as a result of the pandemic. They were and remain better operated, which is reflected in their financial statements. 

While it may end up that United Airlines does hit that profitability mark in Q3 and beyond it probably won’t matter. 

Because here’s what will happen to UAL stock. It will rise when all is said and done and we finally bid farewell to the pandemic. Some investors will be intrigued by the seemingly easy paper profits there. But why would they choose UAL shares over those others mentioned before. 

The same issue that became evident early on in the pandemic will plague United longer. 

Outlook Still Bleak 

United Airlines posted a net loss of $400 million in the second quarter. That’s an improvement for the company as it posted a $7 billion loss throughout 2020. Yet, there’s little reason to be anything other than pessimistic about UAL stock moving forward. 

Because for all the talk of an economic reopening, demand remains low. The company reported capacity that was 46% lower in Q2 2021 than Q2 2019. Not a great surprise, but a clear indication that this company has a long way to go until investors can truly understand pandemic ramifications. 

United gave guidance that it expects capacity in Q3 to be 26% lower than that it reported in Q3 of 2019. That means that investors cannot expect to know much more at that time either. 

The Bottom Line for UAL Stock

Investors should stay away from UAL stock for this quarter and the next. And if the past is prologue, they should probably consider staying away after that as well. It remains a weak operator among major U.S. airlines. Further, the effects of the pandemic debt load have yet to become clear at all. 

On the date of publication, Alex Sirois 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.


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