Airline stocks: United Airlines sinks on missed gains, American Due Next
United Airlines (LAU) and other airline stocks fell after hours on Wednesday after the carrier announced second-quarter results that beat expectations, but it signaled confidence that travel demand could withstand a economic slowdown in the coming months.
The carrier reported that the airline industry was trying to manage the rebound in travel, a torrent of staffing issues and concerns about rising fare prices, a spike in fuel costs and a slowdown. American airlines (AAL) reports Thursday.
Both reports track last week’s earnings from Delta Airlines (DAL), who said travel demand is still holding up, even though the carrier is keeping a cap on adding new flights to bolster service.
United Airlines Earnings
United earned $1 per share, below estimates of $1.85 per share. The quarter was the first non-GAAP earnings per share for the company since the pandemic began.
Revenue of $12.112 billion beat expectations of $12.123 billion.
Total unit revenue was up 24% from pre-pandemic levels in 2019. United said it expects this key metric – which counts sales spread across available seats and flights – improves in the third quarter of 2019.
“Second quarter revenue improved at a rapid pace and while the company anticipates a slowing economy in the short to medium term, the continued pandemic recovery is more than offsetting economic headwinds, resulting in an expected acceleration in revenue and earnings in the third quarter,” United said in a statement.
“As a result, the company continues to expect to be profitable for the full year 2022,” the company continued.
The airline said it expected year-round flight capacity – a measure of the size of an airline’s network of available flights – to be down around 13% this year. , compared to 2019 levels, and up “no more than” around 8% in the next year compared to 2019.
United said it expected flight capacity in the third quarter to fall 11% from 2019 and 10% in the fourth quarter. United expects operating revenue to grow about 11% in the third quarter compared to 2019. Wall Street expects a 10% gain.
United will hold its earnings conference call with airline stock analysts on Thursday.
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Airline stocks mostly rose in Wednesday’s regular trading session.
The results from United and American come as airlines raise ticket prices – a reflection of strong demand from passengers willing to pay, after two years of travel postponement, and rising fuel prices resulting from the war in Russia in Ukraine. United said it expects fuel costs to reach $3.81 a gallon in the third quarter, from $4.18 in the second quarter.
Airline stocks, personnel issues
As demand evaporated in 2020, airlines encouraged employees to leave in order to control costs and cash burn. But they are now finding themselves short-staffed – especially among pilots – and are trying to hire as workers demand more of their employers. Thousands of flights have been canceled or delayed, due to staffing issues and extreme weather conditions, leaving an uncertain environment for businesses and investors in airline stocks.
Delta CEO Ed Bastian on Delta’s earnings call said the airline was facing a “training and experience bubble,” rather than hiring issues. The carrier also said service is improving. It said it canceled only 25 flights, out of more than 30,000 worldwide, in the first seven days of this month.
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Still, airline stock investors will be on the lookout for carrier plans to minimize the damage.
“We look forward to hearing how the various carriers plan to approach capacity in 2H22, as well as their insights into the state of the consumer, the risks of demand destruction due to high ticket prices and the resumption of international and business travel,” Cowen analyst Helane Becker said in a research note Monday.
“Leadership teams will also likely be asked about the characteristics of their booking curves and how they handle operational issues due to factors such as employee training backlogs and staffing shortages at airports,” he said. she continued. “We expect Americans will likely face questions about their prospects for debt repayment.”
American Airlines Earnings
Estimates: Wall Street expects American Airlines to earn 77 cents per share, compared to a loss a year ago. Similar to United, it would be the first US earnings per share during the pandemic.
Revenue was expected to jump 78% to $13.331 billion.
American had long-term debt and finance leases of about $35 billion in the first quarter. The company said it wants to pay off about $15 billion in debt by the end of 2025.
Like most airline stocks, American and United are trading lower so far for the year. US stocks have fallen 17.5% since Dec. 31. United are down 4.5%.
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