United Airlines (UAL) Ascent Continues

October 15, 2024

United Airlines (UAL) has been making significant strides in the aviation sector, positioning itself as a leader through strategic international expansions, fleet enhancements, and a solid financial recovery. In the lead-up to UAL's next earnings report, several factors indicate strong momentum for the company, despite broader industry challenges.

International Expansion Leading the Charge

United recently announced an aggressive expansion of its international itinerary, adding over 760 new flights weekly and introducing eight new destinations for the summer of 2024. This expansion underscores UAL’s long-term growth strategy, driven by a 35% larger international capacity than any other U.S. airline. This is a bold move, especially in a sector heavily impacted by global travel disruptions over the past few years.

However, it's important to note that this international push is tied to a much-needed fleet expansion from Boeing. Unfortunately, ongoing delays and strikes at Boeing have temporarily halted this process, potentially impacting UAL’s ability to fully capitalize on its ambitious plans.

Recent Earnings and Financial Strength

Last quarter, United surpassed revenue estimates, reporting a more than 5% YoY increase. While its earnings per share (EPS) also beat expectations, they were down 17% compared to the previous year. Yet, the company still managed to break several internal records, including a remarkable 44.4 million passengers served during the quarter and a single-day record of 565,000 travelers.

This operational success fueled a brief rally in UAL stock, which jumped 3.7% immediately following the earnings release, though it later closed 3.2% lower. Investors seem to be balancing their optimism with concerns about ongoing labor cost increases, a challenge for all airlines as they renegotiate contracts with pilots and staff.

It's also worth highlighting UAL’s strategic move to reduce debt and increase profitability through interest expense reductions. As labor costs continue to rise, this debt paydown strategy could offer an advantage over competitors like Delta (DAL) and American Airlines (AAL), which are facing similar cost pressures.

Improving Consumer Sentiment

Consumer happiness has been a sticking point for UAL, traditionally lagging behind its peers with an overall satisfaction rate of 53%. However, this sentiment has improved significantly, with a 10% increase in happiness month-over-month. This uptick suggests that United's efforts to enhance the customer experience, including its recent collaboration with SpaceX to deliver mid-flight Wi-Fi, are resonating with passengers.

While competitors like Southwest (LUV) have seen a decrease in happiness and satisfaction, United's ability to buck this trend speaks volumes about its current trajectory.

Slower Web Traffic Across the Sector

One notable challenge across the airline industry is the declining web traffic. According to LikeFolio data, United's site visits have fallen by 12% year-over-year. Although this is concerning, it is worth noting that Delta and Southwest are seeing even steeper declines, indicating that United may be outperforming its peers in customer engagement, even in a challenging environment.

Conclusion: UAL’s Ascent Continues

Looking forward to the upcoming earnings report, United Airlines seems well-positioned for continued success. With a LikeFolio earnings score of +62, the company is expected to maintain its positive momentum. United has proven its resilience through fleet enhancements, debt reduction, and consumer satisfaction improvements, all while leveraging its leading international presence.

While challenges such as rising labor costs and slower web traffic remain, United’s strategic decisions should keep it on the path to further growth.

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