Thursday Apr 18 2024 12:37
5 min
The recent weeks have been challenging for the airline industry, but the earnings season may be showing signs of a potential turnaround. United Airlines stock (UAL) surged 17.5% to close at $48.74 on Wednesday, leading the S&P 500 index after the airline reported its quarterly earnings late Tuesday.
The rally in United Airlines stock also boosted other shares across the sector, with American Airlines stock gaining 6.6%, Delta Air Lines closing up by 2.86%, and Southwest Airlines rising by 2.6%.
However, these gains come against a backdrop of significant drops earlier in April; United's stock had fallen 15%, American's 13%, and Delta's 2.8% through Tuesday's close.
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Despite facing setbacks from Boeing, United Airlines reported a narrower loss than expected for the first quarter.
The company posted an adjusted loss of 15 cents per share, significantly better than the predicted 54 cents per-share loss, as per FactSet.
The carrier could have shown a profit for the quarter if not for a $200 million hit from the temporary grounding of the Boeing MAX 9 aircraft in January.
The optimistic quarter results from United Airlines could be a beacon of hope for the broader sector. The airline noted a 6.6% increase in domestic passenger revenue and a 16% surge in international revenue compared to the first quarter of 2023.
United's earnings reflect a broader recovery, particularly in corporate travel, with the airline reporting double-digit growth in business demand compared to pre-pandemic levels. Delta Airlines also reported a 14% increase in managed corporate sales, driven by sectors such as technology, consumer services, and financial services.
On top of that, a recent Delta survey said that 90% of companies expect their travel volumes to either increase or remain steady in the upcoming June quarter and beyond.
The gains of the “Big 3” U.S. network airlines — United, Delta, and American — in Wednesday trading were of no surprise, given the strong international and corporate travel demand. Domestic carriers like JetBlue Airways and Alaska Air also saw gains, up 4.6% and 4.7%, respectively.
Analysts are optimistic, with TD Cowen’s Helane Becker maintaining a Buy rating on United and setting a price target of $55. In a comment cited by Barron’s, she said:
“This is the airline’s first time generating an adjusted operating profit in the March quarter since 2019. The fact that the MAX 9 grounding caused a $200 million headwind makes it even more impressive”.
Raymond James analyst Savanthi Syth said United’s strong first-quarter results and promising second-quarter guidance “likely drives greater confidence” in the airline’s projected full-year earnings of between $9 and $11 per share. She maintained an Outperform rating on United Airlines stock with a price target of $66.
As of April 18, United Airlines stock was up over 13.2% on the week and 18.1% year-to-date.
The S&P 500 index closed down 0.58% despite UAL’s gains on Wednesday, dragged down by chipmaker stocks such as AMD and Micron, and was last on track for a 3.4% loss on the week. At the time of writing, the S&P 500 is up 5.3% year-to-date.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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