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Here's Why Investors Should Retain United Airlines (UAL)
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United Airlines (UAL - Free Report) is currently benefiting from solid air-travel demand and efforts to modernize its fleet. However, high fuel costs represent a headwind.
Factors Favoring UAL
United Airlines, currently carrying a Zacks Rank #3 (Hold), is seeing steady recovery in domestic and international air-travel demand. Passenger revenues, which account for the bulk of the top line, have been very strong with people taking to the skies again.
Owing to buoyant air-travel demand, UAL posted a significant year-over-year increase (23.1%) in revenues for the first nine months of 2023. This was driven by a 27% rise in passenger revenues (accounting for 92% of the top line). Owing to robust air-travel demand, it expects revenues for the December quarter to grow 9-10.5% year over year.
In a bid to modernize its fleet, United Airlines placed the largest 787 Dreamliner order to Boeing in December 2022. UAL will purchase 100 Boeing 787 Dreamliners, with options to buy 100 more. Management anticipates receiving the delivery of these new widebody planes between 2024 and 2032.
The new jets are expected to result in a 25% improvement pertaining to fuel usage compared with the older Boeing 767 widebodies and some 777s. As a result of this massive deal, significant job opportunities for pilots, flight attendants and maintenance technicians, among others, are also likely to be created. UAL’s environmentally-friendly approach is commendable as well.
Key Risks
The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. The northward movement in crude price is primarily due to the extension of production cut by Saudi Arabia and Russia through the current-year end. In third-quarter 2023, average fuel price increased 10.3% sequentially. The metric is expected to be $3.28 in fourth-quarter 2023.
The northward movement in expenses on labor is also affecting UAL’s bottom line by pushing up operating costs. Evidently, operating expenses were up 16.7% in the first nine months of 2023, despite costs on aircraft fuel decreasing year over year.
Expenses on salaries and related costs jumped 29.3% in the same time period. Non-fuel unit costs are likely to rise 3.5-5% in fourth-quarter 2023. The expected new labor agreements are likely to have an impact on the metric.
While releasing its third-quarter results, management gave a tepid earnings outlook for the December quarter. The bleak projection was due to high costs. The suspension of flights to Tel Aviv is likely to raise non-fuel costs further in the fourth quarter.
The carrier expects fourth-quarter adjusted earnings per share in the band of $1.50-$1.80 per share. The mid-point of the guided range is much lower than the actual figure of $3.65 reported in second-quarter 2023.
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid. You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand. The Zacks Consensus Estimate for current-year earnings has jumped 32.6% in the past 60 days.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.
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Here's Why Investors Should Retain United Airlines (UAL)
United Airlines (UAL - Free Report) is currently benefiting from solid air-travel demand and efforts to modernize its fleet. However, high fuel costs represent a headwind.
Factors Favoring UAL
United Airlines, currently carrying a Zacks Rank #3 (Hold), is seeing steady recovery in domestic and international air-travel demand. Passenger revenues, which account for the bulk of the top line, have been very strong with people taking to the skies again.
Owing to buoyant air-travel demand, UAL posted a significant year-over-year increase (23.1%) in revenues for the first nine months of 2023. This was driven by a 27% rise in passenger revenues (accounting for 92% of the top line). Owing to robust air-travel demand, it expects revenues for the December quarter to grow 9-10.5% year over year.
In a bid to modernize its fleet, United Airlines placed the largest 787 Dreamliner order to Boeing in December 2022. UAL will purchase 100 Boeing 787 Dreamliners, with options to buy 100 more. Management anticipates receiving the delivery of these new widebody planes between 2024 and 2032.
The new jets are expected to result in a 25% improvement pertaining to fuel usage compared with the older Boeing 767 widebodies and some 777s. As a result of this massive deal, significant job opportunities for pilots, flight attendants and maintenance technicians, among others, are also likely to be created. UAL’s environmentally-friendly approach is commendable as well.
Key Risks
The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. The northward movement in crude price is primarily due to the extension of production cut by Saudi Arabia and Russia through the current-year end. In third-quarter 2023, average fuel price increased 10.3% sequentially. The metric is expected to be $3.28 in fourth-quarter 2023.
The northward movement in expenses on labor is also affecting UAL’s bottom line by pushing up operating costs. Evidently, operating expenses were up 16.7% in the first nine months of 2023, despite costs on aircraft fuel decreasing year over year.
Expenses on salaries and related costs jumped 29.3% in the same time period. Non-fuel unit costs are likely to rise 3.5-5% in fourth-quarter 2023. The expected new labor agreements are likely to have an impact on the metric.
While releasing its third-quarter results, management gave a tepid earnings outlook for the December quarter. The bleak projection was due to high costs. The suspension of flights to Tel Aviv is likely to raise non-fuel costs further in the fourth quarter.
The carrier expects fourth-quarter adjusted earnings per share in the band of $1.50-$1.80 per share. The mid-point of the guided range is much lower than the actual figure of $3.65 reported in second-quarter 2023.
Airline Stocks to Consider
Investors interested in the Zacks Airline industry may consider stocks like Air Canada (ACDVF - Free Report) and SkyWest (SKYW - Free Report) .
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid. You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand. The Zacks Consensus Estimate for current-year earnings has jumped 32.6% in the past 60 days.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.