United Airlines Officially Kisses Covid-19-Related Shackles Goodbye

On Tuesday, United Airlines Holdings (NASDAQ:UAL) issued its third quarter report, surpassing Wall Street’ estimates. United also announced its first buyback since suspending the program during the Covid-19 pandemic and guided for an improved industry outlook, with shares rallying 13.2% upon the release, jumping on the optimism that airline profits are set to improve. Shares of its airline peers, Delta Air Lines Inc. (NYSE:DAL), Southwest Airlines Co. (NYSE:LUV) and American Airlines Group Inc. (NASDAQ:AAL) also went up for the ride. Delta Air Lines alone made a 5.4% jump during the morning session.

Third Quarter Highlights

For the quarter ended in September, United Airlines reported that revenue grew 2.5% YoY to $14.84 billion, topping LSEG’s consensus estimate of $14.78 billion. Corporate revenue increased 13%, business class tickets grew 5% while sales from its no-frills basic economy tickets going up 20%.

Net income dropped 15% YoY to $965 million with adjusted earnings per share amounting to $3.33, going down 8.8% YoY, but still topping LSEG’s consensus estimate of $3.17.

United announced it plans to buy back $1.5 billion worth of shares like its airline peer, Southwest Airlines that announced a $2.5 billion share repurchase program last month. 

A Boosted Outlook

After cutting excess flights that suppressed profits over the summer, United Airlines improved its outlook. For fourth quarter adjusted earnings, United guided for a range between $2.50 and $3 per share. 

Going into 2025, fares are likely to rise. The proxy for pricing power, domestic unit revenue, turned positive in August and September compared to last year. Last week, its airline peer Delta Air Lines also reported its unit revenue improved throughout the third quarter. Delta also expects the trend to continue.

While revenue growth was mild and profits actually declined, United’s third quarter results were better than what analysts expected. During the reported quarter, unprofitable capacity left the market in mid-August with revenue trends improving as the industry reached an inflection point and when capacity is rationalized in a fixed-cost mature business, everyone becomes more profitable. Along with the strategic initation of the first share repurchase program, it’s official that United, along with other airlines, has kissed COVID-19 goodbye. However, flight attendants’ union slammed the airline’s decision to resume buybacks. The union finds that Flight Attendants who worked on the frontlines, both throughout the Covid-19 crisis and during the taxing recovery, deserve the money that United promised to Wall Street. What can further complicate things for United Airlines is that the union hasn’t yet reached a new labor agreement with the company.

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