Fourth-quarter outlook, third-quarter results lift stock; execs say 'supply challenges will limit industry supply for years to come'
United Airlines Holdings Inc. stock rallied after hours Tuesday after the airline said it expected the travel rebound to weather a shakier economy in the months ahead and reported third-quarter results that beat expectations.
“Looking forward through the end of the year, the airline expects the strong COVID recovery trends to continue to overcome the recessionary pressures in the macroeconomic environment,” company executives said in a statement.
That backdrop — along with tighter flight networks and changes in how people work — helped justify the airline’s more upbeat forecast for the fourth quarter. United Airlines said it expected adjusted fourth-quarter operating margin of around 10%, the first time the figure would end above pre-pandemic 2019 levels.
United also forecast adjusted fourth-quarter earnings per share of between $2.00 and $2.25, well above FactSet forecasts for 98 cents per share. The carrier also said it expected a 24% to 25% gain in total fourth-quarter unit revenue — a much-watched industry metric that measures sales as spread out across an airline’s flight capacity — when compared to the same period in 2019.
Adjusted fourth-quarter unit costs were seen up between 11% and 12%, and roughly 15% for the full year, when compared to the respective periods in 2019.
For the third quarter, United reported net income of $942 million, or $2.86 per share, compared with $473 million, or $1.44 per share, in the prior-year quarter.
On an adjusted basis, the company earned $2.81 per share, compared with a $1.02 per-share loss in the quarter a year ago and $4.07 in 2019. Revenue was $12.877 billion, compared with $7.75 billion a year ago and $11.38 billion in 2019.
Analysts polled by FactSet expected adjusted earnings of $2.28 per share, on revenue of $12.743 billion.
Shares jumped 7% after the market’s close. American Airlines Group Inc., which reports earnings on Thursday, rose 3.6% after hours.
United, in its earnings release, also called out three demand trends that it said were “more than fully offsetting any economic headwinds.” It said that “Air travel is still in the COVID recovery phase, hybrid work gives customers the freedom and flexibility to travel for leisure more often, and external supply challenges will limit industry supply for years to come.”
The carrier said it expected total flight capacity, a measure of available seats on flights, to be down between 9% and 10% for the fourth quarter and down around 13% for the full year, when compared to 2019 levels.
United reported as analysts look for cracks in the travel industry’s rebound and holiday demand, after eager travelers this summer ran into flight delays and cancellations, insufficient staffing and severe weather. Airfares and fuel costs are more expensive — a function of strong demand and thinner supplies. Aircraft supply is tight, some executives have said. Airlines have also tried to bulk up flight crews, particularly pilots, after encouraging buyouts in 2020, as the pandemic left the industry without passengers and burning through cash.
Delta Air Lines Inc. last week said it expected fourth-quarter sales to grow from pre-pandemic levels, as demand for travel, after two years of pandemic-related restraint, holds up against rising prices.
“The travel recovery continues as consumer spend shifts to experiences and demand improves in corporate and international,” Delta CEO Ed Bastian said in its earnings release.
Raymond James analyst Savanthi Syth, in a research note last week, said she expected United to see similar momentum, helped by corporate travel and international demand.
She said American and JetBlue Airways Corp. should benefit to a lesser degree, “due to large corp and transatlantic exposure at the former and large coastal-city exposure at the latter.” JetBlue reports earnings on Oct. 25.
Delta’s international-unit revenue growth outpaced that in its domestic business for the first time since the pandemic started. Leisure travel to Europe helped propel results, as did strong demand for Delta’s premium-class seats. Bastian said he expected Delta’s flight network to be fully restored by summer next year.
“Demand has not come close to being quenched by a hectic summer travel season,” he said on Delta’s earnings call. “At the same time, industry supply is constrained by aircraft availability, regional pilot shortages and hiring and training needs.”
Delta rose 3% after the bell on Tuesday.
United Airlines stock is down 15% so far this year. By comparison, the S&P 500 Index SPX, -0.82% is down 22% over that time.
Copyright 2022 MarketWatch, Inc. All rights reserved. From https://www.marketwatch.com. By Bill Peters.