United posted a bigger-than-expected first-quarter loss after the 737 Max grounding. Anyway, here are the reasons why stock prices are rising:
United Airlines Holdings Inc. said this month it expects to lose more than expected in the first quarter after the government ordered the grounding of dozens of Boeing 737 Max 9 jets due to a mid-air explosion on an Alaska Airlines flight.
However, United UAL’s stock
It rose 6% after business hours on Monday after the airline forecast better-than-expected full-year profit. The forecast follows a surge in fourth-quarter performance that beat expectations, driven by United’s premium cabin product and lower basic economy fares.
United said it expects a loss of 35 to 85 cents per share on an adjusted basis for the first quarter. That was worse than Wall Street’s expectations of a loss of 23 cents per share. United operates 79 Max 9 jets.
United also said the grounding would result in higher costs. In the filing, the airline said it expects “an impact of approximately 3 percentage points in incremental (adjusted unit cost) based on grounded aircraft from January 6, 2024 to January 31, 2024.”
The Federal Aviation Administration grounded 171 Max 9 jets this month after one of the jets operated by Alaska Airlines tore a panel and forced an emergency landing. No serious injuries were reported. But Boeing BA,
Aviation safety regulators are likely to face deeper scrutiny as inspections continue.
Nonetheless, United said it expects full-year adjusted earnings per share to be between $9 and $11. That was above FactSet expectations of $9.53.
After-hours shares rose 5.4%. United’s earnings conference call to discuss results and forecasts will be held Tuesday morning.
CEO Scott Kirby said in a statement that United expects the trends seen last year to continue. But airlines are already heading into a year of dramatic developments in the aviation industry.
Some analysts have expressed concern that airlines are still offering too many flights, too little demand and are still dealing with higher costs after two years of “revenge” travel. With the Max 9’s fate still uncertain, Jefferies analysts said in a note late Monday that United’s full-year outlook is “vague.”
Elsewhere, rival Spirit Airlines Inc. SAVE,
and JetBlue Airways Corp. J.B.L.U.,
It is trying to save its merger agreement after a federal judge blocked it last week. Analysts have questioned Spirit’s ability to survive on its own. Meanwhile, the Federal Aviation Administration recommended inspections of a second Boeing aircraft model, the 737-900ER, over the weekend.
United reported fourth-quarter net income of $600 million, or $1.81 per share, compared to $843 million, or $2.55 per share, in the same quarter in 2022. United’s adjusted earnings were $2 per share.
Sales increased 9.9% to $13.63 billion.
Analysts surveyed by FactSet expected adjusted earnings per share of $1.69 and revenue of $13.55 billion.
“United’s diversified revenue strategy has once again proven to be a critical and differentiating competitive advantage,” United said in a statement. “United’s premium rooms saw a 16% year-over-year revenue increase, while basic economy services again saw a significant 20% increase in revenue quarter-over-quarter.”
This month, BofA analysts upgraded United’s stock to a buy rating. They said the company is focusing slightly more aggressively on transatlantic travel than its competitors, and that its focus on premium seating arrangements and other amenities is paying off.
