United Airlines stock flies despite Boeing problems

United Airlines (NASDAQ:UAL) stock had a good day on Wednesday, boosting stocks of other airlines including American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL). There was clearly something to make investors feel good, with UAL shares soaring 16% by midday.

To some extent, it was a relief rally. No doubt some United Airlines stock traders had low expectations for the airline because problems with certain Boeing (NYSE:BA) jet models would be a major hit to United’s sales and bottom line.

But when markets fear the worst, sometimes it’s just a setup for an outcome that isn’t as bad as expected. That appears to be the case with United Airlines, which managed to keep its stock price from plummeting at the start of the year.

The $200 Million Problem

In summary, United Airlines was grounded from operating its Boeing-manufactured 737 MAX 9 aircraft for three weeks. This was due to an incident in January when a door plug was ripped off an Alaska Airlines plane owned by Alaska Air Group (NYSE:ALK).

Of course, this caused great confusion for United Airlines. The airline was overstaffed and had a shortage of planes for a while. Additionally, United ended up having to change its aircraft ordering plans.

United Airlines warned investors: “(Due to) 737 MAX 10 aircraft certification delays and ongoing supply chain issues, the company now anticipates a decline in Boeing deliveries over the next few years.”

Still, United Airlines CEO Scott Kirby never lost confidence in the face of adversity. “We have adjusted our vehicle plans to better reflect the reality of what manufacturers can deliver,” Kirby assured in a statement from the company.

Showing calm when things fall apart (literally) is part of a CEO’s job description. But in this case, Kirby’s confidence may actually be justified.

As it turns out, the negative financial impact on United Airlines from the grounding of the Boeing 737 MAX 9 totaled “approximately $200 million.” Without that negative impact, United would have been profitable in the first quarter of 2024, the company claims.

Sure, $200 million is a lot of money, but it’s probably not as much as some bearish UAL stock traders had hoped. So there are likely to be some pre-earnings bearish bets, and short selling is likely to follow after United Airlines indicated that the impact of Boeing is not as severe as previously feared.

What was, what might have been

Since United Airlines claims it would have been profitable if not for Boeing’s influence, it is interesting to think about how much profit United Airlines would have made in the first quarter of 2024. So with that in mind, let’s look at the data.

Starting with the best results, United Airlines’ total operating revenue increased 9.7% year-over-year to $12.5 billion. Considering the difficult circumstances, that’s not too shabby. Additionally, these earnings results are consistent with Wall Street’s consensus forecast.

Breaking down its earnings further, United Airlines posted a net loss of $124 million, or 38 cents per share, in the first quarter of 2024. At first glance, this doesn’t sound like an ideal outcome.

But now let’s take out the $200 million loss due to Boeing-related issues. According to my old calculator, United Airlines would have made a profit of $76 million.

Back to reality, United Airlines’ quarterly loss of 38 cents per share wasn’t that bad when put into context. The company had previously forecast a first-quarter loss of 35 to 85 cents per share, so 38 cents would be near the lower end of that range. Additionally, analysts had predicted that United would lose 58 cents per share, so the actual result was a landslide win.

United Airlines also expects to return to profitability this quarter. The airline forecast second-quarter 2024 earnings of $3.75 to $4.25 per share, a range higher than analysts’ consensus estimate of $3.73 per share.

Naturally, problems can arise and these predictions can deviate significantly from the baseline. Fuel prices can fluctuate and there is always the possibility of more airplane component failures.

But if you worry too much about the future, which you can’t control, investing becomes impossible. For now, what’s important is that United Airlines is making the necessary adjustments and preparing for a (hopefully) less risky future. So, without overthinking what has happened in the past or what might happen in the near future, it may actually be a good time to consider a portfolio position in UAL stock.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.