United Airlines Expects Its First Profitable Year Since 2019, Stocks Rise

United Airlines Holdings Inc. executives expect to report earnings this year, a surprise to investors who lifted the company’s shares more than 7% in after-hours trading on Wednesday.

United UAL,
reported a first-quarter loss of $1.38 billion, or $4.24 per share, an improvement from a loss of $7.50 per share a year ago. Revenue rose to $7.57 billion, up from $3.22 billion a year ago. Analysts on average had expected a loss of $4.22 per share on revenue of $7.67 billion, according to FactSet.

It is the ninth straight quarter that United has posted an adjusted loss, but executives surprisingly promised the second quarter and full year would end on a positive note. They targeted a 10% operating margin for the second quarter and promised to be “solidly profitable” while predicting the “highest quarterly revenue in company history in the second quarter.”

“The airline has an optimistic outlook on the future, bolstered by this continued strength in demand and the fact that it is closing in on 2019 operating margins, and once again reiterated confidence in its long-term United Next goals.” Pre-tax adjusted margin of approximately 9%. in 2023 and around 14% in 2026,” the company said in the statement. “This confidence is supported by the company’s current expectation to report full-year earnings in 2022.”

Analysts on average predicted an annual loss of nearly $900 million, $2.52 per share and a loss of 17 cents per share in the second quarter before the report, according to FactSet. The shares were up more than 7% in after-hours trading immediately after the results were released, after closing up 1.2% at $46.52.

Forecasts have been more important than results for airlines as the effects of the COVID-19 pandemic abate. After Delta Air Lines Inc. DAL,
issued a stronger-than-expected earnings forecast last week, airline stocks received a boost, including United, which has gained about 9% since Delta reported.

United did not provide a full, outlined forecast in Wednesday’s report similar to previous releases. However, the parts that United included in the statement were enough to get investors excited.

“We are now seeing clear evidence that the second quarter will be a historic turning point for our business,” Chief Executive Officer Scott Kirby said in a statement. “It leaves me more optimistic than ever about United’s future.”

The executives plan to hold a conference call at 10:30 a.m. ET on Thursday, when they hope to discuss the “financial and operating outlook for the second quarter of 2022 and beyond,” according to Wednesday’s press release.

Concerns about the recovery of airline profits persist due to the rising cost of jet fuel. In Wednesday’s guidance, United executives said fuel cost $2.88 a gallon in the second quarter, much higher than the $2.51 a gallon executives forecast three months ago and the $2.41 a gallon gallon United paid on average in the fourth quarter of 2021.

JP Morgan analysts said at an airline earnings preview last week that “$4.00 jet fuel now fills our short-term models,” but expect costs to come down later in the year.

“The short-term issue is fuel, but we remain constructive assuming economic trends remain stable and fuel prices recede later this year (two major warnings),” the analysts wrote, while maintaining a rating. underweight position and a $60 price target for United shares.

Despite United’s negative rating, analysts like the current outlook for airline stocks overall.

“Demand trends continue to accelerate, supply is likely to improve even more than it already has, ex-fuel cost trends are, well, unimpressive but understandable, consolidation is underway and the momentum of Back to the office bodes well for a healthy corporate recovery once the lull of summer passes, in our opinion,” they wrote on April 11. “This represents a compelling setup for most airline stocks.”

Shares of United are down 7.6% in the past 12 months as the S&P 500 SPX Index,
has gained 7.9%. So far in 2022, those moves have essentially reversed, with United up 6.1% year-to-date while the S&P 500 is down 6.4%.

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