United Airlines (NASDAQ:UAL) stock had such a great day on Wednesday that it lifted other airline stocks, including American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL). With UAL shares soaring 16% by midday, clearly there was something in the air that put investors in a good mood.
To a certain extent, it was a relief rally. Without a doubt, some United Airlines stock traders had low expectations for the airline carrier as an issue with a particular Boeing (NYSE:BA) jet model was bound to wreak havoc on United’s top and bottom lines.
Yet, when markets fear the worst, sometimes it’s just a setup for outcomes that aren’t as bad as anticipated. Such is the case, it seems, with United Airlines as the harried carrier manages to avert an early-year share-price crash landing.
A $200 million problem
To recap, United Airlines was forced to ground its fleet of 737 MAX 9 planes manufactured by Boeing for three weeks. This was due to an incident in January when a door plug tore off of an Alaska Airlines plane owned by Alaska Air Group (NYSE:ALK).
Of course, this was massively disruptive to United Airlines. The airline ended up having too many workers and not enough planes for a while. Furthermore, United ended up having to change its fleet-order plans.
“[D]ue to the delay of the certification of the 737 MAX 10 aircraft and continued supply chain issues, the Company currently expects a reduction in deliveries from Boeing during the next couple of years,” United Airlines warned investors.
Nonetheless, United Airlines CEO Scott Kirby remained confident in the face of adversity. “We’ve adjusted our fleet plan to better reflect the reality of what the manufacturers are able to deliver,” Kirby assured in a statement from the company.
It’s part of a CEO’s job description to appear calm when things are (literally) falling apart. In this instance, however, Kirby’s confidence might actually be justifiable.
As it turns out, the negative financial impact on United Airlines of the Boeing 737 MAX 9 grounding totaled “approximately $200 million.” Without that negative impact, the company claims, United would have been profitable in 2024’s first quarter.
Sure, $200 million is a lot of money, but it’s probably not as much as some bearish-leaning UAL stock traders had expected. Thus, there were likely some pre-earnings bearish bets in place, followed by short-sale covering after United Airlines indicated that the Boeing impact wasn’t as severe as previously feared.
What was, and what might have been
Since United Airlines claims that it would have been profitable if it weren’t for the Boeing impact, it’s interesting to consider how much income United Airlines would have earned in 2024’s first quarter. So, with that in mind, let’s delve into the data.
Starting with the top-line results, United Airlines’ total operating revenue grew 9.7% year over year to $12.5 billion. That’s not too shabby, given the challenging circumstances. Besides, this revenue result is in line with Wall Street’s consensus forecast.
Drilling down to the bottom line, United Airlines sustained a net loss of $124 million, or 38 cents per share, in Q1 of 2024. That doesn’t sound like an ideal result at first glance.
However, now let’s go ahead and factor out that $200 million hit from the Boeing-related issues. My old calculator says that United Airlines would have had a $76 million profit.
Shifting back to reality, United Airlines’ quarterly earnings loss of 38 cents per share wasn’t all that bad when put into context. The company had previously guided for a first-quarter loss of 35 to 85 cents per share, so 38 cents is toward the lower end of that range. Additionally, analysts forecast that United would lose 58 cents per share, so the actual result was a beat.
Also, United Airlines evidently expects to get back on track to profitability in the current quarter. The carrier guided for second-quarter 2024 earnings of $3.75 to $4.25 per share, a range that’s higher than the analysts’ consensus estimate of $3.73 per share.
Naturally, issues can occur and these forecasts could be far off base. Fuel prices could fluctuate, and there’s always the possibility of more plane-component failures.
But then, investing is impossible if we worry too much about uncontrollable future occurrences. What matters, for the time being, is that United Airlines is making the necessary adjustments and preparing for a (hopefully) less perilous future. So, without overthinking what might have been or what might happen in the near term, this might actually be a good time to consider a portfolio position in UAL stock.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
