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Well, this is a welcome change of pace. There’s some good news these days surrounding United Airlines (NASDAQ:UAL) stock.
Surely, the nation’s airlines are bone-weary of putting out bad news in 2020. The coronavirus has been devastating to airlines that are losing hundreds of millions of dollars each month while air traffic is a mere fraction of what it was a year ago.
There have even been predictions that a U.S. airline would fall into bankruptcy by the end of the year.
So, when an airline such as United has some good news fall on its lap, it’s worth taking note. And it warrants investors taking a fresh look at UAL stock.
United Is Adding More Flights
Thanks to Covid-19, airlines are more in the business of cutting flights than adding them. Airline passenger volume as measured by the Transportation Security Administration fell by 90% this spring because stay-at-home orders and social distancing meant hardly anyone was traveling by air.
The numbers are slowly improving, but not enough to push airlines back into profitability. Air traffic is still down about 70% from a year ago, the TSA reports.
So, it’s a big deal when airlines begin adding flights rather than taking them away.
United announced that it’s adding a series of Florida flights beginning in November, with direct service from Boston, Cleveland and New York to Florida vacation spots such as Fort Lauderdale, Orlando, Tampa and Fort Myers.
And then in December, United will roll out additional routs from Indianapolis, Milwaukee, Pittsburgh and Columbus, Ohio.
More International Service
An agreement between Beijing and Washington – something rare these days thanks to trade war tensions – will also help United.
The U.S. and China agreed to double the number of airline flights that each country can operate to the other, from four flights to eight flights a week.
That means both Delta (NYSE:DAL) and United get to add two flights apiece. United says starting on Sept. 4, it will go from two flights to four per week between San Francisco and Shanghai, with a layover in Seoul.
Granted, we’re still not close to pre-Covid service levels. Before the pandemic began, United operated five flights per day that connected Shanghai to San Francisco, Los Angeles, Chicago and New York.
But the announcement also comes on the heels of United’s announcement in July that it’s resuming service in September on more than 25 international flights to Latin America, Israel, Australia, India and spots in Asia.
All in all, United has announced plans to resume 37% of its pre-pandemic flight schedule – 40% of domestic flights and 30% of international flights. United says its September capacity will increase by 4% on a month-over-month basis.
United Stock at a Glance
For the year, UAL stock is still down more than 60%, although it’s slowly climbing out of the rut when it collapsed in March.
In July, the company announced second-quarter earnings for what the company called “the most difficult financial quarter in its 94-year history.”
The company posted a loss of $1.63 billion, compared to a profit of $1.05 billion a year ago. Revenue was $1.48 billion compared to $11.5 billion in the second quarter of 2019. Losses on a per-share basis came in a $5.79.
While those numbers were awful, they still beat analysts’ expectations. Wall Street was expecting revenue of $1.32 billion and losses on a per-share basis of $9.02.
To ease costs, United has more than 26,000 employees who have taken early retirement, voluntary unpaid leave or are working a reduced schedule.
The company burned about $40 million in cash per day in the second quarter and plans to reduce that to $25 million daily in the third quarter with the expiration of CARES Act provisions that restrict recipients from laying off employees.
CEO Scott Kirby was determined to look at the bright side:
“I look forward to the day where we’re past the pandemic and can stop talking about cash burn. But the country, the world and aviation are where we are right now. I remain confident that the virus will be depleted. And when it is, I’m very bullish about our future because I believe the current headwind related to international and business travel will once again return to being important and unique strategic advantage for United Airlines.”
The company is planning to have $18 billion in liquidity by the end of the third quarter, with at least $9 billion of available collateral available should it need to raise more money, CFO Gerry Laderman said.
Prospects for UAL Stock
Just over a month ago, I wrote that United won’t see a recovery in stock price any time soon, and I stand by those words.
Until there’s a vaccine for Covid-19 that is widely available on the market, people are going to be extremely cautious about driving. United estimates that airline travel will recover to no better than 50% of pre-pandemic levels until there’s a vaccine.
That said, I’m bullish about the airline industry for a long-term view. If you can afford to buy here and hold on to your investment for two or three years, airline stocks have the potential to provide outsized returns.
As I said in July, United won’t see a recovery anytime soon. But as the company increases the number of flights per day, investors can take note that that day is slowly, but steadily, approaching.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he was long DAL stock.