As the Q1 earnings season continues, investors were largely impressed by a slew of solid and strong results on Wednesday. This included the likes of Tesla, but other sectors were well in the green as well. We’re talking about American airline companies, multiple of which reported their Q1 results yesterday to great fanfare. Shares quickly jumped as airline executives predicted a return to profitability as soon as Q2 2022.
There were two airlines that reported their results, United Airlines (NYSE: UAL) and American Airlines (NYSE: AAL). Both companies did better than expected in their quarterly results. United Airlines, despite a slight miss on its headline figures, forecast that the rest of the year would be much better.
Revenues came in at around $7.6 billion, just $110 million short of Wall Street’s expectations. Operating margins are around 10%, and despite higher fuel costs, revenue per passenger mile has crept up by 17% compared to 2019. Higher fares are one reason why revenue figures have stayed relatively strong.
While some of these results are misses, what impressed analysts the most is United Airline’s optimistic guidance. Management expects to start returning a profit next quarter, compared to Q1’s $1.4 billion net loss. That’s a pretty big turnaround for the airline, news which has many investors excited.
“The demand environment is the strongest it’s been in my 30 years in the industry – and United and its customers will benefit more than any other airline,” said United Airline’s CEO Scott Kirby in a statement. “We’re now seeing clear evidence that the second quarter will be an historic inflection point for our business. It leaves me more optimistic than ever about United’s future.”
Wall Street analysts were quick to upgrade United Airlines following the news. Raymond James analyst Savanthi Syth said that revenue forecasts blew away even his optimistic estimates, while Deutsche Bank analyst Michael Lindenberg was surprised that inflation wasn’t having a bigger effect on United Airlines’ projected bottom line.
The other major airline that made headlines was American Airlines, which also reported its own Q1 results. The general theme was quite similar. In this case, revenues slightly surpassed expectations, $8.9 billion versus the $8.8 billion target. However, the company still saw a $1.6 billion net loss. American Airlines’ management didn’t say anything about returning to profitability, but United Airlines’ promising statement has crept over to AAL and other major airlines as well.
Shares of United were up around 9.3% over the course of the day. Other airlines, like AAL, were gaining 3.8%, with most other regional airlines following suit. Compared to a year ago, most airlines are trading roughly near the same range, although still trading at a much cheaper valuation than pre-pandemic.
United Airlines Company Profile
United Airlines operates more than 4,500 flights a day to five continents. United’s hubs include San Francisco, Chicago, Houston, Denver, Los Angeles, New York/Newark, and Washington, D.C. United operates more than 740 mainline aircraft. The airline is a member of the Star Alliance, which provides service to 192 countries via member airlines. In 2019, the carrier posted $43.2 billion in revenue, of which $39.6 billion was passenger revenue. – Warrior Trading News
