United Airlines Earnings: On Course To Achieve Strong 2023 Results on International Travel Rebound

United Airlines Stock at a Glance

• Fair Value Estimate: $60.00
• Star Rating: 4 Stars
• Uncertainty Rating: Very High
• Economic Moat: None

United Airlines Earnings Update

United Airlines UAL reported brisk 51% revenue growth on 23.4% more capacity in the first quarter compared with 2022, a promising start to 2023 that we expect to meet management’s full-year guidance. Despite its pretax loss of $256 million in the quarter (due to seasonally low winter travel), management expects 9% adjusted pretax margins with EPS of $10-$12 for 2023. After updating our assumptions to account for the quarter and a few near-term costs, we’ve raised our fair value estimate approximately 1.5% to $60.

Compared with 2022, United is seeing blockbuster booking on its international routes, partly because in early 2022 many of these were still closed off by lingering pandemic restrictions, and the firm continues to aggressively add planes and routes to its international network even as it continues to rectify pandemic-era disruptions to its regional and domestic fleets and schedules.

In the first quarter, United surpassed 2019 available seat miles by a hair, indicating a recovery to overall prepandemic capacity. United’s management characterized a “new seasonality,” in which leisure travelers are now spreading out their trips between March and October and spending more for premium seats and other perks. Although business travel has taken longer to rebound, United pointed to record business ticket sales in early April and a recovery in the first quarter between 85% and 97% of 2019 levels. These strong bookings support our thesis that air travel may be insulated in the short term from all but the most severe potential 2023 recession due to pent-up demand.

Longer term, management hopes that strong demand and industrywide undercapacity will support its target of 14% pretax margin by 2026. Such a result would be an all-time record, and considering imminent increases in industrywide capacity and the no-moat competitive dynamic, we maintain a more conservative profit margin outlook for United (and the industry) and have instead modeled 11% midcycle pretax margins.