United Airlines and American Airlines soared Thursday after both predicted booming travel demand despite first-quarter losses.
United Air late Wednesday said it expected to return to profitability in the second quarter and full year despite surging fuel costs, even as its first-quarter results missed expectations. That forecast arrived some two years after the pandemic left the U.S. airline industry reeling from steep losses. United stock jumped after hours, while other airline stocks also ran higher.
American Airlines topped views early Thursday, and said it sees Q2 revenue up vs. Q2 2019, before the Covid pandemic.
United's second-quarter and full-year expectations ran contrary to analyst expectations for losses. The second-quarter forecast would be helped by a 17% jump in total unit revenue from the same period in 2019, as passengers eager to resume vacations return to air travel. Unit revenue measures an airline's sales as it relates to its overall flight capacity.
United said it expects a roughly 10% operating margin in the second quarter, which would be just slightly below what it was in 2019, "despite cost headwinds driven by the recent fuel price spike." United said it expected fuel costs of $3.43 per gallon during the second quarter. In the first quarter, that cost stood at $2.88.
Cowen analyst Helane Becker, in a note, said United "appears to be recapturing cost increases in ticket prices and strong demand."
United also said it was "seeing indications that business travel is rapidly returning and expects further improvement in international travel, including Asia." Business-travel demand has been suppressed, as people continue to work remotely.
The airline also said it would add flights back to its schedules, amid expectations for its its Boeing 777 jets to "gradually" return to service. United said it expected total flight capacity in the second quarter to be roughly 13% lower than 2019 levels.
United Airlines Earnings, Airline Stocks, Travel Stocks
United's first-quarter earnings, however, slightly missed expectations. The company reported revenue of $7.6 billion, slightly below estimates for $7.669 billion. It lost $4.24 per share, a bit worse than forecasts for $4.22 per share.
UAL stock jumped 9.3% on the stock market today. The stock has a 64 Composite Rating and a 54 EPS Rating.
Southwest Airlines added 2.3% Thursday. Delta Air Lines gained 2.8%, closing in on key resistance from the past several months.
Delta last week forecast strong demand ahead, despite higher fares and rising fuel costs. Other airline names and hotel stocks were finding support, or moving into or close to buy zones, as consumers' enthusiasm over traveling outweighs their concerns over the higher cost of airline tickets and hotel rates.
Delta, when it reported last week, said that demand for its premium-class seating had helped drive its recovery. And the airline said it saw no pushback, yet, from consumers against the prices it was charging to fly.
United, American and other big U.S. airlines on Monday said they would largely drop mask mandates on domestic flights and at U.S. airports. The carriers' decisions came shortly after a federal judge in Florida struck down the Biden administration's masking requirements on public transportation. Airline stocks rallied a day later and finished the day mixed on Wednesday.
Airline Stocks And 'Demand Destruction'
The airlines report in the wake of Russia's attacks on Ukraine, which sent oil prices higher. As fuel and other goods get more expensive, analysts have grown more concerned that more consumers could turn away from vacations and other plans, following the travel industry's two-year rebound from pandemic restrictions in 2020.
During the first quarter, harsh winter weather forced flight cancellations. The omicron variant also sickened crew members, disrupting flight schedules. Delta, when it reported, said its performance turned around in March.
United, in March, said it expected its overall flight capacity — or the amount of available seats and flights it offers — to shrink in the first quarter and year ahead. It cited the omicron surge earlier this year, flight cancellations related to "current geopolitical conditions," fuel costs and aircraft delivery delays as reasons. Still, it offered a more upbeat revenue forecast for the first quarter, helped by a rebound in business travel demand.
At a conference last month, United's chief commercial officer, Andrew Nocella, said that rising fuel costs and the war in Ukraine would delay United's full recovery.
Similar to Delta, though, he said United had been able to upsell customers on premium seats. And as flight-ticket prices push higher, he said, "At this point, there is no demand destruction."
"In fact, it's the exact opposite," he said. "There's a lot of demand to fly for leisure customers, and business is catching up quickly, although we have a ways to go."
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American Airlines Earnings
Estimates: Wall Street expected American Airlines to lose $2.39 per share. Revenue was seen climbing 119% to $8.787 billion.
Results: American lost $2.32 a share with revenue up 122% to $8.9 billion.
March was the first month since the pandemic that revenue topped 2019 levels. American expects Q2 revenue to rise 6%-8% vs. Q2 2019.
American said bookings have improved, notably corporate and international bookings.
AAL stock rose 3.8% Thursday, after climbing 5.9% on Wednesday. American Airlines stock has a 62 Composite Rating. Its EPS Rating is 51.
American this month also forecast improved revenue for the quarter. But it also said it expects higher unit costs and fuel costs.
American Airlines reports as Robert Isom takes over as CEO, following the retirement of Doug Parker. He'll take the helm after American and other airlines racked up more debt in an effort to stay afloat during the pandemic.
American Airlines ended last year with debt of $46 billion, which Third Bridge said was the highest in the U.S. airline industry. The carrier has said it hopes to pay off $15 billion of debt by 2025.
Fitch, in March, said American had more than enough liquidity to manage its debts in the short term. And Parker, at a conference last month, said the industry over the years has become more financially disciplined.
"What changed was a global pandemic," he said. "During the pandemic, our industry has gotten more structurally sound. So, when the effects of the pandemic disappear, what will reappear is an even stronger airline industry than before."
