Shares in United Airlines (UAL 1.46%) rose 23% in the week ending Friday morning. The move comes after the company released a well-received first-quarter earnings report and a slew of Wall Street analyst upgrades.
A relief rally
Investors in United Airlines were concerned about the prospect of slowing revenue growth due to relatively high interest rates pressuring consumer spending, rising costs in the industry, and the negative impact of delayed airplane deliveries from Boeing and the grounding of Boeing MAX 9 airplanes following an incident on an Alaska Airlines flight in January.
However, United Airlines' results helped to dispel these fears. Management had expected total revenue per available seat mile (TRASM) to be flat in the quarter, but it rose 0.6% year over year. Premium revenue rose 14% year over year.
Meanwhile, adjusted cost per available seat mile (CASM-ex) rose 4.7% compared to guidance for a mid-single-digit increase.
Unfortunately, the grounding of the MAX 9 fleet negatively impacted earnings by $200 million, and management adjusted its fleet plan due to delivery delays on Boeing aircraft. CFO Michael Leskinen said on the earnings call, "Due to these fleet changes, we now expect full-year 2024 total capital expenditures to be approximately $6.5 billion, down from $9 billion at the start of the year."
What it means for investors
The delivery issues and MAX 9 groundings haven't caused United Airlines to deviate from its full-year guidance of $9 to $11 in adjusted diluted earnings per share. Moreover, the delivery delays may prove to be a blessing in disguise for the industry as they will restrict capacity growth in 2024, allaying fears of overcapacity rising and putting pressure on TRASM.
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On the other hand, Leskinen also spoke of the pressure on CASM-ex coming from the delivery delays because the company was structured for more capacity. All told, the results are a net positive (although keep an eye on CASM next time it reports earnings), and just like Delta Air Lines, United Airlines is on track to deliver substantial profits in 2024.
