There are high expectations for
United Airlines
‘ earnings after its rival
Delta Air Lines
posted bumper results last week—and the carrier looks set to rise to the challenge. It should capitalize on strong summer demand and top its own estimates when it reports later Wednesday.
The sector has been buoyed by Delta’s (ticker: DAL) record second-quarter revenue and profitability and the strong summer season so far, which has included a record-breaking July Fourth weekend. Sharply lower fuel costs have also helped airline stocks higher in recent weeks.
Analysts expect United (Ticker: UAL) to report earnings per share (EPS) of $4.04, topping the company’s own guidance of between $3.50 and $4. They also see revenue of $13.9 billion, according to FactSet estimates.
Attention will also turn to United’s full-year guidance, particularly after Delta hiked its 2023 earnings outlook last week.
J.P. Morgan analyst Jamie Baker said Delta’s earnings beat and guidance raise, a second hike in a matter of weeks, only strengthened confidence in the largest U.S. airlines, including United.
“We come away with further conviction in the chasm between the Big 3 [Delta, United and
American Airlines
] and discounters and that the phenomenon will continue into the back half of the year,” Baker said. He noted that the so-called Big 3 were outperforming low-cost airlines by around 30 percentage points so far in 2023.
There remains a disconnect, though, between United’s confidence for the remainder of the year and that of Wall Street. United forecasts EPS of $10 to $12 per share for the full year, while analysts expect $9.75. They are warming to the idea, though, as the consensus has climbed from $6.42 at the beginning of the year.
The stock has risen more than 40% so far in 2023 but if United gives cause for the gap to be closed further, it could enjoy more gains after earnings.
Third-quarter earnings guidance is also worth watching for signs as to whether the sector’s hot summer can continue. The magic number to keep in mind is $3.72 per share, which is what analysts are currently expecting.
The carrier’s cost guidance will also be in focus after United reached an agreement in principle with the union representing its pilots over a new pay deal over the weekend. However, the airline did accrue for higher contracts in its cost guidance earlier this year.
The agreement, which still needs to be ratified by pilots, will increase pay rates by 34.5% to 40.2% over four years, and is worth an estimated $10 billion in value, the Air Line Pilots Association (ALPA) said.
United’s earnings after the market close Wednesday will be swiftly followed by American Airlines (AAL), which is set to report before the open Thursday. “We expect their management teams [UAL and AAL) to echo Delta’s comments around strong performance for international and premium products,” TD Cowen analyst Helane Becker said in a note Monday.
Write to Callum Keown at [email protected]
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