The changes in UAL stock over the recent years have been far from consistent. Returns for the stock were 1% in 2021, -14% in 2022, 9% in 2023, and 135% in 2024.
In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that UAL underperformed the S&P in 2021 and 2023.
UAL reported net sales of $14.7 billion, up 7.8% y-o-y. This was led by increased capacity, with average seat miles up 6.2%, and a 6% rise in passenger revenue per seat mile. UAL reported adjusted earnings of $3.26 per share, compared to $2.00 in the prior-year quarter.
Below are key drivers of UAL that present opportunities for upside or downside to the current Trefis price estimate.
United's Passenger Yield: United Airlines' passenger yield stood at approximately $0.20 as of 2024. Our current projections indicate a steady growth in the airline's passenger yield, reaching $0.23 by the end of the Trefis forecast period.
However, if passenger fares were to rise more significantly than expected, potentially due to increased crude oil prices or strong growth in demand for flights, and consequently drive the yield to over $0.26 by the end of the Trefis forecast period. This scenario could lead to a potential upside of 25% to the Trefis price estimate for United Airline Holdings's stock.
United Airlines Holdings is a major global passenger airline, operating an extensive network that spans across the Americas, Europe, Asia-Pacific, Africa, the Middle East, the Caribbean, and Australia.
The airline's current scale is a result of the 2010 merger between United and Continental Airlines, which continued under the United brand. Today, together with its regional partners, United operates over 4,000 daily flights to more than 330 destinations worldwide, including around 200 in the U.S. and over 130 internationally. The airline's primary hub airports are located in Newark/New York, Chicago O'Hare, Denver, Houston Intercontinental, Los Angeles, San Francisco, Washington Dulles, and Guam.
In addition to its core passenger flight services, United also provides cargo transportation utilizing the cargo space in its passenger aircraft. To further expand its service network beyond its independent operations, the airline has established alliances with numerous regional and international carriers.
United Airlines is also a founding member of Star Alliance, a prominent global airline alliance.
United boasts one of the most comprehensive service networks among U.S. airlines. This extensive network is a key advantage, enabling the carrier to attract corporate travelers to its loyalty program. The preference of many corporate travelers for premium travel options often leads to higher yields for the airline.
Fuel expenses represent the largest single cost component for airlines, making them highly susceptible to volatility in crude oil prices. For United, fuel costs constitute approximately 30% of its total operating expenses. To mitigate the impact of fuel price fluctuations, United employs fuel price hedging strategies.
The demand for air travel is strongly correlated with the overall health of the global economy. Economic downturns or recessions typically lead to a reduction in flight demand, negatively impacting passenger traffic for airlines. Conversely, sustained economic growth in the U.S. and globally tends to drive increased demand for air travel, allowing airlines to potentially raise fares, improve occupancy rates, and enhance profitability.
Many airlines, including United, are increasingly focused on expanding their revenue streams through ancillary services such as baggage fees, access to onboard Wi-Fi, and the sale of food and beverages. Consequently, airlines are investing in enhancing these offerings, including improved in-flight entertainment and Wi-Fi options, upgraded lounge facilities, and seats with extra legroom.
Studies indicate that North American airlines generate a substantial portion of global ancillary revenues. This growth is largely attributed to more effective merchandising strategies by the carriers and the addition of a wider range of à la carte services available for purchase.
Over the past decade, low-cost carriers (LCCs) like Southwest and JetBlue have significantly increased their market share in the U.S.
Looking ahead, it is anticipated that these LCCs will likely continue to expand their market presence due to their lower fares attracting price-sensitive travelers.
The U.S. airline industry has undergone significant consolidation through mergers and acquisitions in recent decades, including major combinations such as US Airways and America West, Delta and Northwest, United and Continental, Southwest and AirTran, and American and US Airways.
This increased consolidation has generally contributed to improved profitability across the airline industry. With fewer major players in the market, airlines have been better positioned to manage capacity growth more strategically. Prior to this consolidation, airlines often added capacity aggressively to gain market share, which sometimes led to an oversupply of seats, thereby impacting the profit margins for all carriers. Moving forward, it is believed that as long as airlines maintain disciplined capacity management, the industry should remain relatively profitable.
