United Airlines (UAL) recently reported its third-quarter earnings, which broke several records, including revenue and profit in both the Atlantic and Pacific regions. However, despite these impressive results, the airline’s stock experienced a sharp decline of 5.6% in premarket trading, making it the biggest loser on the S&P 500.
Investors seem to be looking beyond the successful summer travel season as they grapple with more pressing concerns regarding the airline industry. United Airlines brought these apprehensions into focus by highlighting the challenges it anticipates in the fourth quarter. These challenges include higher fuel prices and flight cancellations to Israel.
The cancellation of flights to Israel is expected to have a noticeable impact on United’s earnings. If services to Tel Aviv are suspended through October, the airline expects its earnings per share to be $1.80. However, if the suspension persists until the end of the year, earnings per share are projected to be $1.50. In either case, these figures fall short of Wall Street’s expectations of $2.05 per share.
The news of United’s struggles has also affected other major U.S. carriers. Shares in Delta Air Lines (DAL) and American Airlines (AAL) were down by 1.6% ahead of their respective earnings reports.
Aside from disappointing guidance, United Airlines’ exposure to the Israeli market is likely a key factor contributing to its underperformance. According to Seaport Research analyst Daniel McKenzie, Israel accounts for approximately 2% of United’s total flying.
Overall, while United Airlines has achieved remarkable earnings results, concerns about the fourth quarter, specifically related to fuel prices and flight cancellations, have dampened investor sentiment and impacted the airline’s stock performance.
United Airlines Revises Earnings Forecast
United Airlines has revised its full-year earnings forecast, lowering it to $9.77 per share from the previous estimate of $10. The adjustment is primarily due to the loss of flights to Israel. Despite this setback, United remains hopeful about its long-term prospects.
Positive Outlook for United Airlines
United’s management maintains an upbeat outlook for the fourth quarter, citing stable demand and revenue per available seat mile. Additionally, the airline is experiencing strong last-minute demand. Given these positive indicators, analyst John McKenzie still recommends buying the stock, with a target price of $69.
American Airlines Tackles Israel-Hamas Conflict Impact
American Airlines is expected to report its earnings on Thursday. Though it will likely face some impact from the Israel-Hamas conflict, the effect is expected to be less severe than that of United Airlines. Analysts predict American to report earnings per share of 25 cents in the third quarter, with revenue totaling $13.5 billion.
Delta Air Lines Sets Confident Tone
Delta Air Lines’ president, Glen Hauenstein, expresses confidence in meeting the company’s guidance range, even in the worst-case scenario related to Israel. During the earnings call last week, Hauenstein assured investors that Delta remains unaffected by the conflict.
Oil Prices Pose a Collective Risk
One common risk faced by all airlines is the potential impact of prolonged conflict on oil prices. Elevated oil prices would result in higher jet fuel costs for the industry as a whole.
United, Delta, and American Positioned for Success
Despite the challenges faced throughout the year, United, Delta, and American are poised to outperform other U.S. airlines. Their international exposure and greater capacity to absorb higher costs provide them with a competitive advantage.