How to Invest in United Airlines

United Airlines (UAL -1.25%) was one of the hardest-hit airline stocks during the pandemic, with shares shedding roughly half their value in 2020. But with air travel soaring post-pandemic, you may be wondering how to invest in United Airlines to cash in on that demand.

Investing in airline stocks isn't for the faint of heart. Airlines in general are a highly cyclical business, meaning they're prone to big booms and busts, depending on the overall health of the economy. Airlines also generally face cutthroat pricing competition in a business that's capital-intensive and hugely vulnerable to fuel price increases. Still, there are a few reasons an investor might consider adding United Airlines stock to their portfolios.

How to invest

How to invest in United Airlines stock

United Airlines trades on the Nasdaq stock exchange under the ticker UAL. It's pretty easy to buy and sell shares of the Chicago-based airline (or any publicly traded stock, for that matter). Just follow the four steps below:

1. Open a brokerage account: Your first step is to open a brokerage account, which you can easily do online. You'll need to provide some basic information, like your name, date of birth, and Social Security number. You'll also need to decide which type of account to open. If you're looking to invest for the long term, you could open an individual retirement account (IRA). But if you want the option to withdraw your money at any time, a taxable account is the better choice. Once you've opened the account, you'll need to fund it before you buy United Airlines stock.
2. Figure out your budget: Next, you'll need to decide how much money you want to invest. You never want to put too many eggs in one basket when you're investing in stocks. A common guideline in financial planning is that no single stock should make up more than around 5% of your portfolio. If you're new to investing, consider focusing most of your budget on an investment that's already diversified, like an S&P 500 index fund, then allocating a small amount to United Airlines or any other individual stock you want to buy.
3. Do your research: Before you buy United Airlines stock, you should understand how it makes money and its competitive advantages. Be sure you're also comfortable with the risks and rewards of investing in travel and tourism stocks.
4. Place an order: Once you've funded your account and worked out your budget, it's time to make your first trade. You'll enter United Airlines' ticker (UAL) and the number of shares you want to buy. Most major brokerages now offer fractional shares, so you could choose a flat dollar amount, as well. You'll also need to decide whether to place a market order (meaning the broker executes the trade immediately, regardless of the price) or a limit order (meaning the broker won't make the trade unless the stock is trading at a price you specify).

Should I invest?

Should I invest in United Airlines?

There are a few reasons you may want to consider adding United Airlines stock to your portfolio.

For starters, its forward P/E ratio is less than 5, which is lower than rivals American Airlines (AAL -1.77%), Delta Airlines (DAL 0.08%), and Southwest Airlines (LUV -0.84%). A forward P/E ratio has some limitations, but when a company's P/E ratio is low in comparison to similar stocks, it can suggest a stock is trading at a relative bargain.

The airline's United Next strategy could help it boost its efficiency in the long term. United plans to add 800 narrow-body and wide-body aircraft to its fleet through 2032, which will essentially translate to larger planes with more seats flying the same routes. In 2019, United averaged just 104 seats per North American departure, lagging behind most other airlines. But by 2030, the carrier aims to increase the number by 40%, which it says will lower per-seat costs.

United has also been rapidly adding international destinations, which could present growth opportunities if and when international travel recovers to pre-pandemic levels. That could pay off since long-haul flights tend to be more profitable for airlines. However, it also poses risks because international travel is more volatile. People are less likely to plan major trips abroad if they're worried about their finances or if there's geopolitical uncertainty.

It's also important to be aware of the broader challenges of investing in airlines: People tend to cut air travel during recessions. Also, legacy carriers like United face fierce price competition from budget airlines. Running an airline is also enormously expensive due to the high costs of buying or leasing aircraft, staffing, maintenance, and fuel.

With all that in mind, consider investing in United Airlines if:

• You believe the post-pandemic travel boom will continue and that international travel still has room to rebound.
• You feel that United Airlines can outperform the overall stock market.
• You believe that United Airlines has a strong advantage over its competition.
• You already have a diversified portfolio, and you're looking to increase your exposure to travel or transportation stocks.
• You believe the airline's business model is solid and would hang onto the stock even if its price plunged in the short term.

Conversely, you should avoid buying United Airlines stock if:

• You're not comfortable owning individual stocks of companies that are highly vulnerable to a recession.
• You're seeking dividend income.
• You're concerned that the price of fuel will skyrocket.
• You believe that other airlines have a more competitive business model.
• You believe that United Airlines or the airline industry in general doesn't have further room to recover.

Profitability

Is United Airlines profitable?

After being battered by the pandemic, United Airlines returned to profitability in 2022. Investors were enthusiastic when the company reported its fourth-quarter and fiscal 2023 year-end results, sending the carrier's share price up by around 10%.

The company reported a net income of $600 million for its final quarter of the year. United's total operating revenue increased year over year by 9.9% in the final quarter of 2023, rising to $13.6 billion, with earnings per share of $2.

The airline beat Wall Street's forecast of $13.54 billion in revenue and earnings per share of $1.70.

United reported that it flew 8.2 million passengers in the final two weeks of December 2023 -- making for the busiest period in the company's history. However, it also warned that it's forecasting a loss of $0.35 to $0.85 per share in the first quarter of 2024 due to issues with Boeing 737 Max 9 planes that grounded 79 planes in its fleet.

Dividends

Does United Airlines pay a dividend?

United Airlines doesn't pay dividends. The airline hasn't paid quarterly dividends since 2001, although it did pay a special dividend of $2.15 in 2008. Moreover, in its latest 10-K filing with the U.S. Securities and Exchange Commission, United says it doesn't intend to pay a dividend in the foreseeable future.

U.S. airlines were initially prohibited from issuing dividends as part of their COVID-19 bailout from the federal government. Since then, airlines, including Southwest and Delta, have resumed dividend payments.

ETFs

ETFs with exposure to United Airlines

If you don't want to buy individual shares of United Airlines, an alternative is to invest in an exchange-traded fund (ETF) that includes the stock in its holdings. Although you'd get a small amount of exposure through an S&P 500 ETF or a total stock market ETF, you could invest in an ETF that specializes in airlines, travel, or transportation. Examples include:

• U.S. Global Jets ETF (JETS -0.05%): The ETF is focused exclusively on the airline industry. Its 50 holdings include commercial airlines, aircraft manufacturers, airport operators, and companies that supply internet and other services to airlines. United Airlines is its fourth-largest holding, with a weight of just over 10%. The fund's expense ratio is 0.6%, which means $6 of a $1,000 investment would go toward fees.
• Defiance Hotel Airline and Cruise ETF (CRUZ -0.03%): This fund is an option if you want to broaden your investment beyond the airline industry to focus on the hotel and cruise industries as well. The Defiance Hotel Airline and Cruise ETF has 57 holdings, including United Airlines in its top 10. The ETF's expense ratio is 0.45%, which translates to $4.50 in fees on a $1,000 investment.
• SPDR S&P Transportation ETF (XTN -1.25%): This ETF tracks the S&P Transportation Select Industry Index, which consists of transportation stocks, including passenger airlines, along with companies that provide other types of air, marine, railway, and ground transportation services. About a quarter of the fund's 43 holdings are passenger airlines, including United. The 0.35% expense ratio on this transportation ETF amounts to $3.50 in fees on a $1,000 investment.

Stock splits

Will United Airlines split its stock?

United Airlines has split its stock twice: The first time was a 1-for-2 reverse stock split in 1994, followed by a 4-for-1 split in 1996.

Don't expect to see United on the list of upcoming stock splits any time soon. Companies usually split their stock when share prices have climbed so high that they feel out of reach to many investors. Given that United's share price was hovering around the $40 mark as of mid-March 2024, it's highly unlikely that a stock split is on the horizon.

Related investing topics

The bottom line on United Airlines stock

United Airlines is once again profitable after being pummeled by the pandemic. It continues to grow its revenue thanks to surging demand for air travel and could benefit if international travel fully recovers, although it faces short-term headwinds from faulty Boeing planes.

It's important to assess your risk appetite before you invest in United or any other airline stock. Due to the cyclical nature of the business, the fierce competition, and the capital-intensive nature of the business, only invest if you can afford to hang on during periods of short-term volatility.

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