Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of United Airlines Are Up Today

By Lou Whiteman – Updated Oct 19, 2020 at 7:36AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company sees hope in the long term.

What happened

United Airlines Holdings (UAL -0.72%) late last week delivered quarterly earnings loaded with near-term pain, with a sprinkle of long-term optimism thrown in. Investors initially focused on the near-term issues, sending shares down on Friday, but on Monday, United shares climbed 5% as the markets digested the airline's outlook.

So what

United lost more than $8 per share in the third quarter, bleeding through about $25 million per day as the coronavirus pandemic continues to take a toll on the industry. Airlines still have "12 to 15 months of pain, sacrifice, and difficulty ahead," CEO Scott Kirby said on a post-earnings call with investors.

The company and other airlines are laying off tens of thousands of workers, and United is worried that business travel will not recover to pre-pandemic levels until 2024.

A United plane takes off.

Image source: United Airlines.

But for all that doom and gloom, United also used the third-quarter call to signal that it believes the worst is behind it. Kirby said "the light at the end of the tunnel is now visible," and United has begun the process of adding back flights designed to capture demand as it returns.

Kirby also said he believes United will return to cash positive before either Delta Air Lines (DAL -1.71%) or American Airlines Group (AAL 0.66%), implying the risk of a United bankruptcy is low.

Now what

I think Friday's sell-off was overdone. We knew the third quarter was going to be terrible for the industry, and it was. But United, in talking up its prospects of a recovery, has me more optimistic about the airline (and the stock) than I have been for years.

That said, investors should not ignore the part about another year or more of pain and sacrifice ahead. United's network arguably isn't set up well to take advantage if leisure travel returns before business and international, as assumed.

Even if Kirby is correct and United gets back to cash flow positive before its rivals, I still think Delta and Southwest Airlines (LUV 0.03%) are better investment choices for now. But United, it seems, is going to make it through the crisis, and that's reason enough for investors to celebrate on Monday.

Lou Whiteman owns shares of Delta Air Lines. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.