United Airlines Holdings (NASDAQ:UAL) provided a tepid outlook for the next few months, putting the entire sector under pressure. Shares of United traded down by as much as 10% on Tuesday, and American Airlines Group (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), JetBlue Airways (NASDAQ:JBLU), and Spirit Airlines (NYSE:SAVE) all fell, as well.
After a miserable 2020, the airlines, which were weighed down by the pandemic, are on a path toward recovery. But after digesting United's earnings report, investors got a reminder of how long that recovery will take. United lost $7.50 per share in the quarter, which was worse than anticipated, on revenue that was down 59.6% from the prior year.
Management was largely upbeat, with CEO Scott Kirby saying he sees "a clear path to profitability" as a post-pandemic recovery takes hold. But United also said it sees capacity down 45% year over year in the second quarter and revenue per available seat mile, a common industry metric, down 20%.
United also doesn't see a quick recovery for international and business travel, and said it could take until 2023 before the airline generates margins that exceed 2019.
These are hardly United-specific issues. On a day when broader markets were under pressure, the entire airline industry took it on the chin. American and Delta have business models similar to United and will be impacted by sluggish international and corporate demand.
While JetBlue and Spirit are arguably set up to better take advantage of a domestic-focused recovery, United's commentary on margins indicates that there isn't much pricing power, even with demand coming back.
The airlines have been a big part of the so-called "recovery rally," with some of these stocks up 60% for the year only a few weeks ago. There's good reason for optimism, but the stocks arguably have gotten ahead of the results.
United's results are a reminder of how much work is still to be done. On Tuesday, at least, investors were in no mood to sit around and wait for a recovery.