Please ensure Javascript is enabled for purposes of website accessibility

Why United Airlines Stock Is Falling Today

By Lou Whiteman - Updated Apr 20, 2021 at 10:26AM

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

Earnings fail to excite investors.

What happened

Shares of United Airlines Holdings (UAL 2.88%) fell 5% at the open on Tuesday after first-quarter results failed to impress. Investors have steadily climbed on board the airlines in 2021 after a disastrous 2020, but are getting a fresh reminder of the challenges the industry faces.

So what

On Monday evening United reported a first-quarter adjusted loss of $7.50 per share on revenue of $3.2 billion, falling just short of the consensus estimate of a $7.05-per-share loss on $3.27 billion in revenue. Total revenue declined 59.6% year over year, as expected, but higher-than-expected payroll and maintenance costs weighed on results.

A United plane in flight.

Image source: United Airlines Holdings.

The loss is no surprise, as airlines continue to be weighed down by a lack of travel demand due to the pandemic. The stocks lost significant value in 2020 as COVID-19 spread, but the shares have recovered some of what was lost so far in 2021 on hopes that as a vaccine rollout happens travel demand will rebound.

That rebound is clearly happening. CEO Scott Kirby said in a statement the airline sees "a clear path to profitability" as a recovery takes hold.

"We're encouraged by the strong evidence of pent-up demand for air travel and our continued ability to nimbly match it, which is why we're as confident as ever that we'll hit our goal to exceed 2019 adjusted EBITDA margins in 2023, if not sooner," Kirby said.

Now what

Conditions are clearly improving, and United had $21 billion in total liquidity at quarter-end to make sure it can ride out whatever storm clouds remain on the horizon. The issue is 2023 is a long time away.

Prior to the pandemic, United had a route network that was the envy of the industry in large part because it was set up so well to generate revenue from higher-margin business and international flying. That's still a long-term advantage for the company, but with near-term demand focused on domestic leisure travel other airlines are likely to recover before United.

The airline is doing what it can to address these structural issues, adding flights to leisure destinations and reducing its cost structure so it can make money on lower business and international volumes. But with airlines trading near pre-pandemic valuations, investors, on Tuesday at least, are not in any mood to buy into the uncertainty.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$36.44 (2.88%) $1.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

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