United Airlines Holdings (UAL -0.16%) announced a massive new airplane order this morning, and investors are not sure what to think. Shares of United initially traded up as much as 3%, but then fell 7% on a volatile day for stocks more broadly. As of 1:28 p.m. ET, the stock was down 6%.
United has been a relatively stable flyer in a turbulent year, with its shares outperforming the S&P 500 by about 10 percentage points. Strong demand for travel has allowed the airline to offset higher fuel and labor costs, and in October United CEO Scott Kirby said he believes there has been a "permanent structural change in leisure demand because of the flexibility that hybrid work allows," meaning demand is holding up better at times that were traditionally quiet.
But United has one of the older fleets in the industry, and it's going to need a lot more planes to keep up with future demand. On Tuesday, United inked a massive 200-plane order with Boeing to meet the future needs of the business. United is buying 100 new 787 Dreamliners with options to buy 100 more, a deal that represents the largest widebody aircraft order in U.S. aviation history.
With the latest orders, United now expects to take delivery of about 700 new aircraft through 2032, including an average of more than two every week in 2023 and three per week in 2024. About 100 of the new planes will replace older Boeing 767 and 777 aircraft, resulting in a decrease in expected emissions of about 25%.
"United emerged from the pandemic as the world's leading global airline and the flag carrier of the United States," Kirby said in a statement. "This order further solidifies our lead and creates new opportunities for our customers, employees and shareholders by accelerating our plan to connect more people to more places around the globe and deliver the best experience in the sky."
Boeing and archrival Airbus battled for this order, and with Boeing eager to move metal post-pandemic, United likely got favorable pricing.
The plane deal will help United to sort out its long-term future, but the near term is still clouded with uncertainty. United shares fell into the red midday along with a drop in the broader market due to continued inflation concerns. Before markets opened, investors found out inflation had climbed at a lower-than-expected rate in November. The news was initially greeted with a cheer, but it is unlikely to cause the Federal Reserve to back off planned interest rate hikes later this week and into the new year.
So far, airline demand has held up well in 2022. But historically in times of inflation and a slowing economy, travel stocks have suffered along with consumer confidence. There is still a real risk the Fed's battle against inflation will lead to a recession in 2023, which could crimp business and leisure demand for airline tickets.
For those with a long time horizon, United is making all the right moves to be a long-term winner. But those boarding now are likely to face significant turbulence in the quarters ahead as the macro story plays out, and investors on Tuesday appear content to wait this one out.