United Airlines Expects Larger Losses in Q1 Due to Grounded Boeing Jets, but Forecasts Strong Full-Year Profit
United Airlines Holdings Inc. has announced that it anticipates incurring greater losses than initially expected in the first quarter due to the grounding of Boeing 737 Max 9 jets. The government ordered the grounding after an Alaska Airlines flight experienced a mid-air blowout. However, despite this setback, United Airlines shares rallied 6% after hours on Monday as the company forecasted a full-year profit that exceeded expectations. This positive outlook follows a surge in fourth-quarter results, which surpassed projections. United Airlines attributed its success to both its premium-cabin offerings and its more affordable basic economy fares.
For the first quarter, United Airlines projected an adjusted loss of 35 cents to 85 cents per share, worse than the anticipated 23-cent per-share loss on Wall Street. The airline currently operates 79 Max 9 jets, and the groundings will result in increased costs. In a filing, United Airlines stated that it expects the grounding to lead to approximately 3 percentage points of incremental adjusted unit costs between January 6, 2024, and January 31, 2024. The Federal Aviation Administration grounded a total of 171 Max 9 jets following the incident on the Alaska Airlines flight. Although there were no severe injuries reported, both Boeing and air-safety regulators are likely to face further scrutiny as inspections continue.
Despite these challenges, United Airlines remains optimistic about its full-year performance. The company expects adjusted earnings per share between $9 and $11, surpassing FactSet’s forecast of $9.53. Following this announcement, shares rose by 5.4% after hours. United Airlines will hold an earnings conference call on Tuesday morning to discuss its results and forecasts. Chief Executive Scott Kirby expressed confidence in the continuation of the positive trends observed by the airline last year. However, the carrier is entering a year marked by heightened drama in the airline industry. Some analysts have expressed concerns about airlines having an excess number of flights and insufficient demand, as well as grappling with increased costs after two years of “revenge” travel. Furthermore, with the fate of the Max 9 still uncertain, Jefferies analysts noted that United Airlines’ full-year outlook appears “vague.”
In other news, Spirit Airlines Inc. and JetBlue Airways Corp. are attempting to salvage their merger deal after a federal judge blocked it last week. Analysts have raised doubts about Spirit Airlines’ ability to survive independently. Additionally, the Federal Aviation Administration has recommended inspections for another Boeing aircraft model, the 737-900ER, over the weekend.
United Airlines reported fourth-quarter net income of $600 million, or $1.81 per share, compared to $843 million, or $2.55 per share, during the same quarter in 2022. Adjusted earnings for United Airlines were $2 per share, exceeding analysts’ expectations. The company’s revenue also rose by 9.9% to $13.63 billion. United Airlines attributed its success to its diversified revenue strategy, which proved to be a critical competitive advantage. Revenue from the airline’s premium cabin increased by 16% year over year, while its basic economy offering saw a substantial revenue increase of 20% for the same period.
Bank of America analysts recently upgraded United Airlines shares to a buy rating. They commended the company’s slightly more aggressive focus on transatlantic travel compared to its competitors and noted that its emphasis on higher-end seating arrangements and other amenities had been paying off.
Overall, United Airlines faces challenges in the first quarter due to grounded Boeing jets. However, the company remains optimistic about its full-year profit and is confident in its ability to maintain positive trends observed in the previous year. With ongoing scrutiny on Boeing and air-safety regulators, the fate of the Max 9 remains uncertain. Meanwhile, other airlines, such as Spirit Airlines and JetBlue Airways, are grappling with their own obstacles, including a blocked merger deal. United Airlines’ strong fourth-quarter results and revenue growth demonstrate the effectiveness of its diversified revenue strategy. As the airline industry navigates through a year marked by uncertainty, United Airlines aims to leverage its competitive advantages to secure a successful year ahead.
