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United Airlines Q1 Losses Depict a Rough Start to 2020

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Apr. 30 2020, Published 7:34 a.m. ET

United Airlines (NYSE:UAL) will likely report its results for the first quarter of fiscal 2020 on May 1. On April 20, the company discussed its preliminary results for the first quarter. United Airlines stated said it would report a loss of $2.1 billion and lower revenues of $8 billion. The results are lower than analysts’ expectations. Analysts revised the estimates for most airline companies after United Airlines’ preliminary results. They also looked at the current situation in the airline industry.

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United Airlines’ Q1 results

As stated in the preliminary results, United Airlines’ revenue fell by 17% in the first quarter to $8.0 billion. Analysts expected the revenue to be around $8.2 billion. Sequentially, the revenue declined by 26% from $10.8 billion in the fourth quarter of fiscal 2019. The airline reported a loss of $2.1 billion. In contrast, the company reported a profit in the fourth quarter of fiscal 2019.

The first-quarter numbers depict a rough start to the year for United Airlines and the US airline industry. Analysts expect United Airlines’ numbers to fall more in the second quarter. The impact of the COVID-19 outbreak is more evident due to extended lockdown and travel restrictions. Most of the airlines don’t expect a recovery until the pandemic is completely gone. Analysts expect United Airlines’ revenue to decline in the second quarter to $2.7 billion. The revenue could slowly start rising in the third quarter to $5.5 billion and $8.1 billion by the fourth quarter if air travel resumes.

American Airlines (NASDAQ:AAL) will likely report its results for the first quarter of fiscal 2020 today. The airlines could report a revenue decline of 15.5% in the first quarter to $8.93 billion. The loss could be $2.33 per share in the first quarter compared to a profit of $0.52 per share in the same quarter last year.

Spirit Airlines (NASDAQ:SAVE) will likely report its results for the first quarter of fiscal on May 7. Analysts expect the company to report revenue of $810.2 million. Sequentially, the revenue could decline compared to $969.8 million in the fourth quarter of 2019. Spirit Airlines could report a loss of $0.63 per share compared to a profit of $0.84 profit in the same quarter last year.

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Long way to recovery for the airline industry

United Airlines could also report higher losses of $13.0 per share in the second quarter. The losses could start declining to $6.3 per share in the third quarter and $0.22 per share in the fourth quarter. However, analysts don’t expect airlines to report any profit until the second quarter of fiscal 2021.

The recovery in the airline industry could take a long time. Recently, United Airlines had to sell 22 planes to BOC Aviation and lease them back later to conserve cash amid the pandemic. However, the airline industry is financially equipped to survive COVID-19. Most of the companies have received financial assistance under the Payroll Support Program of the CARES Act. Earlier, I discussed how United Airlines has secured $5.0 billion under the CARES Act. Also, the company plans also to apply for $4.5 billion in loans.

Analysts’ recommendations

Currently, 18 analysts cover United Airlines stock. Nine analysts recommend a “hold,” seven recommend a “buy,” and two recommend a “strong-buy.” The average target price on the stock is $48.71, which represents an upside potential of 56% from its last closing price. The stock closed 12.1% higher at $31.21 on April 29. At 6:39 AM ET today in pre-market trading, the stock has gained 4.1%.

Stay with us to learn more about United Airlines’ plans for fiscal 2020.

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