The shares of United Airlines (NASDAQ: UAL) have remained relatively flat since April despite a sizable contraction in broader markets. Rising energy costs and skyrocketing inflation have taken a toll on growth and profitability metrics of the transportation industry, but strong air travel demand is likely to drive UAL stock as macroeconomic tensions ease. While the geopolitical uncertainty due to the Russia-Ukraine war is jeopardizing global economic growth and triggering measures such as new energy security alliances, passenger numbers at TSA checkpoints is a positive indicator for the airline industry. Moreover, United Airlines incurred $4 billion of operating cash burn in the last two years which stands lower than the $10 billion contraction in its market capitalization. Our interactive dashboard on United Airlines valuation highlights the historical trends in revenues, earnings, valuation multiple, and forecast for FY2022.
How did United Airlines perform in 2021 and Q1 2022?
In 2021, United Airlines reported $24.6 billion of total revenues and $2 billion of operating cash assisted by PSP-2 and PSP-3 (payroll support program) proceeds. The company’s operating metrics reached pre-pandemic levels during the latter part of the year as declining infection rates pushed travel demand. In H1 2021, the company’s ASMs (available seat miles), occupancy rate, and yield (cents) were 70k, 65.4%, and 14.60, respectively. For the full-year, ASMs (available seat miles), occupancy rate, and yield (cents) reached 178k, 72.2%, and 15.66, respectively. While the demand factors improved during fall and winter, inflationary pressures from the Russia-Ukraine war and supply chain hurdles created macroeconomic headwinds for the airline industry.
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In Q1 2022, the company reported $7.5 billion in revenues – just 21% lower than Q1 2019. Rising benchmark prices, staffing issues, and the Omicron wave augmented operational challenges. Notably, CASM-Ex (cost per available seat miles excluding fuel expense) surged by 18% when compared to Q1 2019, largely due to comparable overall costs and lower aircraft utilization rate. Thus, United booked a net loss of $1.4 billion for the quarter.
Inflation moving in sync with benchmark oil prices
The consumer price index for urban consumers (CPI-U) observed an 8.3% (y-o-y) jump in April 2022, primarily from rising energy costs which are having ripple effects across the economy. Inflation in key items such as food, energy, other commodities, shelter, medical services, and airline fares was 9.4%, 30.3%, 9.7%, 5.1%, 3.5%, and 33.3%, respectively. Given the 40% increase in benchmark oil prices in the past year, increasing airfares is the only option for airlines to bolster their bottom line. Interestingly, the Brent benchmark is likely to trend downward from $103 in 2022 to $97 in 2023 according to EIA. Similarly, the World Bank expects Brent crude to observe a decline from $100 in 2022 to $92 in 2023 and $80 in 2024 – raising hopes of a return to normalcy as geopolitical tensions ease in various parts of the world.
|S&P 500 Return||-2%||-15%||81%|
|Trefis Multi-Strategy Portfolio||-3%||-19%||218%|
 Month-to-date and year-to-date as of 5/27/2022
 Cumulative total returns since the end of 2016
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