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The Ratings Game: United, American Airlines get quarterly boost from ‘revenge travel’

Shares of United Airlines Holdings Inc. and American Airlines Group Inc. rallied Thursday after the air carriers assured investors that “revenge air travel,” the pent-up demand for flights, is boosting their bottom lines and they will be profitable again soon.


late Wednesday reported better-than-expected first-quarter results that included a promise to return to profits this year, with American

following early Thursday with its own above-estimates report and a similar promise of profits for the year.

Both quarterly updates come after Delta Air Lines Inc.

reported its results last week, which were also above expectations and included strong guidance for the year.

Delta executives also highlighted a recovery in business and international air travel, which have lagged domestic and shorter “destination” flights.

United shares were trading at their best since early November, up 10%, with American shares gaining more than 5%.

United was “firing on all cylinders,” calling for record second-quarter revenue on business travel, demand for premium seats and for premium leisure destinations, Stephen Trent at Citi said in his note to clients Thursday.

United’s comments were “literally the most bullish we have heard since the pandemic’s onset,” Trent said, even as they would compare with a relatively stronger second quarter 2021.

“The carrier cited the pandemic’s shift to endemic, as well as ongoing strong results in virtually all of its segments, as driving robust results,” he said.

The one hurdle for United as well as other carriers is a pilot shortage in the U.S., although United said that the problem would be worse for smaller airlines, Trent said.

On the call with analysts, United Chief Executive Scott Kirby said that the industry needs to hire 13,000 pilots this year, versus an estimated 7,000 pilots that are available.

American had a guidance update last week, so the quarterly report had fewer surprises, Savanthi Syth at Raymond James said in a note. The report overall reflected a “strong demand environment,” she said.

American said it expects second-quarter capacity to be between 6% and 8% lower than pre-pandemic second quarter of 2019, and down about 5% for the year.

“Domestic remained the relative source of strength for the airline,” said Sheila Kahyaoglu at Jefferies. Passenger revenue for domestic fell 16% from 2019, which compares to a decline of 28% in international, she said.

American’s Latin American segment was an “area of strength” amid the weakness for international air travel, Kahyaoglu said. There, revenue fell 11% from 2019, compared to Atlantic and Pacific air-travel revenue down 31% and 83%, she said.

Shares of United have declined 0.8% in the past 12 months, and are up nearly 18% so far this year. American’s stock was a little worse off, down nearly 3% for the last 12 months and up 14% year-to-date.

Their performances compare with a decline of more than 7% so far this year for the S&P 500 index
and gains of around 6% for the index in past 12 months. The U.S. Global JETS ETF

has lost 11% in the last 12 months, and gained nearly 9% year-to-date.

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