United Air Sees Profit on Horizon Despite Renewed Virus Fear

(Bloomberg) -- United Airlines Holdings Inc. is confident that a domestic travel resurgence will continue despite rising coronavirus infections, leading the carrier to forecast profits for the rest of this year

“We don’t just see the light at the end of the tunnel, we’re exiting the tunnel,” Chief Executive Officer Scott Kirby said on an earnings call Wednesday, citing robust demand.

“It’s possible we’ll have a temporary pullback in the reopening” as infections climb, he said. But since studies indicate that vaccinations protect against serious health problems, “that seems like a lower probability outcome.” United customer surveys indicate that 84% of its loyalty program members have been fully vaccinated.

United late Tuesday projected posting an adjusted pretax profit in the third quarter and another in the fourth, excluding the billions of dollars it received in government payroll aid. While the carrier didn’t quantify how much it expected to earn, any profit would top the second-half loss Wall Street analysts have projected.

The improved outlook underscores the robust rebound in domestic travel buoying U.S. airlines, as families reunite and take summer holidays after more than a year of staying close to home. Yet the industry is also in a precarious position as the virulent coronavirus delta variant spreads in the U.S., Europe and Asia, making future demand for seats difficult to predict.

Airline stocks have seesawed as a result, with Standard & Poor’s index of major U.S. carriers surging on Tuesday after a tumble the day before. United gained 4.5% to $48.42 at 1:14 p.m. in New York on Wednesday. The stock had climbed 7.1% this year through Tuesday, trailing the index’s 8.9% advance.

Long-distance international flights and business travel accelerated faster than expected in the second quarter, United said. The airline expects a fuller resumption of corporate trips later this year, coinciding with the usual tapering of leisure travel in the fall. The airline sees a full recovery in 2023, it said, with its overall capacity surpassing 2019 levels by next year.

Cowen analyst Helane Becker highlighted the airline’s expectations for strong recoveries in business and international traffic, plus a jump in the second quarter’s value of unused tickets, to $6.96 billion from $5.5 billion in the first.

That “gives us confidence United can produce strong second-half results,” she said in a note to clients.

The Chicago-based company’s profit projection comes even as the airline industry faces higher prices for jet fuel compared with a year ago. United said its cost per gallon rose 67% in the second quarter to $1.97.

Its second-quarter loss narrowed to $3.91 a share, 7 cents worse than the average of analyst estimates compiled by Bloomberg. Sales more than tripled to $5.47 billion. Analysts had predicted $5.35 billion.

United said it would fly 74% of its 2019-level capacity in the third quarter. That’s a jump of 39 percentage points from the second quarter, reflecting the rebound in demand and wider border openings that have allowed vaccinated Americans to travel to Europe.

Airlines continue to negotiate with President Joe Biden’s administration to open U.S. borders to European travelers, a process Kirby said Wednesday has been “a two-way conversation” as both carriers and government officials seek to protect public safety.

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