UAL (UAL) Q1 Earnings Reflects Travel Bounce; Outpacing Fuel Costs?

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Ollie Martin
Updated: 21 Apr 2022

Key points:

  • Airlines are finally starting to see the light after two years of travel uncertainty
  • Pent-up demand outweighs rising travel fares as airlines battle with rising fuel prices
  • UAL reported a Q1 loss of $4.24 against a $4.22 consensus

After a grueling two years, travel companies are starting to see a strong uptick in business after the pandemic fog clears, staff shortages ease, and consumer demand returns with a vengeance. UAL (NASDAQ: UAL ) reported its Q1 earnings last night, which not only displayed a bounce in financials, but reflects the health of the wider airline industry, and the travel sector as a whole. After two years of solid industry neglect, UAL expressed that profits are expected to finally return this year.

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Pent up demand has spurred a surge in travel bookings, with customers willing to pay more after the end of intermittent restrictions opens up the world once again. According to the company, Inflation is yet to deter eager traveler's despite soaring costs weighing on disposable budgets. 

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What we’re seeing is what UAL CEO Scott Kirby defines as “a hockey stick increase in demand”. The upbeat outlook from management was enough to welcome bulls back to the sideways stock, with UAL shares currently trading at a premarket gain of 9%. 

The company reported an adjusted loss per share of $4.24 against the consensus of $4.22. Revenue came in at $7.57B, just under the expected $7.68B. This isn’t of huge importance for investors; the key metric for Q1 was a clear-cut uptick in travel bookings, a trend that will only continue as summer looms. 

The main thing that investors will want to watch out for is how the company grapples with soaring fuel prices. Offsetting fuel costs with rising ticket prices might work in the short-term as pent-up demand outweighs inflation fears, but as soon as the resurgence loses post-pandemic momentum; higher ticket prices might not cut through fuel pressures. In Q1, the company paid $2.88 per gallon of fuel, up from $2.05 in 2019 and $1.74 last year. It will be interesting to see how inflation affects the wider industry as the year moves forward, and travel trends return to normal. UAL shares are trading comfortably below pre-pandemic levels, so upside potential evident.

 

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