Airline stocks were rising Wednesday after the chief executive of United Airlines laid out multiple reasons why he thinks the future of air-travel was set for take off.
United (ticker: UAL) reported third-quarter results that beat Wall Street estimates. The Chicago-based carrier also said TRASM — or total revenue per available seat mile — for the third quarter rose 25.5% from the same period in 2019, and that September was the third best TRASM month in the company's history, not including the low-flying pandemic months.
"Despite growing concerns about an economic slowdown, the ongoing Covid recovery trends at United continue to prevail and we remain optimistic that we'll continue to deliver strong financial results in the fourth quarter, 2023 and beyond," CEO Scott Kirby said in United's earnings release.
But it was what Kirby said on the company's earnings call that really has grabbed investors' attention. The CEO said he was "so optimistic about 2023" and the future of air travel.
For one, Kirby said that "aviation uniquely is still in the Covid recovery phase," and because of this he believes there is still a lot of room for growth. The CEO added that changes brought about by the pandemic were leading him to believe there was a strong future for air travel, attributing it to the "permanent structural change in leisure demand because of the flexibility that hybrid work allows."
"People want to travel and have experiences, and hybrid-work environments untether them from the office and give them the newfound flexibility to travel far more often than before," he said.
Lastly, Kirby said he recognized that pilot shortages, aircraft delivery shortages from both Boeing (BA) and Airbus, air traffic control saturation and airport infrastructure constraints around the world have been impacting airlines. He believes the issues will take years to fully resolve, but won't last forever. United said it was on track to hire 2,300 pilots this year.
United was the third-best performer in the S&P 500 Wednesday, climbing 6.1% to $39.54, which if it finishes the session at that level would be its highest close since Aug. 16, according to Dow Jones Market Data. American Airlines (AAL) shares increased 3.9% and were up for the seventh straight trading day, on pace for their longest winning streak since September 2019. Delta Air Lines (DAL) shares were 1.5% higher, up for the sixth straight day and on pace for their longest winning streak since August 2020.
Cowen analyst Helane Becker maintained her Outperform rating on United and her $75 price target on the stock.
"U.S. citizens will continue to travel through at least year-end, and most likely well into 2024 before they are sated. There are three years worth of travel and bucket list trips for people to take, and they appear to be willing to travel in spite of various economic and geopolitical issues," Becker said in a research note.
Citi analyst Stephen Trent also maintained his Buy rating and $56 price target on United shares.
"The carrier's third-quarter results and fourth-quarter guide looked very strong, with unit revenue coming in above expectations and unit costs well-controlled, even if the carrier did seem to get a little help from a lower-than-expected third-quarter tax rate," Trent wrote in a research note.
Delta also issued upbeat guidance last week.
Multiple airlines are set to report earnings in the coming days. American Airlines and Alaska Air Group (ALK) report third-quarter earnings on Thursday, JetBlue Airways (JBLU) reports on Oct. 25, and Southwest Airlines (LUV) reports earnings on Oct. 27. Analysts will be focused intently on the financial outlooks these airlines provide.