United Airlines set for growth – should you invest?
Airlines have rebounded well after Covid, but United Airlines can soar higher
The US airline industry has had a terrible record of losing money. Its history of bankruptcies and bailouts has been so bad that legendary investor Warren Buffett quipped in 2007 that it might have been better for investors had someone shot the Wright Brothers before they invented the first working aeroplane. Unfortunately, even Buffett would end up learning this the hard way, when his move into airlines in 2016 resulted in having to dump his shares in American, Delta, Southwest and United four years later at a loss weeks after the start of the Covid pandemic. However, things are finally beginning to look up for the sector.
Three years after restrictions started to be lifted, passenger figures have now fully recovered. The monthly total number of passengers (both domestic and international) boomed this summer, reaching an all-time high that was around 5% higher than in 2019, according to the US Bureau of Transportation. At the same time, consolidation within the industry, as well as supply constraints – such as a shortage of pilots – has reduced competition, allowing airlines to charge more and boost margins. With the US economy now expected to avoid the recession that many were previously predicting, demand is set to increase further.
Is it the right time to invest in United Airlines?
Of all the US airlines, the most promising is United Airlines (Nasdaq: UAL). United recovered from Covid quickly, surpassing its 2019 figures back in 2022 – the same year it returned to profitability. A decision to invest in increasing capacity in 2022 – at a time when many of its rivals were cutting back – has helped it continue to grow, and it is now expanding by around 5%-6% a year. What’s more, United has a clear and well-thought-out strategy for further expansion that involves increasing the total number of flights between the US and Southeast Asia.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It also plans to serve a greater number of Asian cities, including many that are not currently served by any of its US rivals. This should enable it to benefit from fast growth in the region while also avoiding competition. United’s fundamentals also look attractive. As well as strong revenue growth, it has solid profit margins and a return on capital expenditure of around 10%, showing that it is deploying capital in an efficient manner. However, its past history and the industry’s poor reputation mean that it is still valued at just 5.3 times 2025 earnings.
If it continues to perform well, it could benefit from greater optimism and a higher valuation. In fact, it looks like investors are already starting to come around. United’s shares have been on a tear over the last few weeks, up by more than half since the start of August, and above their 50-day and 200-day moving averages. I would therefore suggest going long at the current price of $61.80 at £45 per $1. In this case, I would put the stop-loss at $41.80, which would give you a total downside of £900.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
How ‘Bed & ISA’ could save you £15,000 over a decade
Moving your investments into a tax-free wrapper through ‘Bed & ISA’ transactions could save you thousands over the long run by cutting your tax bill
By Katie Williams Published
-
House prices hit record high, says Halifax
UK house prices rose 3.9% over the past year, with a typical property now costing £293,999. We look at which regions are seeing the strongest growth, and whether the rally in house prices will continue next year
By Ruth Emery Published
-
James Halstead is a family firm going cheap but should you buy?
James Halstead will rebound from a weak patch, while tax changes would be a buying opportunity
By Jamie Ward Published
-
Babcock: an overlooked defence investment
Defence stocks have outperformed this year, but Babcock has been left behind
By Oojal Dhanjal Published
-
Shares in luxury goods companies take a hit – will they recover?
Luxury goods companies have run into trouble, and the odds of a rapid recovery have receded. What next?
By Dr Matthew Partridge Published
-
Should you invest in Canada?
Canada presents a compelling opportunity for investors who want to look beyond the US. Greg Eckel of Canadian General Investments highlights four favourites
By Greg Eckel Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published
-
Will European stocks bounce back?
European stocks have looked unattractive for some time – will they bounce back?
By Alex Rankine Published
-
British American Tobacco goes smokeless – can it survive?
British American Tobacco’s core product is struggling, but new areas bode well, says Bruce Packard
By Bruce Packard Published
-
LSL Property Services: a profit-machine in the property sector
LSL covers every area of the residential real estate market and should thrive after its shake-up
By Rupert Hargreaves Published