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.
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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.
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