United Airlines Q1 2021 Earnings Preview: What to Look For

Focus on UAL load factor

Key Takeaways

  • Analysts estimate adjusted EPS of -$6.89 vs -$2.57 in Q1 FY 2020.
  • Passenger load factor is expected to fall YOY, but improve slightly compared to Q4 FY 2020.
  • Revenue is expected to fall for the fifth straight quarter due to the COVID-19 pandemic.

United Airlines Holdings Inc. (UAL) has significantly cut back its flight schedule in the past year due to the COVID-19 pandemic as many travelers have opted to stay home. The airline in May of 2021 will offer only half of the volume of scheduled flights compared to the same month two years ago. Now, United is preparing for a potential surge in passenger traffic starting this summer as regulations and customer concerns about travel ease. The airline is expanding its domestic flight schedule and boosting orders for Boeing 737 Max planes.

Investors will look for signs of a recovery at United when the company reports earnings after the market on April 19 for Q1 FY 2021. Analysts expect adjusted losses per share (EPS) to widen significantly year-over-year (YOY) and for revenue to fall for a fifth straight quarter.

A key metric that investors are likely to focus on in the report is United's passenger load factor, a measure of an airline's efficiency that gauges what percentage of United's seating capacity is being used. Analysts expect the load factor to plunge YOY, although it's expected to be modestly higher than Q4 FY 2020.

United shares traded roughly in line with the broader market for much of the final three quarters of 2020, save for a momentary spike in June. In December 2020, the share price rose once again before falling slightly in the new year. Since then, United shares have sharply outperformed the S&P 500 in 2021. As of April 18, United has provided a 1-year trailing total return of 98.1%, far ahead of the S&P's total return of 49.5%.

One Year Total Return for S&P 500 and United Airlines
Source: TradingView.

United Airlines Earnings History

One factor fueling United's late 2020 stock gains may be that the company's adjusted losses per share narrowed slightly on a sequential basis for Q3 and Q4 FY 2020. United reported its first quarterly adjusted loss per share in several years in Q1 FY 2020 due to the pandemic. Adjusted losses per share grew to their highest level in Q2 before improving in the final two quarters. Analysts predict that this figure will continue to improve slightly on a sequential basis, with United posting a loss of $6.89 a share in Q1 FY 2021. Despite that improvement, the estimate is more than double the size of the loss in Q1 FY 2020 and also only slightly smaller than Q4 2021, showing that the company still has significant ground to make up going forward.

United's revenue has fared similarly in recent quarters. Revenue dropped by 16.8% YOY in Q1 FY 2020, then plunged by 87.1%, 78.1%, and 68.7% YOY in Q2, Q3, and Q4, respectively. Analysts predict that Q1 FY 2021 revenue will be down by 55.4% YOY. That would be more than triple the decline of Q1 FY 2020 but an improvement compared with the most recent three quarters.

United Airlines Key Stats
  Estimate for Q1 FY 2021 Q1 FY 2020 Q1 FY 2019
Adjusted EPS -$6.89 -$2.57 $1.15
Revenue (billions) $3.6 $8.0 $9.6
Load factor 58.5% 70.9% 80.9%

Source: Visible Alpha

The Key Metric

As mentioned, United investors are likely to focus on the company's passenger load factor. This metric measures the percentage of available seating capacity that is filled with passengers. A high load factor is associated with a high percentage of seats occupied by passengers. Airlines have a strong incentive to sell more tickets and fill more seats because the costs of sending an aircraft into flight are relatively the same regardless of the number of passengers. With a higher load factor, an airline is spreading its fixed costs across a larger number of passengers, making the airline more profitable. However, the COVID-19 pandemic has disrupted this logic. Fuller planes are seen as worse from a public health perspective during the pandemic. This is a primary reason why sharp declines in air travel, and thus falling load factor, have been a significant problem for airlines in the last year.

Prior to the pandemic, United's load factor was regularly in the low-to-mid 80s through FY 2018 and FY 2019, reaching a high of 86.1% in Q3 FY 2019. United's load factor dropped to 70.9% in Q1 FY 2020, a reflection of the impact of the pandemic toward the end of that quarter. It then plummeted to 33.1% for Q2 FY 2020 and only partially recovered through the end of the year. Most recently, for Q4 FY 2020, United's load factor was 55.6%. Analysts estimate a tepid recovery in Q1 FY 2021, predicting a load factor of 58.5%. That load factor is dramatically below United's pre-pandemic levels highlights the long path that United faces to recovery.

Article Sources
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  1. Bloomberg. "United Air Deepens Bet on Leisure Flights That Bypass Big Hubs." Accessed April 18, 2021.

  2. New York Times. "United Adds to Its Orders for Boeing 737 Max Planes." Accessed April 18, 2021.

  3. Yahoo! Finance. "United Airlines' (UAL) Q1 Revenue View Weaker Than Expected." Accessed April 18, 2021.

  4. Visible Alpha. "Financial Data." Accessed April 18, 2021.

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