United Airlines Faces Boeing MAX 9 Grounding's Negative Impact On Capacity Growth: Analyst

BofA Securities analyst Andrew G. Didora reiterated the Buy rating on United Airlines Holdings, Inc. UAL, raising the forecast to $60 from $56.

The analyst writes that after a volatile start to the year for airline share prices, the company’s shares were +5% after a solid fourth-quarter earnings beat and 2024 EPS outlook.

Despite significant 2024 cost pressures from Boeing Company‘s BA 737 MAX 9 grounding and other inflationary items, revenue commentary was stronger than expected, the analyst adds.

According to Didora, this provided a solid foundation for the 2024 EPS outlook.

Regional commentary was similar to Delta Air Lines, Inc. DAL, with positive trends in domestic and Atlantic vs negative trends in Pacific and Latin America. 

Further, United sounded very constructive on 2024 pricing, expecting positive unit revenues, the analyst adds.

However, the company noted the continuation of several cost pressures that have impacted the industry since the recovery began, namely labor (3-4% points) and maintenance (1% point).

Specific to United, an accounting reclassification related to commissions now presents a 1% point headwind to unit costs, and the MAX 9 grounding’s negative impact on capacity growth, interrupted trip costs, and other close-in cancellation-related costs present a 3% point unit cost headwind should the grounding continue through January.

In total, these pressures are nearly 2% pts stronger than the analyst’s forecast, bringing the 2024 unit cost forecast to +4.0% from +2.2%, Diadora adds.

Price Action: UAL shares are trading higher by 0.89% to $40.85 on the last check Wednesday. 

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