Stock Wars: American Airlines Vs. United Airlines

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two high-flying airline industry leaders: American Airlines Group Inc. AAL and United Airlines Holdings Inc. UAL.

The Case For American Airlines: This company can trace its roots back to 1930 with the merger of 82 small carriers into a single entity operating under the American Airways brand. The current operation is a Fort Worth, Texas-based holding company that was created in December 2013 with the merger of AMR Corporation, the parent company of American Airlines, and US Airways Group, the parent company of US Airways.

Today, American Airlines serves 230 domestic destinations and 123 international locations.

Among American Airlines’ most recent corporate developments was last week’s announcement of CEO Doug Parker’s scheduled retirement for March 31, 2022. He will continue as board chairman while President Robert Isom transitions into the chief executive role. Also last week, the Wall Street Journal reported the carrier was planning to reduce its international flight offerings next summer due to delays in the delivery of Boeing Co.'s BA 787 Dreamliner aircraft.

Yesterday, American Airlines announced it was planning to hire 18,000 new employees in response to the travel industry's rebound from the pandemic. And last month, American Airlines and JetBlue Airways Corporation JBLU asked a U.S. judge to dismiss an antitrust lawsuit filed by the U.S. Department of Justice (DOJ) and six states over their "Northeast Alliance" partnership. The lawsuit claimed this partnership would hike fare and limit competition, but the carriers disputed those charges.

In its most recent earnings report, the third-quarter data published Oct. 21, American Airlines recorded total operating revenues of $8.9 billion, up from $3.1 billion one year earlier. The company’s net income of $169 million was an improvement from the pandemic-era third-quarter 2020 loss of $2.3 billion, and its diluted earnings per share (EPS) of 25 cents was far removed from the previous year of -$4.71.

Looking ahead, the company offered fourth-quarter guidance with its capacity down 11% to 13% compared to the pre-COVID-19 pandemic fourth-quarter 2019, along with a 20% lower revenue stream compared to that period.

“The American Airlines team continues to demonstrate its resilience and ability to execute, enabling us to deliver our best quarter since the pandemic began as measured by pre-tax financial results,” said Parker. “While the rise of the COVID-19 delta variant delayed some of our revenue recovery, it has not stopped our progress.”

American Airlines shares opened for trading on Wednesday at $16.91, which is closer to its 52-week range low of $14.71 than to its 52-week high of $26.09.

Related Link: The complete Stock Wars series

The Case For United Airlines: This Chicago-based company can trace its heritage back to Varney Air Lines, a 1926 start-up out of Boise, Idaho. Not unlike American Airlines, United Airlines was a 1930s creation when multiple smaller operations merged into a single entity with William Boeing as the driving force of that endeavor. And not unlike its rival carrier, the current Chicago-based holding company is the result of the combining of two major carriers, in this case, the 2010 merging of United Airlines and Continental Airlines.

Today, United flies to more than 210 destinations in the U.S. and more than 120 international locations.

Among United Airlines’ most recent corporate developments was yesterday’s ruling by a U.S. Court of Appeals to deny an effort of six employees to block United Airlines from enforcing a COVID-19 vaccine mandate for workers that imposed unpaid leave on those granted religious or medical exceptions. United was the first carrier to issue a vaccine mandate on its workforce. The company also announced a partnership with Virgin Australia Group to enhance the travel experience between Down Under and the Americas.

Last month, United Airlines announced an investment in zero-emission, hydrogen-electric engines for regional aircraft through an equity stake in ZeroAvia, a company focused on hydrogen-electric aviation solutions.

In its most recent earnings report, the third-quarter data published Oct. 19, United Airlines recorded total operating revenue of $7.7 billion, up from the previous year’s $2.4 billion. Its net income of $473 million was up from the pandemic-era third quarter 2020’s loss of $1.8 billion. And its diluted EPS of $1.44 was far from the previous year of -$6.33.

Looking ahead, the company predicted its fourth-quarter capacity to be down approximately 23% versus pre-COVID-19 fourth-quarter 2019 and its revenue to be down 25% to 30% versus the same period.

CEO Scott Kirby observed that the carrier’s “recovery was delayed by the delta variant, but the United team remains focused on our long-term vision — and not getting sidetracked by near-term volatility — meaning we're solidly on track to achieve the targets we set for 2022. From the return of business travel and the planned re-opening of Europe and early indications for opening in the Pacific, the headwinds we’ve faced are turning to tailwinds, and we believe that United is better positioned to lead the recovery than any airline in the world.”

United Airlines’ shares opened for trading on Wednesday at $41.38, closer to its 52-week low of $38.88 than its 52-week high of $63.70.

The Verdict: The airline industry is still finding its way back from the chaos of the COVID-19 pandemic — a task that is not made easier by inflation, supply chain disruptions and the omicron variant.

And despite increased passenger volumes in recent weeks, shares in both companies are trading too close to their respective 52-week lows for comfort.

To their credit, the chief executives at both companies honestly acknowledge they are still some distance from their pre-pandemic financial levels.

But, of course, there is no such thing as a permanent crisis, and in time these carriers will have the pandemic’s chaos in their rearview mirrors while heading for the proverbial bigger and better.

As for American Airlines’ unique problem with the DOJ lawsuit regarding the JetBlue alliance, it is not hard to imagine that will also be resolved — most likely in the airlines’ favor, as the Biden Justice Department has not displayed much evidence of litigation prowess this year.

Thus, this week’s Stock Wars would have to be judged as a tie. As both companies’ shares are trading on the low side, so now might be a good time to start loading up on their stock while beginning the patient vigil for their eventual return to better fortunes.

Photo: Mohamed Hassan / Pixabay