Morgan Stanley Thinks United Airlines' Strong Guidance Is Achievable

Morgan Stanley analyst Ravi Shanker reiterated an Overweight rating on the shares of United Airlines Holdings Inc UAL with a price target of $67.00.
Q4 was a big beat despite being the most impacted airline from a weather perspective, said the analyst.
United delivered a 9% pre-tax margin in the quarter by effectively navigating the winter storm despite having more exposure to it than any other airline, added the analyst.
The management has previously said that corporate had plateaued toward the end of the year, which they now attributed to corporates running out of travel budgets, said the analyst.
However, like Delta Air Lines Inc DAL, management has seen a strong start to 2023 in January and booked revenue in 2H February/March is running 30-40% above 2019 levels.
FY23 guidance came in merely 70% above consensus, mentioned the analyst.
The big debate right after the guidance dropped was whether the FY23 expectation was artificially inflated by a low fuel guide at $2.85- 2.90/gal and DAL's assumption of $3.00- 3.20/gal, the analyst said.
However, the analyst does not believe this is a major issue as jet fuel price has been extremely volatile, and it is tough to accurately mark to market it week by week.
Also, management believes that jet fuel cost is effectively an industry pass-through, especially at current industry conditions, to which the analyst agrees.
CEO Kirby passionately called out the industry to acknowledge structural capacity constraints.
Management believes that capacity constraints across the industry are long-term structural challenges and are unlikely to normalize any time soon.
Price Action: UAL shares are trading lower by 1.88% at $47.94 on the last check Thursday.
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