It's been a good week for airline stocks, with United Airlines (UAL 2.84%) and others enjoying double-digit returns over the last week. For example, United stock is up 12.8% in the week to Friday morning.
Airline stocks are flying
There have been many positive trading updates and third-quarter guidance upgrades in the sector recently, and this week's move builds on it. Investors were concerned about relatively high interest rates putting pressure on consumer spending, and widely reported issues with overcapacity.
A combination of the two usually leads to collapsing ticket prices and airlines stuck running less profitable routes. However, in mid-September, Alaska Air upgraded third-quarter guidance, discussed more robust than expected demand, and said its revenue per available seat mile (RASM) was improving again. Similarly, Allegiant Travel raised its third-quarter earnings guidance recently.
United Airlines and Delta Air Lines update
Delta Air Lines and United Airlines recently gave presentations at the Morgan Stanley Laguna Conference. Both described an industry that was rationally reducing capacity on less profitable routes. Moreover, both said they had passed a point of inflection in RASM on the back of good traffic in August and September.
RASM is a key industry metric to follow because when airlines increase revenue from miles flown, it implies that the demand/supply environment is favorable and that the industry isn't suffering from overcapacity.
As such, the scene is set for United Airlines to report an excellent third quarter. Delta should do the same, and that's why it's one of three great industrial stocks to buy right now.
Image source: Getty Images.
Is United Airlines a stock to buy?
Trading at less than 6 times its estimated earnings in 2024, United Airlines also looks an excellent value. Moreover, the evidence that airlines are being more disciplined in reducing capacity where and when necessary is a long-term positive, as is the growing loyalty-card-related revenue generated by Delta and United Airlines. All told, the stock looks very attractive.
