In Comparison With Delta's Guidance, United Airlines' Profit Warning Appears Less Favorable.

It appears that United Airlines UAL -3.42% profit warning and Delta DAL's +1.98 % unchanged guidance are indicating varying fortunes for two of the country's largest airlines. Upon closer inspection, it becomes clear that they are not all that different from one another.

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The Delta Air Lines corporation (ticker: DAL) maintained its first-quarter forecast for a profit of $0.15 to $0.40 per share, along with a revenue increase of 14% to 17% from the same period last year. Prior to the opening of the market, United's stock, which had been 1.5% lower earlier in the day as investors feared the worst after United's update, was 0.6% higher ahead of the market opening.

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United (UAL) shares, on the other hand, fell by close to 5%, the sharpest decliner in the S&P 500 SPX +1.76% in the past week. In fact, it appears to be that the reaction may have been overdone if you examine United's trading update more closely. Despite the fact that the carrier now sees a loss in the first quarter of the year, it remained on track to reach its full-year earnings guidance. The turbulence in the current quarter has also been considerably offset by an improved outlook for the second quarter.

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The airline anticipates a loss of 60 cents to a dollar in the current quarter, citing higher jet fuel prices, capacity growth, and a drop in demand in January and February as reasons for its forecast. Among the analysts polled by FactSet, the average estimate for a profit per share was 66 cents, according to the data. The company now anticipates that the total revenue per available seat mile will rise 22% to 23% in the first quarter, which is below United's previous guidance of a 25% increase.

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There are a number of reasons behind the loss, but all point to a better-than-expected performance in the second quarter and suggest that the earnings estimate for the full year can be upgraded. United's decision to bring forward costs from a potential pay deal with pilots from the second quarter to the first quarter is one factor that contributed to the expected loss.

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The filing also revealed that there was an improvement in the carrier's guidance for the second quarter, which may have been overlooked by the market at the time. In light of the shift in seasonal demand patterns, which resulted in January and February being weaker than expected, it seems likely that the coming months are going to be strong in terms of demand.

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Consequently, United expects operating revenue to increase by a mid-teens percentage point in the second quarter of 2022 compared to the second quarter of 2021. The consensus estimate for the rise in the stock market is 13.5%.

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Analysts at Citi said the carrier is experiencing earnings turbulence based on a "forward-looking" perspective, but that the carrier will have a solid year in the long run. As for the price target on the stock, they rate it as a Buy and set it at $75.

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In addition, the company has stated that it expects its costs per available seat mile, excluding fuel, to be flat for the full year 2023.

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Analyst Jamie Baker at J.P. Morgan said he expects the market to focus "initially" on the company's revised guidance for the first quarter.

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“If United's disclosure is embraced with an optimistic attitude, it could very well result in some full-year models improving in the future. It is doubtful that the market will take such a view, however. There seems to be a disproportionate weighting given to the result closest to hand; the lowered first-quarter guidance in our view," Baker said. The analyst rates the stock with an Overweight rating and has set a price target of $81 for the stock.

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His statement goes on to say that the revised cost guidance, coupled with the improved revenue in the second quarter, will "significantly offset" the disappointment in the first quarter.

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In the last year alone, the shares of American Airlines (AAL) have risen around 30% to Monday's close, outperforming legacy carriers Delta Air Lines (DL) which has climbed 8.5% since the beginning of the year, and American Airlines (AAL) which is up 17%.

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