Airline stocks outpaced the broader market on Tuesday, with United Airlines Holdings Inc. leading the way after it sounded optimism for the sector ahead of summer’s travel season.
United Airlines Holdings Inc. UAL, +6.11% late Monday updated its outlook for the current quarter, calling for more revenue at the same margins. The guidance tweak boosted airline shares, with the U.S. Global JETS ETF JETS, +4.13% gaining 3%.
The update “looks very encouraging,” with the good news coming despite cost pressures and higher fuel costs, Stephen Trent with Citi said in a note. Investors had been concerned that fuel spikes “could have led United to trim its guide,” Trent said.
Biggest gainers Tuesday also included JetBlue Airways Corp. JBLU, +6.24% and Delta Air Lines Inc. DAL, +4.24%
United expects capacity about 14% below second quarter 2019 levels, from a previous expectation of 13% below, but expects revenue per seat mile 23% to 25% above, from an earlier guidance of up 17% amid stronger demand environment.
Rising fuel prices and labor constraints are weighing on United and the broader industry, Sheila Kahyaoglu at Jefferies wrote in a note. Demand, however, “continues to improve despite decade-low consumer sentiment levels.”
United is the first major U.S. carrier to reach an agreement in principle with its pilot union last week, with a deal expected to be reached by the end of the quarter.
Terms were not disclosed but the deal “will likely result in a substantial pay raise as inflation is currently >8% and UAL has been public about an upcoming pilot shortage,” Kahyaoglu said.
Pent-up demand post pandemic-related travel restrictions have investors optimistic about airline stock’s prospects, and the shares are outperforming equity markets this year as well.
The JETS ETF has lost 6% this year, compared with losses of more than 15% for the S&P 500 index. SPX, +1.35%