United Airlines continues 'aggressively investing' in Boeing since 2021 recovery hopes: Analyst

Third Bridge Global Sector Lead for Industrials Materials and Energy Peter McNally joins Yahoo Finance Live to break down United Airlines' fourth-quarter earnings results and what it says about the company's trajectory.

Video Transcript

DAVE BRIGGS: United shares moving up 4 and 1/2% after reporting outstanding Q4 earnings. Joining us now with more on this is Peter McNally, Third Bridge Global sector lead for industrials, materials, and energy. Good to see you, sir. What's your first read of the earnings?

PETER MCNALLY: Well, I think we understood that demand has been very strong for air travel. You know, American and Delta clued us in on that. But I think what jumped out to, you know, me in these results was the guidance for 2023. It looks like $10 to $12 in EPS versus the Street about $6 and 1/2. So that's, like, attention grabbing. And just for a reference point, back in 2019, the company made a little north of $12 per share. So they're almost all the way back in terms of profitability on a per share basis.

The other thing that we've been watching with United is their aggressive investment program, and it looks like capex of $8 and 1/2 billion is going to be more than what American and Delta have slated combined. You know, United's ordering a lot of planes, and I think you can see that in the way Boeing's stock price has been behaving and a lot of the headlines that United has made ordering 787s and 737s. So there's a lot to digest, and just looking at the first part of it, looks pretty upbeat, though.

SEANA SMITH: Yeah, I wanted to ask you about that number there, the capex number, $8 and 1/2 billion when the estimate was for $8.25 billion, so more than even the Street was expecting when it comes to United. Is it too much? Does that give you, I guess, a pause at all just in terms of what we could then expect from United over the next nine months?

PETER MCNALLY: Well, this actually started right in the middle of 2021. I mean, it wasn't clear how long it was going to take us to get out of the pandemic, but, you know, that's when United had its largest order in the company's history, you know, for Boeing and even some Airbus planes. And they have continued aggressively investing ever since, betting that the market is going to come back and exceed prepandemic levels.

So, you know, in order to attract pilots, you need new planes, and it's been proven that customers like the newer planes as well. They're more efficient. And United really is investing for the future. While the $8 and 1/2 billion number is bigger than what the Street is looking for, it does fit the pattern with what United's been doing the last couple of years.

DAVE BRIGGS: All the airlines really seeing the headwinds that are pilot shortage and supply chains in terms of getting new aircraft. How is United impacted?

PETER MCNALLY: Well, the most interesting thing for United will be their upcoming pilot negotiation. I think Delta put a marker out there by offering a 30% increase over the next four years to their pilots, but United's got some work ahead of them on negotiating with their own. And, you know, we've been learning over the last two years that this is a labor-intensive and labor-critical, you know, industry. It's their biggest cost. And these planes aren't getting off the ground without pilots, so watch that.

SEANA SMITH: Peter, how would you say Delta-- or excuse me, United stacks up to some of its competitors? We just heard from Delta last week. American just raised its guidance in terms of what we could expect here in the fourth quarter. Are they in a better position than some of its peers?

PETER MCNALLY: Well if you believe that this market is going to exceed prior highs, you know, United is most aggressively betting on that happening. You see it in their aircraft orders. They've got the balance sheet to do it. You know, Delta's going into the pandemic was better, I think, on most metrics. But United really is betting on its future.

And it's not just in, like, basic aircraft and traveling point A to point B. They've also been throwing money at a lot of technology as well-- so things like supersonic air taxis, sustainable aviation fuel. These are somewhat smaller investments that may pay out in the long run. But United's betting on its future for sure.

DAVE BRIGGS: Of course, the big airline story of, well, quite frankly, the last several months, if not the year, has been the meltdown at Southwest Airlines. How long before they dig out of all that mess?

PETER MCNALLY: Right. Well, this is-- at least according to the Third Bridge experts, this has been building for quite some time. And Southwest, you know, has not invested enough, and I think that manifested itself over the holidays.

But they're facing a lot of competitive threats, both from above and below. You know, it's not the low-cost carrier that it once was. There are even lower cost. These ultra-low-cost airlines like Spirit and Frontier have been a real competitive threat to them. And at the same time, they've grown so big that they're finding themselves in direct competition with the majors like United, Delta, and American.

So Southwest has got a lot of work to do. You know, they've always been more revenue focused, our experts would say, rather than operational focused in the last few years. So, you know, we'll see, but it's going to be quite some time before these things get hammered out.

SEANA SMITH: We will see. All right, Peter McNally, great to have you. Thanks so much.