United Stock Tumbles as MAX 9 Woes Eclipse Record Revenue
The carrier posted its highest-ever quarterly revenue and a strong Q4 earnings beat, but projected a Q1 loss tied to the grounding of its Boeing 737 MAX 9 fleet.
Shares of United Airlines fell more than 4% in trading Tuesday, as a robust fourth-quarter earnings beat and record revenue were overshadowed by the financial fallout from the grounding of its Boeing 737 MAX 9 aircraft.
The Chicago-based carrier posted an adjusted fourth-quarter profit of $2.00 per share, handily beating Wall Street expectations. Revenue for the quarter climbed nearly 10% year-over-year to a record $13.6 billion, driven by resilient travel demand, particularly in its premium cabins where revenue surged 16%.
For the full year 2023, United delivered an adjusted profit of $10.05 per share, meeting the ambitious guidance it set at the beginning of the year. In a statement, CEO Scott Kirby said the company's long-term strategy "really came together in 2023," enabling it to hit its targets despite various headwinds.
However, the strong backward-looking results were entirely eclipsed by the company's forward guidance. United shocked investors by forecasting a first-quarter adjusted loss of between 35 and 85 cents per share. The airline directly attributed the expected loss to the FAA's grounding of the Boeing 737 MAX 9, stating the forecast assumes its 79 grounded jets will remain out of service through the end of January.
"The company's underlying operational and financial performance was as strong as ever," noted one analyst, "but you can't fly planes that are sitting on the tarmac. The market is reacting to the immediate uncertainty and financial drain from the MAX 9 situation."
The grounding followed a mid-air incident on an Alaska Airlines flight where a door plug blew out, prompting an emergency order for inspections of all similar aircraft. The disruption has forced United to cancel hundreds of flights daily, impacting revenue and incurring unforeseen costs.
Despite the near-term turbulence, United's management projected confidence for the full year. The airline issued a 2024 profit forecast of $9 to $11 per share. This guidance suggests that executives view the MAX 9 grounding as a significant but temporary setback, with underlying travel demand expected to remain strong enough to fuel a profitable year.
The full-year outlook is a pillar of the carrier's 'United Next' growth strategy, which focuses on expanding its fleet, modernizing its cabins, and leveraging technology to improve efficiency. This includes a landmark agreement with SpaceX to bring Starlink Wi-Fi to its aircraft, a move aimed at enhancing its premium customer experience.
Wall Street analysts, for the most part, appear to be looking beyond the first-quarter loss. Of 25 analysts covering the stock, a strong majority maintain 'Buy' or 'Strong Buy' ratings, with an average price target suggesting significant upside from current levels. The disconnect indicates that while traders are selling on the immediate news, many institutional investors see the current issues as a transient problem for a company with otherwise strong fundamentals.
The central question for investors is now the duration of the grounding and the final cost to the airline. The longer the MAX 9 fleet remains parked, the greater the impact on United's network, revenue, and its ability to compete in the busy spring and summer travel seasons. For now, a record-setting quarter has been left in the hangar, grounded by a crisis outside the airline's control.