Shares in United Airlines (UAL -3.53%) declined by 15.7% in the week to Friday morning. There’s little doubt why the stock fell; the management of United and its rival, Delta Air Lines, spoke at the J.P. Morgan 2025 Industrials Conference, outlining weaker market conditions in 2025.
What management said
Delta’s management updated the market, telling investors that its first-quarter revenue growth would now come closer to 4% compared to prior guidance of 7% to 9%. United CEO Scott Kirby also discussed the slowdown, saying, “We now expect to be at the low end of our guidance range.”
It’s always difficult to discern trends in short-term numbers, and for Delta, it comes down to declining consumer and corporate confidence. Kirby put it down to a 50% drop in government and adjacent business, which represents 2% to 3% of its revenue, and “some bleed over to that into the domestic leisure market.”
What it means for investors
It’s not good news over the near term; the share price reaction says a lot. However, Kirby outlined that United was adjusting and would take more “leisure bookings instead of government bookings.”
Image source: Getty Images.
Moreover, Kirby doesn’t see the industry making significant capacity cuts before the key summer season. Still, by August, he believes “every analyst is going to be writing about the capacity cuts and the supply changes.” Those capacity cuts (also driven by airport costs going up dramatically alongside supply chain issues) will help pricing at premium airlines like United.
He has a point. Last summer, the industry faced excess capacity and acted with discipline to reduce unnecessary capacity, leading to a better pricing environment and a surge in the stock prices of United and Delta. As such, now could be a great time to buy such stocks on a dip.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
