United Airlines shares set to benefit from international travel market
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Recently, United Airlines (NASDAQ:LAU) announced that it would significantly increase its capacity for transatlantic flights. This comes ahead of the summer flying season, as United seek to capitalize on a rapid recovery in passenger traffic levels. Already, domestic travel in the United States has seen a strong rebound, and United’s management team is now placing a big bet on a similar recovery overseas. Here’s what that means for UAL stock.
United already had far more international flights than either Delta (NYSE:DAL) or American airlines (NASDAQ:AAL) according to data from research firm Cirium. Now, with this added capacity, United will be by far the largest US-based international carrier. The company plans to boost capacity to 25% above pre-pandemic levels. This is a huge increase given the uncertainty that remains in the global travel market. United will increase to 22 daily flights between the United States and London, and add flights to new destinations such as the Canary Islands in Spain and the Azores Islands in Portugal, among others.
International flights are generally attractive to airlines. This is not only for the higher yields of the Notes, but also for the wider possibilities. A larger international network enhances the value of codeshare and alliance programs with international carriers. Frequent flyer programs are a big slice of the pie for airlines, so United is playing a power play to strengthen its position on that front.
On the other hand, with business travel slower to recover, high-end international destinations could become the main new growth engine for airlines as they seek to adapt to changing conditions. Tourist routes such as the Canaries could represent an interesting strategic shift for United in the longer term.
Much of this strategy relies on higher fuel costs. Given the much longer routes we’re talking about here, it will be important to maintain high load factors on these flights. Flying a half-empty jet over the Atlantic costs more than flying it between New York and Boston. United will therefore have to do the right math in terms of which routes they add and at what capacity. But it’s nice to see them ready to take a big swing like this. United’s move represents an airline emerging from crisis mode and operating from a position of strength. This could also be reflected in the value of UAL shares in the future.
As of the date of publication, Ian Bezek had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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