I’ve got to give some credit where it’s due — new United Airlines (NYSE:UAL) CEO Scott Kirby is speaking some truths about air travel in the post-coronavirus world. And while the airline’s new boss is being frank about the risks of air travel today, his words make it painfully clear why investors should avoid UAL stock right now.
The novel coronavirus pandemic makes taking an airline risky these days. And even though airlines stayed open (with reduced schedules) during the worst of the Covid-19 shutdowns, the industry as a whole took some major losses.
Now, United Airlines and its competitors are slowly coming back, they’re banking on passengers returning to airports and eager to resume their lives. But that’s just wishful thinking.
Recent news about the coronavirus makes it clear that the pandemic is far from over. The U.S. is now at more than 2 million confirmed cases, and many states that began reopening early are seeing a surge in new illnesses.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said this week that the coronavirus is his “worst nightmare,” and warned that “it isn’t over yet.”
United’s New CEO Speaks Out
As much as airlines want you to start flying again, even the folks at United are aware that there are plenty of risks.
UAL just announced that it will now require its passengers to self-certify that they are healthy to fly. During the flight check-in process, passengers will be required to confirm that they’ve not been diagnosed with Covid-19 in the last 21 days or have had contact with anyone who is experiencing symptoms.
The passengers also have to certify that they are free of a variety of symptoms themselves, including shortness of breath, coughing and fever. They will be required to wear masks on board.
It’s just a matter of time before other major carriers roll out their own versions of a health questionnaire. But will they really have any impact, other than to remind squeamish passengers that maybe getting on board an airliner isn’t a great idea as long as there’s no proven vaccine against Covid-19?
Even Kirby, in an appearance at the Bernstein 36th Annual Strategic Decisions Conference, acknowledged the risks of airline travel right now.
The reason? Because social distancing is impossible once the flight doors are sealed, he says.
“I’ll try to be careful here … You can’t be six feet apart on an airplane, middle seat or not … What makes an airplane safe is HEPA air filters recirculating the air every two to three minutes, wearing a mask on board the airplane, and cleaning the airplane.”
Give Kirby credit for acknowledging the social distancing problem. But wearing a mask and reminding passengers of the risks every time they check in doesn’t scream “safety” to me. Flying right now is a risky business, and that’s why airlines will continue to struggle until a Covid-19 vaccine is produced.
UAL Stock at a Glance
United’s stock, like other airlines, is down big so far this year, tumbling more than 60% year to date. And that’s even after a slow build starting in mid-May, that saw UAL stock more than double from $20 to close to $50 per share.
On June 11, the stock took a huge 16% nosedive when the Federal Reserve said it doesn’t plan rate increases at least until the end of 2022 because the economy’s recovery will take a long time. That sobering news, plus the increase in coronavirus illnesses in more than 20 states, put the brakes on the stock market’s recent increases.
United announced it’s expanding its domestic flight service in July to places like Aspen, Colorado, Portland, Maine and Charleston, South Carolina, in hopes that Americans are eager to start traveling again. Even with the expansion of service, UAL flights would only be about 30% of what they were a year ago.
JPMorgan analyst Jamie Morgan said he expects airlines to give back their recent gains. He downgraded UAL stock from neutral to overweight, saying corporate travel will likely remain depressed and the overvaluation of airline stocks.
He also noted that airlines will likely start trimming schedules this fall when the government’s payroll support program ends.
I think he’s right. As I’ve previously written, why should businesses pay to fly people around the country when video conferencing has proven to be so effective?
And vacation travel won’t return to anything resembling normal levels until researchers develop a Covid-19 vaccine. We’re likely months away from that day.
The Bottom Line on UAL Stock
United Airlines is at the bottom of the barrel for me right now. And while it has improved slightly — my Portfolio Grader screen shows UAL stock advancing from a ‘F’ grade to a ‘D’ grade in recent days — it’s still a sell in my book.
As I said in my recent look at the airline industry, there’s a difference between an “essential business” and a safe, long-term investment.
Right now, airlines are essential. But as an investment, you can do far better with another industry.