Boeing impact to United's Q1 profit was 'limited': Analyst

United Airlines (UAL) managed to top first-quarter earnings estimates on both the top and bottom lines even after accounting for a $200 million hit to profits tied to the grounding of Boeing planes (BA).

Morningstar Industrials Equity Analyst Nick Owens joins the Morning Brief to talk about United's quarterly results as the airline industry contends with the fallout from Boeing's manufacturing concerns.

"In a way, you could say that the damage here was pretty limited, they have whatever it was — 50, 60 planes that they had to ground and inspect — and on $11 billion-plus in revenue for the quarter, they're saying it was a $200 million hit," Owens tells Yahoo Finance. "Which was the difference between them making money or losing money. To me, that just goes to show how narrow the margins in airlines really are."

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This post was written by Luke Carberry Mogan.

Video transcript

SEANA SMITH: Let's take a live look at United's stock. Look at that, shares jumping now up over 10%. They moved to the upside coming after the company reported better than expected quarterly results, and this comes despite losing $200 million due to troubles with Boeing's MAX 7, 9 fleet. The company is only reporting a loss here of $124 million in Q1, again, that was better than what the street was bracing itself for.

So we want to bring in Nick Owens, Morningstar industrials equity analyst. Nick, it's great to have you here. So first just your take on United's results here and really what that signals about maybe Boeing's troubles isn't going to be as big of a drag on United going forward as many analysts had initially feared.

NICK OWENS: Yeah. I think that's fair. I mean, in a way, you could say that the damage here is pretty limited. They had whatever it was-- 50 or 60 planes that they had to ground and inspect-- and on $11 billion-plus in revenue for the quarter, they're saying it was a $200 million hit, which was the difference between them making money or losing money. So to me, that just goes to show how narrow the margins in airlines really are.

BRAD SMITH: You know, I'm taking a look at and comparing some of the broader industry stats, specifically on the TSA traveler throughput, looks like they kept pace broadly with the roughly 6% higher passenger throughput that we're seeing in 2024 versus 2023. But on pricing and the revenue per annual per mile looks like in aggregate that was only higher by about 1%. Just wondering what you make of that, Nick.

NICK OWENS: Well, I would say first quarter is not usually the best quarter or the most representative quarter. So they're positioning for the busy summer. And so not all the revenue and cost stats will necessarily be representative from the first quarter in my view. What I did notice was they had a nice jump in the Pacific routes, which they tend to benefit from, and that's I think because of the slightly delayed reopening that came out of China, so still some more legs there.

SEANA SMITH: Yeah. Nick, when we look at maybe a little bit of a longer-term view, you are still a bit cautious. What are the biggest challenges facing United, and is that-- could you make that same argument with its rivals, some of the other larger competitors as well?

NICK OWENS: Yeah. I would say that the group faces a common set of challenges, and to flip that around a little bit, they are benefiting from a common set of tailwinds right now. So even though it's frustrating that they can't get their hands on the planes that they ordered, and they maybe can't hire-- couldn't hire as many pilots as they wanted to, and the FAA can't hire as many air traffic controllers, what that's doing is actually putting a crimp on capacity expansion for the industry, which means they get to charge more for the same seat.

So they've been booking record revenue and record yields on less than 2019 capacity. My concern then is that if you fast forward a year or two, and the planes and the pilots and the air traffic controllers start coming back online, if you will, and if consumers take a break or sort of level off their spending, what does that look like for profitability for the industry?

Within that, United I think is fairly well positioned. They have a nice premium offering. They've been doing a great job modernizing their cabins and they look a little more like delta than they used to. And so they might do OK. But here we are on a 10% up quarter $11 billion in revenue, and they barely broke even. So I just think that when CEOs are saying things like I've never seen such a constructive environment, you want to ask yourself, how long will this lesson.