United Airlines Vs American Airlines Stock: Which Is Best?

United Airlines Holdings Inc (NASDAQ:UAL) and American Airlines Group Inc (NASDAQ:AAL) are two of the biggest airlines in the country. Both fell off the cliff during the stock market nosedive following the pandemic as global lockdown orders and travel restrictions halted regular life.

The U.S. government stepped in with pandemic bailouts, but neither company fully recovered from the crash. This leaves a discounted investment opportunity for anyone willing to brave those dark skies.

But which is the better investment between United Airlines stock vs American Airlines?

Each must deal with different challenges while overcoming the same problem. Holiday travel is picking up, and there are strong social distancing guidelines in place that limited passenger capacity.

Major business events and conferences went virtual, and it’s unclear when travel will fully return to normal. So what’s next for these former high fliers?

United Airlines Burning Cash To Stay Alive

United Airlines stock hit a cruising altitude between $80 and $100 per share before the coronavirus sent it crashing to $17.80.

The airline’s approximately $10 billion market capitalization is less than half what it was before the pandemic travel restrictions shut down airports around the world.

At $35 per share, UAL is a bargain for bullish investors who believe in the rebirth of the airline industry.

The company’s October earnings report undercut analyst estimates of -$7.63 earnings per share (EPS), losing -$8.16 per adjusted share.

United’s $2.49 billion quarterly revenue was 78.1 percent lower than the same period in 2019 and not enough to offset its operating costs. This led to a $1.8 billion net loss for the third quarter.

However, it’s not all doom and gloom, as air travel is reopened in time for the holiday season. Holiday travel is common around the country, and United hopes to capitalize by cutting its $25 million daily cash burn and bringing in passengers.

Travel numbers are going up, but they’re still not where they were prior to the pandemic and quarantines. The government’s $5 billion coronavirus bailout ran out by October, and it could be several years before it climbs back to its previous trading price range.

If United can’t stop its cash burn, it could be in trouble.

American Airlines $35M/Day Cash Burn

American Airlines (AAL) also received a government bailout, to the tune of $5.8 billion from the CARES Act.

It reached its highest trading point near $60 in early 2018 and was already on the downswing before the virus hit. When it did, American fell to a low of $8.25 and hasn’t really pulled up from the $10 per share runway in the remainder of 2020.

The company’s nearly $6 billion market capitalization is one fifth of its high, and that means it has more growth opportunity than rival United. Of course, it’s fighting to survive in the same travel-restricted society as every other airline.

Tepid earnings reports continued the company’s tailspin through the third quarter of 2020, as it burns $35 million per day. It’s taking bigger risks to get flights back on track too, with passenger volume rising to about 30 percent of the prior year.

It has $10.2 billion in the cash and cash equivalents by the end of June and access to $7.5 billion in government loans to help it stay afloat. The only question is whether passenger demand will return to what it was in the pre-coronavirus days.

United Airlines Stock Hostage To Travel Restrictions

The elephant in the room is how long it’ll take before people start flying again. There are a lot of issues standing in the way, not the least of which is major events like CES in Las Vegas being moved to a virtual format.

With everyone working from home and major business conferences online, business travel is grounded, and that accounts for a large volume of passenger travel.

Reports from the Transportation Security Administration show travel is slowly picking up, but it’s still below half of what it was in October 2019.

Holiday travel is the one beacon of hope in the near-term future, and then flu season stacks on top of the Covid-19 resurgence.

This adds up to a shrunken market demand that is likely to cause problems for up to two more years for all airlines, and United needs to keep its debt and operating expenses in check until that happens.

American Airlines May Not Recover Until 2022 (If Ever)

American Airlines has the same problems United does, and it has a heavier debt load on top of that. If you’ve never been in debt, it creates obstacles in living your daily life.

When everyone else eats out, you have to pinch pennies. That’s the position this company is in, and it’s not going to get any better until 2022, according to most analyst estimates.

The biggest risk of investing in American is that it becomes insolvent and goes bankrupt. The company is working hard to limit expenditures and slow its cash burn rate to stay in the game.

No one knows when the market will return, and it could become a casualty of a crippled market.

American Airlines vs United Airlines Stock: The Bottom Line

United Airlines and American Airlines were devastated by the coronavirus pandemic, dropping to 15 percent of previous year’s business at one point. Airports are no longer closed, and travel restrictions are somewhat loosening to enable holiday spending.

Either airline has a chance of recovering investor confidence by raking in profits through that season, but it’s inevitable that 2021 will start off slow.

Flu season, a growing coronavirus outbreak, and stalled business travel is putting the brakes on whatever trends are happening. However, there’s still hope for a return to normalcy in summer 2021…or maybe the 2021 holiday season. If these airlines survive, they stand to make investors happy sooner or later.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.