Shares of United Airlines UAL gained 7.15% on Monday after the Chicago-based carrier unveiled new features and raised the fees for its JPMorgan Chase JPM co-branded credit cards. The uptick was not only limited to UAL. Delta Air Lines DAL and American Airlines AAL stocks also gained 4.5% and 3.9%, respectively, on March 24. The NYSE Airline Index gained 2.7% yesterday, closing the session at $60.02 per share.
A Sneak Peek Into the Announcement
UAL and JPM announced that in a bid to enhance the value of co-branded credit cards, they were adding new benefits, including rideshare credits, car rental and hotel awards. UAL stated that the price of lounge memberships would increase for those who do not have a club card. The new membership program would align more closely with competitors and help manage crowds.
Following the increase in fees, the cost of an individual United Club membership will increase from $650 or 85,000 reward miles to $750 or 94,000 miles a year. Only the passholder will have access to the United Club lounge network. Moreover, a new "All Access" membership tier is being created to allow customers to bring up to two guests into UAL’s airport lounge at a cost of $1,400 or 175,000 miles.
The changes are effective immediately for new signups, though existing members will follow their current terms until their membership expires. Existing card members will be able to access new benefits immediately, with their annual fees set to change at their next annual renewal date on or after Aug. 1, 2025. Annual fees for those with the United Explorer card are being raised from $95 to $150, with an additional $60 rideshare credit.
Favorable Tariff-related Announcement Further Aids UAL Stock
Favorable tariff-related updates also buoyed airlines, including UAL, contributing to their northward price movement on Monday. The current U.S. administration is focused on protectionism that restricts international trade to help domestic industries. Tariff tensions are heating up, with new tariffs levied by the U.S. federal government, which has adversely impacted the United States’ biggest trading partners — Canada, Mexico and China . With retaliatory tariffs against the United States, trade tensions are escalating.
Air travel demand is being hit by the slowdown in consumer spending and recessionary fears. As a result of the softness the likes of Delta and American Airlines have given bearish first-quarter 2025 projections. DAL has lowered its adjusted earnings per share guidance to the range of 30-50 cents from the previous view of 70 cents to $1.
AAL now expects a loss per share of 60-80 cents for the first quarter of 2025 compared with the prior expected loss of 20-40 cents. First-quarter total revenues are now anticipated to be approximately flat on a year-over-year basis. This marks a fall from the prior expectation of 3-5% year-over-year growth.
Amid this gloom, updates that Trump’s reciprocal tariffs on April 2 are expected to be more targeted and less severe than what the President vowed in the past boosted airline stocks, including UAL.
Unfavorable Readings
Despite the uptick on Monday, United Airlines’ shares have not performed well on the bourse lately, losing more than 20% in the past three months due to the slowdown in consumer spending and recessionary fears. DAL and AAL have performed even worse. The Zacks Transportation – Airline industry has jumped merely 1.3% over the past three months.
3- Month Price Comparison
Moreover, due to the fears, analysts are bearish on UAL, as highlighted by the fact that in the past 30 days, earnings per share estimates have moved south for the first and second quarters of 2025 and the full-year 2025 and 2026.
UAL Stock is Undervalued
United Airlines looks highly attractive from a valuation standpoint. With a forward price-to-sales (P/S) ratio of 0.42, UAL stock trades at a discount to industry levels, the S&P 500 and fellow airline operator Delta.
UAL’s P/S F12M Vs. Industry, S&P 500 & DAL
Image Source: Zacks Investment Research
Should You Buy UAL Stock Now?
Despite the positive price movement following the update on co-branded credit cards (co-branded credit cards are an engine for profitability for the major U.S. airlines, including UAL) and tariffs, apart from the tempting valuation, we do not think that it is an opportune time to buy UAL stock. High labor costs (expenses on salaries and related costs were up 12.8% in 2024) and a very large but aging fleet raise concerns.
Delivery delays, predominantly of the 737 MAX, due to production issues at Boeing BA hampered UAL’s fleet-related plans. Moreover, rising inflation and economic uncertainty are worrisome. Declining earnings estimates also do not help matters.
Given these challenges, one should stay on the sidelines and wait for clearer signs of stability.
UAL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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