United Airlines Holdings (NASDAQ: UAL) is scheduled to report its third-quarter earnings after market close on October 19, 2021. The company has seen its earnings come under pressure, in recent quarters, amid the disruptions triggered by the COVID-19 pandemic in the air travel industry.

United Airlines stock has come under immense pressure in recent days after rejection above $60 a share. While the stock has pulled back from 2021 highs, it is still up by about 11% year to date.

Chart showing UAL stock pull back

The airline heads into the Q3 earnings period at the back of the continued improvement in air travel. While it is expected to report a significant increase in revenue, the company’s prospects posting a net loss are high.

Aggressive vaccination campaigns and the opening of global economies have enabled a significant uptick in air travel, much to the benefit of the airline industry that came to a standstill last year. However, a bounce back to profitability is still far-fetched.

United Airlines and other airlines have had to embark on cost control measures to bolster their bottom line and bounce back to profitability. Some of the measures deployed so far include the lowering of unit costs.

Q3 earnings expectations

Wall Street expects United Airlines to post a net loss of $1.585 a share for its third quarter. In contrast, the airline had a net loss of $8.160 a share for the same quarter last year. The narrowing of net loss affirms the improvements in the air travel industry amid the opening of the global economies.

Chart showing UAL EPS year-over-year

In the third quarter, United Airlines’ bottom line looks to have been hurt by rising fuel costs, which have risen to seven-year highs. It is estimated that fuel cost per gallon stood at $2.17 in Q3 compared to $1.97 in the second quarter.

The airline is also expected to post net sales of $7.74 billion, representing a 206% year-over-year increase. The increase will affirm improvement in air travel, an improvement of 55% from the second quarter.

Chart showing UAL Revenue year-over-year

Amid the improvements, air travel demand still remains below pre-pandemic levels, which explains why revenues will still be down by 30%, compared to the same quarter of 2019.

Analysts are projecting a net loss of $13.33 a share for the full year compared to a net profit of $27.5 delivered last year.

What to look out for

United Airlines’ second-quarter results exceeded original expectations as international long haul and business travel improved. Consequently, it will be interesting to see if the momentum continued in the third quarter, given the aggressive vaccination campaigns believed to have fuelled demand for air travel.

When United Airlines reported its second-quarter results in July, management reiterated they expect positive adjusted pretax income in Q3 and fourth quarter as travel demand rebounds. Additionally, the focus will be on whether the airline registered strong gains as more businesses returned to their pre-pandemic levels. However, a full recovery is expected in 2023.

In the second quarter, capacity was down by 46% compared to the second quarter of 2019 before the pandemic hit. That said, it will be interesting to see if the airline is making any improvements on its capacity levels. In the second quarter, management reiterated it expects capacity to remain down by about 26% compared to the third quarter of 2019 and up 39% quarter over quarter.

In addition, the focus will be on whether Total Operating Revenue divided by Available Seat Miles (TRASM) improved in the third quarter. Based on the current trends, Q3 TRASM is expected to be positive compared to the third quarter of 2019.

Bottom line

United Airlines is up by about 11% for the year, having underperformed the overall market. The stock has come under pressure ever since it peaked at highs of $60 a share in March. The upbeat Q3 earnings could be the catalyst to strengthen investor confidence and cause the stock to re-rate higher after being in consolidation in recent months. The stock is currently fairly valued with a trailing price to earnings multiple of 9.