In this segment from the MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management’s Bill Barker check in with the world’s third-largest airline, and based on the numbers it just reported, they’re far from the only ones.
Revenue and profits are up, with the trends indicating that people are flying more often and that travelers are getting a bit less focused on finding the absolute lowest fares. But the deeper story involves smart management and optimistic guidance. They also take a detour into the tragic death of a Southwest Airlines’ passenger this week — but, as is their wont, they put the matter in a broader context.
A full transcript follows the video.
This video was recorded on April 18, 2018.
Chris Hill: We’ll start with United Continental(NYSE:UAL). Shares up 5% after first quarter profits came in higher than expected. Yet another quarter where yet another major carrier demonstrates that this is a pretty good business to be in these days, now that they’re actually running it well.
Bill Barker: Yeah, for the most part. Of course, when there’s a headline, it’s usually negative. That’s the case with Southwest today, which we might get too. But, United’s top line, up almost 7%, so more people are getting on planes is the long and short of it. And they’re paying higher prices, they’re getting less stringent about looking for the best price.
Hill: United Continental, it seems like this quarter, they were doing a pretty good job of not only managing their costs, but also providing guidance around how they’re going to continue to manage their costs. So, maybe not a big surprise that the stock is moving up.
Barker: No. Also, guidance from some other airlines has been very positive. Alaska Airlines guided pretty well the other day. So, transport in general, things are moving, people are moving, the economy is humming. Don’t follow too much of the day to day to distract from that. It’s already turning out to be a good quarter as earnings come in. The guidance will differ for some companies. IBM had a good quarter compared to expectations but guided poorly. And that’s not the case with the United, which has just delivered a good quarter and is guiding higher as well. That’s the case basically for the whole transport sector now.
Hill: And obviously, the incident with Southwest Airlines yesterday, the company seems to be managing that about as well as one could. Although, reasonable questions will be asked about the age of the fleet and that sort of thing. There’s never a really great way to handle any sort of tragedy. But, one of the things that was being talked about this morning on CNBC was a point that you had made on an episode a few weeks back when we were talking about the death that had resulted with the self-driving car, the autonomous vehicle, and you had provided the context, rightfully so, of, look, thousands upon thousands of people in the United States of America die every year in auto accidents. This is one with an autonomous vehicle. I think the stat I saw today was that in the United States, in terms of commercial airlines, this is the first fatality in nine years. So, it’s obviously a tragic situation, but when you provide the broader context, it seems like — certainly, the pilot did everything that she could to make the situation right.
Barker: Yeah. As you pointed out, questions are going to come up into some flyers’ minds about the age of equipment there, because one of the things that Southwest prides itself on, and makes sense is, “Look, we have this efficient airline, there’s only one type of plane that we use. If one needs to be taken out for service, we have another one close by, the pilot is already trained on the plane that we use.” So, there’s a lot of efficiency from that. Today, people are going to say, “If this was fatigue, metal fatigue or some other type, that is the source of the problem here, is that a one-off, or do we need to be concerned about the age of the whole fleet?” Particularly on the heels of this report from 60 Minutes, I don’t know if you saw that —
Hill: I didn’t.
Barker: — but it was a fairly standard, and I didn’t watch all the details, so I’m not saying this is good or bad, 60 Minutes critical piece about Allegiant Air and the conditions of its planes and the age and how it gets planes that are sold off by other carriers. So, this may have a microscope effect on Southwest today, or on the whole industry. “Hey, we haven’t been following the age of all planes out there. Is this something we now need? Do we need Congress to look at this?” That sort of thing. Congress has been distracted by many, many, many other things, but maybe there will be calls for that. I don’t want to speculate too much on that. Today is a good day for United. And that’s where the focus should be in terms of the actual state of airlines.