Here’s why United Airlines shares are up nearly 30% in September

SHARES United Airlines (Ul -0.69%) rose 29.6% in September, according to data from S&P Global Market Intelligence. The astonishing increase is mainly due to a relief increase after a strong sell-off in stocks from the spring and into the summer.

Why was the market worried

The airline industry is known to be highly cyclical, and for good reason. The traditional cycle works like this: Airlines like United Airlines see passenger numbers increase and load factors (the amount of seats in use) increase. They may raise ticket prices in response to strong demand. Consequently, they increase routes to maximize profits in response to increased demand.

After a while, demand begins to decline, putting pressure on load factors and ultimately on prices and profitability. If airlines are not disciplined in cutting routes quickly, this could lead to a sharp drop in profitability.

The latter was what preoccupied the market in the spring and summer as airlines such as United Airlines talked about overcapacity in the industry. In addition, investors were concerned about any potential lingering impact of CrowdStrike update incident that caused flight delays and cancellations.

What caused the relief rally

However, the good news from the fall is that demand remained strong in the third quarter, while, according to Delta Air Lines and United Airlines management, the industry was disciplined in reducing capacity where necessary. Both managements expected to pass an inflection point in the revenue per available kilometer (RASM) measure in August, and both did so.

Given that RASM is a crucial indicator of pricing power, an improvement in RASM implies an industry that does not suffer from overcapacity problems. That bodes well for United Airlines’ upcoming third-quarter earnings report in mid-October.

Where next for United Airlines?

With interest rates peaking and falling, consumer discretionary spending will strengthen, which could be good news for airlines. Moreover, an improving global economy is good news for higher-margin corporate travelers, as airlines like United and Delta are better suited to serve them.

Image source: Getty Images.

Turning to valuations, Wall Street has United Airlines generating $9.80 in earnings per share in 2024, rising to $11.35 in 2025. While those numbers aren’t set in stone, especially for an industry as cyclical like airlines, recent news lends credence to the numbers. , putting United at less than 5 times earnings in 2025.