Where Will United Airlines Be in 1 Year?

To buy or not to buy airline stocks in 2025? It's a good question because, at the time of writing, shares in premier airlines United Airlines (NASDAQ: UAL) and Delta Air Lines (NYSE: DAL) were up by 145% and 55%, respectively, in 2024. Such remarkable performances are seldom repeated the following year, yet United trades at 8.1 times earnings estimates for 2025, and Delta at 8.4 times. Let's look closer at United and what investors might expect from the airline in 2025.

Why United Airlines outperformed in 2024

The share price charts of United and Delta might surprise investors. They tracked each other until the summer, but United outperformed from then onward. Understanding the reasons helps shed light on the current operational momentum behind the stock.

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There are two reasons for their stock performance. First, United was relatively less impacted than Delta by the CrowdStrike software update issue, which caused significant flight disruptions in the summer. Second, and arguably much more importantly from a long-term perspective, United benefited more from the airline industry's rational decision to remove unprofitable capacity in the summer.

It's a point acknowledged by United CEO Scott Kirby on the last earnings call when he noted that "United's domestic capacity in 2024 was shaped with the expectation that the industry would remove unprofitable capacity in earnest in Q4." Kirby explained that this conscious decision meant United "expanded slower than most during the first three quarters of the year when capacity dynamics were less favorable." Still, industry conditions are now favorable as both United and Delta management have confirmed that excess capacity was taken out of the market during the summer.

Image source: Getty Images.

As such, United's stock outperformed as it had more upside exposure to the airline industry, the company having acted more disciplined.

If this behavior continues, investors have reason to believe that the airline industry's periodic boom-and-bust cycles might not be as frequent or dramatic as in the past.

DAL data by YCharts

A structural shift in 2025

Building on the last point, it's fair to say that airline stocks are priced as if a bust could be imminent. The table below uses the Wall Street analyst consensus estimates, which say the stock is cheap. However, the estimates don't tell you how concerned investors are that United and the others might not meet these expectations.

Data source: Wall Street estimates. Analysis by author..

That said, three factors point to United having an excellent 2025 and confirm Kirby's assertion that United has excellent momentum going into the year.

First, management sees the higher-margin corporate traveler returning, and United's chief commercial officer Andrew Nocella sees corporate growth accelerating in the first quarter. Similarly, 85% of respondents to a Delta corporate survey said they expect increased spending on travel in 2025.

Second, the two most widely followed airline industry metrics, revenue per available seat mile (RASM) and cost per available seat mile excluding fuel (CASM-ex) are moving in the right direction. While total RASM was down 1.6% in the third quarter year over year, management outlined that it passed an inflection point in the quarter. The momentum improving in the third quarter will likely build into the fourth quarter of 2024, and the pricing environment is improving.

Meanwhile, United's CASM-ex will "decline into the fourth quarter and to decline further into 2025," according to CFO Michael Leskinen.

Image source: Getty Images.

Finally, the industry dynamics of more disciplined behavior (discussed above) and the financial and competitive pressures on low-cost carriers (United has been particularly successful in its basic economy offering) like Spirit Airlines mean the pricing and competitive environment are improving for United Airlines.

A stock to buy for 2025

Everything points to United having another strong operational year in 2025, which will likely be reflected in its share price performance. If the economy behaves and consumer spending is supported by growing corporate spending, then United Airlines is positioned to have another great year.

Should you invest $1,000 in United Airlines right now?

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.