Could Buying United Airlines Today Set You Up for Life?

Could investing in an airline stock set you up for life? It's an interesting question because, based on history, you'd have to be highly optimistic to even consider it. The airlines haven't traditionally generated a rate of return sufficient to cover the cost of their capital, and they've been subject to extraneous events -- such as terrorist attacks, wars, COVID-19, and even just good old-fashioned recessions -- that have challenged many airlines' ability to continue as a going concern.

So what might make it different this time, and why is United Airlines (NASDAQ: UAL) worth considering? Here's the lowdown.

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Airlines aren't traditionally great investments

The International Air Transport Association (IATA) clearly states in its latest global outlook report: "The global airline industry often struggles to deliver returns perceived as attractive to investors. Put another way, the return on invested capital (ROIC) has typically been lower than the weighted average cost of capital (WACC) in the airline industry."

That statement alone might be enough to make many investors walk away immediately. The industry hasn't traditionally rewarded equity investors, but it's done very well for bond investors and aerospace supply companies. One reason is that credit markets are often willing to extend loans because they are securitized on the back of assets: The planes.

In Warren Buffett's words, running airlines is a glamorous industry that always encourages new entrants and investors willing to invest in it. It's also seen as essential to a country's well-being, leading to support for national champions in the industry. In other words, airlines have often been supported for non-profit reasons.

Furthermore, it's an industry with high fixed costs, subject to boom and bust periods. Airlines have tended to ramp up capacity during booms, only to suffer significantly when a slowdown leads to a margin collapse. As a result, they struggle to lower costs with excess capacity around them.

Image source: Getty Images.

It's different this time

Given the narrative on the industry's history above, investors would be forgiven for immediately concluding that investing in United Airlines isn't going to set you up for life -- or, at least, that it contains enough risk to make it unlikely to do so.

That may be true, but it doesn't mean that United Airlines isn't an excellent investment right now. In fact, there's a robust case for arguing that the company's medium-term outlook is superb.

First, as the IATA data shows, the global airline industry was profitable to the tune of $26.5 billion in 2019 before the pandemic struck. It has more than recovered since then, to an estimated $31.5 billion in 2024. Estimates are for $36.6 billion in 2025. Moreover, the largest share of that net profit comes from North America, with net profits of $11.8 billion and $13.8 billion, respectively.

However, not all airlines are alike. Delta Air Lines was responsible for nearly $4 billion in net income in 2024. United Airlines was close behind with $3.5 billion. It's an indication that, at least in North America, the airline industry has reformed its practices.

Image source: Getty Images.

Second, as previously discussed, United Airlines is starting 2025, flying on all engines. The basic economy traveler continues to favor travel experiences (aided by a strong dollar), the higher-margin corporate traveler is returning, and transatlantic travel is strong, too.

Third, United Airlines and Delta returned their revenue per available seat mile (RASM) to positive territory in the fourth quarter. It's a key industry metric and an affirmation that, unlike in previous years, the North American airline industry is acting rationally in curbing unnecessary capacity.

Fourth, United, alongside Delta, has made great strides in diversifying its revenue streams and offering differentiated services to the traveler. The growth of cobranded credit cards adds remuneration streams, loyalty programs engender customer connections, and a focus on the premium traveler is resonating.

Image source: Getty Images.

In the words of United CEO Scott Kirby, in a recent earnings call, "the industry is evolving into an equilibrium where each airline driven by economic necessity will be primarily focused on flying where they have a competitive advantage."

What it means to United Airlines investors

While much of the industry's extraneous uncertainty remains, there's a strong case for arguing that airlines like United are operating differently now. This means that investing in a stock might not set you up for life, so you should constantly monitor events and not go "all in" on the stock or the sector.

However, airlines like United and Delta are highly attractive medium-term investments. Trading at less than 8 times estimated 2025 earnings , United has already demonstrated that it can break out of the boom-and-bust cycles that characterized the industry in the past, or at least reduce their magnitude. Still, the market isn't giving United enough recognition for that, and the stock looks like a tremendous medium-term value.

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