Morgan Stanley upgrades United Airlines stock to Overweight

Shares of United Airlines were up on news that the stock was upgraded to Overweight by Morgan Stanley, which said 2023 would be a 'Goldilocks' year for the airline industry.

Video transcript

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- Well, anyone who's purchased an airline ticket recently knows this may not be a great time to fly. But it just might be the ideal time to invest in the airlines. Shares of United taking off earlier today on an upgrade from Morgan Stanley to overweight. They have since come back down to Earth, but still a pretty solid day to start this week.

On that news, analyst Ravi Shankar writing, "UAL seems on track to exceed its 2023 guidance and hit its 2026 guide issued 18 months ago, something even the biggest UAL bulls may have considered difficult at the time." Seana, Stanley Morgan sees 2023 as the Goldilocks sweet spot, no longer too hot, no longer too cold, just right. What do you think?

- I think it makes sense when you take a look at the travel trends of what we were seeing in terms of the pent up demand. The travel levels, the TSA numbers look very strong. We had been expecting it. But when you compare this past weekend to what we saw in 2019, we actually exceeded 2019 levels on Saturday. So those levels have really returned to what we were seeing pre-pandemic, obviously a bullish sign here for the airlines.

I also think it was interesting within that note from Morgan Stanley what they said about the low-cost carriers. They said now while they are up against some pretty tough comps compared to last year-- that's why they did downgrade Allegiant Air to equal weight from overweight-- they are pretty bullish, given the pent up demand that they are seeing from those low cost carriers and the fact that it's so expensive to fly right now. More and more people are trading down to those lower cost carriers.

- It is brutal. And it's interesting. Until this note, I hadn't realized how much UAL had outperformed its rivals, still down around 2% year to date, but that's given Delta down about 10%, Southwest down about 46%, JetBlue-- excuse me-- 10%, JetBlue down 46%, American down 25%, so dramatically outperforming all of its rivals.

And look, when you look at the year 2023-2024, it seems like, feels like a new norm. I think people are still talking about revenge travel. That's not what it seems like out there. It seems like people have just shifted priority to spending now on experiences, on travel, rather than on goods. I think it's a new norm we're entering. Plus supply chains appear to be clearing up. That was a big headwind for the airlines last year. And it appears that pilot shortage is beginning to at least clear up. And now you see Delta with that major new deal for its pilots.

- A major new deal. That's going to be interesting to track, whether or not it is fully approved. That could really set the stage and the standard for some of the other negotiations that are still going on from some of those other larger carriers.

- Well, because Delta has a provision that says they'll always make 1% higher than their two chief rivals. So how will the others step up and match that?

- We will see.