1 Reason United Airlines Stock Is Approaching All-Time Highs

Key Points

• Network carriers have structural advantages in the current environment.

• Airlines act in a much more disciplined manner than in previous decades.

• United Airlines' business model makes it more resilient to a demand slowdown.

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United Airlines (NASDAQ: UAL) stock hit an all-time high in January, only to decline in the spring as the negative impact of potential tariffs on travel demand took hold. Since then, the stock price has recovered and is only a single-digit percentage away from the high reached earlier in the year. Moreover, the stock appears to have more room to run. Here's why.

A different cycle for the airline industry

The reason for the recovery in the stock price isn't necessarily a story of demand coming back. While it appears to have recovered from the lows immediately after the tariffs began, the airlines have adjusted to a level of demand lower than what they expected at the start of the year.

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Instead, it's an issue of supply. In the words of CEO Scott Kirby on the last earnings call: "Supply is adjusting once again, just like it did last year. Demand feels to us like it is inflected upward." He also said, "Bigger picture, for United, the industry and United industry-specific transformation we've been discussing over the last few years continues to play out."

In a nutshell, the airline industry is acting in a more disciplined way than in previous cycles by reducing unnecessary capacity when demand ebbs; that's a positive for maintaining pricing and profitability.

Image source: Getty Images.

In addition, United's model of offering differentiated premium and economy ticketing provides it with the flexibility to adjust to changing market conditions. The airline also benefits from stickiness engendered by its customer loyalty programs and co-brand credit cards. Equally importantly, rising labor and airport costs are putting more pressure on low-cost carriers than they are on network carriers like United, and that's also helping reduce capacity as budget airlines cut unprofitable routes.

A good value airline stock

With the airline industry, by choice or necessity, behaving in a more disciplined manner, a review of valuations (United trades at just over 10 times estimated earnings in 2025) can help reveal a good value. Investors should expect the stock to still rise higher.

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