Membership-based private aviation company Wheels Up Experience Inc. (UP) made its stock market debut via the SPAC merger on July 14, 2021. It is the first publicly-traded private aviation company. It merged with blank check company Aspirational Consumer Lifestyle Corp. to raise $790 million in cash proceeds, giving UP an enterprise valuation of $2.10 billion. UP Founder and CEO Kenny Dichter expects UP to “look like Uber and Airbnb” of private aviation. UP has access to 1,200 airplanes through a third-party network at the time of its stock market debut, out of which 170 are directly owned or leased by the company. However, shares of UP have slumped 56.4% since its stock market debut to close yesterday’s trading session at $4.33.

Here’s what could shape UP’s performance in the near term:

New Variant and Travel Ban

The rapid spread of the highly transmissible Omicron variant has resulted in the reimposition of travel restrictions in the United States and worldwide. With nearly a third of the U.S. states detecting the virus, several new requirements for travel have been imposed, such as vaccine certificates and day-old negative COVID-19 tests. Moreover, the blanket travel ban has been reimposed on U.S. citizens and foreign passengers from eight African countries. Thus, the aviation industry is expected to remain under pressure this holiday season.

Declining Profit Margin

UP’s revenues increased 55% year-over-year to $301.98 million in the fiscal third quarter ended September 30, 2021. This can be attributed to a 52% rise in live flight legs and a 29% rise in active users. However, adjusted EBITDA loss worsened 198% from the same period last year to $23.93 million. Net loss came in at $59.46 million, reflecting a 389% year-over-year decline from the positive year-ago value.

Despite the utilization of $51.60 million funding received from the CARES Act, UP’s net loss increased by $80 million due to decreased adjusted contribution margin and a rise in operating costs.

Increasing Prices

UP has raised its King air and light jet pricing in the range of 8% to 13%. Moreover, new Connect and Core members that deposit $100,000 or less must wait at least 90 days to fly. Also, members who deposit $200,00 can schedule flights at their convenience immediately, but not on peak days. Only members that deposit $400,000 or more can fly at their will.

POWR Ratings Reflect Bleak Prospects

UP has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

UP has a grade of D for Momentum and Sentiment. The stock is currently trading below its 50-day and 200-day moving averages of $6.43 and $8.66, respectively, indicating a death-cross trend in sync with the Momentum grade. In addition, analysts expect UP’s EPS to remain negative until at least 2022, justifying its Sentiment grade.

Of the 30 stocks in the F-rated Airlines industry, UP is ranked #27.

In addition to the grades I’ve highlighted, you can view UP ratings for Stability, Quality, Value, and Growth here.

Bottom Line

UP is a leading player in the private aviation industry and has witnessed a steady rise in demand since the onset of the pandemic, as the rich opted for private flights due to the masking mandates and other restrictions of commercial flights. In fact, 80% of UP’s customers who previously flew commercial have switched to private flights. However, despite being an industry leader, the company’s negative profit margins are a cause for concern. Given the reimposition of the travel ban, as the Omicron COVID-19 variant spreads globally, UP’s financials and profit margins might decline further in the near term. Thus, the stock is best avoided now.

How Wheels Up Experience Inc. (UP) Stack Up Against its Peers?

While UP has a D rating in our proprietary rating system, you might want to consider taking a look at its industry peers, SkyWest, Inc. (SKYW) and Mesa Air Group, Inc. (MESA), which have a B (Buy) rating.

UP shares were trading at $4.42 per share on Tuesday afternoon, up $0.09 (+2.08%). Year-to-date, UP has declined -55.67%, versus a 26.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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