On May 1, 2014, we issued an updated research report on
United Continental Holdings Inc.
). We find the carriers' plan to cut costs and enhance
productivity by spending less on fuel and optimizing distribution
channels quite encouraging.
However, increased competition in the Pacific region, weakness
in Japanese currency and slot pair wins by rival carriers are
likely to affect its performance going forward. The Chicago-based
carrier has a Zacks Rank #3 (Hold).
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United Continental has already started its restructuring effort
and plans a $2 billion reduction in annual costs by cutting fuel
cost through more efficient strategies. The carrier also aims at
strict capacity deployment to maintain a profitable balance
between demand and supply. The company expects second quarter
consolidated RRASM (Passenger Revenue per ASM) in the range of
United Continental is focusing on the augmentation of ancillary
revenues by $700 million to $3.5 billion by 2017 and expects to
reach $3 billion by the end of this year. The company hopes to
achieve this by offering new products to customers and increasing
fees on the current ones.
United Continental is extending its global route network through
non-stop flights and will launch a non-stop service between San
Francisco and Chengdu in the second quarter, as part of its
Pacific strategy to connect secondary Asian cities. Apart from
spreading its international destinations in Ireland and Canada,
the carrier also aims to add 8 Asian destinations in 2014 to tap
the growing travel demand in the continent thus paving way
for one-stop connectivity to more than 80 different locations in
However, United Continental's future liquidity could be
negatively impacted by the decline in passenger and cargo demand
owing to slowdown in certain economies. The carrier also expects
weakening of the Japanese economy and the depreciation of
Japanese Yen to act as deterrents to its Pacific division, thus
dragging the consolidated year-over-year PRASM by 1-2% in the
Apart from that,
Southwest Airline Co.
) slot wins in LaGuardia and Reagan National Airport (DCA), and
JetBlue Airways Corp
) triumph in DCA, which is part of the mega merger between
American Airlines and U.S. Airways, will heighten competition for
United Continental particularly within the domestic market.
Key Pick from the Sector
Stock worth considering within this sector include
Alaska Air Group Inc.
), which currently carries a Zacks Rank #1 (Strong Buy).