The largest U.S. airline
United Continental Holdings Inc.
(
UAL
) reported first quarter 2012 adjusted loss per share of 87 cents
that narrowed from the Zacks Consensus Estimate loss of $1.11.
However, the quarter's loss was wider than the year-ago loss of 41
cents.
Though rising fuel prices and ongoing problems with the
integration of Continental Airlines kept earnings at check, the
better-than-expected performance was attributable to fare hikes,
ongoing cost-cutting measures and fuel hedging programs.
Last month, United adopted a single loyalty program, Mileage
Plus, after the passenger services for both United and Continental
were combined. This combination resulted in glitches causing flight
delays, problems at check-in kiosks and failing phone connections
that took a toll on the demand for United Continental's services in
the quarter relative to its peer
Delta Air Lines Inc.
(
DAL
) ensuing in higher costs and revenue loss. In addition, the
company also completed the transition of the Continental website
into the new United website, technical issues notwithstanding.
Adjusted earnings in the reported quarter exclude 49 cents per
share in special items pertaining to merger-related costs and other
one-time charges.
Revenue
Total revenue increased 4.9% year over year to $8.60 billion and
was above the Zacks Consensus Estimate of $8.58 billion. Airlines
traffic, measured in revenue passenger miles, inched up 0.3% year
over year. Capacity (or available seat miles) nudged up 0.3% and
load factor (percentage of seats filled with passengers) rose 10
basis points year over year to 78.1%.
On an annualized basis, Passenger and Other revenues increased
5.5% and 3.5%, respectively, while Cargo revenue decreased 6.7%.
Consolidated passenger revenue per available seat miles (PRASM or
unit revenue) rose 5.2% year over year, led by a 7% spike in PRASM
in Latin America and a 5.3% hike in Atlanta.
Operating Expenses
Total operating expenses, excluding special items, upped 7.6%
year over year to $8.7 million in the reported quarter. Steeper
expenses were largely due to a 20.8% year-over-year rise in fuel
price, including the impact of hedges.
Consolidated unit cost or cost per available seat mile (
CASM
), excluding fuel, ancillary business expenses and special items,
crept up 0.7% year over year. CASM, including fuel and special
items, rose 8.3% from the year-ago quarter.
Liquidity
At the end of the first quarter, the company had $7.8 billion in
unrestricted liquidity including $7.3 billion in cash and
short-term investments, and $500 million in undrawn revolving
credit facilities.
United Continental generated operating cash flow of
approximately $124 million and spent approximately $403 million in
the reported quarter.
Our Take
As reservation glitches are over, the future growth prospects of
United Continental is expected to be solid based on improving air
travel demand, rising unit revenue growth, fleet and network
optimization, hedging strategy as well as merger benefits from
Continental Airlines.
However, we believe surging fuel prices and the threat of
recession in Europe pose downside risks to the stock. Additionally,
high non-fuel costs related to fleet optimization and product
initiatives, high unionization, new advertising rules, competitive
threats, from larger peers like Delta and
Southwest Airlines Co.
(
LUV
) and risks pertaining to the Continental integration could hurt
the company's profitability going forward.
We are maintaining our long-term Neutral recommendation on
United Continental. For the short term, the stock retains a Zacks
#3 (Hold) Rank.
DELTA AIR LINES (
DAL
): Free Stock Analysis Report
SOUTHWEST AIR (
LUV
): Free Stock Analysis Report
UNITED CONT HLD (
UAL
): Free Stock Analysis Report
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