United Continental Holdings Inc.
) plans to further reduce the flying capacity through rest of the
year owing to the higher fuel prices and sluggish economy.
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The airline industry has been struggling with rising fuel costs and
economic uncertainties. Moreover, the deepening European debt
crisis has affected almost all the key global economies.
The company can reduce capacity by reducing flight frequencies,
indefinitely postponing flights to certain markets and exiting less
profitable markets. The company now expects to cut consolidated
capacity by 2-3% during September to December. This is wider than
the previous forecast of 1-2% for the fourth quarter. For fiscal
2012, United Continental expects capacity to fall 0.75-1.75% year
Besides capacity cuts, United Continental is taking profitable
actions to endure surging fuel prices and the ongoing market
turmoil. Fare hikes and hedging strategies are the two effective
tools to combat the situation. The company is successfully passing
the increased fuel costs to customers in the form of fare hikes.
Further, United Continental is optimizing its network for greater
efficiency in fleet operations. The company is reducing its
domestic fleet count, retiring the older and less-efficient
aircraft and reconfiguring domestic aircraft for international
The company's overall initiatives are at par with the industry and
its peers such as
Delta Air Lines Inc.
Southwest Airlines Co
), who are also struggling with the rising costs and the flagging
The Zacks Consensus Estimate for United Continental's 2012 earnings
is pegged at $2.94, down from $3.71 over the last month. The
estimate represents a substantial decline of 15.66% annually.
We currently have an Underperform recommendation on United
Continental. For the short term (1-3 months), the stock also
retains a Zacks #5 (Strong Sell) Rank.