With airline stocks reflecting a spiraling trend on Monday
United Continental Holdings Inc.
) topped the show with its shareholders reacting positively to
IATA's (International Air Transport Association) bullish view on
the North American airline industry. Consequently, United
Continental gained $2.33 or 5.25% on Monday trade at the NYSE. The
Chicago-based carrier also ended the day substantially higher than
the NYSE Composite.
According to the aviation watchdog, North America and Middle
East will the best performing regions in terms of profits in 2014
amid looming economic concerns in China and a slowdown in world
trade. IATA also expects global revenues in 2014 to reach $746
billion − $1 billion higher than the previous guidance given in
The most promising parameter however, is the average return on
invested capital, which has risen many folds to 5.4% from a mere
1.4% in 2008. These positives seem to have attracted shareholders
toward the aviation sector as most airline stocks ended the day in
United Continental's traditional peers like
American Airlines Group
Delta Airlines Inc.
Southwest Airlines Co.
) and JetBlue Airways ended the day on a positive note. Smaller
counterparts like Spirit Airlines and Hawaiian Holdings also
finished the day higher than its previous close.
However, the bright picture stands somewhat marred by the lower
profit expectation from IATA, which now expects net income to hover
around $18 billion, lower than the $18.7 billion forecast made in
March. According to the international governing body, rising
infrastructure cost, poor air traffic management, heavy tax burden
and rising fuel cost will weigh on the industry's bottom line, thus
pushing 2014 expected margins down by 10 basis points to 2.4%.
United Continental reported lackluster performance in the first
quarter of 2014 owing to a severe winter. The company posted a loss
of $1.33 as harsh winter conditions widened the loss to the tune of
With the weather now looking up, the carrier has since improved
its performance. United Continental's April 2014 traffic was up
0.6%, while capacity declined 1.1% leading to a 160 basis point
rise in load factor.
As part of its latest efforts, the airline has launched new
routes and has introduced the Embraer 175 aircraft between Chicago
and top business markets like Washington and Boston. The Zacks
Consensus Estimate is also bullish on United Continental and
expects the carrier to deliver 33.70% growth in 2014 earnings.
United Continental currently carries a Zacks Rank #3 (Hold).
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