The largest U.S. airline
United Continental Holdings Inc.
) estimates weak traffic in the third quarter on concerns over
travel demand and pricing. The company expects passenger revenue
per available seat mile (PRASM or unit revenue) to decline 1-2% in
the third quarter. This compares with unit revenue growth of 9.2%
in the year-ago quarter.
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This expectation came in just few weeks after the company reduced
its flying capacity outlook through rest of the year owing to the
higher fuel prices and sluggish economy. United is reducing its
capacity by reducing flight frequencies, indefinitely postponing
flights to certain markets and exiting less profitable markets.
United now expects consolidated capacity to fall 1.4% year over
year in the third quarter. This is up from the 0.7-1.7% decline
projected by the company in the second quarter earnings call.
Consolidated unit cost, excluding fuel, third-party business
expense and special items, is estimated to grow 2.8-3.8% year over
year, down from 3-4% projected previously. The company now
estimates fuel price to be $3.18 per gallon for the ongoing
quarter, up from the previous forecast of $3.13 per gallon.
For the third quarter, the Zacks Consensus Estimate for United is
pegged at $1.80, down 2 cents over the last week and 15 cents over
the last month. The estimate represents a decline of 8.71%
Further, United Continental, which competes strongly with
Delta Air Lines Inc.
Southwest Airlines Co
), continues to have a healthy balance sheet. The company expects
to exit the quarter with $6.6 billion in unrestricted liquidity
including cash and short-term investments.
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.