United Traffic Rises in March - Analyst Blog

By Zacks Equity Research,

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Traffic at United Continental Holdings Inc. ( UAL ) , the largest U.S. airline, inched up 1% year over year in March on international flying. Airline traffic is customarily measured in billions of revenue passenger miles.

On a year-over-year basis, consolidated capacity (or available seat miles) dipped 1.1% while the load factor (percentage of seats filled by passengers) improved 170 basis points (bps) to 81.5%.

Domestic traffic fell 2.3% year over year on a 3.7% capacity reduction of 3.2%, which partly offset a 320-bp expansion in load factor. International traffic rose 4.8% year over year driven by a 2.4% increase in capacity and a 180-bp growth in load factor. Pacific and Latin America remains the strong driver with traffic climbing 7.9% and 6.5%, respectively. Passenger revenue per available seat mile (PRASM) rose 4-5% year over year in March compared to its major rival Delta Air Lines ( DAL ). Fuel prices were $3.34 in March.

Last month, United Continental had projected that higher fuel prices and a slow moving U.S. economy will have an adverse impact on the first quarter results. Consolidated unit cost or cost per available seat mile ( CASM ) is expected to rise 8.0-8.7% year over year. Excluding fuel and special items, CASM would increase 1.5-2.5% in the first quarter, higher than the last quarter's increase of 1.3%.

The Zacks Consensus Estimate projects loss per share of $1.04 for the first quarter, representing a drastic decline of 152.93% annually.

United Continental is taking profitable actions to endure the ever-increasing fuel prices and the ongoing market turmoil. The company is successfully passing the increased fuel costs to customers in the form of fare hikes. Additionally, United Continental has a risk management strategy to hedge a portion of its expected jet fuel requirements. The company has hedged 48% of the first quarter fuel consumption at $3.24 per gallon using a combination of calls, swaps and collars. United Continental has also hedged 37%, 36% and 25% of fuel consumption for the second, third and fourth quarters, respectively.

Besides, United Continental is planning cautiously and expects to keep capacity relatively flat this year and slightly down in the first quarter on a yearly basis. For the first quarter, the company expects domestic capacity to decline 2.5% while international capacity to increase 3.5% year over year, leading to a 0.1% rise on a consolidated basis.

Further, United Continental, which competes strongly with Delta and Southwest Airlines Co. ( LUV ), continues to have a healthy balance sheet. The company expects to exit its first quarter with cash equivalents, including short-term investments of $7.7 billion.

Based on expected weak first quarter results, we recently downgraded our long-term Underperform recommendation on the stock. For the short term (1-3 months), United Continental retains a Zacks #5 (Strong Sell) 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CASM , DAL , LUV , UAL

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