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
To read this article on Zacks.com click here.
Zacks Investment
Research