The largest U.S. airline
United Continental Holdings Inc.
(
UAL
) reported fourth quarter 2011 adjusted earnings per share (
EPS
) of 30 cents, more than double of the Zacks Consensus Estimate. In
the backdrop of rising fuel prices and a slow moving economy, the
outstanding performance of the company was credited to fare hikes,
cost-cutting measures and fuel hedging programs.
Adjusted earnings in the reported quarter exclude 72 cents per
share in special items pertaining to merger-related costs and other
one-time charges. Including these charges, United Continental
generated a loss of 42 cents per share, considerably narrower than
the year-ago loss of $1.01 per share.
In fiscal 2011, earnings, including special items, dropped 13.4%
year over year to $2.26 per share. Earnings on an adjusted basis
came in at $3.49 per share.
Revenue
Total revenue increased 5.5% year over year to $8.93 billion in
the reported quarter, but was slightly below the Zacks Consensus
Estimate of $8.95 billion. Airlines traffic, measured in revenue
passenger miles, dipped 3.2% year over year. Capacity or available
seat miles slid 2.5% while load factor (percentage of seats filled
with passengers) fell 50 basis points year over year to 81.5%.
On an annualized basis, Passenger and Other revenues increased
5.6% and 10.1%, respectively, while Cargo revenue decreased 8.1%.
Consolidated passenger revenue per available seat miles (PRASM or
unit revenue) rose 8.2% year over year, led by a 11.7% spike in
PRASM in Latin America and a 10.3% domestic growth.
For fiscal 2011, revenue increased 8.8% year over year to $37.1
billion. Traffic plummeted 1.4% year over year with a 0.2% dip in
capacity and 100 bps contraction in load factor.
Operating Expenses
Total operating expenses, excluding special items, upped 7.3%
year over year to $8.6 million in the reported quarter. Steeper
expenses were largely due to a 25.1% year-over-year rise in fuel
price, excluding the impact of hedges.
Consolidated unit cost or cost per available seat mile (
CASM
), excluding fuel, ancillary business expenses and special items,
crawled up 1.3% year over year. CASM, including fuel and special
items, rose 6.6% from the year-ago quarter.
Operating expenses, excluding special items, climbed 10.1% year
over year for fiscal 2011, largely driven by substantial 36.5%
increase in fuel price, excluding the impact of hedges.
Liquidity
At the end of fiscal 2011, the company had $8.3 billion in
unrestricted liquidity including $7.8 billion in cash and
short-term investments, and $500 million in undrawn revolving
credit facilities.
United Continental generated operating cash flow of
approximately $265 million and spent approximately $204 million in
the fourth quarter.
Our Take
Notwithstanding higher fuel prices and the threat of recession
looming large over Europe, United Continental is poised to benefit
from Continental merger synergies, global network, leading unit
revenue growth, strong competitive position, fleet and network
optimization and a strong liquidity position. The strategy of
combating the rise in fuel prices with higher fares and capacity
cuts is also likely to continue.
Nevertheless, successful integration of Continental Airlines
with United, competitive threats from larger peers like
Delta Air Lines Inc.
(
DAL
) and
Southwest Airlines Co.
(
LUV
), and unionized workforce might pose major risks to the company's
profitability going forward.
We are currently maintaining our long-term Neutral
recommendation on United Continental. For the short term, the stock
retains a Zacks #3 (Hold) 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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