United Continental December Traffic Up, Q4 Guidance Altered

United Continental Holdings, Inc.’s UAL wholly owned subsidiary, United Airlines, reported dismal traffic numbers for December. Traffic, measured in revenue passenger miles (RPMs), was 18.07 billion for the month, up 2.7% from the year-ago figure.

On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) also climbed 3.7% to 21.96 billion. However, load factor (percentage of seats occupied by passengers) declined 80 basis points (bps) to 82.3% as capacity expansion outpaced traffic growth.

On a year-to-date basis, the carrier registered a 2.8% rise in RPMs to 216.26 billion, while ASMs increased 3.5% to 262.38 billion. However, load factor contracted 50 bps to 82.4% in the period under review.

The company posted an on-time performance of 69.1% and a completion factor of 99.8% for December.

United Continental Holdings, Inc. Price

 

United Continental Holdings, Inc. Price | United Continental Holdings, Inc. Quote

Q4 Outlook Revised

The company now expects fourth-quarter consolidated passenger unit revenue per ASM (PRASM) to be flat year over year (previous guidance had projected the metric in the band of down 2% to flat).  The upside has been driven by higher yields and better-than-expected close-in demand.

Additionally, the company now anticipates pre-tax margin adjusted in the range of 6-7% for the fourth quarter, higher than its previous expectation in the band of 3-5%. Also, consolidated operating cost per ASM (CASM), excluding profit sharing plus fuel & third-party business expense is anticipated to grow 1.5-2% year over year. Earlier forecast was an increase in the band of 2.5-3.5%.

Capacity for the fourth quarter is now estimated to expand 4% year over year, higher than its past projection of an ascent of 3.5%.

However, consolidated average aircraft fuel price per gallon for the to-be-reported quarter is now predicted at $1.91, above its former estimated range of $1.80-$1.85.

The company continues to expect Effective Income Tax Rate in the fourth quarter between 35% and 36%.

The upbeat guidance for the fourth quarter with respect to unit revenues, costs and pre-tax margin seems to have pleased investors owing to which, shares of the company inched up 1.6% in after-hours trading on Jan 9.

Zacks Rank & Key Picks

United Continental carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Deutsche Lufthansa AG DLAKY, Gol Linhas Aereas Inteligentes S.A. GOL and SkyWest, Inc. SKYW, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Deutsche Lufthansa, Gol Linhas and SkyWest have soared more than 100%, 200% and 45%, respectively, in 2017.

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