On Dec 26, 2014, we issued an updated research report on United Continental Holdings Inc. (UAL). Low fuel prices coupled with increasing demand for air travel will continue to boost profits for the company.
United Continental has delivered positive earnings surprises over the trailing four quarters, with an average beat of 6.4%. The company reported mixed financial results in the third quarter of 2014 wherein the bottom line outpaced the Zacks Consensus Estimate while the top line missed the same.
United Continental continues to expand its Trans Atlantic and Pacific routes by initiating new flights in the regions. In order to capitalize on the growing travel demand in the European region, United Continental intends to connect Chicago and Rome starting summer 2015. In addition, the carrier plans to boost its summer 2015 with flights between Washington Dulles and Paris and also between New York and Venice. It has also initiated flights between San Francisco and Tokyo's Haneda Airport. It has also connected Los Angeles and Melbourne with non-stop six daily flights per week, starting Oct 2014.
United Continental is well poised to gain from the decline in crude oil prices as oil accounts for nearly 30% of its operating costs. Moreover, replacing older fleet with new fuel efficient planes will boost operating margin for the company.
In addition, launch of value-added services like the Mercedes-Benz tarmac-transportation service in Denver for premium passengers, and the introduction of United app for passengers to access onboard movies and TV shows will not only enhance customer satisfaction but will also drive ancillary revenues for the carrier.
However, continuous fleet restructuring coupled with share repurchase plans may dent the company’s cash position and increase debts while going ahead. Moreover, Southwest Airlines’ slot wins in LaGuardia (LGA) and Reagan National Airport (DCA) along with JetBlue’s triumph in DCA, which is part of the mega merger deal between American Airlines and U.S. Airways, will intensify competition for United Continental, particularly within domestic markets.
United Continental currently carries a Zacks Rank #2 (Buy). Other stocks in the airline space worth considering include Delta Air Lines Inc. (DAL), Republic Airways Holdings Inc. (RJET) and Hawaiian Holdings (HA). All three sport a Zacks Rank #1 (Strong Buy).
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