On Sep 25, we issued an updated research report on United Continental Holdings, Inc. (UAL).
United Continental recorded an impressive performance in the second quarter of 2014. The company posted earnings of $2.34 per share, much ahead of the Zacks Consensus Estimate of $2.22. The results also improved substantially from earnings of $1.57 per share reported in the comparable prior-year period. Quarterly total revenue improved 3.3% year over year to $10.33 billion, but missed the Zacks Consensus Estimate of $10.39 billion.
United Continental expects to implement appropriate network and fleet management strategies to accelerate its revenues. Going ahead, United Continental is focusing on augmentation of ancillary revenues by $700 million to $3.5 billion by 2017. The carrier hopes to achieve this by offering new products to customers and increasing fees on the current ones. In this regard, it continues to study a passenger’s destinations, travel pattern and prior purchases to provide appropriate ancillary products. Further, United Continental is gaining healthy response from its PerksPlus product – a loyalty program for small-to-medium-based businesses.
Moreover, United Continental is redesigning its fleet structure for greater efficiency in operations. We appreciate the company’s efforts to redesign its flight structure at the Chicago, Denver and Houston hubs by the spring of 2015, which is expected to increase its efficiency and shorten connection times. The company is also cutting down on its domestic fleet count, retiring older and less efficient aircraft and reconfiguring domestic aircraft for international service. Notably, the company bought seven Embraer 175 aircraft during the second quarter.
The carrier is also exhibiting excellent cost control strategies. Notably, United Continental has already started working on its restructuring efforts and plans to reduce annual costs by $2 billion by cutting down on fuel and non-fuel expenses. The company also plans to enhance productivity by slashing sourcing cost, improving maintenance procedures and optimizing distribution channels. Further, the carrier aims at strict capacity deployment to maintain a profitable balance between demand and supply.
On the flip side, fuel price volatility continues to be one of the significant challenges. The company's ability to pass along the increased cost of fuel to its customers is limited by the competitive nature of the airline industry. Although crude oil is currently trading on the lower side, even a small change in fuel prices can significantly affect the carrier’s profitability.
Other stocks which warrant a look in this sector are Republic Airways Holdings Inc. (RJET), Southwest Airlines Co. (LUV) and Air Industries Group (AIRI).
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