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United Continental Holdings Inc.’s (UAL - Analyst Report) Nov 2013 airline traffic – measured in revenue passenger miles or RPMs, which imply revenue generated per mile per passenger – increased 0.9% year over year to 15.34 billion. Consolidated capacity (or available seat miles/ASMs) for the month was 19.22 billion, up 3.0% from Nov 2012.

The load factor (percentage of seats filled by passengers) declined to 79.8% from 81.5% in the same month, last year. The company registered a completion factor of 99.4%, with nearly 85.0% of flights on schedule. Passenger revenue per available seat mile (PRASM) decreased an estimated 1.5% to 2.5% as compared to Nov 2012.

For the first eleven months of 2013, United Continental generated RPMs of 188.29 billion (down 0.5% year over year) and ASMs of 225.59 billion (down 1.6% year over year). Load factor was 83.5%, reflecting growth of 90 basis points.

United reported weak third quarter 2013 financial results, with earnings and revenues failing to beat the Zacks Consensus Estimate. Recently, this airline behemoth chalked out plans to overhaul its finances as it financially underperformed its domestic peers in recent times. The passenger airline plans to reduce its annual costs by $2 billion by cutting fuel and sourcing costs, improving maintenance, and optimizing distribution channels.

In this attempt to improve its performance, the company has already opened a new hangar at Washington Dulles International Airport – a major hub for the carrier to connect with the Middle Eastern market. The Chicago-based carrier has also introduced flat-bed cabin seats on every scheduled transcontinental flight between New York JFK and San Francisco/Los Angeles.

However, the company is facing increased competitive pressure in the Pacific region, in particular China. Improved travel demand in China has propelled capacity addition from competitors thus challenging United’s dominance in the region. The carrier expects further capacity addition by competitors in the upcoming months that will further aggravate its challenges.

Further, the merger of U.S. Airways and American Airlines to form American Airlines Group Inc. (AAL - Snapshot Report) – the world’s biggest passenger carrier – dethroning United. Despite the initiatives, these risks force us to maintain a cautious view on the carrier’s prospects.

United Continental, which operates with Delta Air Lines Inc. (DAL - Analyst Report) and JetBlue Airways Corp. (JBLU - Analyst Report), carries a Zacks Rank #3 (Hold).

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