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United Continental Holdings Inc. (UAL - Analyst Report) – one of the leading U.S. airlines – reported solid performance in the fourth quarter and full year 2013. Improved operations and customer service were the key drivers.

In the fourth quarter, the company posted a profit of 78 cents per share, beating the Zacks Consensus Estimate of 68 cents with ease. Comparing year over year, the results improved considerably from a loss of 58 cents per share.

Quarterly total revenue improved 7.2% year over year to $9.32 billion, which was also ahead of the Zacks Consensus Estimate of $9.20 billion. On an annualized basis, passenger and other revenues increased 5.9% and 22.2% respectively while cargo revenues dropped 9.5%,

For full-year 2013, United Continental witnessed earnings of $2.84 per share (ahead of our projection of $2.72 and up 78.6% year over year) on revenues of $38.28 billion (up 3.0% from the prior year).

Operating Statistics

Airlines traffic, measured in revenue passenger miles, dropped 2.7% year over year to 49.2 billion. Capacity (or available seat miles) improved 2.6% year over year to 59.7 billion, while load factor (percentage of seats filled with passengers) improved 10 basis points year over year to 82.4%.

Consolidated passenger revenue per available seat miles (PRASM or unit revenue) increased 3.2% year over year, supported by 7.0% growth in Latin American and 2.2% growth in Atlantic PRASM, partially offset by decrease of 5.0% in Pacific PRASM.

Operating Expenses

Total operating expenses, excluding fuel, profit sharing, special charges and third party expenses rose 3.3% year over year to $5.7 billion in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, third-party business expense and special items, crept up 1.9% year over year.

Liquidity

At the end of 2013, the company had $6.1 billion in unrestricted liquidity, of which $1.0 billion was in revolving credit facilities. In the fourth quarter, United Continental spent approximately $760.0 million.

Other Airline Stocks

Delta Air Lines Inc. (DAL - Analyst Report) reported fourth-quarter 2013 results on Jan 21, with adjusted earnings of 65 cents coming ahead of the Zacks Consensus Estimate of 63 cents. The results, however, leaped 142.1% from the year-ago adjusted profit of 28 cents.

Other carriers like American Airlines Group Inc. (AAL - Snapshot Report) and JetBlue Airways Corporation (JBLU - Analyst Report) will release fourth quarter financial results on Jan 28 and Jan 29 respectively.

Our Rank

United Continental currently holds a Zacks Rank #2, implying a Buy rating.

Going forward, the carrier will also benefit from its restructuring effort by cutting $2 billion in annual costs through reduced fuel cost by using more efficient planes. United Continental aims to enhance productivity by slashing sourcing cost, improving maintenance procedure and optimizing distribution channels. However, a weak cargo market, soft performance by the Asia-Pacific region and stiff competition remain the near-term impediments for the company.

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