Back to top

Analyst Blog

On May 1, 2014, we issued an updated research report on United Continental Holdings Inc. (UAL). We find the carriers’ plan to cut costs and enhance productivity by spending less on fuel and optimizing distribution channels quite encouraging.

However, increased competition in the Pacific region, weakness in Japanese currency and slot pair wins by rival carriers are likely to affect its performance going forward. The Chicago-based carrier has a Zacks Rank #3 (Hold).

United Continental has already started its restructuring effort and plans a $2 billion reduction in annual costs by cutting fuel cost through more efficient strategies. The carrier also aims at strict capacity deployment to maintain a profitable balance between demand and supply. The company expects second quarter consolidated RRASM (Passenger Revenue per ASM) in the range of 1–3%.

United Continental is focusing on the augmentation of ancillary revenues by $700 million to $3.5 billion by 2017 and expects to reach $3 billion by the end of this year. The company hopes to achieve this by offering new products to customers and increasing fees on the current ones.

United Continental is extending its global route network through non-stop flights and will launch a non-stop service between San Francisco and Chengdu in the second quarter, as part of its Pacific strategy to connect secondary Asian cities. Apart from spreading its international destinations in Ireland and Canada, the carrier also aims to add 8 Asian destinations in 2014 to tap the growing travel demand in the continent  thus paving way for one-stop connectivity to more than 80 different locations in that continent.

However, United Continental’s future liquidity could be negatively impacted by the decline in passenger and cargo demand owing to slowdown in certain economies. The carrier also expects weakening of the Japanese economy and the depreciation of Japanese Yen to act as deterrents to its Pacific division, thus dragging the consolidated year-over-year PRASM by 1–2% in the second quarter.

Apart from that, Southwest Airline Co.’s (LUV - Analyst Report) slot wins in LaGuardia and Reagan National Airport (DCA), and JetBlue Airways Corp’s (JBLU - Analyst Report) triumph in DCA, which is part of the mega merger between American Airlines and U.S. Airways, will heighten competition for United Continental particularly within the domestic market.  

Key Pick from the Sector

Stock worth considering within this sector include Alaska Air Group Inc. (ALK - Snapshot Report), which currently carries a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%