United Traffic Disappoints at 2012-end

United Continental Holdings Inc. (UAL - Analyst Report) showed a drop in consolidated traffic and capacity for December 2012, from the prior-year month.

On a year-over-year basis, airline traffic – measured in revenue passenger miles or RPMs, which implies revenue generated per mile per passenger – moved down 4.0% to 16.2 billion. Consolidated capacity (or available seat miles/ASMs) for the month was 19.7 billion, down 5.4% from the last month of 2011.

The load factor (percentage of seats filled by passengers) improved slightly to 82.4% from 81.2% in December 2011. Passenger revenue per available seat mile (PRASM) is estimated to increase 2.5–3.5% year over year.

For full year 2012, United Continental generated RPMs of 205.5 billion (down 1.0% year over year) and ASMs of 248.9 billion (down 1.5% year over year), while load factor was 82.6%, up 40 basis points.

Headquartered in Chicago, United Continental Holdings was formed through the merger of United Airlines and Continental Airlines in 2010. The newly formed company became the world’s biggest airline, dethroning Delta Airlines (DAL - Analyst Report).

The U.S. carrier is expected to report its fourth quarter financial results on January 21, 2013. The Zacks Consensus Estimates are a loss of 47 cents per share for the fourth quarter and earnings per share of $1.65 for the full year.

United Continental currently retains a Zacks Rank #3 that implies a Hold rating for a period of 1–3 months.

We expect the company to benefit from an industry leading growth momentum, strong execution, competitive cost-structure, as well as fleet and network optimization. Other positives for United Continental include active hedging strategies and a strong liquidity position.

However, we expect these aspects to be overshadowed by the concerns over escalating fuel prices, rising non-fuel expense, competitive threats, new advertising policy, unionized workforce and a sluggish global economy that might limit the upside potential of the stock.