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The largest U.S. airline – United Continental Holdings Inc. (UAL - Analyst Report) – reported better-than-expected results in first quarter 2013. The company’s performance was supported by better operational activities and services that somewhat compensated for rough weather conditions as well as the heavy burden of salaries and maintenance expenses.

The company posted loss of 98 cents per share, narrower than the Zacks Consensus Estimate of a loss of $1.09 per share. Comparing year over year, the result was worse than a loss of 87 cents per share.

Quarterly total revenue improved 1.4% year over year to $8.72 billion. The result surpassed the Zacks Consensus Estimate of $8.70 billion. On an annualized basis, Passenger and Other revenues increased 0.7% and 12.7%, respectively, while Cargo revenues decreased 14.0%.

Operating Statistics

Airlines traffic, measured in revenue passenger miles, dropped 1.2% year over year to 46.5 billion. Capacity (or available seat miles) slid 4.9% year over year to 57.4 billion, while load factor (percentage of seats filled with passengers) improved 300 basis points year over year to 81.1%.

Consolidated passenger revenue per available seat miles (PRASM or unit revenue) increased 5.9% year over year, supported by 11.0% growth in Atlantic PRASM and 7.2% in Pacific PRASM, partially offset by a decrease of 2.6% in Latin American PRASM.

Operating Expenses

Total operating expenses, excluding special items, increased 1.3% year over year to $9.0 billion in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding third-party business expense and special items, crept up 6.8% year over year.

Liquidity

At the end of the first quarter, the company had $6.4 billion in unrestricted liquidity, of which $1 billion was in revolving credit facilities. In the quarter, United Continental generated operating cash flow of approximately $393 million and spent approximately $526 million.

Other Airline Stocks

Delta Air Lines (DAL - Analyst Report) reported first quarter 2013 results on Apr 23, with adjusted earnings of 10 cents per share, surpassing the Zacks Consensus Estimate of 7 cents. The results also improved considerably from the year-ago adjusted loss of 5 cents per share.

Southwest Airlines Co. (LUV - Analyst Report) reported first quarter 2013 results on Apr 25. The company’s adjusted earnings of 7 cents per share beat the Zacks Consensus Estimate of 3 cents. The results improved considerably from the prior-year quarter loss of 2 cents per share.

Our Take

United Continental – which placed an order with The Boeing Company (BA - Analyst Report) for 150 brand-new 737 narrow-body airplanes designed with superior CFM engines – currently holds a Zacks Rank #3, implying a Hold rating.

Our positive view on the company is backed by robust growth prospects based on its smooth and reliable operational base, re-designing of fleet structure and efficient services. We also appreciate the company’s focus on upgrading airport facilities as well as introducing attractive loyalty programs for flyers.

However, we remain concerned about escalating fuel prices, the upward movement of non-fuel expenses, competitive threats, fluctuations in passenger and cargo demand, and a sluggish global economy.
 

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