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United Continental's August Traffic Rises, Load Factor Slips

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Amid the turbulence surrounding the sudden resignation of United Continental Holdings’ (UAL - Free Report) chief executive officer, Jeff Smisek, and his replacement by Oscar Munoz, the Chicago-based airline company unveiled traffic numbers for the month of August.

Traffic – measured in revenue passenger miles (RPMs) – climbed 1.5% on a year-over-year basis to $19.83 billion. Domestic traffic climbed 2.7% while the metric increased 3.5% on the international front.

On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) climbed 2.3% to 22.9 billion in the month. Meanwhile, load factor, or the percentage of seats filled by passengers, slipped 70 basis points to 86.6% in Aug 2015. The greater increase in capacity compared to traffic led to the load factor decreasing. The company registered a completion factor of 99.1%, with 78.9% of its flights on schedule.

At the end of the first eight months of 2015, United Continental – the latest carrier to enter the coveted S&P 500 index – recorded RPMs of 141.03 billion (up 0.9% year over year) and ASMs of 168.36 billion (up 1.6%). Load factor stood at 83.8% against 84.3% in the first eight months of 2014.

United Continental, the holding company of United Airlines, like many other carriers is benefiting from low fuel costs. The carrier expects average fuel price per gallon (including all cash-settled hedges) in the band of $1.96 to $2.01 in the third quarter.

Investors Reassured

Shares of United Continental had declined in after-market trading on Sep 7 following the abrupt resignation of Smisek, apparently due to the ongoing federal probe into the carrier’s alleged improper dealings with the Port Authority of New York and New Jersey. Oscar Munoz, who earlier served CSX Corporation (CSX - Free Report) as its CEO, replaced Smisek at the carrier’s helm with immediate effect. Two other officials also exited United Continental as an after-effect of the probe.

However, shares of the company recovered to some extent on Sep 8 to close the day at $57.67, up 0.28%, following the new CEO’s apparent assurance to shareholders that the stability of the company is, by no means, endangered.

Investors were also pleased with the positive commentary of the company’s acting chief financial officer, Gerry Laderman, at an investor conference. Laderman stated that the company is on track to generate savings worth $1 billion in non-fuel costs next year.

Laderman, who was appointed as a temporary replacement for John Rainey following the latter’s exit last month in order to join PayPal Holdings (PYPL - Free Report) in a similar capacity, also said that the company aims to complete the $1 billion share buyback program by Sep 30, 2015, almost two years ahead of schedule.

Moreover, the company, which is actively working to reduce its debt levels, aims to return $4 billion to its stockholders by 2017. We remind investors that United Continental had announced a new share repurchase program worth $3 billion in July this year, which will run through 2017.

We expect investor focus to remain on the performance of the carrier under its new CEO, going forward.

Zacks Rank

United Continental carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Ryanair Holdings (RYAAY - Free Report) which sports a Zacks Rank #1 (Strong Buy).

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