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United Continental December Traffic Up, Q4 Guidance Altered

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United Continental Holdings, Inc.’s (UAL - Free Report) wholly owned subsidiary, United Airlines, reported dismal traffic numbers for December. Traffic, measured in revenue passenger miles (RPMs), was 18.07 billion for the month, up 2.7% from the year-ago figure.

On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) also climbed 3.7% to 21.96 billion. However, load factor (percentage of seats occupied by passengers) declined 80 basis points (bps) to 82.3% as capacity expansion outpaced traffic growth.

On a year-to-date basis, the carrier registered a 2.8% rise in RPMs to 216.26 billion, while ASMs increased 3.5% to 262.38 billion. However, load factor contracted 50 bps to 82.4% in the period under review.

The company posted an on-time performance of 69.1% and a completion factor of 99.8% for December.


Q4 Outlook Revised

The company now expects fourth-quarter consolidated passenger unit revenue per ASM (PRASM) to be flat year over year (previous guidance had projected the metric in the band of down 2% to flat).  The upside has been driven by higher yields and better-than-expected close-in demand.

Additionally, the company now anticipates pre-tax margin adjusted in the range of 6-7% for the fourth quarter, higher than its previous expectation in the band of 3-5%. Also, consolidated operating cost per ASM (CASM), excluding profit sharing plus fuel & third-party business expense is anticipated to grow 1.5-2% year over year. Earlier forecast was an increase in the band of 2.5-3.5%.

Capacity for the fourth quarter is now estimated to expand 4% year over year, higher than its past projection of an ascent of 3.5%.

However, consolidated average aircraft fuel price per gallon for the to-be-reported quarter is now predicted at $1.91, above its former estimated range of $1.80-$1.85.

The company continues to expect Effective Income Tax Rate in the fourth quarter between 35% and 36%.

The upbeat guidance for the fourth quarter with respect to unit revenues, costs and pre-tax margin seems to have pleased investors owing to which, shares of the company inched up 1.6% in after-hours trading on Jan 9.

Zacks Rank & Key Picks

United Continental carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Deutsche Lufthansa AG (DLAKY - Free Report) , Gol Linhas Aereas Inteligentes S.A. (GOL - Free Report) and SkyWest, Inc. (SKYW - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Deutsche Lufthansa, Gol Linhas and SkyWest have soared more than 100%, 200% and 45%, respectively, in 2017.

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