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United Sees Weak 3Q Traffic

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The largest U.S. airline United Continental Holdings Inc. (UAL - Free Report) estimates weak traffic in the third quarter on concerns over travel demand and pricing. The company expects passenger revenue per available seat mile (PRASM or unit revenue) to decline 1-2% in the third quarter. This compares with unit revenue growth of 9.2% in the year-ago quarter.

This expectation came in just few weeks after the company reduced its flying capacity outlook through rest of the year owing to the higher fuel prices and sluggish economy. United is reducing its capacity by reducing flight frequencies, indefinitely postponing flights to certain markets and exiting less profitable markets.

United now expects consolidated capacity to fall 1.4% year over year in the third quarter. This is up from the 0.7-1.7% decline projected by the company in the second quarter earnings call.

Consolidated unit cost, excluding fuel, third-party business expense and special items, is estimated to grow 2.8-3.8% year over year, down from 3-4% projected previously. The company now estimates fuel price to be $3.18 per gallon for the ongoing quarter, up from the previous forecast of $3.13 per gallon.

For the third quarter, the Zacks Consensus Estimate for United is pegged at $1.80, down 2 cents over the last week and 15 cents over the last month. The estimate represents a decline of 8.71% annually.

Further, United Continental, which competes strongly with Delta Air Lines Inc. (DAL - Free Report) and Southwest Airlines Co. (LUV - Free Report) , continues to have a healthy balance sheet. The company expects to exit the quarter with $6.6 billion in unrestricted liquidity including cash and short-term investments.

We currently have an Underperform recommendation on United Continental. For the short term (1-3 months), the stock also retains a Zacks #5 (Strong Sell) Rank.

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