United Continental Earnings Will Show Integration And Oil Price Impacts

by Trefis Team
United Continental Holdings
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United Continental (NYSE:UAL) is expected to announce its second quarter earnings on coming Monday, July 16th 2012. In the first quarter the company reported a massive loss of $448 million on account of high fuel prices and integration costs related to its acquisition of Continental Airlines. [1]

For its second quarter, we anticipate the airline to continue to sustain high jet fuel prices and integration costs, partially offset by benefits accrued from good operational management. On the whole, United Continental has yet another tough quarter to navigate. We have a price estimate of $26.50, which is just around 10% ahead of the market price.

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High integration costs and jet fuel prices to impact margins

The airline incurred high integration costs of $134 million during the first quarter. We anticipate the trend to continue in to second quarter, partially offset by synergies arising out of a single consolidated passenger system, website and loyalty program for United and Continental, introduced from March 3rd 2012.

Also, the airline reported a high average jet fuel price of $3.33 per gallon during the first quarter. And, indicate a near level, $3.29 average jet fuel price per gallon for the second quarter.

Such high integration costs and jet fuel prices are bound to impact margins for the quarter.

Benefits from good operational management

However, on the flip side, the airline has reported higher revenue passenger miles (RPM) for year-to-date period in 2012 in comparison to 2011. This has been aided by cuts in capacity reflected by 0.2% decline in available seat miles (ASM) during the same period. At a deeper level, the airline has strategically shifted capacity from domestic routes to Pacific and Latin international routes in 2012. [2] The higher margins and growing demand on these international routes shall help offset the pressure on margins.

On the whole, for second quarter we anticipate high jet fuel prices and integration costs to continue to maintain pressure on margins, partially offset by good operational management.

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  1. United announces first-quarter 2012 results, April 26th 2012, ir.unitedcontinentalholdings.com []
  2. United reports June 2012 operational performance, July 9th 2012, www.ir.unitedcontinentalholdings.com []
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