What Factors Could Likely Affect United’s Unit Revenues In The Upcoming (Third) Quarterly?

by Trefis Team
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United Continental (NYSE:UAL) has witnessed a sustained fall in its unit revenues (PRASM) over the last few quarters. Although this trend isn’t specific to United, it is increasingly becoming an area of concern for the company and the aviation industry as a whole. Unit revenues measure the revenue earned by an airline per seat, and are indicative of a company’s profitability.

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Unit revenues for most carriers, including United, began falling in mid-2015. Most of this fall is attributable to the currency headwinds being experienced in the airlines’ international segments, frequent fluctuations in oil prices, and competitive pressure from smaller carriers like JetBlue and SouthWest. Below we give a break up of the effect various factors are likely to have on United’s unit revenues in the third quarter of 2016.

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The above table explains almost half of the expected decline of (5.5%) – ( 7.5%) in PRASM in Q3’16. The other half is mainly attributable to poor capacity utilization, as is evidenced in the company’s low occupancy rate/load factor. The carrier’s load factor continues to lag its peers even in the latest traffic report released by the airlines.

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The plummeting oil prices induced United to increase its capacity at a relatively significant pace, as compared to previous years.

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However, this capacity has grown much faster than the demand, putting pressure on yields. To worsen matters, the high yield corporate demand and leisure travels have suffered a setback due to frequent episodes of terror attacks, resulting in added stress.

 

Have more questions about United Continental (NYSE:UAL)? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for United Continental

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