What To Expect From United’s Q2 Earnings

by Trefis Team
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United Continental Holdings
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United Continental (NYSE:UAL) is all set to report earnings for Q2 on July 18. The company managed to pull off a good start to the year in Q1, posting revenue and earnings figures that beat the consensus estimates by a large margin. The company posted revenues of $8.4 billion, beating the expected $8.36 billion, while earnings came in at $0.41 per share, beating the consensus estimate by almost $0.04. We can expect this momentum to continue well into the year, despite the “dragging” debacle, that rattled media houses across the globe, at the beginning of the year.

The company expects to beat revenue projections again this quarter, on the back of improved sequential pricing, while hoping to maintain a positive increase in earnings. In general, the aviation sector is expected to enjoy the benefits of robust core demand, supportive international trends, and modest capacity growth.

Probable Highlights:

  • The company expects to finally turn unit revenues positive this quarter, after recording a consistent decline in the key metric since late 2015. As with most airlines in the industry, United has managed this feat by aggressively limiting capacity. We expect there to be strong unit revenue growth locally and in the Latin America region, while the Pacific sectors continue to lag in the quarter on unfavorable demand and supply dynamics in China and Hong Kong.
  • According to the preliminary estimates for its second quarter financials, United expects unit revenues to come in approximately 2% higher year-over-year. If this holds true, it would mark the the highest growth rate for a legacy airline since Q3 FY 2014.
  • In terms of costs, the company expects ex-fuel costs to come in around 3-3.5% higher than the same period last year. The higher costs are attributable to the ratified labor contracts penned early last year and higher maintenance costs. These costs are expected to weigh on margins well through 2017. In addition, we can expect fuel costs to remain flat, if not increase marginally, on the back of flat growth in oil prices year-over-year.
  • As mentioned above, the higher costs are bound to hurt the company’s bottom line in the coming few quarters. In this respect, the pre-tax margin is expected to come in lower year-over-year at around 12.5-13.5%.
  • In the quarter, the company managed to increase the year-over-year mainline completion factor by about 0.6 points due to better operational performance across most sectors. As a result, consolidated capacity increased to 4.2%, above United’s original guidance range of 3-4%.
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