United Continental Q4 Earnings: Despite Good Earnings, Shares Stumble On Fears Of Increased Capacity
United Continental (NYSE:UAL) reported better than expected earnings for Q4. The company managed to post a 43% increase in earnings year over year despite the heavy increases in average fuel costs. Even revenues came in higher than expected at $9.44 billion, representing a 4% increase year over year. The company, like many of its competitors, benefited greatly from increased travel during the holiday quarter. Despite this, the company saw shares tumble after the call as management revealed plans to increase capacity in the coming quarters. This is a point of concern as strong increases in seat counts coupled with modest jumps in revenue could seriously challenge United just as it faces higher costs, such as fuel.
- The big news from the quarter is that United has decided to increase capacity at a rate of 4-6%, which is about 50-250 basis points higher than the total capacity increase in 2017. This, as mentioned above, comes as great concern to investors. Analysts across the board are worried that this could lead to an oversupply situation that forces key players to further discount (already low) ticket prices in order to compete efficiently.
- As expected, the PRASM figure came in relatively flat in the quarter at up 0.2% year over year. Additionally, pre-tax margins came in around 6.7%, excluding certain charges, in line with expectations.
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- CASM ex-fuel surprised in the quarter. It came in higher by about 1.5% year over year, in comparison with the guidance that forecast an increase of about 2.5-3.5%. However, on the whole, costs in the quarter (CASM) came in about 4% higher in comparison to the figure in the same period last year, on higher fuel costs at $1.89.
- Additionally, despite the hurricanes, 2017 marked the best year for the company on record in terms of operational performance. Among its peers, the company recorded the highest on-time arrivals and completion factor.
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