How Did United Perform In Q1?

by Trefis Team
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UAL
United Continental Holdings
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United Continental (NYSE:UAL) posted a rather balanced earnings this time around, beating both revenue and earnings consensus estimates. Revenues in the quarter came in about 7% higher than the year ago period, while earnings jumped by close to 19%, despite a near 26% increase in oil prices. Similar to what happened in Delta’s earnings, this goes to show that rising oil prices may not be as big a concern as previously expected.

Further, the company managed to increase its PRASM by about 2.7%, as announced earlier. However, it would be important to note that the increase in unit revenues through the quarter were aided by a lower completion factor owing to increased flight cancellations on adverse weather conditions.

We have revised our previous estimate of $80, and created a scenario on an existing interactive dashboard analysis to estimate United’s latest valuation based on its expected revenue for FY 2018. Click on the link to modify the figures to arrive at your own price estimate.

  • As mentioned above, one of the most important takeaways from the quarter is the fact that rising oil prices don’t seem to be taking as big a toll on earnings as previously expected. Despite spending almost 26% on fuel in Q1, the company posted a very healthy earnings growth of about 19%. It seems as though the $70 a barrel price tag doesn’t seem to be a major headwind for the company that hopes to grow earnings significantly through the year.
  • Just like its competitors, United has also decided to increase its capacity in order to maintain its share in the market. That said, the company has decided to do so while improving its efficiency. In this respect, the airline has launched quite a few initiatives around segmentation, loyalty programs, and revenue management that should help boost sales over the coming years. We expect to see an impact from these initiatives as early as later this year.
  • A huge benefit that has arisen from the heavy volatility in the stock price is that the airline has been able to successfully complete significant amounts of share buybacks at very nominal prices. The company announced that it repurchased close to $747 million worth of shares through April 16. This figure roughly represents about 4% of all outstanding shares.
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