United Airline To Report Upbeat Q2 Results Despite Hiccups From Boeing 737-MAX Grounding

by Trefis Team
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United Airline Holdings
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United Airline Holdings (NYSE:UAL) is an airline major based out of Chicago, Illinois.  It operates 4,900 flights to 355 destinations across five continents. In 2018 it carried over 158 million passengers and flew over 1.7 million flights. The company is expected to report earnings on Tuesday, July 16th. Trefis estimates United Airlines to report a notable improvement in revenues and earnings for the quarter despite logistical issues arising from the grounding of its Boeing 737-MAX fleet.

We currently have a price estimate of $102 per share for United’s stock, which is roughly 10% ahead of the market price. You can use our interactive dashboard, United Airline Holdings Q2 Earnings Preview, to modify key drivers and visualize their impact on the price estimate.  Additionally, you can see more Trefis data for Industrials & Transportation companies here.

Business Overview

Mainline:  United’s Mainline business accounts for all its international flights and is responsible for over 50% of United’s revenue. The company operates 770 mainline aircraft. For the quarter, we expect mainline operations to see a significant increase on the back of increased passenger flow.

Regional: United’s regional operations serve most of the mainland United States and surrounding areas. It is responsible for around 25% of the overall business revenue. With improved consumer sentiment, we expect regional revenue to come in higher for the quarter despite logistical issues.

Cargo: United’s cargo business accounts from roughly 10% of the overall revenue, and has been a key factor in driving revenue over recent quarters. We expect this trend to continue for the quarter.

Other: United’s Other business derives its revenue mainly from loyalty and membership. With Delta looking to improve passenger loyalty through a range of loyalty offers, we expect this division to perform better than expected.

Preview for Q2 2019 Results

United is expected to show robust second-quarter revenue growth, with revenues coming in at $11.34 billion. This would mean a 5% growth Y-o-Y for the airline. During the quarter, the airline witnessed non-conventional operational issues as a result of all 737-MAXs being grounded. However, the air travel industry has witnessed strong demand over the quarter and we expect this to more than make up for issues stemming from the grounding of the 737-MAX.

Furthermore, the company is expected to post an earnings per share of $4.05 for the quarter, this would be a jump of 24% Y-o-Y.

Expectations for Key Operating Metrics:

  • RASM (revenue per average seat mile), is expected to come in 2.5% higher
  • Load factor, a metric to gauge efficiency, is expected to come in at 82%. This is slightly lower than what would be ideal.
  • Despite the load factor being on the lower side, United is expected to increase capacity by 3-4% for the quarter.
  • Fuel costs are expected to come in at $2.15 per gallon – slightly above the figure for Q2 2018. United Airlines thrived in the first quarter despite higher oil prices. Since then, average oil prices have come down. While the airline does hedge some of it costs, fuel costs remain largely unhedged
  • Labor costs should have remained relatively flat during the quarter.
  • With revenue growth likely to have surpassed expenses, United’s margins should have improved year-on-year.

Key Note On 737-MAX:

The 737-MAX model makes up less than 2% of the company’s fleet. With the model being grounded due to technical issues, we expect some of the operational downtime stemming from the grounding to have been made up by its other aircrafts, or through the leasing of aircrafts.

United’s Strategic Focus On Asia and Higher-Income Passengers Will Drive Revenue Growth

  • United has increased its focus on its mainline routes to drive revenue by increasing routes to Asia and continental Europe. Both markets are key to unit revenue, as passengers in these geographies have the necessary purchasing power that United is targeting to attract to its premium class offering.
  • Increasing footfall in both premium-economy and business class has been a key strategy for most global airlines. Similarly, United has targeted passengers with higher incomes to help increase revenue by trying to attract premium-economy and business class passengers.

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