Industry Tailwinds Will Help United Airlines’ Profits Soar In 2019

by Trefis Team
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  reported Q2 results earlier this week. During the quarter, United overcame issues stemming from its inoperative 737-MAX fleet to post better-than-expected numbers. We currently have a price estimate of $102 per share for United’s stock, which is roughly 10% ahead of the market price. Our interactive dashboard summarizes United Airlines’ Earnings and also highlights our outlook for full-year 2019.  Additionally, you can see more Trefis data for Industrials & Transportation companies here.

Second Quarter Highlights:

  • United’s revenue came in as expected, improving 6% year-on-year, to $11.4 billion. Strong passenger demand during the quarter helped pushed revenue higher.
  • It reported a net income of $1.1 billion, representing a 54% increase YoY. The airline was able to take advantage of strong consumer demand, with Mainline and Regional operations both witnessing higher demand than what was witnessed a year ago.
  • With strong demand boosting efficiency, United was able to see its margins improve to 12% for the quarter – 4 basis points higher than the figure a year ago.
  • Earnings per share came in at $4.21 for the quarter, beating market consensus, and well ahead of the figure of $2.48 for Q2 2018.
  • Revenue per available seat mile (RASM) rose 2.5% year-on-year, while, cost per available seat mile (CASM) decreased 0.4% year-on-year. The fall in costs reflects United’s continued efforts to improve its on-ground logistics and reduce the costs of its operations. The increase in RASM was, by and large, a result of two factors:
    • Firstly, an increase in ticket pricing
    • Secondly, a larger percentage of passengers flying premium class.
  • With lower oil prices, total fuel costs fell 2% YoY despite an increase in fuel volume.
  • Improved margins and a consolidation in operations helped United’s cash and cash equivalents jump 89% YoY to $3.2 billion.

Our takeaway for the quarter and our outlook for the year:

  • United served over 43 million passengers during the quarter, which is a record for any second-quarter in the airline’s history.
  • It also added 34 new routes to its operations, and among major airlines United had the second-best completion factor and second-fewest cancellations.
  • The management has continued to focus on the strategy that it had laid out over the past couple of quarters, i.e., focusing on premium passengers, and its mainline operations. Both strategies seem to be paying dividend.
  • United continued to add capacity during the quarter by adding multiple aircrafts to its fleet, and with load factor improving for the quarter, the company is well placed to achieve its revenue and earnings target for the year.
  • The airlines saw domestic U.S. demand to be stronger than the demand on its international operations, with both Europe and Asia witnessing a slowdown in their economies. Latin America, on the other hand, experienced a 14% growth, breaking with the trend witnessed in Asia and Europe. We expect that Asia and Europe will trail the U.S. in terms of revenue growth for the year due to macro-economic headwinds in these regions.
  • For the full year, we estimate that United’s revenue will grow 8% to $44.5 billion. While management’s guidance pegs earnings per share to come in at $11.50 per share, we at Trefis expect earnings per share to come in at $13.50 for the year.

United continues to be a strong performer in the airline industry. We expect the airline to continue to witness similarly positive results right through the year.


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