United Airlines Earnings Preview: Will United’s FY 2019 Revenues Beat Consensus?

by Trefis Team
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United Airline Holdings
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United Airlines (NASDAQ: UAL) will release its full-year 2019 results on Tuesday, January 21. Trefis details expectations from the airline company in an interactive dashboard, parts of which we highlight below. We believe that United Airlines will report revenues and earnings for FY 2019, which are fairly in-line with the consensus. We expect United to report total revenues of $43.4 billion (vs. consensus estimate of $43.3 billion) primarily driven by an upbeat performance by the company’s passenger division. Also, earnings are likely to be around $11.95, which is 32% higher than the figure for 2018 due to lower fuel costs. However, this is slightly below the consensus estimate of $12.00. Though the U.S. airline industry faced a capacity shortage in 2019, we estimate United Airlines’ valuation to be $94 a share – roughly 6% above its current price of $89.

A Quick Look at United Airlines’ Revenues

United Airlines’ reported $42 billion in Total Operating Revenues for full-year 2018, which included three revenue streams:

  • Passenger Revenue: $38 billion in FY2018 (91% of Total Operating Revenue). It represents income from the sale of air tickets and other ancillary offerings for the company’s mainline and affiliate carriers. If a ticket is sold and travel is yet to happen, the company recognizes income from such tickets as air traffic liability. Due to the complex structure of ticket pricing, cancellation, and rescheduling, a specific portion of the liability is recognized as passenger revenues based on historical patterns.
  • Cargo: $1.3 billion in FY2018 (3% of Total Operating Revenue). It represents income freight and mail services.
  • Other Revenue: $2.4 billion in FY2018 (6% of Total Operating Revenue). It comprises of the sale of loyalty points to credit card companies.

Our interactive dashboard analysis, ‘How Does United Airlines Make Money?, provides an in-depth view of the company’s revenues along with our forecasts for 2020.

 [1] Total Revenues expected to be in-line with the consensus

  • Passenger revenues contributed nearly 92% of the company’s total revenues and are driven by available seat miles, passenger yield, and occupancy levels.
  • In 2018, Passenger revenues observed a healthy growth of 9%, primarily due to growing capacity and yield.
  • However, slow growth in capacity would have weighed on revenues for 2019, which is why we expect the company to report $43.4 billion in total revenues for the year – an increase of 5% (y-o-y).

[2] EPS expected to increase from $9.06 in 2018 to $11.95 in 2019, driven by lower fuel costs

  • After falling sharply in December 2018, crude oil prices have remained relatively stable at $60 a barrel in 2019.
  • As fuel expenses are nearly 20% of the operational costs for the company, lower fuel expenses have had a positive impact on the net income margin.
  • We expect the company’s EPS to have grown by 32% to $11.95 for the full year 2019.
  • Our valuation for United Airlines’ stock stands at $94 per share, driven by an EPS of $11.95 and a forward P/E multiple of 7.9.

You can input your estimates for the company’s key metrics and see how that will affect the company’s stock price in our interactive dashboard.

 

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