United expects stronger fourth-quarter revenue, shares rise

A United airplane waits in Chicago O'Hare Airport.(Yemeng Yang/MEDILL)

By Yemeng Yang

Days after two analysts downgraded United Continental Holdings Inc., the Chicago-based carrier bolstered investors’ confidence by raising revenue projections for the quarter and year just ended.

Shares of United rose $1.32 or 1.8 percent to $74.98 Wednesday, after a 2.5 percent increase in after-hours trading Tuesday when the guidance was released.

Consolidated passenger revenue per available seat mile in the fourth quarter is now expected to be 12.39 cents to 12.45 cents, down 1.25 percent to 1.75 percent from a year ago in the updated guidance, called an “investor update.” It was previously projected to decrease 4 percent to 6 percent for the quarter.

The company said stronger business demand in the two weeks prior to Christmas and leisure demand during the holiday season contributed to a better passenger unit revenue forecast.

Consolidated traffic, an important metric of total passenger miles, increased 1.7 percent and 2.6 percent in November and December respectively from a year earlier. Bookings and yields were stronger than expected.

Source: United Continental Holdings Inc. United’s consolidated traffic in the full fiscal year 2016 was up 2.3 percent. (Yemeng Yang/MEDILL)
Source: United Continental Holdings Inc.
United’s consolidated traffic in the full fiscal year 2016 was up 2.3 percent. (Yemeng Yang/MEDILL)

Owning to improved passenger unit revenue, United forecasted pre-tax margin of 9.25 percent to 9.75 percent, up from prior guidance of 5 percent to 7 percent.

Non-fuel unit cost was expected to increase 4 percent to 4.25 percent, down from prior projections of 4.75 percent to 5.75 percent, impacted by newly-ratified labor agreements.

“Overall, the updated guidance was strong and should result in near-term estimates being revised higher,” said Helane Becker, an analyst at Cowen & Co., in a research note.

Becker increased her estimate of United’s earnings per share for the fourth quarter to $1.76 from the prior estimate of $1.43 to reflect the improved guidance.

Earlier this month, Becker downgraded United to market perform from outperform because of risks that airlines are vulnerable to, including fuel and labor issues.

Morgan Stanley’s Rajeev Lalwani also downgraded United, to equal weight from overweight.

“We acknowledge the excellent job the new management team has done in positioning the company as more of a leader amongst peers and turning investor sentiment,” Lalwani wrote in a research note. “Nonetheless, we believe scope for continued outperformance relative to peers may be limited from here.”

United will release its fourth-quarter and annual earnings on Jan. 18.

Photo at top: A United airplane waits at Chicago O’Hare International Airport.(Yemeng Yang/MEDILL)