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United Continental (UAL) August Traffic Up, Load Factor Down

Zacks

United Continental Holdings, Inc.’s UAL wholly owned subsidiary, United Airlines, reported traffic numbers for August. Measured in revenue passenger miles (RPMs), traffic was 20.39 billion, up 2.3% from 19.94 billion recorded a year ago.

On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) inched up 2.4% to 23.91 billion. However, load factor (percentage of seats occupied by passengers) decreased 20 basis points (bps) to 85.3% as capacity expansion surpassed traffic growth.

At the end of the first eight months of 2017, the carrier recorded a 3.3% rise in RPMs to 145.88 billion while ASMs increased 3.5% to 175.94 billion, both on a year-over-year basis. Load factor contracted 20 bps to 82.9% in the period as capacity growth exceeded traffic expansion.

The company posted an On-time performance of 63% and a completion factor of 95.9% for August.


Third-Quarter Guidance

The company recently trimmed its guidance for the third quarter mainly due to the devastation caused by Hurricane Harvey. The carrier now expects passenger revenue per available seat mile (PRASM: a key measure of unit revenue) to decline between 3% and 5% year over year (the earlier guidance provided in July had called for the metric to be in the +1% to -1% range). Whereas it expects pre-tax margin to vary between 8% and 10% (previous projection had called for the metric to be in the band of12.5-14.5%).

Higher fuel prices are also expected to hurt bottom line in the third quarter. Fuel price per gallon is now raised to $1.72-$1.77 bracket (earlier view: $1.56-$1.61). Cost per available seat miles, excluding fuel, profit-sharing, third-party business expenses and other special items are now estimated to increase between 2.5% and 3.5% (earlier outlook had called for a rise of 2-3% ).

The Chicago-based company now anticipates capacity to grow between 3% and 3.5% compared with the approximate 4% expansion pegged earlier.

Zacks Rank & Key Picks

United Continental currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in airline space are Deutsche Lufthansa AG DLAKY, SkyWest, Inc. SKYW and Air France-KLM SA AFLYY. While Deutsche Lufthansa and SkyWest sport a Zacks Rank #1 (Strong Buy), Air France-KLM carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Deutsche Lufthansa and Air France-KLM have soared more than 100% in a year while SkyWest shares have rallied 24.1% over the same time frame.

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