United Airlines Profits Rise, Forecast Softens

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United Continental Holdings Inc. (NYSE: UAL) reported third-quarter 2016 results after markets closed Monday afternoon. The airline reported adjusted quarterly earnings per share (EPS) of $3.11 on revenues of $9.9 billion. In the same period a year ago, United reported EPS of $4.53 on revenues of $10.31 billion. Third-quarter results compare to the consensus estimates for EPS of $2.88 on revenues of $9.89 billion.

On a GAAP basis, United’s EPS for the quarter totaled $3.01 on pre-tax profits of $1.5 billion that includes $32 million in total special items for the quarter..

Adjusted to include fuel-hedging impacts, fuel cost averaged $1.52 a gallon, a drop of 22.8% a gallon year over year. Total fuel expense for the quarter equaled $1.6 billion, down 17.1% compared with $1.93 billion in the same quarter last year.

Passenger revenue per available seat mile (PRASM) dropped 5.8% and consolidated yield fell 5.7% year over year. The decline in PRASM was attributed to a strong U.S. dollar, lower surcharges, reductions from energy-related corporate travel, and declining yields.

Cost per available seat mile(CASM, the unit cost) including special charges, third-party business expenses, fuel and profit sharing decreased 3.3 percent compared to the third quarter of 2015 due mainly to lower oil prices. Consolidated CASM, excluding special charges, third-party business expenses, fuel and profit sharing, increased 3.4 percent year-over-year driven largely by the impact of recently ratified labor agreements.

United’s president and CEO, Oscar Munoz, said:

We delivered another very good quarter, demonstrating the progress United continues to make at improving our customer experience, which included our best third quarter on-time performance in company history. As we execute our strategy to build the world’s best airline, we will remain intensely focused on engaging our employees, running a great operation and improving our financial performance.

United repurchased $255 million worth of its common stock during the quarter, representing 1.5% of shares outstanding. The remaining authorization in the share repurchase program totals $2 billion.

Available seat miles rose2% compared with the same quarter last year but passenger revenue dropped by 4% per available seat mile. Domestic capacity rose 4.2% and revenues per available seat mile fell 0.9%.

Consensus estimates call for fourth-quarter EPS of $1.30 and revenues of $8.76 billion. For the fiscal year analysts are looking for EPS of $7.98 and revenues of $36.21 billion.

The airline expects PRASM to decline by 4% to 6% in the fourth quarter and to drop by 6% to 6.5% for the full fiscal year. Consolidated (mainline and regional) capacity is expected to rise by 1% to 2% in the fourth quarter and by 1.2% to 1.4% for the full year.

Shares traded up about 0.8% at $53.45 in Monday’s after-hours session. The stock’s 52-week range is $37.41 to $61.87. Prior to this release the 12-month consensus price target on the company’s shares was $60.79.

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