United Airlines, a wholly-owned subsidiary of UAL Corporation (UAUA: 21.73 -0.47 -2.12%), declared its second-quarter earnings on July 20, 2010. Despite challenging weather conditions, United Airlines delivered strong operational performance that won it the leading position among the five largest U.S. carriers in the first half of 2010.Earnings
The company’s second-quarter adjusted net income of $1.95 per share surpassed the Zacks Consensus Estimate of $1.75 and was above the $2.21 loss per share in the year-ago quarter. Earnings were driven by capacity control, increased passenger revenue and lower-than-expected costs.
United Airlines’ net profit increased $750 million over the last year to $430 million, which is the same increase that Delta Air Lines (DAL: 10.90 -0.63 -5.46%)posted in its recently reported quarter. This marks the company’s first quarterly profit since 2007 and the highest profit since 1999.
Revenue
Total revenue increased 28.4% year over year to $5.2 billion. Passenger revenue per available seat mile saw a 26.9% jump, with double-digit growth in all regions, including increases of 52% in the Pacific, 56% in Latin America and 33% in the Atlantic.
Passenger yield improved 23.6% while load factor (percentage of seats filled with passengers) rose 230 basis points year over year. Capacity or available seat miles increased by a modest 1.1% year over year.
On a year-over-year basis, Passenger revenue climbed 28.3% while Other revenue increased 15%. Cargo revenue shot up 57% year over year owing to improvement in both volume and yields driven by the growing cargo demand.
Operating Expenses
Total operating expenses, excluding special items, increased 11.1% year over year. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel and special items, upped 1.9% year over year. CASM, including fuel, jumped 9.9% year over year.
LiquidityOn a year-over-year basis, Passenger revenue climbed 28.3% while Other revenue increased 15%. Cargo revenue shot up 57% year over year owing to improvement in both volume and yields driven by the growing cargo demand.
Operating Expenses
Total operating expenses, excluding special items, increased 11.1% year over year. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel and special items, upped 1.9% year over year. CASM, including fuel, jumped 9.9% year over year.
United Airlines enjoys the industry’s best cash position. The company ended the second quarter with cash balance of $5.2 billion compared with $2.8 billion in the year-ago quarter. The company generated positive operating cash flow of $874 million and free cash flow of $801 million.
Guidance
United Airlines expects both mainline and consolidated CASM, excluding fuel and special items, to increase 2.0%–3.0% year over year for 2010. The airline expects consolidated CASM, excluding fuel and special items, for the third quarter to increase 3.3%–4.3% year over year.
Our Analysis
We believe United Airlines is well positioned for growth driven by recovering business and international traffic, rising fares and capacity cuts, industry leading unit revenue growth, fleet right-sizing, network optimization, hedging strategy as well as the merger benefits from Continental Airlines (CAL: 23.28 -0.47 -1.98%).
With the merger of Continental Airlines, United Airlines will overtake Delta Airlines to become the world’s largest airline with a strong worldwide presence, enhanced capacity and improved service. The combined company is expected to generate annual revenues of $29 billion and will save cost in the range of $1 to $1.2 billion by 2013.
| Analysts' Targets | |
| Deutsche Bank Securities | $33 |
| Buy | |
| Monday, June 14, 2010 | |
| Next Generation | $20 |
| Neutral | |
| Thursday, January 28, 2010 | |
| Barclays Capital | $23 |
| Overweight | |
| Thursday, January 14, 2010 | |
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