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Hurricanes and Korea Tension Create a Storm at United Continental

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Part 4
Hurricanes and Korea Tension Create a Storm at United Continental PART 4 OF 6

United Continental Reduces Its 3Q17 Guidance

Fuel costs to increase

Crude oil prices had risen earlier this year due to pipeline blockades in Libya that reduced oil supplies. As a result, oil prices recovered from the low of ~$40 in 2Q17 to $50.

United Continental Reduces Its 3Q17 Guidance

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However, Hurricane Harvey and Hurricane Irma dented future crude demand and again weakened oil prices. As a result, airlines are looking at higher fuel costs for the quarter. United Continental now expects fuel costs to be $1.72–$1.77 per gallon, rather than $1.56–$1.61.

Pricing pressure

United Continental launched its Basic Economy fares recently to compete with ultra-low-cost carriers and win back market share. However, costs have outweighed benefits, and United has seen higher costs than low-cost carriers.

Hurricane Harvey

Hurricane Harvey, which hit United’s second-largest hub, Houston, will also dent the company’s performance for the quarter. The hurricane led to the cancellation of ~7,400 flights and will impact short-term operations.

Outlook

As a result, United expects its unit revenue to fall in the third quarter. According to its recent guidance, unit revenue is expected to fall 3%–5%. Previously, it was expecting unit revenue of -1% to +1%.

For guidance updates on American Airlines (AAL), JetBlue Airways (JBLU), and Spirit Airlines (SAVE), visit our Airlines page. Investors can gain exposure to United Continental with the iShares Edge MSCI Multifactor Industrials ETF (INDF), which has a 1.7% exposure to United.

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