Can United Continental End a 2-Year Falling Revenue Streak?

For 1Q17, analysts expect United Continental’s revenues (UAL) to improve ~1.9% year-over-year or YoY to $8.3 billion. Growth is expected to improve in the rest of the year. For 2Q17, revenues are expected to rise 4.1% to $9.8 billion, for 3Q17 by 4.3% to $10.3 billion and for 4Q17 by 3.3% to $9.3 billion. This forecast means that, for 2017 as a whole, analysts are estimating revenue to improve ~3.6% to $37.9 billion, ending a two-year declining streak.

It’s important to track analysts’ estimates. They can serve as a proxy for what the market has priced in.

United Continental’s unit revenues fell 7% year-over-year during the first quarter of 2016, 5.2% in the second quarter of 2016, 5.8% in 3Q16, and 1.6% in 4Q16. This improving unit revenue trend led to hope that unit revenue will improve in 2017. Unit revenue is the revenue earned by an airline for flying one passenger for one mile. It’s also known as passenger revenue per available seat mile or PRASM. The sudden increase in capacity growth guidance has investors worrying that unit revenues may now decline.

However, United Continental has maintained its guidance for the first quarter of 2017 unit revenues to be in the range of -1% to 1%—roughly flat. It also expects unit revenues to increase from 2Q17 onwards.

In contrast, the other three major airlines—including Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines (LUV)—have cut their unit revenue guidance for the first quarter of 2017.

In the next part of this series, we’ll check how this unit revenue decline can impact profitability. Investors can gain exposure to United Continental by investing in XTF: Dynamic Market Portfolio (PWC), which invests 2.4% of its portfolio in UAL.