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United Continental’s Revenue Could Rise after Falling for 2 Years

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Analyst estimates

Analysts are estimating that United Continental’s revenues (UAL) will rise ~5.2% year-over-year (or YoY) to ~$10 billion. The growth is expected to be on a declining trend for the rest of the year. Revenues are expected to rise 4.7% to $10.4 billion in 3Q17 and 3.6% to $9.4 billion in 4Q17.

For the full year 2017, United Continental’s revenue is expected to improve ~4.2% YoY to $38.1 billion, which would put an end to the fall in the past two years. In 2016, revenues fell 3.5% YoY, and in 2015, revenues had fallen 2.7% YoY.

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

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Unit revenues to grow

United Continental’s unit revenues fell 5.5% YoY in 2016. Unit revenue is the revenue earned by an airline for flying one passenger for one mile and is also known as passenger revenue per available seat mile (or PRASM). Improving PRASM can mean improving profitability for airlines if costs are kept in check.

Outlook

If United Continental is unable to fill the extra capacity it is going to add, unit revenues will fall, and investors are worried about this. On the contrary, United Continental’s first quarter unit revenue recorded a growth of 0.8% YoY. The company also expects second quarter unit revenues to record a growth of 1%–3% to 12.7–12.9 cents.

Delta Air Lines (DAL) has a similar unit revenue growth guidance for 2Q17. Rival American Airlines (AAL) is expecting a far higher unit revenue growth of 3%–5% YoY for the second quarter of 2017. Southwest Airlines (LUV) expects unit revenue for the second quarter to grow in the range of 1%–2%.

In our next article, we’ll look at how this unit revenue growth can impact profitability. Investors can gain exposure to United Continental by investing in the PowerShares Dynamic Market Portfolio (PWC), which holds 2.3% in UAL.

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