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UAL Stock Flies High after the Company Raises Its 2018 Outlook

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United Airlines’ third-quarter earnings

America’s third-largest airline by 2017 fleet size, United Airlines (UAL), released its third-quarter earnings results on October 16. The company reported adjusted EPS of $3.06, up ~37.8% YoY (year-over-year). 

UAL’s third-quarter earnings missed Wall Street analysts’ consensus EPS estimate of $3.07 by a narrow margin.

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Raised outlook and more

In the third quarter, United Airlines’ operating revenue rose 11.2% YoY to $11.0 billion, slightly better than analysts’ consensus estimate of $10.9 billion. Like its peer Delta Air Lines (DAL), United Airlines’ passenger revenue rose in all regions except Latin America, where its passenger revenue fell 0.8% YoY. On October 11, DAL reported a 2.6% YoY fall in its third-quarter Latin American GAAP (generally accepted accounting principles) revenue.

UAL’s home market passenger revenue witnessed a solid jump of 14.9% YoY, while its revenue in the Atlantic and Pacific regions rose 12.1% and 3.4% YoY, respectively.

On the cost front, higher fuel costs led to an 11.9% YoY increase in United Airlines’ adjusted operating costs to $9.8 billion in the third quarter. The company’s aircraft fuel expenses surged 42.2% YoY to $2.6 billion. Despite this huge increase in fuel costs, UAL managed to maintain an adjusted operating margin of 11.1% in the third quarter compared to 12.0% in the third quarter of 2017.

Considering soaring travel demand along with its commercial initiatives and asset utilization, UAL raised its 2018 earnings guidance during its third-quarter earning event. Now, the company expects its 2018 adjusted EPS to be in the range of $8.00–$8.75 compared to the $7.25–$8.75 range it provided in July.

The stock is flying high

Today at 12:40 PM EDT, UAL was trading at a rise of 6.2% from its previous day’s closing price. In comparison, other airline stocks (IYT) Delta Air Lines, Southwest Airlines (LUV), JetBlue Airways (JBLU), and American Airlines (AAL) were up 3.2%, 0.6%, 0.4%, and 3.1%, respectively, and the S&P 500 Index was down 0.2%.

Although United Airlines’ third-quarter earnings missed estimates by a narrow margin, its performance reflected its ability to grow positively despite rising fuel costs. On October 11, Delta Air Lines also managed to showcase its ability to grow despite rising fuel expenses. This positive performance could be the key driver of the rally in airline stocks today.

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