United Continental’s Traffic Growth Outpaced Its Capacity Growth



Traffic exceeds capacity growth rate

United Continental’s traffic (revenue passenger miles) growth has exceeded its capacity (available seat miles) growth for six consecutive months. So far in 2018, the company has reported a higher traffic growth rate than its capacity growth every month except January and April.

In October, United Continental’s traffic grew 7.5% YoY (year-over-year)—much higher than its capacity growth of 5.9%. Southwest Airlines (LUV) and Delta Air Lines (DAL) have also provided their October traffic growth data. The data show that Southwest Airlines and Delta Air Lines’ traffic growth rates have lagged their capacity growth. Alaska Air Group’s (ALK) October traffic and capacity growth rates both came in at 2.4%.

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Third-quarter performance

On October 16, United Continental (UAL) reported its results for the third quarter of 2018. Though adjusted EPS (earnings per share) of $3.06 marginally fell short of Wall Street estimates of $3.07, they marked a robust ~36% jump from the year-ago quarter’s EPS of $2.25.

United Continental’s third-quarter revenues of $11 billion beat analysts’ estimate of $10.9 billion and registered YoY growth of 11.4%. Like its peer Delta Air Lines, United Airlines’ passenger revenue rose in all regions except Latin America, where it fell 0.8% YoY. Delta Air Lines reported a 2.6% YoY fall in its third-quarter Latin American GAAP revenue.

United Continental’s domestic market passenger revenue jumped 14.9% YoY while its revenue in the Atlantic and Pacific regions rose 12.1% and 3.4% YoY, respectively.

United Continental’s adjusted operating costs surged 11.9% YoY to $9.8 billion in the third quarter, mainly due to higher fuel costs. The company’s fuel expenses increased 42.2% YoY to $2.6 billion. Despite this massive 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.

Raised outlook

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

United Continental makes up ~8.1% of the First Trust Nasdaq Transportation ETF (FTXR).


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