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United Airlines Expects Growth Momentum to Continue in Q2



Second-quarter outlook

Buoyed by its strong first-quarter performance, United Airlines (UAL) has provided impressive guidance for the second quarter, which suggests the company is confident about its growth prospects. The company anticipates it will continue to benefit from its strategy of adding more flights, efficient cost management, and investment in customer service.

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Furthermore, United Airlines predicts its second-quarter results to benefit from Easter falling in April. However, using larger aircraft on its 14 grounded Boeing 737 MAX fleet routes will likely increase its costs slightly.

Management anticipates increasing its consolidated capacity by 3.5%–4.5% in the second quarter. The PRASM (passenger revenue per available seat mile) is expected to increase in the 0.5%–2.5% range to 14.04–14.32 cents.

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Ex-fuel CASM (cost per available seat mile) is projected to increase in the range of flat to 1%, which comes to 9.87 cents to 9.97 cents. Moreover, the company anticipates the average fuel price per gallon to improve from the same quarter in 2018. The average fuel cost per gallon is expected to be $2.13–$2.23 as compared with $2.26 in the second quarter of 2018.

The effective tax rate for the second quarter of 2019 is anticipated to be between 21% and 23%, which is slightly higher than the year-ago quarter level of 20.2%.

Going forward, United Airlines projects its adjusted pre-tax margin to expand in the second quarter mainly due to higher revenues, efficient cost management, and lower average fuel cost per gallon. For the quarter, the adjusted pre-tax margin is forecasted to be in the range of 11%–13%, which depicts YoY improvement of 60 basis points to 260 basis points.

Fiscal 2019 outlook

For fiscal 2019, United Airlines anticipates increasing capacity by 4%–5%. Ex-fuel CASM is projected to remain flat on a YoY basis at 10.11 cents. The company expects to generate adjusted EPS of $10–$12 in 2019, which depicts YoY growth in the range of 10%–31%. For 2020, the company projects adjusted EPS to come in between $11 and $13.

Delta Air Lines (DAL), another major US air carrier (IYT), also released its first-quarter results on April 10, wherein its adjusted EPS rose ~28% YoY. American Airlines (AAL) and Southwest Airlines (LUV), which are scheduled to report results next week, are anticipated to witness YoY declines of 19.1% and 21.9% in their respective first-quarter EPS.


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