Winter Puts United Continental Q4 on Thin Ice


Flight cancellations along with a late Easter are expected to affect United Continental Holdings Inc. (UAL) first quarter 2014 results. While the carrier is recovering from a severe winter in the U.S., the news hit the stock hard as it fell 3.33% on the Friday trade on NYSE.

The Chicago-based carrier announced that it had to cancel more than 22,500 flights in the first couple of months in 2014, which is nearly four times the flight cancellation during same period last year. The company specified that regional subsidiary United Express was the most affected, with almost 20,000 cancellations.

The premier passenger carrier now expects first quarter revenue passenger mile to decrease somewhere between 0.5% and 2.5% on an annualized basis in the first quarter, quite less than previous expectation of up to 2% growth. The carrier also expects consolidated PRASM (passenger revenue per available seat mile) to go down by 1.5%.

Apart from its home ground Chicago, the other hubs that experienced flight disruptions, were Denver and Newark, New Jersey. We believe that it will be difficult now for the company to repeat its performance last quarter, when it beat the Zacks Consensus Estimate by a wide margin.

However, United Continental is not the only carrier to have been affected by the freezing winter. Since Dec 2013, nearly 80,000 U.S. flights have been cancelled so far − the maximum number during a winter season in the last 20 years.

Rivals like Delta Airline Inc. (DAL) and American Airlines Group Inc. (AAL) are also expected to feel the chill of the sub-zero temperature while JetBlue Airways Corp. (JBLU) expects revenues and operating income to be hurt during the first quarter.  

Amid these negatives, the carrier received a tentative approval from The U.S. Department of Transportation to operate a flight between San Francisco and Tokyo’s Haneda Airport, citing that it will improve choices for passengers.

Thus, despite the short-term concerns we remain bullish about the company’s long-term prospects based on its ongoing cost-cutting initiatives and network expansion. United Continental currently carries a Zacks Rank #1 (Strong Buy).

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