United Airlines parent firm United Continental (UAL) is scheduled to report its second quarter earnings tomorrow after the closing bell. Street expects the company to report earnings of $3.06 per share in the second quarter, which is a seasonally strong quarter for the US airline industry. Despite the strong travel demand, rising fuel costs are a concern for United and its peers as margins would come under pressure, forcing airlines to raise prices. Shares of United increased around 7% this year, but decreased nearly 10% over the past 12 months.
United didn’t provide any earnings guidance for the second quarter. The company expects its Q2 unit revenues, a key metric to watch, to be up 1% to 3%. For the month of June, the company posted an impressive 7.2% growth in unit revenues with 88.2% load factor. It would be interesting to see whether fuel costs will make a dent in unit revenues in the second quarter.
Another important aspect to watch will be the company’s capacity addition plans. United has earlier projected a capacity addition of 4% to 5% in the second quarter. Earlier this month, United announced its plans to discontinue flying to three markets from Chicago after Labor Day and exiting the Champaign/Urbana market completely. The airline has stated that the decision was a result of the shortage of regional pilots and aircraft. To address the airplane shortage, today the company has placed orders for 25 E-175 (Embraer) and four Boeing 787-9 aircraft, which are expected to be received in 2019 and 2020, respectively. Investors would be interested in knowing more details about the company’s expansion plan.
United kicked off Premium Plus cabins last month in one of its international flights with more to be added during the course of the year. The new category is placed between the economy and business category, which would be priced higher than economy class coming with additional features for passengers. This launch is along the similar lines of what Delta and American have already rolled out in the last few years. The initiative is expected to boost unit revenues over a period of time. Analysts would be keeping a tab on any updates from the management on the Premium Plus offering.
Last week Delta Airlines (DAL) reported better-than-expected earnings for the second quarter. Delta saw its fuel costs shot up 40% to $2.36 billion which impacted margins to a great extent. The impact on fuel prices was offset by nearly 10% jump in revenues. The airline has also announced that it plans to increase fares and trim down the capacity to improve profitability. Despite the strong travel demand, Delta has cut down its earnings outlook for the year to be between $5.35 and $5.70 per share compared to $6.30 to $6.70 per shared forecast provided in the first quarter.
United’s rival American Airlines (AAL) is scheduled to report its second quarter earnings on July 27. Let us wait and see whether United mimics the strong numbers reported by Delta.