Earnings preview: Fuel to benefit United Airlines’ Q1 results

United Airlines parent United Continental Holdings (NASDAQ: UAL) is scheduled to report its earnings results for the first quarter of 2019 on Tuesday after the market closes. The results will be benefited by the successful implementation of its strategic plan and to record-setting its operational performance. Also, the moderation of oil prices could benefit the bottom line.

For the quarter, the prolonged shutdown of the government could hurt the company’s results. However, air travel has turned out to be attractive due to the rising disposable income, low unemployment levels, and cheaper airfares. After the strength in the economy, more Americans have opted to fly with solid demand for air travel on the upward swing.

In 2018, high fuel costs have pressurized the stocks of the airline space while things started changing in 2019 with the oil prices moderating. The reduction in fuel, which is a major component of operating expenses for carriers, should support bottom line growth in this quarter.

For the first quarter of 2019, United Airlines expects fuel price in the $2 to $2.05 per gallon range, compared to $2.30 per gallon reported in the fourth quarter of 2018 and $2.09 per gallon in the first quarter of 2018. The bottom line will be driven by higher revenue, reduced share count, cost-cutting measures, and moderate oil prices.

Analysts expect earnings to jump by 88% to $0.94 per share and revenue to increase by 6.30% to $9.6 billion for the first quarter. In comparison, during the previous year quarter, the company reported a profit of $0.50 per share on revenue of $9.03 billion. The company’s earnings have surpassed the analysts’ expectations in three of the last four quarters.

Majority of the analysts recommended a “hold” rating while expecting the stock to reach $102.41 per share in the next 52 weeks. Investors remained positive on the passenger traffic on strong air travel demand. They also valued a decline in fuel costs for the first quarter with the oil prices moderating while expecting an increase in labor costs.

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For the fourth quarter, United Airlines parent reported a 20.2% dip in earnings due to higher operating expenses, specifically fuel costs. However, revenue grew by 11% backed by higher passenger revenues. The company recaptured 98% of its year-over-year fuel expense increase.

For the first quarter, the company had expected revenue to increase in the range of 0% to 3% and capacity addition to be between 5% and 6%. Fuel consumption was anticipated to be in the range of 965 million to 985 million gallons in the first quarter.

Shares of United Airlines parent opened higher on Monday but changed its course to the red territory. The stock has risen over 26% in the past year and over 5% in the past three months.

 

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