The consolidated August traffic dropped 2.7% at the largest U.S. airline United Continental Holdings Inc. (UAL) due to weak domestic and international travel. Airline traffic is measured in billions of revenue passenger miles, which means one mile flown by one passenger.
On a year-over-year basis, consolidated capacity (or available seat miles) fell 1.6% and load factor (percentage of seats filled with passengers) contracted 90 basis points (bps) to 85.7%.
United Continental expects 10.5% to 11.5% year-over-year increase in unit revenue for the month of August, measured by passenger revenue per available seat mile, a key metric in airlines.
Domestic traffic fell 2.6% year over year on a capacity decrease of 2.4% and 10 bps decline in load factor. International traffic dropped 3% year over year on declines of 1.1% in capacity and 170 bps in load factor.
Hurricane Irene in the last week of August caused a major setback to the carrier’s operations. United Continental cancelled roughly 2300 flights for two days at their New York hub at Newark Liberty International Airport, John F. Kennedy International Airport, and LaGuardia Airport. These cancellations hurt the carrier’s total revenue by $40 million in the month.
In fact, the hurricane has taken a toll on the entire airline industry, which is already struggling with mounting cost and fuel prices. Major airline companies including Delta Air Lines (DAL), AMR Corporation (AMR), JetBlue Airways Corporation (JBLU) and US Airways Group Inc (LCC) have cancelled approximately 9500 flights, completely halting operations at the busiest airports in the U.S.
We are apprehensive that the aftermath of storm might keep United Continental’s profitability under greater pressure. Additionally, rising fuel prices, competitive threats and unionized labor keeps us on the sidelines.
We are currently maintaining our long-term Neutral rating on United Continental. The stock retains a Zacks #3 (Hold) Rank for the short term.
