United Airlines, a wholly owned subsidiary of UAL Corporation (UAUA), announced on Monday a 0.6% year-over-year increase in its February traffic, measured by revenue passenger miles. Capacity, measured by available seat miles, declined 1.2% from the prior-year quarter, leading to a 150 basis point increase in load factor, or average occupancy, to 81.4% from 79.9% in the year-ago period. For the second quarter 2010, available seat miles are expected to be up in the 0.3−1.3% range.

United Airlines saw a 23% increase in unit revenue, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines. This was in line with management’s expectations. Reductions in available seat miles or capacity due to volcanic eruptions during the month of April also boosted PRASM.

Peer Delta Airlines (DAL) reported a 2.2% decline in April traffic, besides a 4.1% capacity decline and a 160 basis point increase in load factor. Continental Airlines (CAL) reported a 2.6% decline in traffic and a capacity decrease of 3.2%. Southwest Airlines (LUV) announced a 0.6% decline in traffic and a 5.5% decline in capacity.

Earlier during the month, United and Continental announced the merger of their operations. This merger would give birth to the world’s largest airline by size, pushing Delta Airlines to the backseat. The combined company is expected to generate annual revenues of $29 billion (United reported $16 billion of revenues in 2009 and Continental reported $12.6 billion) and will save cost by $1.0−1.2 billion by 2013. Sufficient financial flexibility is witnessed by $7.4 billion in excess cash.
Estimate Revisions

Over the last 30 days, all of the 8 analysts covering UAL Corporation have made upward revisions to their estimates. Currently, the Zacks Consensus Estimate for the second quarter is an operating income of $1.30 per share, which would be up 158.4% from the year-ago quarter.

The upward estimate revisions for the second quarter indicate a likelihood of upward pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been steady over the last four quarters, with positive surprises all through. The average remained positive at 33.1%. This implies that UAL Corporation has surpassed the Zacks Consensus Estimate by 33.1% over that period.
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