The market may be sinking, but airline stocks are flying after United Continental (UAL) supplied an encouraging update, helping to boost the likes of Delta Air Lines (DAL) and American Airlines (AAL), as well.
Getty Images Following yesterday’s close, United Continental said that passenger revenue per available seat mile, or PRASM, increased by 3.5% during the second quarter, above the top-end of 3% from its previous forecast. Stifel’s Joseph DeNardi and Sawyer McKelvey explain why the market is pleased with United Continental’s update:
United's guidance for 2Q reflects an improved outlook for revenue and cost performance with consolidated PRASM expected to increase 3.5% y/y (compared to prior guidance of 1% – 3%) driven by better than expected results from the Domestic and Pacific regions. The positive trends on the Pacific are encouraging, and we expect this trend to continue into 3Q before softening somewhat in 4Q as seasonal demand softens. In addition, we believe United's domestic revenue performance was solid and a clear improvement from 1Q results. The company's outlook for unit costs in 2Q improved as well with guidance now for CASM-ex to be flat y/y. While some of the improvement to the 2Q outlook is due to certain costs shifting into the 2H, we believe a portion of the savings is the result of the company's focus on improving its cost structure and should be more sustainable.
We are increasing our 2014 estimate to $4.10 from $3.85 based primarily on an improved outlook for 2Q though we suspect there may be some upside to our outlook for 3Q and 4Q depending on unit cost trends in 2H14.
United Continental’s report came after Southwest Airlines (LUV) and American Airlines released positive reports of their own, helping to arrest the group’s slide.
Shares of United Continental have jumped 7.1% to $42.90, while American Airlines has gained 1.4% to $42.59 and Delta Air Lines has risen 0.8% to $37.26. Southwest Airlines has dipped 0.3% to $27.14.
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