Preview of United Continental's 1Q16: The Good and the Bad
Analyst estimates
For 1Q16, analysts are expecting United Continental Holdings’ (UAL) EBITDA (earnings before interest, taxes, depreciation, and amortization) to increase 10%, to $1.3 billion. For 2Q16, they expect EBITDA to increase 12%, to $2 billion. It’s expected to slow down to ~1% growth in 3Q16 and then decline by 1.2% in 4Q16, resulting in a full year growth of ~5%.
EBITDA margins are expected to improve to 15.5% in 1Q16 compared to 13.6% in 1Q15. For 2016, analysts are expecting EBITDA margin expansion to 19.5% compared to 18.2% in 2015.
Cost discipline helps United Continental
Margin expansion in 2015 was due to United Continental’s meticulous cost-management effort. For 2015, UAL’s unit costs, excluding fuel, declined 0.7%. Fuel expenses also declined 36% in 2015.
What to expect
For 2016, UAL expects cost per available seat mile (or CASM), excluding fuel, to increase 0.5%–1.5%, or $10.18–$10.28. UAL expects to be 17% hedged in 2016. Fuel cost is expected to decline to $1.25–$1.30, from $1.82 in 2015. This huge saving in fuel will help boost margins in 2016.
However, investors should remember that analysts are estimating margins to have peaked. Also, it’s only a matter of time before fuel prices rebound as important economic production starts falling. Such events will adversely impact margins.
Delta Air Lines (DAL) is one of the few airlines expected to see significant margin expansion in 2016. To learn more, you can read Inside Delta Air Lines’ 2016 Margins: Can They Expand? Margin expansions for other airlines such as American Airlines (AAL) and Alaska Air (ALK) are also expected to be limited.
If crude prices fall further, analysts may revise their EBITDA and margin estimates upward.
UAL forms 2.8% of the PowerShares Dynamic Market ETF (PWC).
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