United (UAL) to Soar on Alliances, Key Market Exposure - Barron's
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United Continental Holdings (NYSE: UAL) shares are trading strong on Monday's session following a bullish report in Barron's over the weekend.
On April 28th, United issued a bleak quarterly report which produced a net loss of $448 million as United struggled with glitches between its reservation and "yield management" systems. Further, passenger revenue per available seat mile (PRASM) rose just 5.2 percent, versus 14 percent at Delta Air (NYSE: DAL) and 8.2 percent at US Airways (NYSE: LCC).
Amid the report, movement in the stock was muted as analysts were expecting a larger loss. Shares fell about $1 to $22.01 and have since made up the loss. At current levels, the stock is going for about 5.8 times 2012 earnings expectations and just 4 times next years outlook.
Barron's highlights the potential for United with respect to its presence in key hubs around the U.S. as well as being in the Star Alliance. The Alliance, Barron's notes, gives United a leg-up with providing lucrative business travelers with a seamless trip.
The major risk on investors' minds is fuel costs, which can see rapid fluctuation in a short period of time. Delta's recent acquisition of its own refinery is a testament to that notion. However, despite crude prices trading at $100 per barrel, price increases have helped airlines to stem losses.
In terms of creating better synergies from the merger between United and Continental in 2010, Barron's points out that it takes time for large mergers to work. Coordinating the integration of maintenance systems, reservation systems, labor contracts, and more is a large and time-consuming process. An analyst at Wolfe Trahan noted how it took Delta 26 months to begin realizing synergies from its acquisition of Northwest in 2008.
Competition in the industry bodes well for those left. AMR Corp. (OTCBB: AAMRQ), which filed for bankruptcy recently, might find itself being acquired by US Air, leaving just three major players standing. In addition, higher crude prices will keep smaller start-ups from taking flight.
There's also a shift in the industry happening, with CEOs at Delta, United, and US Air not being afraid to charge for luggage, food, and legroom, instead of sacrificing profits in favor of gaining market share. Capacity over the last four years has fallen 12.2 percent, leading to fuller, more profitable trips for the airlines.
Shares of United are up nearly 7 percent on the session Monday.
On April 28th, United issued a bleak quarterly report which produced a net loss of $448 million as United struggled with glitches between its reservation and "yield management" systems. Further, passenger revenue per available seat mile (PRASM) rose just 5.2 percent, versus 14 percent at Delta Air (NYSE: DAL) and 8.2 percent at US Airways (NYSE: LCC).
Amid the report, movement in the stock was muted as analysts were expecting a larger loss. Shares fell about $1 to $22.01 and have since made up the loss. At current levels, the stock is going for about 5.8 times 2012 earnings expectations and just 4 times next years outlook.
Barron's highlights the potential for United with respect to its presence in key hubs around the U.S. as well as being in the Star Alliance. The Alliance, Barron's notes, gives United a leg-up with providing lucrative business travelers with a seamless trip.
The major risk on investors' minds is fuel costs, which can see rapid fluctuation in a short period of time. Delta's recent acquisition of its own refinery is a testament to that notion. However, despite crude prices trading at $100 per barrel, price increases have helped airlines to stem losses.
In terms of creating better synergies from the merger between United and Continental in 2010, Barron's points out that it takes time for large mergers to work. Coordinating the integration of maintenance systems, reservation systems, labor contracts, and more is a large and time-consuming process. An analyst at Wolfe Trahan noted how it took Delta 26 months to begin realizing synergies from its acquisition of Northwest in 2008.
Competition in the industry bodes well for those left. AMR Corp. (OTCBB: AAMRQ), which filed for bankruptcy recently, might find itself being acquired by US Air, leaving just three major players standing. In addition, higher crude prices will keep smaller start-ups from taking flight.
There's also a shift in the industry happening, with CEOs at Delta, United, and US Air not being afraid to charge for luggage, food, and legroom, instead of sacrificing profits in favor of gaining market share. Capacity over the last four years has fallen 12.2 percent, leading to fuller, more profitable trips for the airlines.
Shares of United are up nearly 7 percent on the session Monday.
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