How Will United Airlines (UAL) Fare This Earnings Season?

United Airlines UAL is scheduled to report first-quarter 2021 earnings numbers on Apr 19, after market close.

Amid coronavirus-led weak air-travel demand, the company incurred significant losses in each of the four quarters of 2020, witnessing a negative earnings surprise in three quarters and a positive surprise in the remaining one. Notably, the Zacks Consensus Estimate for first-quarter bottom line has narrowed to a loss of $6.76 per share from a loss of $6.84, 60 days ago.

Against this backdrop, let’s discuss the factors that might have impacted United Airlines’ performance in the March quarter.

Driven by the recent uptick in air-travel demand, passenger revenues at United Airlines are likely to have been high on a sequential basis in the quarter to be reported. The Zacks Consensus Estimate for the to-be-reported quarter’s passenger revenues indicates a 3% increase from the number reported in the December quarter. Moreover, the Zacks Consensus Estimate for traffic (measured in revenue passenger miles) suggests a 5.2% improvement from the December quarter’s reported figure.

Owing to higher traffic, load factor (% of seats filled with passengers) is expected to have improved sequentially in the March quarter. The Zacks Consensus Estimate for the to-be-reported quarter’s load factor is currently pegged at 58%, suggesting growth from 56% reported in the December quarter.

Despite the sequential improvement, the picture with respect to air-travel demand remains bleak when compared with the year-ago levels. For example, the Zacks Consensus Estimate for passenger revenues implies a 64.8% plunge from the number reported in the year-ago quarter. Moreover, the Zacks Consensus Estimate for traffic suggests a 58.4% decrease from the year-earlier quarter’s reported number.

Due to the subdued traffic, load factor is likely to have declined year over year in the March quarter. The Zacks Consensus Estimate for the to-be-reported quarter’s load factor is currently pegged at 58%, indicating a fall from 71% reported in the year-ago quarter.

To mitigate the extreme demand depression, the carrier is trimming its capacity. The Zacks Consensus Estimate for consolidated available seat miles (a measure of capacity) implies a 48.8% slump from the number reported in the year-earlier quarter. Also, the Zacks Consensus Estimate for first-quarter passenger revenues per available seat miles (PRASM: a key measure of unit revenues) stands at 8.21 cents, indicating a 29% decline from the figure reported in the year-ago quarter.

The recent increase in fuel price per gallon is expected to have hurt the bottom line in the March quarter. The Zacks Consensus Estimate for the March quarter’s fuel price per gallon (adjusted) is currently pegged at $1.64, hinting at a 21.5% increase from the December quarter’s reported figure.

However, United Airlines’ cargo revenues are likely to have improved year over year in the to-be-reported quarter, thereby partly compensating for the softness in passenger revenues. This implies a better scenario than the first-quarter 2020’s reported figure. Notably, the Zacks Consensus Estimate for cargo revenues indicates a 65% jump from the first-quarter 2020’s reported number.

What Does the Zacks Model Say?

The proven Zacks model does not conclusively predict a bottom-line outperformance for United Airlines this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: United Airlines has an Earnings ESP of -1.36% with the Most Accurate Estimate and the Zacks Consensus Estimate being pegged at a loss of $6.85 and $6.76, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: United Airlines carries a Zacks Rank #3, presently.

Highlights of Q4 Earnings

United Airlines incurred a loss (excluding 6 cents from non-recurring items) of $7 per share in the fourth quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $6.56. Results were hurt by coronavirus-induced weakness in air-travel demand. Further, operating revenues of $3,412 million lagged the Zacks Consensus Estimate of $3,420.4 million. The top line also plunged 68.7% year over year due to a 75.7% drop in passenger revenues, which totaled $2,410 million in the reported quarter.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Canadian Pacific Railway Limited CP, Herc Holdings HRI and Alaska Air Group ALK  as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

Canadian Pacific has an Earnings ESP of +2.60% and is Zacks #3 Ranked, presently. The company will release first-quarter 2021 results on Apr 21.

Herc Holdings has an Earnings ESP of +18.81% and a Zacks Rank of 1 at present. The company will release first-quarter 2021 results on Apr 22.

Alaska Air has an Earnings ESP of +3.20% and is currently a Zacks #3 Ranked player. The company will release first-quarter 2021 results on Apr 22.

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