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United Airlines March Traffic Falls, Q1 PRASM Likely to Drop

United Airlines – the wholly owned subsidiary of United Continental Holdings Inc. UAL – reported a decline in air traffic in the month of March. Traffic – measured in revenue passenger miles (RPMs) – stood at 17.1 billion, down 1.5% from 17.35 billion recorded a year ago.

On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) inched down 0.1% to 20.95 billion. Meanwhile, the load factor or percentage of seats filled by passengers decreased to 81.6% from 82.7% a year ago.

At the end of the first four months of 2016, United Airlines recorded RPMs of 46.58 billion (up 0.3% year over year) and ASMs of 58.27 billion (up 1.8% year over year). Load factor stood at 79.9% against 81.1% in March last year.  Moreover, passenger count for Mar 2016 fell 0.3% while the same for the first four months of 2016 increased 1.8%.

We believe that the company’s route expansion plans, introduction of ancillary products, fleet revamping efforts and customer service enhancement bode well for the future. Further, the company has been reaping considerable benefits from its joint ventures and code share agreements.

On the downside, United Airlines forecasted a 7.25% to 7.75% drop in PRASM (passenger revenue per available seat mile) for first-quarter 2016. The decline can be mainly attributed to the strong U.S. dollar, lower surcharges, lower travel plans mainly by energy dependent corporate customers and weak domestic yields.

Furthermore, lower than expected travel demand during the Easter weekend and spring break was the primary reason behind the dull PRASM outlook.

Zacks Rank & Stocks to Consider

United Continental currently carries a Zacks Rank #3 (Hold). Better-ranked stocks include Deutsche Lufthansa Aktiengesellschaft DLAKY, China Eastern Airlines Corp. Ltd. CEA and SkyWest Inc. SKYW. Both Deutsche Lufthansa and China Eastern sport a Zacks Rank #1 (Strong Buy) while SkyWest carries a Zacks Rank #2 (Buy).

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CHINA EASTN-ADR (CEA): Free Stock Analysis Report
SKYWEST INC (SKYW): Free Stock Analysis Report
LUFTHANSA -ADR (DLAKY): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis Report
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