United Expects Muted Impact From Flight 3411

Following the market close, no-moat

Operating revenue in the quarter increased by 2.7% year over year to $8.4 billion. Higher labor and fuel costs drove expenses up to $8.1 billion, representing an increase of 7.9% year-over-year. As a result, consolidated cost per available seat mile, or CASM, rose 5.1% versus first-quarter 2016. On an adjusted basis--excluding special charges, third-party business expenses, fuel, and profit-sharing--CASM still registered a 5.0% increase. Higher costs adversely affected profitability and cash flow. Diluted earnings per share adjusted for special items stood at $0.41 ($0.31 GAAP), versus $1.23 in first-quarter 2016 ($0.88 GAAP). Operating cash flow in the quarter fell to $547 million, versus $1.2 billion during the year-ago period.

United provided second-quarter 2017 guidance and reiterated its previous full-year 2017 guidance. Management stated in its release that it sees passenger revenue per available seat mile, or PRASM, between 12.65 and 12.90 cents during the second quarter, which represents year-over-year growth of 1%-3%. This guidance aligns with our previous forecast that PRASM would turn positive by the second quarter of this year. Moreover, it confirms our view that the Flight 3411 incident, while undoubtedly a public relations disaster, will most likely not materially affect United’s medium- to long-term financial and operational performance.

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