UAL (NASDAQ:UAUA): RASM #'s could re-ignite the stock

Airlines and especially UAL (NASDAQ:UAUA) are on my radar screen this morning after the co reportes better then expected RASM #'s last night (traffic and unit revenues).

Southwest Airlines (NYSE:LUV) also presented nice RASM #'s.

Analysts are rather optimistic and are essentially calling for an upside in the sector today:

- Morgan Stanley:

UAUA’s result reaffirms that the airline industry revenue trend is still intact. Now, with favorable LCC, LUV, and UAUA June results reported, we believe it is fair to conclude that last week’s lighter-than-expected CAL PRASM data point was an isolated event (see CAL RASM: Miss May Be Isolated Look to LCC/UAUA for Confirmation 7/2/10). While one-time benefits created a difficult seq. comparison for CAL relative to peers, data points from others highlight that strong demand trends remain intact. In fact, LUV and UAUA’s June PRASM results showed a seq. improvement vs. May in excess of the simple change in YoY comparisons. We continue to believe that on-going demand strength will improve recent negative investor sentiment, in conjunction with:


1) Attractive valuation as a number of legacy airlines are trading around 4-5x 2010 EPS and 4-5x 2010 EBITDAR, and 2) Likely upcoming favorable mgmt commentary during earnings season consistent with the positive trends expressed at our recent meetings with a number of the airlines.

UAUA reported June PRASM growth of ~31%, which is at the high-end of our est. for 29%-31% and buy-side expectations, in our view. Based on the monthly PRASM growth results reported by UAUA this quarter, UAUA’s 2Q10 consolidated PRASM growth is tracking at ~26.9%, which compares favorably vs. mgmt’s recent guidance for 26%-27% YoY growth. The strong June result was driven primarily by a ~28% YoY increase in Yields.

- Citigroup:

Sector Rises 3.2% — US/Canadian airline stocks rose 3.2% (average) since July 1st. LCC’s release of above consensus June 2010 operating results July 6th breathed needed life into the sector following the selloff last week, partially on CAL’s June results, which investors seemed to perceive as soft and an indicator of potentially worse releases to come. UAUA’s solid June operating report this evening should further improve sector sentiment (we would note that UAUA stock has underperformed the group by 4.5% since July 1st). Looking forward, JBLU will report June numbers and 2Q earnings season begins the week of July 19th.

June 2010 PRASM Review — CAL initiated the release of June 2010 operating results after the close July 1st, reporting consolidated passenger revenue per available seat mile (PRASM) rose 21-22% YoY, below our 23% estimate, implied consensus of 22%, and some competitor estimates that approached 25%. Of the carriers that reported June 2010 PRASM, LCC +22% (consensus +19%), LUV +24% (consensus +25%), and UAUA +30.5-31.5% (consensus +30%). We expect JBLU to report June PRASM +14%, slightly ahead of the Street.


Notablecalls: UAUA should have an extra pair of jet engines today as:

- Ther PRASM results are showing clear acceleration (yoy)


- As Citigroup notes, UAUA has underperformed the group by 4.5% since July 1.

- Analyst estimates are bound to move higher for UAUA and the group in the coming days.

- I expect JPM and MLCO also come out +ve on the group either today or on Monday.

I expect UAUA to trade up by 5% today (to make up for the underperformance) & I would not be surprised to see more upside if the general market is favourable.

Let's see how it works out.