Book: United Continental Airlines (UAL)
United Continental Airlines (UAL) CEO Jeff Smisek is willing to ruffle feathers to enhance United’s ability to compete — a fact vividly illustrated by the airline’s decision this week to drop its Cleveland hub, which has been a drain on earnings for the past decade.
After being plagued by myriad problems integrating the 2010 merger of United and Continental, UAL finally got up off the mat in the fourth quarter. The airline reported a profit of $140 million, or 37 cents per share, compared with a year-earlier loss of $620 million, or $1.87 per share; the carrier’s fourth-quarter revenue rose by more than 7% to $9.33 billion.
Despite storms, strong December traffic and adept capacity planning helped the airline deliver a nearly 12% increase in the all-important passenger revenue per available seat mile (PRASM) metric. UAL is up nearly 80% in the past year, but it’s still trading at less than 8 times forward earnings and has a price to earnings growth (PEG) ratio of only 0.26.
The attractive valuation compared to other airline stocks, combined with the fact that UAL finally has its act together from the integration mess last year and is posting a profit, make it likely that UAL will gain altitude in 2014.