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Redburn cuts United Continental to neutral, price target to $50 By Investing.com

United Airlines Holdings earnings beat by $0.30, revenue topped estimates

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On Tuesday, Redburn-Atlantic revised its rating on United Continental (NASDAQ:UAL), downgrading the stock from Buy to Neutral and setting a price target of $50.00. The shift in stance is attributed to a more cautious outlook on long-haul supply dynamics, coupled with ongoing inflationary pressures. The analyst noted that while United Continental has previously benefited from favorable long-haul capacity dynamics, expectations have been moderated due to an increase in supply and inflationary costs impacting the airline industry.

United Continental’s pricing guidance suggests an optimistic recovery in unit revenues for the fiscal year 2024, despite flat year-over-year pricing expected in the first quarter. The first quarter is considered the easiest period for comparison due to substantial capacity growth in the first quarter of 2023. However, the anticipation of a strong recovery in pricing across most markets may not lead to significant capacity rationalization during the summer months, according to Redburn-Atlantic’s analysis.

The analyst expressed concerns that the current schedules indicate an expansion in capacity, which could lead to negative pricing for United Continental in 2024. This is in light of all airlines expecting a robust rebound in pricing throughout the year, especially in domestic markets. The potential lack of capacity adjustments during peak travel seasons is seen as a limiting factor for the airline’s pricing power.

United Continental has not provided formal commentary on cost progression for the current year, but Redburn-Atlantic anticipates low- to mid-single-digit inflation due to continued inflationary pressures on staffing and maintenance. Additionally, an accounting change in the treatment of distribution costs is expected to contribute to cost pressures. The grounding of the Boeing (NYSE:) MAX9 is projected to have a three percentage point impact on the first quarter’s costs.

The analysis concludes that, despite a planned 3% increase in stage length, United Continental’s cost per available seat mile (CASM), excluding fuel and normalized for stage length, will be the highest in the industry in 2024. This figure is estimated to be two percentage points above the airline’s closest peer.

InvestingPro Insights

Amid the recent downgrade of United Continental (NASDAQ:UAL) by Redburn-Atlantic, investors are closely monitoring the company’s financial health and market position. According to InvestingPro data,…

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