Can United Continental Holdings Inc (UAL) Stay on the Rise?

Its Cost Structure

Of course, UAL’s fate rests considerably on jet fuel prices, as that is by far its largest expense. Fortunately for carriers, oil prices have remained relatively stable for about two years now. Hedging activity helps to reduce the added cost burden in times of rising prices, but only to a limited extent.

Labor, the second largest expense, is a bit of a concern. Non-fuel unit costs are set to increase modestly this year on labor agreements and pension outlays. Finally, due to a massive debt balance, interest costs are elevated, though not enough to be a concern.

The Stock

UAL shares are poised to outperform the S&P 500 should conditions hold. More business flyers ought to be taking to the skies, assisting revenue yields. Plus, the effects of the merger integration may well support margins. Like all air transport stocks, UAL shares are risky, as the company’s performance is tied to corporate travel and fuel costs. Nevertheless, the industry leader appears to be taking the proper steps toward improved and consistent profitability. It is thus worth consideration at this time. If you would prefer an airline with a growth and expansion strategy there are several to consider, but the best at this juncture is possibly Alaska Air Group, Inc. (NYSE:ALK). ALK is adding routes between Northwest cities like Seattle, Portland, and Anchorage and U.S. destinations. ALK’s productivity is improving as fleet additions have been minimal and traffic has risen nicely.

The article Can United Continental Stay on the Rise? originally appeared on Fool.com and is written by Damon Churchwell.

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