US Airways Group Inc (LCC), United Continental Holdings Inc (UAL): United Airlines CEO Tries to Catch a Falling Knife

With oil prices on the rise recently, those estimates could continue to slide. Last month — when oil prices were lower — United projected that unit costs would rise 3%-3.6% in Q3 . Meanwhile, unit revenue is expected to grow by 3%-5 %. If unit cost growth is trending toward the high end of the guidance range due to higher fuel prices, United will likely be unable to achieve the 250-300 basis points of margin expansion necessary to meet Q3 analyst estimates. Profitability in Q4 and in 2014 is also likely to fall short of most investors’ current expectations.

Foolish bottom line

CEO Smisek clearly thinks that United Continental Holdings Inc (NYSE:UAL) has weathered the storm of integration and that better times are ahead. That’s the only plausible explanation for why he just spent $250,000 of his own cash on United stock.

However, United’s profitability has lagged far behind that of competitors recently. While the carrier has been posting unit revenue growth in line with other major carriers this year, its costs are increasing faster than at rivals.

Moreover, Smisek has a history of being overly optimistic. For example, after United and Continental merged in October 2010, he set a goal of completing joint collective bargaining agreements for all of the work groups by the end of 2011 . Nearly two years after that deadline, only the pilot work group has an approved joint contract.

Investors should thus be wary of following Smisek into United Continental Holdings Inc (NYSE:UAL) stock. The company may be ready to turn the corner, but it is still miles behind most of its competitors. As a result, the stock still does not look attractive.

The article United Airlines CEO Tries to Catch a Falling Knife originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL). The Motley Fool has no position in any of the stocks mentioned. 

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