01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
United Continental Holdings, Inc. reported 2018 operating revenue of $41.30 billiona, up from $37.78 billion in 2017, with operating income of $3.29 billion versus $3.67 billion a year earlier.
Net income was $2.13 billionb, or $7.70 diluted earnings per share, compared with $2.14 billion, or $7.06 per diluted share, in 2017. Passenger revenue rose $3.25 billion, or 9.4%, driven by a 6.4% increase in traffic and a 4.3% increase in PRASM. Aircraft fuel expense rose $2.39 billion, or 34.6%, mainly on higher fuel prices, with the average price per gallon at $2.25 versus $1.74.
The company generated $6.18 billionc in operating cash flow and spent $4.18 billion on capital expenditures. It repurchased about 17.5 million shares for $1.2 billion and ended the year with $6.0 billion in unrestricted liquidity. Total debt and capital lease obligations were $14.7 billion, and the company's credit ratings are below investment grade (BB by S&P and Fitch, Ba2 by Moody's).
The filing also notes a $456 milliond loan to Synergy Aerospace tied to Avianca, impairment charges on Hong Kong and Brazil route authorities, and ongoing DOJ investigations and class action lawsuits related to airline capacity. The company expects approximately $4.7 billion in gross capital expenditures for 2019 and held firm aircraft commitments totaling $24.7 billion. Management's priorities for 2019 are operational reliability and customer service alongside continued growth of the domestic network.
02—Key points
Key Highlights
- Operating revenue rose to $41.30 billion in 2018 from $37.78 billion in 2017, an increase of $3.52 billion, or 9.3%.
- Net income was $2.13 billion, or $7.70 diluted EPS, compared with $7.06 in 2017.
- Aircraft fuel expense increased 34.6% to $9.31 billion, as the average price per gallon rose to $2.25 from $1.74.
- Operating cash flow was $6.18 billion, up from $3.41 billion in 2017, and capital expenditures were $4.18 billion.
- The company repurchased about 17.5 million shares for $1.2 billion and had approximately $1.8 billion remaining under its share repurchase program.
- Total debt and capital lease obligations were $14.7 billion, and credit ratings are below investment grade (BB/Ba2/BB).
- Firm aircraft commitments totaled $24.7 billion, and the company expects about $4.7 billion of gross capital expenditures in 2019.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $41.30B$37.74B | +9.5% |
| Operating Expenses | $38.07B$34.17B | +11.4% |
| Operating Income | $3.23B$3.62B | −10.8% |
| Interest Expense | $670.00M$626.00M | +7.0% |
| Net Income | $2.12B$2.14B | −1.0% |
| EPS (Basic) | $7.70$7.08 | +8.8% |
| EPS (Diluted) | $7.67$7.06 | +8.6% |
| Shares Outstanding (Basic) | 275.50M302.70M | −9.0% |
| Shares Outstanding (Diluted) | 276.70M303.60M | −8.9% |
05—Questions
Frequently Asked Questions
How did UAL's profitability change in 2018?
Operating income fell to $3.29 billion from $3.67 billion, while net income was roughly flat at $2.13 billion. Diluted EPS rose to $7.70 from $7.06, reflecting a lower share count after buybacks. Fuel costs, which rose 34.6%, were the main pressure on operating income.
What drove the increase in passenger revenue?
Passenger revenue increased $3.25 billion, or 9.4%, primarily due to a 6.4% increase in traffic. PRASM rose 4.3%, driven by scheduling improvements, higher corporate demand, more close-in bookings in domestic markets and premium cabin demand in the Atlantic and Pacific markets.
What are the company's main liquidity and debt considerations?
UAL ended 2018 with $6.0 billion in unrestricted liquidity and $14.7 billion of debt and capital lease obligations, including $1.4 billion due within 12 months. Current liabilities exceeded current assets by about $6.0 billion, though the filing states that about $6.7 billion of current liabilities are advance ticket sales and frequent flyer deferred revenue. Credit ratings are below investment grade.
What exposure does the company have to fuel prices?
Aircraft fuel is the single largest operating expense, at $9.31 billion, or 24% of total operating expense in 2018. The company does not currently hedge fuel. The filing states that a one-dollar change in the price of a barrel of crude oil would change projected 2019 fuel expense by approximately $104 million.
What significant investments and legal matters does the filing disclose?
United made a $456 million secured term loan to Synergy Aerospace, the majority shareholder of Avianca Holdings, and holds an equity stake in Azul. The company faces a DOJ Civil Investigative Demand and consolidated class action lawsuits alleging collusion among U.S. airlines on capacity, which it says it intends to vigorously defend.
06—Continue