Boston, MA 11/25/2013 (wallstreetpr) – United Continental Holdings Inc (NYSE:UAL) plans to optimize on costs and increase ancillary revenues by $750 million. The company plans to reduce costs by $2 billion annually. This should allow the company to announce buybacks or dividends by 2015.
The recently acquired Boeing 787’s are expected to help the company in a big way to reduce its fuel costs. Fuel costs account for almost 35% of a company’s operating costs are very volatile as they are dependent on several international factors. The recently concluded Iran accord is also expected to reduce crude oil prices. Equipping the older aircrafts with winglets can reduce costs by 7%. Currently, the company spends $13 billion of fuel alone. The new planes will also lead to lower maintenance costs. It remains to be seen how much the airlines will be required to pass on to consumers to stay ahead in the competitive environment.
The news has lead to at least two analysts upgrading the company to a ‘buy’ with one analyst revising the target price upwards.
This is in spite of Persian Gulf airlines ordering bumper aircrafts. This is bound to affect United Continental Holdings Inc (NYSE:UAL) is a small measure only though the airlines operates on all six continents. Persian Gulf airlines are using their central geographically located hubs to eat into revenues of international airlines. They would not have an impact on the lucrative U.S.-Europe travel.
The company plans to generate $3.5 billion in ancillary revenues by 2017. Revenues from non-ticket sales like food sales and baggage fees are included in ancillary revenues. United is also ramping up its efficiencies and has achieved 85% on-time arrival performance on both domestic as well as international routes. It is rewarding its eligible employees with a $100 on-time bonus. This performance is the best since November 2012.
With the peak holiday season just around the corner United Continental Holdings Inc (NYSE:UAL) will be able to garner maximum market share.
