United Airlines, Inc. is the principal and fully-owned subsidiary of United Continental Holdings, Inc. (NASDAQ:UAL). The number four US carrier in terms of capacity competes against its legacy network peers Delta Air Lines Inc. (NYSE:DAL) and American Airlines Group Inc. (NASDAQ:AAL). Despite having the lowest unit cost figures among competitors, the operating margins of the Chicago-based company have lagged the industry average as its capacity expansion outweighed the revenue growth.
UAL’s recent focus on mid-con hubs and premium capacity expansion will lift its unit revenue, the current limiting factor to improve margins. UAL meanwhile further enhances its cost advantage through fleet transformation and initiatives to encourage direct bookings. However, the grounding of the Boeing-manufactured (NYSE:BA) 737 MAX aircraft, which makes up 14 planes of its fleet and 48% of its order book, has made the future outlook of the company murky. Though gradually narrowing, UAL’s forward PE continues to trade at a discount to that of DAL which has no impact from MAX grounding. Despite progressive initiatives to improve unit revenue, the constraints on UAL’s future capacity expansion plans justify the continuation of the discount as 737 MAX suspension drags on.
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